Home building projects involve countless moving parts, from permits and site preparation to subcontractor management. One often-overlooked aspect is the insurance terminology found in business contracts. For builders, this isn’t just a legal formality; it’s a significant line of defense against financial loss, liability, and project delays.
Construction contracts serve as the framework for who is responsible for what. Clearly defined insurance protections can help reduce the chances of costly disputes and offer a more straightforward path when problems arise on the job site.
This article provides a thorough overview of the information you need to know about home builders insurance and how it fits into contracts.
The Importance of Insurance Clauses
The construction industry is among the highest-risk sectors in the nation. There are physical risks to workers and property, as well as legal and financial exposure, which can be exacerbated by project size, subcontractor involvement, and third-party claims. Without strong insurance requirements built into your contracts, your company may be held responsible for losses that weren’t your fault.
Insurance protections in contracts help clarify responsibilities between parties, reduce legal risk, and streamline the claims process if an incident occurs. These provisions also help meet the insurance requirements that lenders and project owners often impose before work begins. Shifting risk through contracts and insurance is one of the most effective ways to protect your company’s financial health.
Insurance Protections Builders Should Include
In addition to home builders insurance, several types of insurance protections commonly appear in home building contracts.
General liability insurance is essential for businesses. It addresses bodily injury and damage to property resulting from negligence that occurs at the job site. Your contracts should clearly state the required coverage limits, the need for subcontractors to list your company as an additional insured, and whether policies must be primary and non-contributory. Including a waiver of subrogation can also limit your exposure in case of a claim.
Workers’ compensation insurance is required by law in nearly every state for businesses that employ staff. If one of your subcontractors does not have their own workers’ compensation insurance and one of their employees suffers an injury, your company could be held responsible. This is why it is necessary to require proof of this coverage before subcontractors begin work.
Builders risk insurance covers construction materials, equipment, and fixtures while a project is in progress. Some contracts require the project owner to carry this policy, while others place the responsibility on the builder. Clarifying who is responsible helps prevent coverage gaps.
Professional liability insurance, also called errors and omissions insurance, is important for anyone providing design services. If you work closely with architects or engineers, or if your firm offers in-house design, make sure this protection is included. It covers claims arising from design flaws or miscalculations that cause financial harm.
Commercial auto insurance is another coverage that’s often overlooked but essential. If subcontractors are transporting tools, materials, or crew members, they should carry valid commercial auto coverage.
For larger jobs, an umbrella or excess liability policy may also be required to provide additional protection above the primary limits.
What to Review in a Certificate of Insurance
Requesting a certificate of insurance (COI) from subcontractors is common practice, but it’s not enough to just collect the document. Review each certificate carefully to make sure the named insured matches the subcontractor’s legal business name, the coverage limits meet your contractual requirements, and the effective dates cover the full duration of the project.
You’ll also want to check that any required endorsements, such as additional insured status, are actually included and not just listed as “will provide upon request.” When in doubt, confirm details with the issuing insurance company.
Strengthening Your Contract Language
If you’re relying on outdated contract templates, you could be leaving your business vulnerable. Many builders adopt boilerplate contracts without reviewing whether they reflect current industry practices or align with their actual insurance policies.
To protect your business, keep your contract language clear and specific, especially around home builders insurance. Avoid vague phrases like “adequate coverage.” Specify the minimum policy limits and require documentation before work commences.
Outline what happens if a subcontractor fails to maintain coverage. For example, you may wish to reserve the right to withhold payment or terminate the contract if a subcontractor does not secure adequate coverage. Working with a legal advisor and your insurance agent can help you tighten these provisions and make sure they’re enforceable.
Common Pitfalls That Can Hurt Builders
Too many builders discover their insurance protections are lacking only after a claim is filed. Overlooking policy renewals, assuming a certificate guarantees actual coverage, or failing to verify subcontractors’ insurance are all common missteps that lead to expensive consequences.
Here’s a brief checklist of common issues to watch out for:
- Accepting certificates without confirming actual coverage terms
- Failing to include indemnification clauses in contracts
- Letting policies lapse mid-project without updating documents
- Not requiring professional liability insurance from design professionals
- Overlooking commercial auto and umbrella insurance needs
Each of these can increase your risk exposure, both legally and financially.
Protect Your Projects with Home Builders Insurance
Construction projects already carry a significant amount of uncertainty. Insurance shouldn’t be one of them. By taking time to review and strengthen the insurance provisions in your contracts, you can avoid common pitfalls and protect your business from the fallout of lawsuits, claims, and unnecessary costs.
Burton & Company has been assisting home builders throughout Virginia for over a century. We understand the specific insurance needs of the construction industry and know how to customize your policies to align with your contracts. Our team works with you to review contract requirements, verify subcontractor coverage, and build policies that make sense for the way you work.
If you’re ready to protect your next build from start to finish, let’s talk.
Call 888-652-1325 or contact us online to connect with a commercial insurance advisor who understands the challenges and risks home builders encounter every day.
