The boom in data center construction presents an immense opportunity for skilled contractors. Yet with these types of projects, those professionals face a variety of exposures that aren't covered in standard Builder's Risk policies.
Here's an overview of the insurable risks that contractors should be aware of when working on data centers.
Ambiguity around project completion and coverage termination
One of the most significant exposures for contractors arises from uncertainty around when their Builder's Risk coverage ends. Policies typically terminate upon "completion" of the project, but that term is often subject to interpretation. Insurers may argue a project is "substantially complete" earlier than contractors expect.
This issue often arises in data center construction, where projects are frequently delivered in phases, such as powered shells that become operational before full buildout. If a tenant occupies part of the facility while construction continues elsewhere, coverage for the entire project may be challenged or curtailed.
Contractors face the risk that a loss occurring after partial occupancy but before full completion could fall into a gray area, potentially leaving them without coverage unless policy language or endorsements clearly extend protection through phased completion.
Damage to existing or operational structures
Data centers are often built in stages, which means contractors may be working next to areas that are already finished and in use. Standard Builder's Risk policies usually don't cover damage to these existing or operational parts of the facility if the damage is caused by ongoing construction.
This creates critical exposure for contractors working on phased or expansion projects. For instance, construction work in a new data hall could inadvertently damage adjacent operational infrastructure such as live electrical systems or cooling equipment. Without appropriate endorsements or separate coverage, the contractor may be responsible for costly repairs to high-value assets.
Exclusion of contractor tools and temporary equipment
Many contractors assume that Builder's Risk insurance covers everything on the job site, but that isn't the case. Typically, the policy covers the building and its permanent systems (such as electrical equipment, HVAC and structural components), but it doesn't cover the contractor's tools or temporary equipment.
In data center construction, this can represent significant exposure for contractors. Specialized tools, temporary cooling systems and installation equipment can be expensive. If these items are damaged, stolen or destroyed, the contractor may bear the full cost unless separate equipment policies are in place.
For a full rundown of the exposures contractors face in data center projects, download our whitepaper, "Managing Risks for Contractors in a $100 Billion Market."