Builder’s risk insurance is a form of property insurance designed to cover property damage or loss during the construction phase of a project. It is a critical safeguard that protects the project owner from unexpected liabilities and financial setbacks such as fire, wind, theft, vandalism, etc. Builder’s risk will also cover the general contractor and subcontractors involved in the project.

There are many assumptions that occur in the investor proforma analysis that can cause property damage and resultant project delays. Builder’s risk insurance is designed to shoulder the financial burden resulting from such incidents.

The advantages of the owner purchasing the builder’s risk policy compared to the general contractor are:

  • Loan covenants are between the owner and the lender, NOT the general contractor.
  • General contractor’s programs may exclude Loss of Business Income coverage as they do not have an estimate of income or an insurable interest.
  • As the first named insured, the owner will control the reporting, adjustment and settlement of any claims which is of critical concern to delay in start-up/business income loss.
  • Avoidance of sharing sensitive financial details (i.e. loan financing terms, rents/income, etc.) should delay coverage be triggered and owner is a named insured on the general contractor’s policy.

Builder’s risk insurance policies are based on unique exposures, allowing coverage to respond to risks presented during a project. Ensure you work with a broker who can prepare your submission to the marketplace, minimizing your risk.

For more information on builder’s risk policies, contact a Marsh McLennan Agency (MMA) advisor.

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