Builder's Risk Insurance: Do Property Owners or Contractors Buy It?
Builder’s Risk Insurance
Let us begin with the basics. Builder’s risk insurance protects your equipment and tools on a construction site. This coverage is in effect while the project is ongoing. Consider builder’s risk insurance as a safeguard for your property. It covers damages caused by fire, vandalism, theft, hail, or even an explosion at any time.
Insurable Interest
Insurable interest, the basis of insurance policies, should be the first thing to be decided on. The legal concept requires that an insured person must have a financial interest in a property. This includes the first-named insured and any other individuals involved. This means they will experience some financial loss if the property, such as a building, is damaged or destroyed.
In a construction project, there may be one or more parties named as insured. These parties usually consist of the property owner and the general contractor. If the property owner is also the general contractor, they will be included as well. Additionally, any subcontractors that have been hired are part of this group. The specific parties involved will vary based on the construction contract.
There is no doubt that 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 assumed the role of general contractor for this project. They oversee the work progress and are responsible for completing it within a year. This means Company XYZ must hire interior designers and architects. They also ensure the building has electricity and that elevators are installed. Their goal is to make sure everything is ready by the construction 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 damages 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 opts to get protection, which is not recommended.
Not necessarily.
The property owner has two options. They can either purchase the builder’s risk insurance directly. Alternatively, they can sign 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 essential to understand who assumes the risk in construction projects. Typically, the property owner should obtain builder’s risk insurance. However, the general contractor may also choose to purchase this insurance, depending on the terms of the construction contract.
Moreover, property owners should secure an Owners’ Interest Policy. This policy acts as a form of general liability insurance for the owner. It protects them in case someone is injured and decides to sue during the construction process.
For instance, consider a passerby who injures their arm after tripping on the pavement where construction workers are active. If this individual chooses to sue the property owner for their injury, it creates a challenging situation. Therefore, having an insurance policy in place is crucial for property owners to navigate such potential issues effectively.
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.