6.2 Builder's Risk, Workers' Compensation, and Specialty Policies

While Commercial General Liability (CGL) covers third-party injury and property damage claims, it expressly excludes damage to property owned by or in the care, custody, or control of the contractor, injuries to the contractor's own employees, highway auto accidents, and professional design errors. To build a complete risk-transfer shield, a Tennessee contractor must coordinate Builder's Risk, Specialty Policies, and mandatory Tennessee Workers' Compensation coverage.

Builder's Risk (Course of Construction) Property Insurance

Builder's Risk insurance (also called Course of Construction insurance) is a specialized first-party property insurance policy that protects the insurable financial interest in a building or structure while it is under construction, addition, or major renovation.

• What Property Is Covered: Builder's Risk covers the partially completed structure itself, building materials, supplies, fixtures, and mechanical/electrical equipment located on the jobsite waiting to become a permanent part of the building. Most commercial forms also include sub-limited extensions for permanent materials while in transit to the site, materials stored at temporary off-site locations, and temporary structures such as scaffolding, falsework, and concrete forms erected on site.
• Named-Perils vs. All-Risk (Special Form) and Standard Exclusions: Modern commercial Builder's Risk policies are typically written on an All-Risk (Special Perils) Form, which covers direct physical loss from any external peril (such as fire, lightning, windstorm, hail, explosion, riot, civil commotion, vandalism, malicious mischief, and theft of building materials) unless specifically excluded. Standard exclusions on a Builder's Risk policy include:
  • Earthquake / Earth Movement and Flood / Surface Water (which require separate earthquake or flood endorsements or a National Flood Insurance Program policy).
  • Contractor's Own Mobile Construction Equipment, Machinery, and Tools that will not become a permanent part of the building (e.g., cranes, excavators, generators, and hand tools—these require an Inland Marine Contractor's Equipment Floater).
  • Faulty, Inadequate, or Defective Design, Specifications, Workmanship, or Materials: Builder's Risk will not pay to tear out and re-pour a slab that was mixed with defective concrete. However, most Special Form policies include an ensuing (resulting) loss clause: if faulty electrical wiring sparks a fire that burns down the framing, the cost to replace the defective wire itself is excluded, but the resulting fire damage to the framing and structure is covered.
  • Employee Dishonesty / Inventory Shortage / Mysterious Disappearance, Mechanical Breakdown, and Delay / Loss of Use / Liquidated Damages (unless a specialized Soft Costs / Delay in Completion endorsement is purchased to cover additional construction loan interest, real estate taxes, and extended design/administration fees caused by a covered physical loss).
• Who Purchases the Policy, Named Insureds, and Waiver of Subrogation: Whether the Owner or the Prime Contractor purchases the Builder's Risk policy is governed by the construction contract (under standard AIA Document A201, the Owner is responsible for purchasing property insurance on a replacement-cost basis for the full insurable value of the entire work unless modified). Regardless of who buys the policy, it must protect the financial interests of the Owner, Prime Contractor, and all Subcontractors and Sub-subcontractors and include a mutual Waiver of Subrogation so the Builder's Risk insurer cannot pay a fire claim to the owner and then subrogate (sue) against a subcontractor whose negligence accidentally started the fire.
• Policy Valuation and When Coverage Terminates: Policies are commonly written on a Completed Value Form, where the limit is set at 100% of the estimated final completed construction value from day one (with the premium reflecting the policy’s underwriting and changing value at risk rather than a guaranteed 50% discount), or on a Monthly Reporting Form where the contractor reports actual cumulative values each month. Check the actual form: Builder’s Risk policies can terminate upon specified events such as:
  1. The policy expiration or cancellation date;
  2. Final acceptance of the project by the Owner;
  3. Abandonment of construction with no intent to resume; or
  4. When the building is occupied or put to its intended use (unless the insurer issues a written Permission to Occupy / Partial Occupancy endorsement).

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Inland Marine, Auto, Umbrella, Professional (E&O), and Pollution Policies

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Tennessee Workers' Compensation Law (T.C.A. Title 50, Chapter 6)

Administered by the Tennessee Bureau of Workers' Compensation (within the Tennessee Department of Labor and Workforce Development), the Tennessee Workers' Compensation Law establishes a mandatory no-fault insurance system for workplace injuries and occupational diseases.

1. The Strict 1-Employee Threshold for Construction Employers (T.C.A. § 50-6-102 & § 50-6-902)

2. Construction Services Providers (CSPs) & the Bureau of Workers’ Compensation Exemption Registry (T.C.A. § 50-6-901 et seq.)

Under Tennessee law, any sole proprietor, partner, LLC member, or corporate officer who is engaged in the construction industry is defined as a Construction Services Provider (CSP). Unlike officers in non-construction companies, a CSP who performs or supervises work on a Tennessee construction site cannot simply opt out informally. Every CSP must either:

1. Carry active Workers' Compensation insurance coverage on themselves, OR
2. Obtain and maintain an active Workers' Compensation Exemption Registration on the Tennessee Bureau of Workers’ Compensation Construction Services Provider Workers' Compensation Exemption Registry (T.C.A. § 50-6-904).

Key statutory rules governing the Bureau of Workers’ Compensation CSP Exemption Registry:

• Entity registration and commercial-project limits are different: Up to five qualifying individuals may register through an eligible corporation, LLC, or partnership. A sole proprietor has one qualifying owner. Eligibility depends on the applicant’s category; corporate officers and LLC members do not all share an identical 20% ownership test. On a commercial project, however, § 50-6-914 limits exempt direct labor providers to three total individuals for the whole project, including the general contractor’s selected providers. The general contractor must notify each selected person in writing and keep the list for insurer/state inspection. A registry certificate alone does not override this project-wide cap.
• 3-Entity Cap and 2-Year Renewal: An individual CSP may hold an exemption for at most three (3) entities at one time, and the registration must be renewed every two (2) years.
• Exemption Covers Only the Registered Owner Personally: Holding a Bureau of Workers’ Compensation CSP Exemption certificate only exempts that specific registered owner/officer from covering themselves. If that CSP hires even one (1) W-2 employee or uninsured laborer, the business must immediately purchase a Workers' Compensation policy covering its employee(s).

3. Statutory Employer Liability for Uninsured Subcontractors (T.C.A. § 50-6-113)

Under T.C.A. § 50-6-113, a principal (prime) contractor or intermediate contractor is deemed the statutory employer of all employees working for its subcontractors on the project. If a subcontractor fails to carry required Workers' Compensation insurance and one of the subcontractor's workers is injured on the jobsite, the Prime Contractor is legally liable to pay full Workers' Compensation medical and disability benefits to that injured worker! Furthermore, when the prime contractor's own Workers' Compensation insurer conducts its annual payroll audit, the insurer will charge the prime contractor full Workers' Compensation premium rates on every dollar paid to any subcontractor for whom the prime contractor cannot produce either:

1. A valid Certificate of Workers' Compensation Insurance, OR
2. A valid Tennessee Bureau of Workers’ Compensation CSP Workers' Compensation Exemption Registry Certificate (if the subcontractor is a solo owner/officer working alone with zero employees).

4. Benefits, Exclusive Remedy Doctrine, and Experience Modification Rate (EMR)

• Part One (Statutory Benefits) and Waiting Period: Pays 100% of authorized medical expenses (with zero deductible or co-pay to the injured employee, who selects a treating physician from a panel of at least three (3) physicians provided by the employer), plus Temporary Total Disability (TTD) and permanent disability wage-replacement benefits equal to $66\frac{2}{3}\%$ of the employee's Average Weekly Wage (up to the Tennessee statutory maximum weekly benefit), plus statutory death and burial benefits. Under T.C.A. § 50-6-205, wage-replacement benefits are subject to a 7-day waiting period; no compensation is paid for the first 7 days of disability unless the disability lasts 14 days or more, in which case benefits are paid retroactively from the first day after the injury.
• Part Two (Employers' Liability Insurance): Covers the employer against non-statutory lawsuits arising from employee injuries (such as third-party-over indemnity claims or spousal loss-of-consortium suits), with standard base limits of $100,000 per accident / $500,000 policy disease limit / $100,000 per employee for disease.
• Exclusive Remedy Doctrine (T.C.A. § 50-6-108): Workers' Compensation is a no-fault statutory bargain: the employee receives guaranteed medical and wage benefits even if the employee's own carelessness contributed to the accident (though benefits are barred under T.C.A. § 50-6-110 for willful misconduct, intentional self-inflicted injury, or intoxication / illegal drug use, and Employers participating in the Tennessee Drug-Free Workplace Program under T.C.A. § 50-9-101 et seq. receive both a 5% Workers' Compensation premium credit and a legal presumption that intoxication caused the injury if a worker tests positive). In return, Workers' Compensation is the employee's exclusive remedy against the employer, barring civil tort lawsuits for pain, suffering, or punitive damages.
• Experience Modification Rate (EMR) and Premium Math: Workers' Compensation premiums are calculated per $100 of payroll based on each worker's NCCI classification code, multiplied by the contractor's Experience Modification Rate (EMR):

$$\text{Modified WC Premium} = \sum \left(\frac{\text{Classification Payroll}}{\text{\textdollar}100} \times \text{Manual Rate per \textdollar 100}\right) \times \text{EMR}$$

An EMR of $1.00$ represents the industry average loss experience (calculated using the prior 3 completed policy years, excluding the most recent policy year). A safety-conscious contractor with fewer claims earns a credit modification ($\text{EMR} < 1.00$) that reduces premiums—for example, a contractor with $20,000 in manual premium and an EMR of $0.85$ pays $\text{\textdollar}20,000 \times 0.85 = \text{\textdollar}17,000$. Conversely, a high-claim contractor receives a debit modification ($\text{EMR} > 1.00$), raising insurance costs and frequently disqualifying the firm from bidding on large industrial or public projects that require an $\text{EMR} \le 1.00$.

A valid owner exemption does not excuse coverage for employees. Review the current registry, the owner’s eligibility, the commercial-project selection rules, and subcontractor coverage before assuming the prime is protected. Audit premiums follow the applicable classification and payroll rules; they are not necessarily assessed on every dollar of every subcontract, including materials. Coverage examples involving ensuing losses remain subject to the policy’s other exclusions and endorsements.

Source check (October 13, 2026): Tennessee commercial CSP exemption notice.