What Does Builders Insurance Cover and Not Cover?

Builders insurance, also known as Builders Risk or Course of Construction Insurance, is a specialized form of property insurance designed to protect structures during their construction phase. Its purpose is to safeguard the financial investment in a building project from physical damage from initial groundbreaking until completion or occupancy. This coverage addresses the unique risks of an active construction site, where a partially completed structure faces different exposures than a finished building.

Types of Property Covered

A standard builders insurance policy typically extends protection to various physical components and items integral to the construction project. This includes the building or structure itself as it progresses from foundation to roof. Coverage applies to the evolving structure, whether it is a new build or a major remodeling project.

Furthermore, the policy covers building materials and supplies intended for permanent installation within the structure. This encompasses items like lumber, drywall, plumbing fixtures, and electrical components, whether they are awaiting installation or securely stored at the construction site. Such materials are protected even when in transit to the site or at temporary off-site locations.

Temporary structures essential for the construction process also fall under the purview of this insurance. This can include scaffolding, temporary fencing, construction trailers, and other non-permanent installations on the insured premises.

Common Perils Covered

Builders insurance policies generally provide broad coverage for direct physical loss or damage to the covered property, often referred to as “all-risk” policies, meaning they cover perils unless specifically excluded. One common peril covered is fire, which includes damage from accidental fires as well as smoke and soot.

Damage caused by severe weather events such as windstorms and hail is also typically covered. Policies also commonly cover damage directly caused by lightning strikes.

Theft and vandalism are significant concerns on construction sites, and builders insurance often provides coverage for losses due to these malicious acts. Coverage also extends to damage resulting from an explosion.

Additionally, policies frequently cover damage caused by collision from vehicles not owned or operated by the insured. Coverage for collapse, referring to the sudden and accidental structural failure during construction, is also a common inclusion.

Parties and Interests Covered

A builders insurance policy is typically structured to protect the financial interests of various stakeholders involved in a construction project. The property owner or developer is a primary beneficiary, as they hold the ultimate financial stake in the completed project. Their investment could be substantially impacted if the structure is damaged or destroyed during construction.

General contractors also have a significant interest and are often responsible for the overall project’s successful completion. They are commonly listed on the policy, ensuring their financial exposure is mitigated. Subcontractors, who provide specific materials and labor, also have an insurable interest in the work and materials they furnish until accepted by the general contractor or owner.

Lenders and financial institutions, which often provide construction loans, maintain a financial interest in the property as security for their investment. They are frequently included as additional insureds to protect their lien on the property. Covering all parties with an insurable interest under a single policy helps to streamline claims and reduce disputes.

Situations Not Typically Covered

While builders insurance offers broad protection, it has specific exclusions. Standard policies generally do not cover damage from earth movement, which includes events like earthquakes, landslides, or mudslides. These perils often require separate endorsements or specialized policies.

Damage caused by flood, involving rising water or overflow, is commonly excluded and typically requires a specific add-on or separate policy. Losses resulting from acts of war or nuclear hazards are also standard exclusions.

Another common exclusion pertains to faulty workmanship, materials, or design. While the cost to correct these inherent defects themselves is generally not covered, some policies may provide an “ensuing loss” exception, meaning subsequent damage caused by a covered peril that resulted from such a defect might be covered. Mechanical breakdown, ordinary wear and tear, and gradual deterioration from normal use or aging are also typically not covered. Additionally, acts of terrorism may be excluded or require specific endorsements.