Builder’s Risk insurance, also known as "course of construction", "construction all risk",
and "contractor’s all risk insurance", is a specialized form of insurance designed to insure
buildings or projects against repair or replacement costs while they are under construction
and, in some cases, for a specified period afterwards. This insurance will usually also cover
build materials, fixtures and appliances all of which are intended to become an integral part
of the structure under construction.
The Supreme Court of Canada described the function of Builder’s Risk insurance as follows:
"Whatever its label, its function is to provide to the owner the promise that the contractors will
have the funds to rebuild in case of loss and to the contractors the protection against the crippling
cost of starting afresh in such an event, the whole without resort to litigation in case of negligence
by anyone connected with the construction, a risk accepted by the insurers at the outset."
Although the Builder’s Risk policy is designed to provide broad coverage, it does not cover all
property connected to the construction project nor does it cover every risk. Instead, coverage is
limited by specification of covered property types, locations and owners and further limited by an
extensive list of exclusions. As such, a Builder’s Risk policy is just one part of an overall scheme
of insurance coverage for the construction industry. Additional coverage may be obtained either through
endorsements (additional coverage added to a standard policy) or through other insurance policies specifically
created to cover many of the risks and property types outside the coverage provided by the typical Builder’s Risk
policy. Some of these endorsements and policies include:
boiler and machinery
marine and transportation
contractor’s leased and rented equipment
loss of use of contractor’s equipment
Click here to view a 24-page paper that examines the
standard Builder’s Risk policy including such issues as who should obtain coverage,
the proper amount of coverage, who is covered under the policy and what is actually
included or excluded
by the policy. Note that this paper will focus only on the coverage provided by the
basic Builder’s Risk policy.
It is important to note that the general comprehensive liability policy is not an all risk policy. It is subject to various exclusions:
· As a general rule, contractual liability assumed under any contract or agreement is excluded unless it is specifically covered for an additional cost under the policy.
· Bodily injury or property damage arising from automobiles, aircraft or water craft is not covered and has to be protected by policies covering such specific items.
Faulty work is not covered. There is no liability on the part of the carrier for the costs of inspections, replacements, repairs, or loss of use of work completed if work is withdrawn from use because of a defect or deficiency in the work.
· There is no coverage for damage to underground property such as wires, conduits, pipes and mains.
· Damage to property owned, occupied by, rented to, used by or in the care, custody or control of the builder who has purchased the insurance is not covered.
This last exclusion is important; neither the insured's own property, nor any premises occupied by the insured is covered. Further, equipment being used that is either borrowed or rented is excluded, as is any property in the care, custody or control of the builder. It is very important to note that this exclusion encompasses property being installed or worked on, and might well include property of subcontractors on the job site that are controlled by the insured's general contractor.
Comprehensive Automobile Liability Insurance
Since comprehensive general liability coverage does not cover vehicles, automobile liability coverage must also be obtained. A builder can purchase coverage for all vehicles in one policy. A builder can purchase coverage for all vehicles in one policy. Builders should be sure that subcontractors carry adequate automobile liability insurance since the builder may be joined in a lawsuit for precarious liability, and if not fully covered, could sustain a personal loss.
Excess and Umbrella Liability Insurance
Umbrella liability policies sometimes simplify the question of how much liability insurance to buy. The coverage applies to overall liability exposure without regard to divisions such as automobile liability or employer's liability. Generally major limits of liability are provided with a minimum of $1,000,000 being a common limit. Coverage of umbrella liability policies applies in three ways:
1) insurance is provided on an excess basis for losses that are covered by primary insurance;
2) coverage applies to losses that are otherwise uninsured with the insured bearing the first $10,000, $25,000 or even $100,000 of uninsured retention. This protection fills gaps that may exist in primary insurance; and
3) The insurance is available when primary insurance is used up as when the annual aggregate limit of completed operations coverage is exhausted under a general liability policy.
It is important to note that policies known as "excess" policies usually cover exactly in the same manner as the primary policy. That is, if there are any exclusions in the primary policy, the excess policy contains the same exclusions. However, umbrella policies are usually broader and cover for a dollar limit regardless of the liability which exists under the primary policy. Builders should discuss these distinctions with their insurance broker or agent.
Builders Risk Policy for Property Loss
These policies cover damages or destruction by fire, lightening, wind storm, hail, explosion, aircraft, motor vehicle, smoke, vandalism and malicious mischief. An "all risk"
coverage provides coverage against all risks of physical loss or damage to the described property. Under a "stated perils" policy, the burden of proving that a loss
occurred by reason of a particular peril rests on the insured. Under all risk insurance, the burden of proving any specific exclusion to the occurrence rests on the
insurance company. Therefore, an all risk policy provides the insured with a simpler method of proving his case. Insurance should be carried by a builder for the full
value of labor and materials entailed. The replacement cost of these materials and labor should be the amount of the insurance carried.
There is an exclusion to general builders risk policies for any loss or damage caused by faulty or defective workmanship, or by defective,
improper design or mechanical breakdown. However, resulting damage caused by these items is covered under the policy.
It should be noted that not all policies give coverage for resulting damage. Some do and some do not; it is necessary to check the exclusions in each policy.
Determining the nature and extent of necessary insurance coverage can be a complex issue. Anyone involved in the building trades should be familiar with the options
or at least have a reputable broker or agent with which to consult.
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TWOMEY, LATHAM, SHEA & KELLEY, LLP
payors, and/or representatives who submit an application or remit payment
for an application for this insurance coverage will be responsible for all
collection costs, including but not limited to attorney's fees and costs,
in the event that any payment is denied by the issuing bank, credit card issuer,
and/or any other credit issuer used to fund the payment of the premium.
Uncollectable amounts incur an interest rate of 18% annually. Any applicant,
payor, or representative or any representative tied to the mortgage lending,
construction loan lending, or construction profession who makes application
or remits payment under any false pretenses or who directs anyone else to make
application and/or remit payment for this coverage under false pretenses
of any kind will be reported to their state's regulators and will be held
responsible for all damages, including but not limited to attorney's fees
and costs and interest fees of 18% annually on any uncollected amounts,
suffered as a result of their actions.
If your project
is not yet complete before the original policy period, your policy may be
renewed. Some insurance companies may not offer a renewal in some cases
or may renew for terms as short as one month, or may renew only for terms of
three or six months or may renew for no less than
12 months at a time.
You will be advised of your renewal options before you make your final builder's risk/course of construction purchase. However, renewal options cannot be determined
for certain until 30 days before the renewal date.
Theft of construction materials
is not excluded in 99.9% of the policies that are issued. You will be advised if theft is
excluded before making your final purchase.
Sample policies are not provided. Preliminary information can be provided about your
potential insurance policy coverage during the quote process, but detailed information
can be provided only AFTER a properly-completed application has been submitted and reviewed
by an underwriter.
Terrorism Coverage: If terrorism coverage is not automatically included
with the policy to which this quote applies, you are hereby notified that under the
Terrorism Risk Insurance Act of 2002 ("The Act"), you have a right to purchase insurance
coverage for losses arising out of acts of terrorism, as defined in Section 102(1) of The
Act: The term "act of terrorism" means any act that is certified by the Secretary of the
Treasurey, in concurrence with the Secretary of State, and the Attorney General of the
United States - to be an act of terrorism; to be a violent act or an act that is
dangerous to human life, property; or infrastructure; to have resulted in damage
with the United States, or outside the United States in the case of an air carrier or vessel or the premises of a United States mission; and to have been committed by an individual or individuals acting on behalf of any foreign person or foreign interest, as part of an effort to coerce the civilian population of the United States or to influence the policy or affect the conduct of the United States Government by coercion. You should know that coverage provided by the policy offered in this quote for losses caused by acts of terrorism, as defined in The Act, is partially reimbursed by the United States under a formula established by The Act. Under this formula, the United States pays 90% of covered terrorism losses exceeding the statutorily established deductible paid by the insurance company providing the coverage. The premium for this coverage is 2% of the developed premium or $100.00 whichever is greater except in the state of Florida where the premium is 1% of the developed premium and no minimum applies, except in the state of Georgia where the premium is 1 1/2% of the developed premium and no minimum applies, and except in the state of Washington where the premium is 2% of the developed premium and no minimum applies. The premium charged for this coverage does not include any charges for the portion of the loss covered by the Federal government under The Act.
Insurance Fraud: ANY PERSON WHO KNOWINGLY AND WITH INTENT TO DEFRAUD ANY INSURANCE COMPANY OR ANOTHER PERSON FILES AN APPLICATION FOR INSURANCE OR STATEMENT OF CLAIM CONTAINING ANY MATERIALLY FALSE INFORMATION OR CONCEALS FOR THE PURPOSE OF MISLEADING INFORMATION CONCERNING ANY FACT MATERIAL THERTO, COMMITS A FRAUDULENT INSURANCE ACT WHICH IS A CRIME AND SUBJECTS THE PERSON TO CRIMINAL AND CIVIL PENALTIES (IN NY: SUBSTANTIAL CIVIL PENALTIES). Not applicable in CO, HI, NE, OH, OK, OR or VT. In DC, LA, ME, TN, and VA: insurance benefits may also be denied.