MANAGING YOUR RISK – APRIL 2007
The Ins and Outs of Builders Risk Insurance
By Anthony Bevilacqua
Builders and contractors purchase many types of insurance coverage. One of the most significant ones is builders risk insurance. This form of insurance protects a structure in the course of construction from physical damage—fire, vandalism, collapse, theft of materials—and many other forms of damage.
There is no standardized builders risk policy as there might be with other forms of business insurance. Every company that offers the coverage offers it using their own policy form. Needless the say, variations in coverage can result that must be carefully evaluated.
Here are some tips to assure your policy form provides the best level of protection possible.
- The named insured should include the owner, general contractor and subcontractors of all tiers. Doing so precludes subrogation by another any of these parties own insurance company in the event of a loss.
- The policy should not have a coinsurance clause. If it must, make sure it is something other than 100%. Coinsurance is a penalty clause assessed by the insurance company at the time of loss. If the cost of the project has increased over time, and you have not adjusted the amount of builders risk insurance to track those changes, losses you report will not be paid at full value.
- Make certain the policy covers the perils of flood and earthquake. What may seem as extreme risks of loss if your project is not near a body of water, or not located in California, many policies define flood to include damage from surface water accumulation or runoff, back up of sewers, drains and sump pumps. Earthquake definitions can include sink hole damage and collapse caused by erosion from water run off, for example.
- Determine if theft of building materials is covered even if the materials have not been permanently installed in the project. If theft of materials is covered, make certain there is not a separate (higher) deductible assessed against this type of loss. Theft losses account for the vast majority of all builders risk claims. Many times underwriters will attempt to minimize their loss exposure here by hidden, higher deductibles.
- Confirm the rate at inception will remain the rate if you need to extend the policy term for any reason. We have seen many examples where policies either cannot be renewed past the policy expiration date, or the rate will kick up as much as 25% if the extension is needed.
- Include adequate limits for coverage “In Transit” and for “Temporary Storage” locations. Large inner city construction projects typically have staging areas located away from the actual construction site. Make certain the temporary storage limit is adequate to protect the maximum amount of materials stored at staging areas at any one time.
These are just a few of the many, many elements to consider when crafting a comprehensive builders risk policy. Size of the project does not matter. Your professional construction risk manager should be able to guide you through the builders risk maze.
Anthony Bevilacqua, CPCU is President of Anthony & Company, an independent insurance agency with special insurance and risk management services tailored to the needs of the commercial and residential development community. You can reach Mr. Bevilacqua at (908) 806-8844 or email him at insure@anthonycompany.com.