Builders Risk
Temporary property coverage for buildings under construction, renovation, or installation, covering materials, equipment, and the structure in progress.
What It Is
Builders Risk insurance, also called Course of Construction coverage, provides property insurance for buildings and structures during construction, renovation, or installation. It covers the building as it is being constructed, along with materials, supplies, and equipment that are part of the project, against covered perils such as fire, wind, theft, and vandalism.
Builders Risk policies can be written on a completed value basis (where the limit equals the expected completed value and the premium reflects the average exposure during construction) or a reporting basis (where the insured reports values periodically and premium adjusts accordingly). The completed value approach is more common and simpler to administer.
The policy typically covers materials in transit and at temporary storage locations in addition to materials at the construction site. Coverage begins at policy inception and ends at the earliest of project completion, the building being occupied, the policy expiration, or the insured's interest in the project ending. Builders Risk can be written as a standalone policy or added as a coverage form to an existing commercial property policy.
Why It Matters for Brokers
Construction projects represent significant uninsured exposure if builders risk is not properly placed. A standard commercial property policy does not cover buildings under construction or renovation materials. Brokers must ensure that builders risk coverage is in place before construction begins, with limits that reflect the completed project value and coverage for all relevant perils including theft of materials and soft costs.
Real-World Example
A developer begins a $4.2M office building construction project with a 14-month timeline. The broker places a builders risk policy at $4.2M completed value on the Special Form. In month 8, with $2.8M of construction completed, a fire destroys the partially completed structure. The builders risk policy pays $2.8M for the completed work, plus $180,000 in materials stored on-site and $65,000 in architectural fees to redesign damaged sections (soft costs endorsement). Without builders risk, the developer would absorb $3.045M in losses.
Common Mistakes
- 1Not placing builders risk before construction begins, leaving the project uninsured during the early (and often most vulnerable) stages of construction.
- 2Setting the limit at the current construction cost instead of the completed project value, causing underinsurance as construction progresses.
- 3Failing to add soft costs coverage (architect fees, permit costs, loan interest during delays) which are not covered by the standard builders risk form.
How brokerageaudit.com Handles This
brokerageaudit.com's Submission Intake identifies construction and renovation projects during the application process and automatically generates builders risk coverage recommendations. The Policy Checker verifies that builders risk limits reflect completed project values and that the policy period aligns with the projected construction timeline plus a reasonable buffer for delays.