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Construction Insurance: A General Perspective
Terrence L. Brennan
Is there anything of
greater importance to a con-
struction project than the
insurance coverages for the
numerous risks that arise?
Insurance is a financial
backstop for risks assumed
by the design and construc-
tion participants. Without
available insurance, many
construction projects would
not have been built.
In the past, many articles Terrence L. Brennan
have been written that
address construction insurance issues, risks and coverages;
very few, if any, have attempted to address each of the
major insurance coverages and give the practitioner a prac-
tical overview of each. The purpose of this article is to pro-
vide a brief but helpful guide to construction insurance for
the legal practitioner, and should be used as a starting point
to more detailed research on specific coverage issues,
exclusions, etc. References to cases are simply representa-
tive examples of the point or issue discussed.
Lastly, my goal is to educate the novice on how insur-
ance policies are interrelated and help to define the risks
they are intended to cover. For the experienced practitioner,
the article will help readily identify key issues and cases
that arise frequently in private practice.
GENERAL INTRODUCTION
The construction process, by nature, is a complex matrix
of contractual and business relationships. Each relationship
is defined by mutual obligations that mostly involve assign-
ment and allocation of risks.
These risks are numerous and diverse. Some of these
risks include: bodily injury to workers, visitors, and
passersby; and exposure of workers to hazardous sub-
stances, disability, or death. The risks are not limited to
Terrence L. Brennan is a partner in the New Orleans law firm Deutsch,
Kerrigan & Stiles. The author wishes to thank his fellow partners,
Charles F. Seemann, Joseph L. McReynolds, W. Lee Kohler, and
Theodore L. White, for assisting him in the research of this article.
those directly involved with the construction. The owner or
adjoining landowner's property can be damaged or
destroyed.
Insurance transfers the cost of those risks, making the
project economically feasible for the construction parties
and preventing subsequent business failure. Insurance has
been defined as: [a] system by which risk is transferred by
a person, business, or organization to an insurance compa-
ny which reimburses the insured for covered losses and
provides for the sharing of the costs of losses among all
insureds. Risk, transfer, and sharing are vital elements of
insurance.1
However, not every risk is insurable. Those risks that a
party can control or are considered purely business risks
are, for the most part, not insurable. Similarly, most poli-
cies now exclude coverage for pollution risks, even though
the market is beginning to expand to include even those
risks. Some risks are simply not insurable as a matter of
state regulation or public policy. Many states now have
laws that prohibit the insurability of fines, penalties, and
punitive damages;2 others have statutes prohibiting assump-
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