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Affordable housing is a critical component of building a strong economy, and the need for affordable housing today is urgent. According to the National Low Income Housing Coalition’s 2022 report, the United States faces a shortage of 7 million rental/affordable units.
While this need creates challenges for our communities, it also creates significant opportunities for affordable housing developers. Considering the increasing number of projects, our team has determined the following liability considerations and risk management strategies.
Contractual risk transfer and additional insured status
Contractual risk transfer is an important part of a successful risk management strategy for affordable housing developments, especially during the construction phase. Contractual risk transfer shifts liability and associated costs from one party or its insurer to another party or its insurer. Therefore, as an affordable housing developer, you should be listed as an additional insured on your general contractor’s liability policy. Your contract should also include indemnification/hold harmless provisions that will specifically outline your risk transfer structure. This step is critical to protecting your organization’s assets and should include consultation with an attorney familiar with the statutes in your state.
Is it enough to be listed as an additional insured on your general contractor’s policy?
Development projects come with significant inherent risks and unfortunately you can be sued for personal or property damage during and after construction even if you are not responsible. Your general contractor’s insurance is designed to protect their interests. Even with a proper risk transfer strategy, there is a clear need for additional liability coverage protect your interests and finance your risks and obligations as a property owner. Consider the following:
- Your general contractor’s policy may have exclusions, insufficient limits, or may have lapsed during the life cycle of a project.
- You have liabilities as a property owner that would fall outside the general contractor’s policy.
- Your lenders and equity syndicators will require coverage specific to your development entity.
Owner’s liability policy
After determining the need for liability coverage as a property owner, here are some considerations regarding liability coverage:
- Owner’s liability insurance policies are rated/priced based on the total development cost.
- The insurer will require appropriate contractual transfer of risk.
- These policies may also require site security at your development (lighting, fencing, surveillance, etc.).
While the need for affordable housing is staggering, thankfully many great organizations are working tirelessly to help our communities thrive by building new homes and improving existing homes. The Scott Insurance Affordable Housing Practice Group exists to partner with these organizations to help them build the best possible insurance and risk management strategy so they can use more of their resources to achieve their mission of improving lives and communities.
Visit www.scottins.com/affordable-housing to learn more about our specialized and dedicated Affordable Housing Practice Group, and don’t forget to save the date for the two remaining sessions of our 2023 Affordable Housing Series.
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