Public entities invest significant public resources in construction projects. Whether building a new fire station, renovating a county courthouse or expanding a municipal water treatment facility, these projects carry substantial financial exposure during the construction phase.
Builder’s risk coverage, also known as course of construction insurance, provides protection for buildings, materials and related property while work is underway. For public entities, the question is not only whether coverage is in place, but who owns the policy, how it is structured and whether the coverage aligns with the entity’s risk management objectives.
When a covered loss occurs, policy control can influence how efficiently the claim is reported, managed and resolved. For public entities, the decision to own builder’s risk coverage - rather than leaving insurance requirements and policy control solely to a general contractor - is a risk management decision with long-term financial and operational implications.
Key takeaway: Builder’s risk coverage for public entities should be structured around the public entity’s financial exposure, project delivery model, claims control needs and transition to permanent property coverage. Owner-placed coverage gives the public entity greater control over policy terms, covered property, claim resolution and coverage continuity.
Tailoring Risk Coverage to a Public Entity's Unique Project Risks
Municipal construction and public works projects carry a different risk profile than private development. Projects for municipal government, county and state entities often involve phased delivery, multiple funding sources, prevailing wage requirements and public accountability that private owners do not face. Contractor-placed builder’s risk policies are often structured around the contractor's role and obligations, which may not fully align with the coverage needs of the public entity funding the project.
Owner-placed builder’s risk coverage allows public entities to tailor the policy to the specific project, including covered property definitions, sublimits for specialized systems, escalation clauses that account for rising material costs and endorsements for soft costs including additional loan interest, permit re-inspection fees and extended project management expenses. Soft costs are generally not included automatically in standard builder’s risk policies and must be specified in the policy or added via an endorsement.
Public entities should also consider coverage for furniture, fixtures and equipment during the transition from construction to occupancy. This property falls outside the scope of most standard builder’s risk policies but remains at risk until the permanent property policy takes effect. Coordinating these coverage layers in advance eliminates a gap that has resulted in costly uninsured losses on public construction projects.
Owning the Claims Process with Contractors and Insurers
When a general contractor places builder’s risk coverage on a public entity's project, the contractor becomes the first named insured. That means the contractor controls the claims process and the relationship with the insurer, which sets the pace of recovery. The public entity, while listed as an additional insured, does not have the same standing in the claims process and typically must work through the contractor to receive payment.
This arrangement creates friction that can delay repairs and complicate disputes about the scope of covered damage, often stretching project timelines in the process. Construction disputes averaged $43 million per dispute in North America in 2024, with an average resolution time of 14 months. For public entities, delays of that length can strain service delivery and erode public trust.
When the public entity is the first named insured on an owner-placed policy, it files claims directly with the insurer. The entity controls the scope of the claim and manages the resolution timeline, receiving payment directly once the claim closes. This is particularly consequential for phased projects, where coverage gaps between completed phases can expose the public entity to uninsured losses if the policy language is not carefully structured.
Transitioning Coverage to Permanent Property After Construction
One of the most critical and frequently overlooked aspects of builder’s risk coverage is the transition from construction policy to permanent property policy. A builder’s risk policy typically terminates at project completion or another policy-defined endpoint, such as occupancy, beneficial use or a specified date. Without a coordinated transition plan, a public entity can find itself in a coverage gap between the end of the builder’s risk policy and the effective date of the permanent property policy.
For public entities, the transition period is further complicated by the installation of furniture, fixtures and equipment, which often begins before the project reaches substantial completion. This property must be inventoried and properly addressed in coverage planning to ensure it is protected during the final stages of construction and during the transition period.
Soft cost coverage, if included in the builder’s risk policy, also terminates at project completion. Public entities with extended loan obligations or ongoing project management expenses should review how soft cost coverage interfaces with project completion definitions in the policy to avoid uncovered costs arising from post-completion delays.
A structured transition plan developed in coordination with an insurance specialist before the project breaks ground helps public entities avoid the coverage gaps that are most likely to produce uninsured losses.
Managing Builder’s Risk Insurance Costs
Builder’s risk insurance premiums are generally based on total project value, with rates often expressed as a percentage of hard construction costs depending on project type, location, materials and market conditions. As U.S. construction spending reached nearly $2 trillion in 2024 and material costs continued to rise due to tariff pressures on steel, lumber and aluminum, accurate project valuation has become increasingly important. Undervalued coverage limits can trigger coinsurance penalties and result in partial loss recovery on a major claim.
The builder's risk market showed signs of softening in 2025 after a period of hardening, with insurers more flexible on larger and more complex projects as additional capacity entered the market. However, projects in areas with high natural catastrophe exposure, including hurricane corridors, wildfire zones and flood-prone regions, continue to face stricter underwriting requirements, sublimits and higher deductibles.
Public entities can manage costs through several approaches. Safety programs, documented loss control protocols and strong contractor vetting records can influence underwriting favorably. Escalation clauses should be reviewed at the time of policy placement and at renewal to ensure limits remain adequate as material and labor costs change.
Tariff-related cost increases are currently an underwriting consideration. Public entities with active projects should confirm that their builder’s risk limits account for potential material cost increases and review escalation clause language with their insurance specialist before binding coverage.
Why Public Entities Should Own the Coverage Decision
Public entities often have the most at stake in a construction project. The building being constructed is public infrastructure. The funds at risk are public funds. The obligation to recover losses and complete the project belongs to the public entity, not the contractor. This fundamental reality is why owner-placed builder’s risk coverage is the more defensible approach for public entities managing large capital projects.
When a contractor controls the builder’s risk policy, the public entity may have less visibility, influence and direct control in the event of a claim. The public entity has limited visibility into the claims process and limited leverage to accelerate resolution. If the contractor and insurer dispute the scope of a covered loss, the public entity bears the operational consequences of the delay while others manage the negotiation.
Owner-placed coverage also provides an opportunity to align the insurance program with the public entity's broader risk management objectives, including procurement requirements for small and disadvantaged business enterprises, which can be supported by removing contractor insurance requirements from bid eligibility criteria. An OCIP allows a public entity to expand the pool of eligible contractors since a contractor's ability to meet minimum insurance requirements is no longer a factor in prequalification.
For county and state entities managing rolling capital improvement programs across multiple projects, a rolling OCIP structure can consolidate coverage across several projects over a multi-year period. This approach streamlines administration, provides consistent coverage terms across projects and creates efficiencies that individual project placements cannot achieve.
