What is Builders Risk Insurance?
Builders take on risk every day. When you’re turning someone else’s vision into a reality, it’s just a part of the job. But there are calculated risks and unnecessary ones. Builders can mitigate their risk by purchasing builder’s risk insurance.
Builder’s Risk Insurance: A Primer
Also known as course of construction insurance, builder’s risk insurance covers materials, equipment, and the building, itself. Typically, a construction company will purchase insurance that will cover the entire cost of the construction project.
Course of construction coverage is useful especially in areas that are prone to severe weather or when a company is working with sensitive building material, but it also covers unforeseen risks such as theft and destruction of property.
What Does Course of Construction Insurance Cover?
A comprehensive builder’s risk insurance policy will cover all aspects of a building’s construction, including:
- Property damage, from weather and intentional tampering: Policies cover all equipment, scaffolding, building materials, fencing, and landscaping.
- Theft: If you have a gated job site, you can purchase coverage that reimburses your company in case of materials theft.
- Labor costs: In the event of a manmade or weather-related disaster, it will reimburse your labor costs or earned income.
- Miscellaneous damages coverage for flaws in design or execution.
Some aspects of builder’s risk insurance are part of a basic policy, while a company may need to purchase separate policies for other risks, including theft. While insurance may also provide coverage for some severe weather events, typically earthquake and flood insurance are separate policies. Additionally, workers’ compensation policies cover workplace injuries.
Why Consider Builder’s Risk Insurance?
Building may be your passion, but it’s also how you pay the bills. Unforeseen circumstances can negatively affect your bottom line. Commercial real estate faces significant loss in damages each year:
- In 2011, there were approximately $30 billion in losses from wind and thunderstorms.
- An additional $14.8 billion in damages were the result of fires.
- There were $35 billion in insured property losses in 2012.
Coinsurance and Other Considerations
Not all insurance companies were created equal. Some companies will do anything to pad their own bottom lines and avoid paying out on policies. One thing to consider when choosing builder’s risk insurance is whether the company requires coinsurance. Coinsurance clauses can lower your premiums, but they may also punish you when you file a claim. Take steps to ensure that you can readjust your policy values as your construction project progresses, because an insurance company may penalize you if it decides the reported value of the property is less than the actual project’s value.
Bad Faith Considerations
Like all insurance companies, those who sell builder’s risk insurance can be guilty of bad faith, which refers to an instance in which an insurance company fails to provide the protection it promised, as outlined in your insurance policy. Adjusters sometimes use their intimate knowledge of the industry to find loopholes that help them avoid paying out on policies. If you believe your insurance company is negotiating in bad faith, tell them so. Often, the term is enough to hasten a resolution.
If a conversation isn’t giving you any headway, put your concerns in writing. Be specific and outline the ways you think the insurance company is acting in bad faith. A simple disagreement about the amount of your claim amount isn’t enough, but if an adjuster fails to give you a specific reason for a low settlement offer, you may have grounds for a bad faith claim.
Proving bad faith may require the assistance of an attorney. A legal professional can help you determine if there’s been an act of bad faith and help you reach a fair settlement.