Building owners and general contractors look to Builders Risk insurance to protect a project during construction against physical damage due to fire, wind, theft, vandalism and other perils. It’s important for insurance brokers to ensure that the construction contract outlining the project and the coverage they secure work hand-in-hand. The construction contract provides the requirements for insurance coverage, along with indemnity provisions and waivers of subrogation. It also identifies who is to be insured under the policies, and, in some cases, limitations on liability. Following are several considerations to keep in mind when looking to place coverage:
- Carefully review how property is defined and what is actually covered. In addition to the building or structure itself, things like scaffolding, fencing and temporary structures are typically covered for direct physical loss.
- Review locations to be covered in addition to the construction site itself, such as property in transit (including whether all modes of transportation are covered) and property off-site.
- Construction theft is far from uncommon on a job site, so be sure to review the type of theft coverage available under the policy. Most policies typically provide coverage if the theft or vandalism is caused by a third party.
- Check how the policy will respond in the event of water damage due to sewer backup. Supplemental coverage is available to cover losses from water or waterborne material that backs up, overflows or is otherwise discharged through a sewer or drain, sump or septic tank; or from water or waterborne material below the surface of the ground. Review the sewer backup coverage limit and any exclusions that may apply.
- Look at how soft costs are treated in the policy, if they are included or can be added as an extension. Soft costs include the reasonable and necessary expenses related to the construction, erection or fabrication of a building/structure over and above those costs that would have been incurred had there been no direct physical loss. For example, this may include advertising and design fees, professional fees, lease administration expenses, and additional realty taxes and assessments occurred during the period of time that construction has been extended beyond the projected completed date. Review the amount of coverage available for soft costs.
- Look at what type of coverage extensions to the policy can be included such as debris removal, emergency removal and limited fungus coverage, and check the wording carefully for each of these extensions and how they apply.
- As Builders Risk insurance is temporary coverage, it’s important for clients to be clear on when coverage ends. This typically occurs when the policy expires or is cancelled, upon occupancy, or when the building is accepted by the other or put to its intended use. Coverage ends automatically, so it’s key to discuss securing Commercial Property insurance in advance of the expiration date.
Builders Risk insurance policies are unique and require specific attention to make certain coverage is arranged correctly. It’s critical to review who and what is covered and the various provisions that exist so that an insured fully understands how the policy works.