Industry Deep-Dive · 12 min read

Builder's Risk Insurance: A Practical Construction Guide

Builder's risk is temporary property insurance for a structure while it is being built or renovated. It can cover direct physical loss to covered work, materials, and sometimes temporary works, but only when the cause of loss, property, location, and project phase fall within the actual policy. The owner, general contractor, and lender should assign responsibility in writing and bind coverage before construction starts.

About the author

Reza Azar · Senior Insurance Broker · OnePark Risk

What builder's risk is—and is not

Builder's risk is a first-party property policy, not liability insurance and not a performance guarantee. A covered loss may include damage to work in place or covered materials caused by fire, wind, theft, or another covered peril, depending on whether the form is named-peril or special-form and on its exclusions. ISO's Builders Risk Coverage Form describes the covered property as the building or structure described in the Declarations while in the course of construction, including foundations, fixtures and machinery, equipment used to service the building, and the insured's materials and supplies intended to become a permanent part of it, in or on the building or within 100 feet of the premises (CP 00 20 06 95); many builders risk policies are written on independently filed rather than ISO forms, so the issued form must be read (IRMI, Builders Risk Insurance: Is It Always Necessary?, 2012). General liability instead addresses covered third-party injury or property-damage claims. A construction insurance program commonly needs both.

Who buys the policy

The construction contract should identify the buyer—often the owner or general contractor—and the parties to be included as named insureds or loss payees. Lenders may impose separate evidence and loss-payment requirements. A general contractor should not assume an owner's policy protects every tier: insured status, waiver-of-subrogation language, and contract wording must align. An owner that relies on its own commercial property form instead of a project policy should know that the newly-constructed-building extension carries a sublimit and a time limit such as 30 days, and that the contractor's and subcontractors' interests have to be added to that policy (IRMI, Builders Risk Insurance: Is It Always Necessary?, 2012). A certificate does not settle any of this: ACORD states that a certificate does not provide, endorse, amend, extend, or alter policy terms (ACORD, Certificates of Insurance FAQ).

Property and costs that may be covered

The building or renovation work in progress, subject to the declared project and valuation basis. On a renovation, the policy should insure both the existing structure and the new work; the ISO form describes only the building under construction (IRMI, Key Considerations When Buying Builders Risk Coverage, 2008; CP 00 20 06 95).
Materials and supplies at the site—on CP 00 20, the insured's materials intended to become a permanent part of the building while in or on it or within 100 feet of the premises (CP 00 20 06 95); off-site storage, in-transit materials, and key suppliers' facilities need to be specifically covered or there is no coverage for a resulting loss or delay (IRMI, Key Considerations, 2008).
Temporary structures, scaffolding, and forms only if not otherwise insured under CP 00 20 (CP 00 20 06 95); debris removal and expediting expense only when scheduled or included.
Soft costs—additional interest, fees, taxes, extended general conditions, and idled labor and equipment—are insured only to the extent a soft-costs endorsement lists them (IRMI, Key Considerations, 2008); delay in completion, rental value, and business interruption are time-element additions measured over a period of indemnity that should reflect the construction schedule and the post-opening lease-up or ramp-up period (IRMI, Building the Right Builders Risk Policy, 2011).

Perils, exclusions, and catastrophe terms

Forms vary materially. Flood and earth movement are commonly excluded or separately limited; faulty design, workmanship, or materials may be excluded even when ensuing covered damage is partly preserved. The FEMA Flood Map Service Center is an authoritative source for flood-hazard mapping, but a map does not determine policy coverage. Wind, named-storm, wildfire, water-damage, theft, and vacancy protections must be checked against the project location and form.

Set limits and duration from the contract

The limit should reflect the policy's required completed value—not merely land value, loan balance, or current spend—and account for covered labor, materials, and approved soft costs under the valuation clause. CP 00 20's Need for Adequate Insurance condition pays no greater share of a loss than the limit bears to the building's value on its completion date, the form values loss at actual cash value, and its loss-payment paragraph excludes the increased cost of complying with an ordinance or law (CP 00 20 06 95). Coverage normally ends on a policy-defined event: under the ISO form, when the policy expires or is cancelled, the property is accepted by the purchaser, the insured's interest ceases, construction is abandoned, or, unless the insurer agrees otherwise in writing, 90 days after construction is complete or 60 days after the building is occupied in whole or in part or put to its intended use (CP 00 20 06 95). Phased occupancy and testing can change protection, so extensions should be requested before the triggering event.

Claims and project controls

After damage, protect property, notify the carrier promptly, preserve evidence, separate damaged from undamaged work, and document labor, materials, schedules, photos, invoices, and change orders. Do not discard property or make permanent repairs before coordinating with the adjuster unless emergency action is needed to prevent further loss. Claim payment remains conditional on the form, deductible, valuation, limits, exclusions, and facts.

A preconstruction placement checklist

Provide contracts, plans, budget, schedule, site protections, occupancy status, and prior-loss information.
Resolve responsibility for deductibles, insured status, subrogation, testing, and existing structures; on a renovation the policy should insure both the existing structure and the new work (IRMI, Key Considerations, 2008).
Confirm transit, off-site storage, temporary works, ordinance or law, debris removal, and delay terms, keeping in mind that the unendorsed ISO form covers temporary structures only if not otherwise insured and excludes ordinance-or-law cost from loss payment (CP 00 20 06 95) and that off-site and in-transit property must be specifically covered (IRMI, Key Considerations, 2008).
Check catastrophe deductibles and exclusions using project-specific geography and engineering.
Use the construction application early enough for underwriting and lender review.

Is builder's risk legally required?

Usually it is contractually or lender required rather than universally mandated by statute. Rules and contract enforceability vary by state, so local counsel and the project documents should be consulted.

Does it cover an existing building during renovation?

Not automatically. Existing structures may be excluded, sublimited, or covered only when specifically declared and valued. ISO's CP 00 20 describes only the building under construction, which is why IRMI's buying guidance says a renovation policy should insure both the existing structure and the new work.

Does it cover contractor tools?

Usually not as ordinary builder's-risk property. Contractors' equipment or inland marine coverage is generally used, subject to its own form.

Does it cover faulty workmanship?

The defective work itself is often excluded. Some forms preserve certain ensuing damage, but wording varies and must be reviewed.

When should coverage begin?

Before materials arrive or work starts, based on the contract and policy trigger. A policy generally cannot insure a known loss retroactively.

Who receives a claim payment?

The policy's named insured, loss-payee, mortgagee, and loss-adjustment provisions control; the construction contract may also govern allocation.

Frequently asked questions