Let’s start with a quiz.
Q: A broken water pipe floods several nearly finished units in a multi-story condominium project. Does a builder’s commercial general liability (CGL) insurance policy cover repairs?
Q: If faulty wiring causes a fire in an under-construction home, does the CGL policy protect the loss?
Q: Thieves steal company-owned construction equipment left overnight at an active building site. Does the CGL policy pay for replacements?
Think your general liability insurance has you covered? Think again. Unfortunately, a standard CGL policy does not apply to any of these all-too-common scenarios. The gap forces builders to pay expensive out-of-pocket costs.
Don’t let this happen to you. A builder’s risk policy offers important “under construction” coverage to keep your project protected—from the first nail to the final sale.
What Is Builder’s Risk Insurance?
Builder’s risk insurance protects buildings and structures while they are under construction or receiving renovations. The policy takes effect when the first shovel hits the ground and extends through completion of the build.
The construction process exposes buildings to unique hazards including weather issues, vandalism, and accidents. Builder’s risk policies work to protect against these unique risks for more than just the existing structure. Typical policies cover building materials and construction equipment, as well as profit and overhead. Builder’s risk commonly addresses property while in transport, storage and at the jobsite. It will also meet lender requirements for construction loans.
Should a construction project cause a loss to a third party, then commercial general liability insurance applies. The policy insures against damage, bodily injury, and advertising injury on someone else’s property. Builder’s risk covers the damages at the business-owned construction site. Carrying both policies is important because they do different jobs.
Do I Need Builder’s Risk Insurance?
Yes, because you have significant financial resources invested in a construction project from day one. The value of a new home does not suddenly materialize with a completed build. The worth grows over time as the project progresses. Damaged trusses, destroyed dry wall, or dented appliances during construction all come with hefty price tags that builder’s risk insurance can cover.
The hope is that every build goes smoothly, but problems are inevitable. Builder’s risk protects against damage during construction, including all three scenarios presented in the quiz. Plus, when outside funding is associated with a project, carrying builder’s risk is almost always a lending contract requirement.
What Should I Look for in a Builder’s Risk Policy?
Four key elements determine the right builder’s risk policy for your project:
- Property covered
- Property not covered
- Perils covered
- Perils not covered
Every construction project is unique and builder’s risk policies vary in their protections. When it comes to coverages, consider the following:
- Property damage
- Vandalism and theft
- Fire
- Arson
- Water damage
- Building collapses
- Materials in transit
- Debris removal
- Sewer, drain, or sump back-ups
- Acts of God – Hurricanes, wildfires, windstorms, hail, lightning, etc.
- Delay-Related Soft Costs – Financing interest, real estate taxes, and permit fees
Pay special attention to what the policy defines as covered property. Some exclude things like scaffolding, fencing, temporary structures, or landscaping.
Also important are peril exclusions. Review what the policy considers “Acts of God” or weather-related damages that are not covered. Note that most builder’s risk policies do not include issues related to errors, omissions, or poor workmanship. Worker injuries and subsidence problems also typically fall outside of coverage.
Builder’s risk policies are meant to be flexible to accommodate diverse projects. Ask about specific situations that apply to your build and see if you can negotiate custom coverages.
Introducing Builder’s Risk Insurance from PWSC
At PWSC, we know that risk exists long before you need a builder’s warranty. In partnership with Argo Group US, PWSC now offers builder’s risk insurance as well. Benefit from insurance and warranty protections that cover your residential construction project from the first blueprint to 10 years post sale. Insurance deductibles start at just $1,000 and coverage limits extend to $10 million.
Now with builder’s risk insurance plus best-in-class home warranties, PWSC has your projects protected—from start to well beyond finish. Learn more here.
