Builders Risk Insurance

What is Builder's Risk Insurance

In plain english, builder's risk insurance protects against damages or losses to a construction project sustained by repair, replacement or theft. Builder's risk policies are usually project-specific, covering one particular project at a time. Because every construction project is different, these policies are largely nonstandard and no two policies look a like.

Generally, a basic Builder's Risk policy covers buildings under construction, as well as materials, supplies and equipment that are used onsite, in transit and temporarily at other locations as needed.

An important differentiator in these policies, is what your policy protects your project against.

What Does Builder's Risk Insurance Cover? What Does It Not Cover ?

Builder's Risk Insurance generally covers the owner, the lending institution, the contractor(s) performing the work, and other related parties. In addition to providing coverage for damage to the building itself, most plans also cover temporary constructs (like scaffolding), materials, and equipment being used (whether it's currently on-site or off-site). The majority of policies are written on an all-perils basis, which means that reimbursements are available for any losses except those specifically excluded.

Common exclusions from this coverage include (but are not limited to):

  • The value of the land itself
  • Employee theft
  • Damages beyond the estimated value of the construction
  • Any losses brought by law or ordinance changes
  • Damage from earthquakes
  • Losses from war, nuclear hazards, or actions by civil authority

As you can see, most of the exclusions are not likely to occur during the course of a normal construction project. The value of the land is the only one likely to change as new work is done, and you will likely need to account for any improvements or losses the next time your company prepares taxes.

Builder's Risk Limitations and Exclusions.

It's important to keep in mind that while every policy is different, they exclude certain losses from coverage. Standard policy exclusions include:

  • Earthquake and Flood
  • Employee theft
  • Water damage
  • Weather damage
  • War or Government action
  • Contract penalty
  • Voluntary parting
  • Mechanical breakdown

Keep in mind that Builder's Risk covers physical losses to a construction project caused by covered perils. Physical injuries that occur onsite are not covered by this policy; they would be covered by a general liability policy.

Also, remember that Builder's Risk is a first party policy. It does not cover claims made by a third party. Instead, it only protects the insured who purchased the policy.