Data centers have become one of the fastest growing and most capital-intensive sectors in construction. As investment accelerates, particularly in concentrated metropolitan regions, these projects are introducing a distinct risk profile that differs materially from traditional commercial construction.
For insurers, claims professionals, and construction stakeholders, the shift is not simply one of scale; it is a shift in where value is concentrated, how projects are sequenced, and how failures develop. These factors are driving an increase in claim severity, particularly where the performance of electrical and cooling systems is central to the asset.
Capital Concentration and Risk Allocation
In conventional construction, the building structure and envelope typically define both progress and value. In data center construction, that model is inverted.
Approximately 50% of total project cost is tied to electrical infrastructure. This includes utility service, medium-voltage distribution, switchgear, uninterruptible power supply systems, backup generation, paralleling gear, and distribution to high-density loads. Mechanical and cooling systems often represent an additional 15% to 20% of project cost, particularly as high-density computing drives adoption of liquid cooling technologies.
The remaining portion of the project, including structure, enclosure, and support systems, exists primarily to protect and enable the operation of these technical systems.
This concentration of value materially changes the nature of risk. Losses involving electrical or cooling systems are not simply repair issues; they are performance risks that can impair the entire facility. As a result, claim severity is increasingly driven by system reliability rather than traditional construction defects.
Sequencing and Early Equipment Exposure
Data center construction is frequently characterized by schedule compression and early procurement of long-lead equipment. Electrical equipment is often delivered to a site well in advance of full building enclosure or environmental stabilization.
This sequencing creates a known exposure: Sensitive electrical components—including switchgear, UPS systems, and battery assemblies—may be stored or installed in environments where temperature and humidity are not fully controlled. Temporary protection measures are used but are not always sufficient.
The most consistent driver of loss across data center projects is not a catastrophic event; it is the decision to deliver critical equipment before environmental conditions are stabilized. This creates a “silent exposure window” where no visible damage occurs, but degradation begins.
While most projects implement environmental controls, losses typically arise from timing gaps where controls are deployed after equipment is delivered rather than before. In practice, execution—not design—is where failures occur.
From a claims perspective, this introduces questions of:
• Responsibility for environmental control during storage and installation.
• Adequacy of temporary protection measures.
• Timing of delivery relative to building readiness.
• Documentation of site conditions at the time of installation.
Failures associated with environmental exposure are often latent. Damage may not be immediately apparent and may only be identified during commissioning or early operation.
Moisture Intrusion and Equipment Sensitivity
Moisture-related damage is a recurring issue in data center claims. Electrical equipment used in these facilities is not tolerant of uncontrolled humidity or condensation. Exposure can result in corrosion, insulation degradation, tracking, or long-term reliability concerns.
Moisture losses in data centers are rarely attributable to a single event. Effective mitigation requires a layered approach: constructability review, sequencing controls, environmental monitoring, and disciplined response protocols. Claims consistently show that breakdowns occur at the interfaces between these controls—not within any single element.
The challenge is not only the occurrence of moisture intrusion, but also the difficulty in establishing when and how the exposure occurred. Construction schedules, overlapping trades, and incomplete environmental controls can obscure the timeline of damage.
For claims professionals, these cases often require detailed forensic analysis to determine:
• Whether damage occurred during shipping, storage, or installation.
• Whether environmental conditions exceeded acceptable thresholds.
• Whether protective measures were consistent with manufacturer requirements.
• Whether damage is attributable to construction practices or preexisting conditions.
The technical nature of these systems increases both the complexity and cost of investigation.
Redefining “Physical Damage”
In data center claims, one of the most consequential disputes is no longer whether an event occurred, but whether a condition constitutes “damage” at all.
Moisture or contamination events often do not result in immediate equipment failure, however, they can introduce long-term reliability concerns that cannot be fully tested or verified without invasive inspection or replacement.
This has created a growing divide between operational reality and insurance interpretation:
• Equipment manufacturers may refuse to warranty exposed equipment.
• Owners may require replacement to ensure reliability.
• Insurers may assert that no “direct physical damage” has occurred in the absence of visible deterioration or failure.
From a claims handling perspective, early engagement with OEMs and documentation of the warranty position can be determinative in evaluating exposure.
Commissioning Failures and Performance-Based Claims
Commissioning in data center construction is a critical phase that verifies system performance under operational conditions. This includes testing of electrical distribution, protective device coordination, generator operation, transfer sequences, UPS performance, and integration with mechanical cooling systems.
Unlike traditional construction claims, many data center disputes arise not from visible defects, but from failure to achieve required performance metrics.
Common claim triggers include:
• Failure of systems during load bank testing.
• Improper coordination of protective devices.
• Grounding and bonding deficiencies.
• Incompatibility between electrical capacity and mechanical load requirements.
• Delays in achieving operational readiness due to system failures.
These issues often result in delayed turnover, additional testing, equipment replacement, and extended project costs.
From a claims standpoint, the focus shifts to performance verification, commissioning documentation, and system integration rather than traditional workmanship defects.
Contract–Insurance Misalignment
Many of the largest uncovered exposures in data center claims arise not from policy exclusions, but from misalignment between contractual risk allocation and insurance coverage.
Common issues include:
• Contracts assigning responsibility for owner-supplied equipment without corresponding insurance coverage.
• Builder’s risk policies that do not clearly respond to testing or commissioning losses.
• Ambiguity around off-site storage, transit, and preinstallation risk.
When a loss occurs, parties often rely on contract language, while insurers respond based on policy terms—resulting in disputes and, in some cases, uninsured exposure.
Claim Severity and Emerging Trends
As capital continues to concentrate in electrical and cooling systems, claim severity is increasing. Losses are often driven by a combination of factors rather than a single point of failure. Sequencing decisions, environmental exposure, and commissioning practices frequently intersect.
Several trends are emerging in data center-related claims:
• Increased scrutiny of environmental conditions during equipment storage and installation.
• Greater reliance on commissioning records and testing data in dispute resolution.
• Expanded use of forensic engineering to establish causation in complex system failures.
• Allocation disputes involving multiple parties, including contractors, equipment suppliers, and design professionals.
These claims often involve significant financial exposure due to the value of equipment and the operational importance of the facility.
Data center construction introduces a risk profile that is fundamentally different from traditional building projects. The concentration of value in electrical and cooling systems, combined with compressed schedules and complex commissioning requirements, creates conditions where performance failures drive claim severity.
When issues arise in these facilities, they are rarely attributable to a single trade or isolated defect. They are typically the result of sequencing, environmental control, coordination, and system integration.
For insurers, claims professionals, and construction stakeholders, understanding these factors is essential to evaluating causation, responsibility, and exposure. As the sector continues to grow, the ability to assess and investigate these claims with technical precision will remain critical.
About the Authors:
Thomas Rocha, P.E., C.F.E.I., is expert – electrical engineer, fire cause & origin, UAS drone pilot at MC Consultants, Inc. thomas.rocha@mcconsultants.com
Ryan Pitterson is vice president of claims at Turner Surety & Insurance Brokerage (TSIB). rpitterson@tsibinc.com