Top Five Modular Construction Risks — And How to Address Them
Securing protection against unique risks for a timely and cost-effective alternative.

Modular construction has gained significant popularity in recent years as it offers a more timely, cost-effective and sustainable alternative to traditional construction methods. Modular construction involves building structures off-site in a controlled environment and then transporting the modules to the construction site where they are assembled and installed. While this construction method offers numerous benefits, such as increased worker safety and quality control, it also presents unique insurance risks that should be considered when obtaining insurance coverage.

1. Transport Risks

One of the primary risks associated with modular construction is transportation. Modules are often damaged during transportation due to accidents, poor weather conditions or improper handling. While the damage could be minor, allowing module repairs to be performed on-site after delivery, more costly repairs, or even replacement of the entire module, could be required if significant damage results from the transportation process. As such, it is essential for contractors and manufacturers to have comprehensive transportation insurance and/or builders risk coverage to protect against any losses that may occur during the transportation process.

2. Manufacturing Defects

Another risk associated with modular construction involves manufacturing defects since they can have serious implications on the construction schedule or the final structure’s integrity. It is essential for contractors and manufacturers to have quality control procedures in place to ensure that all modules are manufactured to the highest standards. These quality control procedures should also include inspections of the modules before and after the delivery, as well as before they are installed after being stored on the site following delivery.

3. Off-Site Coverage

Since modular construction involves the creation of multiple modules at off -site locations, such as a factory or warehouse, coverage for the off -site location may be jeopardized based on the insurance program that is procured for the project. For example, a project-specific insurance program may not provide coverage for the off -site location if the module manufacturing space is utilized for many unrelated projects. This issue must be addressed with the insurer and manufacturer during the project planning stages, as there are potential work-around solutions designed to segment the off -site location so the comingling of the manufacturing process is avoided.

4. Theft and Vandalism

Theft and vandalism are other potential risks associated with modular construction. Modules are often stored in large quantities at a construction site, which increases the risk of theft or vandalism. Most builders risk policies will provide coverage to protect against any losses that may occur due to theft or vandalism. The losses that arise from theft or vandalism are not limited to the replacement costs, as project delay costs can be incurred if the replacement of the stolen or vandalized construction components negatively impact the critical path of the project schedule.

5. Assembly and Installation Mistakes

Modular construction presents unique risks associated with the assembly and installation process at the construction site. While the modules are designed to fi t together perfectly, there is still a risk that defects may occur during the assembly and installation stages. These defects can lead to safety hazards, code violations or structural defi ciencies. It is essential for contractors and manufacturers to have comprehensive liability insurance, including products-completed operations coverage, to protect against any claims that may arise from defects and mistakes caused during manufacturing, assembly and installation. Additionally, depending on the scope of the work and potential design responsibilities, a professional liability policy may be necessary to cover errors and omissions allegations and claims associated with the modular construction.

Maintaining the Benefits of Modular Construction

In conclusion, modular construction presents unique insurance risks that must be considered when procuring insurance coverage. These risks include transportation, defects in the manufacturing process, off-site coverage, theft, vandalism and errors and omissions during the assembly and installation stages. Contractors and manufacturers should work closely with their insurance providers to ensure that they have adequate coverage to protect against any losses that may occur due to these risks. By taking proactive steps to manage these risks, contractors and manufacturers can ensure the success of their modular construction projects while minimizing the potential for costly losses.

Reach out to NFP’s Construction and Infrastructure team to learn more about how the appropriate insurance coverages will protect against the risks associated with modular construction.

Written by Aaron R. Haimowitz, Senior Vice President - North America Construction & Infrastructure Claims Leader

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