Builders risk insurance is a special coverage form necessary for buildings while they are being constructed. This coverage form will also provide coverage while an existing building is being added to or altered (picture updating a 30-year old building to look more modern).
A regular commercial property policy does contain coverage for buildings in the course of construction; however, this coverage is severely limited in what it will actually insure you against from a loss standpoint. It is intended solely for incidental coverage and not recommended or adequate to properly insure your risk.
What Types of Buildings are Covered?
The builders risk insurance policy is designed to cover any building or structure in the course of construction. Homes, strip malls, barns…you name it. If it’s “being built,” it can be covered. Again, this coverage type will not only insure new building projects, but will also cover your updates, additions and alterations.
Additionally, the builders risk policy is unique in that it can be endorsed (coverage added) to insure buildings or structures that would not be insurable under a normal commercial property policy once they are completed. Some farm buildings, for example, are not eligible for coverage on a commercial property policy.
Who is Covered?
Both the building’s owner and the company constructing the building can be covered by a builders risk insurance policy. Both parties have “something to lose” when it comes to the process of building construction.
Of course, the building’s owner would need to insure his or her financial interest in the structure as it begins to take shape. The builder may have several thousands of dollars worth of equipment and materials that are regularly left at the worksite overnight or after hours.
What Property is Covered?
Examining what property is covered is a good way to demonstrate why both the building owner and builder may require coverage. Let’s look at some examples of property covered by the builders risk policy:
Property to be used in construction (kept at the site): Again, picture a building site where you may see pallets of brick and drywall on the property waiting to be utilized. Also, you might see windows or window frames, doors and air conditioning units. All of which are subject to being destroyed or stolen before becoming part of the structure.
Equipment: There may be several types of machines or tools used in the process of servicing the building in question. Picture generators and such.
Temporary Structures: Some buildings or structures require other, temporary, structures to be built in order to complete their construction. For example, a builder may use scaffolding in order to complete work on a second story (or higher).
Foundations: Not much to say here. Usually one of the first pieces of the puzzle to be completed, the foundation may need coverage against damage while other aspects of the building are being completed.
Machinery and Fixtures: Items used to complete construction that are left at a site are always subject to loss. In a perfect world, fixtures would all be delivered and installed in the same day while the sun was still up, but anyone involved in the construction business knows this is not the case. It is all too common to show up to the worksite in the morning and see you have been the victim of theft or vandalism.
What Property is Not Covered?
The land your building is on and any water are not covered by this policy. Additionally, you can expect to have to obtain coverage on a different policy, probably an inland marine policy, for the following pieces of property:
– Most types of plant life (trees, shrubs, sod and plants)
– Electronic transmission devices (radio and television antennas, satellite dishes, etc.)
– Signs (not permanently attached to the building)
Note: These items may be covered while they are being stored inside a building in the course of construction. Put them outside and you can forget about it…no coverage for that.
Finally, there is typically no coverage for business personal property located inside of a NON-OWNED detached trailer left at the site. If the trailer is owned, you can expect your policy to cover you.
What Additional Coverage Can Be Added?
You may be able to add coverage for materials and supplies of “others” to your builders risk insurance policy.
You may do this in order to cover the property of sub-contractors who are working on your project as well. This coverage is designed to protect these items while in the insured’s care, custody and control, in the building or within 100 feet of the structure on the property location.
Basically, if the contractors leave with their equipment, they need to have their own insurance policy and coverage.
The second optional additional coverage is, more or less, a buy-back of coverage for the exclusion related to the plant life (discussed above). Your policy may provide a limited amount of coverage for trees, shrubs, sod and other plants.