Avoid gaps in insurance coverage during municipal construction

Municipal construction projects are more demanding than ever, with myriad state and federal requirements addressing concerns from accessibility to energy efficiency to new safety and security technologies, among other issues. The scope of work for building projects can be quite extensive because of these complex rules.

It’s important for municipalities to be sure that they are adequately protected from the very beginning of a building project right through to its completion, and that there are no gaps in insurance coverage. As building costs rise – now ranging anywhere from several million dollars to $100 million or more – so does the importance of protecting a municipality’s investment.

Builder’s risk insurance – also known as course of construction insurance – protects an organization’s materials, fixtures and/or equipment being used in the construction or renovation of a building or structure should those items sustain physical loss or damage from a covered cause.

Builder’s risk policies are designed to cover only buildings and property under construction, so coverage usually begins when a construction project starts and terminates shortly after the project’s completion or once the building becomes operational.

There is no standard, “cookie-cutter” builder’s risk policy, so it is important to understand and discuss the intricacies of a policy before a construction project is covered.

Foxborough Town Manager William Keegan Jr. says it’s important to secure builder’s risk coverage that is applicable to all the nuances in municipal construction projects, where everything is driven by a law or mandate – even more so with school construction projects. Builder’s risk coverage, he adds, offers far better protection for the town than relying on any coverage obtained by contractors.

“We can avoid lapses in coverage,” he says, “when, for example, a developer cancels their coverage before the keys are handed over and the project is fully completed.”

Covered property and losses
Builder’s risk policies typically list specific types of property that they cover and specify particular causes of loss that the coverage protects against. Many insurers allow for additional coverage for different types of property, causes of loss, and expenses, by adding coverage extensions to a policy.

Builder’s risk insurance policies may include coverage for the following types of property at the construction site: buildings and structures; foundations; fixtures; machinery; electrical work; and building materials, among others.

Builder’s risk policies always specify covered “causes of loss,” identifying the specific events that qualify. Some standard covered causes of loss include fire, lightning, windstorm, hail, smoke, vehicle collision, vandalism, and theft.

MIIA introduces BuildPro
MIIA has launched its own builder’s risk program for members. BuildPro, underwritten by the Hanover Insurance Group, provides members with comprehensive builder’s risk protection for municipal building renovations, additions and new construction.

The Hanover Insurance Group has partnered with MIIA for many years and has insured many municipal construction projects.

Jarrett Powers, inland marine underwriter for the Hanover Insurance Group, says two of the biggest challenges municipalities face are potential on-site losses or delays and gaps in coverage. Many on-site issues can be prevented, he says, by working with qualified general contractors that put the proper controls in place to mitigate loss.

Coverage gaps can be a concern in part because municipalities need to remain operational through the course of construction projects, as many of their projects are completed in phases with varying levels of occupancy, which could create potential coverage gaps between insurance product offerings.

These gaps can be prevented by working with knowledgeable insurance professionals who have the resources to guide municipal decision makers and act as trusted advisors. Having access to these resources can be paramount in the planning stages of a construction project, by aiding municipalities in making informed decisions on contractor and project manager selection, as well as contract language and implementing proper site controls and protective safeguards.

BuildPro coverage is tailored to meet the needs of cities and towns and to protect building projects of any size. It provides members with the benefits of having an “owner-controlled” builder’s risk program.

The MIIA member is the “named” insured, which designates the member to negotiate all terms, conditions and pricing. MIIA wraps the general liability coverage for the project, and the builder’s risk policy is customized to cover a specific project, instead of the project being covered on a blanket basis on a contractor program.

BuildPro coverage includes the following areas: property in transit and storage; flood and earthquake coverages; municipal personal property; construction trailers and site contents; ordinance and law coverages; pollution cleanup; and contract penalty coverage.

In addition, MIIA is developing a suite of risk management tools, resources and inspectional services to assist and support towns and cities throughout the planning, contracting, construction and transition phases of a building project. The goal is to help towns and cities identify and better understand the many steps and potential nuances that go into a safe, successful, on-time construction project.

For more information on builder’s risk insurance or BuildPro coverage, visit www.emiia.org.

Written by Stan Corcoran, Executive Vice President of MIIA.