Builder's Risk Insurance

Do you need Builder's Risk Insurance? Photo credit: monivhs1947 on Flickr

Builder’s risk coverage falls under the category of specialty insurance products and provides property insurance for buildings while they are still being built.  Standard property coverage would not cover damage to the building while it is under construction.    Once the building is complete, the property owner would purchase a more standard property insurance policy to cover any damage to the building.  It is kind of like a homeowner-to-be who has to get a construction loan in order to finance the cost of building a house and then get a mortgage once the house is complete.

This type of insurance also covers materials and equipment that are being used to construct the building and may be purchased to cover any loss exposure during renovations, not just for new construction.

Who Needs Builder’s Risk Insurance

During construction, the conditions are very different than they will be once the building is complete and there are more ways that losses can occur.  Building owners are generally liable for anything that happens on their site.  Builder’s risk offers the owner some protection from any loss of property.

What Does it Cover

Most Builder’s Risk coverage protects the land/building owner’s interest against losses resulting from fire, vandalism, lightning, wind, and other non-excluded weather conditions.  Similarly to homeowner’s insurance, Builder’s Risk policies do not generally protect against losses caused by earthquakes, flooding, acts of war, or intentional damage caused by the owner.   The timeframe of the policy generally aligns with the timeframe of the construction or renovation and expires once the work on the building has been completed.  Builder’s Risk coverage would not usually continue to offer protection to the owner after the building is certified for occupancy.

The standard Builder’s Risk policy offers site-specific coverage which means that any materials and equipment that are not onsite would not be covered under the policy.  If there are materials and/or equipment that is being stored in a different location for use on the project, a broader policy would be required.  This type of coverage can be obtained through a Builder’s Risk policy that contains Inland Marine provisions.

Although the type of coverage provided at a high level is common across the majority of Builder’s Risk policies, the actual policies are often very detailed and tailored to the specific needs of the building project that is being insured.  This ensures that the policy meets the specific needs of the individual project but also requires that the building owner and any other interested parties pay close attention to what is covered and not covered by the policy.

Who Buys Builder’s Risk Coverage

In most cases, the owner of the building being constructed would purchase the Builder’s Risk policy.  In some circumstances, building owners may require that the general contractor or the company completing the construction secure this kind of coverage as part of the contract to build the building or complete the renovation.

Sometimes, the existing property insurance will cover any losses during building renovations or while an addition is being built.  However, it is important for the building owner to verify that coverage with their current carrier prior to any work being done.  If the renovation or addition is covered by an existing property insurance policy, there is no need to purchase an additional Builder’s Risk policy.

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