Each construction project comes with its own special requirements and challenges.  And, the window of unpredictable events that could disrupt your new build could turn your creation into ruin.  Are you sure that your insurance program has the proper coverage while your building is in the course of construction?

Have a look below to see how Builders Risk insurance would help you protect your investment:               

What is Builder’s Risk Insurance?

Builder’s Risk is  Insurance for the physical building while it is under construction.  The coverage is for damages to the structure itself, the building materials that are on-site or in-transit to the job site, and there are other additional features that need to be included on these policies, such as debris removal, extra expenses, and more.   The policy protection is for the building owner or the general contractor and can also include the interests of your financial lenders (if you have them).  Coverage for builders' risk begins on the policy effective date (preferably when the build starts) and ends when the work is completed and the project is ready for use or occupancy.

Why do I need to think about a Builders Risk Policy when I start building?

In some cases, the wording for commercial property policy states that coverage is excluded for buildings during the course of construction. Other policy forms will state the definition of Building to include “the building(s) described in the Declaration Page” and in conjunction with an Exclusion stating “property excluded at locations which are vacant, unoccupied …”   Since these wordings vary between Insurance companies, soon to be building owners need to make sure they have, or their General Contactor,  has a Builders Risk policy in force during the course of construction. The Builders Risk policy permits the building to be vacant during the build, and it is important to note that the policy lapses when any of these items occur: a) the policy expires, b) there is no construction on site for over 30 days and c) when the building is occupied (special permission must be granted for occupancy).

The owner or General Contractor – who should purchase the Builder’s Risk Insurance?  What do I need to consider?

The building owner may choose to purchase a Builders Risk policy for two reasons. One of them is to maintain control of the coverages and cost of the insurance policy. They can utilize their own insurance broker to be their advisor on the coverages required.

The second reason building owners may decide to get a Builders Risk policy is to maintain control to make sure that the contractors that come on-site carry Commercial General Liability Insurance Coverage.  Essentially, the building owner would be the General Contractor in this scenario, so it is their responsibility to ensure that all Contractors have Commercial General Liability Insurance in place.

The alternative option is that the building owner may choose to enter into a construction agreement with the General Contractor.  This arrangement would see the General Contractor responsible for the placement of the builders' risk policy and to manage all costs of the build and the subcontractors. The cost of the insurance will be charged back to the building owner.  This scenario is best for owners that do not have the knowledge of building new dwellings or buildings and would need the skills of a reputable General Contractor to coordinate the details.

If you are considering the opportunity of a new build – a Commercial Building or your new dream home, make sure you go over all of the items to be considered with your insurance broker before the build begins. This can affect the insurance pricing and market options, and each party will have to factor insurance costs into their budgets. It is also helpful for your broker to look over your contractual agreements, such as a Canadian Construction Documents Committee Contract, to verify that you are carrying the required insurance for the project.

Do you have more questions about Builder’s Risk policies and whether it is right for your commercial building project? Contact us to help give you the answers you need!

Sources

https://www.thebalancesmb.com/understanding-builders-risk-insurance-844798
https://www.irmi.com/articles/expert-commentary/is-builders-risk-insurance-necessary
https://www.ccdc.org/documents