You're growing. That means your facilities also are expanding. If you're involved in a building project or foresee one in the immediate future, you should be aware of the proper procedures to ensure everyone's safety during this transitional period.
Let's face it, all construction sites create a liability exposure for the landowner. It's also not uncommon for a building to be damaged during construction. People might be injured, or neighboring buildings could be damaged. According to statistics from the United States Bureau of Labor, more than 900 construction workers are killed and more than 135,000 injured annually. Selecting the proper insurance depends on a number of factors, including if you are using a general contractor, subcontractors, volunteer labor, or a combination.
Regardless of the situation, your organization's general liability and umbrella liability policies should be reviewed with your insurance representative before construction begins to ensure protection.
Building project steps to consider
Hiring an architect
If your project is a large one, this should be the logical first step. By taking it, you might be able to avoid some of the normal pitfalls building projects incur.
In addition to providing you with blueprints to show what the project should look like upon completion, architects can help safeguard the client by interviewing potential general contractors.
Among other things, a good architect will look at the contractors':
Hiring a general contractor
Using a general contractor doesn't mean your organization is protected from loss throughout the construction project. A competent general contractor will provide the expertise for a building project, but there is no guarantee the contractor will obtain insurance to cover property and liability losses or purchase workers' compensation insurance.
Before signing a contract with a general contractor, here are points to consider:
Self-managed projects
Some organizations elect to appoint a knowledgeable member to serve as the project manager. This individual works on the organization's behalf to hire the various contractors to do the work.
This technique eliminates the cost of a general contractor but increases the organization's responsibility and insurance risk and cost. There is a tremendous amount of work that must be done to properly select specialty subcontractors, schedule the work and coordinate the project.
Organizations taking this route should:
Volunteer labor
If you turn to volunteer labor during the construction project, you must provide skilled leadership. Other tips include:
Builders' risk insurance
For most building projects, your organization will need to purchase builders' risk insurance to cover damage to the building under construction.
Builders' risk can be added to an existing multi-peril policy or purchased as stand-alone coverage. In some cases, the general contractor will purchase this coverage for you. Builders' risk is necessary because a typical commercial policy does not cover a new building, or the expansion of an existing one, until construction is completed and the structure is approved for occupancy by the local building inspector.
A builders' risk policy covers damages from causes such as fire, lightning, vandalism, collapse, wind and hail. The covered causes of loss can vary by policy. You also can add coverage for theft of building materials at and away from the construction site as well as while in transit. The construction contract specifies who is responsible for stolen materials.
The limit of insurance selected should be equal to the estimated completed value of the new building or expansion. This limit should be higher than the project's estimated cost if you utilized volunteer labor or had materials donated. Also, a damaged building can be far more difficult to repair than it is to build. Those who volunteered their time to build might lack the skill to make repairs or be unwilling to repeat the task.
There also could be a coinsurance penalty assessed if the building is damaged and not insured to the proper value.
Two projects with different outcomes
Theft delays construction
A congregation was in the process of building a new fellowship hall. One morning, the general contractor came to the job site and discovered about 50 trusses for the building had been stolen along with other building supplies. Neither the congregation nor the contractor purchased a builders' risk insurance policy before the project began. The congregation was forced to halt the project for more than a year while a new fundraising campaign took place.
Storms fail to halt completion
A congregation was only weeks away from moving into its new sanctuary, classrooms and office facility. Then disaster struck in the form of a major tornado, damaging much of the new facility. Although completion of the project was delayed for more than six months, a builders' risk insurance policy covered the rebuilding of the damaged section of the facility and allowed the project to continue and remain within the tight budget constraints.