Does Builders Risk Insurance Cover Liability?

Understanding insurance types in construction is important for building projects. A common question arises regarding the scope of Builders Risk insurance, particularly whether it extends to cover liability. This article clarifies the specific roles of Builders Risk insurance and liability coverage in the construction industry.

Understanding Builders Risk Insurance

Builders Risk insurance, also known as Course of Construction insurance, is a specialized form of property insurance. It protects the physical structure and associated elements of a building project during construction or renovation. It covers the building itself, along with materials, fixtures, and equipment intended for permanent installation on the job site.

This coverage extends to damages caused by various perils, including fire, theft, vandalism, windstorm, and collapse. Builders Risk insurance often includes provisions for materials in transit to the site or stored at temporary locations, as well as debris removal costs following a covered loss. The policy’s protection ceases once the construction project is completed and the property is ready for occupancy.

The Purpose of Liability Coverage

Liability insurance protects against claims arising from bodily injury or property damage caused to third parties. It covers legal fees, settlements, and judgments a business might incur due to its operations, products, or premises.

For instance, if a visitor sustains an injury while on a construction site, liability insurance addresses the medical expenses and potential legal costs. Similarly, if construction activities accidentally cause damage to an adjacent property, such as a neighboring building or vehicle, liability insurance provides coverage for repair or replacement costs. This protection is important for businesses, as even a single lawsuit stemming from a third-party claim can result in significant financial burdens. Liability policies help transfer this financial risk from the business to the insurance carrier.

Builders Risk and Liability Coverage Differences

Builders Risk insurance and liability insurance address fundamentally different types of risks in construction. Builders Risk insurance is primarily a first-party property policy, safeguarding the physical project itself, including the building under construction and its materials, against direct physical loss or damage. It protects the financial interest of the project owner or contractor in the property being built.

In contrast, liability insurance is a third-party coverage that protects against financial losses from claims made by individuals or entities outside the construction project. These claims involve bodily injury or property damage that construction activities or personnel cause to others. Therefore, Builders Risk insurance does not cover liability claims, as its focus is on the property under construction rather than legal responsibilities owed to external parties.

Key Liability Insurance for Construction

Given that Builders Risk insurance does not encompass liability, other specific insurance policies are necessary to cover third-party risks inherent in construction projects.

Commercial General Liability (CGL) Insurance

Commercial General Liability (CGL) insurance is an important policy for contractors, protecting against claims of bodily injury or property damage to third parties. This includes accidents on the job site where a non-employee is injured, or unintentional damage to a client’s existing property. CGL policies can also cover personal and advertising injury claims, such as libel or slander.

Workers’ Compensation Insurance

Workers’ Compensation insurance is another necessary coverage for construction businesses with employees. This policy provides medical benefits and wage replacement for employees who suffer work-related injuries or illnesses. Most states mandate Workers’ Compensation for employers, as it protects both the employee by ensuring care and the employer from direct lawsuits by injured workers.

Commercial Auto Liability Insurance

Commercial Auto Liability insurance is important for businesses that use vehicles for construction operations. This policy covers legal expenses, medical costs, and property damage if a business-owned vehicle is involved in an accident. It extends to vehicles used for transporting tools, equipment, or personnel to and from job sites, protecting against claims arising from vehicle-related incidents.