9.4 Builders Risk Coverage Form
The Builders Risk Coverage Form provides property coverage for buildings or structures while they are under construction. This form is designed to insure construction-related property exposures before the building or structure is completed. Covered property may include:
- Foundations
- Fixtures and machinery
- Equipment used to service the building
- Building materials and supplies used in construction and owned by the insured
- Temporary structures, such as scaffolding, if they are not covered by other insurance
This coverage is important because buildings under construction face different risks than completed buildings, and standard commercial property coverage may not fully address those construction exposures.
To be covered under the Builders Risk Coverage Form, the property must be intended to become a permanent part of the described building or structure. Coverage may apply when the property is located:
- In the described building
- On the described building
- Within 100 feet of the described premises
This requirement helps ensure that the form covers property directly related to the construction project and not unrelated property located away from the construction site.
Certain property is not covered under the Builders Risk Coverage Form, even if it is located at the construction site. Property not covered includes:
- Land
- Lawns
- Trees, shrubs, and plants
- Outside antennas
- Signs that are not attached to buildings
These items are excluded because the Builders Risk Coverage Form is primarily intended to cover buildings or structures under construction and property that will become part of the completed building.
Coverage under the Builders Risk Coverage Form is determined by the attached Causes of Loss form. The Causes of Loss form identifies the covered perils, limitations, and exclusions that apply to the property insured under the Builders Risk Coverage Form. This means a loss must be caused by a covered cause of loss and must not be excluded or limited by the attached form.
Coverage Extensions
Building Materials and Supplies of Others
Coverage may be extended to apply to building materials and supplies owned by others while those materials and supplies are in the insured’s care, custody, or control. For this Coverage Extension to apply, the materials and supplies must be intended to become a permanent part of the building or structure under construction. The property must also be located in or on the described building or within 100 feet of the described premises. This extension is useful when the insured is responsible for construction materials or supplies that belong to another party but are being used as part of the insured construction project.
Unless a higher limit is shown in the Declarations, the most the insurer will pay under this Coverage Extension is $5,000. This limit applies to building materials and supplies owned by others when those materials and supplies are in the insured’s care, custody, or control and are intended to become a permanent part of the covered building or structure.
Sod, Trees, Shrubs, and Plants
This Coverage Extension applies to loss or damage to certain outdoor property, including sod, trees, shrubs, and plants. For coverage to apply, the loss must be caused by one of the following covered causes of loss:
- Fire
- Lightning
- Explosion
- Riot or civil commotion
- Aircraft
The most the insurer will pay under this extension is $1,000, including any related debris removal expense. A special sublimit also applies. The most the insurer will pay for any one tree, shrub, or plant is $250.
Policy Period
Builders Risk coverage begins on the effective date of the policy. If the insured becomes legally responsible for the property after the policy’s effective date, coverage begins at the time the insured assumes that legal responsibility. Coverage ends at the earliest of the following events:
- The policy expires or is canceled
- The covered property is accepted by a purchaser
- The insured’s interest in the property ends
- The insured abandons construction and does not intend to complete it
- 90 days pass after construction is completed
- 60 days pass after any covered building is partially or fully occupied or put to its intended use
These ending provisions are important because Builders Risk coverage is temporary. It is designed to protect property during construction, not after the building has been completed, occupied, or put into regular use.
Conditions
Many of the conditions that apply to the Building and Personal Property Coverage Form also apply to the Builders Risk Coverage Form. These conditions help explain how coverage is administered, how claims are handled, and what duties apply to both the insured and the insurer. Examples of conditions that may also apply include:
| Abandonment | Appraisal | Duties in the Event of Loss or Damage |
|---|---|---|
| Loss Payment | Recovered Property | Mortgage holders |
The Builders Risk Coverage Form does not include a Vacancy condition because buildings under construction are not considered vacant. This form also does not include a coinsurance requirement. As a result, the insured is not required to maintain insurance equal to a specified percentage of the property’s value in order to avoid a coinsurance penalty.
Valuation
Losses under the Builders Risk Coverage Form are settled on an actual cash value (ACV) basis. Actual cash value generally means the value of the property at the time of loss, taking depreciation into account. This means the insurer may reduce the amount payable based on the age, condition, and use of the damaged property.
Standard Builders Risk coverage is written on a Completed Value Form. This means the covered property must be insured for its full completed replacement value, even if the loss occurs before construction is finished. If the insured carries less insurance than the completed value of the project, the insurer will reduce the amount payable for a covered loss in proportion to the amount of underinsurance. After this reduction is applied, the deductible is subtracted from the penalized amount. This condition is important because Builders Risk coverage is based on the value of the project when completed, not the value of the partially completed construction at the time of loss.
Example
A building under construction suffers a covered loss of $50,000. The completed value of the building is determined to be $500,000, but the insured carried only $400,000 in insurance. Because the policy is written on a Completed Value Form, the insured should have carried insurance equal to the building’s full completed value. The amount of insurance carried is compared to the completed value:
$400,000 ÷ $500,000 = 0.80 This means the insured carried 80% of the required amount of insurance. The insurer applies this percentage to the amount of loss: 0.80 × $50,000 = $40,000 The policy would pay $40,000, minus any applicable deductible.
As an alternative to the Completed Value Form, the insured may add a Reporting Form Endorsement.
This endorsement allows the insured to begin the policy with a smaller amount of insurance and gradually increase the coverage as construction progresses. Instead of insuring the project for its full completed value at policy inception, the insured reports the project’s value on a monthly basis. The insurer uses these monthly reports to determine the amount of coverage available and to adjust the policy premium as the reported values change. Under this endorsement, the insurer will not pay more than the value most recently reported by the insured. For this reason, accurate and timely reporting is essential.
Under the Reporting Form Endorsement, the insured must report 100% of the property values with each required report. Accurate and timely reporting is important because the insurer uses these reported values to determine the amount of coverage available and to adjust the premium. If the insured reports late or reports less than the full value of the property, a penalty may apply if a loss occurs. This means the insured could receive less than the full amount of the covered loss if the required values were not properly reported.