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General Liability Insurance for Commercial Construction: A Guide
Commercial construction projects come with a lot of risks, and general liability insurance is one way to solve for those. Here's what you need to know about how these policies work, and what they do — and don't — cover.
As a commercial property developer, you're in the business of turning visions into reality. You know that any great project comes with great risks.
I’ve written a number of other insurance articles here on our blog, but one I’d like to explore a bit deeper today is general liability insurance for commercial property developments. It’s really, really important to get this aspect of your development right to avoid what could be (sorry for sounding a bit alarmist) catastrophic losses.
Liability Insurance: An Introduction
General liability insurance is your shield against many of the financial risks you face as a developer. It covers you if you're held responsible for property damage, injuries, or other harm related to your development projects.
It’s not just about protecting yourself, though. It’s also about opening doors (or at least not having them shut in your face). Many partners, investors, and lenders won’t even consider your project if you don’t have a solid general liability policy in place. It’s just too risky otherwise.
Why It's Important for CRE Developers
In commercial real estate development, you're dealing with high-value properties and complex projects. A single incident could lead to massive financial losses. The right insurance doesn't just protect you — it protects everyone you work with.
Coverage Areas
Here's what general liability typically covers for developers:
Construction Site Injuries
If a visitor or passerby is injured on your development site, your insurance can cover their medical expenses and potential legal costs. Of course, this doesn’t usually extend to trespassers stopping by to borrow some copper pipes, so don’t think this takes the place of securing your development site as a way to manage your risks.
Property Damage
This covers damage to neighboring properties or public infrastructure caused by your development activities. For instance, if your project causes damage to adjacent buildings, this would come into play.
Something I need to make clear: This property damage coverage does not cover damage to your own property, or the development. So if you’re digging at the site and it screws up the foundation of the building next door, this will be covered. If you damage your own foundation, that’s something you’d need to look at your builder’s risk policy for.
Completed Operations Liability
This protects you from claims that arise after you've completed and sold a property. If a design flaw leads to injuries years later, you're covered.
Exclusions
General liability insurance covers a lot, but it often excludes a fairly long list of things, too. You’ll need to review your specific policy to see what’s covered and what’s not, but here are some general things to look out for:
Mold damage
Contractual liabilities
Known prior damages
Subsidence or earth movement
Electronic data
War and terrorism
Builders risk insurance to cover damage to projects under construction
Professional liability if you handle design or engineering in house
Environmental liability for potential pollution issues
You might raise an eyebrow at the war and terrorism bit, but this coverage can be super, super broad and relevant to a development. For example, if there’s a riot or large protest in your area, any liabilities may be excluded. Same goes for government actions like lockdowns, evacuations, and whatnot in response to a perceived threat.
What Affects Premiums
Trying to assign your premiums to specific characteristics of your company or the development may feel like reading tea leaves, but there are some common things that insurers look at when deciding how much you’ll pay and how much risk your project has.
First, they’ll look at your company. If you don’t have a long history (or if your long history is filled with claims), expect this to count against you. Your size is also important, as more employees equal higher levels of risk.
Second, just like with anything real estate, location plays a big part. Urban projects will typically command higher premiums, thanks to increased foot traffic, higher property values, and higher crime rates. And if you’re building a property in a coastal region or any other area with fairly frequent natural disasters (think: parts of California, Tornado Alley, and so on), this will almost certainly translate into higher premiums.
So, what can you do to get lower premiums? One good step to take is implementing solid risk management practices — and document them. This shows insurers you’re not winging it, and it also demonstrates that you’re directly addressing some of the risks they may be more worried about.
Contractor and Subcontractor Insurance
Just because you’re not the one hiring contractors or subcontractors doesn’t mean you’re not on the hook if they cause a problem. They won’t typically be covered by your liability policy, so make sure they have their own. While this should be your general contractor’s job, it’s still important to ensure this is taken care of — the last thing you want is a subcontractor damaging, say, a neighboring building, and then having to cough up to cover the costs of repairs.
It’s also a good idea to have your contractors add you as an additional insured on their policy. This gives an additional layer of protection (that you’ll hopefully never need).
Specialized Coverage
General liability is just the beginning. There are other kinds of insurance you may need, depending on the specifics of your development. For example:
Conclusion
Remember that the most important thing to do is read and understand your insurance policy before committing to it. No two policies are exactly the same, and coverage exclusions can be drastically different.
To get the right policy (at the right price) for your next development, consider using the team at Janover Insurance Group. We take the time to understand your specific insurance needs and rapidly shop your requirements around to our huge Rolodex of insurers — meaning you get the precise amount of coverage you need. No more, no less, and at a price that won't’ break the bank.