Construction Insurance
Construction Engineering 221
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RPQ
1. Insurance does not eliminate the risks involved in
construction contracting.
A. True
B. False
2. Negligence on the part of the contractor will
invalidate the insurance contract.
A. True
B. False
3. A good safety record will lower the manual rate for a
construction company.
A. True
B. False
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RPQ 1
1.Insurance does not eliminate the risks involved
in construction contracting.
The correct answer is A. True
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RPQ 2
2. Negligence on the part of the contractor will
invalidate the insurance contract.
The correct answer is B. False
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RPQ 3
3. A good safety record will lower the manual
rate for a construction company.
The correct answer is A. True
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Risk Management
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Risk Management – a comprehensive
approach to handling exposures to loss
(an peril that can cause financial
impairment)
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Apply Risk Management
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Recognize the varied risks
Measure the degree of exposure
Decide how to protect against those risks
Conduct program of loss control and
prevention
Monitor the results
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Risk Management
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Insurance does not eliminate the risks involved
in construction contracting, but it does shift
most of the potential financial burden to a
professional risk-bearer
Insurance companies not only pay for losses but
also work along side construction companies to
help them with risk management
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Risk Management Services
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Insurance companies offer valuable services in
helping companies manage risk. What are some
of these services?
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Safety appraisals
Loss prevention
Education and training programs
Site inspections
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Construction Risks
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Construction work by nature is hazardous, accidents are
frequent and often severe.
Construction Contracts require:
 Contractor assumes Owner’s and AE’s legal liability
of construction accidents
 Provide insurance for Owner’s protection
Contractor insurance covers parties other than itself
and protect against liabilities not legally its own
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Insurance Policy
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Contract whereby the insurer promises, for a
consideration, to assume financial responsibility for a
specific loss or liability
Insurer has duty to:
 Defend the contractor in an action brought against it
(complaint alleges facts included in coverage of
policy)
 Indemnify the contractor from loss covered by the
policy
Insurance controlled and regulated by federal and state
statues
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Insurance Policy

Are losses suffered by contractor’s own
deliberate actions recoverable?
NO

Are negligence or oversight covered by the
insurance contract?
YES – these are not deliberate acts

Can a contractor recover more than its losses?
NO – cannot profit from losses
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Insurance Costs - Premiums

Can the standard premium charge for insurance
be adjusted? (Manual Rate)
YES  Safe work = less losses = lower
insurance rates
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Contract Insurance Requirements
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Contract requires the contractor to have:
 Workman’s compensation insurance
 Employer’s liability insurance
 Comprehensive general liability insurance
Contracts normally require either the Owner or
the Contractor to furnish:
 Property insurance to protect the project
 Liability insurance to protect the owner
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Important Question
Why is it important for a contractor to submit a
copy of the contract documents to its
insurance company prior to submitting their
Bid?

Insurer is the expert at evaluating the RISKS
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Special insurance coverage may be required

Type of construction presents special risks

Cost of insurance required should be included
in the contractor’s bid
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Which kinds of insurance
are required by law?

Worker’s compensation

Automobile

Unemployment
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Social security (benefit not just at retirement)
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What about Subcontractors?
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Prime contractor has a contingent liability for
the actions of its subcontractors.
Several different categories of liability
insurance need to protect itself
 from liability for damages caused by its own
acts of omission or commission
 as well as from damages caused by subs
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Analysis
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What and how much to purchase?
 Careful study and consideration
 Cost of premium balanced against the
possible loss and the probability of its
occurrence
What is another way to take care of a risk other
than adding more insurance?
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Construction Insurance
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Property Insurance on project during
construction – Builders Risk Insurance
Property Insurance on Contractor’s Own
Property
Liability Insurance
Employee Insurance
Automobile Insurance
Business, Accident and Life Insurance
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Project Property Insurance
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General contractor responsible for the project
during construction
Which of the following have the least risk
associated with property damage?
A. Building construction
B. Marine construction
C. Engineered construction (highways, dams)
Answer is C. Engineered construction
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Builder’s Risk Insurance
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Most widely used Project Property Insurance
Not use by engineering contractors – why?
Provides property coverage only
Does not include liability coverage in any form
Deduct cost of land prep and foundation – why?
Premium mainly dependent on:
 Type of construction
 Availability of fire-fighting facilities
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Builder’s Risk Insurance
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Who actually buys the Builder’s Risk Insurance
Policy?
Owners may purchase – most require contractor
to provide
All general contractors can provide this type of
insurance – usually at a higher cost than if the
owner buys the insurance direct
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