Osiguranje građevinskih projekata EuroSolutions Blog

Construction Insurance – a Solution to a Complex Challenge

Construction project insurance is a complex model of insurance which can protect all participants in the process, i.e., the construction project, which includes investors, contractors and subcontractors, as well as all supporting positions involved in the construction project.

Considering the complexity of construction projects, it is not unusual that many possible risks are often connected – uncertainty or disruption occurring as a consequence of the materialisation of one risk can, and most often does, cause a series of chain disturbances in other segments of the project. Having in mind that the costs may be relatively high, which is a characteristic of most construction projects, the potential financial consequences of realised risks are usually high. This means that construction insurance is necessary to protect the business, and sometimes the very core of the business of the project participants in all its aspects.

Types of Risks Covered by Construction Project Insurance

Construction insurance covers a wide range of risks that may arise during construction. Given that these projects are most often carried out outdoors and include numerous participants, the risks relate to natural hazards, human factors and technical aspects. This includes damages arising from risks such as: fire, flood, storm, theft, vandalism, mechanical and technical problems with the equipment, construction error risks, planning errors, assembly errors and other unforeseen events.

Aspects of Construction Insurance​

Contractor’s all-risk liability

One of the key aspects of construction insurance is the contractor’s all-risk insurance and liability coverage. This type of insurance protects the contractor against damages or injuries resulting from errors, omissions or irregularities during construction work. This may include damage to property, health and physical injuries of third parties, workers, and other unwanted incidents. This insurance allows contractors to face potential legal claims and fees, protecting both their reputation and financial stability.

Building warranty insurance

The construction warranty period is the period after the completion of a project during which the contractor assumes responsibility for any defects or malfunctions in the constructed facility. Construction project insurance often includes a warranty period, which protects both the contractor and the investor. It protects the contractor so they don’t have to pay from their budget for possible repairs, and it provides investors with additional assurance that any errors will be corrected, regardless of the financial capacity of the contractor. In this regard, insurance coverage during the construction warranty period reduces the risk of financial losses for the investor due to repairs or reconstructions after the completion of the project.

Work equipment and machinery and auxiliary facilities

Construction insurance also covers the risk of damage or loss of construction equipment and ancillary facilities, the value of which is not included in the actual project being executed. Construction equipment is essential for the project's progress, but it is exposed to the risk of theft, mechanical breakdowns or natural disasters since devices are large, placed outdoors and exposed to natural and technical risks and human factors. This type of insurance protects against financial losses due to damage or loss of equipment.

Considering all potential risks and the level of possible damage, which is relatively high compared to most other activities, construction project insurance is essential to ensure protection against various risks and uncertainties during construction. Contractor’s all-risk liability insurance, building warranty insurance, construction equipment insurance, as well as various types of risk coverage related to all aspects of construction, provide investors and contractors with security and allow them to focus on the process at hand, knowing that they are protected from financial losses that may arise due to potential problems during construction projects.

Additional Construction Insurance Extensions

Besides these risks and aspects, there are additional extensions of construction project insurance, which reflect the real complexity and potential risks and damages associated with the implementation of construction projects. Among them are the following:

Third-party liability insurance and cross-liability

This insurance protects against potential legal claims and liability to third parties who may suffer damage or injury during construction. For instance, passers-by or neighbours who are near the construction site can file compensation claims in case of injury or damage. If several contractors (and subcontractors) covered by the policy participate in the project, a cross-liability extension must be included to protect the participants from mutual compensation claims

Design risk coverage

This extension is a variant of professional and product liability insurance which focuses on risks caused by designers’ work and errors in construction and/or materials. It can cover damage or losses resulting from construction errors, design failures, structural defects or the use of inappropriate materials. It is particularly useful for large and more complex construction projects.

Transport insurance

If construction materials and equipment are transported to the construction site, there is a risk of damage during transportation. This insurance covers loss or damage that may occur during the transportation of the material.

Professional liability insurance

In certain cases, damages due to the execution of a construction project may occur because of errors in the design, omissions of supervisors or other professional errors or omissions. Professional liability insurance protects such experts from potential legal claims and compensations.

Existing property

Sometimes the works are performed on the investor’s existing facilities or in their immediate vicinity. In that case, it is necessary to take special measures to prevent damage. As it’s impossible to predict all risky situations in this case, it is necessary to additionally insure such facilities (property).

Environmental pollution and decontamination

Sometimes, construction projects can result in environmental pollution because of waste materials, chemicals and other factors. Construction insurance can cover decontamination and remediation costs if contamination occurs during or after construction.

Removal of rubble

If a harmful event occurs during construction, the scope will likely increase afterwards, as additional engagement is necessary to clear the rubble and remove construction debris. In case of major damage, such costs can be very high. Since this scope of work is not covered by the construction contract, it is recommended to provide a certain limit for possible clearing works.

Need quality advice or solution for construction project insurance?

For many years, insurance brokerage company Eurosolutions Ltd. has been insuring numerous construction projects. Our professional team is at your disposal and ready to assist you, relying on its many years of experience in contracting the best coverage tailored to all your specific needs and requirements.

Construction project insurance aims to provide additional, comprehensive protection to investors, contractors and other participants during the complex construction process, that is, the implementation of construction projects. Each construction project has its specific characteristics, and it is necessary to approach every construction insurance by considering all aspects.