Building Smarter: Insurance Insights for the Construction Industry - Part 3

Part 3: Closing the Gaps — Uncovering the Coverage Blind Spots That Put Construction Firms at Risk

Even with a strong foundation and a well-layered insurance strategy in place, construction firms often face a subtle but dangerous challenge: blind spots. These are not obvious gaps — they are nuanced oversights, policy exclusions, and operational mismatches that don’t present themselves until a claim is denied or a project grinds to a halt due to unanticipated liability. And by then, the damage is already done.

In this part of the series, we examine the most frequent and impactful insurance blind spots in construction, why they happen, and how they can be proactively identified and corrected.

1. Subcontractor Liability Assumptions

Perhaps the most prevalent blind spot arises from subcontractor risk. Many general contractors assume that if their subs carry insurance, that protection will automatically extend to the GC. But this is a flawed assumption — and one that leads to expensive surprises.

First, not all subcontractors carry sufficient coverage. Some may have expired policies, limits too low to be meaningful, or coverage that does not name the general contractor as an additional insured. Others may not carry the right types of insurance — for instance, a roofer without completed operations coverage, or an electrician without adequate workers’ compensation for their team.

Even if a subcontractor has valid coverage, their policy will prioritize their own defense, not yours. Without clear contractual language and properly executed additional insured endorsements, you could still find yourself pulled into litigation without protection.

To avoid this, contractors must enforce rigorous subcontractor insurance compliance procedures. This includes verifying certificates of insurance, requiring proper endorsements, using waiver of subrogation clauses, and confirming that subcontractor policies are primary and non-contributory. Annual or even quarterly audits are recommended, especially on longer-term projects with changing trade partners.

2. Gaps in Completed Operations and Ongoing Work

Construction firms often don’t realize how their liability changes over the lifecycle of a project. There’s a distinct difference between coverage during construction and coverage after the work is done.

General liability policies usually distinguish between “ongoing operations” and “completed operations.” If your policy isn’t written correctly — or if an exclusion applies — you could lose coverage the moment the job wraps up. For example, a claim made six months after completion due to faulty installation may fall outside the scope of protection if your completed operations coverage wasn’t properly structured or was too narrowly defined.

This is particularly dangerous for trades whose work is embedded and invisible, like plumbing, wiring, or foundation work. These issues often surface months or years later, long after the certificate of occupancy has been issued and final payment received.

To safeguard against this, contractors should confirm that their policy includes robust completed operations coverage, with limits that reflect the potential cost of structural failures or latent defects. For firms working in high-liability environments — like schools, hospitals, or multifamily housing — this is absolutely essential.

3. Contractual Risk Transfer That Doesn't Match Coverage

Modern construction projects are governed by complex contracts that allocate risk in increasingly aggressive ways. Owners and GCs often include indemnification clauses that push liability down the chain, requiring subs to take full responsibility for losses, regardless of fault.

However, there’s often a mismatch between what the contract demands and what the insurance policy will support. A subcontractor may agree — perhaps unknowingly — to indemnify a general contractor for claims that are not actually covered by their insurance. This creates a liability black hole. The sub thinks they’re covered, the GC thinks they’re protected, and in reality, both parties are exposed.

This scenario becomes even more problematic when contracts require waivers of subrogation, broad-form indemnity, or assume risk for third-party actions. If these clauses are not supported by policy language, they’re essentially uninsured promises.

Avoiding this requires collaboration between your legal team and your insurance broker. Every contract should be reviewed not just for legal compliance, but for insurance compatibility. Your broker should be advising you on what you can and cannot agree to based on your current program — and updating your coverage if your contracts evolve.

4. Pollution and Environmental Exposure

Pollution liability is one of the most misunderstood areas of construction insurance. Most contractors believe their general liability policy will cover environmental claims — but this is almost never the case.

Standard GL policies specifically exclude pollution events. This includes everything from fuel spills and hazardous material exposure to mold growth and asbestos disturbance. The consequences of such claims can be severe, ranging from bodily injury lawsuits to regulatory fines and remediation costs.

Even seemingly minor activities — like cutting into drywall, drilling into concrete, or disturbing old flooring — can trigger environmental exposure. In urban areas, you may also be working near contaminated soil or outdated infrastructure with unknown environmental risks.

Environmental liability insurance (often referred to as contractor’s pollution liability) should be considered for any firm working in demolition, excavation, or renovation. In some jurisdictions, it's increasingly being required by public agencies and large developers.

Coverage can be tailored to project-specific risks or purchased on an annual basis. Either way, it should not be considered optional in today’s regulatory and legal climate.

5. Cyber and Technology Risk in Construction

Construction may not seem like a digital-first industry, but make no mistake — cyber risk is growing rapidly. Project plans, site photos, contracts, bid documents, and client data are all now stored digitally. Many firms use cloud-based tools like Procore, Buildertrend, or PlanGrid. Others manage payroll, subcontractor payments, and financials through online platforms.

This creates a significant exposure to data breaches, ransomware, phishing attacks, and accidental disclosure of sensitive information. A single compromised email account can lead to fraudulent wire transfers, stolen plans, or payroll interruptions.

Despite this, most construction firms still do not carry cyber liability insurance. Or if they do, it’s a generic policy with low limits and exclusions for social engineering attacks — the most common method used to steal credentials.

A proper cyber policy should include first-party coverage (for incident response, data recovery, and business interruption), third-party coverage (for liability to clients or partners), and access to cybersecurity experts who can help mitigate damage quickly. This is especially important for firms working on government or infrastructure projects, where data sensitivity is high.

6. Unreviewed Policy Limits and Stagnant Deductibles

One of the simplest and most common blind spots? Outdated policy limits.

Many construction companies purchase their insurance when they launch and never revisit the limits. Over time, as project size increases, revenue grows, and payroll expands, the risk profile shifts dramatically — but the coverage stays the same.

For example, a firm that started out with $1 million in general liability limits may now be working on $10 million commercial builds. In today’s legal environment, a single claim can easily exceed those limits, especially when legal defense, punitive damages, or third-party injury is involved.

Similarly, deductibles that were appropriate for a small firm might not make financial sense as the business matures. Raising deductibles in exchange for lower premiums may be a smart move if you have the cash flow to self-insure for minor claims.

Annual reviews with your insurance advisor should include a formal review of limits and deductibles. These aren’t “set it and forget it” numbers — they are strategic levers that impact both your protection and your pricing.

Insurance blind spots in construction are not always obvious, and they often arise from well-intentioned decisions made without full visibility into how coverages interact with contracts, operations, or growth. The cost of these oversights is measured not just in claims denied, but in lost projects, stalled timelines, and damaged reputations.

In the final part of this series, we will shift from problem-solving to strategy. We’ll explore how construction firms can use insurance as a tool for growth, a differentiator in the marketplace, and a long-term investment in operational resilience.

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