Wealth Opportunities in Commercial Real Estate: Management, Financing, and Marketing of Investment Properties

Insurance

During construction, the owner must maintain builder's risk insurance. He should also provide in the construction contract that the contractor and all subcontractors maintain workmen's compensation, general liability, and builder's risk insurance. The owner should be named as an additional insured on the general liability and builder's risk coverage. The problem is that contracting and requiring this coverage and actually securing the coverage are two different things. Assuming you are working with a reliable professional general contractor, you can expect to secure the applicable proof of insurance from this party, especially since you can hold up payment until the documentation arrives. The breakdown usually occurs in relation to the subcontractors. Some of the subcontractors will supply the requested documentation, but since their relationship is primarily with the general contractor, not the owner, it is much more difficult to obtain evidence of compliance from the subcontractors.

There is a clear differentiation in insurance requirements demanded by small to medium-size firms and large or institutional companies. The large or institutional companies commonly require coverage of at least $1 million per occurrence, $2 million aggregate, and $5 million excess. The result is often to eliminate potential contractors or subcontractors and clearly to increase the cost of construction.