Does a Builders Risk Policy Cover Liability?
Understand if builder's risk insurance covers liability and why separate policies are essential for comprehensive construction project protection.
A builder’s risk policy is a specialized form of property insurance designed to protect a building or structure while it is under construction or undergoing significant renovation. This policy safeguards the physical assets of a construction project from various unforeseen events. A builder’s risk policy does not cover liability, which pertains to legal responsibility for damages or injuries to others. Its focus remains on the physical property itself.
Builder’s Risk Coverage Focus
A builder’s risk policy covers physical damage to the property under construction, including the structure, materials, and equipment on the job site. This coverage extends to items stored off-site or in transit to the construction location. Common perils covered include fire, theft, vandalism, and damage from severe weather events such as wind and hail.
The policy protects against physical loss or damage to the covered property unless specifically excluded. It can also include temporary structures like scaffolding and fencing, which are integral to the construction process. This insurance safeguards the financial investment in the project’s physical assets from groundbreaking until completion.
Some policies also cover “soft costs,” which are expenses incurred due to construction delays from a covered loss, such as additional interest on loans or lost rental income. Coverage limits are based on the total estimated value of the completed structure, encompassing material and labor costs. This ensures the policy can respond to significant damages during construction.
Construction Liability Coverage
Liability refers to legal responsibility for injuries to third parties or damage to their property caused by construction activities. These risks are not covered by a builder’s risk policy and require separate insurance. Comprehensive protection for construction businesses involves policies addressing these third-party risks.
Commercial General Liability (CGL) insurance covers claims of bodily injury or property damage to non-employees or third-party property. For example, if a visitor is injured on a job site, or if construction work accidentally damages a neighboring property, CGL insurance covers medical expenses, legal fees, and potential settlements. It also extends to personal and advertising injury claims.
Workers’ Compensation insurance is another essential form of liability coverage. This policy is mandated in most jurisdictions for businesses with employees, covering medical costs and lost wages for work-related injuries or illnesses. Workers’ Compensation protects employers from lawsuits related to workplace injuries by providing a no-fault system for employee benefits.
The Need for Distinct Policies
Both builder’s risk and liability insurance are essential for a comprehensive insurance strategy for construction projects. These policies address fundamentally different types of risks, requiring both for adequate protection. Builder’s risk insurance is a “first-party” coverage, protecting the physical project and its components from damage or loss.
Conversely, liability insurance, such as CGL, is “third-party” coverage, shielding the business from financial losses from legal claims by others. It covers legal responsibility for injuries to others or damage to their property. Relying on only one policy leaves significant gaps, exposing a business to substantial financial exposure from property damage or liability claims.
Having both policies ensures robust protection against construction risks. The builder’s risk policy safeguards the investment in the structure, while liability policies protect against the financial repercussions of accidents or negligence affecting others. This dual coverage mitigates financial devastation from incidents throughout a project’s lifecycle.