Insurance as a real estate investor versus general contractor

[Gerry O'Donoghue]

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.

[John Mocker]

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.