For a construction project to succeed, every part must work well together from the ground up, including the risk management and risk transfer strategies. When it comes to insurance, some projects can prove more challenging, especially those using exterior insulation and finish systems (EIFS), those planned on difficult terrain or in urban areas, and structures using modern, engineered timber. Specialist wholesale brokers that know the construction industry well and understand the challenges around obtaining the optimal insurance program for difficult risks can help lay the foundation for long-term success.

EIFS COVERAGE CHALLENGES

Insurers remain wary of providing coverage for EIFS cladding after the industry was hit with massive claims starting in the mid-1990s due to damage caused by water intrusion and moisture retention. Unfortunately, older face-sealed or barrier EIFS products were as effective at keeping moisture in as well as out. Often, improper installation and repair allowed moisture to penetrate the cladding and become trapped, leading to mold, mildew, and other damage that required extensive repairs or replacement, including flooring and structural components. Problems often arose due to work performed after the original installation, particularly on doors and windows or other building openings as well as roofs and adjacent structures.

EIFS-related claims and litigation have proved complex as defendants might include everyone involved in the product and its application, from installers to general contractors, and distributors or manufacturers. A building owner might allege that the contractor failed to confirm the installer had the necessary experience, did not properly supervise the work, or that the product was defective when manufactured or sold. Settlements mounted into the millions of dollars.

As is often the case with construction defect claims, problems may not manifest until several years after the work is completed. Faced with expensive lawsuits and claims, some carriers have pulled out and others have added EIFS exclusions to construction policies. The carriers still writing EIFS coverage have raised rates and some are reluctant to provide coverage in the tougher construction defect states.

While modern drainable EIFS perform much better, the exclusions remain common in commercial general liability policies and must be addressed on a project-by-project basis. Some markets are willing to modify the exclusionary language for work related to acceptable EIFS exposures. Insurers are not as concerned about the use of drainable EIFS warrantied by the manufacturer and applied over concrete or concrete block of steel substrate as that is less likely to lead to rot and mold, but they remain wary regarding EIFS in wood frame projects. On any project, even over concrete and steel, insurers require more complete underwriting information, and may only remove the exclusion for a specific contractor using a particular manufacturer’s product.

Underwriters also want to know if the EIFS is from a single manufacturer and how experienced the subcontractor is with that specific product. Due to the potential long-tail nature involved in EIFS claims, it’s crucial for an EIFS contractor to demonstrate effective quality control, a substantial loss history, and an ongoing partnership with an insurance carrier. Carriers shy away from practice policies for EIFS-driven contractors because of what they view as insufficient control over all projects.

UNDERSTANDING GEOTECH PROJECT CONCERNS

The ground isn’t static. Soils shrink or expand and may even act like liquids in the right circumstances. Buildings can sink into the surrounding ground, which raises concerns for insurance carriers. Insurers want to understand the depth of potential sinking, and often require that it not exceed one inch. Underwriters also seek information regarding differential or uneven settlement, which should be less than the vertical settlement. The 58-story Millennium Tower in San Francisco provides a dramatic example of the potential problems that can arise when it comes to soil.¹ The tower sank about 18 inches in the decade after its completion² and was leaning 29 inches at one corner in early 2024. A more-than $100 million repair project has now stabilized the tower, built on mud and landfill, by driving pilings into the bedrock deeper below, but the tilt has not resolved.

Soil liquefaction during earthquakes is also a major issue in California as intense shaking can cause clay and sandy soils to liquefy, leading to structural collapse. San Francisco’s Marina District, for instance, was heavily damaged by liquefaction during the 6.9 magnitude 1989 Loma Prieta earthquake.³ Soil can also shrink or swell when exposed to moisture, which may lead to cracking in foundations. Colorado is known for expansive soils and bedrock, particularly along the more populated Front Range. Across the Southeast and in Florida, concerns include subsidence and sinkholes that develop in geologic formations known as karst zones where underground cavities caused by soluble rock can lead to sinkholes, some large enough to swallow small buildings.

Carriers are looking for so-called competent soils that can hold a building’s weight, and are concerned about vertical movement, moisture, and expansive soils that may be viewed as incompetent. For that reason, most sizable projects require geotechnical reports, detailing the potential settlement and measures employed to limit sinking as well as differential settlement. The geotech report provides data about soil composition, whether it is fill and what type, soil stability, compression, behavior of the underlying rock, groundwater, and other issues. The reports also cover mitigation measures including excavation and foundations, for example, the use of a raft or mat foundation or the optimal depth of pilings.

Construction underwriters may have their own engineers review the geotech report and may condition coverage on specified adjustments to the plan. If the site is overly difficult, insurers may decline to provide coverage, though builders faced with unexpected soil difficulties and additional expense may opt to cancel the project.

URBAN CONSTRUCTION HURDLES

Building projects in urban areas face additional hurdles as any construction is likely to have an impact on neighboring properties and may pose potential vehicle and pedestrian risks. Urban sites may also become targets for intruders, heightening concerns about crime and fires.

During construction on an urban infill project, neighboring properties may be impacted by excavation and blasting for site preparation or by the pounding to drive piles that create a stable foundation. Insurers want to verify what precautions are taken to stabilize the site and prevent damage to adjacent properties and buildings. The collapse of the Champlain Towers condominium near Miami, Florida in 2021 has heightened concerns over construction projects in urban areas, though the investigators have focused on structural deficiencies in that condominium itself.⁴ Construction equipment can also damage neighboring properties. In 2023, for instance, the construction crane boom on a 45-story Manhattan building project partially collapsed into an adjacent building, injuring a dozen people.⁵

Urban sites also raise concerns about site security as well as safety, both on and off site. City projects pose much higher premise-driven risk, including outsiders camping on the site or starting fires. Carriers want to see site-specific safety plans, including how the builder is protecting the site from entry by outsiders, such as with fencing and security cameras, as well as ensuring safety for pedestrians from construction hazards and heavy vehicle traffic. Business interruption risk to adjacent properties is another concern as an accident on site may force neighboring businesses to close. The 2019 collapse during construction of a planned Hard Rock Hotel in New Orleans killed three workers and shut down nearby businesses for weeks.⁶

While some carriers are avoiding urban-adjacent projects, the major impact is on price rather than coverage availability, especially in areas where claims have been more frequent and settlements higher than expected. Insurance premiums are likely to be more expensive in downtown areas of major cities compared with suburban or rural projects.

RISKS RELATED TO NEW MATERIALS

While engineered wood known as cross-laminated timber (CLT) and mass timber has been widely used in European construction for three decades, it is less well known in the U.S. Builders use cross-laminated timber panels, which consist of boards stacked at right angles and glued together, for long spans in walls, floors and roofs. Mass timber, or glue-laminated timber is used for beams and columns in residential and commercial structures.

While most often used in structures of less than five stories, manufactured timber projects have been rising higher. The 25-story Ascent Tower in Milwaukee was recognized as the world’s tallest timber building in 2022. The residential and retail tower is built from cross-laminated and glue-laminated timber over a concrete base, with concrete elevator and stair shafts.⁷ Amazon’s HQ2 in Arlington, Virginia, also features engineered timber as part of its overall design.⁸

The lack of U.S. claims data on buildings using engineered timber has led to uncertainty around pricing for carriers and the question of whether to treat it more like wood-frame construction or as a product risk. This means underwriting may seek additional information about the manufacturer and manufacturing process, including details of additional insured coverage. On the other hand, some carriers are avoiding it altogether.

BOTTOM LINE

Every construction project is challenging, but some pose more hurdles when it comes to finding the most appropriate insurance coverage. Whether a project includes EIFS cladding, has a challenging site, or uses new materials and techniques, construction coverage specialists with a track record of placing difficult risks can provide vital guidance on the most appropriate markets and coverage. Insurance options continue to evolve. More insurers are moving from practice policies to project-specific coverage, particularly in tougher construction defect states, including California, Florida, and South Carolina. For project sponsors, owner- and contractor-controlled insurance programs offer the benefit of providing overall coverage for the project, eliminating concerns about the adequacy of subcontractors’ insurance coverage.

Construction is a complex business, and every project is different, which makes it crucial to present the most detailed information possible for risk mitigation as well as for obtaining coverage. Specialist brokers that understand the construction industry and the available coverage options can break out the conditions on the quotes as well as the exclusions to help insureds make more informed decisions. Since construction presents long-tail claim opportunities, it’s important to remember that price is just one consideration. It’s also important to evaluate carriers with an eye toward any future claims. Brokers who consistently interact with the construction insurance marketplace can provide added confidence for both retail agents and clients. Reach out to Team CRC today to learn how we can help you build the optimal construction insurance program.

CONTRIBUTORS

• Jeff Dunn is an SVP & Senior Casualty Broker with CRC Group’s Atlanta, GA office.
• Ryland Fisher is an Associate Casualty Broker with CRC Group’s Atlanta, GA office.
• Josh Levy is an Inside Casualty Broker with CRC Group’s, Redondo Beach, CA office.
• Ryan Nadler is a Casualty Broker with CRC Group’s Atlanta, GA office.

END NOTES

1. Millennium Tower residents billed $6.8 million for fix overruns NBC Bay Area
2. Millennium Tower sank more even after partial work stoppage, documents show. 
3. Liquefaction during the Loma Prieta earthquake
4. Federal investigators zero in on deadly condo collapse cause in Surfside, Fla.
5. 12 injured when NYC crane collapses into building after catching fire near Manhattan’s Hudson yards
6. Restaurant group sues developer, contractor of Hard Rock Hotel project.
7. Ascent skyscraper in Milwaukee becomes world’s tallest timber building
8. Amazon’s HQ2 achieves the highest level of LEED green building certification.
9. Construction Data, Associated General Contractors of America
10. New non-residential construction spending in the United States from 2005 to 2022