When Builders Risk Coverage Begins and Ends

When Builders Risk Coverage Begins and Ends for Single Structure Policies

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6 min

Being well-versed on the coverage forms you sell is like getting familiar with your car’s manual, it’s not the most captivating read but you’ll be glad you took the time when the road gets bumpy.

Two of the most basic coverage components that directly impact your client’s protection are when their builders risk coverage begins, and when it ends.

The Builders Risk Plan insured by Zurich offers numerous policy types. For the sake of simplicity, we’re going to focus on when coverage begins and ends for one-shot or single-structure policies.

There are two primary coverage forms you should be familiar with before you sell our builders risk insurance. The 40471 form is for residential and commercial new construction, remodeling and installation projects valued up to $10 million. And, the 40660 form is for commercial projects valued up $75 million.

Here’s how each coverage form describes when builders risk coverage begins.

Builders Risk Coverage Form 40471

“We will cover risk of loss or damage from the time when you are legally responsible for the Covered Property on or after the effective date of this policy if all other conditions are met.” 

Builders Risk Coverage Form 40660

“We will cover from the time the Covered Property is at risk starting on or after the time this coverage begins, but we will not provide coverage after the earliest of the following …”

A course of construction policy is just that: protection for the materials, fixtures and/or equipment to be installed during construction or renovation. So, a builders risk policy should be in place by the time materials are delivered to the job site, not just by the time vertical construction is being done. If site work coverage is included in the policy, coverage should be in place before it occurs.

Now, let’s talk about when coverage ends.

There are some similarities between both forms; however, occupancy restrictions vary. Let’s discuss each, starting with our 40471 coverage form. Here is the exact policy wording.

Builders Risk Coverage Form 40471

Coverage will end at the earliest of the following:

1. Once your interest in the Covered Property ceases;
2. Ninety days after initial occupancy of the Covered Property unless: (1) That building is being used as a model home; (2) That building is being remodeled and is a single family dwelling; or (3) That building is being used as a "model home leaseback".
3. When the Covered Property is leased to or rented to others: (1) For a single family dwelling, when the building is leased or rented to others; (2) For a two, three or four family dwelling, when 50% or more of the units in the structure are leased to or rented to others; or (3) For a "commercial structure", when 75% or more of the square footage space is leased to or rented to others. This does not apply to pre-leases established prior to construction.
4. When you abandon the reported location with no intention to complete it;
5. At the end of 12 months from the month when you first reported the location to us unless you report the location again and pay an additional premium. If the location is reported again and the additional premium is paid, coverage will end at the end of 12 months from the month when you rereported the location to us as described in the Reporting Provisions Additional Condition. You have the option to report the same location a third time at the end of the second 12 month period, provided the required additional premium is paid. Coverage for this third 12 month term will end at the end of 12 months from the month you re-reported the location for a third term; or
6. For coverage on existing buildings or structures that are being or have been remodeled, at the end of 12 months from the month when you first reported the location to us unless you report the location again and pay an additional premium. If the location is reported again and the additional premium is paid, coverage will end at the end of 12 months from the month when you re-reported the location to us as described in the reporting provision below. There is no option to report a third year.
7. When permanent property insurance applies, whether procured by an insured hereunder or by the owner or purchaser; or 40471 (01-20) Page 11 of 15 Includes copyrighted material of Insurance Services Office, Inc., with its permission. g. Once the Covered Property is accepted by the owner or buyer and: (1) The contractor has been paid in full; or (2) The transfer of ownership has taken place.

For the 40660 policy form, any of the following could trigger the end of coverage and it would be whichever happens first. Here is the exact wording taken from the coverage form.

Builders Risk Coverage Form 40660

We will cover from the time the Covered Property is at risk starting on or after the time this coverage begins, but we will not provide coverage after the earliest of the following:

1. Once the Covered Property is accepted by the owner or buyer and: (1) The contractor has been paid in full; or (2) The transfer of ownership has taken place;
2. When your interest ceases;
3. When you abandon the "project site" with no intention to complete it;
4. When the policy expires or is canceled;
5. Beyond 90 days after the completion of the project at the "project site"; or
6. When the Builders Risk Coverage is specified in the Policy Declarations, 60 days after the property is occupied in whole or in part, or put to its intended use. If there are multiple "project sites" or structures, the termination of coverage will apply separately to each "project site" or structure.

So, now you know what the forms say. But what does an end in coverage look like in real life?

Let’s say you have a commercial client with a one-shot policy insured on the 40660 form. They’re having a warehouse built that will eventually be rented by a tenant. The majority of the work had been done, so they allow the tenant to begin storing goods and equipment. Are they still covered by their builders risk policy? No, because the property was put to its intended use after 60 days.

Or, imagine you have a contractor who secures policies for the custom homes he builds. The new home construction was complete. A family from out of state purchased the home while the market was favorable, but they aren’t planning to move in for another month. Is this home still protected by builders risk? Unfortunately, no. Because the ownership changed, coverage ceased. This family should secure either a permanent property policy or even a vacant home policy to protect their interests in the meantime.

Let’s say you secured new construction for an office building on the 40471 form. Construction was finished, and the client started leasing it over the past four months to 50% occupancy. Considering the rule about 75% occupancy in commercial structures, does this mean coverage could still be in place? It could be. But, because the structure has been occupied for more than 90 days, coverage has ceased.

Now, imagine you secured a one-shot new construction policy for your homeowner client. She’s building a new home in a city three hours from where she and her partner currently live. They can’t be present to keep an eye on the expensive appliances awaiting installation. So, they have their daughter occupy the house to keep an eye on things for the last month of construction. Is it still covered? In this case, the daughter was only present for 30 days, so yes! Builders risk was still in place.

Because there are so many nuances to what triggers the beginning and end of builders risk coverage, being informed and educating your clients can make all the difference in preventing claim challenges down the road.

This is intended as a general description of certain types of insurance and services available to qualified customers. Any description of policy provisions is meant to give a broad overview of coverages and does not revise or amend a policy. Refer to the policy coverage form for a complete representation of the scope of coverage, terms, conditions, exclusions and more. The policy is the contract that specifically and fully describes your coverage. Some products may not be available in all states and may only be offered on a non-admitted basis. Product availability is subject to change.

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