What Is Builders Risk?
In order to understand builders risk coverage, a short preliminary discussion of inland marine coverage is in order.
Originally sold by ocean marine insurers, inland marine insurance covers property transported on land (hence, inland marine). Over the years, the term inland marine has come to describe a number of specialty coverages related to transit and shipping products by land.
In construction, inland marine insurance protects a contractor’s tools, equipment and materials in transit or on a job site. Some business owners policies (BOPs) provide limited inland marine coverage, but additional insurance may be needed for high-value items. Keep in mind that basic property insurance protects only those items at the location named in the policy, so items carried to a job might not be covered.
Inland marine isn’t limited to construction. Virtually anything shipped over land can be covered. Computer, communications and networking equipment; medical and scientific equipment; photography equipment; and trade show and art exhibits are all examples of property insured by inland marine.
Builders risk is a type of inland marine insurance
Builders risk is a form of inland marine insurance that protects a construction project in progress. It insures against property losses and covers any materials, supplies and equipment that are on-site or in transit. Coverage continues until the project is complete. Both commercial and residential construction can be covered.
There are various types of builders risk, or “course of construction,” policies. Renovators might purchase a commercial remodelers policy to cover a renovation, for example. Trade contractors such as plumbers, electricians and carpenters might secure an installation floater policy to cover property they install on-site.
Policies cover losses on an “all-perils” basis, including hurricanes, earthquakes, lightning, fire, explosions, sewer backups and theft. Coverage is also available for business interruption or loss of rent resulting from a delay. This is typically referred to as time-element or rental-value coverage.
Builders risk insurance often covers “soft costs” if a project falls behind. Soft costs include additional interest on the project’s financing, real estate taxes, advertising expenses, insurance, architect fees, extended general conditions, bond and permit fees, legal and accounting expenses, and other administrative costs.
Builders risk is different from first-party property insurance in that there can be multiple parties named on a policy – essentially, anyone who has a financial risk in the project. Primary insured parties are typically developers and owners, general contractors, subcontractors and lenders. Architects and engineers may also be named.