Builder’s risk insurance is NOT a liability insurance policy. It is NOT designed to indemnify the insured for losses claimed by third parties. Rather, builder’s risk insurance is a first-party policy—a type of property insurance policy—designed to cover an insured for losses that occur during the construction of the project subject to the various exclusions and endorsements in the policy. This is an important distinction since a first-party policy is NOT a liability policy.
The distinction between builder’s risk insurance as a first-party insurance policy as opposed to a third-party liability insurance policy was discussed in U.S. Fire Ins. Co. v. Sovran Construction Company, Inc., 854 So.2d 221 (Fla. 1st DCA 2003). Here, a condominium association obtained a judgment against a contractor and developer for construction defects. In a subsequent action, the trial court ruled that the builder’s risk insurance policy purchased by the developer must indemnify the association for the claimed construction defects, thereby treating the builder’s risk policy as a third-party liability insurance policy. The appellate court naturally reversed this ruling:
“Builder’s risk insurance is a type of property insurance coverage, not liability insurance or warranty coverage. The purpose of this type of insurance is to provide protection for fortuitous loss sustained during the construction of the building.” Further…a builder’s risk policy is a first-party contract and does not indemnify a third party, such as a condominium association, for faulty workmanship.
Sovran Construction, 854 So.2d at 222 (internal citations omitted).
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