Course of Construction Insurance: Essential Considerations for Complex Projects

When insuring large and complex construction projects, Course of Construction (COC) insurance, also known as Builders Risk insurance, is crucial for protecting the property during the build.?

Retail insurance agents working with contractors, developers, or project owners need to understand the intricacies of COC insurance to ensure their clients are fully protected throughout the entire construction phase. Here are some key considerations retail agents should keep in mind when placing COC insurance for high-risk or large-scale projects.

Why COC Insurance Is Essential

COC insurance is designed to cover buildings under construction from the first shovel hitting the ground until the project is completed. It provides financial protection against losses due to risks like fire, theft, vandalism, and even natural disasters. The stakes and risks are higher for large and complex construction projects – making COC insurance an essential part of the insurance strategy.

Critical Considerations for Retail Agents

1. Policy Time Frames and Extensions One of the most critical aspects of COC insurance is the policy's time frame. Construction delays are common, and retail agents must ensure the COC policy has adequate coverage for the entire project duration, including options for extending the policy if delays occur. Discuss potential delays with your client upfront and ensure that extensions are available.

2. Exclusions and Limitations Standard COC policies often exclude certain risks, such as faulty workmanship or design defects, and may not cover the cost of correcting those errors. Damage caused by natural disasters may not be covered under a standard policy. Agents should carefully review exclusions and offer additional endorsements or policies when necessary.

3. High-Risk Property Considerations High-risk construction projects, such as those in disaster-prone areas or involving hazardous materials, require special consideration. Retail agents should collaborate closely with underwriters to assess these risks and explore customized coverage options that address the project's specific exposures.

4. Soft Costs Coverage In addition to covering physical damage to the property, COC insurance can also include coverage for soft costs, such as additional expenses related to project completion delays (such as legal fees, architectural or engineering services, and additional loan interest). Retail agents should discuss soft costs coverage with their clients, as delays can result in significant financial losses beyond physical damages.

5. Understanding the Client’s Risk Appetite Large construction projects often involve multiple stakeholders, including contractors, lenders, and project owners, each with their own risk tolerance. Retail agents must understand their client’s risk appetite and tailor COC policies accordingly.??

6. COC vs. General Liability Explaining the distinction between COC insurance and general liability coverage is essential. While COC covers property damage during construction, it does not cover liabilities arising from third-party injuries or property damage unrelated to the project. Agents should ensure clients have adequate GL coverage to provide comprehensive protection.

Common Issues and Challenges in Placing COC Insurance

• Underinsurance: One of the most common issues in COC insurance is underestimating the total project value, leading to insufficient coverage. Retail agents should work closely with clients to ensure the policy reflects the full construction cost, including materials, labor, and on-site equipment.
• Policy Gaps: Another challenge is leaving coverage gaps when transitioning from COC to permanent property insurance. Agents should ensure that coverage does not lapse between the end of the construction phase and the beginning of the permanent policy.
• Multiple Projects: Retail agents should explore blanket COC coverage for developers working on multiple projects simultaneously. This can be more cost-effective than securing individual policies for each project.

COC insurance is a critical safeguard for large and complex construction projects, protecting against the unique risks that arise during the build. Retail agents who understand the intricacies of these policies—along with common exclusions, time frame concerns, and the needs of high-risk properties—can ensure their clients are adequately covered from start to finish.?

By following these tips and partnering with Coastal Brokers, you can navigate the challenges of COC coverage and continue to deliver value to your clients. Contact us to learn more about how we can assist with placing excess liability coverage for your habitational risks.

Follow Coastal Brokers Insurance Services, Inc. for more info, or call (925) 277-1090.