When a new building is under construction, claims for damage are quite common and there needs to be some financial protection in place for this damage. Contractors and the owners of the property that is being worked on by the contractor both commonly purchase coverage for liability risks, workers compensation, auto liability and employer’s liability. The policy that will protect the assets of the building owner and contractor from risks of damage from natural occurrences or other types of damage caused by human error, a builders risk policy is the best solution for buildings under construction.
A builders’ risk policy is designed to provide coverage for various perils, which are usually not specified under the policy. Rather, the forms usually indicate that the coverage applies to direct physical loss to property unless the loss is excluded. The form then provides a list of exclusions for which coverage will not apply. This is a broad coverage in terms of the types of covered claims, but the forms are usually very specific about the types of property covered. Usually a builders’ risk form will cover foundations, materials, scaffolding and temporary forms and structures on the job site.
Construction contracts will usually contain detailed provisions regarding additional insured status for various parties involved in the project, including contractors, property owners and even lenders. The additional insured provisions usually apply to liability coverage, but a builders’ risk policy is primarily concerned with coverage to property only, indemnifying those who are named insureds or loss payees in the event of damage to the property.
In some cases, the contractor will procure a builders’ risk policy and name the owner as a loss payee, and sometimes the building owner will obtain the coverage and add the contractor and/or mortgagee as required.
Since a builders’ risk policy is designed to protect the value of the construction project, an appropriate amount of insurance may be required at different stages of construction. Be sure to review your construction contracts with an agent experienced in writing builders’ risk insurance coverage so that a comprehensive plan can be drafted that will provide adequate coverage throughout the building process.