Builder’s risk insurance, also known as course of construction insurance, provides coverage for buildings that are under construction. It protects physical objects, such as materials and equipment, from risks like fire, lightning, hail and vandalism.
Is builder’s risk the same as course of construction?
Yes. Builder’s rick insurance is another name for course of construction insurance, a specialized form of property insurance that protects buildings that are under construction. While complex and oftentimes misunderstood, builder’s risk is essential in protecting construction projects from property damage due to lighting, fire, theft, explosions, hail, acts of God (such as hurricanes), and vandalism.
If you or your company has a financial interest in a construction project, you need builder’s risk insurance. People you might want to include as insureds on the policy include general contractor, subcontractor, property owner, architects, and lender. While a basic builder’s risk insurance policy will help cover structures and buildings under construction, it also protects equipment on site, in transit, or at other locations, supplies and materials.
What does builder’s risk cover?
A builder’s risk insurance policy protects construction projects from different types of property damage, but can also cover added soft costs, i.e., costs indirectly related to construction, if, for instance, property damage causes a delay. Instances of that include rental income, real estate taxes, additional interest on loans, and lost sales. Since construction projects differ widely from one another, every builder’s risk policy is different. To fit your project’s needs, you can customize your policy by procuring coverage extensions, the most common of which provide protection for construction forms, temporary structures, scaffolding, pollutant cleanup, and debris removal and disposal, in the event of a loss.
Who pays for a builder’s risk policy?
Just one person working on a construction project is responsible for securing a builder’s risk policy, since each project only requires one builder’s risk policy. Usually, a builder’s risk policy is bought either by a developer or owner or a general contractor, because typically both of those parties makes the biggest investment in a project, stand to lose the most, and therefore, are likely to benefit the most from builder’s risk protections.
When ironing out the details of a construction project, the project’s owner and the general contractor agree on who’s responsible for buying the builder’s risk policy and then ensures that each of the parties with a vested interest are listed as insured on the coverage. Those who should be listed as an insured party on a policy is anyone with an “insurable interest,” i.e., something to lose.
How does a builders risk policy work?
A builder’s risk policy will cover the cost of replacing building materials when vandalism, fire, weather, or theft hits a construction site or of repairing an unfinished structure.
This type of insurance will cover the cost of damage resulting from non-severe weather events, like hail, wind, and rain. For instance, if hail damages the lumber on a construction site, the carpenter covered under this policy would turn to his builder’s risk insurance to cover the cost.
A fire at a construction site could consume an unfinished structure or building materials. If a fire sweeps through a site and damages the siding of an unfinished building, for example, the general contractor would make a builder’s risk insurance claim to replace the siding.
A construction project can be pushed back for weeks or months if a vandal destroys fixtures, spray-paints walls, or breaks windows. A builder’s risk policy will, however, reimburse you for those damages so that your construction project can move ahead.
Construction sites, because they are unguarded so regularly, are also common targets for thieves. If a thief steals thousands of dollars’ worth of copper piping, for example, the plumber could use his builder’s risk insurance policy to replace the pipes.
Does builders risk cover faulty workmanship?
Insurance carriers are usually less likely to cover a contractor’s failure to properly execute their work. One exception, however, is the ensuing loss or resulting damage to other property from faulty workmanship. If faulty workmanship, i.e. excluded cause of loss, results in damage, the builder’s risk policy would cover the damages in the same way a peril such as fire is covered. The ensuing loss exceptions is limited to the costs directly related to replacing or repairing the faulty work. For instance, if faulty wiring caused a fire that damaged a portion of structure that was under construction, the faulty workmanship exclusion could apply to the work on the faulty wiring. If fire is a covered peril under the policy, however, it would respond to the fire damage of the structure.
Does homeowner’s insurance cover builder’s risk?
No. A homeowner’s insurance policy will protect any finished structure, i.e., one that’s already been build. A builder’s risk insurance policy, on the other hand, will protect renovations, additions, or any new construction, in a variety of situations, like vandalism, theft, fire, wind, and negligence. Property that is unoccupied carries risks that are different from structures that are occupied. The foundation of a finished home, for example, is protected from the elements by the above structure. But a newly-poured foundation could easily be damaged by a large storm. A darkened construction site, regardless of how well it’s been secured, is more appealing to a thief than a well-lit, occupied home. Before your property is occupied, builder’s risk is important coverage to have.
Do you need builder’s risk insurance for renovations?
Yes. Because it provides individualized protection for structures and materials leading up to a project’s completion, builder’s risk insurance is a pivotal part of your construction, installation – and renovation project. Builder’s risk insurance, also called course of construction, protects properties and homeowners from financial losses due to damage or loss of the project’s materials during construction. Usually, builder’s risk policies cover damages or losses of property from hail, hurricanes, wind, vehicles, explosions, lighting, fire, vandalism, and theft.