Builder's Risk Insurance Coverages and Exclusions

What is construction insurance and what coverages do you need? These are common questions most builders have. And finding the right protection can make all the difference in your job. One type of construction insurance you’ll need is builder’s risk insurance. It’s the foundation of a successful project because it can help protect buildings under construction. Property damage can delay a project’s completion and lead to extra costs for your business. This insurance can help pay repair costs and help ensure your project gets completed on time.

 

Builder’s risk insurance helps protect buildings under construction from damages due to:

 

This coverage is also known as course of construction insurance.

 

At a minimum, your builder’s risk insurance should include all risk insurance coverage. This means your policy covers many claims, unless they’re specifically excluded. Think of it as the opposite of a specified peril coverage, which only covers claims listed in the policy.

 

Your builder’s risk policy limits should equal your construction project's anticipated costs. With all risk coverage, your policy can help pay to repair damages. But there’s a question about whether it also covers costs resulting from an accident, such as:

 

Most builder’s risk policies exclude “consequential” losses. That’s why coverage extensions are important. Some extensions to consider include:

 

Debris removal, which reimburses some of your clean-up costs related to property damage. You can get this coverage extension for a small increase in your insurance rates.

 

Demolition and increased cost of construction to help cover your demolishing expenses. It also helps cover higher construction costs if the price is due to a change in laws or regulations.

 

Expediting expenses, which helps cover costs that you have to pay to quickly repair damaged property. Make sure you review the limits for this coverage as some insurance carriers cap it at a percentage of the hard cost of repair.

 

Extra expense helps cover costs that your business wouldn’t have if there wasn’t an accident causing property damage. In addition to repair costs, you can tailor this extension to help pay for other expenses. For example, an accident delays your entire construction project. The “extra expense” extension can help pay for the costs to accelerate the completion.

 

Soft costs, which help pay for expenses outside of labor and building materials if a project gets delayed. It’s a good idea to check your carrier’s definition of “soft costs” to make sure you have enough coverage.

 

Delay-in-completion to help cover costs you face if substantial completion of a project gets delayed. Be aware that this coverage extension may include time-based deductibles. This means that costs incurred within the first 30 or 60 days of a delay aren’t covered.

 

Adjacent property or existing structures extensions can help protect buildings next to your construction project.

 

Be aware that some contracting businesses get force majeure coverage for some projects. Generally, this is an expensive coverage, but you can tailor an “all-risk” builder’s risk policy to encompass force majeure events. These are large events that affect a project’s completion, such as natural disasters.

 

Builder’s risk insurance policies aren’t written on a standard form like commercial general liability insurance. That’s why it’s important to look at the exclusions in your policy, as well as any coverage extensions you get.

 

Make sure to be aware of these five exclusions:

 

Mold and pollution: Most carriers apply mold and pollution exclusions. You can see if your insurer will remove the exclusion under certain circumstances. If you have these exclusions in your policy, it’s important to get other coverages to help protect your business. This can include Contractor’s Pollution Liability or Pollution Legal Liability coverages.

 

Workmanship/Professional services: Most policies don’t cover the cost of repairing or replacing defective:

 

Losses arising from water intrusion: You may find that your policy excludes coverage if water in any way causes a loss. It’s important to carefully review this exclusion because you could leave a potentially large exposure uninsured. In some circumstances, insurance carriers may choose to scale back this exclusion or completely eliminate them.

 

Losses arising from earth movement: This type of exclusion defines “earth movement” broadly, so even minor movement of soil can be excluded from coverage. Like the water intrusion exclusion, insurers may scale back or eliminate these exclusions in certain circumstances.

 

Settling, cracking and shrinkage: This exclusion is meant to prevent coverage for a building’s expected settling. So, it won’t cover claims of damage due to normal settling, cracking or shrinkage. It’s important that you make sure your builder’s risk policy covers unintentional accidents that cause cracking or other damage.

 

These are only a few exclusions to pay attention to in your policy. There are other types of exclusions that can affect your business’ specific coverage. Generally, you should have legal counsel review your policy terms. This can help you make sure you address any coverage gaps.

 

It’s important to work with an insurance carrier that you can trust. We’re an experienced provider that knows the unique risks contractors face. You can work with an insurance agent or broker to learn more about our builder’s risk insurance coverage and how we can help protect your projects.

 

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