Home construction has many moving parts and its fair share of risk which could result in physical loss or damage. To protect themselves against a potential loss or damage, a home builder needs to be well insured.
A home builder should have general liability insurance, professional liability insurance, workers compensation insurance, commercial auto insurance, and builders risk insurance.
Different types of insurance policies provide protection against different possible eventualities. A home builder needs to understand what type of protection is provided with specific insurance policies.
General Liability Insurance for Home Builders
General liability insurance is also known as business liability insurance and it provides coverage that can protect the builder from a variety of claims including bodily injury, property damage, personal injury and others that can arise from business operations. According to The Hartford, “four out of 10 small business owners are likely to experience a property or general liability claim in the next 10 years. Claims range from unexpected incidents, like a burglary, to unforeseen accidents, such as a customer getting injured after slipping and falling.”
Most home builders are small business owners, and a general liability policy will help protect the company from a costly liability claim. Examples of general liability claims for small business include burglary, theft, damage from water and freezing, damage from wind and hail, fire damage, and customer slips, trips and falls. This type of policy helps manage risk and prevents loss. Most states do not require business owners to carry general liability insurance. However, it is a good practice to have a general liability policy in the event of a liability claim. As a home builder, it is important to know what the state’s insurance laws are for the state you are working in. It is also important to know what the insurance requirements are of the financial lender for a home building project. Most lenders and or clients will require that a home builder has general liability policy in place before signing a contract.
General Liability Coverage
- Custom or client’s medical expenses if they get hurt on the project site or while visiting the business
- Bodily injury caused by the business
- Property damage and associated repair cost if damage is caused by the business
- Advertising injuries due to a business’ ads
- Legal cost to defend the business in a lawsuit
- Judgements and or settlements from client or customer’s lawsuit
Professional Liability Insurance for Home Builders
Professional liability insurance is also known as errors and omissions insurance and is a form of liability insurance which helps to protect professional advice and service providing companies from bearing the full cost of defending against a negligence claim made by a client. This type of insurance is a specialized liability project against losses not covered by traditional liability insurance. Professional liability insurance will help cover economic or financial losses suffered by a third party on claims of negligence, misrepresentation, and inaccurate advice. However, it will not cover claims of work-related injuries, illness, customer, or client boldly injury, property damage, or data breaches.
Professional liability insurance is designed to protect professional service companies against a liability incurred as a result of errors and omissions. This type of insurance is needed by home a builder if they are a design / build contractor or if they provide advice to the client throughout the construction process. Errors and omissions can be made during the design phase of a home construction project. An error in design could result in the failure of the final product. As an example, the foundation was not designed correctly for the type of soil and the size of home. This error in design could result in the home “final product” settling. Cost of redesign and rework would be incurred to fix the settling issue of the home. Economic loss would be suffered by the architect / designer and a professional liability insurance policy would help cover the financial loss suffered.
Professional Liability Insurance Coverage
- Negligence
- Misrepresentation
- Inaccurate Advice
- Attorney Fees
- Settlements
- Judgements
- Expert Witness Fees
- Court Administrative Cost
Professional Liability Insurance will NOT Cover
- Bodily Injuries to Clients or Customers
- Work Related Injuries or Illness
- Property Damage
- Wrongful Acts – Deliberate
- Violation of Law
- False Claims
- Employment Discrimination
Workers Compensation Insurance for Home Builders
Workers compensation insurance reimburses an employer for damages that must be paid to an employee for injury occurring in the course of employment. Specifically, this insurance helps pay for medical care and wages from lost work time. Each state has different rules for worker’s comp insurance, therefore, the state where you do business will determine your worker’s comp insurance requirements.
Worker’s Compensation Coverage
- Medical expense to treat an employee’s injury or illness suffered while working
- Ongoing medical care to help the employee recover from their injury or illness
- Lost wage replacement if an employee takes recovery time away from work
- Disability benefits if an employee becomes fully or partially disabled due to a work related injury or illness
- Death and funeral expenses if an employee passes away from a work related injury or illness
Workplace injuries occur each and everyday and they result from normal activities or duties on the job. Construction sites are more prone to workplace injuries as most sites contain a hazard. According to OSHA, a hazard is defined as the potential for harm. In practical terms, a hazard often is associated with a condition or activity that, if left uncontrolled can result in an injury or illness. Common construction injuries are a result of cuts, electrical shock, slips, trips, falls, and lifting heavy objects.
OSHA Common Hazards and Description
- Explosion – sudden and violent release of a large amount of gas/energy due to a significant pressure
- Electrical Shock – contact with exposed conductors or a device that is incorrectly or inadvertently grounded
- Electrical “Static” – the moving or rubbing of wool, nylon, other synthetic fibers, and even flowing liquids can generate static electricity
- Electrical “Loss of Power” – safety-critical equipment failure as a result of loss of power
- Ergonomics “Strain” – damage of tissue due to over exertion (strains and sprains) or repetitive motion
- Ergonomics “Human Error” – a system design, procedure, or equipment that is error – provocative
- Excavation “Collapse” – soil collapse in a trench or excavation as a result of improper or inadequate shoring
- Fall “Slip, Trip” – conditions that result in falls (impacts) from height or traditional walking surfaces such as slippery floors, poor housekeeping, uneven walking surfaces, exposed ledges
- Fire / Heat – Temperatures that can cause burns to the skin or damage to other organs
- Mechanical Failure – typically occurs when devises exceed designed capacity or are inadequately maintained
- Mechanical – skin, muscle, or body part exposed to crushing, caught-between, cutting, tearing, shearing items or equipment
- Noise – noise levels that result in hearing damage or inability to communicate
- Struck By – a mass that strikes the body causing injury or death
- Struck Against – injury to a body part as a result of coming into contact of a surface in which action was initiated by the person
- Temperature – temperatures that result in heat stress, exhaustion, or metabolic slow down such as hypothermia
There are many hazards on a construction project site (some are listed above). There are also several workers a construction site. A home builder needs to protect their self and their employees with a good worker’s compensation insurance policy.
Commercial Auto Insurance
Commercial auto insurance is a policy that provides a variety of coverages for company vehicles used by the business. The policy will include physical damage insurance, liability insurance, and other coverages. A commercial auto insurance policy is needed for situations and usage not covered by a personal auto insurance policy. A personal auto policy covers one person driving their own vehicle. A commercial auto policy covers an entire business and only covers business-owned vehicles. This policy can cover anyone such as employees, family members, and others who are granted permission to drive company owned vehicles.
A commercial auto insurance policy may be needed if goods or people are transported. If a service is conducted with the vehicle. If hauling a considerable weight in tools or equipment, or if towing a trailer. If employees operate a vehicle in the ownership of the company. If a vehicle is owned by the company.
Commercial Auto Insurance Coverage
- Bodily injury liability coverage
- Property damage liability coverage
- Combined single limit
- Medical payments, no-fault or personal injury coverage
- Uninsured motorist coverage
- Comprehensive physical damage coverage
- Collision coverage
Builders Risk Insurance
Builders risk insurance is also known as course of construction insurance, and it is a specialized type of property insurance which indemnifies against damage to buildings while they are under construction. Each construction project should have its own builders risk insurance policy since the policy will specify a project’s description and physical address.
Builders risk insurance is coverage that protects an insurable interest in materials, fixtures, and or equipment being used in the construction or renovation of a building or structure should those items sustain physical loss or damage from a covered cause. Covered cause of loss, means rick of direct physical loss to covered property from any external cause. The builders risk insurance policy will identify what is considered a covered cause loss and what is an excluded cause of loss. The policy will begin when insurable interest in the covered property is acquired, but not before the effective date of the policy. The policy will be terminated when the purchaser accepts the construction project, or when the contractual obligation of the construction project has ceased, or when the construction project has been abandoned, or when the construction project has been occupied and been used for its intended purpose, or when the policy is cancelled or expires.
A builder’s risk policy is paid for by the company or person seeking coverage. Since a builder has been contracted to perform a service and is at risk, the builder should seek coverage for the project. Most construction contracts allow for the cost of builder’s risk to be a reimbursable expense.
Builders Risk Coverage
- Covered property are building materials, supplies, equipment, machinery, fixtures and appliances which are intended to become a permanent part of any covered “construction project”
- Covered property are fences, foundations, excavations, underground pipes, drains, paving, pilings, retaining walls at any covered “construction project”
- Covered property includes temporary structures, scaffolding and construction forms but only while located at any covered “construction project”
- Builders risk coverage applies at the construction project, storage location, or course of transit
- Builders risk coverage begins when insurable interest is acquired in the covered property but not before the effective date of the policy.
- Builders risk coverage will end when the owner accepts the “construction project,” legal or contractual obligations in the “construction project” ceases, the “construction project” is abandon for any reason with no intention to complete, a set number of days after the “construction project” is occupied in whole or in part and has been put to its intended use, the policy is cancelled or expires
- Property not covered with a builders risk policy are land, water, lawns, nursery stock, plants, trees, any type of landscaping, building materials, supplies, equipment, machinery, fixtures, and appliances that will not become a permanent part of a covered “construction project”
- Other items not covered include accounts, bills, currency, deeds, evidences of debt, money, notes, securities, construction plans and specifications
Purpose for Having Insurance
Business is ran by people and for people who are not perfect. Therefore, accidents will happen. A home builder who has good insurance coverage can save time, money and stress. They can protect their business from damages. They can provide benefits to their employees. Insurance is important for protecting the business’ assets and possessions in the event of an accident. A home builder works hard to grow their business and insurance is there to protect that hard work.
- Could be required by law
- Helps protect employees
- Provides protection to customers
- Having insurance provides credibility to clients
- Construction contracts may require insurance
- A good insurance program will help recruiting and retaining employees
- Will provide protection against liabilities
- Will provide protection against natural disasters
- Will provide assistance with lawsuits
- Offers a peace of mind