Builder's Risk Insurance: Specialized Coverage for Construction Projects



Because a precise completion date is often difficult to predict, insurers will generally extend coverage until such a time can be determined. If occupancy is required while work is being done, coverage usually can be arranged for this exposure as well. It is important, however, that permanent insurance be arranged and in place so as to ensure a normal transition without a gap in coverage.

Typical provisions in the policy that terminate coverage are when any of the following first occurs:

Some policies also provide that coverage ends 90 days after construction is complete, 60 days after the project has been occupied in whole or in part, or when the property is put to its intended use.

In considering coverage termination it is important to note not only what the policy says, but also what the construction contract prescribes. If the contract were to be at odds with the policy, the owner or whoever has the obligation to purchase the builder’s risk policy could be confronted with an allegation of failure to procure the proper coverage.

The American Institute of Architects General Conditions A201 2007 is commonly referenced by those who prepare contracts. With respect to property insurance, this document states (under Section 11.3.1) that “the insurance shall be maintained until final payment has been made or until no person or entity other than the owner has an insurable interest in the property to be covered.” It is obvious that either the policy has to be amended or the contract changed for there to be no argument over when coverage is to terminate.

Builder’s Risk Options

Depending on the risk, some of the optional coverages available from insurers offering builder’s risk policies are:

“Not covered by the builder’s risk policy is the delay in completion and resulting loss of business income, loss of rents, extra expense, interest on loans and other consequential losses incurred after an insured property loss.”