When “follow form” doesn’t follow form: How contractors can avoid hidden excess liability coverage gaps

Why this matters

This advisory on “follow form” insurance provisions highlights a subtle but critical risk vector in US commercial real estate development and construction. Institutional investors and lenders often rely on contractual risk transfer mechanisms to contain liability exposure during project delivery. The assumption that “follow form” endorsements automatically replicate primary policy terms can lead to hidden coverage gaps, undermining these protections. Such gaps may expose contractors—and by extension, project sponsors and capital providers—to excess liability claims that were presumed mitigated. For allocators and capital markets professionals, this signals a need for heightened diligence in underwriting construction risk and structuring contractual frameworks. As lending conditions tighten and risk appetites recalibrate, the integrity of risk transfer provisions becomes a more prominent factor in project viability and financing terms. The warning underscores that standard industry language may not suffice; bespoke legal and insurance expertise is increasingly essential to safeguard institutional capital. In an environment where construction costs and delays remain elevated, unanticipated liability exposures could exacerbate project-level financial stress, with knock-on effects for fund performance and lender loss reserves. This development serves as a reminder that risk management in CRE construction is as much about the fine print as macroeconomic trends.

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