What insurance is needed for ground-up apartment construction?

Ground-up apartment construction presents insurance requirements that are fundamentally different from operating property coverage. The primary policy is builders risk insurance (ISO form CP 00 20), which covers the building under construction against physical loss or damage from covered perils including fire, wind, theft of building materials, and vandalism.

Builders risk policies are written for the completed value of the project—the total cost of construction including materials, labor, and soft costs. For a $40 million apartment development, the builders risk policy covers the full $40 million from day one, even though only a fraction of that value is at risk during early construction phases. Premiums typically run 1% to 3% of the project value for the construction period, varying by location, construction type, and the project timeline.

The policy should be written on a completed value form with no coinsurance requirement, since the property's value increases throughout construction. Key endorsements include soft cost coverage (covering loan interest, architectural fees, and permit costs incurred during a delay caused by a covered loss), ordinance or law coverage, flood and earthquake coverage (often excluded from base builders risk forms), and testing and commissioning coverage.

For larger projects, an owner-controlled insurance program (OCIP) or "wrap-up" may be more cost-effective. An OCIP provides general liability, workers compensation, and sometimes builders risk coverage for the owner, general contractor, and all subcontractors under a single program. This eliminates coverage gaps between contractors, reduces total premium cost through volume purchasing, and gives the owner direct control over the insurance program.

Transition from builders risk to permanent property coverage must be coordinated carefully. Builders risk coverage terminates when the building is occupied, when permanent insurance takes effect, or at the policy expiration date—whichever occurs first. Many policies include a provision allowing partial occupancy before project completion, which is critical for phased lease-up of apartment buildings. The permanent property policy should be bound no later than the date of the first certificate of occupancy.