For any professional involved in a new construction or major renovation project, from the general contractor to the property owner, a builder’s risk insurance policy is an indispensable tool.

However, not all builder’s risk policies are created equal. A generic policy might leave you exposed to significant financial loss. It’s critical to ensure that the unique risks your business faces are accounted for. This guide will help you ask the right questions and identify potential gaps in your current coverage.

Understanding Your Stake: Insurable Interests and Policy Details

Different parties involved in a project have different risks. The financial institution or property owner is primarily concerned with protecting their investment in the final, completed structure. Their most significant risk often begins when they formally take ownership. On the other hand, the general contractor’s primary risk involves the materials, equipment, and labor invested throughout the building process, from the moment materials are purchased until the project is handed over.

Because these interests differ, we recommend that contractors maintain their own builder’s risk policy rather than relying solely on the owner’s. This ensures your specific risks are covered. Being transparent and coordinating coverage with all parties creates a seamless shield of protection for everyone involved.

A Contractor’s Self-Assessment for Builder’s Risk Coverage

Use the following questions to assess your current policy and identify areas where you might need to enhance your protection.

Project & Contractual Requirements

• Are you required by your contract with the owner, lender, or municipality to carry specific insurance coverage? If so, are your policy limits adequate to meet these requirements?
• Does your coverage begin before materials arrive on the job site, protecting them while in transit or at an off-site storage location?
• If your project involves LEED-certified or “green” building practices, does your policy include green upgrade coverage to pay for certified replacement materials if a loss occurs?
• Does your policy include “ordinance or law” coverage? This is vital if a partial loss occurs and updated building codes require you to demolish and rebuild the undamaged portions of the structure as well.

Valuation and Financial Protection

• Does your policy cover the replacement value of materials (based on current market prices) or the actual cash value (which subtracts depreciation)? Replacement value provides better protection against rising material costs.
• Are you protected against soft costs that arise from project delays? These can include expenses like additional architectural fees, extended equipment rental, lost income, and other overhead costs that accumulate when a project is stalled.
• Does your insurance protect your anticipated profits if a covered loss prevents the project from being completed and sold?
• Does your policy cover the full value of a structure that is completed but remains unsold?

On-Site and In-Transit Risks

• Are temporary structures on your site, such as scaffolding, temporary fencing, and cribbing, covered by your policy?
• Do you have coverage for equipment breakdown, which can cause significant and costly delays?
• Are your subcontractors’ tools and materials protected if they are stolen from or damaged on your job site?
• If you transport your own equipment and materials between sites, do you have inland marine coverage or a blanket policy to protect them while in transit?
• Are you protected from the costs of debris removal after a fire, storm, or other covered loss?

Liability and Project-Specific Clauses

• Does your policy contain a “permission to occupy” exclusion? This can become a major issue on renovation or phased projects where parts of the building may be occupied before construction is fully complete.
• For renovation projects, does your insurance extend to cover the existing structure in addition to the new work being performed?
• Do you have coverage for environmental and pollution cleanup in the event of an accidental spill or chemical release?
• Are you and your subcontractors both listed as named insureds on the owner’s policy, and vice versa? This is critical for ensuring all parties are protected.

Beyond Builder’s Risk: Other Essential Coverages

A builder’s risk policy is the core of your project-specific protection, but it doesn’t cover everything. A comprehensive risk management strategy involves several other types of insurance that protect against different liabilities. The following coverages are often purchased separately to close common gaps.

Type of Insurance | What It Covers

Contractors Professional Liability (E&O) | Protects against claims of negligence, construction errors, misrepresentation, or mistakes made by third parties under your supervision.

Commercial General Liability | Covers bodily injury and property damage claims from non-employees on your job site.

Workers’ Compensation | Provides benefits to employees who are injured on the job.

Employment Practices Liability | Defends against employee claims related to wrongful termination, discrimination, or harassment.

Inland Marine | Covers tools, materials, and equipment while they are in transit or stored at an off-site location.

Crime and Fidelity | Protects against financial loss from theft of money or property by an employee or subcontractor.

Cyber Liability | Covers costs associated with a data breach, including the loss of sensitive client or employee information.

Let’s Close the Gaps

Feeling unsure about your coverage? An insurance bundle or a construction risk package can provide more comprehensive protection, often at a lower premium. Don’t wait until a claim occurs to discover a hole in your policy. Give us a call today, and we’ll help you build a risk management program as solid as the structures you create.