A Guide to Builder’s Risk Insurance by Daigle & Travers, Darien, Connecticut (203) 655-6974
Builder’s risk insurance, also known as Course of Construction, is a type of policy that protects an insurable interest during construction, repair or renovation. During the process of construction, an owner, general contractor and subcontractor have invested labor, materials and funds. If that property is damaged or destroyed before completion, these folks will have to take a financial loss. A builder’s risk insurance will protect your investment up to the terms of the policy.
What does a Builder’s Risk Policy cover? What is not covered?
This policy covers the building and insured area during construction as well as the materials on-site waiting to be installed, the equipment being used in construction and invested labor and deposits. For commercial buildings, loss of rental income can also be included. Damage occurring from events like lightening, hail, fire, theft or vandalism are covered while loss from mechanical breakdown, employee theft, government action, water damage or contract penalty are not covered. A vital exclusion to note: damage resulting from defective design, planning, workmanship, and materials will not be covered.
A builder’s risk policy will typically cost one to four percent of the construction budget, though it varies based on the coverage you need, length of time and any exclusions listed on the policy. Typically, coverage terms are for three to twelve months.
The policy can be purchased by either or all of the contractors, owners and subcontractors but that should be established ahead of the project if only one is going to carry a policy. The benefit of being the one to purchase the policy is that you will be the one who is contacted for changes in the policy and you will receive any refund of unused premiums. That being said, the downside is that if a claim is made, the first named on the policy is responsible for the deductible. In some cases, it may be more prudent for each party to have their own policies as each party has different vested interests. As an example, the general contractor might have exposed risk for his labor, materials, and potential income and his coverage may only list those exposures. The owner of the property may have a higher exposure for rental income which may not be covered under the limits of the policy.
Talk to your local insurance agent to figure out what you need covered and what exclusions you need. From here, they can help you with the cost of builder’s risk insurance.
Do I need builder’s risk insurance if I already have building and personal property coverage?
If a person or company has other properties, they likely have building and personal property coverage. Depending on the terms listed in the policy and the needs of the construction project, this may be sufficient, but don’t assume so. The building and personal property coverage will have to have a definition in the policy of “building” that includes future properties and buildings under construction. The insurer has to be willing to add additional insureds (general contracts or subcontractors) to the policy. The coverage limits of the policy have to be large enough to cover the cost exposure of the new project. The policy should cover soft costs as well as time elements (like loss of rent if construction is dragged out). You will have to scrutinize the fine print or better yet tell a trusted agent what your needs are and ask him or her to advise if you have full and appropriate coverage.
Policy Option
All Risk Policy – coverage for all events except for ones specifically noted in the policy.
Specified Peril Policy – coverage for only the hazards listed in the policy.
Wrap-Up Policy – liability coverage for large projects, protecting all contractors and subcontractors.
Owners and Contractors Protection (OCP) – liability coverage for named insured for bodily injury or property damage caused by an independent contractor.
Installation Floater – coverage for contractors with a single specialty: plumber, electrician, HVAC, etc.
Do I need extensions of a Builder’s Risk Insurance?
Coverage can be extended for additional hazards for an extra fee. Common extensions include:
- Scaffolding, construction forms, and temporary structures
- Property in temporary storage off site or on site
- Payment for expenses to remove debris of insured property
Get the Coverage You Need
We will provide you with the right coverage to make sure your investments are safe during a disaster. When partnering with us, we will give you all the necessary information and options you need to make the best choice of insurance company and policy. Give us a call today at (203)-655-6974.
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