If you’re a general contractor or developer, it’s likely that you’re already familiar with the term builders risk insurance – but, if you’re like most, you may have many unanswered questions about what it is, what it covers, and why it’s so important.
Simply put, builders risk insurance (aka course of construction insurance) is a highly specialized type of commercial property coverage designed for structures that are under construction. Understandably, it’s often misunderstood because it’s both incredibly complex and non-standardized – meaning policies can vary greatly from insurer-to-insurer and project-to-project.
Here are the four essential questions you should ask when talking with your commercial insurance broker about builders risk coverage.
Who Needs Builders Risk Coverage?
Builders risk coverage is intended to protect the parties (people or companies) who have a financial interest in the construction project – such as the property owner(s), general contractor, subcontractors, and lenders. In other words, it’s coverage for parties who maintain a financial investment until the project is delivered or installed and they have been paid.
Architects and engineers may or may not be named on the policy, depending on the structure of the project and other insurance coverages.
What Will My Builders Risk Policy Cover (and What Won’t It Cover)?
Like we mentioned above, builders risk insurance coverage can vary substantially depending on how the policy is written – so it’s essential that you understand the details of your policy and not just the general possibilities or common inclusions.
A basic policy generally covers the building or structure that’s under construction and the associated building materials and equipment (onsite and possibly while in transit or temporarily stored at other locations). Policies cover losses due to fire, lightening, hurricanes, theft, vandalism, and a wide array of other risks.
Especially in high-risk areas, damage caused by earthquakes, floods, and wind isn’t covered without coverage extensions. Most often, ordinary wear and tear, equipment breakdowns, employee theft, corrosion/rust, and/or damage that’s a direct result of faulty design, planning, workmanship, or materials won’t be covered.
What Non-Standard Options Are Available?
In addition to policy additions for earthquake, flood, and wind damage, there are many non-standard options to discuss with your insurance broker, including (but not limited to) coverage for:
- Soft Cost Losses Due to a Delay – such as lost rental income, additional interest charges on financing loans, and property taxes (similar to business income coverage).
- Scaffolding & Temporary Structures
- Debris Removal & Pollutant Clean-Up
What Are the Details of My Coverage?
To best address the question of whether the proposed policy is right for your project, start by conducting an inventory of all your risk exposures. This includes those present at the job site, as materials and equipment are in transit, and in any temporary locations associated with the project. Use this inventory to guide the conversation about the coverage you need.
Also, make sure you understand:
- When coverage begins,
- When it ends, and
- The extent of coverage you have if problems arise from faulty or defective work by subcontractors (spoiler alert – it may be ‘none’).
Before signing any proposed policy, read all the details and ask questions about anything you don’t understand. If you’re working with a credible and reliable insurance broker, they will encourage your questions because they want you to truly understand and trust your coverage.
We Can Help You with Your Builders Risk Insurance Needs
At Swarts, Manning & Associates, we provide a unique perspective on all of your commercial coverage options, and we help to determine which carrier best fits your business needs. We strive to find you the broadest coverage at the best available rate. Give us a call to get started: (833) 878-2820.
Each week, Swarts, Manning & Associates covers relevant topics for your business. Stay tuned to hear more discussions about managing your insurance and industry-specific tips.
