Overview of Common Risks in Commercial Construction

From towering skyscrapers to sprawling shopping districts, construction transforms landscapes in extraordinary ways. Our modern world wouldn’t exist without it, and yet, construction remains a risky business. Project-derailing circumstances can leap out of nowhere, which is why commercial construction insurance is absolutely necessary.

In this guide, we will discuss the most common commercial construction risks, ways to avoid them, and how commercial construction attorneys can defend property owners, contractors, and other parties in case of insurance disputes.

Most Common Types of Claims in Commercial Construction

By understanding these risks, you can protect your business and avoid costly legal battles.

1. Property Damage Claims

Property damage encompasses all damage or loss to the physical components of a building, machinery, or equipment at a construction site. Commercial property damage claims arise from various incidents, including theft, vandalism, natural disasters, or accidents.

Examples of property damage claims:

• A malfunctioning crane collapses, damaging the structure of an adjacent building during construction.
• Vandals break into a construction site and damage expensive machinery and equipment.
• Severe weather conditions lead to a wall collapsing at a construction site, damaging neighboring properties.
• A fire breaks out on a construction site, damaging the building under construction and nearby structures.
• A burst pipe floods a construction site, damaging the building’s interior and fixtures.

How to avoid property damage claims:

• Regular maintenance and inspections: Perform inspections and maintenance checks on equipment, machinery, and the construction site to identify and address all potential concerns before they escalate.
• Secure the site: Implement security measures, including surveillance cameras, barbed wire fences, and security personnel, to deter unauthorized access to the site.
• Weather monitoring and preparedness: Stay informed about potential weather changes and take proactive measures to secure the site, such as securing loose materials, reinforcing structures, and implementing drainage systems to mitigate the impact of severe weather events.
• Fire safety measures: Enact fire safety protocols, including proper storage of flammable materials, installation of fire extinguishers and alarms, and regular fire drills to ensure swift response during a fire emergency.
• Quality control and training: Ensure all personnel receive adequate training in the safe operation of equipment and machinery. Moreover, strict quality control measures should be followed to prevent accidents and minimize the risk of structural damage.

2. Professional Liability Claims

Professional liability claims in commercial construction occur when professionals involved in a project, including engineers, architects, or consultants, face allegations of negligence, errors, or omissions in their services. These claims often revolve around misinterpretations of specifications, design flaws, or failure to meet industry standards, resulting in financial losses or project delays for clients or stakeholders.

Examples of professional liability claims:

• An architectural firm overlooks structural flaws in a commercial building design, leading to costly modifications and delays in the construction timeline.
• A civil engineering consultant fails to accurately assess soil conditions for a construction project, resulting in foundation issues and structural instability.
• A general contractor misinterprets project specifications, leading to the installation of incorrect materials.
• A construction manager neglects to comply with local building codes and regulations, resulting in fines and project delays.
• A project manager fails to coordinate subcontractors and suppliers, causing delays and cost overruns.

How to avoid professional liability claims:

• Clear contractual agreements: Ensure all contracts outline responsibilities, deliverables, and performance expectations to minimize misunderstandings and disputes.
• Thorough documentation: Maintain detailed records of all project communications, decisions, and changes to provide evidence of due diligence and adherence to professional standards.
• Quality assurance processes: Implement design reviews and constructability assessments to identify and address potential errors or discrepancies.

3. Workers’ Compensation Claims

Workers’ compensation claims arise when employees suffer injuries, disabilities, or illnesses due to their jobs. These claims cover the affected workers’ medical expenses, lost wages, and rehabilitation costs. Common incidents leading to workers’ compensation claims include falls, strains, repetitive motion injuries, and exposure to hazardous substances.

Examples of workers’ compensation claims:

• A construction worker slips on a wet surface at the job site and injures their back.
• An employee strains their back while lifting heavy equipment, resulting in a musculoskeletal injury.
• Exposure to chemicals can cause respiratory issues, eye damage, skin irritation, or chronic illnesses like cancer.
• A scaffolding collapses and causes multiple workers to suffer injuries, requiring medical treatment and rehabilitation.

How to avoid workers’ compensation claims:

• Safety training: Provide comprehensive safety training to employees on proper lifting techniques, hazard recognition, and the correct use of personal protective equipment.
• Safety equipment: Ensure the workplace is equipped with necessary safety gear, such as harnesses, goggles, and gloves, and enforce their use at all times.
• Regular inspections: Conduct routine inspections to recognize and address potential hazards, including but not limited to slippery surfaces, uneven flooring, or malfunctioning equipment.
• Prompt reporting and response: Encourage employees to report injuries or near misses immediately, and respond quickly by providing medical attention and addressing the root causes of accidents.

4. Environmental Claims

Environmental claims arise when construction activities harm the environment, whether through air pollution, contamination of soil or water, habitat destruction, or violation of environmental regulations. These claims often involve cleanup costs, fines, and legal liabilities for the responsible parties.

Examples of environmental claims:

• Improper disposal of construction materials leads to the contamination of nearby water sources, resulting in fines and cleanup costs for the construction company.
• Spills of hazardous chemicals or improper handling of construction waste result in soil contamination, requiring remediation efforts and regulatory compliance.
• Clearing land for construction activities destroys natural habitats and ecosystems, triggering legal action from environmental agencies or conservation groups.
• Dust and emissions from machinery contribute to air pollution, resulting in complaints from nearby residents.
• Unauthorized filling or alteration of wetlands violates environmental regulations, leading to fines, restoration requirements, and legal disputes.

How to avoid environmental claims:

• Environmental impact assessments (EIA): Conduct a thorough EIA before beginning construction projects to uncover potential risks and implement mitigation measures.
• Compliance with regulations: Follow environmental laws and ensure full compliance with permits, licenses, and regulations governing construction activities.
• Responsible waste management: Ensure proper waste management practices, including recycling, reuse, and safe disposal of construction materials to minimize environmental impacts.
• Spill prevention and response plans: Develop spill prevention and response plans to mitigate accidental release of hazardous substances.
• Erosion and sediment control: Enforce erosion and sediment control measures, such as silt fences, erosion blankets, and stormwater management systems, to prevent soil erosion and sediment runoff into bodies of water.

5. Delay and Disruption Claims

This common commercial construction claim occurs when a project experiences delays or interruptions beyond what was initially planned or agreed upon, resulting in financial losses or additional costs for the parties involved. These claims often stem from unforeseen site conditions, design changes, supply chain disruptions, or contractor performance issues.

Examples of delay and disruption claims:

• Discovering unexpected soil contamination or encountering archaeological artifacts during excavation, leading to project delays and additional costs.
• Revisions to project plans or specifications mid-construction, requiring adjustments to work already completed.
• Delays in the delivery of materials or equipment due to manufacturing issues, transportation delays, or supply chain interruptions.
• Adverse weather conditions, such as heavy downpour or extreme temperatures, impacting construction activities and extending project timelines.
• Subcontractor delays, labor shortages, or work stoppages due to labor disputes.

How to avoid delay and disruption claims:

• Comprehensive planning: Perform thorough project planning and risk assessments to pinpoint potential sources of delay, as well as to develop mitigation strategies.
• Clear communication: Maintain open lines of communication among project stakeholders to promptly address issues, resolve conflicts, and coordinate schedules.
• Contingency planning: Allocate resources and develop plans to address unexpected delays or disruptions, minimizing their impact on project timelines.

From property owners to architects, builders, and suppliers—everyone in the commercial construction industry should carefully assess their insurance policies to ensure they have ample coverage for these common risks.

Contact FR Law Group as soon as possible if any of the above occurs. Ensuring your claim gets approved is crucial to minimizing financial losses, construction delays, and/or damages to your reputation. In case of disputes or bad faith, our commercial construction lawyers in Phoenix, AZ, can protect your rights and interests. We help navigate complex contractual obligations, advocate for clients in negotiations, and litigate cases in court if necessary. Call us at 602-497-1507 to schedule your consultation.