The Foundation Crew That Cracked a Neighbor's Pool
A small residential contractor in Travis Heights won a contract to build an 800-square-foot detached ADU in a client's backyard. The lot sloped toward the rear property line, requiring a cut-and-fill foundation approach. During excavation, the Bobcat operator hit caliche at four feet and switched to a hydraulic breaker to fracture the limestone. The vibration transmitted through the substrate and cracked the gunite shell of the neighbor's swimming pool — fifteen feet from the property line but directly in the vibration path.
The neighbor's pool repair estimate came in at $42,000. The homeowner's HOA sent a cease-and-desist citing construction vibration standards. The project shut down for three weeks while engineers assessed the soil conditions and redesigned the foundation approach. Total claim: $127,000 including pool repair, engineering redesign, delay costs, and the neighbor's temporary loss-of-use claim for their pool during peak summer.
The contractor's general liability policy covered the neighbor's property damage. But the delay costs and redesign expenses required builder's risk and professional liability coverage he didn't carry. He'd treated the ADU like any other room addition — and learned that building a separate dwelling structure in someone's backyard creates exposures that conventional residential remodel insurance doesn't anticipate.
Austin's ADU Ordinance: What Changed and Why It Matters
The 2015 CodeNEXT Evolution
Austin has permitted ADUs since 2015, but the original regulations were restrictive — size limits of 850 square feet, owner-occupancy requirements, impervious cover constraints, and compatibility standards that made many lots ineligible. The practical effect was that only a handful of ADUs were built each year.
The Expanded Ordinance
Austin's revised ADU regulations removed or relaxed most of the barriers that suppressed construction:
- Owner-occupancy requirement eliminated — Property owners no longer need to live on-site, making ADUs viable as pure rental investments
- Size limits increased — Up to 1,100 square feet on standard lots, with allowances for larger units on larger parcels
- Setback reductions — Reduced rear and side setbacks make more lots buildable
- Parking requirements relaxed — No additional off-street parking required for ADUs near transit corridors
- Two ADUs per lot — Some lot configurations now allow both an attached and detached ADU
- Impervious cover calculations — Modified to accommodate ADU footprints without requiring demolition of existing structures
The Construction Boom
The result has been predictable: ADU permit applications in Austin have surged. The Austin Development Services Department (DSD) processes hundreds of ADU permits annually, and the pipeline continues to grow as property owners recognize the rental income potential — particularly in neighborhoods like East Austin, South Austin, and the university-adjacent areas where rental demand is intense.
For contractors, this represents a significant and growing market segment. But it's a market with unique insurance requirements that differ from both standard new construction and residential remodeling.
Why ADU Construction Creates Unique Insurance Exposures
Proximity to Existing Structures
ADUs are built in backyards — inches or feet from the primary residence, neighboring homes, fences, utility lines, mature trees, and other improvements. Every construction activity happens in a confined space surrounded by property that belongs to someone else.
Excavation damage — Foundation work for detached ADUs requires excavation in areas that may contain unmarked utility lines, root systems of protected trees, or soil conditions that affect adjacent structures.
Crane and delivery access — Getting materials into a backyard often requires crane lifts over existing structures. A truss package swinging over the primary residence creates liability exposure every time.
Fire risk during framing — A framing fire in a new subdivision affects open land. A framing fire on an ADU project threatens the primary residence, the neighbor's home, and everything in between.
Working in Occupied Properties
Unlike new construction on vacant lots, ADU projects happen while the homeowner lives in the primary residence. This creates:
Personal injury exposure — Homeowners, their children, and their pets move through and around the construction zone daily. Trip hazards, exposed utilities, and construction debris create ongoing personal injury risk.
Property damage to the primary home — Dust, vibration, utility interruptions, and construction traffic affect the existing home. HVAC contamination from construction dust is a common claim.
Loss of use claims — If construction activities make the primary residence temporarily uninhabitable — broken water lines, electrical service interruptions, sewage backup — the homeowner may have a loss-of-use claim against the contractor.
Tree Protection Ordinance Compliance
Austin's tree protection ordinance is among the strictest in Texas. Many ADU-eligible lots contain heritage trees (24+ inch diameter) or protected trees (19+ inch diameter) with root protection zones that extend well into the buildable area.
Critical risk: Damaging or killing a protected tree during ADU construction can result in fines up to $100,000 per tree, required replacement with caliper-inch equivalents, and civil liability to the property owner for diminished property value. A single heritage live oak in Austin can be appraised at $50,000-$150,000.
Your general liability policy may cover the fine and civil liability, but only if your policy doesn't exclude regulatory penalties. Many standard contractor GL policies exclude fines and penalties imposed by governmental authorities.
Utility Coordination in Established Neighborhoods
ADU construction in established Austin neighborhoods means connecting to aging utility infrastructure:
- Austin Water — Separate water and sewer connections may be required, involving trenching through landscaped yards and potentially crossing neighboring easements
- Austin Energy — Electrical service upgrades often require transformer and panel work that affects the primary residence's service
- Gas service — Texas Gas Service connections in older neighborhoods may require main extensions
- Telecommunications — Fiber, cable, and phone lines in established neighborhoods are often imprecisely located
Hitting an unmarked fiber optic line serving a home-based business next door creates a business interruption claim. Damaging a sewer lateral shared with a neighbor creates environmental liability.
Insurance Coverage for ADU Contractors
General Liability: The Foundation
Minimum recommended limits: $1,000,000 per occurrence / $2,000,000 aggregate
Key coverage considerations for ADU work:
- Products-completed operations — ADU defects that manifest after completion (roof leaks, foundation settlement, plumbing failures) are covered under completed operations. Maintain this coverage for at least five years after project completion.
- Damage to property in your care, custody, and control — Standard CGL policies exclude damage to property you're working on. ADU contractors need to understand where the primary residence ends and the ADU project begins for coverage purposes.
- Subsidence and earth movement — Excavation near existing structures creates subsidence risk. Verify your GL policy doesn't exclude earth movement claims arising from your operations.
- Tree and landscape damage — Ensure your policy covers damage to trees and landscaping, including regulatory fines if your policy can be endorsed to include them.
Builder's Risk: Protecting the Project
Builder's risk insurance protects the ADU structure during construction. Critical features for ADU projects:
Existing structure coverage — Standard builder's risk covers the new construction. But if your ADU work causes damage to the primary residence (fire spread, water damage from plumbing tie-in), you need coverage that extends to the existing structure.
Soft costs — ADU projects in Austin face permit delays, inspection re-scheduling, and weather interruptions. Soft cost coverage reimburses ongoing expenses (loan interest, permit renewals, temporary housing) when covered events delay completion.
Materials in transit and storage — ADU sites have limited material storage. Materials staged off-site or in transit need coverage.
Typical builder's risk for Austin ADUs:
| ADU Type | Construction Value | Builder's Risk Premium | |----------|-------------------|----------------------| | Studio/1BR (400-600 sq ft) | $150,000-$250,000 | $1,200-$2,500 | | 2BR detached (600-850 sq ft) | $250,000-$400,000 | $2,000-$4,000 | | Full 2BR/2BA (850-1,100 sq ft) | $350,000-$550,000 | $3,000-$5,500 | | Two-story ADU with garage | $400,000-$650,000 | $3,500-$6,500 |
Workers' Compensation
Texas workers' comp is elective, but ADU contractors should carry it for every reason standard residential contractors should — plus additional ADU-specific reasons:
- Confined workspace injuries — Backyard construction in tight spaces increases injury frequency for falls, struck-by incidents, and overexertion
- Homeowner interaction injuries — Workers moving through occupied properties face slip-and-fall exposures on residential surfaces (wet patios, garden paths, pool decks)
- Heat exposure — Austin summers with temperatures exceeding 105°F, combined with backyard work areas that lack shade and airflow, increase heat illness claims
Commercial Auto
ADU projects require daily material deliveries to residential streets not designed for construction traffic. Commercial auto considerations:
- Residential street liability — Delivery trucks on narrow residential streets create property damage exposure (mailboxes, parked cars, landscape features)
- Driveway damage — Heavy vehicles crossing residential driveways cause cracking and settling
- Hired and non-owned auto — Subcontractors using personal vehicles for the project create vicarious liability
Umbrella/Excess Liability
Recommended: $1,000,000-$2,000,000 umbrella over primary GL, auto, and workers' comp
ADU projects in high-value Austin neighborhoods (Tarrytown, Zilker, Travis Heights, Clarksville) involve properties worth $1.5-$4 million. A fire that spreads from an ADU under construction to a $3 million primary residence exhausts a $1M GL limit before the structure is half-rebuilt.
Austin DSD Permitting Process for ADUs
What Contractors Need to Know
Permit application requirements:
- Site plan showing ADU location, setbacks, and impervious cover calculations
- Structural plans stamped by a licensed Texas PE
- Mechanical, electrical, and plumbing plans
- Tree survey if protected trees are within the construction influence zone
- Proof of contractor insurance (GL certificate minimum)
Current timeline expectations:
- Simple detached ADU on compliant lot: 4-8 weeks for plan review
- ADU requiring variance or conditional use permit: 8-16 weeks
- ADU in historic district: additional Heritage Preservation Office review, add 4-8 weeks
Inspection sequence: Foundation → framing → rough MEP → insulation → final inspections for each trade → certificate of occupancy
Insurance verification: Austin DSD requires proof of insurance at permit application. Some inspectors request current certificates during field inspections. Keep certificates in your project binder on-site.
Common Permit Complications
Impervious cover limits — Many Austin lots are already near impervious cover maximums. Adding an ADU footprint plus required walkways may require permeable paving or rainwater harvesting to offset.
Setback encroachments — The expanded ordinance reduced setbacks, but surveying errors on older lots can create encroachment issues discovered mid-construction.
Easement conflicts — Utility easements, drainage easements, and access easements in backyards may restrict ADU placement in ways not apparent from the lot survey alone.
Common Mistakes ADU Contractors Make
Treating ADUs like room additions. A room addition extends the existing structure. A detached ADU is a separate dwelling with separate utility connections, separate structural requirements, and separate insurance exposures. Your coverage needs to reflect a new construction project, not a remodel.
Ignoring neighbor relations. ADU construction happens feet from property lines. Proactive communication with neighbors about construction schedules, dust mitigation, and parking prevents complaints that escalate to code enforcement actions and stop-work orders.
Underestimating Austin's tree ordinance. Out-of-state contractors and residential remodelers unfamiliar with Austin's tree protection requirements routinely damage protected trees during ADU excavation. A $100,000 fine for killing a heritage oak eliminates the profit from several ADU projects.
Skipping builder's risk on smaller projects. A 500-square-foot ADU may seem too small to justify builder's risk insurance. But when that ADU is eight feet from a $2 million primary residence, the total property exposure justifies the coverage.
Not carrying pollution liability. Older Austin neighborhoods may have lead paint on existing structures, asbestos in adjacent improvements, or contaminated soil from historical uses. Disturbing these materials during ADU construction creates environmental claims your GL policy likely excludes.
Common Questions
Do I need a separate contractor registration for ADU work in Austin?
No. Your Austin contractor registration covers ADU construction. However, ensure your registration is current and your insurance certificates on file with DSD reflect adequate limits for the scope of work. If your registration lists you as a remodeling contractor, verify that new detached construction is within your registered scope.
What's the minimum insurance Austin requires for ADU permits?
Austin requires proof of general liability insurance at permit application. While the city doesn't specify a minimum limit for ADU work specifically, most ADU contracts and lender requirements call for $1M/$2M GL minimum. We recommend this as the floor, with umbrella coverage based on adjacent property values.
How much does it cost to insure an ADU construction project?
For a typical Austin ADU project ($250,000-$500,000 construction value), expect to allocate $4,000-$12,000 for a comprehensive insurance package including GL, builder's risk, workers' comp, and commercial auto. This represents 1.5-3% of construction cost — a standard range for residential new construction.
Should I carry insurance between ADU projects?
Yes. Maintain continuous GL and workers' comp coverage even between projects. Coverage gaps create problems: claims on completed work that surface between projects may not be covered, and new clients verifying your insurance history will see the gap. Continuous coverage also avoids underwriting scrutiny and potential premium surcharges when you reinstate.
What if the homeowner wants to act as their own general contractor?
This is common in Austin's ADU market. When a homeowner GCs their own ADU project and hires you as a subcontractor, verify that the homeowner has their own builder's risk policy covering the project. Your GL covers your work, but the overall project needs builder's risk coverage that the homeowner-GC should provide. If they don't have it, you're exposed to losses from events outside your control — weather damage, theft, vandalism — that affect your installed work.