Builders Risk Insurance in California

What builders risk insurance covers

IRMI defines builders risk as a property insurance policy designed to cover property in the course of construction. It is usually written on an all-risks basis, so a cause of loss is covered unless the policy names it as an exclusion, and it follows the property beyond the fence line: at the job site, in storage away from the site and in transit to it.

What builders risk covers on a working site is broader than the frame. A sample program described in Sonoma County’s contract insurance guide lists installed property, foundations and temporary structures such as scaffolding and forms, often under a sublimit of their own. The losses owners and builders plan for are fire, wind or a covered water event that damages a half-finished structure and the materials around it, and materials ruined on the truck or in an off-site yard. Theft of stored and installed materials deserves its own look: read how your form treats it before you count on it.

Course of construction insurance: the name on California contracts

California public agencies often call this coverage course of construction insurance. Sonoma County’s guide, for example, sets its requirements for real property in course of construction. When a public-entity contract asks you to carry course of construction coverage, it is asking for builders risk under its older name.

There is no single standard policy. The same Sonoma County guide notes that ISO’s builders risk form is seldom used and that each insurer’s own policy has to be reviewed, and IRMI says most builders risk is written on inland marine forms, the branch of property insurance our guide to inland marine insurance explains. Two policies with the same title can read very differently, so compare the wording rather than the name on the cover.

Who buys builders risk: the owner or the general contractor

The construction contract settles it. Under the AIA’s A201-2017 General Conditions, the owner buys the builders risk property insurance, pays the premiums and deductibles and adjusts claims with the insurers, according to a 2018 IRMI commentary on Section 11.2 and Exhibit A. Exhibit A calls for an all-risks, completed value or equivalent form that names the owner, contractor, subcontractors and sub-subcontractors as insureds. A contract can move the purchase to the general contractor instead, so read the insurance article before anyone binds a policy.

Whoever buys it, one policy for everyone on the job is the cleaner arrangement. The Sonoma County guide reports that most experts recommend a single builders risk policy covering the owner, the general contractor and all subcontractors, and that covered parties can include lenders. A201-2017 also sets the claim process: under Section 11.5.2 the owner tells the contractor how it proposes to settle a loss and divide the proceeds, and the contractor has 14 days to object. Our page on insurance for contractors covers the liability, auto and workers’ comp side of the same contract.

Setting the limit: completed value or reporting form

IRMI notes that builders risk can be written on a completed value or a reporting form basis, with the limit set at the project’s estimated completed value. A completed value form carries the finished value as the limit from the first day. A reporting form tracks value as work goes in place, based on the figures reported to the insurer during the job.

Either way, the number has to be right. Tell the insurer when change orders push the contract value higher, since a limit set at the bid price can fall short. Lender and public-entity contracts set their own requirements, so match the contract’s wording when you set it.

What builders risk insurance coverage leaves out

Exclusions vary by insurer, but a published sample shows the pattern. The California program described in the Sonoma County guide excludes delay or failure to meet the contract and the cost of correcting faulty workmanship, materials, construction or design, while still covering resulting damage. If a badly joined pipe floods a finished floor, redoing the pipe is the builder’s cost, while the ruined flooring is resulting damage.

Flood and earth movement are the other big gaps. For commercial builders risk in general, the guide says both are typically excluded but may be added by endorsement, usually with a sublimit and a higher deductible. Its own sample covers earth movement only at scheduled locations, with a deductible of 5% of values per unit and a minimum of $100,000. On a California job, ask for earthquake terms in writing early; our guide to earthquake, flood and wildfire questions covers the wider issue. Ask too whether interest, rent and permit costs from a covered delay can be added, since delay itself is excluded in that sample.

Two exposures sit on other policies altogether. The contractor’s own tools and machines are excluded property in the Sonoma County sample and belong on tools and equipment insurance, and injuries to people or damage to neighbors’ property belong on general liability.

When builders risk coverage starts and ends

Set the start date to the first material delivery or the first day of work, whichever comes first, since materials in storage and in transit are part of what the policy is buying.

The end date needs the closest reading. IRMI’s 2018 commentary explains that under A201-2017, at Substantial Completion the owner must keep the insurance in force, or replace it with property insurance for the full project value, until the correction-of-work period in Section 12.2.2 ends. The 2007 edition tied the duration to final payment instead. Compare the policy’s expiration and any occupancy or completion wording against the contract, and arrange the replacement property cover before the builders risk drops off.

Renovation and remodel projects vs new construction

A ground-up building is the simple case: everything on the site is new work. A remodel adds an existing structure to the picture. In A201-2017, existing structures are handled separately from the new work, and the owner bears any coinsurance penalty on them, according to the same IRMI commentary. An owner planning a remodel should confirm how the building’s own commercial property insurance and the builders risk on the project fit together before work starts, so a fire during the job does not fall between the two.

Requesting builders risk through Mithril1

We request builders risk and course of construction quotes for owners and contractors, and an insurer decides after it has reviewed the project, the site and the contract terms. Have ready the contract’s insurance article or Exhibit A, the estimated completed value, construction type, location and schedule, the parties to be insured, including any lender, and whether you need earthquake, flood or off-site storage limits.

If the same job also calls for a performance or payment bond, our page on contractor and surety bonds lists what a surety will ask for. Send us the project details and we will gather the remaining questions with you.

A few useful answers

Common questions

Who should buy builders risk insurance, the owner or the contractor?

The contract decides. A201-2017 puts the purchase on the owner by default, along with the premiums, deductibles and claim adjustment, but a contract can assign it to the general contractor.

Does builders risk insurance coverage include earthquake damage in California?

Not in most base policies. Earth movement and flood are typically excluded and can be added by endorsement, usually with a sublimit and a higher deductible, so ask for earthquake terms when you request quotes.

Will builders risk pay to redo faulty work?

The cost of correcting faulty workmanship, materials or design is commonly excluded. Damage that the faulty work causes to other parts of the project is often covered, as in the California sample program described by Sonoma County.

Are the contractor’s tools covered by builders risk?

No. Builders risk insures the project being built. Tools and machines need a contractor’s equipment floater, which is part of tools and equipment insurance.

Is course of construction insurance the same as builders risk?

Yes. California public agencies often use course of construction for the same coverage, so a contract that asks for one is asking for the other.

Can I get builders risk insurance through Mithril1?

It can, when an insurer accepts the project after reviewing its value, construction type, location and contract terms. We collect those details with you and request quotes from insurers that write builders risk for your kind of job.