Insurance as a real estate investor versus general contractor

Bronx, NY · Member since 2016 · 2 posts · 0 votes

We are general contractors in NYC, but we will be investing in residential and commercial real estate (flips and buy/hold) later this year. I would appreciate any input to help us understand the difference in G/L insurance exposures/coverage for a “real estate investor” (separate business, not directly performing construction work) versus a general contractor (directly performing construction work) in NYC and northern suburbs. I’d also like to understand what other insurance exposures/coverage we should plan and budget for in our investing business. Thanks.

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John Mocker

Insurance Agent · Norwalk, CT · Member since 2016 · 2k+ posts · 1k+ votes

Gerry, In general, the distinction comes down to who directs the work and who pay the subs. If the entity that owns the property is hiring one firm to handle the job (and that firm pays the subs & directs the work) the owner is not a GC in the eyes of most insurance companies. (Legal/labor rules may cause different determinations especially in NY). If the owner directs the work and hires the subs they would be acting as the General Contractor for most insurance carriers I deal with. With the owner acting as the GC, the Insurance companies then want to know if that is their business and if they will be performing any of the work. As far as what coverage you need, it will depend on what type of project (flip, buy & hold, Reno & hold) and what your status is (owner, owner as GC, or just the GC). Coverage needed during the actual work will not differ too much from your GC work. It is just a matter of who will be providing it. The renovation Builders Risk policy should be obtained by the owner because of their interest in the property and eventual interest in the renovations (depending on contract the GC may need to be included if they own reno labor & materials until completed). Liability and Workers Comp are needed. The GC should definitely have that coverage. Whether the owner who is not GC gets Workers Comp. depends on how confident they are that the GC will not lapse or cancel the coverage. The owner still needs Liability coverage but the cost will vary depending on whether or not they are the GC. The above are Generalizations. If you have a specific scenario you would like to discuss feel free to PM me.

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John Mocker
Insurance Agent · Norwalk, CT · Member since 2016 · 2k+ posts · 1k+ votes
6y
Gerry, In general, the distinction comes down to who directs the work and who pay the subs. If the entity that owns the property is hiring one firm to handle the job (and that firm pays the subs & directs the work) the owner is not a GC in the eyes of most insurance companies. (Legal/labor rules may cause different determinations especially in NY). If the owner directs the work and hires the subs they would be acting as the General Contractor for most insurance carriers I deal with. With the owner acting as the GC, the Insurance companies then want to know if that is their business and if they will be performing any of the work. As far as what coverage you need, it will depend on what type of project (flip, buy & hold, Reno & hold) and what your status is (owner, owner as GC, or just the GC). Coverage needed during the actual work will not differ too much from your GC work. It is just a matter of who will be providing it. The renovation Builders Risk policy should be obtained by the owner because of their interest in the property and eventual interest in the renovations (depending on contract the GC may need to be included if they own reno labor & materials until completed). Liability and Workers Comp are needed. The GC should definitely have that coverage. Whether the owner who is not GC gets Workers Comp. depends on how confident they are that the GC will not lapse or cancel the coverage. The owner still needs Liability coverage but the cost will vary depending on whether or not they are the GC. The above are Generalizations. If you have a specific scenario you would like to discuss feel free to PM me.
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Gerry O'Donoghue
OP
Bronx, NY · Member since 2016 · 2 posts · 0 votes
6y
Thanks John, I appreciate the information and quick response. I'll PM you (once i figure out how to do that :).)
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Chris K.
Attorney · Nashville, TN · Member since 2015 · 1k+ posts · 1k+ votes
6y
@Gerry O'Donoghue
I own a construction company (glass/glazing and metalwork) and also own various real estate investments. As an owner, the set of insurance you need for the construction phase is different than the post-construction phase. Working with an experienced insurance broker is generally the best here as the coverage needs would vary drastically depending on your specific situation. Note that many policies for project owners require you to hire a GC and subs that already have their own policies. Our construction company, for example, has to carry GL, automobile, excess, workers comp, and commercial property insurance to meet the insurance requirements on a job.
It's a fairly complicated topic with a lot of specialized services. If you are in NY, you may have run into a construction project that requires you to qualify for the Labor Guard program as a contractor. All these third party services try to ensure that a construction project has all the insurance coverage it needs. Not sure what scale of projects you will work on but it might be worth taking a look.
Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it for legal advice. Always consult with your attorney before you rely on the above information.

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Timothy W.
Attorney · Raleigh, NC · Member since 2008 · 4k+ posts · 1k+ votes
6y
Your exposure as an investor is going to be a lot more premises liability than general liability. This means you have exposure now for something some yahoo does on your property whether you were directly negligent or not. It would be a good time to look into umbrella liability coverage.
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