Who Carries Builders Risk Insurance?

Builders risk insurance is a specialized property coverage designed specifically for buildings and structures undergoing construction or renovation. It safeguards the physical property, including the structure itself, building materials, and equipment located on-site or in transit, from various perils. These perils commonly include fire, theft, vandalism, and extreme weather events that could cause damage during the project’s duration.

Core Parties in Construction Projects

Several key entities are involved in construction projects, each with a potential role in obtaining builders risk insurance. Property owners, whether homeowners or commercial entities, often hold the primary financial interest in a project. They might secure the policy themselves, especially for owner-built homes, significant renovation endeavors, or when they manage the project as their own general contractor.

General contractors (GCs) commonly oversee the entire construction process, including managing subcontractors, labor, and materials. For many projects, particularly larger commercial or residential developments, the general contractor frequently secures the builders risk policy. Developers are involved in large-scale construction, such as multi-unit residential complexes or phased commercial projects. They typically manage the insurance needs for numerous properties under development, often obtaining master builders risk policies to cover their extensive portfolios.

While lenders and financial institutions do not typically purchase builders risk policies directly, they almost invariably mandate this coverage as a condition for providing construction financing. These institutions have a substantial financial stake in the project’s successful completion and are usually named as an additional insured or loss payee on the policy. This ensures their investment is protected in the event of a covered loss.

Factors Influencing Coverage Responsibility

Responsibility for builders risk insurance depends on several project-specific factors. The construction contract terms are the most influential element, as they explicitly assign this responsibility between the property owner and the general contractor. These contracts outline whether the “owner shall provide” or the “contractor shall provide” the necessary coverage, ensuring clarity from the project’s outset.

The project’s size and type also play a significant role in allocating this responsibility. Larger, more complex commercial or multi-unit residential developments typically see the general contractor or developer taking on the insurance burden due to their comprehensive oversight and financial exposure. Conversely, smaller residential projects or those where the owner acts as their own contractor often place the responsibility directly on the property owner.

Lender requirements are another factor, as financial institutions providing construction loans almost always require builders risk insurance. Loan agreements or commitment letters specify the coverage amount, duration, and often the party responsible for obtaining it. Some state or local regulations may have specific insurance requirements for certain project types or construction activities.

Common Scenarios and Designated Parties

For owner-built projects or significant renovations where a homeowner acts as their own general contractor, the property owner is almost always directly responsible for obtaining the builders risk policy. This arrangement ensures the owner’s investment is protected from the ground up, as they are managing all aspects of the build.

For typical residential or commercial projects, the general contractor often secures the builders risk policy. This is common when the contractor oversees the entire construction process, managing subcontractors, materials, and labor. The general contractor ensures the policy adequately covers the scope of work and on-site materials.

Developers undertaking large-scale, multi-unit, or phased construction projects often utilize master policies. These policies can cover multiple units or phases of development under a single comprehensive plan, streamlining insurance management across extensive portfolios. For major renovation or addition projects, the responsibility for builders risk coverage can fall to either the homeowner or the contractor. This is determined by the project’s scope, the specific terms outlined in the construction contract, and whether the existing structure also requires coverage during the renovation.