Builder's Risk Insurance: Do Property Owners or Contractors Buy It?

builder’s risk insurance

Let us start from the beginning, builder’s risk insurance covers damages done to your equipment or tools on the construction site when the construction project is still ongoing. Think of builder’s risk insurance as protecting your property, which can be damaged by fire, vandalism, on-site theft, hail, an explosion at any time.

insurable interest

Insurable interest, the basis of insurance policies, should be the first thing to be decided on. It is the legal concept that an insured (first named insured and any other insured) on a property insurance policy must have a financial interest in an object (building) and will succumb to a degree of a financial loss if the object is damaged or destroyed.

There may be one or more parties named insured depending on the construction project. The parties involved are the property owner, the general contractor (if the property owner does not act as the general contractor) and any subcontractor(s) hired. The various parties involved in the building construction will depend on the construction contract.

There is no doubt the property owner will have an insurable interest throughout the construction project. If any accident were to happen on-site, the first party that will be responsible for it will be the property owner.

new commercial building construction

Here is an example of a new construction project and the parties involved:

Company ABC is working on a new construction project, to build a commercial building. They are the property owner/developer. Company XYZ has taken on this project as a general contractor, overseeing the work progress, and is accountable for completing the project within a year. This makes Company XYZ responsible for hiring interior designers, architects, ensuring there is electricity in the building, installing the elevators, and everything that ensures the building is ready to go within the construction project deadline. They are known as the subcontractors of the construction project.

who is responsible for purchasing builder’s risk insurance?

If there is a fire that damaged half of the unfinished building, the owner is responsible for the loss. They will have to face the consequences and the high cost of the damage. Legal fees, architectural fees, financing fees, and more.

That will mean that the property owner should be responsible for purchasing builder’s risk insurance. Unless the property owner does not opt to get protection, which is not recommended.

Not necessarily.

The property owner can purchase the builder’s risk insurance itself or enter into a construction agreement with the general contractor. This will mean that the general contractor is responsible for the placement of the policy.

conclusion

It is all about who is taking on the risk. The property owner should purchase builder’s risk insurance, but the general contractor can also purchase it depending on the construction contract.

In addition to that, property owners should also purchase Owners Interest Policy which serves as a general liability for themselves. It is to protect themselves if anyone gets hurt and decides to sue the property owner during the construction. An example would be a passerby who hurt his or her arm badly because he/she tripped and fell on the pavement that the construction workers are working on. The passerby then decides to sue the property owner for the damage done to his/her body. This is a situation nobody wants to be in so it is crucial to have an insurance policy that can help the property owner out of it.

Does this make sense? If you have any further questions, please do not hesitate to reach out to us! This is within our expertise and we have a team of experts to ensure you have a full understanding of builder’s risk insurance. You may submit your questions through the form below or call us at (718) 886 6601.