Building projects are fraught with potential construction-related risks, and companies pay substantial insurance premiums to cover losses sustained during the construction process. Determining the adequate amount of builder’s risk insurance coverage to maintain is a complicated and expensive endeavor. After investing time and money in the procuring and renewing of insurance policies, it stands to reason that, in the event of a loss, insureds can expect their providers to fulfill their basic obligations. Unfortunately, whether because of unforeseen gaps in coverage, “improper” or “untimely” tender of claims, or some other form of bad faith, many insureds find themselves in the wake of a construction loss with their builder’s risk claims denied.
Payne & Fears attorneys have spent decades learning the nuances of builder’s risk policies and advocating for our clients in the real estate and construction industry. We regularly counsel these clients on how to ensure they have full coverage for their projects. Our insurance coverage advice helps clients to forestall potential problems with claims before they are tendered. In addition, our experience handling disputed claims helps us to advise our clients on how best to tender their claims to their providers. Though we often successfully settle claims without litigation, where there are disputes, we are happy to step in and strategically apply pressure in the service of maximizing our clients’ policy benefits.
What are Builder’s Risk Policies and What Losses Do They Cover?
A builder’s risk policy, sometimes referred to as a “course-of-construction” policy, protects an insured’s construction-related materials, including fixtures and supplies, during the construction or renovation process. Builder’s risk policies are available for ground-up construction as well as for remodeling projects. In some cases, policies also are available for smaller projects that only involve installation of one facet or a small number of elements (e.g., cabinet building and installation, installing HVAC units, adding fencing, etc.).
A claim made on a builder’s risk policy covers the cost of repairing or replacing building materials during the construction process when damage sustained is the result of events occurring during the construction process. Qualifying causal events include damage to the structure from fire, certain weather events, vandalism, and theft. Damage sustained from natural disasters, employee injuries, design flaws, or damage to tools and equipment on the construction site may not be covered without additional policies or riders. Because the scope of coverage under a builder’s risk policy may differ from provider to provider, understanding the scope of a policy’s coverage is crucial to ensuring proper coverage for a project.
Who Needs Builder’s Risk Coverage?
Whether a project is residential or commercial, any individual or company involved with construction may need a builder’s risk policy. These stakeholders may include property owners, builders, developers, investors, lenders, contractors, subcontractors, and others. For example, if heavy rain on a construction site results in damaged lumber, the framer’s builder’s risk policy may provide coverage for the loss. Similarly, if vandals destroy newly installed wiring on a house during its construction, the electrician’s builder’s risk insurance should cover the cost to replace damaged wire and reinstall it in the house.
Although a construction contract may purport to allocate risk among the contracting parties, assessing fault and procuring payment often is difficult and time-consuming. Builder’s risk coverage may provide a way around these difficulties.
The insurance coverage attorneys at Payne & Fears have years of experience representing insurance policyholders in the real estate and construction industry. We are familiar with the nuances of builder’s risk coverage and are skilled in guiding clients as they navigate these nuances.