Lesser-Known Insurance Policies for Addressing Project Risks

Originally published by the Daily Journal of Commerce on March 14, 2024.

Construction projects involve significant risks to project owners, designers, and contractors. Many such risks are allocated in the parties’ contracts, which in turn require those parties to obtain insurance—further allocating risks to insurance companies. By providing coverage for losses and collecting premiums, insurers help those parties protect against financial loss by covering the “losses of the few” through the “contributions of the many.”

The typical construction project implicates several types of insurance policies. The most common policies are worker’s compensation, employer’s liability, commercial general liability, business auto liability, excess/umbrella liability, professional liability, and builder’s risk insurance. These policies form the core of any construction project insurance program. However, there are several other types of insurance policies that should be considered. Here are several lesser-known policies along with brief descriptions of the coverages that they provide:

Owner’s protective professional indemnity insurance

OPPI policies cover a project owner’s losses caused by the designer’s professional negligence when the designer’s professional liability coverage is insufficient to cover the owner’s losses. Thus, OPPI policies can help fill gaps in coverage when the owner’s claim exceeds the design professional’s coverage limits.

Cyber and privacy insurance

These policies cover, among other risks, costs incurred responding to a data breach, loss of data resulting from extortion, and theft of money or data resulting from unlawful access to company computer systems. Because commercial general liability policies do not adequately cover these types of risks, cyber and privacy policies have steadily increased in popularity.

Drone insurance

Contractors are increasingly using drones—or unmanned aircraft—to document project progress, perform inspections of difficult-to-reach areas, and take photos and video for marketing purposes. Commercial general liability policies frequently exclude coverage for aircraft (including drones), but coverage often can be added to these policies by way of an endorsement. The coverage under such endorsements is often limited, however, and in some situations, it may be prudent to purchase additional insurance, such as an aviation policy.

Railroad protective insurance

If construction work will be performed near or within a railroad right-of-way, it is likely that the railroad owner will require that all contractors carry a railroad protective policy (RRP). In addition, commercial general liability policies typically include exclusions that relate to work performed on or within a specified distance from a railroad. Unlike many other types of insurance, the contractor purchasing the RRP does not obtain coverage for itself. Instead, the RRP covers the named railroad for third-party bodily injury and property damage and physical damage to the railroad’s property.

Inland marine (contractor’s equipment) insurance

Inland marine (also known as contractor’s equipment) coverage is a specialized type of property insurance for property in transit over land. Contractors that move materials, equipment, and tools from one project to another often purchase inland marine insurance to cover these items while they are being moved from one job to another. Similarly, project owners may need inland marine insurance to cover valuable materials and equipment while they are being stored or transported to the project site.

Subcontractor default insurance

SDI is a type of insurance purchased by a general contractor to cover losses associated with a subcontractor’s failure to perform on a construction project. SDI typically covers the cost of completing the defaulting subcontractor’s work, the cost of correcting defective or nonconforming work, as well as legal and other costs incurred in the investigation and defense of losses. Additionally, SDI may cover indirect costs such as liquidated damages, job acceleration, and extended overhead.

Contractor’s pollution liability

CPL provides environmental damage, bodily injury, and property damage coverage for pollution incidents caused by work performed by contractors at the project site. Examples include exacerbation of pre-existing hazardous conditions at the project site and the release of hazardous substances in building materials that are released during demolition, during construction, or after the project is completed. Like several other policies discussed earlier, CPL addresses a gap in, or inadequate coverage under, the typical commercial general liability policy.

Contractor’s professional liability

This insurance covers legal liability for professional services (such as architecture, engineering, surveying, and construction management) performed by a contractor or its consultants and design-build subcontractors. It generally covers negligent acts and errors and omissions in the performance of professional services.

Depending on a project’s nature, other insurance coverage not highlighted perhaps should be considered.

In sum, a thorough evaluation of project risks and available insurance coverage will go a long way toward ensuring that a project’s participants are adequately insured.