How a builder’s risk insurance policy can protect your business

Imagine your contracting business is ready to break ground on a new building. You’ve completed preconstruction planning, secured work permits, hired subcontractors, and ensured your general liability insurance is active. All set to go? Not so fast.

You might think your general liability policy fully covers property damage that could occur during your project. But that’s not always the case.

If you arrive at the job site to find most of the framework burned to the ground and building materials damaged, you may not be covered for these losses. In this scenario, you may consider a builder’s risk insurance policy.

How does builder’s risk insurance work?

Unlike commercial property insurance that covers completed buildings and their contents, a builder’s risk insurance policy protects buildings and structures while they’re under construction.

Builder’s risk insurance is a temporary policy issued for a specific project that covers the course of construction. Most insurance companies recommend the policy begins before materials arrive at the construction site and end when the property is sold or ready to be occupied.

Because new construction jobs and rehabs are high-risk, your client contract might require you to carry builder’s risk insurance. But the developer or property owner might already have insurance coverage that would protect your business.

Generally speaking, your building risk insurance coverage amount should reflect the total estimated value of the completed structure. To gauge your coverage needs, add the cost of all construction materials, labor, and land value.

What does builder’s risk insurance cover and exclude?

Builder’s risk coverage can vary based on the insurance provider and construction project. Most policies cover only events beyond your control. But some policies cover construction defects and losses or damages except for those that are explicitly excluded.

Events builder’s risk insurance covers

Builder’s risk insurance typically protects against loss or damage caused by:

• fire
• vandalism
• weather events
• explosions
• theft

Some builder’s risk policies may cover:

• costs related to lost sales, rental income, interest on loans, and real estate taxes when construction is delayed
• damage to temporary structures such as scaffolding
• cleaning, debris removal, and disposal of pollutants
• construction site changes needed to meet environmental standards

Events builder’s risk insurance does NOT cover

Builder’s risk policies typically exclude:

• damages from earthquakes, floods, and hurricane winds in beach zones (though this coverage may be included in certain areas and riders may be purchased in other areas)
• normal wear and tear, rust, and corrosion
• acts of terrorism
• employee theft
• incidents involving faulty work and materials

Coverage also varies between buildings vs. structures

When reviewing your builder’s risk insurance options, pay attention to when structures and buildings are mentioned – and when only one is covered.

In insurance lingo, a building is a structure that will be occupied, including houses and apartment buildings. But not all structures are buildings. A temporary structure like scaffolds will not be occupied and is not considered a building.

If your contract requires coverage for structures beside the building, you may not be covered if you need to file a claim. Talk to your insurance agent to understand the details of your builder’s risk policy and when coverage ends.

Should I file a claim with my builder’s risk coverage and general liability insurance?

It depends.

Both general liability and builder’s risk insurance can cover property damage caused by a subcontractor. While you may consider filing a general liability claim for a construction mishap, this may not be your best option.

In cases where coverage overlaps, filing a claim on a builder’s risk policy to pay for property damages can help keep your general liability claims history clean. And a clean claims history helps keep the policyholder’s insurance premiums low.

General liability coverage is an ongoing expense. Clients will likely require you to carry general liability insurance to pay for damages if a client is injured at a job site or you damage a third party’s property. After all, a construction site is a risky place.

If you’re sued over property damage that happened in the place the policy covers (usually the job site), your general liability policy would cover attorney fees, court costs, and any settlements.

What additional insurance policies should construction businesses and general contractors consider?

Builder’s risk and general liability insurance aren’t the only coverage contractors need. Construction businesses and contractors typically carry some combination of:

• Contractor’s equipment insurance: A form of inland marine insurance, a contractor’s equipment policy covers large equipment such as diggers and bulldozers, tools, and building materials. Contractor’s equipment insurance will reimburse you for stolen or damaged equipment that is less than 5 years old, including items that are in transit.

• Workers’ compensation insurance: Job-related injuries can happen on even the safest construction sites, making workers’ comp coverage particularly important. Most states require businesses with employees to carry workers’ compensation, which pays for injured employees’ medical bills and reimburses them for lost wages.

• Professional liability insurance: Also known as errors and omissions insurance, a professional liability insurance policy covers you if a client sues you over a construction mistake or oversight.

• Auto insurance: If your construction or contracting business owns vehicles, you will need commercial auto insurance to cover damages from accidents. If your employees use their own cars for work purposes other than commuting, hired and non-owned auto insurance is the right coverage.

Builder’s risk insurance can be complicated, but it’s essential risk management for construction company business owners and general contractors. Before you buy coverage, talk to an insurance agent to discuss what policy works best for you.

Insureon’s licensed agents have helped builders and contractors just like you find the right insurance coverage at the best price. We can answer any of your questions and provide expert guidance to help protect your business.

Complete Insureon’s easy online application today to compare quotes for business insurance from top-rated U.S. carriers. Once you find the right policy for your small business, you can begin coverage in less than 24 hours.