Despite economic uncertainty, real estate is booming—but are your insurance solutions keeping pace? Traditional policies leave critical gaps as investors and developers embrace vertical integration and investment complexity grows. Discover how a combined insurance approach can bridge coverage gaps and protect against emerging risks in our latest article.
Despite economic uncertainty, the real estate sector continues to grow. The United States is projected to generate the highest value worldwide in the real estate market. It is also estimated that leasing activity in industrial real estate will return to pre-pandemic levels and that continuous tenant demand will edge down vacancy in the multifamily market, as the still-high cost of home ownership will drive the demand for apartment living.1,2 With this current real estate development boom, insurers must be poised to meet the needs of developers for coverage.
UNDERSTANDING DEVELOPER RISK + COVERAGE NEEDS
In the real estate development industry, firms differ in the degree of control they maintain over various stages of the development process. A vertically integrated developer, who owns and controls various stages of the development process, might be involved in everything from financing and land acquisition to construction and property management. In contrast, a non-vertically integrated or “paper developer” would outsource one or more stages of the process to third-party contractors, whose coverage would remain separate from their own.3 Financial exposures correspondingly increase as more real estate developers vertically integrate and increase the amount of third-party investment in their projects. Furthermore, as owners become more sophisticated concerning the various elements of the development process, there is an imminent shift in their preference to control/sponsor the different insurance products needed to protect the development as opposed to relying on alternative parties to place the insured (i.e., subcontractors and design subconsultants).
CLAIMS + FINANCIAL EXPOSURES IN REAL ESTATE DEVELOPMENT
Claims can arise at any stage of project development, threatening the financial well-being of a vertically integrated developer. Potential risks include:
- Inadequate Contractor Coverage: Subcontractors or design subconsultants may fail to maintain or carry adequate coverage, exposing developers to additional liability.
- Negligence In Site Selection: Developers may face lawsuits for choosing sub-optimal locations.
- Architectural Code Violations: Architects can be held responsible for failing to meet complex and varying state codes.
- Design Defects: Developers may be held responsible for defects in the design of the construction for the development project.
- Construction Management Errors: Developers may be held liable for the errors and omissions of their subcontractors.
- Construction Defects: Poor workmanship and defective materials can lead to legal disputes even after project completion.
- Pollution Claims: Accidental discharge or migration of pollutants may occur in the course of construction.
- Property Management Errors: Tenants may bring suit for discrimination or failure to maintain the property.
- Investor Claims: Claims brought by investors for errors in development services that may have led to a lower return on their investment.
- Fund Liability: Capitalizing projects with private real estate funds brings increased risk and a higher degree of care for advising on and managing asset investment.
LIMITATIONS OF TRADITIONAL E&O SOLUTIONS
There are several ways to approach the developer’s errors and omissions (E&O) exposure with traditional E&O solutions, not all of which may be adequate depending on the complexity and level of vertical integration with the risk:
- Miscellaneous E&O policy: this policy may include exclusions for bodily injury and physical damage and provide limited or no coverage for construction activities.
- Typically includes a narrow definition of “insured” not extending to joint ventures or special purpose entities (SPEs).
- Pollution-related claims are typically excluded.
- Investment advisory and asset management risks are generally excluded.
- Design/build contractors E&O policy: may not include development activities in the definition of professional service, such as performing financial management and reporting, or creating promotion and advertising campaigns.
- SPEs may not be included in the definition of “insured.”
- May not include claims brought by investors.
- Investment advisory and asset management risks are generally excluded
- Investment management liability policy: Private real estate investment funds involved in the underlying development activities may rely solely on their fund liability policy for protection. Still, such policies only cover vicarious liability for real estate service providers. Most of these policies exclude bodily injury and physical damage, leaving construction and development-related exposures outside the scope of coverage.
DEVELOPER E&O DEDICATED POLICY FORMS
For real estate development firms, the broadest option is a true developer’s E&O policy, which will extend to a broad scope of developer services and exposures, including:
- Real estate development services
- General contractor + construction management services
- Real estate services
- Property management services
- Pollution liability
- Bodily injury and physical damage coverage—critical for construction-related claims
- Expanded insured definitions—including joint ventures and SPEs.
Available enhancements may include:
- Faulty workmanship carve-back: ensures defects may still be covered if they arise from professional services.
- Rectification expense coverage: helps to correct mistakes before they escalate into claims.
- Protective claim coverage: provides excess coverage over inadequate subconsultant insurance if the insured cannot recover the subconsultants’ liabilities.
- Drone liability coverage: protects against claims related to site inspections and property management, including claims related to bodily injury, property damage, or privacy violations arising from drone operations.
- Investor claim coverage: protection for claims brought by investors.
BRIDGING THE GAP FOR DEVELOPERS + PRIVATE REAL ESTATE FUNDS: A COMPREHENSIVE INSURANCE SOLUTION
For private real estate fund managers involved in the underlying development, or developers capitalizing their projects with a fund strategy, new combined-form solutions integrate investment management insurance (IMI) with real estate development (RED) coverage. CRC has access to limited distribution blended products that include the traditional insuring agreements for both an IMI and RED policy, including:
- Investment advisors D&O/E&O
- Investment company D&O/E&O
- Fund D&O/E&O
- Developers E&O
- Pollution liability
These combined solutions offer a more comprehensive safety net for claims that might otherwise be denied under an IMI policy if tied to the development services/operations. The combined approach bridges that gap.
BOTTOM LINE
CRC Group offers specialized, comprehensive solutions that bridge critical coverage gaps in real estate development and investment insurance. Unlike standard policies that may leave developers or fund managers exposed, CRC can offer blended form solutions that ensure robust protection for construction risks, financial exposures, and emerging threats.
With deep industry expertise, proprietary market access, and innovative policy enhancements, CRC delivers forward-thinking risk solutions tailored to the evolving real estate landscape. Contact your CRC Group producer today to learn more.
CONTRIBUTORS
- Jenny Finet is a broker with CRC Group’s Chicago office and a member of the ExecPro Practice Group.
END NOTES
- Real Estate - United States, Statista Market Insights, March 15, 2025. https://statista.com/outlook/fmo/real-estate/united-states
- Real Estate Market Outlook 2025, CBRE, December 11.2024. https://www.cbre.com/insights/books/us-real-estate-market-outlook-2025
- What to Know about Vertical Integration in Real Estate Investing, Forbes, March 6, 2025. https://www.forbes.com/sites/jamesnelson/2025/03/06/what-to-know-about-vertical-integration-in-real-estate-investing/