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Four Questions to Ask Before Insuring a Construction Project

The amount of risk involved in construction projects can be overwhelming. In the early stages of project development, it’s important to consult with an insurance professional to make sure that you’re protected – but where do you start? What questions should you be asking?

We’ve worked with our construction experts to create four key questions that you should ask your insurance broker before insuring your next project.

What are the risks associated with my construction project for the industry that I'm serving?
Identifying the risks inherent to your scope of work is important. In addition, making a distinction between those and the risks of the industry that you are serving is imperative. By forming a comprehensive registry of risks related to your project and the industry that you’re working within, you can attain a detailed overview of what your insurance allocation should be.This will help to identify the products you need to include in your risk management program to transfer as much risk as possible. Some risk can be allocated to Insurance companies or Sureties who spread the risk amongst many projects.

Are my contracts reflecting the proper risk allocation? Not all parties involved in the construction process have the same understanding of risks. 
A holistic contract review helps identify gaps in allocation of risk identified in the registry and the insurance coverage desired for the project. Communicating these risks and the allocation of such to all relevant parties is paramount to ensure a comprehensive understanding has been established ahead of a project moving forward.

How do you manage the triple constraint (time, quality, and budget) in dealing with the associated elements of the scope of work?
The success of your project, and your business, is dependent on your ability to deliver quality work on time and within budget - risk shouldn't be an after thought. In fact, your ability to control and mitigate your risk dictates your capacity to effectively manage a triple constraint.

Many projects only insure the physical loss to a project.  Most parties do not realize that the additional cost to expedite the time lost as a result of a physical loss can also be insured and paid for as part of a claim.There are different types of cover that operate to pay to bring a project back on its timeline. Working with a specialty broker can help identify opportunities to improve the efficiency and safety of processes to ensure project deliverables are met without increasing risk.

What about risk arising from defects? Can the chance of these be reduced? If not, can the impact of defects be covered by someone and if so, to what extent? 
Loss as a result of defective work, material and design can be almost fully transferred to an insurer but is often excluded. Insurance exclusionary language is not standard when it comes to faulty workmanship, materials and design. The global insurance industry has published a number of recommended clauses to try and establish an industry standard.

There are three suggested LEG wordings, five suggested DE wordings and an abundance of North American wordings. Some of the variations have been tested in the Canadian Courts but many have not. Unfortunately, these clauses must be incorporated into a contract that may have other variables affecting the way the defect exclusions operate.  A very skilled insurance professional is needed to guide the parties through analyzing which verbiage may suit the risk transfer desires of the contracting parties.

Let’s Get to Work
Evidently, these questions are just a starting point for further consideration. At EQUA, our team of industry experts have the decades of experience needed to continue the conversation, identify blind spots, and create innovative risk management programs that safeguard your success. To get started, email today.


Do you want to learn more about coverage and risk management options for your construction projects? Visit our Construction industry page