Gearhart&Associates, Ltd.

Builder’s risk and workers’ compensation coverage are essential during a construction project

Before your church or ministry starts a building project, you need to understand and manage the additional risks and responsibilities created by this work. You need to obtain special insurance to cover the construction project, plus make sure your contractors have insurance of their own

There are four key areas to investigate: builder's risk insurance, the contractors' insurance, indemnification, and workers' compensation coverage.

Obtain Builder's Risk Insurance

Standard church insurance policies don't cover new construction. Before a project begins, either you or the contractor must purchase builder's risk coverage to insure the new building or addition during the construction phase. Clarify in writing who's responsible for insuring the building while it's being constructed. After the project is completed or occupancy begins, you'll want to cancel the builder's risk coverage and endorse the building onto your policy.

Require a Certificate of Insurance

Before your contractor begins work, ask his company to provide you with a certificate of insurance. This document verifies that an organization has appropriate coverage. The certificate should indicate that the contractor has workers' compensation, general liability, and automobile insurance in force. The contractor should carry liability limits of at least $1 million. Ask the contractor to name your organization as an additional insured on the liability certificate of insurance. This gives you additional protection. If the contractor is providing builder's risk coverage, ask him to indicate it on the property certificate of insurance. (You may want to get a copy of his builder's risk policy for your records.)

Look for Indemnification Clause

Check the construction contract for references to indemnification—making compensation for injury, loss or damage covered by insurance. Make sure the contractor will indemnify, defend, and hold you harmless. If there is no such reference in the contract, ask to have it included.

Carry Workers' Compensation Insurance

Either you or the contractor must provide workers' compensation coverage to protect the paid laborers performing construction work. If you hire a subcontractor who doesn't carry workers' compensation insurance, your state's laws may hold you responsible for work-related injuries to the contractor's employees. Never use uninsured subcontractors. If you do, you could be billed a substantial amount of additional premium for the workers' compensation exposure.

If you do the construction work yourself, using volunteer or donated labor, determine whether your insurance program provides workers' compensation insurance. Many plans do not. Some provide only limited medical benefits for volunteers providing donated labor. Volunteers need to know that after primary medical coverage is exhausted, they will be responsible for their own medical expenses if they're injured on your construction project.

Workers' compensation coverage for construction workers can cost thousands of dollars. You should fully explore this expense before deciding to undertake the work yourself. Often, after the workers' compensation premium is factored in, a church finds it is not cost-effective to complete the construction itself.

Enjoy the Fruit of your Labor

Careful preparation is the foundation for a smooth church construction project. However, you can't prevent all mishaps. Storms blow up, thieves steal materials, and workers occasionally get injured. Knowing that you have the proper insurance protection can help you relax as your new building takes shape.