Steering the Course: Course of Construction (COC) Insurance Options

All it takes is a spark.  From a sander. Or errant cigarette.  And POW!  Igniting common, flammable construction materials like wood, solvents, packaging, and gasoline and turning a work in progress to a pile of ash.  It’s a powerful blow to any construction firm and property owner.

Fire is the leading cause of losses during construction activities, and we don’t have to look far for real-life incidents:

• A four-story residential building under construction in Mississauga was been destroyed by a three-alarm fire that burned for hours.
• In Saskatoon, an early morning fire broke out at an under-construction hotel, causing damage to the western portion of the hotel tower.
• A high rise apartment building under construction in Ottawa’s Little Italy neighborhood caught fire, requiring the evacuation of 160 construction workers.

When a construction company is in the midst of building something great, it’s painful to see its sudden destruction and then have to muster up the wherewithal required to start all over again.  It can be particularly painful if the ability to rebuild is hindered by finance issues or insurance disputes.  These are exactly the times when a construction firm realizes that value, and the quality, of its course of construction insurance coverage.

Course of Construction Insurance, also known as Builder’s Risk insurance, insures buildings or projects under construction against the costs of repair or replacements in the event of an accident just like the ones mentioned above.  It’s designed to protect owners and contractors from the devastating impact of fires, floods, vandalism, theft, and other unwelcome accidents to a construction project.

COC provides both owners/developers and general contractors peace of mind. Since course of construction insurance covers a number of parties, it can be obtained by the owner, contractor, engineer, or project manager.  Owners are assured their contractors will have the funds to rebuild in the event of a loss, and contractors are assured they will have the costs available to start over in such an event.

In today’s market, COC coverage is widely available on a standalone basis but can also be incorporated as an extension to a property policy.  When considering whether or not to rely on a COC property extension for a construction projects or to buy standalone coverage, there are many factors to consider.

A stand-alone COC wording is designed specifically to cover all risk associated with a project and recognizes multiple parties are involved and should be covered accordingly.  It is very tailored coverage.  On the other hand, a COC property extension is an add-on, a quick, short-term solution – that certainly streamlines coverage, although it also runs the risk of stirring up some complicated issues and disputes.

Either way, a standalone COC policy or as a property extension – buyers have a choice and can steer their own course in how they insure their course of construction risks.

This article was written by Neil Jeanson, a senior class underwriter on XL Catlin’s North America Construction team based in Calgary. If you have question about standalone COC coverage, contact Neil at neil.jeanson@xlcatlin.com. Or, for a full copy of Neil’s article, download it here.