Builders Risk/Cost of Construction
November 11, 2013 – Scottsdale, Arizona
Recently, I was talking with a potential client who was in the process of obtaining a contractor’s license to build his own custom home. Once we secured him all the bonding he required, we asked him about looking into a builder’s risk/cost of construction insurance policy for his new custom home while it was under construction. His response was, since he already had a homeowner’s policy on his current home and since he planned to occupy this new home, he assumed that his current homeowner’s policy covered this new one as well.
I can’t tell you how many times I have heard this response in the past, and this couldn’t be further from the truth. In most instances, if you read your homeowner’s policy, you will find that the vast majority of them only cover your home while you are living in it and it is not under construction, whether that be a new build or if you are doing major remodeling. In the event that the part of the building you are remodeling has a loss, i.e., a fire that does damage to the completed part of your home, your current homeowner’s policy may not cover the loss to the part of your home that is completed. Of course, that is not the time you want to find out you have no coverage at all.
Most builders risk policies will contain coverage for damage that is done to the insured structure by such causes of loss as Fire, Wind, (although in some coastal areas this coverage may be limited or excluded) Theft, Hail, Lightning, Explosion, and Vandalism. As with any policy you acquire, it is very important that you read the policy to become familiar with any exclusions or limitations that the policy may contain. In almost all builders risk policies, there are exclusions for Earthquake, Theft by an Employee, War, Government Action, and Property that is in the open and suffers Weather Damage, Voluntary Parting, Contract Penalty, and Mechanical Breakdown.
In addition, this type of insurance will not cover property owned by others, and all of the subcontractors that will be working on this project will be required to carry their own insurance, and their tools and equipment will not be covered under your policy. Also, on the builders risk policy, there is no coverage for liability insurance, and the policy will not cover accidents to workers that happen on the job. It is important to note that when the building is completed or occupied, coverage usually ends, and the premium for the policy is fully earned.
As you can see, there are many aspects of a Builders Risk/Cost of Construction Policy, and since every new project, whether it is a new custom home, a new commercial building, or a renovation project, either residential or commercial, each one has their own unique set of demands for this type of coverage. With our expertise in this field and the many markets that PJO Insurance Brokerage has access to, it would be beneficial for you to talk with us about putting an insurance policy in place that best suits your particular building needs. We look forward to working with you on your next project.
Written By: Patrick O’Neill – Owner
4103 East Prickly Pear Trail
Phoenix, Arizona 85050
Category: Contractor Insurance