What Is Builders’ Risk Insurance?
What happens when disaster strikes at a construction site? No one expects intense winds, lightning, or vandalism to affect their future home or business, but these events do happen. When they occur, it’s essential that an insurance policy is already in place to protect your investment. But what is builders’ risk insurance and how does it work? Join us for a complete guide to this essential form of property insurance.
What is builders’ risk insurance?
Sometimes called “course of construction” coverage, builders’ risk insurance is a type of property insurance that covers a building, dwelling, or other structure during construction and major renovations. Let’s take a closer look at how this type of coverage works:
What does builders’ risk insurance cover?
Most builders’ risk insurance policies protect against sudden accidental losses caused by fires, extreme weather, theft, or vandalism. Coverage may include physical assets, such as:
Structures under construction
Building materials and supplies (on-site and off-site)
Temporary fencing and scaffolding
Debris removal and cleanup costs for covered events
Who is builders’ risk insurance for?
Builders’ risk insurance is designed to protect everyone with a financial stake in the property, including the:
Property owner or developer
Subcontractors
Construction company
Lenders
In many cases, the homeowner or contractor pays for the policy and includes all interested parties as additional insureds.
Are there optional coverages?
Yes, these insurance plans are highly customizable. The policyholder can opt for special endorsements not included in the standard agreement:
Soft costs, like lost income, legal fees, and interest on loans
Equipment malfunctions
Flood and earthquake coverage
Testing coverage
Pollution cleanup
Temporary storage for materials and equipment
Marine insurance for supplies in transit
Interruptions to public services
What is excluded from builders’ risk insurance coverage?
Of course, builders’ risk insurance doesn’t offer umbrella coverage for anything that can go wrong at a construction site. Here are a few scenarios that won’t typically be covered under these policies:
General liability insurance
Builders’ risk insurance is only designed to protect against damage to the building that’s currently under construction, so it won’t cover bodily injuries to third parties or property damage caused by the construction project, risks that typically fall under the general contractor’s liability insurance.
Let’s say you’re doing extensive renovations on your condo, and a neighbor trips over construction materials and breaks an arm. In this scenario, damages will fall under general liability insurance, since the building itself was unharmed.
Workers' comp
These types of property insurance policies won’t cover the cost of workplace injuries, either. If a worker or subcontractor is hurt on the job, the associated medical bills and lost wages must be covered by workers’ compensation insurance. So, if a contractor falls off a ladder and can’t work for months during recovery, the losses will be paid by workers’ comp.
Keep in mind that every contractor and subcontractor must have their own workers’ compensation policy in place to comply with state laws and protect their employees.
Faulty work and design errors
Since builders’ risk insurance protects only against sudden, accidental damage, losses caused by poor workmanship, defective design, and material failures will not be covered by most policies.
For example, if faulty wiring causes a fire, builders’ risk insurance won’t cover the costs. However, some insurance companies offer a limited endorsement that covers the resulting damage of such claims. In this case, the policy may cover the fire damage but not the actual wiring.
Is builders’ risk insurance required in Florida?
While builders’ risk insurance isn’t legally required by the state of Florida, certain situations may mandate the purchase of a qualifying policy, including:
Lender requirements
Builders’ risk insurance is almost always required for lender-financed construction projects to protect the lender’s financial investment. In these instances, the lender will be listed as a loss payee, meaning that any indemnity will first go toward the remaining balance on the loan. Some lenders may accept a larger down payment in lieu of course of construction coverage, but it’s fairly uncommon.
Construction coverage
Even if it isn’t legally required, builders’ risk insurance is strongly recommended for construction projects in The Sunshine State. Florida poses a unique set of risks and hazards, including hurricanes, floods, and severe wind damage, so an insurance policy that covers natural disasters is invaluable.
Other considerations
If the property under construction lies within a homeowners association (HOA) or condominium board, bylaws may mandate that builders purchase a risk insurance policy. Additionally, high-value projects in any location may be subject to additional coverage.
Take control of your coverage with comprehensive solutions from Clearpalm
Clearpalm understands the importance of safeguarding your investment against potential disasters before they strike. Ready to get started? Contact our team today for an estimate!
