When you’re breaking ground on a new construction project, you know that your builders risk insurance has your back. They don’t call it “all-risk” coverage for nothing… there’s a pretty good chance your policy can cover almost any accident that may arise while you’re working on your project.
A windstorm causes the project to collapse? Covered.
A fire from the neighboring property spreads to your construction site? Covered.
Some kids sneak in and steal your tools? Covered.
However, just because this policy is broad doesn’t mean it covers absolutely everything. Every insurance policy has limits. It’s important to be familiar with the specifics of your builders risk coverage, and to know what is and isn’t covered.
Your builders risk policy may cover a lot, but you may be surprised to learn the following things may still leave you exposed.
#1: Your Tools and Equipment
We know what you’re thinking- didn’t we just say that builders risk insurance covers your tools?
Well, they may or may not be covered. It’s important to know how your tools are protected under this policy so you know what gaps you might have in your coverage.
Every builders risk insurance policy is different. Tools and equipment are one exception that can vary enormously from policy to policy. Most builders risk policies cover your tools and equipment while they’re on the job site or in transit.
However, some policies might not include expensive equipment such as bulldozers or ditch diggers. Others might not cover tools and equipment at all. Furthermore, while your equipment may be covered, the equipment belonging to your subcontractors might not be.
Read through your policy carefully so you know which of your equipment is covered. If your tools aren’t covered, you may need to add an additional equipment floater to your coverage, such as inland marine insurance.
#2: Flawed Workmanship
Builders risk insurance is designed to cover accidents.
But what happens if an accident on the project site is your fault? Depending on your policy, if you or one of the other insured parties are found to be at-fault for an incident, builders risk might not cover it.
Picture this:
You come to work one morning to find that an entire section of the home you were constructing has collapsed. Upon further inspection, it turns out that there was a miscalculation. The support beams you were using weren’t strong enough to support that kind of weight.
While most builders risk policies cover incidents such as collapse when they’re accidental, this collapse would be due to a design error. And there’s a chance your policy may not cover it.
In the event of claims related to faulty workmanship, it’s important to know what your contractor insurance policies cover, and what they don’t. If your builders risk policy includes a faulty workmanship exclusion, you may need additional insurance coverage to protect you from this specific risk.
For many contractors, the best answer to this situation is adding a Faulty Workmanship endorsem*nt to your general liability policy to cover third-party property damage arising from your work.
#3: Employee Theft
Employee theft is another frequent exception to builders risk policies. Most builders risk policies cover incidents such as theft and vandalism. However, it’s important to remember that your policy typically only protects you if the theft or vandalism is caused by a third party.
Imagine this:
You’ve hired a new guy, and while you don’t know him well, he does good work. As time wears on, however, things start to go missing. Hammers, building materials, maybe an expensive power saw. You suspect he might have something to do with it, but your insurance covers theft, right?
Not always.
If you, one of your employees, or another party insured under your policy is the source of the loss, your insurance policy may not be able to cover it.
The best way to prevent loss due to employee theft or vandalism is to make sure you only hire qualified employees and subcontractors, and run background checks on the people you hire.
#4:Your Vehicle
While your builders risk insurance may cover your tools and equipment while they’re in transit, it probably won’t cover your work vehicle.
If one of your employees gets in an accident on the way to the job site while driving a company vehicle, or you accidentally back your work truck into a concrete support beam and dent it, you’ll need additional coverage to make sure you don’t suffer a financial loss.
Don’t forget to add a commercial auto policy to your contractor insurance.
#5: Soft Costs
When you purchase your builders risk insurance, you’ll want to read through your policy carefully to see if soft costs are included.
A soft cost is money you lose during the time it takes to move forward with your project after an accident. Soft costs may include:
- Insurance premiums
- Legal fees
- Construction loan interest
- Equipment rentals
Some policies will include soft costs, and some might not. If you discover that your builders risk insurance doesn’t cover soft costs, consult with your insurance agent about adding supplemental coverage.
#6: Earthquakes and Flooding
Builders risk insurance is designed to protect your project from accidents that are out of your control. This includes third-party damage and natural damage from disasters such as:
- Fire
- Lightning
- Windstorms
However, it doesn’t always cover every disaster. Earthquakes and floods are frequently listed as exceptions on most builders risk policies.
If you know you’re working in an area where you have a high risk of a particular type of disaster, you may need to add supplemental coverage to your builders risk policy to cover it. If you work in San Francisco, earthquake coverage is a must. If you’re in a floodplain, you need flood insurance.
Read through your policy, and if these disasters aren’t included, ask your insurance company about adding supplemental earthquake or flood insurance to your policy.
#7: Nuclear Accidents
Finally, extreme man-made events are frequently listed as exceptions on builders risk policies.
This includes incidents such as:
- Nuclear accidents
- Acts of war
- Acts of terror
The damage caused from these events is frequently very expensive, so your insurance company may not be able to cover it.
If you are working on a high-profile construction project and have reason to believe that these events may be risks for your project, look into specialized insurance to supplement your coverage.
Every insurance policy is different. It’s important to read through yours, especially the exceptions, to make sure you understand which risks are covered and which aren’t.
If an accident happens that your policy doesn’t cover, the costs can add up quickly. Reading through your policy carefully before you buy it, and making sure you have any supplemental coverage you might need, is the best way to make sure you’re adequately insured.
