Builder's Risk Insurance: Specialized Coverage for Construction Projects




Some builder’s risk policies are written with deductibles along with, in some cases, a catastrophe limit. It is difficult to determine the deductible ranges, since they are left to the underwriter’s discretion. Depending on the insurer, a dollar deductible might apply to physical loss or damage to covered property, and separately for water damage and hot testing. For physical damage from earthquake, flood, named storms or windstorm, some insurers might apply either a dollar amount or a percentage — and sometimes both. Again, these are underwriting discretions, with some impact on reinsurance.

When a deductible is applied the insurer is obligated to pay only that part of the loss that is over the deductible amount. A catastrophe limit, on the other hand, is the most the insurer will pay in any one occurrence. This limit applies even though a loss might affect one or more buildings or structures, described locations, or any combination of the two.

Deductibles are also likely to apply to delays in opening and other soft costs, to the extent that they are covered. In this case it would not be unusual for the delay in completion coverage to be subject to a certain deductible period, with a separate deductible applying to physical damage.

Covered Causes of Loss

Most builder’s risk policies are written on an all-perils basis, with the more modern term referred to as a “special causes of loss” (or perils) form. On this basis, coverage applies to physical loss or damage from any cause of loss, unless the loss is limited or caused by a peril that is specifically excluded. The fact that a policy is written with these causes of loss does not mean that coverage will be all inclusive in scope. Much will depend on what is not considered to be a covered cause of loss.

One cause of loss that is not specifically mentioned but nonetheless is not covered is a loss that is “non-fortuitous” or, in other words, not accidental. Thus, if the loss is expected to happen or is intentionally caused, it is not accidental and therefore not a loss that is likely to be covered by insurance.

“Most builder’s risk policies are written on an all- perils basis, with the more modern term referred to as ‘special causes of loss’ (or perils) form.”