Page 252 - Urban Construction Project Management

Insurance and Bonds

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CONSTRUCTION INSURANCE

Construction insurance can be defined as a contract whereby the insurance company
seeks to provide coverage and indemnify the construction manager/general contractor
(CM/GC) against a potential peril, loss, damage, or liability that arises from the
performance of the construction work. Insurance for a construction project is a policy
(a form of a contract) that the CM/GC purchases which covers the contractual insur-
ance and risk management requirements of commercial general liability, builders risk,
workers’ compensation, automobile, completed operations, errors and omissions, envi-
ronmental liability, etc. Purchasing an insurance policy with an insurance carrier, who
collectively pools the risks of many CM/GC’s and construction projects together to
provide coverage and protection, is a way to manage risk. Insurance for construction
projects in the urban environment presents many unique challenges based on size,
dollar amount, congestion in the construction area and surrounding area, and the people
and property that are in the direct zone of influence of the project.
Often insurance is not properly administered in the construction industry because the
project executive (PE) and project manager (PM) are very busy with the planning and
construction of the project, and cannot find time to properly administer the risk manage-
ment and insurance processes. This can result in serious financial consequences and
exposure to risk that a company may not be able to afford. Insurance is not an area to be
neglected, as one mistake in this area can have far-reaching consequences. CM/GCs who
have not purchased the proper type and amount of insurance for a project have faced
major problems when a risk they thought was covered in the policy was not, and they
found themselves with insufficient or no insurance coverage with a catastrophic loss.

Many CM/GCs have an in-house insurance advisor/manager, or they retain the services
of an external insurance consultant/advisor to assist with the proper management and
administration of construction insurance, which is highly specialized and complex. The
challenge is to purchase the proper insurance with the appropriate levels of coverage

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