Understanding Builder’s Risk and Contractors Construction Liability Insurance


Various risks exist in the construction industry, like in any other sector in commerce. The severity, magnitude, and type of risks will depend on the construction project. Property owners, developers, engineers, designers, construction companies, and building contractors observe strict building codes, rules, and laws to minimize risks that may arise during construction work. 

However, this approach only partly mitigates risks during construction.

Construction companies and the associated contractors risk losing money from property damages, loss of life, and equipment during renovations, remodeling, repairs, replacements, and new construction projects. Insurance is the best way to cover such liabilities for construction firms and contractors.

Several insurance policies exist for building and construction. Some policies cover construction risks, while others cover the professionals doing the job.

Builder’s Risk Insurance

Builder’s risk insurance is a form of property insurance for repairing unfinished buildings with damages caused by weather, fire, vandalism, theft, and Acts of God. Any entity investing in construction needs builder’s risk insurance. Building firms, contractors, and subcontractors use builder’s risk insurance to cover building-related liabilities. The policy covers buildings and structures under construction, protecting against material supplies and equipment.

Since every construction project is unique, policyholders provide unique aspects of their builder’s risk insurance. Thus, this insurance has several variations between insurance company providers.

Contractor’s Construction Liability Insurance

The contractor’s construction liability insurance protects professionals in the construction industry from claims by property owners. Professionals like architects, engineers, and surveyors get liability claims against them because of neglect, errors and omissions, the structural integrity of the building, equipment loss, damage, and so much more.

Several forms of the contractor’s construction liability insurance exist. An example of this coverage is the owner’s and contractor’s protective (OCP) liability coverage. OCP liability insurance is a stand-alone policy that provides coverage to a named insured, usually the project manager overseeing the supervision, custody, and management of a construction area or project.

The contractor purchases the insurance to cover the project owner against any liability that arises from the contractor’s omissions and project errors that can lead to bodily injury and property damage. Thus, the contractor’s construction liability insurance is protective liability insurance. The Indemnitor is the contractor, and the indemnitee is the project manager.

What Are the Differences Between the Builder’s Risk Policy and Owner’s and Contractor’s Protective (OCP) Liability Coverage?

Understanding OCP insurance vs. builder’s risk can be difficult.  Each coverage protects against specific liabilities and insurers. OCP is part of the builder’s risk insurance. 

The policy covers:

  • Against risks arising on-site, off-site, and during transits
  • Owner-controlled insurance program (OCIP)
  • Owners and contractor’s protective (OCP) liability insurance
  • Contractor-controlled insurance program (CCIP)
  • Building, contractors, performance, bid, payment, and design company surety bonds

The OCP policy covers:

  • Liabilities from the contractor’s advertisements
  • Copyright infringement claims from constructing identical products
  • Damages against the construction company, contractor, or subcontractor resulting in delays, repairs, and replacement costs
  • Injuries in the form of hospital bills, funeral expenses, and disability compensation
  • The harm caused by the contractor’s equipment


What Are the Types of Insurance Policies for the Construction Industry?

Several policies exist in the building and construction industry.Builder’s risk insurance covers risks that arise during new constructions and building remodeling, repairs, and replacements. The contractor’s construction liability insurance provides coverage for bodily injuries or property damages in construction because of professional errors and omissions, work-related injury, and defamation or advertisement-related injury.

Professional liability insurance protects contractors in the building industry against their professional mistakes in a construction project. Worker’s compensation insurance protects businesses and contractors when their employees get injured while working. 

Other insurances and regulations relating to reducing construction risks include:

  • Commercial auto insurance
  • Inland marine insurance
  • Contractor license bonds are agreements – that ensures contractors comply with all building regulations.
  • Contract bonds – mandates contractors to meet their end of the deal

What Does Builder’s Risk Insurance Cover?

Builder’s risk insurance protects ongoing construction projects from damages caused by fire, vandalism, Acts of God, theft, equipment damage, hail, or lightning. It also covers claims not directly related to the construction, like delays, lost sales, rental income, incurred loan interests, and taxation caused by construction risks.

Why Does a Contractor Need Owner’s and Contractor’s Protective (OCP) Liability Coverage?

Owner’s and contractor’s protective (OCP) liability coverage protects professionals from errors and omissions that may occur during a construction project. An engineer’s miscalculation can cause the building to collapse. Faulty wiring may cause electrical hazards during and after construction. The insurance covers such claims against construction firms and contractors.

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