What is Builder's Risk Insurance?
Sep 30, 2020
If you're a contractor, a business or home owner undergoing renovations, or own a construction business, you may have heard of Builder's Risk Insurance. At first glance, it may seem confusing and you may be thinking, "Doesn't my Commercial General Liability Insurance provide the same protection?" That's not necessarily true as they each have a different purpose in protecting you. We break down what is Builder's Risk Insurance, how is Builder's Risk Insurance different than Commercial General Liability Insurance and what could happen if you don't have it.
What is Builder's Risk Insurance?
Before construction begins, Builder's Risk Insurance is often required to obtain a permit for the project to take place. Builder's Risk Insurance protects the contractor and property owner in the case of damage to the property during construction. A Builder's Risk policy can provide coverage like business interruption and damage such as fire, vandalism, wind and theft. Builder's Risk is usually purchased by the contractor, although the property owner can also purchase it for the project.
How Does Builder's Risk Insurance Work?
The following claims examples provide common scenarios where a claim may occur under a Builder's Risk policy.
A general contractor was hired to renovate and expand a sports centre. The driver of a boom truck damaged the steel cladding of the building while trying to remove temporary propane tanks from the project site. The truck had been rented from a company hired by the insured’s mechanical subcontractor. Builder's Risk Insurance can cover the cost of repairing the steel cladding and damages to the building.
Construction work was being carried out on a school during the summer months when vandals broke into the school at night and started a fire, causing damage in different areas of the insured project. Cleanup and repairs to the project needed to be completed prior to the school opening in the fall; Builder's Risk Insurance can help cover these cleanup and repair costs.
During construction of a new multi-unit condominium building, a water leak was discovered emanating from a copper water pipe connected to an exterior outlet in one of the units. The investigation revealed that the caulking around the balcony area had not been properly applied which allowed cold air to come into contact with the pipe, resulted in the line freezing and ultimately water damage to the project. Builder's Risk Insurance can help cover the cleanup and repair of the water damage.
What is the difference between Builder's Risk Insurance and Commercial General Liability?
Builder's Risk Insurance covers damage to the physical property but does not include liability - for example, if someone injures themselves on the property during construction. Instead, this would be more applicable for a Commercial General Liability policy; that's why, it is recommended for builders and contractors to hold a CGL policy too.
What is the difference between Builder's Risk Insurance and Commercial Property?
Now that you know that Builder's Risk is meant to protect physical, property damage, you may be thinking, "Won't the Commercial Property Insurance cover the same thing?" While Commercial Property does protect the physical building, damage during construction or renovation are usually excluded in Commercial Property policies. Builder's Risk helps cover property damage during the duration of the construction.
What Happens If I Don't Have Builder's Risk Insurance?
Unless the construction contract states otherwise, the contractor assumes the risk of accidental damage or destruction of a project prior to completion. Hence, contractors have a lot at stake when it comes to how Builder's Risk insurance is structured or applied. With broader risk coverages, the insured reduces overall uninsured exposure to loss. It is critically important that contracts are keenly interested in the breath and composition of their Builder's Risk Insurance.
Additionally, Builder's Risk Insurance is often required to obtain a construction permit; without it, you may also not be able to start work on the property.
Learn more about what other Contractor Insurance coverages you need to protect your business.
Builder's Risk is necessary to protect contractors and property owners during construction or renovation. Having a claim without having the proper coverage could break or derail the entire project and be a large financial loss for the contractor and the property owner. There are different extensions that can be added onto your Builder's Risk Insurance to fully protect your specific situation or project. Our Foxquilt team knows not every business or project is the same; that's why, you need smarter insurance customized to your specific needs. Our team of experienced professionals can help determine the right coverages and policies that you need and provide exclusive discounts on your rates. Insurance should be smarter, simpler and faster; Foxquilt does that for you. Start a quote with us today.
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