Insurance Adds Protection for Buildings While They are Under Construction
Builder’s Risk Insurance is typically purchased by the owner or contractor of a building under construction to protect against certain damage to that property during the course of construction. In many cases where the builder purchases the policy, the owner should also be listed as an additional insured. It is similar to property insurance as it is intended to provide protection for the building under construction. These policies cover physical loss or damage from specifically listed perils which typically include hazards such as fire, collapse, windstorm, or vandalism.
Common Exclusions on Builder’s Risk Insurance Policies
Typical exclusions include improper design, defects in specifications, or theft. Most policies also include an exclusion for losses arising from faulty workmanship.
Much like a contractor’s General Liability Policy, a Builder’s Risk Policy will not cover the costs to cure improper workmanship but will often cover damage to other areas of a construction project damaged as a result. Using the roofing example from our previous article on CGL policies, a Builder’s risk policy typically will not cover the cost to repair an improperly installed roof. However, if the roof failed and allowed water to damage sheetrock in the home, the sheetrock damage may be covered.
When Do You Need Builder’s Risk Insurance?
Builder’s risk insurance should be obtained prior to starting a new construction or renovation project. This insurance is canceled once the building is completed and/or occupied by the owner. The specific triggers for commencement and cessation of the policy will depend on the language of the policy and facts of the case. It is important for a property owner to ensure that traditional homeowner’s insurance is scheduled to begin when the builder’s risk insurance ends to avoid a gap in coverage.
Allen & Gooch is providing this legal update for informational purposes only. This article should not be construed as legal advice or a legal opinion as to any specific facts or circumstances. You should consult your own attorney concerning your particular situation and any specific legal questions you may have.