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5 reasons to brush up on builders risk coverage

April 16, 2019

Contractors might be surprised at how this coverage has evolved in recent years.

builders risk

By Megan Jameson, Midwest Construction Property Lead and
Patrick McBride, South Region Construction Property Manager

Contractors and developers are busy these days; sometimes too busy to stay up to date on trends in their insurance coverage. While they’ve been building, builders risk policies have been evolving in ways they should know. For example, who purchases the policy is no longer set in stone. Although contractors historically purchased builders risk, owners are now making the purchase more often and becoming savvier about buying the coverage.

New trends and changes regarding builders risk coverage have emerged in the construction industry. Are the following changes on your radar?

  1. Who purchases the policy can affect who is covered: Contractors should pay attention to specific sections of the policy, notably the Named Insured and Additional Insured components. It is important to understand who is responsible for purchasing builders risk coverage and what impact that has on coverage, terms and conditions, and claim payments with regard to the ability (or inability) to include all interested parties as additional insureds. A quality builders risk product will be broad regarding Additional Insured wording and include coverage for all parties with a financial interest in the project. Most importantly, the question "Is the contractor or owner responsible for procuring builders risk coverage?" should always have a clear answer through contractual agreement before the project breaks ground.
  2. Changes in the workforce pose challenges: The shortage of skilled workers can heighten risks of defects for contractors and developers. With this shortage in mind, builders risk insurance providers often have a wealth of best practice and training programs, as well as checklists for higher-risk tasks such as wet work and hot work. Contractors can check with their insurance provider to see if these programs are available. Taking advantage of these programs could help contractors develop inexperienced staff and ultimately bolster their reputation in the industry.
  3. Storms are increasing in intensity and frequency: While we’re noticing hurricanes impacting areas that normally wouldn’t experience them, and already hurricane-prone areas are seeing a greater and greater magnitude of storms, we’re also seeing that snowfall and heavy rainfall can cause significant damage in many parts of the country. Contractors should note whether their builders risk policy includes coverage for rain or snow-related damage.
  4. Technology can add efficiencies: Sensors and other technologies are being used on construction sites to help deter theft and detect problems such as water damage. Contractors are using drones to help monitor projects’ progress and any losses. Contractors and developers should talk to their insurance providers about how these technologies can help them manage their risks as well as their costs.
  5. Timing of policy purchase matters: Contractors or owners sometimes wait until the project is in progress to purchase a builders risk policy, which can make them vulnerable to uncovered losses early in construction. Delaying the purchase of this coverage until the project is underway may also mean an increase in cost. Purchasing before breaking ground delivers maximum protection and cost-effectiveness.

In the construction industry, builders risk coverage is no longer seen as just an add-on to other policies – it’s considered the backbone. Understanding the role builders risk plays in the contractual relationship between owner and contractor, and being aware of the way the policy has evolved, can help mitigate any confusion between owners and contractors on the job site.

The information in this publication was compiled from sources believed to be reliable for informational purposes only. All sample policies and procedures herein should serve as a guideline, which you can use to create your own policies and procedures. We trust that you will customize these samples to reflect your own operations and believe that these samples may serve as a helpful platform for this endeavor. Any and all information contained herein is not intended to constitute advice (particularly not legal advice). Accordingly, persons requiring advice should consult independent advisors when developing programs and policies. We do not guarantee the accuracy of this information or any results and further assume no liability in connection with this publication and sample policies and procedures, including any information, methods or safety suggestions contained herein. We undertake no obligation to publicly update or revise any of this information, whether to reflect new information, future developments, events or circumstances or otherwise. Moreover, Zurich reminds you that this cannot be assumed to contain every acceptable safety and compliance procedure or that additional procedures might not be appropriate under the circumstances. The subject matter of this publication is not tied to any specific insurance product nor will adopting these policies and procedures ensure coverage under any insurance policy.

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