Construction Project Insurance Requirements
What You Need to Know
We know insurance is boring and complicated. We can't make it exciting, but we can make it understandable! Learn more about construction project insurance requirements and much more including our easy to understand glossary of insurance terms. Refer back to it whenever you have a question.
Actual Cash Value — In the event of property damage or destruction, Actual Cash Value is the amount the insurer will pay at the time of loss. Typically calculated one of three ways: (1) the cost to repair or replace the damaged property, minus depreciation; (2) the damaged property's "fair market value"; or (3) using the "broad evidence rule," which calls for considering all relevant evidence of the value of the damaged property.
Additional Insured — a person or organization not automatically included as an insured under an insurance policy who is included or added as an insured under the policy at the request of the named insured. A named insured might decide to provide insured status to others because of a close relationship with that party (e.g., a general contractor wants to be added as an additional insured on his subcontractor’s contractors insurance general liability policy) or to comply with a contractual agreement requiring the named insured to do so (e.g., customers or owners of property leased by the named insured).
Agent — Someone who sells insurance policies for an insurance company or carrier. Their agency may be exclusive or non-exclusive, meaning they sell insurance for a single carrier, or a number of carriers.
Aggregate — A limit in an insurance policy stating the most the provider will pay for all covered losses sustained during a specified period of time and individual losses. A typical aggregate limit for a contractor’s insurance policy is $1,000,000 or $2,000,000.
Claim — Used in reference to insurance, a claim may be a demand by an individual or corporation to recover, under a policy of insurance, for loss that may come within that policy. For example, if you have general liability insurance and a third party’s property is damaged because of you or your employees, you would file a claim if needed.
Coverage — the specific protections or benefits an insurance policy provides. These are outlined in your policy or contract and can be found on your declarations page.
Damage — Any loss, destruction, or harm to a person or property.
Damages — The actual money one individual or party is legally required to pay another.
Declarations Page — The front page (or pages) of a policy that specifies the named insured, address, policy period, location of premises, policy limits, and other key information that varies from insured to insured. The declarations page is also known as the information page. Often informally referred to as the "dec" or "dec page."
Deductible — An amount the insurer will deduct from the loss before paying up to its policy limits. This is the amount of money the insured is required to pay before the insurance company takes over.
Endorsements — An insurance policy form that either changes or adds to the provisions included in one or more other forms used to construct the policy, such as the declarations page or the coverage form. Insurance policy endorsements may serve any number of functions, including broadening the scope of coverage, limiting or restricting the scope of coverage, clarifying the application of coverage to some unique loss exposure, adding other parties as insureds, or adding locations to the policy.
Errors and Omissions Insurance — An insurance form that protects the insured against liability for committing an error or omission in performance of professional duties. Generally, such policies are designed to cover financial losses rather than liability for bodily injury (BI) and property damage (PD).
General Liability — A standard insurance policy issued to business organizations to protect them against liability claims for bodily injury (BI) and property damage (PD) arising out of premises, operations, products, and completed operations; and advertising and personal injury (PI) liability.
Inland Marine Coverage — Inland marine insurance indemnifies loss to moving or moveable property and is an outgrowth of ocean marine insurance. Historically, ocean marine insurance held the transporter responsible for property loss before, during, and after the completion of the voyage. In the 1800's, the non-ocean portion of the journey grew as cargoes were transferred to barge, etc., and the term "inland marine" was coined. Inland marine policies became known as "floaters" since the property to which coverage was originally extended was essentially "floating." Contractors typically cover their construction tools under this policy.
Insured — The person(s) protected under an insurance contract, also known as an assured or policyholder. An insured can also be an organization or entity.
Insurer — The company or organization that provides insurance policies to the insured, also known as an insurance company or a carrier.
Liability — This refers to a legal obligation or responsibility one party has for causing damage, injury, or loss to another party. For example, if a client trips over your equipment and injures themself, you may be held liable.
Limit — The total amount of losses to be paid under an insurance policy or reinsurance agreement, expressed either on a per occurrence basis (e.g., per accident or event) or on an aggregate basis (e.g., all losses under a single policy, or for all policies during an underwriting period).
Loss —A loss refers to the damage caused to an insured piece of property. A covered loss refers to any damage or injury that a policy specifically provides protection for.
Named Insured — Any person, firm, or organization, or any of its members specifically designated by name as an insured(s) in an insurance policy, as distinguished from others that, although unnamed, fall within the policy definition of an "insured."
Negligent — Failure to use a degree of care considered reasonable under a given set of circumstances, including acts of omission.
Premium — Amount of money the insured pays to an insurance company in exchange for coverage. Can be paid in a variety of different ways, such as monthly or upfront, and is determined by a variety of different factors.
Replacement Cost Coverage — A property insurance term that refers to one of the two primary valuation methods for establishing the value of insured property for purposes of determining the amount the insurer will pay in the event of loss. Differs from actual cash value because it does not subtract depreciation due to normal use or wear and tear.
Umbrella/Excess Liability — A liability contract with high limits covering over top of primary liability coverages and, subject to a self-insured retention (deductible), covering exposures otherwise uninsured. It provides excess limits when the limits of underlying liability policies are exhausted by the payment of claims and it drops down and picks up where the underlying policy leaves off when the aggregate limit of the underlying policy in question is exhausted by the payment of claims. Some general contractors are required to carry an umbrella policy to work for on government jobs.
Underwriter — One who researches and then accepts, rejects, or limits prospective risks for an insurance company. Underwriters classify risks according to their degrees of insurability to assign appropriate rates.
Workers’ Compensation — A type of business insurance that provides benefits to employees (or their families) who suffer work-related injuries or illnesses.
While these terms are a great way to better familiarize yourself with your insurance policy, questions likely remain. Contact an agent to determine what coverages are best for you and find answers to whatever questions remain.
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