This is a property policy designed to provide coverage for buildings while under construction. It covers the contractor’s interest in materials at the job site before they are installed, materials in transit intended for the job and the value of the property being constructed until it is completed and accepted by the owner. The policy may be written to cover the whole structure for new construction or rehab projects. It can also be used to cover specific projects such as a new room addition, a deck or a remodeled kitchen. The actual coverage provided is similar to a standard commercial property policy.
What it Covers
The Builder’s Risk policy is actually a form of inland marine insurance. It incorporates similar “special form” coverage to that used in a commercial property policy. This means that the policy will specifically list exclusions, or what is not covered. Basic perils such as fire, wind storm, lightning, hail, theft and vandalism are all included. Limited coverage is provided for collapse. Standard exclusions include earthquake, employee theft, water damage, weather damage to property in the open, war, government action, contract penalty, voluntary parting and mechanical breakdown. An important exclusion which should be read in its entirety excludes coverage for damage resulting from faulty: design, planning, workmanship and materials. The intent is to only provide coverage for sudden and accidental events, not poor construction.
Coverage Extensions
Debris Removal
The policy will pay your expenses to remove debris of Covered Property. This debris must result from a loss that is covered under this form.
Fire Department Service Charge
When the fire department is called to save or protect Covered Property from a Covered Cause of Loss, the policy will pay up to $10,000 for your liability for fire department service charges which.
Scaffolding, Construction Forms and Temporary Structures
Coverage is extended to apply to scaffolding, construction forms and temporary structures, but only while they are at a location you have reported.
Profit
For rehab projects, expected profit may be included for coverage. This is allowed at 10% of the purchase price of the shell. This is an option which is added into the total limit of insurance. For example: $60,000 shell price + $50,000 value of improvements + $6,000 profit = $116,000 total insured value.
Property at Other Locations
This coverage extension provides $10,000 for property intended to be installed on the project while at a temporary location. For example, if you have siding at your warehouse intended for installation at an insured location and lose it in a fire, this coverage would respond.
Property in Transit
A coverage extension to protect your property from loss while being transported to the jobsite. The additional coverage limit is $25,000
Sewer and Drain Backup
Water damage from the back-up of sewers and drains is covered for up to $5,000.
Who it Covers
The named insured of a Builder’s Risk policy is usually the contractor or developer of the property. However, it may be the building owner or homeowner if they are responsible for insuring the property while under construction. A mortgagee or lien holder may be added as an additional insured.
Limit of Insurance
The most the insurer will pay for loss or damage in any one occurrence is the limit of insurance stated in the policy declarations. Limits are stated for each location. For a reporting form policy, the limit is the amount shown on the most recent report. Claims are settled on an Actual Cash Value basis for all builder’s risk losses. This is usually not a problem since the property being installed is new and not depreciated.
Deductible
The standard deductible is $500. However, other deductible amounts are available and the deductible applies only once per loss. Higher deductibles will help lower your premium.