5 Reasons to Make Sure Your Contractor Has Builder’s Risk Insurance for Your Project

September 8th, 2014 - By

Builder’s Risk is an insurance policy that covers damage to a project while under construction. You might also hear it broadly referred to as property insurance, installation floater, all-risk coverage, or course of construction insurance. Ideally, the coverage protects you, the contractor, and subcontractors against physical loss or damage to your project until it is completed.

So, if you’re planning a construction project, here are five reasons you should make sure your contractor has a Builder’s Risk policy for your project (so you don’t have to worry about it):

  1. Contractors usually have better access to coverage. Insurance companies tend to give better rates and lower deductibles to construction firms they know and trust. So, owners who don’t build large projects on a regular basis might have a much harder time finding a good, affordable policy on the regular market. This can be especially important when you are building in an earthquake, tornado or flood-prone region.
  2. If you’re building in an existing facility, there is the possibility that a loss could cause damage to your existing structure. Your contractor should be able to add on additional coverages to protect against that particular “what-if.” So, if the HVAC contractor starts up a new system for testing and a fire breaks out and spreads to your existing facility, all of the damage—not just what was under construction—could be covered by the Builder’s Risk policy. This saves you, your contractor, and the subcontractors from the hassle of dealing with multiple claims and multiple insurers, and it doesn’t affect your permanent property coverage.
  3. Recovering after a loss often costs more than it did the first time the work was done. Your contractor can get coverage to protect against these additional expenses, which might include things like site security, inspections and testing, permits and fees, lost time, demolition, and “soft costs” (i.e. compensation for architect/engineer services, interest, taxes, advertising, insurance, and legal and accounting expenses).
  4. Builder’s Risk can be extended by 12 to 36 months to accommodate schedule delays and extensions. This way, your contractor is coordinating with the carrier on assuring the extensions are provided for delays, including owner-added scope changes, without you having to worry about it. Coverage should be in effect until the project is substantially complete or custody and control is handed over to you.
  5. With a separate Builder’s Risk policy, you won’t have to worry about holes in your permanent property policy. Many owners choose to simply endorse builder’s risk coverage as part of their permanent property coverage. However, that coverage is rarely as broad as a separate builders risk policy. Contractors have long-standing relationships with insurers and underwriters, enabling them to obtain highly developed policies with specialized coverage extensions to best protect the project.

When it comes to Builder’s Risk insurance, every policy is different. The policies are “nonstandard,” meaning that every carrier has unique forms, endorsements, and exclusions. There’s no guarantee that a contractor’s policy will always provide broader coverage to an owner, so we recommend that you, as the owner, make sure the contractor’s coverage meets your needs. One way to put your mind at ease is to always hire a contractor with a capable Risk Management team who is there to look out for your interests and answer your questions.

Like all insurance policies, you hope you never have to use it, but if you do, you’ll be glad your contractor had it. That was certainly the case with Vilonia Intermediate School, a Nabholz project recently destroyed just weeks before completion. A good Builder’s Risk policy and good risk management practices by the Nabholz team has made a world of difference for our client, our subcontractors, and our company, as we work to recover and rebuild what was lost in the tornado.

And finally, a boring legal disclaimer: This article is provided for informational purposes only and does not constitute legal advice.

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