A builder’s risk insurance policy is at the center of nearly every construction project. Yet, many contractors and property owners only learn what it actually covers after a loss has already occurred.
Many believe builder’s risk insurance coverage works like a blanket safety net that pays out for anything that goes wrong on a job site. In fact, most policies are built around a specific list of covered causes of loss and an equally specific list of exclusions that can catch people off guard when a claim is filed.
This guide breaks down what a standard builder’s risk policy typically pays for, what it usually leaves out, and the misconceptions that can create expensive gaps in protection for contractors and owners alike.
What Builder’s Risk Insurance Coverage Typically Includes
Builder’s risk insurance is a form of property insurance written for buildings while they’re under construction or undergoing major renovation. According to the International Risk Management Institute, there’s no single standard builder’s risk form, since most policies are written on inland marine forms rather than commercial property forms, and coverage applies on an “all risks” basis.
This structure is why builder’s risk insurance coverage tends to be broad, and any direct physical loss is covered unless a specific exclusion says otherwise.
For a typical residential or commercial project, builder’s risk insurance coverage usually applies to:
- Fire, lightning, and smoke damage to the structure or materials
- Theft and vandalism of building materials, fixtures, or equipment stored on site
- Wind and hail damage during the course of construction
- Explosion and impact from vehicles or aircraft
- Materials in transit to the job site or held at an off-site storage location
Coverage isn’t fixed at a single dollar figure for the whole term. Since a building under construction has increasing value as work progresses, a replacement cost policy pays out based on how much of the building was actually complete at the time of loss. Some policies use a reporting form instead, updating insured value monthly.
What Builder’s Risk Insurance Coverage Typically Excludes
The exclusions section of a builder’s risk policy is where most of the confusion and expensive surprises tend to show up.
Faulty Workmanship and Design Errors
Builder’s risk policies generally won’t cover the underlying costs of poor workmanship, design errors, or defective materials. If a subcontractor installs something incorrectly and it has to be redone, the cost of the correction typically isn’t covered. Some policies include an “ensuing loss” provision covering additional damage the faulty work caused, though the faulty work itself stays excluded.
Equipment Breakdown and Mechanical Failure
A mechanical failure, like a crane breaking down on its own, generally falls outside builder’s risk insurance coverage unless caused by a separately covered peril. That coverage is usually its own endorsement, not something bundled into builder’s risk.
Certain Natural Events Require Separate Coverage
Floods and earthquakes are two of the most commonly excluded perils in builder’s risk policies. The International Risk Management Institute’s explainer on “acts of God” in builders’ risk coverage notes that many policy endorsements specifically exclude losses from earthquakes, floods, and windstorms, even under a broad all-risk form.
Flood coverage usually has to be purchased separately, often through the National Flood Insurance Program, which the Federal Emergency Management Agency administers for participating communities. Skipping this step can leave a project uninsured against one of the most damaging risks.
Where Misconceptions Create Coverage Gaps
A few assumptions come up again and again, and they’re usually why a claim is denied or only partially paid.
One is treating builder’s risk insurance coverage as if it also includes liability protection. It doesn’t. Builder’s risk only covers physical damage to the project itself. Injuries to workers or third parties fall under general liability or workers’ compensation instead, and workers’ comp requirements vary by state.
Another involves timing. Builder’s risk insurance coverage applies only during active construction. Once a project reaches substantial completion or occupancy, the policy typically ends, and the building needs to switch to a standard commercial property policy. A stalled project without an extension can leave a gap right when the building is most valuable.
A third is assuming every builder’s risk policy works the same. Since there’s no standard industry form, one insurer’s exclusions can look very different from another’s, so reading the actual policy language is the only reliable way to know what’s covered.
Get Builder’s Risk Insurance Coverage Clarity with Burton & Company
Knowing what your policy covers before construction starts is a lot less stressful than finding out during a claim. Burton & Company has spent more than a century helping Virginia contractors and property owners sort through what a builder’s risk policy includes and where the gaps tend to hide.
We can flag the exclusions that matter most for your build and help you decide where added coverage makes sense. If you’re planning a project in Virginia and want a clear picture of your builder’s risk insurance coverage before you sign anything, reach out to Burton & Company online or call (888) 652-1046 to talk it through.
