Who Secures a Builder’s Risk Policy – the General Contractor or the Property Owner?
By Sara Bankert, Director of Small Business/BOP
For contractors, builder’s risk insurance provides protection from damages and delays while a project is under construction – covering losses to materials, supplies and equipment on the job site until the project is complete.
A common question when it comes to a builder’s risk policy is whether the general contractor (GC) is responsible for securing a policy, or if that task should fall on the property owner – and the answer depends on a number of key factors (in addition to the individual situation).
Common Examples
Typically, it is the property owner who purchases the builder’s risk insurance policy because, in the event of a loss, it is the owner who has the most at stake. This scenario is more common when an owner has no other buildings to insure and needs to cover the risk of financial loss from many common events that occur on a construction site such as fire, theft, vandalism, damages caused in transit and materials stored off site. In contrast, however, the property owner may decide to enter into a contract with the GC, making the contractor responsible for securing a builder’s risk policy.
Another example is when a property owner, for reasons of his or her own, decides to self-insure a new construction project or building renovation. In this case, the property owner may require that the GC take on the responsibility of securing builder’s risk insurance and listing the owner as an additional insured on the policy.
“While working out the details of a construction project, the GC and owner of the project will agree on who is responsible for purchasing the policy and make sure that all of the parties with a vested interest in the project are listed as insured on the coverage.”
- Contractor Hub
When there are multiple parties involved in a project, it’s not uncommon for the GC to secure the builder’s risk policy. In this situation, the GC acts as the primary insured and names the building owner, subcontractors, etc., as additional insureds on the contract. Certain parties involved in a project who aren’t at risk of financial losses (usually because they have been paid for their work upfront) often include suppliers and architects.
Conclusion
Regardless of whether the owner or the GC purchases the builder’s risk policy, best practices suggest adding all parties who have an insurable interest in the project on the policy as additional insureds. This includes building owners, contractors, subcontractors and engineers, as well as project designers.
Builder’s risk insurance policies will differ among carriers and various construction projects. You can help your construction clients better understand the ins and outs of these important insurance policies to ensure that the project and their financial interest is covered.
If you’re a retail insurance broker with construction industry clients, the experts at Builders & Tradesmen’s Insurance Services Inc. offer a contractor general liability program that’s backed by CNA, one of the largest U.S. commercial property and casualty insurance companies. As part of this program, we offer a Faulty Workmanship Coverage Endorsement that protects your clients against claims arising out of faulty workmanship, materials or products.
Additional source: International Risk Management Institute.
Looking to grow your book of small business clients? At BTIS, we have several small business preferred classes underwritten by multiple A-rated carriers. Our programs feature many different coverages to fit your clients’ individual needs.
For additional information, visit www.btisinc.com or call (877) 649-6682
