The $6.6 Million Wake-Up Call
A mechanical contractor in Santa Clara was 90% through a cooling system installation at a Tier III data center when a subcontractor's crew accidentally severed a fiber optic trunk line. The physical damage was minimal—about $15,000 in cable replacement. But the 72-hour service disruption to the facility's existing tenants generated business interruption claims exceeding $6.6 million. The general contractor's standard GL policy responded to the physical damage. The business interruption claims? Those landed in a coverage gap that no one had addressed during the pre-construction insurance review.
Silicon Valley data center construction isn't like building an office park. You're working inside or adjacent to facilities where a single hour of downtime can cost tenants hundreds of thousands of dollars. The insurance requirements reflect that reality.
Why Data Center Insurance Is Different
The Value Density Problem
A typical commercial building might represent $200 to $400 per square foot in construction value. A data center can reach $800 to $1,500 per square foot when you factor in electrical infrastructure, cooling systems, fire suppression, and the structural requirements for equipment loads. A 50,000-square-foot data center build can carry $40 million to $75 million in total construction value.
This value density creates several insurance challenges:
- Builder's risk limits: Standard builder's risk programs max out at $10 to $25 million. Data center projects often require manuscript policies with limits exceeding $50 million
- Equipment values: A single UPS system can cost $2 million. Emergency generators run $500,000 to $3 million each. These items need coverage from delivery through installation and testing
- Transit exposures: Specialized equipment travels from manufacturers worldwide. Ocean cargo, inland transit, and installation floater coverages must dovetail without gaps
Adjacent Operations Exposure
Most new data center construction happens on campuses with existing operational facilities. Your construction activities affect live data operations. The risks include:
- Vibration: Heavy construction equipment can disrupt sensitive server operations in adjacent buildings
- Dust and debris: Airborne particulates threaten clean room environments and cooling system air handlers
- Utility disruptions: Accidental cuts to power, cooling water, or fiber lines serving operational facilities
- EMI/RFI interference: Certain construction equipment and welding operations can generate electromagnetic interference
These exposures don't fit neatly into standard insurance categories. You need a broker who understands how to structure coverage for construction-adjacent technology operations.
Required Insurance for Silicon Valley Data Center Projects
Builder's Risk: Beyond Standard Coverage
Data center builder's risk policies must address:
Completed Value Form: The policy should cover the full completed value of the project from day one, not just the value of work in place. This ensures that a total loss early in construction triggers coverage sufficient to restart the project.
Equipment and Materials in Transit: Server racks, generators, UPS systems, and cooling equipment often ship from overseas. Your builder's risk should include ocean cargo and inland transit coverage with limits matching the single highest-value shipment.
Testing and Commissioning: Data center commissioning can take 60 to 90 days after construction completion. The builder's risk policy must extend through commissioning, including coverage for equipment damage during testing.
Earthquake: Santa Clara Valley sits on multiple fault systems. Earthquake endorsements on data center builder's risk are expensive—typically 15% to 30% of the base premium—but essential. The alternative is uninsured seismic exposure on a $50 million asset.
Typical Costs: Builder's risk for a $30 million data center project in Silicon Valley runs $150,000 to $400,000, depending on project duration, earthquake sub-limits, and the scope of testing coverage.
General Liability: Elevated Limits and Endorsements
Standard $1 million/$2 million GL limits won't satisfy data center owners. Expect requirements of:
- $5 million to $10 million per occurrence
- $10 million to $25 million aggregate
- Additional insured status for the facility owner, operator, and major tenants
- Waiver of subrogation in favor of the project owner
Most contractors achieve these limits through a combination of primary GL ($2 million per occurrence) and umbrella/excess liability ($5 million to $25 million). The umbrella policy must follow the same form as your primary GL to avoid gaps.
Cyber Liability: The Emerging Requirement
Data center owners increasingly require contractors to carry cyber liability insurance. The logic is straightforward: your employees and subcontractors access facility networks during construction. A compromised credential or infected device connected to the construction network could theoretically bridge to production systems.
Cyber coverage requirements for data center contractors typically include:
- $2 million to $5 million in cyber liability limits
- Network security liability (covers claims from security breaches your operations cause)
- Privacy liability (covers regulatory actions if you access or expose client data)
- Technology errors and omissions
Cyber policies for contractors run $3,000 to $12,000 annually depending on your revenue, scope of network access, and the number of employees with facility credentials.
Professional Liability for Design-Build
Many Silicon Valley data centers use design-build delivery. If your firm provides any design services—even value engineering suggestions that the owner adopts—you need Professional Liability coverage. Typical requirements are $5 million to $10 million in limits.
Design errors in data center work carry enormous consequential damage potential. A miscalculated cooling load that forces a facility to operate at reduced capacity for months while corrections are made can generate claims far exceeding the construction contract value.
Vendor Pre-Qualification Platforms
Silicon Valley data center owners use vendor management platforms to verify contractor insurance and safety credentials. The most common platforms include:
Avetta (formerly PICS Auditing)
Most major data center operators—including Equinix, Digital Realty, and CoreSite—use Avetta for contractor pre-qualification. Requirements include:
- Current certificates of insurance uploaded and verified
- EMR history for three years (threshold typically 1.0 or below)
- OSHA 300 logs for three years
- Written safety program documentation
- Drug testing program verification
ISNetworld
Some operators use ISNetworld, which adds a compliance scoring system (ISN GradeBook) that rates your safety and insurance documentation. Scores below certain thresholds restrict which facilities you can access.
myCOI
Insurance certificate management through myCOI requires your broker to upload certificates directly. The system automatically flags non-compliant coverage, missing endorsements, or lapsing policies.
Maintaining active profiles on these platforms costs $500 to $2,500 annually per platform but is non-negotiable for accessing major data center clients.
Subcontractor Insurance Management
Data center general contractors face heightened subcontractor insurance oversight. Your subcontract agreements should require:
- GL limits matching the project requirements (not your standard sub requirements)
- Workers' comp with statutory limits and employer's liability of at least $1 million
- Professional liability for engineering and design subs
- Cyber liability for any sub with network access
- Inland marine for subs bringing specialized equipment to the site
Verify certificates before subs mobilize and monitor for coverage gaps throughout the project. A single uninsured sub can jeopardize your own coverage if their operations cause a loss.
NDA and Confidentiality Considerations
Silicon Valley data center clients require strict confidentiality agreements that create unique insurance implications:
Liquidated Damages for Disclosure: Many NDAs include liquidated damage provisions of $1 million or more per disclosure event. If an employee posts a job site photo on social media showing client infrastructure, the NDA violation could trigger a claim your GL policy won't cover. You need cyber liability or a specific contractual liability endorsement.
Employee Training: Document NDA training for every employee and sub who enters the facility. This creates a defense if a disclosure occurs—you can demonstrate reasonable measures to prevent it.
Insurance for NDA Violations: Standard GL excludes contractual liability beyond "insured contracts." Have your broker review your NDAs and confirm your insurance program responds to potential violation claims.
Cost Summary for Data Center Contractors
For a mid-size contractor doing $5 million to $20 million in annual data center work in Silicon Valley:
| Coverage | Annual Cost | |----------|------------| | General Liability ($5M/$10M) | $25,000–$60,000 | | Workers' Compensation | $40,000–$120,000 | | Builder's Risk (per project, $30M value) | $150,000–$400,000 | | Umbrella/Excess ($10M) | $20,000–$50,000 | | Cyber Liability ($5M) | $5,000–$12,000 | | Professional Liability ($5M) | $15,000–$40,000 | | Inland Marine | $3,000–$8,000 | | Commercial Auto | $8,000–$20,000 | | Vendor Platform Fees | $1,500–$5,000 |
Total annual insurance costs for data center contractors typically run 4% to 8% of revenue—higher than standard commercial construction due to the elevated limits and specialized coverages required.
Getting the Right Program in Place
Data center insurance isn't off-the-shelf. You need a broker who understands both construction insurance and technology infrastructure risks. We work with specialty markets that write data center builder's risk, technology-specific professional liability, and the elevated GL/umbrella towers that Silicon Valley clients require.
Contact our San Jose office for a data center insurance program review. We'll evaluate your current coverage against the requirements of major Bay Area data center operators and identify any gaps before they become deal-breakers on your next bid.