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With all the questions a builder may have for a developer, architect, designer and property owner, there are some inquiries that should be addressed first to help identify and understand any climate, accidental and unforeseen risks to a project. Understanding the type of protections builders should consider before starting a job can make all the difference in the success of a project and make sure the right insurance protection is in place. 

Builders should consider all the exposures before purchasing coverage though. It is important to do an inventory of all the specific project’s exposures at different phases of the project, including those at the construction site, in transit or at a temporary storage site. A builder may choose to get broad protection for property of all kinds at all locations or narrow coverage to a specific property and risks. Regardless of the level chosen, a builder will need to review the policy to mitigate any coverage gaps.

Builder’s risk insurance may be the overarching solution. Also known as course of construction insurance, this coverage is a specialized type of property insurance that can aid in protecting buildings under construction. While insurance is essential to help protect construction projects, these coverages can be complex and often misunderstood. However, having a properly structured builder’s risk insurance policy will serve as an important line of defense in the event of a loss. 

Property damage can cause a delay in a project’s completion and lead to extra costs for the business. Builder’s risk insurance may assist in paying repair costs and in most instances safeguard that a project is completed on time. In general, this type of coverage also protects buildings under construction from damages due to lightning, vandalism, fire, theft, explosions, hail and acts of God such as hurricanes or wildfire. And any person or company with a financial interest in the construction project should have separate builder’s risk insurance or be listed as an additional named insured. Some common people to include on the policy as insureds are the property owner, general contractor, subcontractors and lender.

While a basic builder’s risk insurance policy in the industry covers buildings and structures under construction, it also aids in protecting materials, supplies and equipment on site, in transit or at other locations. In addition, a builder’s risk insurance policy may cover additional soft costs, or expenses not directly related to construction, if property damage causes a delay. Some indirect expenses may include lost sales, rental income, additional interest on loans and real estate taxes. 

Because every construction project is unique each builder’s risk policy may be customized to fit a builder’s project needs by adding coverage extensions. Some common extensions include protection for scaffolding, construction forms, temporary structures, debris removal and disposal in the event of a loss, and pollutant cleanup. 

At a minimum, the builder’s risk insurance should include all risk insurance coverage, and policy limits should equal the construction project's anticipated costs. All risk coverage provides protection for all causes of loss except those specifically excluded by the policy. Builders should think of this as the opposite of a specified peril coverage, which only covers causes of loss that are listed in the policy. 

Most builder’s risk policies also exclude “consequential” losses. That’s why coverage extensions are important. A consequential extension to consider is debris removal, which reimburses some of the clean-up costs related to property damage. There is also a demolition and increased cost of construction extension used to cover demolish expenses, which is important because it may cover higher construction costs if the price is due to a change in laws or regulations.

Other coverage extensions provide aid in expediting a project after damage has occurred, as well as support expenses related to delays in construction. Builders however should be aware that coverage extensions may include time-based deductibles, meaning that costs incurred within the first 30 or 60 days of a delay wouldn’t be covered.

 “Adjacent property” or “existing structures” coverage extensions protect buildings next to the current construction project. Generally, this is an expensive coverage, but it can be added to an “all-risk” builder’s risk policy to encompass these large events that may affect a project’s completion, like a natural disaster. Builders should be aware that some contracting businesses have clauses in their contract that frees the parties to the contract from their contractual obligations in the event of a highly unusual and unforeseen circumstances.

Builder’s Risk Insurance Exclusions

As with other commercial insurance products, builder’s risk insurance includes coverage exclusions. For example, earthquake, flood, wind or beach zones are usually excluded from coverage. Builders may be able to obtain coverage extensions to protect projects vulnerable to these kinds of risks, as well as others such as wear and tear, acts of terrorism and war, employee theft, rust, corrosion, mechanical breakdowns and damage due to faulty design, planning, workmanship and materials. Builders should also be aware of coverage omissions like mold and pollution, as well as losses arising from water intrusion and earth movement. 

Builders should also understand the coverage extended once the project is complete, or post-construction. In general, builder’s risk policies exclude the costs of repairing or correcting faulty work by a subcontractor. Policies with a coverage extension on ensuing loss provision may cover the resulting damage to other property caused by the faulty work. Exclusionary provisions can vary widely, so it’s important for builders to understand the extent of coverage and whether the policy includes loss provision extensions post-construction. 

How Much Does Builder’s Risk Insurance Cost?

Cost varies based on the needs of the project and the coverages the builder’s risk insurance policy includes. One builder may need a policy with more limits, while another builder may need to add extensions to help protect certain construction projects. The cost of builder’s risk insurance generally depends on the construction materials, type of project and policy details like coverage amounts and limits. A good rule of thumb is for builders to choose coverage limits that are equal to the anticipated cost of construction. 

Find the Right Builder’s Risk Policy

It’s important for builders to work closely with an agent or broker and insurer that has experience with builder’s risk. With every project comes different risks, so builders will need policies that address the unique needs of each project.

Builders will need to know when coverage begins and ends. A builder’s risk insurance policy usually starts on the date when the contracts are signed, but certain policy provisions may restrict when coverage begins for a project. And since builder’s risk coverage is based on a project’s timeline, it is specified in the policy upon inception that it will likely end after the project is complete, when the policy expires or is cancelled, the building becomes occupied or the building is put to its intended use.

Before signing an insurance contract, it’s important for builders to double check all coverages, conditions for coverage and exclusions to make sure it’s understood what is and isn’t covered with the builder’s risk insurance policy. If there’s a coverage gap, builders should work with their agent or broker to address it.

Selecting a Builder’s Risk Insurance Carrier

Most insurers write builder’s risk insurance policies on an inland marine form rather than a standard property insurance form. This allows for broader coverage that’s specific to the needs of each construction project. It’s important for builders and construction companies, as well as agents and brokers to pick an experienced marine insurance carrier who specializes in builder’s risk, which can design a policy for their unique needs.

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