Building Projects Require Special Insurance Protection

Builder's risk insurance and workers' compensation coverage are essential

Starting a construction or renovation project is an exciting time for any ministry. Before putting shovels in the ground, it’s critical to address the hazards of construction. Rain could cause exposed wood floors to warp and crack. Thieves often target valuable construction materials like copper pipes. Fires do far more damage to an unfinished building than one with fire prevention systems in place. Workers could sustain serious injuries. Construction costs could exceed estimates.

Brotherhood Mutual's risk control team recommends that you protect your project by taking five key steps:

1. Obtain Builder's Risk Insurance

Standard church insurance policies don't cover new construction. Before the project begins, you or the contractor must purchase builder's risk coverage to insure the new building or addition during the construction phase. Brotherhood Mutual offers a Builder’s Risk endorsement. Ask your Brotherhood Mutual agent for more information about this important protection.
Clarify in writing who's responsible for insuring the building while it's being constructed.
After the project is completed or occupancy begins, cancel the builder's risk coverage and add the finished building to your policy.

2. Require a Certificate of Insurance

Before your contractor begins work, ask his or her company to provide you with a certificate of insurance. This document verifies that an organization has appropriate coverage. The certificate should indicate that the contractor has workers' compensation, general liability, and automobile insurance in force.
The contractor should carry liability limits of at least $1 million. For large buildings, or when renovations are being done to existing buildings, consider requiring higher limits.
Ask the contractor to name your organization as an additional insured on the liability certificate of insurance.
If the contractor is providing builder's risk coverage, ask him or her to indicate it on the property certificate of insurance.
Obtain the builder's risk policy documents for your records.

3. Include an Indemnification Clause

Check the construction contract for references to indemnification—making compensation for injury, loss or damage covered by insurance.
Make sure the contractor will indemnify, defend, and hold you harmless. If there is no such reference in the contract, ask to have it included.

4. Carry Workers' Compensation Insurance

Either you or the contractor must provide workers' compensation coverage to protect the paid laborers performing construction work.
If you hire a subcontractor who doesn't carry workers' compensation insurance, your state's laws may hold you responsible for work-related injuries to the contractor's employees.
Never use uninsured subcontractors. If you do, you could be billed a substantial amount of additional premium for the workers' compensation exposure.

When using volunteer or donated labor:

Determine whether your insurance program provides workers' compensation insurance. Many plans do not. Some provide only limited medical or wage loss benefits for volunteers providing donated labor.
Volunteers need to know that after primary medical coverage is exhausted, they will be responsible for their own medical expenses if they're injured.
Explore this expense of providing workers' compensation insurance before deciding to undertake the work yourself. Often, after this premium is factored in, a church finds it is not cost-effective to complete the construction itself.

5. Seek Construction Bonds

In addition to protecting people and property during construction projects, ministries should also consider what they will do if their contractor is unable to finish their project on time—or at all. The best way to prevent this is to choose a reputable contractor, but even those that are financially stable can run into problems.

A construction bond is a financial instrument that reimburses a ministry (the purchaser) for extra costs incurred when construction projects are delayed or left unfinished. These costs include the extra expense of:

Not having the new facility available when planned
Hiring an additional contractor to finish the job

Brotherhood Mutual does not offer construction bonds, but ministries preparing for large construction projects may want to discuss this option with their insurance agent and attorney.