A building under construction is exposed to fire, wind, theft, vandalism and water damage long before anyone moves in, and its value grows every week as materials are installed. Standard property policies are not designed for that changing exposure. Builder's risk insurance is.

What builder's risk covers

The Insurance Information Institute (Triple-I) describes builder's risk as coverage that protects structures and materials during new construction projects or renovations. Policies are usually written on an all-risks basis: physical loss or damage is covered unless a cause is specifically excluded. Typical covered property includes:

  • the structure under construction and permanent materials installed in it;
  • materials and supplies stored on site, at temporary off-site locations and, if endorsed, in transit;
  • temporary works such as scaffolding, forms and fencing, if listed;
  • debris removal, and often extras such as fire department charges and expediting costs.

Chubb, for example, describes its builder's risk forms as suitable for four-wall projects as well as engineering construction such as bridges and tunnels, for commercial or residential work.

Who buys it: owner or contractor

The construction contract decides. On many commercial projects the owner buys the policy and names the general contractor and subcontractors as insureds; on others, especially residential and smaller commercial jobs, the general contractor buys it. What matters is that one policy covers the full project value, all parties with an insurable interest are named, lenders are listed as loss payees, and waivers of subrogation in the contract match the policy. Subcontractors who supply and install equipment often carry an installation floater, which Triple-I says covers materials from the moment they are loaded onto a truck until they are put to use or installed.

Common exclusions and gaps

  • Faulty workmanship, materials or design. The cost of redoing defective work is excluded, though resulting damage to other covered property may be covered. Wording varies widely.
  • Wear and tear, mechanical breakdown and testing. Testing of systems may need a specific extension.
  • Earthquake and flood. Often excluded or covered only by sublimit and higher deductibles; named-storm deductibles apply in coastal areas.
  • Existing structures. In renovation projects, the existing building may be excluded or covered on a different valuation basis, so it must be addressed explicitly.
  • Theft of unattached materials and losses from unsecured sites can be restricted.
  • Contractors' tools and equipment are not project property and need a contractor's equipment floater.

Delay in opening and soft costs

A fire that sets a project back months does more than destroy materials. The owner may lose rental income, pay extra loan interest, taxes, insurance and professional fees. Delay-in-completion (or delay-in-opening) coverage and soft-cost coverage pay those losses when the delay results from covered physical damage. Chubb, for example, offers coverage for physical damage and delay in opening and asks for a breakdown of soft costs when underwriting it. Expect a waiting period before delay coverage starts.

When coverage starts and ends

Coverage usually begins when work starts or materials arrive and ends at the earliest of completion, acceptance, occupancy or the policy expiration date. Partial occupancy can end coverage for part of a building, so ask the insurer for an extension before tenants move in. Long projects need the term extended if the schedule slips.

International practice: CAR and EAR

Outside the US, the equivalent cover is usually called contractors' all risks (CAR) or construction all risks, and for plant and machinery installation, erection all risks (EAR). Chubb describes EAR as designed for the erection, construction and installation of industrial equipment in sectors such as power, oil and gas, and heavy industry. CAR and EAR forms often include a third-party liability section and a maintenance period after handover. Large projects may also use reinsurance support; see property reinsurance.

The rest of a contractor's insurance program

Builder's risk protects the project itself. Contractors also need general liability, including products-completed operations coverage for claims after the job is finished, workers compensation, commercial auto and often an umbrella. On large projects owners may arrange a wrap-up (OCIP or CCIP) that insures all contractors under one program. Requirements vary by state and by contract.

See the construction category for an overview. Policies are issued by licensed insurers and placed through licensed producers in your state; request a quote for your project.