Builders Risk Insurance: Who Needs It and What It Covers

Builders risk insurance covers buildings and structures while they are under construction, renovation, or fabrication, including the materials that will become a permanent part of the project, plus foundations, excavations, sitework, and temporary structures like scaffolding. It is typically purchased by the project owner or the general contractor, and it protects the insurable interests of multiple parties on the project. A standard commercial property policy is a poor fit for construction, which is exactly why this specialized inland marine policy exists.

Here's how builders risk actually works, based on the widely used AAIS Builders' Risk Coverage, Scheduled Jobsite Form, Comprehensive Form (IM 7050 07 20).

Builders Risk Insurance

Builders risk insurance covers buildings and structures while they are under construction, renovation, or fabrication, including materials that will become a permanent part of the project. It is typically purchased by the project owner or general contractor and protects the insurable interests of multiple parties on the project.

Who needs builders risk insurance?

Anyone with money at risk in a construction project: businesses building new buildings, adding on, or renovating existing structures. The policy is typically purchased by the project owner or the general contractor, responsibility for buying it is usually spelled out in the construction contract. Common contract forms (like the AIA A101 exhibit language) require the owner to maintain builders risk written on an "all-risks" completed value basis.

It's standard practice to include numerous parties as insureds, because the contract and lenders demand it:

• Project owner or developer
• General contractor
• Subcontractors of every tier
• Construction manager
• Mortgagees and lenders
• Architects, engineers, and material suppliers (sometimes, many insurers resist adding these, to preserve their right to subrogate against a party whose work or materials caused the loss)

Covering everyone on one policy streamlines claims: if a subcontractor's welding spark starts a fire, the builders risk policy repairs the damage instead of triggering years of finger-pointing among multiple insurers.

Why won't a commercial property policy work?

The standard Building and Personal Property Coverage Form (CP 00 10) was built for finished buildings, not projects whose value goes from near zero to millions over a year. The gaps are substantial:

What property does builders risk cover?

The policy covers two distinct categories at the described jobsite:

1. Property that becomes a permanent part of the project: buildings, structures, materials and supplies to be incorporated, plus foundations, excavations, grading, filling, permanent fencing, and other permanent fixtures.
2. Temporary works: scaffolding, construction forms, temporary fencing, and temporary structures. Include their value when setting the limit, and check the contract for who must insure them. Many policies apply a sublimit here.

Away from the site, IM 7050 07 20 gives $10,000 each for Temporary Storage Locations and Transit, but stored property must be specifically allocated to the covered project, and neither extension applies to scaffolding or other temporary works.

What perils are covered, and excluded?

Builders risk is written on an open perils basis: direct physical loss or damage is covered unless limited or excluded. The important exclusions include earth movement, flood, ordinance or law, defects and errors in design or workmanship, mechanical breakdown, and delay in completion. Two points matter in practice:

• Earthquake and flood are commonly required by construction contracts and can usually be added back by endorsement, typically with sublimits and higher deductibles.
• Faulty work isn't covered, but resulting damage often is. If a badly welded beam collapses and starts a fire, the beam itself is excluded, but the fire damage to other covered property is paid.

When does coverage begin and end?

Coverage applies while buildings or structures are in the course of construction, erection, or fabrication. The end date is where projects get burned. Unlike most policies, builders risk ends as soon as the first of these occurs:

• The policy expires or is cancelled
• The building is accepted by the purchaser
• Your insurable interest ceases
• You abandon construction with no intent to complete it
• The building has been completed for more than 90 days

There's one more trap.

Best practice is to write the policy for at least the full expected construction period, ideally with a cushion for delays, rather than an annual policy you plan to renew. Insurers can refuse to extend, or extend only at a much higher rate.

How are limits and valuation set?

Most single projects are written on a completed value basis: the limit equals the value of the finished project, and IM 7050 07 20 applies 100 percent coinsurance (though insurers often waive it, since they underwrite from your construction budget). Homebuilders with many similar projects often use a reporting form instead, one policy with a catastrophe limit and a per-project sublimit, with values reported periodically.

Losses under IM 7050 07 20 are valued at replacement cost, materials and labor to repair or replace, plus reasonable overhead and profit per the construction contracts. Keep the insurer informed of change orders and cost escalation so the limit keeps pace. Endorsements like the Contract Change Order Endorsement (IM 7975) can add limit automatically.

Does builders risk cover delays and lost income?

Not automatically. Except for a small Expediting Expenses supplemental coverage, the base policy excludes delay-related losses. Delay in completion coverage, added by endorsement or a companion coverage part, fills that gap, typically for the project owner's benefit:

• Rental Income: lost rents when a covered loss delays a leased project
• Income Coverage: lost net income and continuing expenses, similar to business income coverage on a property policy
• Additional Soft Costs: interest payments, realty taxes, lease expenses, and insurance premiums incurred because of the delay
• Additional Construction Expenses: added advertising, design fees, financing, and permit fees

A waiting period, shown on the Delay In Completion Schedule, typically applies before these coverages pay.

Builders risk vs. installation floater

Trade contractors, HVAC, plumbing, electrical, often carry an installation floater for the materials and equipment they install. Builders risk covers the whole project for multiple parties, while an installation floater covers one contractor's work and materials.

A trade contractor may technically be covered under the project's builders risk yet still be underprotected: they had no say in the limits, and the project deductible may be far more than they can absorb. Many trade jobs (replacing a water heater in an existing building, for instance) have no builders risk at all. Contractors should also review liability requirements, see our guides to general liability coverage and certificates of insurance, since project owners typically require both.

This guide is for educational purposes and summarizes standard ISO and AAIS policy language. Your policy's specific terms, conditions, and endorsements control. Talk to a licensed broker about your actual exposures.