Builder’s risk insurance: Overview, definition, and example
What is builder’s risk insurance?
Builder’s risk insurance is a type of property insurance that covers buildings under construction, as well as materials, tools, and equipment used in the construction process. This insurance is designed to protect contractors, property owners, and other stakeholders from financial loss due to damage or destruction of the building or materials during the construction phase. The coverage typically includes risks such as fire, vandalism, theft, and certain weather events, but it may exclude certain perils like earthquakes or floods unless specifically included.
For example, if a fire damages a construction site before the building is completed, builder’s risk insurance would help cover the cost of repairs or rebuilding.
Why is builder’s risk insurance important?
Builder’s risk insurance is important because construction projects are often subject to unpredictable risks. Since construction sites involve expensive materials, equipment, and labor, any damage or loss can result in significant financial setbacks. Without proper coverage, these risks could be financially devastating. Builder’s risk insurance ensures that the project can continue without major delays, protecting the investment in the construction process.
For contractors, it provides peace of mind by reducing the financial risks associated with damage or accidents on the site. For property owners, it ensures that they are not left bearing the full cost of a disaster before the project is completed.
Understanding builder’s risk insurance through an example
Imagine a construction company building a new office building. Midway through the project, a severe storm causes significant damage to the building’s framework and roofing materials. With builder’s risk insurance in place, the insurance policy would cover the cost of repairing the damage, ensuring that the construction schedule isn’t significantly delayed and that the project can continue.
In another example, a contractor is building a new home and the site is damaged by a fire. The builder’s risk insurance would cover the cost to replace the damaged materials and repair the house, as well as any other covered damages, so that the project can move forward without bearing the full financial burden of the loss.
An example of a builder’s risk insurance clause in a contract
Here’s how a builder’s risk insurance clause might appear in a construction contract:
“The Contractor agrees to maintain builder’s risk insurance throughout the duration of the project. This insurance will cover all risks of physical loss or damage to the project, including but not limited to fire, theft, vandalism, and weather-related events. The Contractor shall provide proof of such insurance to the Owner before the commencement of work.”
Conclusion
Builder’s risk insurance is a vital coverage option for protecting construction projects from unexpected risks like damage, theft, or vandalism. It helps contractors and property owners avoid significant financial losses that could delay or derail construction projects. By ensuring that the necessary materials and structures are covered during construction, builder’s risk insurance ensures projects stay on track and within budget.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.