British Columbia School Protection Program
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Explainer - Glossary of Terms
What is Construction Insurance? “Construction insurance” is a phrase that describes the various types of insurance coverages that provide protection during the construction of a project. There is no single insurance product that is “construction insurance”, but rather, the term is used as a general reference to the various types of insurance that may be considered for construction projects. There are several types of insurance that may be considered for construction projects, such as: Course of Construction (Builder's Risk) to cover the building materials and structure being constructed Commercial General Liability (including Wrap-up forms) to cover the bodily injury and property damage loss by another from the construction activities Errors & Omissions Professional liability to cover the professional errors and omissions in the design or advice regarding the construction project Automobile liability to cover automobile accidents that occur Depending on a particular project, coverage may also include marine, aviation (including drones), and environmental impairment liability policies, etc. Owners typically develop insurance requirements (see “Mandatory Changes”) for the construction contracts they use that incorporate these commonly required forms of insurance, keeping in mind that insurance requirements may be modified for a particular project where hazards may differ from usual projects.
What is the Project Value? For the purposes of construction insurance, the “estimated project value” is only a portion of the entire project budget. Estimated project value does not include the cost of: obtaining land obtaining temporary facilities (swing space) fixtures and furniture (including for temporary facilities) educational supplies or equipment, books, gym/playground equipment etc. For Construction Insurance purposes the estimated project value is sum of the insurable costs associated with the construction: Estimated Project Value = Hard Costs + Additional Hard Costs + Soft Costs Hard Costs: the value of the materials and labour directly used in the construction (such as bricks, mass timber, roof tresses, labour costs, etc.) Additional Hard Costs: the value of those items required for the construction but that be re-used in subsequent projects (such as signage, fencing, etc.) Soft Costs: the value of those costs that will occur if the occupancy is delayed due to a loss. For example, if a construction project suffers a major fire loss, and requires additional time to complete the structure, there will be costs incurred because of the delay. (such as the cost for additional/extended permits, revised architectural plans, etc. ) Refer to the Project Cost Worksheet (last page) of the Construction Insurance Application Form for additional examples of Hard, Additional Hard and Soft Costs. Hard, Additional Hard and Soft Costs also used to calculate the values for: Course of Construction (COC) value = the estimated Project Value The estimated Construction Value = Hard Costs + Additional Hard Costs Wrap Up General Liability value = the estimated Construction Value Refer to “What is Course of Construction Insurance” and “What is Wrap Up General Liability Insurance” for additional information.
What is “Course of Construction” Insurance? The insurance policy that provides property coverage for damage to the building materials or the buildings / structures during the construction phase[FCF3] is the “Course of Construction” (COC) insurance. It is also commonly referred to as Builder’s Risk, or sometimes construction all risk property insurance. Property insurers generally recognize that construction activities may create or increase the risk of damage to a building or structure. Most property insurance policies either do not cover buildings or structures while they are being constructed [FCF4] or will impose significant coverage limitations, prompting the need for a specialized form of property coverage. The SPP / UCIPP property coverage agreement includes an exclusion for construction work. Course of Construction (COC) insurance policies cover damage to buildings or structures resulting from causes such as fire, water damage (flood or internal plumbing sources), weather-related events (wind, hail, etc.), vandalism, theft, as well as other perils. In certain regions, such as British Columbia, coverage for earthquake damage will be an important consideration. COC coverage is designed to cover the value of labour and materials which accumulate at a project site during the progressive stages of construction, the value of the structure(s) being built and the costs that would occur if occupancy is delayed. The Course of Construction coverage is the estimated value of the project and not just the estimated value of the construction. The estimated value of the project is the sum of Hard Costs + Additional Hard Costs + Soft Costs. These values are included on the Construction Insurance Application Form. The COC extends coverage to include the project owner, architects, engineers, contractors, subcontractors that are involved with the construction project. This avoids blame and finger pointing between the various players (and their insurers) if a loss occurs to the construction project.
What is “Self-Insured” Course of Construction? Insurance is an agreement where the insurer agrees to provide money to the purchaser if an incident occurs that as the result of certain risks or hazards that causes loss or damage to a specific subject. Insurance is a risk transfer tool. In exchange for the payment of the premium, the insurer agrees to provide insurance for specific assets, for specific circumstances, etc. To “self-insure” means there is transfer of the risk to an insurer. Instead, the ‘self’ retains the risk of the loss and will fund payment for the loss from its own funds. The Ministry will usually agree to “self-insure” the COC coverage for public K-12 school district clients of SPP. If the Ministry agrees to self insure the COC, the Ministry retains the risk and acts like a COC insurer in the event of a loss. When the Ministry has agreed to self-insure the Course of Construction (COC) insurance coverage, there is no premium charged for the COC coverage to the project owner. Although the Ministry has agreed self-insure the COC coverage for most K-12 education and childcare construction projects, the Ministry may decline to do so if: Significant funding is from non-Ministry or Government sources (such as from private donors, the community, etc.) The final occupancy is for joint use with the community or another organization NOTE: the Ministry will NOT self-insure the COC for any project with an estimated project value greater than $75 million. If the Ministry declines to self-insure the COC, the COC coverage will be commercially placed. As the owner, you will need to pay the COC premium and factor this cost into your construction budget. The Wrap Up General Liability insurance policy is always commercially placed, and always generates a premium. Issue Self-Insured Course of Construction (COC) Construction Insurance Program Course of Construction “Off Program” Financial impact if construction completion is delayed (i.e., bank loan due and anticipated rents not possible as project not finished) Delay in Start Up (DSU) coverage not available Delay in Start Up (DSU) coverage not available Delay in Start Up (DSU) coverage possible for additional premium Coverage wanted to improve/upgrade design/materials/plan if a loss occurs (LEG3) LEG 3 coverage is not available. LEG 2 only -- “consequential defects exclusion” this excludes before loss costs of fixing any defective design/materials/workmanship LEG 3 (included) – “Improvement defects exclusion” – excludes costs to improve the original design/materials/workmanship LEG 3 (included) – “Improvement defects exclusion” – excludes costs to improve the original design/materials/workmanship wood frame/mass timber projects up to $75 million Projects up to $50 million Projects over $50 million At initial insurance placement project duration Up to 36 months Up to 36 months Over 36 months During the planning phase of your project, check in with us to enquire if the Ministry agrees to self-insure the COC if your project includes any of the above factors. REMINDER: whether the COC is ministry self-insured or commercially placed, the Wrap-up Commercial General Liability (WUL) is always commercially place and will incur a premium paid by the owner. Additional information regarding the self-insured COC coverages can be found in the Schools and University, College & Institutions Project Program Self-Insured Course of Construction Wording.
What is Commercial General Liability – Wrap Up Insurance? Commercial General Liability (CGL) insurance[FCF17] , which can include “Wrap Up" CGL forms, provides protection against third-party claims primarily related to bodily injury or property damage that occurs from the construction operations. Owners, contractors, subcontractors, architects and engineers will look to CGL coverage to protect themselves from claims arising from the construction work. There are common exclusions to CGL policies that may prompt the need to have additional types of liability insurance, such to address automobile liability, professional liability, aviation liability, marine liability, and pollution liability. A 'Wrap Up’ liability policy is a single liability policy that addresses the legal liability of all who are involved in the project (such as the owner, contractor, subcontractor, architects, engineers, etc.). The various liability exposures are 'wrapped up' into a single liability policy. A unique feature of a Wrap Up Liability (WUL) policy is that it also provides coverage for direct damage to the project after the completion of the construction period. This is the ‘completed operations’ coverage and it is for a set period which is commonly 24 months. There is a cost savings to the project team by using a WUL policy as it avoids each member of the project team needing to obtain and provide proof of their own CGL coverage for the construction work period. Another benefit is that the WUL eliminates the time and costs associated with allocating responsibility for a loss between the parties. The Wrap Up General Liability coverage premium is based on the sum of the Hard Costs + Additional Hard Costs. These values are included on the Construction Insurance Application Form and used in the calculation for the initial deposit premium.
Risks of ending construction insurance too early: Property coverage: The property coverage provided by SPP (e.g., the regular property coverage provided for completed buildings) does not cover the following claims (i.e., excludes coverage): New buildings or structures under the Course of Construction (COC), including any materials, supplies and labour associated with the project; Existing buildings under the course of construction that are undergoing renovations, repairs, additions or alterations, including any materials, supplies and labour associated with the project unless: the total estimated project cost is less than $5 million; OR, the total estimated construction cost is greater than $5 million AND the owner placed the project into the Construction Insurance Program for COC and Wrap-up Commercial General Liability (WUL) coverage Course of Construction coverage must be in place to cover building damage during the construction phase and until the building is ready for use. Liability coverage: Liability coverage provided by SPP does not extend to cover the ????? If WUL Construction Insurance is lapsed or cancelled while the construction work is still on-going: what does the END say? If the construction services contract required you as owner to place the place the construction insurance, if you end the construction insurance while construction work is still on-going, you may have breached the terms of the construction contract. You may then be responsible for ANY claim that arises when the coverage should have been maintained (i.e., if the coverage is lapsed or cancelled). The completed operations period of time will begin. This coverage extension responds to claims arising from work completed before coverage terminated. The completed operations time period runs for 24 months. Premature cancellation of the WUL results in early start and stop of the completed operations time period.
Construction Insurance Program (On Program / Off Program) The Risk Management Branch (RMB) has developed the Construction Insurance Program which includes both Course of Construction (COC) and Wrap-up Commercial General Liability (WUL) insurance suitable for public sector projects, including those by K-12 school districts and post-secondary institutions, with the estimated project value does not exceed $75 million. Projects that have construction insurance through the Construction Insurance Program are said to be “On Program”. Effective March 1, 2023, the “threshold” value for placement into the Construction Insurance Program (Program) was increased to $5 million. Projects with an estimated value below the $5 million (the threshold), should require the contractor to arrange and maintain the insurance. NOTE: If the Owner has contractually agreed to place the construction insurance, Contact Us to place the coverage regardless of the project value Projects with an estimated value between $5 million and $75 million, in most cases, will have the construction insurance through the Construction Insurance Program. Such placements may be referred to as being “On Program”. Projects where the Ministry has agreed to self-insure the Course of Construction coverage, will have the Wrap Up General Liability insurance placed through the Construction Insurance Program However, if a project does not fit the criteria of the Construction Insurance Program, the construction insurance will be placed commercially on a one-of basis, and considered “Off Program”. For example, WUL limit greater than $10 million; LEG3; Delay in Start Up; wood frame/mass timber with estimated project value greater than $35 million; at time of initial placement the project duration known to exceed 36 months. Projects with an estimated value greater than $75 million, are not eligible for Construction Insurance Program coverage, and are placed on a one-of basis and placed commercially. Such placements may be referred to as being “Off Program”. Projects where the Ministry has declined to self-insure the Course of Construction coverage, will have both the Course of Construction and the Wrap Up General Liability insurance placed through the Construction Insurance Program if the project value is less than $75 million, or placed on a “one-of” basis if the project value is greater than $75 million In many situations the Ministry will agree to self-insure the COC for projects with an estimated value under $75 million. For additional information what this means, and what is considered, please refer to “What does “Self-Insured” Course of Construction mean?”
Who obtains Construction Insurance? Construction Insurance can be obtained by either the Owner, or by the Constructor. The construction contract between the Owner and the Constructor will stipulate if the Owner or the Construction is to obtain the construction insurance. For construction projects with an estimated value below $5 million, the constructor should provide the construction insurance. Refer to the “Contractor Insured” Risk Provisions. For construction projects with an estimated value greater than $5 million, the Owner will place the construction insurance. For projects with an estimated value between $5 million and $75 million, refer to the “Owner Insured” Risk Provisions. For projects with an estimated value greater than $75 million, contact us! Additional information is available regarding “Construction Insurance Program”, “Threshold”, “Risk Provisions”, “Construction Insurance Application” and various timelines of When to check in with us.
What is the Maximum Time Period in the Construction Insurance Program? The maximum amount of time a project may have construction insurance (Course of Construction and Wrap-up Commercial General Liability coverage) through the Construction Insurance Program is 36 months, plus a maximum completed operations period after the termination date of 24 months. Project that are expected to take more than 36 months to complete, are considered a Referral Risk and must be referred to the insurers. Once construction commences, if a project requires time extensions that will cause it to exceed the 36 month time period, we will require additional information from you to provide to the insurer. The insurer may use a different rate for the time extension premium calculation.
When should Construction Insurance start? All new-build and renovation projects will require some level of construction insurance. Construction insurance should be in place when the work starts and remain in force until the work ends. SPP property coverage agreements do not provide extend to cover either buildings being newly construction or existing buildings undergoing renovations (repairs, additions, or alterations) for projects over the threshold, unless specific criteria have been met. If the criteria are not fulfilled, and a loss occurs to the structure during construction, SPP property coverage would not apply, and your organization may suffer a financial loss. Please refer to your SPP Property coverage agreement for additional information regarding property coverage. Similarly, SUCIPP liability coverage agreements do not extend to cover acts or omissions of contractors. To address this gap in coverage, SPP clients are required to obtain construction insurance through the Construction Insurance Program to obtain Course of Construction (property) and Wrap Up General Liability Coverage for projects that have an estimated value greater than $5 million. Also, SPP clients have a legal obligation to obtain construction insurance if the construction services contract requires the Owner to place the construction insurance. This obligation would then exist regardless of the value of the construction project. As a matter of convenience, Projects with an estimated construction value above the threshold should have the construction insurance be placed by the Owner. While those construction projects with an estimated construction value below the threshold should have the insurance placed by the constructor.
Unique Features of the Course of Construction coverage: •DECLARED MAXIMUM VALUE. As of 2023 (?) the maximum amount of coverage for Soft Costs is the declared maximum indicated on the construction insurance application form. •No Delay in Start Up coverage. There is no Soft Cost coverage to address a financial loss that would be incurred if the construction project is delayed. An example of such a potential loss is a bank loan that comes due but a project delay means the the expected revenue from the building has not yet begun due. •LEG 2 only - “middle” level coverage -- "consequences defects exclusion" clause excludes the before-loss cost of remedying any defective workmanship, materials or design. •Deductibles. In recent years, these have increased. The Risk Provisions have been amended to align with the Construction Insurance Program deductibles. The use of older versions of the Risk Provisions may mean that the Owner becomes responsible for any difference between the current Construction Insurance Program deductibles, and what was contractually agreed to with the Contractor.
When can construction insurance end? Construction Insurance should generally be kept in force until the project is ready for use or is being used for the purpose intended. This may be referred to as “Ready for Takeover of the Work” in the construction contract. Carefully review the insurance provisions within the construction contract to determine when construction insurance can be ended. How does SPP start Once a project is being used for its intended purpose, the Course of Construction (COC) and Wrap- up Commercial General Liability (WUL) insurance policies are usually lapsed or are cancelled. If the structure will be used for educational or child care services] SPP/UCIPP property and liability coverage begins automatically once the construction insurance (COC and WUL) end. There is NO NEED to contact us! If the structure will not used in the provision educational services, SPP property coverage is not possible, and property coverage is available through the BC Optional Property Program. SPP liability coverage will be begin automatically once the construction insurance has ended. The insurance application for BC Optional Property Program (BCOPP) can be found at the "Forms" section of the SPP website. The final construction values of the project are to be submitted to our office within 30 days of the termination of the construction insurance. The final project value is used to determine the final premium adjustment which may result in additional premium owing or a return. IS more info at “Rates and Fees” or ELSEWHERE???
Unique Features Wrap Up General Liability coverage: 1.WUL 2.$10 mill limit WUL 3.When to consider higher limit (urban, project risk factors) 4.Hot works 5.Deductibles
Issue | Self-Insured Course of Construction (COC) | Construction Insurance Program Course of Construction | “Off Program” |
|---|---|---|---|
Financial impact if construction completion is delayed (i.e., bank loan due and anticipated rents not possible as project not finished) | Delay in Start Up (DSU) coverage not available | Delay in Start Up (DSU) coverage not available | Delay in Start Up (DSU) coverage possible for additional premium |
Coverage wanted to improve/upgrade design/materials/plan if a loss occurs (LEG3) | · LEG 3 coverage is not available. | LEG 3 (included) – “Improvement defects exclusion” – excludes costs to improve the original design/materials/workmanship | LEG 3 (included) – “Improvement defects exclusion” – excludes costs to improve the original design/materials/workmanship |
· LEG 2 only -- “consequential defects exclusion” this excludes before loss costs of fixing any defective design/materials/workmanship | |||
wood frame/mass timber | projects up to $75 million | Projects up to $50 million | Projects over $50 million |
At initial insurance placement project duration | Up to 36 months | Up to 36 months | Over 36 months |
Coverage Table
Issue | Self-Insured Course of Construction | Construction Insurance Program (CO | “Off Program” |
|---|---|---|---|
Construction in urban location requires high WUL limit | $10 million | Higher limits available (for additional premium) | |
Financial impact if construction completion is delayed (i.e., bank loan due and anticipated rents not possible as project not finished) | No Delay in Start Up (DSU) coverage possible | DSU coverage (for additional premium) | |
Coverage wanted to improve/upgrade design/materials/plan if a loss occurs (LEG3) | LEG 2 only -- “consequential defects exclusion” this excludes before loss costs of fixing any defective design/materials/workmanship | LEG 3 (for additional premium) – “Improvement defects exclusion” – excludes costs to improve the original design/materials/workmanship | |
wood frame/mass timber | Projects up to $35 million | Projects over $35 million | |
At initial insurance placement project known duration | Up to 36 months | Over 36 months | |
At initial insurance placement project duration | Up to 36 months | Up to 36 months | Over 36 months |