Builders risk insurance is used to cover both natural and accidental damage caused on a building site. There are many considerations with the purchase of this insurance in regards to the type and coverage as well as who is purchasing it. The amount of coverage also depends on the size of the project and the length of time it will be in force.
These policies are usually project specific and are bought by preferably by the owner but sometimes by the contractor to cover many claims that may not be covered on their General Liability insurance. Builders risk insurance has the function of protecting against loss due to such hazards as fire, vandalism, lightning and wind. Builders risk insurance also provides coverage for circumstances related to accidental loss, property damages or destruction and clean-up or salvage operations.
There are limitations to the function of builders risk insurance as well. These policies do not cover circumstances related to earthquake, flooding, acts of war or intentional acts of the property owner. There are also time limitations to this type of policy which states coverage is enforced during the construction period only and will protect certain persons involved in the building project. These persons would include the property owner, the general contractor and sub-contractors as well as engineers and architects involved in the project. Builders risk insurance also covers loss to the mortgage company which finances the project.
Some common Builders Risk features:
The main feature of builders risk insurance is the type of structures which are covered under a policy during construction. These would include the following:
- New structures on the property
- Any additions to a structure currently in progress
- Fixtures and equipment considered part of the building such as boilers, HVAC or Electrical systems
- Temporary structures such as construction offices
- On-site materials used in the building project
- Soft Costs (checklist)
Two types of builders risk insurance:
Specified Peril
Specified peril policies cover only what is mentioned within the policy. This is the type which would cover individual hazards that happen only to the building
All Risk
This type of insurance policy is the opposite of specified peril in that it will cover every hazard except those excluded from the policy. All risk policies do not list what is covered. This policy is usually more expensive because of the extent of the coverage.
Builders risk insurance is a required policy for most new construction and remodeling projects which require a contractor. Both municipal building codes and financial lenders will not approve many construction projects without proof of this insurance.
The responsibility by law for this type of insurance is with the contractor, but is payable to the property owner because the owner becomes liable for any losses during the project.
Some considerations which a property owner may want to look at during a construction project include the possibility of the current property insurance coverage including the building project if it involves an existing building as well as having the proper underwriting information to help with purchasing this type of policy. When you purchase builders risk insurance as a property owner you should verify what the policy covers and add stipulations for poor drainage, sinkholes or wind damage caused during construction.
If you are the contractor for a building project, you will want to ensure that everyone involved in the project is named in the policy, including subcontractors and equipment owners. You should also confirm your costs relating to errors in design, faulty workmanship and any changes in laws or costs relating to interruption of the project. A review of any policies held by the property owner will help ensure these policies are compatible with a builders risk insurance policy.
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