This morning, downtown Los Angeles is on a massive fire.
The apartment tower that was under construction is burnt down to ashes. Other buildings surrounding it are heavily damaged.
When the fire department is finished, who is going to pay for damages?
First, the damage to the building under construction worth at least the cost of all the materials that are now gone. These are tens of thousands of dollars that the building owner has lost, UNLESS he had Builders Risk Policy in place. Builders risk policy, which is sometimes called Course of Construction policy will pay for the cost of materials lost due to the fire.
Second, what about the neighbor buildings that are damaged too? What if there are people injured (hopefully not)? This is the liability of the apartment building owner which could be tens of thousands of dollar too, UNLESS he had Owners and Contractor’s Protective liability Policy. This is a liability policy which pays for property damage (buildings burnt, roads and street lights damaged) and bodily injury (people injured or dead) that results because of owner-builder’s liability during the construction.
Hopefully LA apartment building owner had both policies in place with adequate limits.
Also, hopefully nobody is injured.
Builder’s Risk Insurance
A Course of Construction Insurance policy, or “Builder’s Risk” policy, is designed to provide coverage for buildings while under construction. It covers the value of the property being constructed until it’s either moved into, or ready for occupancy, the Contractor’s value in materials at the job site before being installed and materials in transit intended for the job. The policy may be written to cover the whole structure for new construction or for rehab projects. It can also be used to cover a specific project such as a room addition, a kitchen remodel or a new deck.
What’s Typically Covered
A Course of Construction, (Builder’s Risk) policy is a form of Inland Marine insurance. The basic perils such as fire, wind storm, lightning, hail, theft and vandalism are common. Limited coverage may be provided for structural collapse during construction.
Standard Exclusions
Earth movement, employee theft, “mysterious disappearance,” (loss without any proof), water damage, weather damage to property in the open, war, government action, contract penalty, voluntary parting and mechanical breakdown, aircraft, watercraft or automobiles.
Liability is Not Covered
Builders’ Risk insurance does not include coverage for Bodily Injury or Property Damage of others. Ask your Broker about how your General Liability insurance could protect you during construction.
What’s Typically Not Covered
Debris removal, mold, terrorism, and damage by insects or vermin, damage resulting from faulty design, planning, workmanship and materials, plants, trees or shrubs.
All Risk
Ask your broker about an All Risk policy. All Risk policies typically don’t exclude coverage for; fire, theft, vandalism, explosion, water damage, testing, mechanical or electrical breakdown and collapse.
Time Element / “Soft Costs” Coverage
Soft Costs are those expenses for the building process that are other than materials. Including reimbursement for losses caused by a delay in completion on opening of the project. Things like; real estate taxes, interest, consulting fees, legal, accounting and advertising and/or marketing, equipment rental, overhead, insurance, refinance charges and architectural & engineering expenses.
Claims
Claims are settled on an Actual Cash Value basis for Builder’s Risk losses.
Who it Covers
The Named Insured of a Builder’s Risk policy is usually the Contractor or Developer of the property. However, it could be that the building owner or homeowner is the Named Insured, if they are responsible for insuring the property while under construction. Just as you’d expect with a Property Insurance policy, a mortgagee or lien holder may be added as an additional insured.
Always ask your Broker about what’s covered on your specific policy, as this article is intended to give you a basic overview of what a Builder’s Risk, “Course of Construction” policy is about.