Construction Insurance: Common Coverage Mistakes and How To Correct Them

Sponsored content by Stoel Rives LLP originally published by the Portland Business Journal on July 1, 2022.

Maintaining adequate insurance during and after construction projects is a critical risk management tool for all involved parties. Yet, the complexities of coverage are too often overlooked at the time of contracting while the parties are more focused on getting the project going. Deferral to insurance certificates (instead of policies), reliance on informal broker assurances, and reluctance to wade through the swamp of policy endorsements (read: exclusions) too often lead to future coverage denials at the exact time the parties need the insurance coverage they thought they had secured. To mitigate that pitfall, consider the following common coverage mistakes and potential corrective measures the next time you’re reviewing coverage or a claim:

• Mistake No. 1 – Failure to read the policies. Despite spending significant time negotiating contract rights and obligations, the parties fail to read or negotiate the insurance policy and endorsements, which act to exclude certain claims from coverage. A Certificate of Insurance or ACCORD Certificate can be largely worthless as evidence of coverage because the certificates alone do not specify the endorsements excluding coverage (e.g., for multi-family dwellings, condominiums, mold, contractual liabilities or cross-suits by one insured against another). strong>Corrective measures: To confirm project-specific coverage, obtain copies of the actual policies, double-check all endorsements, and use an insurance rider to the contract rejecting troublesome endorsements.
• Mistake No. 2 – Delayed claim reporting. Most policies, and especially claims-made policies, have prompt reporting requirement language in the ISO forms requiring reporting and cooperation within a specific or reasonable time. Delays in recognizing and reporting claims can result in complete denial of coverage. Corrective measures: Review your policies annually for applicable reporting requirements or ask your broker or attorneys to identify the specific timelines therein. Ensure your project leads are aware of the deadlines and practice prompt reporting of claims.
• Oversight No. 3 – Unintended consequences of naming additional insureds. Standard ISO endorsements can routinely provide additional insured (AI) status to various classes of entities on construction projects. However, endorsements can limit AI coverage only for ongoing operations and may prohibit coverage altogether via a cross-suit exclusion for coverage where one insured sues another insured. Corrective measures: Remove any cross-suit exclusion from the policy and analyze any potential consequences of naming multiple parties as additional insureds.
• Oversight No. 4 – Insurance tracking protocols. After expending considerable effort at the contracting stage to secure correct insurance, the parties often neglect to track insurance during construction and for the duration of the applicable statute of repose. When a claim arises several years after project completion, evidence of policies and coverage are hard to locate and determine. strong>Corrective measures: Compile policy copies (or at least the certificates) in a separate electronic file for each project labeled “insurance” rather than leaving the certificates in each design professional’s or builder’s file. Calendar out regular intervals following project completion to reconfirm policy limits and any change in policy providers. If a contracting partner is out of business, determine whether you need to take separate action to mitigate risk. Finally, utilize an insurance tracking log or similar one-page spreadsheet that lists each project participant and their policy numbers, limits, and notable exclusions for each year of construction and for each year following project completion.