There is a major construction site near my convenience store stop in the morning, so I am stuck thinking about builder’s risk these days. What makes matters worse is the various problems they seem to have. They have run the gambit of OSHA violations, municipal violations, union accusations, theft of equipment, and problems with subcontractors.
I have reviewed all of my books to make sure I am not insuring anything similar. Here is a short synopsis of what I know:
The builder’s risk policy and contractor’s actual commercial general liability (CGL) policy are two separate policies. Builder’s risk only covers property – there is no liability involved. If the employees decide to drag race the front loader and the compaction roller and they end up injuring themselves or some innocent bystander, the builder’s risk policy will not pay out for any negligence or injury.
In fact, there is an ‘other insurance’ clause on both the CGL and builder’s risk policies. In relation to job completion, the builder’s risk policy generally runs three, six or twelve months and/or completion of the job. If there is a loss after job completion and the adjuster shows up to find the job is now completed and is inhabited, the claim most likely will be denied.
No matter the size of the job, always ask if they are going to use subcontractors. The builder might hire an HVAC guy or a roofing guy to complete the job. That contact may require the subcontractor to be listed as additional insured on the builder’s risk policy.
Make sure you advise them to call you if they hire anyone midstream so you can add them onto the policy.
There are carriers that are touché about additional insureds and extending liability, so have some contractual proof in your back pocket.
I have a client who fixes up old homes and flips them. After a couple of years doing that he decided he would buy an overgrown lot and build a house. When he had his guys clearing the property they uncovered a small lean-to in the brush. Since the structure was somewhat sound, he decided to refurbish it and make it part of the property. Two months into the job, the structure was destroyed by a heavy windstorm. This was not covered.
It was no great loss to him, he did not put in a claim; however, he did ask and we discussed the property more fully. Some policies do allow you to endorse this coverage onto the policy, so check with the carrier to see if you run into this.
Code and Ordinance/Cost Increase
If you have written builder’s risk you know contractors often opt to decline this coverage. The rationalization being it will save premium.
Granted it may be cheaper; however, if there is a loss of the site, the municipality is going to come in and tweak their first assessment which in turn is going to cost more and/or may require additional equipment, subcontractors, and manpower.
Further, most of the larger projects are going to be twelve-month policies and may need that extension. If we are talking a year into the job and there is a loss, the contractor should be aware, prices may be higher than they were a year ago when he first started. So, discuss this option with them as well.
The only other place I talk extensively with the insured is if they have replacement cost or ACV coverage. There are two different types. Make sure you are clear with the carrier which one you are writing.
I also like to casually visit and/or drive by to see what is going on there. Builder’s risk is an awesome way to get your feet wet in the inland marine spectrum of insurance. The skills you learn and develop here will help with writing the larger commercial policies.
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