Is a Project-Specific General Liability Policy the Right Choice for Your General Construction Company?

Imagine you’re about to embark on a major construction project—a custom home build that could define your company’s legacy (and bottom line). The stakes are high, and so are the risks. While your standard general liability insurance has served you well for day-to-day operations, is it broad enough to cover the unique challenges of this project? This is where a project-specific general liability (CGL) policy comes into play. Let’s explore whether this specialized coverage is the right tool to safeguard your company.

What Is a Project-Specific General Liability Policy?

A project-specific general liability (PSGL) policy is a specialized form of insurance designed to provide liability coverage for a single construction project. Unlike a standard general liability policy, which covers multiple operations and projects under a blanket policy (we often refer to these as ‘practice’ policies), a project-specific policy is written exclusively for the risks and exposures of one specific job site.

General contractors or project owners typically purchase this policy for large-scale or high-risk construction projects. It protects against third-party claims related to bodily injury, property damage, or other liabilities arising during the project.

Key Features of a Project-Specific Policy:

• Coverage Scope: Focused solely on the specified project, ensuring proper risk management.
• Defined Term: This term is active only for the construction project’s duration, sometimes extending to cover claims made after project completion (we always write project-specific policies to provide a tail).
• Comprehensive Protection: This policy helps reduce gaps in coverage by addressing project-specific liabilities that a standard CGL policy may not adequately cover.

This policy can provide peace of mind for construction companies working on significant developments by offering broader coverage. However, determining if it’s the right choice for your business requires evaluating your projects’ size, complexity, and risk profile (including your existing insurance coverage).

The Benefits of a Project-Specific General Liability Policy

Choosing a project-specific general liability policy can provide several advantages that help construction companies mitigate risks while ensuring comprehensive coverage for their high-profile projects outside normal operations. Here are the key benefits:

1. Coverage for Unique Risks

Every construction project has its own set of challenges and exposures. A project-specific policy is customized to address the risks of a single job, providing more relevant protection than a practice policy.

2. Enhanced Risk Management

Because the policy is focused solely on one project, it reduces the risk of claims from that project impacting the coverage or premiums of your overall business operations. This can be especially advantageous for companies juggling multiple projects at once.

It’s important to consider that if a contractor takes on a project outside their usual scope of operations—such as a custom home build—it often makes sense to purchase a project-specific policy. This approach can help avoid the hassle of altering and maintaining coverage under the contractor’s existing policy.

This is particularly critical with an occurrence form policy. For example, if the contractor were to include the custom home build under their practice policy, they would need to renew the policy to ensure coverage for the project continues, even if no future home builds are planned. A project-specific policy eliminates this complication by providing dedicated coverage tailored to the unique project without renewal adjustments.

3. Higher Liability Limits

Project-specific policies often come with higher coverage limits than a standard CGL policy. This is critical for larger or higher-valued projects where liability claims could quickly exceed the limits of a traditional policy. A PSGL policy may also eliminate the need for an excess liability policy.

4. Simplified Claims Process

With one policy covering a specific project, tracking and managing claims related to that job is more manageable. This can streamline communication with the insurer and expedite resolution.

5. Safeguards Relationships with Stakeholders

Project owners, lenders, and investors often require proof of insurance for the specific project. A project-specific policy can reassure and meet contract requirements, helping you secure and maintain key business relationships.

6. Protection Against Cross-Project Contamination

In a standard CGL policy, a claim from one project could potentially deplete your coverage or increase premiums for all your operations. A project-specific policy isolates liability, ensuring claims from one project don’t affect others.

This specialized approach provides peace of mind for general contractors and project owners working on significant builds. However, as with any insurance policy, weighing these benefits against the potential costs and limitations is essential.

The Drawbacks of a Project-Specific General Liability Policy

While a project-specific general liability (PSGL) policy offers several advantages, it’s not without its drawbacks. Understanding the potential challenges can help you make a fully informed decision.

1. Higher Upfront Costs

One of the most significant downsides is the cost. Project-specific policies are more expensive than standard CGL policies, especially for smaller projects. These policies’ tailored nature and higher liability limits often come with a premium price tag.

2. Limited Coverage Period

A PSGL policy is only active for the duration of the specific project, plus a defined “tail” period for claims that may arise after project completion. Once the project ends, you’ll need to secure new coverage for future projects, which can create gaps in protection if not managed carefully. Also, if you perform other projects simultaneously, you must maintain a ‘practice’ general liability policy to cover those operations.

In our experience, we prefer to write project-specific policies with a minimum of 18 months of coverage. We have provided other policy terms for 24-36 and even 48 months. The project must be ‘substantially completed’ (as defined in the policy) before the term expires. If not, we recommend negotiating an extension with the carrier sooner rather than later!

3. Administrative Complexity

Purchasing a separate policy for each project adds administrative overhead. You’ll need to assess coverage requirements, negotiate terms, and manage claims for multiple policies if you’re working on more than one project at a time.

Managing multiple policies can often create challenges during final audits.

4. Potential for Overlapping Coverage

If you already have a comprehensive CGL policy, adding a PSGL policy could lead to overlapping coverage. This overlap might incur unnecessary costs unless your policies are carefully coordinated to avoid redundancy.

5. Strict Policy Terms

Because the policy is underwritten for one project, it often comes with specific terms and conditions. If additional risks arise that fall outside the original scope, they may not be covered, leaving gaps in protection.

6. May Not Be Cost-Effective for Small or Low-Risk Projects

For smaller construction jobs or projects with minimal risk, a PSGL policy may not be worth the investment. In such cases, a traditional CGL policy may provide sufficient coverage at a lower cost.

While a PSGL policy can provide valuable protection for large or complex projects, these potential downsides highlight why it’s essential to carefully assess your company’s needs, budget, and risk exposure before committing to this type of coverage.

Is a Project-Specific General Liability Policy Right for Your Business?

Choosing the right insurance coverage is critical to protecting your general construction business from the risks of each project. A project-specific general liability (PSGL) policy offers broader protection, higher liability limits, and peace of mind for complex or high-valued builds. However, it’s essential to carefully weigh the benefits against potential drawbacks like higher upfront costs and administrative complexity.

Ultimately, the decision depends on your project’s nature, existing coverage, and specific risk profile. A project-specific policy can be a strategic investment for contractors tackling projects outside their typical scope—or working on large-scale developments. It’s essential to work with an insurance professional who thoroughly understands the complexities of these policies and can expertly design coverage for your unique needs.

Let’s Start the Conversation

Not sure if a project-specific general liability policy is the right fit for your next project? We’re here to help! At Fusco Orsini & Associates, we specialize in assisting contractors to make informed insurance decisions that protect their businesses and livelihoods.

Please fill out our quick and easy form: Let’s Start the Conversation. Whether you have questions or need tailored guidance, our team is ready to help you find the coverage you need.