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CONSTRUCTION RISK REPORT

Risks Impacting General Contractors

General contractors often sit at the intersection of many construction risks. They are frequently responsible for coordinating project delivery, while managing a complex ecosystem of subcontractors and suppliers. General contractors may assume significant contractual obligations and can face substantial safety oversight responsibilities on the job site. Below are some of the key emerging risks impacting general contractors:

What are the key emerging risks for General Contractors?

  • Subcontractor Default & Performance Risk: 
    When a subcontractor fails to perform, the general contractor may bear some or all of the cost of completing or correcting the subcontractor’s work. A rigorous subcontractor prequalification process can be a valuable risk management tool for general contractors to help reduce these exposures.
  • Site Safety, OSHA & Completed Operations Liability: 
    General contractors may have significant job-site safety responsibilities under applicable law, including in some circumstances as the controlling employer. Post-completion defects discovered during the warranty period or later can result in costly repair claims and claims of third-party bodily injury or property damage.
  • Cyber, EPLI & Contractual Liability to Owner: 
    General contractor contracts often include indemnification provisions, performance standards, notice requirements and other risk allocation provisions. In addition, cyber, employment practices and operational risks may create exposures beyond traditional construction claims.

Common Insurance Considerations for General Contractors

  • Not Meeting Contractual Insurance Requirements: 
    Project contracts often require specific insurance coverages, limits, and endorsements such as additional insured status, primary & non-contributory wording, waivers of subrogation, and related provisions. Failure to satisfy the terms of a contract could result in disputes, contractual remedies, delays or coverage issues in the event of a claim.
  • Subcontractor Risk Transfer Challenges: 
    If a subcontractor causes a loss and the subcontractor does not maintain adequate insurance, the general contractor may face uninsured exposure or increased liability, depending on the circumstances.  Because of this, reviewing subcontractors’ insurance coverages is critical. Certificates of Insurance (COIs) generally reflect coverage information at a point in time and may not guarantee ongoing coverage, policy terms or future renewals.

    Technology tools, including those that use AI to compare insurance coverages and contract requirements, may help streamline this process for general contractors.
  • Inadequate Completed Operations Coverage: 
    Many significant claims might arise years after a project is completed.  Completed operations coverage can be an important consideration for claims alleging bodily injury or property damage tied to completed work, subject to policy terms and conditions.  Evaluate whether limits, duration of coverage and related terms align with project exposure and contractual terms.
  • Gaps in Builder’s Risk Coverage: 
    A fire, theft, or weather event during a construction project can create significant loss. Potential gaps in builder’s risk coverage may arise where soft costs, delay-related exposures, transit/storage risks or insured values are not adequately addressed.
  • Being Underinsured: 
    Many contractors select limits based on assumptions or prior practices rather than project exposures. Due to a number of factors, such as social inflation, litigation trends, and rising material costs, claims costs may be higher than in previous years. A large claim can potentially exceed available limits quickly, potentially resulting in uninsured losses.
  • Misclassifying Workers: 
    Incorrectly classifying employees as “independent contractors” or failing to appropriately account for uninsured subcontractors where required, may create workers’ compensation, payroll, audit, tax or regulatory issues depending on applicable law. Reviewing classification practices and subcontractor arrangements with qualified advisors may help reduce compliance risk.
  • Pollution Coverage Considerations: 
    Pollution related exposures are often limited or excluded under standard general liability policies, depending on the terms and conditions of the given policy. Coverage for risks such as mold, asbestos disturbance, fuel spills, or certain chemical releases may require specific pollution coverage, endorsements or separate polices be added.
  • Umbrella/Excess Coverage Considerations: 
    Some general contractors may carry limited or no excess liability coverage relative to their project exposures. Significant bodily injury or property damage claims may exceed underlying policy limits quickly, potentially creating uninsured exposure if no excess coverage is in place.

Common Insurance Coverages for General Contractors

Commercial General Liability:
Commercial General Liability is often a foundational component of a general contractor’s insurance program. It generally covers third-party bodily injury and property damage claims arising from ongoing and completed operations exposures, subject to policy terms, conditions and exclusions. A Depending on the policy structure and endorsements, coverage may also respond to certain liabilities arising from subcontractor work performed on behalf of the contractor.
 

Workers' Compensation & Employers' Liability:
Workers’ compensation generally provides statutory benefits for covered employees who suffer a workplace illness or injury, regardless of fault. Workers’ compensation premiums may be influenced by factors such as classifications, claims history, and safety performance. Your experience Modifier (e-Mod) compares your loss experience to industry benchmarks and may affect premium calculations. 

TIP: Managing your Experience Modifier may help improve workers’ compensation cost performance over time.

Download Now: Construction Company’s Guide to Workers’ Compensation
 

Subcontractor Default Insurance (SDI):
SDI is an alternative risk-financing product that may help address certain costs incurred by the general contractor to complete, correct, or reprocure work following a covered subcontractor default, subject to policy terms and conditions. Depending on the program, SDI may offer a different claims process and remediation approach than traditional surety bonds. 
 

Professional / Contractors Errors & Omissions:
This type of coverage may be particularly relevant for design-build general contractors and those providing design-assist services, Errors & Omissions coverage is designed to address certain errors in design or professional contributions that may lead to financial loss or property damage, subject to policy terms.  Some of these exposures may not be fully addressed under a standard Commercial General Liability policies.
 

Contractor's Pollution Liability:
Contractor’s Pollution Liability coverage may help address certain pollution conditions arising from a general contractor’s operations or managed subcontractor operations, subject to policy terms. This can include exposures associated with excavation, demolition, site preparation, stormwater runoff, fust or other construction related environmental conditions. 
 

Employment Practices Liability (EPLI) & Cyber:
EPLI is designed to cover certain employment-related claims such as discrimination, harassment, retaliation or wage-and-hour allegations where insurable and covered.   Cyber insurance helps address certain technology, ransomware, business interruption exposures, subject to policy terms and conditions.
 

Key Consideration: GCs may benefit from reviewing owner contracts for insurance requirements before execution — gaps between contractual requirements and actual coverage can create uninsured and underinsured exposures.

Insurance & Risk Assessment for Construction Companies

Contact us today to learn how Acrisure can help your construction company improve safety or learn more about our construction business solutions now.

 

IMPORTANT NOTICE: The opinions and statements herein are intended for general informational purposes only and should not be viewed as a substitute for any legal, regulatory or other advice on any particular issue or for any particular reason.  The advice of a professional should always be obtained before purchasing any insurance product or service, and you should not rely on the information provided herein for the prevention or mitigation of risks or as a full and complete explanation of coverage under any insurance policy or as a full and complete explanation of terms and conditions of any services offered.  Statistics and data referenced in this report are derived from industry sources and may not reflect current conditions or be applicable to your specific situation. Insurance coverage is subject to the terms, conditions, limitations, and exclusions of the applicable policy, and availability may vary by jurisdiction. Readers should consult with qualified legal, insurance, and financial professionals before making any decisions based on the information in this report. Acrisure disclaims any liability for actions taken or not taken based on this report.