Builder’s risk: Overview, definition, and example
What is builder’s risk?
Builder's risk is a type of insurance designed to protect buildings and structures under construction or renovation. This insurance provides coverage for damages or losses that may occur during the construction process, including risks such as fire, theft, vandalism, weather-related damage, or accidents. Builder's risk insurance typically covers the building itself, construction materials, and sometimes equipment and machinery used during construction. The policy is usually held by the property owner or the general contractor and is intended to ensure that the project can continue or be completed in the event of a covered loss.
For example, if a fire breaks out at a construction site, builder’s risk insurance would help cover the costs of repairing or replacing damaged materials, minimizing the financial impact of the loss.
Why is builder’s risk important?
Builder's risk insurance is important because construction projects are inherently risky, and without proper coverage, a business or individual could face significant financial losses. It helps mitigate the financial burden from unforeseen events that could delay or stop construction work. Whether it's damage to materials or the structure itself, having builder’s risk insurance ensures that the costs of repairs or replacements are covered, preventing contractors, property owners, or developers from bearing the full financial burden of accidents or disasters.
For construction companies, property developers, or property owners, builder’s risk insurance provides peace of mind and allows for better risk management while ensuring that the project continues on schedule.
Understanding builder’s risk through an example
Imagine a company that is building a new office building. While construction is underway, a severe storm causes significant damage to the exterior of the building, as well as some of the materials stored at the site. If the project has builder's risk insurance, the policy would cover the cost of repairing the damaged structure and replacing the materials, allowing the company to continue with the project without facing a huge financial setback.
In another example, a construction site is robbed, and expensive tools and equipment are stolen. With builder's risk insurance, the contractor would be reimbursed for the stolen items, helping them replace the equipment and resume work without significant delays.
An example of a builder’s risk clause
Here’s how a builder’s risk clause might look in an insurance policy or construction contract:
"The Contractor agrees to maintain builder’s risk insurance for the duration of the construction project. This coverage shall include protection for the structure, construction materials, and equipment against damage or loss caused by fire, theft, vandalism, or adverse weather conditions. The policy shall be sufficient to cover the total value of the construction project."
Conclusion
Builder’s risk insurance is an essential tool for protecting construction projects from unexpected damage or loss during the building or renovation process. It helps cover costs related to repairs, replacements, and delays caused by accidents, weather, or theft, reducing financial risks for property owners, contractors, and developers. By securing builder's risk insurance, businesses can ensure their projects stay on track, even in the face of unforeseen events.
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.