What Is Not Covered by Builders Risk Insurance?

March 2019
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Offering protection for your investment during construction, builders risk insurance is designed to help cover losses incurred on a build while it’s still in progress.

Covering everything from vandalism and theft to fire and severe weather events, builders risk insurance can help you pay for:

  • Structural damage on completed work
  • Materials, equipment, and supplied stored on site
  • Temporary structures used in construction
  • Materials, equipment, and supplies stored off-site

While builders risk insurance is quite comprehensive, it isn’t all-encompassing.

Learn what isn’t covered under a builders risk policy and be sure that your contractor business is protected with additional necessary coverages.

What’s Not Covered by Builders Risk Insurance

Flooding and Earthquakes

Builders risk policies typically come in one of two forms: all-risk or named peril. All-risk policies cover just about everything you can think of, with a few exclusions. Named peril policies cover only the perils listed on the policy.

Some of the perils included in a builders risk policy include:

  • Lighting
  • Hail
  • Heavy Rains
  • Windstorms
  • Fire

But not every disaster is covered.

Earthquakes and flooding could be exceptions on your builders risk policy.

Most builders risk policies include an exception for losses that are more appropriately covered under other insurance policies. And flood and earthquake losses are almost always covered by separate flood and earthquake policies.

For example, if you’re working near the Northern California’s Bay Area, you’ve probably got earthquake coverage in place. Likewise, if your build is located in an area prone to flooding, it’s likely you’re covered with flood insurance.

Talk to your insurer and be sure that you understand what coverage you have in place, and which policy is most appropriate to cover losses from specific situations.

Employee Theft

You like your crew. They work hard for you and they always have your back.

But your business could be slowly losing a lot of money if it turns out that one of them has sticky fingers.

And builders risk doesn’t cover that.

Most builders risk policies include theft and vandalism coverages, but those only apply to losses incurred due to a third-party. Anybody listed on your policy – you, your employees, or a subcontractor – are not third-party.

To avoid having to pay out of pocket for theft losses, be sure that you have a solid screening process in place when hiring new employees. Know that the people working for you are qualified and be sure to run background checks on potential new employees.

Your Truck

Builders risk may cover your tools and equipment while they’re in transit, but it doesn’t cover the vehicle they’re being transported in.

To be sure that you’re covered if you – or an employee – are in an accident while driving for work, commercial auto insurance is a must.

Have a personal auto insurance policy on your vehicle? That won’t cut it.

If you or an employee are driving a vehicle for work purposes, it is likely that a personal auto insurance claim will be denied. Avoid paying out of pocket for losses incurred in a traffic accident by being sure that you have a commercial auto insurance policy in place.

Faulty Workmanship

Nearly every builders risk policy includes an exception for faulty design, materials, and workmanship.

But what happens when faulty materials or workmanship result in larger losses during the course of construction?

If faulty electrical materials cause a fire that destroys a significant portion of the project, a builders risk policy will typically not cover the costs to replace and re-install those faulty electrical materials.

But it will cover the cost to repair and replace other losses that resulted from that faulty material. So if you need to re-frame a portion of a building or repair a section of roof that was damaged in the resulting fire, that loss should be covered.

Faulty design, materials, and workmanship claims are typically covered with a contractor professional liability policy. Talk to your insurance provider to see if professional liability coverage makes sense for your business.

Man-Made Events

There are certain extreme man-made events that are usually listed as an exception on builders risk policies, which include:

  • Acts of terror
  • Acts of war
  • Nuclear accidents

Due to the high cost associated with these types of damages, you won’t be covered for them.

If you have some reason to believe that your project is at risk from this kind of damage, talk to your insurer about possible additional specialized coverage that can help you, should one of these extreme occurrences affect your build.

Protect yourself from being responsible for costs if an accident happens. The total can add up quickly and drain your account of the funds necessary to keep business moving forward.

Be sure that you know your builders risk policy, inside and out, and that you talk to your insurer about additional supplemental coverages that can protect you against unforeseen accidents during a build.

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