What Is a Builders Risk Coverage Form?
A builders risk coverage form is an insurance policy that covers residential and commercial structures while they are under construction or being remodeled or renovated. The policy appears on a reporting or completed value form, as there is no standard form or contract to fill out.
Covered building components include foundations, fixtures, machinery, equipment used to service the building, building materials and supplies, and debris removal in the event of a loss. Most policies will not include land, landscaping, satellites or antennas, construction materials in transit, scaffolding, construction trailers, and theft of supplies from the job site. However, it may be possible to obtain additional coverage for excluded items at increased premiums.
A builders risk coverage form is also called a builders risk policy.
BREAKING DOWN Builders Risk Coverage Form
A builders risk coverage form will include hazards to the building structure, machinery, equipment, and materials and supplies, but it is unlikely to cover injuries or accidents on the job site.
Insurance agents may complete the policy using a reporting form, a completed value form, or an inland marine coverage form. Agents may writer builders risk coverage in two different ways. The first is a policy that covers specifically listed losses. The second is a policy that includes everything other than specifically excluded items. For an additional premium, policyholders may add some of the excluded items.
As with most insurance, the policy will not insure against acts of war, government seizure, and nuclear hazards. Also excluded are extreme weather events, earthquakes, floods, and mudslides.
The limit of coverage allowed is the value of the completed project. Purchasing of the policy must happen when the project is less than 30% complete and will list a level of completion when coverage automatically ends. Other events which will trigger an early end to coverage include:
- The owner takes possession of the property
- After a specific number of days of occupancy
- Abandonment of the project
- If the project is idle for 60 days
- When 90 days have passed since the completion of construction
Some providers may allow a policy to cover delays in construction if those delays are due to suffering an event of a covered casualty. Also, this type of policy often requires builders to have a minimum amount of experience.
Owner Purchase of Builders Risk Coverage Form
The named insured may be the property's contractor or a developer, but in most cases, it is the building owner or homeowner. It is considered best practice to have the policyholder be the owner of the property. If a loss occurs requiring a claim, the property owner will make a claim. The owner will reimburse the builder for damages. In theory, if a builder held the policy and filed a claim, they could abscond with the claim money, leaving the property owner at a loss.
In many cases, the items which fall under builders risk coverage also are part of a standard owner’s property insurance policy. Some property policies will limit the number of days an owner may vacate their home and still receive coverage. Renovations may also void the coverage depending on their extent.
Most insurance providers will not underwrite a building if it is not complete. In this case, a builders risk coverage form is the best insurance option.