What Does a Course of Construction Policy Cover?

Course of Construction (COC) insurance, often known as Builder’s Risk insurance, is a specialized property coverage designed for buildings and structures undergoing construction or significant renovation. This policy acts as a financial safeguard, protecting the project from various unforeseen events. It helps ensure that financial burdens from accidental damage or loss do not derail the project’s progress.

Core Coverages

A Course of Construction policy provides financial protection against physical damage or loss to the property under construction, covering both the structure itself and associated materials. This includes the building or structure from its foundation up, as well as construction materials, supplies, and equipment located on-site, in transit, or at temporary storage locations. Temporary structures like scaffolding, temporary fences, and construction trailers are also typically included in the coverage. This comprehensive approach ensures that the entire physical investment in the project is protected from various perils.

The policy generally covers a broad range of risks, often operating on an “all-risk” basis, meaning it covers any peril not specifically excluded. Common covered perils include fire, lightning, windstorm, hail, and explosion. Damage from vandalism, theft of materials, and collapse of the structure under construction are also typically included.

Beyond direct physical damage, many policies offer additional coverages or endorsements to address other financial impacts. These can include debris removal costs, which cover the expense of clearing damaged materials from the site after a covered loss. Coverage for professional fees, such as those for architects and engineers, can also be included to compensate for additional design or consulting work necessitated by a covered event. Some policies also cover “soft costs,” which are indirect expenses like loan interest, real estate taxes, or extended general conditions that continue to accrue if a project is delayed due to a covered loss.

Standard Exclusions

While Course of Construction policies offer extensive coverage, they also contain standard exclusions. Understanding these exclusions is important for managing expectations and identifying potential gaps in protection. Common exclusions include damage caused by earth movement, such as earthquakes, landslides, or sinkholes. Similarly, water damage from floods, surface water, or sewer backup is often excluded from standard policies. These perils typically require separate, specialized coverage or specific endorsements to be included.

Policies generally exclude losses resulting from wear and tear, rust, corrosion, or gradual deterioration, as these are considered maintenance or inherent property issues rather than sudden accidental events. Damage arising from faulty design, defective materials, or poor workmanship is also frequently excluded. However, some policies may include an “ensuing loss” provision, meaning that while the cost to repair the faulty work itself is excluded, damage that results from that faulty work due to an otherwise covered peril might be covered.

Additional exclusions often involve mechanical breakdown of machinery or equipment, war, nuclear hazard, and governmental actions, such as seizure or destruction of property. Employee theft is another common exclusion, meaning losses due to internal theft by workers are usually not covered under a standard COC policy.

Who Benefits

A Course of Construction policy benefits multiple parties involved in a construction project, reflecting the various financial interests at stake. The property owner or developer often purchases the policy, as they have the primary financial interest in the completed structure. This ensures their investment is protected from damage or loss during the building process.

General contractors are also frequent purchasers or beneficiaries of these policies, as they are often responsible for the construction site and materials. Having this coverage helps protect them from financial liability for damage to the project itself. Subcontractors, architects, and engineers may also be named as additional insureds on the policy, extending protection to their work and materials on site. Financial lenders, such as banks or credit unions providing construction loans, typically require a Course of Construction policy. They are often listed as loss payees or additional insureds to protect their security interest in the property. This ensures that their loan is secured against potential losses during the construction phase. The collaborative nature of construction projects necessitates a policy that can cover all parties with an insurable interest, safeguarding the collective investment.

Policy Term and Project Scope

The duration of a Course of Construction policy is directly tied to the project’s timeline, typically commencing at the groundbreaking or when materials are delivered to the job site. Coverage generally continues throughout the construction period. The policy usually concludes upon project completion, when the building is occupied, sold, or put to its intended use, or a specified number of days after substantial completion, often within 60 to 90 days. Policies can be extended if the project experiences delays, though renewal terms may vary, especially for projects extending beyond two years.

This flexibility accommodates the unpredictable nature of construction schedules. Course of Construction insurance is relevant for a wide array of projects, including new residential builds, commercial property construction, and major renovation or remodeling projects.