When embarking on a construction project, builder’s risk insurance becomes a necessity. The insurance is also known as “all-risk” insurance, and it protects developers and property owners from a wide range of risks that could threaten a project and drain funds.
But despite the widespread coverage that builder’s risk provides, there are some risk factors that it doesn’t cover. So, while you might be protected against fire and windstorms and even theft, you may find it lacking in other types of coverage.
Of course, all insurance policies have limits. It is vital to know what is and what isn’t covered so you know what other types of insurance to get. Here are some things that builder’s risk DOESN’T cover:
1. Tools and equipment
Tools and equipment may or may not be covered against the builder’s risk. Keep in mind that not all insurance policies offer the same types of protection. The particular plan you sign up for may have exclusions that leave you unprotected under certain circumstances.
This is often the case when dealing with expensive equipment or items owned by subcontractors. Some policies may not cover tools or equipment at all. If certain essentials aren’t covered, you may need additional insurance to cover the risk.
2. Faulty workmanship
Property owners and builders are generally covered from losses and damages resulting from accidents under builder’s risk. Nevertheless, most of these policies assume that a third party caused the incident. The builder’s risk may not cover damage caused by the policyholder or other insured parties.
This may be the case when faulty workmanship is the cause of the damage. Some policies do cover incidents arising from these causes. But if yours doesn’t, you may need additional coverage.
3. Theft by employees
Many builder’s risk policies do not cover theft by employees or construction personnel employed by the policyholder. Although most such policies cover theft and vandalism, they will only do so if a third party causes the incidents.
In addition to getting the right type of insurance, the best way to safeguard against these incidents is to hire workers vetted by a reputable employment agency. You should also perform background checks on all new workers as standard practice.
4. Vehicle accidents
In general, builder’s risk insurance covers construction tools and equipment in transit, but working vehicles are probably not covered. The
damages you incur from an accident in your company vehicle or while
operating your work truck might have to be paid for out of pocket if you
are not covered by specialized coverage.
5. Soft costs
Not all builder’s risk policies cover so-called ‘soft costs’. These are the financial losses you incur as you proceed with your construction project after an accident or calamity. Soft costs typically include the following:
- Insurance premiums
- Legal fees
- Interest on loans
- Equipment rentals
Read through your policy carefully to determine if these and other soft costs are covered. If not, it may be necessary to get additional coverage.
6. Earthquake and flood damage
Many builder’s risk policies cover damage resulting from natural causes such as fire, lightning, and wind storms. But your particular policy may not cover earthquake and flood damage. These are common exclusions in many plans, so you may need to get specific coverage for them if your project is located in an area at high risk for these disasters.
7. Nuclear accidents
Builder’s risk generally doesn’t cover extreme events caused by human devices and mechanisms. Your policy probably specifically mentions exclusions for the following incidents:
- Nuclear accidents
- War
- Terrorism
Most insurance companies cannot afford to cover the damage caused by these incidents. It is important to consider specialized insurance to augment your builder’s risk policy if you feel such events pose a significant risk to your new construction project.
Conclusion
As you can see, there are many risks that a builder’s risk doesn’t cover. But these exclusions don’t mean that you should neglect the builder’s risk when embarking on a new construction project.
Despite its limitations, the builder’s risk remains a valuable safeguard against common risk exposures. Perhaps enhancing it with other types of policies would be better than replacing it entirely. By doing so, you’ll ensure you’re protected from a wide variety of losses and damages.
About Snyder Specialty
Snyder Specialty, LLC is a New York-based underwriting facility that provides a range of property and liability solutions for personal and commercial lines. Specializing in coastal properties and hard-to-place risks, Snyder Specialty expands your current capabilities with proven solutions for complex risks. Find out more about the company’s range of services by calling (718) 362-8039.
