Project Insurance Risks
Does the Responsible Developer maintain adequate liability insurance on each project?
Yes, absolutely! A major underinsured or uninsured loss can devastate your project.
The last decade saw construction project insurance premiums for commercial general liability skyrocket to the point where many developers joked that the insurance premiums were only slightly less than the actual policy limits!
This meteoric rise in premiums was due to extensive litigation where policy limits were routinely paid out during the 1990s and early 2000s for defect and water intrusion damage claims. You remember, many insurers either left the WA market or would only insure lower risk builders. As the 2007 recession deepened some developers, depending on the type of project, opted to reduce coverage or worse, to go bare on the completed operations side.
In the last decade some other insurers have entered the WA market and the premiums for many types of liability insurance have decreased. But are you still at risk of being underinsured?
Yes.
Because in some egregious cases the reason the premiums are less, is that if you held that policy up to the sun, it would not block the light due to all the "holes" in it. Those holes represent policy exclusions that drastically limit or eliminate some of the most critical coverages. Here's an example. One insurer from Oregon now sells reasonably priced liability policies to developers and contractors. The policy limits appear to be the typical $1 million per occurrence and $2 million aggregate. So the insured feels adequately insured. There is, however, an exclusion buried deep in the policy for water intrusion damage (a very common occurrence in the PNW) and the policy caps that coverage at only $15,000. 00. No that is not a misprint, a $1,000,000 policy with a maximum coverage limitation of only $15,000 for water damage. Imagine that exclusion in the event of an extensive roof leak or other water related damage.
Another example is a well known insurer from Nebraska that decided to place certain requirements on policy holders in order to obtain the benefit of coverage (yes more than just paying the premium). The policy requirements demand that if you are the developer or general contractor, that you will only get the benefit of your policy coverage and limits if you have all of your subcontractors and suppliers name you as additional insureds and must have them sign indemnity agreements. While that is always a good practice, if you have 20 trades on a job or turnover during the work, it can be tough to be named by all the trades and have all of them sign indemnity agreements. If, however, you fail to obtain all the required additional insured endorsements and agreements, you may find you have limited coverage or none at all.
So what is the Responsible Developer supposed to do? A great start is to work with a reliable insurance broker and get sample policies with the current exclusions and actually read them all.
Even better is to work with a lawyer that knows insurance coverage and related litigation and have them advise you before place the policy. Between the two, you should be able to discern whether you are really adequately insured or if you are unnecessarily exposing yourself and your project to significant underinsured or uninsured risks.
Lastly, even if you are the consummate do-it-yourselfer, please, read the policy....before you buy it and put it in the file drawer.
