“Invisible infrastructure” has become the driving force behind the world’s new normal. Massive cloud service providers must offer highly scalable, on-demand computing infrastructure and storage to businesses globally to compete. Thus, these hyperscalers are investing hundreds of billions of dollars in new facilities, and the new campuses are exploding into the gigawatt range.
Indeed, the 16-billion-dollar Saline Barn Project, underway outside Ann Arbor, Michigan, would have been considered extraordinary a few years ago. Its 250-acre, 1.4-gigawatt-scale campus is planned to have three 550,000-sq-ft single-story buildings—a scale that is now commonplace for data center projects.
Yet as the scale of these projects has expanded, a less discussed reality has emerged: the insurance market has not expanded with it.
Builders’ risk insurance has long served as a cornerstone of construction risk management. Traditionally, owners, lenders, and project participants expected major projects to carry insurance approaching full replacement value. For today’s hyperscale data centers, that expectation is becoming increasingly unrealistic. Industry reports from insurers, like Zurich in its Data Center Risks Right Now: 2026 U.S. Edition, indicate that many projects are insured for only one-third to one-half of their total value. This leaves billions of dollars of uninsured exposure.
Contractors, developers, lenders, and counsel are creating more efficient, collaborative, and creative risk-distribution regimes to answer a fundamental question: who is holding the bag when something goes wrong?
The Insurance Capacity Problem
The challenge begins with the economics. For example, Zurich reported in its Data Center Risks Right Now: 2026 U.S. Edition that the average value of its insured data center projects has ballooned over the past five years. According to the report, the average project value increased from approximately $150 million to roughly $3 billion during that period. Some campuses, like Saline Barn, reach into tens of billions of dollars.
The insurance market lacks sufficient capacity to provide full-value coverage for every hyperscale project. Insurers are therefore increasingly underwriting based on Estimated Maximum Loss (“EML”) or Probable Maximum Loss (“PML”). EML or PML are metrics used in property insurance and risk management to calculate the absolute worst-case financial damage an asset could suffer from a single catastrophic event. Rather than trying to insure for full value, these models are used to underwrite large-scale, but not necessarily total, losses. Carriers may determine that the most likely catastrophic loss is a fraction of full-value coverage. A full-value loss is unlikely, given that most data center campuses span hundreds or thousands of acres, with significant separation between structures.
Risk Is Being Retained—Intentionally
Industry participants are responding through layered insurance programs, quota-share arrangements among multiple carriers, phased coverage structures, and greater reliance on self-insured exposures. Some projects reportedly secure policy limits in the $2 billion to $5 billion range despite total campus values many multiples larger.
This retained exposure is often a calculated business decision. However, when risk outpaces coverage, stakeholders inevitably look elsewhere to recoup uncovered losses. That often means claims against contractors, designers, subcontractors, suppliers, consultants, and construction managers.
In other words, as insurance limits shrink relative to project value, contractual risk allocation becomes more important than ever.
Why Construction Contracts Matter More Than Ever
Owners increasingly focus on indemnity provisions, limitations of liability, waivers of consequential damages, and insurance procurement obligations. Contractors are scrutinizing force majeure provisions, exclusions, and liability caps. Lenders are examining whether project insurance structures adequately protect collateral and revenue streams.
The stakes are especially high because modern data centers are not merely buildings. They are power infrastructure, cooling systems, networking equipment, batteries, generators, switchgear, and highly specialized computing hardware.
A failure involving one component can quickly affect the entire campus. When that happens, parties will ask where the resulting losses fall within their contractual risk allocation.
Delay Claims May Become the Next Battleground
The insurance gap becomes even more significant when delay-related losses are considered. Delay-in-startup (“DSU”) coverage protects against lost revenue resulting from insured construction delays. DSU has become more difficult and expensive to obtain at meaningful limits. Experts from Zurich note that adding DSU coverage significantly reduces available insurance capacity. A single delay affecting a hyperscale campus may involve claims far exceeding the direct cost of repairing damaged property. Thus, future disputes may focus less on physical damage and more on the consequences of delay.
The industry can expect increased attention to liquidated damages provisions, consequential damage waivers, substantial completion definitions, commissioning obligations, and phased turnover requirements.
The New Exposure: Construction and Operations Colliding
Many large campuses place portions of facilities into operation while construction continues elsewhere on the same site. Concurrent construction and operations are becoming more common as developers seek to accelerate deployment schedules.
This creates a unique challenge. A construction incident in one area may damage operational facilities elsewhere. When multiple insurance programs, contractors, tenants, and operators overlap, determining responsibility becomes more complex. These projects demand careful coordination among builders’ risk coverage, operational property coverage, contractual indemnities, and project delivery obligations.
Natural Catastrophes and Geographic Concentration
Data center development is moving beyond traditional hubs and into frontier markets where land and power are more readily available. Many of these regions also pose elevated risks of tornadoes, hail, wind, and severe weather. Insurers are also concerned about the risk of aggregation that could result from concentrating data center projects in the same geographic area.
Zurich reports that weather-related events have become the leading source of loss in its data center builders’ risk portfolio. Market participants have warned that a single catastrophic event could affect multiple campuses simultaneously. The industry’s first truly catastrophic hyperscale loss could reshape underwriting practices overnight.
Looking Ahead
The industry’s appetite for power, land, and capital continues to accelerate. The insurance market is adapting through new products, lifecycle coverage structures, and innovative underwriting approaches. Yet there is little indication that insurance capacity will fully catch up with the largest projects any time soon.
That reality means project participants must become increasingly sophisticated in allocating risk. The defining question has now become whether contractors understand where uninsured risk ultimately resides.
Construction contracts—not insurance policies—may become the primary mechanism determining who bears the financial consequences of the next major loss. For owners, contractors, lenders, and developers participating in the AI infrastructure buildout, understanding that allocation is no longer optional. It is essential.
Smith Currie Oles LLP provides comprehensive legal services to all parts of the construction industry across the nation. Smith Currie lawyers have decades of demonstrated success representing construction and federal government contracting clients “From the Ground Up,” including procurement matters, contract formation and negotiation, project administration, claims prosecution and, when necessary, in litigation and other forms of dispute resolution.
The views expressed in this article are not necessarily those of ConsensusDocs. Readers should not take or refrain from taking any action based on any information without first seeking legal advice.