· Michael Blair
Once a project is large enough, a new house, a substantial addition, a gut renovation, the building under construction is exposed to storm, fire, vandalism and theft with a great deal of money in materials sitting on site. A standard homeowner policy either excludes construction or limits it. The contractor’s general liability covers damage the contractor causes to others, not the work itself. The policy that covers the structure and materials during construction is builder risk, and the question is whose name is on it.
What builder risk covers
A builder risk policy covers the structure under construction, materials on site and often in transit, and sometimes temporary works, against named perils or on an all-risk basis. Fire, wind, hail, lightning, vandalism and theft of materials are the ones that matter in Middle Tennessee. The policy runs from the start of work to completion or occupancy, whichever the policy specifies, and it ends at that point whether or not the project is finished.
It typically does not cover the contractor’s tools, faulty workmanship or design, or damage from flood and earthquake without an added endorsement. Damage to the existing structure on a renovation may or may not be included, which is the detail to check on an addition or a remodel.
Who should carry it
Either the owner or the general contractor can take out the policy, and the construction contract should say which. When the contractor carries it, the owner should be named as an additional insured and see the certificate. When the owner carries it, the contractor and subcontractors are usually named, so that a loss does not turn into a dispute over whose fault it was.
Owners building with a construction loan will find the lender requires it and will specify the coverage and want to be named. On a renovation with the owner living in the house, the homeowner insurer needs to be told, because many policies suspend or restrict coverage during major work, and some will offer a renovation endorsement rather than a separate builder risk policy.
- Contract states who buys it and who is named on it
- Coverage amount matches the completed value, not the contract price alone
- Owner sees the certificate before work starts
- Homeowner insurer notified of the project either way
The gaps that catch people
Materials delivered and stored on site before installation are the most common theft loss, and coverage for them can have a limit well below their value. Lumber, copper, appliances and cabinets waiting for installation all attract it. The policy should cover materials at their replacement cost, on site and in transit.
Soft costs are the other gap. If a storm sets the project back three months, the loan interest, the extended rental and the re-permitting are real money, and they are covered only if the policy includes a soft cost or delay endorsement. On a large project it is worth asking about.
What to ask before signing the contract
Ask the contractor whether they carry builder risk on their projects or expect the owner to, what the coverage amount and deductible are, whether the existing structure is included on a renovation, and whether materials on site are covered at full value. Then ask for the certificate, and read what it names.
A contractor who is vague about this is often vague about the general liability and workers compensation as well, and those three certificates together are the minimum paperwork for any project large enough to need a permit. Metro Codes does not check insurance; that is the owner’s job.