Evolving Insurance Requirements Spread Risk Among Contractors

Owners and developers continue to seek new and innovative ways to complete construction projects faster and more cost effectively. And who can blame them?

After all, the sooner the building is complete, the quicker tenants can be moved in and paying leases to the owner and manager.

Large construction projects are extraordinarily complex and require intense collaboration between all parties including designers, engineers, contractors and subcontractors. It is essential that these professionals are on the same page from day one and take full advantage of the opportunity to incorporate new and emerging technologies, materials and features that can enhance the design aesthetic while reducing project costs.

“As projects become more complex, so do the type of skilled-trade contractors involved. As a result, there are a number of emerging fields and technologies that we need…in order to underwrite for the exposure,” says Kwaske.

While this collaborative approach may benefit owners and developers, changing insurance requirements regarding the transfer of risk to all involved parties can become a point of friction for owners, general contractors and subcontractors during contract negotiation. As a result, brokers and agents must ensure that everyone at the negotiation table – particularly skilled-trade subcontractors – are adequately protected.

The language used in construction contracts is highly technical and can be confusing to brokers and agents who don’t have a lot of experience working with multiple contractors each with individual insurance needs, according to Chandra Kwaske, Underwriting Manager at Burns & Wilcox.

“It is important for agents to work with carriers and brokers that thoroughly understand the language and legal ramifications of contracts,” says Kwaske. “Agents should look for brokers and underwriters who have a strong working knowledge of the construction industry and are informed on changing contractual requirements.”

For example, when assessing carriers for their clients, brokers and agents need to be aware of clauses in certain construction contracts that require there not to be exclusions for the cross liability and severability of interest.

Highlighting a further complexity, Kwaske points to the trend of specialization and diversification among contractors. “As projects become more complex, so do the type of skilled-trade contractors involved. As a result, there are a number of emerging fields and technologies that we need to increase our understanding of in order to underwrite for the exposure and properly provide coverage.”

Like construction projects themselves, the business of construction contracts is complex and fraught with risk.