Builder’s risk insurance is a type of property insurance that should be obtained for construction projects. Oftentimes, it is insurance the owner procures as it operates to protect the owner’s property (as well as other identifiable insurable interests such as the contractor’s interests) during construction. Generally, builder’s risk insurance is an all-risk policy meaning it covers all risks or perils (e.g., fire, vandalism, windstorm, explosion, etc.) except those risks or perils that are specifically excluded. A builder’s risk policy can be designed with riders to cover soft costs associated with project delays, property in transit, etc. It is imperative to know what risks are excluded to ensure you are getting the true value of the policy based on the anticipated risks you are trying to insure against during construction. The point of the policy is to protect property during construction from conceivable risks or perils.
If an owner procures the policy, the contractor should request to be named as an additional named insured under the policy or, at a minimum, a loss payee under the policy.
Oftentimes, when it comes to property insurance, construction contracts contain waiver of subrogation language applicable to the owner, general contractor, and subcontractors. This means if the builder’s risk insurer pays proceeds, it waives the right to subrogate or step in the shoes of the named insured (typically the owner) to try to recoup its costs (the proceeds) against potentially responsible parties for the loss (or those parties identified in the waiver of subrogation provision).
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