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How to navigate insurance lapses and handoff processes in construction projects

Learn how to manage insurance lapses and handoff processes in construction projects. Key tips for builder’s risk, project coverage, and risk management.

Construction projects are inherently complex, involving multiple stakeholders and numerous moving parts. As those stakeholders manage their project’s lines of coverage, including builder’s risk and/or wrap-up liability insurance, it is essential to consider, and balance, construction contract obligations with the specific terms and conditions of each line of coverage.

This often-misunderstood nuance raises questions about when project insurance should cease and when coverage should be implemented by the owner.

Canadian Construction Documents Committee (CCDC) contract versions from 2013 and earlier stipulated that once substantial performance of the work was awarded, the insurance policies purchased by the developer or contractor would continue providing coverage for 10 calendar days. Afterwards, responsibility for securing coverage would shift to the project owner. This seemingly straightforward process can be ambiguous, especially with the moving target of substantial performance not being defined within the contracts.

Ready-for-takeover

Over time, various issues have emerged in the process of handing over projects deemed to be completed to the owner. For example, an owner may be unaware of the location of the main water shutoff valves during a leak, leading to significant complications. This concern prompted the CCDC to update several standards and introduce a ready-for-takeover framework.

As of June 2025, the CCDC 2 (stipulated price), CCDC 5A/5B (construction management), and CCDC 30 (integrated project delivery) have implemented ready-for-takeover considerations, with the CCDC 14 (design-build) set to follow in early 2026. These updates clarify that insurance policies related to the project can lapse 10 calendar days after the project is considered ready for takeover.

While there are eight prerequisites for a project to be considered ready for takeover, the number that may need to be fulfilled depends on the contract, underscoring the importance of carefully reviewing the specific contract before deciding to lapse coverage.

The prerequisites to attaining ready-for-takeover of the work, as outlined by the CCDC, are limited to the following:

The consultant has certified or verified the substantial performance of the work.
Evidence of compliance with the requirements for occupancy or occupancy permit as prescribed by the authorities having jurisdiction.
Final cleaning and waste removal at the time of applying for ready-for-takeover, as required by the contract documents.
The delivery to the owner of such operations and maintenance documents reasonably necessary for immediate operation and maintenance, as required by the contract documents.
Make available a copy of the as-built drawings completed to date on site.
Startup testing required for immediate occupancy, as required by the contract documents.
Ability to secure access to the work has been provided to the owner, if required by the contract documents.
Demonstration and training, as required by the contract documents, is scheduled by the contractor acting reasonably

Policy considerations — Project insurances

Regardless of whether your project is based on CCDC contract standards or another form, the terms and insuring agreement of the builder’s risk insurance policy must be carefully considered to minimize the risk of construction insurance lapses. While most builder’s risk policies allow the owner to occupy the space before work is complete, there is a distinct difference between occupancy and using the space for its intended purpose. Permission to occupy is intended to allow the owner to begin moving owned items, such as stock, office equipment, furniture, or other specific similar fittings, into the space.

However, some builder’s risk policies may specify that once the space is used for its final intended purpose, the policy will automatically cease. Additionally, most builder’s risk policies state that if activity on the project site, as defined in the contract, ceases for more than an established number of consecutive days, coverage will lapse. Both older and current versions of the CCDC contract contain similar cessation of coverage language embedded in the broad form property requirements to reflect the insuring agreement of that policy.

When it comes to wrap-up liability insurance, unless canceled, the policy typically remains in effect for the duration stated on the declarations and can be extended as necessary. However, once construction is complete, that is when the clock starts ticking on the given completed operations period within the policy. Often the completed operations period allowance is 24 months for issues related to construction activity. It’s important to distinguish whether an issue stems from construction activity or the use of the facility for its intended purpose; the latter would require the claim to be filed against the owner’s general liability policy.

Best practices for the handoff process

Irrespective of the contract type or specific considerations outlined in the builder’s risk policy, it is important to establish an internal protocol for the property insurance handoff process. Clearly indicate when the project is expected to be substantially complete, which means that construction coverage will lapse and the owner needs to have property coverage in place.

The contractor should obtain written confirmation from the owner that property insurance coverage is in place, and specifying the effective date of coverage. If the contractor placed builders’ risk coverage, they can lapse the policy on the same date the owner’s policy begins. This date can also be amended through supplementary conditions, underscoring the importance of double-checking all contracts.

In the event the project insurance was placed by the owner, the contractor should clearly communicate to the owner that they are no longer responsible for risk at the site,

Deficiency work

Once the property has been turned over to the owner, and the insurance handoff process is complete, the contractor may still need to perform deficiency work.

Note, however, that the builder’s risk policy is typically no longer in force by this point in time. Once the building is turned over to the owner, it becomes a third-party property for the contractor. Any damages to the completed works must be claimed under general liability policies. If the damage is caused by or connected to previous construction activity, and occurs during the completed operations period of the wrap-up liability coverage, this policy may respond. The reason is that once the building is turned over to the owner, it becomes a third-party property from the standpoint of the contractor. To that end, the owner’s property insurances may also take precedence in the event of a loss.

As contractors finish a job, they are eager to get paid. As a result, the important handoff process is often overlooked despite its contractual implications. It is critical for contractors to check the contract language to better understand when coverage ends and take the necessary steps to remain compliant with contractual obligations.

Civil engineer checking work with communication to management team in the construction site

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