Most owners and contractors involved in commercial and residential new construction projects are familiar with builders risk coverage to insure against the risk of property loss. However, builders risk insurance can provide coverage beyond new construction projects.
Builders risk also provides much-needed coverage for remodeling or additions to residential structures like custom homes, tract homes, modular homes or commercial structures. Owners or contractors working on a remodeling project may not be aware that builders risk coverage is a valuable purchase to protect the structure in the event of a loss. For that reason alone, it is important agents understand how these policies are structured.
Builders risk is designed to protect property owners, real estate developers and general contractors who have an insurable interest in a construction project. The policies extend well beyond that of the contractor’s general liability policy – and the homeowners policy. Builders risk insures materials, equipment and fixtures being permanently installed, whether the project is new construction or remodeling. Agents must have a clear understanding of how to provide protection for the existing structure versus an entirely new construction project.
Homeowners or commercial property owners often mistakenly think their property insurance will cover loss during remodeling — or may assume that their contractor’s general liability policy may provide all of the needed coverage. Some property policies even have exclusions for coverage to the existing structure if renovations are taking place at the time of the loss. It is the agent’s role to educate clients about the potential risks, identify gaps in existing coverage and propose solutions to address those gaps.
Where do the gaps occur between the coverage needed and the coverage provided by property insurance or contractors’ general liability policies? Generally, builders risk offers higher coverage limits than most property policies — providing coverage for exposures like theft, vandalism, materials in transit, temporary storage, backup or overflow of sewers, drains or sump pumps, and pollution cleanup and debris removal. The contractor on a project should have a general liability policy, which would cover any part of the existing property they damage if the contractor does not have a care, custody and control exclusion in their policy. Typically, those policies will not cover the new structure; leaving the property owner at risk for considerable loss should the unexpected occur.
Let’s say, for example, the electrical system installed in a home addition fails and causes an electrical fire. The property owner’s existing structure will likely be covered under the contractor’s general liability policy if there was no other property coverage in place at the time of the loss — but the new addition likely will not be covered. A builders risk policy would cover any damage to the new structure — and any damage to the existing structure would fall under the contractor’s general liability policy. If the loss was due to a lightning strike, then the loss would not be under the contractor’s responsibility as contractors are not held liable for acts of Mother Nature.
For property owners, builders risk offers added peace of mind that they won’t experience significant financial loss in the process of remodeling their home. Property owners considering renovations or additions, and contractors involved in such projects, should ensure a builders risk policy is in place to provide adequate protection for their structure, materials and equipment.
Agents can learn more about how builders risk insurance can benefit clients through our free Builders Risk 101 Guide.
This is intended as a general description of certain types of insurance and services available to qualified customers. Your policy is the contract that specifically and fully describes your coverage. The description of the policy provisions gives a broad overview of coverages and does not revise or amend the policy.
Thank you. We appreciate your feedback.