The advantages of commercial builder’s risk insurance

Commercial construction projects involve significant financial and legal risks.

Picture this: You’re the owner of a commercial construction company that has just broken ground on a large-scale project to build a shopping mall.  Due to unforeseen circumstances, a significant fire breaks out during the construction phase, causing extensive damage to the building’s structure, materials and equipment. Without insurance coverage, the project will face costly delays, loss of resources and potential lawsuits from various stakeholders affected by the incident. This can easily snowball into a substantial financial burden, loss of reputation and even bankruptcy.

That’s not a situation you want to find yourself in.

Luckily, contractors have many resources available to them to help strengthen their risk management approach, protecting them from financial repercussions associated with disasters like the fire in this example. Learn about how to leverage one such resource – builder’s risk insurance – to mitigate financial and legal risks involved with a construction project.

Understanding builder’s risk insurance

Builder’s risk insurance is a type of coverage that protects construction projects from damage or loss during building.

What’s the purpose of insurance in construction?

Generally, insurance is used as a tool to protect construction companies from expensive property loss, liabilities and financial risk.

Builder’s risk insurance specifically provides financial support to cover repairs or replacements of property and materials damaged by covered risks. This insurance safeguards the investments of builders and helps ensure that construction projects can be completed without major financial setbacks.

Key policy coverage areas

With any type of insurance, it’s important to keep in mind exact coverage can vary depending on your specific policy terms.

Generally, builder’s risk insurance provides coverage for:

• The materials, foundation, walls, roof and other components of the building or structure being constructed or renovated
• Onsite construction materials, including lumber, concrete, pipes, electrical wiring and HVAC equipment
• Equipment and machinery, including excavators, cranes, bulldozers and power tools
• Fixtures and installations, including plumbing systems, electrical wiring and built-in appliances
• Temporary structures, including scaffolding, fences, trailers, sheds and additional storage structures

Additionally, builder’s risk insurance can cover property in transit, landscaping property and even loss of income from construction delays.

Because different insurance providers offer variations in coverage, it’s important to review each specific policy to understand the extent of coverage and any exclusions and policy limits.

Why commercial builders need builder’s risk coverage

Commercial builders face unique risks and high stakes due to the complexity of their projects. For example, when constructing a shopping mall, a builder must manage a large construction site, coordinate multiple contractors and handle complex structural systems. This complexity increases the risk of delays and cost overruns during the construction process.

In addition, a shopping mall site likely has increased safety and security concerns, as there is a higher volume of traffic and visitors to the site during a construction period. As the likelihood of accidents or injuries increases, commercial builders may be held liable for property damage, bodily injury claims, construction defects and legal disputes.

Insurance coverage can help safeguard a commercial construction company from these risks.  

Protecting construction investments

Property damage during construction can have significant financial implications for commercial builders, including:

• Cost of repairs or replacements to damaged materials, equipment or structures, which adds unexpected expense to a project’s budget
• Delays and project interruptions, which can affect the project timeline and add even more cost
• Potential legal liability, where commercial builders may face disputes and settlements resulting from property damage

Builder’s risk coverage safeguards construction investments by:

• Providing financial protection for the cost of repairing or replacing damaged property
• Expediting the repair process, minimizing delays and added costs caused by overruns
• Offering liability protection against claims arising from property damage

Insured parties in construction builds

In a commercial construction project, the party responsible for carrying the insurance policy is typically the primary beneficiary.

That said, builder’s risk insurance has benefits for every stakeholder involved in the construction process.

1. Contractors

Builder’s risk insurance protects contractors by providing coverage for property damage or loss during construction. The policy can include liability coverage, which protects contractors from potential claims or lawsuits and mitigates financial risks associated with legal disputes.

It’s common for the owner, developer or client of a project to require contractors to provide proof of risk insurance coverage before beginning work.

2. Subcontractors

Subcontractors can be included as insured parties under a builder’s risk policy, offering them protection for their work, materials and equipment onsite. When subcontractors are covered, it can enhance the perception of their credibility and reliability in the eyes of contractors and developers. This can lead to stronger business relationships and increase opportunities for future subcontracting work.

3. Owners, developers and clients

Builder’s risk coverage protects the project client – typically a developer or owner – from financial liabilities associated with property damage during construction. Insurance policies are a critical part of a client’s overall risk management strategy as it transfers the potential financial burdens associated with property damage to the insurance provider.

Advantages of builder’s risk coverage over other policies

It’s important to thoroughly consider the needs of your construction company based on current clients, projects and scope. It’s common for commercial construction companies to carry multiple forms of insurance to best protect their businesses and reduce financial risk.

Even so, builder’s risk coverage offers several advantages over other policies.

• Builder’s risk insurance is specifically designed to address the unique risks associated with construction projects. It includes coverage against a wide range of property damage causes, including theft, vandalism and even natural disasters, which aren’t typically covered by general liability or property insurance.
• A builder’s risk policy can be tailored to meet the specific needs of a construction project. The coverage limits, policy duration and deductibles can all be aligned with the project’s scope, duration and budget.
• Commercial builder’s risk insurance can also cover construction errors or defects that occur during the construction phase.
• Builder’s risk policies can complement existing general liability, property insurance or umbrella insurance coverage.

Next steps for a builder’s risk policy in commercial construction

As a commercial builder, you’re likely already juggling multiple clients, subcontractors, vendors and suppliers. Adding one more insurance provider to the mix can seem overwhelming, but it’s important to work with one that specializes in builder’s risk to ensure your construction projects are adequately covered.

Talk to our Buildertrend team to learn more about builder’s risk insurance today.

Commercial builder’s risk insurance FAQs

Get answers to the most common questions about builder’s risk insurance.