Many options are available under builder’s risk coverage. They depend on the policy’s provisions, including the causes of loss or perils being insured against. While these should be studied before the construction contract is drawn, they seldom are. The builder’s risk policy is often purchased after the contract has been signed and without regard to what it specifies or what the exposures of the construction project are. As a result, coverage problems can arise — to the detriment of most parties, including the insurance representative.
Contrary to general belief, the provisions of builder’s risk policies do not follow those of the Insurance Services Office (ISO). ISO’s builder’s risk policy is limited to site-specific coverage. More commonly required, however, is broader coverage encompassing materials and equipment in storage awaiting transit to the job site, as well as coverage for such property while it is in transit. To obtain coverage that includes these exposures, it is necessary to purchase an inland marine type of builder’s risk policy.
The builder’s risk forms of the American Association of Insurance Services (AAIS) are a good benchmark here and are used by many insurers. AAIS is an organization similar to ISO in that it drafts language for builder’s risk and other inland marine policies. Unlike ISO, however, AAIS offers several builder’s risk forms to meet the various needs of those confronted with course-of- construction loss exposures.
It is important to note that an inland marine builder’s risk policy is not necessarily broad in scope. Therefore, there are many types of such policies available. Rather than focus on one particular type, this article takes into account a variety of such policies and discusses how careful consideration of the exposures of the project is essential to selecting the right one.
The types of property covered under builder’s risk policies vary. All of these policies, of course, are meant to cover what goes into constructing the final product. Insurers differ, however, in how they address the subject.
One common approach is for the insurer to refer to covered property as “buildings or structures in the...