Builders Risk Insurance: Project-Specific Coverage Explained

A $12 million office renovation is 60% complete when a fire breaks out in the mechanical room. The fire destroys the newly installed HVAC system, damages the freshly poured concrete floors on three levels, and ruins $400,000 in materials stored on site. The building's existing property insurance policy covers the structure — but not the renovation work in progress. The general contractor's CGL policy covers third-party liability — but not damage to the contractor's own work or the owner's property under construction.

Neither policy covers the loss. The $4.2 million in damage to the renovation work falls into a coverage gap that exists between standard property insurance and standard liability insurance. This is the gap that Builders Risk insurance is designed to fill.

What Builders Risk Insurance Covers

Builders Risk — also called Course of Construction insurance — is a specialized property insurance policy that covers physical loss or damage to a building or structure during the course of construction, renovation, or rehabilitation. It is a temporary, project-specific policy that exists only for the duration of the construction period.

The Structure Under Construction

The primary coverage is the building or structure being constructed or renovated. For new construction, this covers the structure from the foundation up as it is built. For renovations, this covers the new work being performed on an existing structure. The covered value increases as construction progresses — a building that is 10% complete has less insurable value than one that is 90% complete. Most policies cover the full completed value of the project from day one.

Materials and Supplies

Building materials, fixtures, and supplies that are on site or in transit to the site. Lumber stored in the staging area, plumbing fixtures in the contractor's trailer, electrical panels delivered but not yet installed — all are covered. Some policies extend coverage to materials in temporary storage off site (a warehouse, for example) if they are designated for the insured project.

Equipment and Machinery

Permanent equipment that will become part of the completed structure. Elevators, HVAC systems, generators, fire suppression systems — once these items are delivered to the site and intended for permanent installation, they are covered under the Builders Risk policy. Note the distinction: permanent equipment (covered) versus contractor's tools and construction equipment (not covered — those are covered by the contractor's Inland Marine or equipment floater policy).

Soft Costs

Some Builders Risk policies include soft cost coverage for expenses that continue during a delay caused by a covered loss. These include:

• Loan interest — Construction loan payments that continue during the rebuilding period
• Architectural and engineering fees — Redesign or re-engineering required after a loss
• Permit fees — New permits required for rebuilding
• Legal and accounting fees — Professional costs related to the loss
• Real estate taxes — Property taxes accruing during the delay
• Lost rental income — Revenue the owner would have earned if the project had been completed on schedule

Soft costs coverage is typically an endorsement with a separate sub-limit. It is not included in the base policy. For large projects, soft costs can exceed the physical damage, making this endorsement essential.

Debris Removal

The cost to remove debris from a covered loss. After a fire, collapse, or windstorm, debris removal is a necessary precursor to rebuilding. Standard Builders Risk policies include debris removal coverage, though it may be subject to a sub-limit.

Who Purchases Builders Risk

The question of who purchases the Builders Risk policy is determined by the construction contract. There are two common arrangements, each with different implications for COI compliance.

Owner-Purchased (OCIP Model)

The property owner purchases the Builders Risk policy for the entire project. The policy names the owner as the insured and typically includes the general contractor and all subcontractors as additional named insureds or loss payees. This is common in large commercial construction projects, particularly those financed by institutional lenders.

Advantages of owner-purchased Builders Risk:

• Single policy, single premium — No duplication of coverage across multiple contractors
• Owner controls the coverage — The owner selects the carrier, limits, deductible, and coverage extensions
• Eliminates finger-pointing — One policy covers the entire project. After a loss, there is no dispute about whose policy should respond.
• Lender preference — Lenders typically prefer owner-purchased Builders Risk because the owner (and by extension the lender's collateral) is directly protected.

When the owner purchases Builders Risk, the general contractor is not required to provide separate Builders Risk coverage. However, the owner should provide the GC and subcontractors with evidence of the Builders Risk policy so they can confirm they are covered.

Contractor-Purchased

The general contractor purchases the Builders Risk policy, usually as required by the construction contract. The policy names the contractor as the insured and should include the owner as an additional named insured or loss payee. This arrangement is more common in smaller projects, renovations, and situations where the owner does not have the infrastructure to procure construction insurance.

When the contractor purchases Builders Risk, the policy should be verified on the contractor's COI — either on the ACORD 25 (in the Description of Operations or a property section) or, more commonly, on an ACORD 28 (Evidence of Commercial Property Insurance).

Named Perils vs. All-Risk (Special Form)

Builders Risk policies come in two coverage forms, and the difference is significant.

Named Perils

A named perils policy covers only the specific perils (causes of loss) listed in the policy. Common named perils include fire, lightning, windstorm, hail, explosion, smoke, vandalism, and vehicle impact. If the loss is caused by a peril not listed in the policy, there is no coverage.

Named perils policies are cheaper but leave gaps. A water pipe that bursts due to freezing (not a listed peril) causes $200,000 in damage to finished interior work — and the named perils Builders Risk policy does not cover it because "water damage from burst pipes" was not listed.

All-Risk (Special Form)

An all-risk policy — more accurately called "special form" — covers all causes of loss except those specifically excluded. The burden shifts: instead of the insured proving the loss was caused by a listed peril, the insurer must prove the loss falls under a specific exclusion.

Standard exclusions on an all-risk Builders Risk policy include:

• Earthquake (available by endorsement at additional premium)
• Flood (available by endorsement or separate NFIP policy)
• Employee theft (covered under crime/fidelity policies)
• Faulty workmanship (the defective work itself is not covered, but resulting damage to other property may be)
• Wear and tear / gradual deterioration
• War and terrorism (terrorism may be available by endorsement under TRIA)
• Government action (condemnation, seizure)

All-risk is the standard for commercial construction projects and is what most requirement sets mandate. If you accept a named perils Builders Risk policy, you are accepting a materially inferior coverage form with known gaps.

Coverage Period

Builders Risk is unique among insurance products because it has a defined start and end that corresponds to the construction project — not to an annual policy term.

Start of Coverage

Coverage typically begins on one of these triggers:

• The date materials are first delivered to the site
• The date construction work physically begins
• The policy inception date specified in the policy

The contract should specify which trigger applies. For renovation projects, coverage should begin when demolition or preparatory work starts — not when the "new" construction begins.

End of Coverage

Coverage ends at the earliest of:

• Certificate of Occupancy — When the local authority issues a CO or temporary CO, the building transitions from "under construction" to "occupied." Standard property insurance should take over at this point.
• The building is put to its intended use — If the owner begins occupying the building before a formal CO is issued, some policies terminate coverage at that point.
• The policy expiration date — Builders Risk policies have a stated expiration date. If construction takes longer than anticipated, the policy must be extended. A construction delay that pushes completion past the policy expiration date creates a coverage gap unless the policy is renewed.
• Abandonment — If the project is abandoned, coverage typically terminates after a specified period (60-90 days).

The Transition Gap

The most dangerous moment in the Builders Risk coverage timeline is the transition from Builders Risk to permanent property insurance. If the Builders Risk policy terminates at the CO date and the permanent property policy does not begin until the lease commencement date (which may be weeks or months later), there is a gap with no property coverage on a completed building.

Coordinate the Builders Risk termination date with the permanent property insurance inception date. There should be no gap — and ideally a brief overlap to ensure continuity.

How Builders Risk Relates to COI Requirements

Builders Risk interacts with the standard COI requirement set in several ways.

It Is Not a Substitute for CGL

Builders Risk covers property damage to the construction project itself. CGL covers third-party bodily injury and property damage caused by the insured's operations. A fire that damages the building under construction is a Builders Risk claim. A fire that injures a pedestrian walking past the construction site is a CGL claim. Both coverages are needed.

It Is Not a Substitute for Inland Marine

Builders Risk covers materials and permanent equipment destined for the project. It does not cover the contractor's owned tools, construction equipment (cranes, excavators, scaffolding), or temporary structures. Those items are covered by the contractor's Inland Marine or equipment floater policies.

Deductible Allocation

Builders Risk deductibles on large commercial projects can be substantial — $25,000, $50,000, $100,000 or more. The construction contract should specify who is responsible for the deductible in the event of a loss. If the owner purchases Builders Risk with a $50,000 deductible, and the loss is caused by a subcontractor's negligence, can the owner recover the deductible from the subcontractor? The contract language determines this.

Waiver of Subrogation

Builders Risk policies typically include a waiver of subrogation among all parties covered by the policy (owner, GC, subcontractors). This is critical because without it, the Builders Risk insurer could pay a claim and then subrogate against the subcontractor whose work caused the loss — defeating the purpose of having project-wide coverage.

ACORD 28 vs. ACORD 25

Builders Risk is a property coverage, not a liability coverage. The appropriate certificate form for property insurance is the ACORD 28 (Evidence of Commercial Property Insurance), not the ACORD 25 (Certificate of Liability Insurance).

The ACORD 28 provides:

• Property insurance carrier and policy number
• Policy period
• Covered property description and location
• Coverage form (named perils or special/all-risk)
• Deductible
• Covered perils and exclusions
• Loss payee and additional insured information

Some producers document Builders Risk in the Description of Operations section of the ACORD 25, particularly when the Builders Risk is packaged with the contractor's liability coverages. While this provides some evidence of coverage, the ACORD 28 is the proper form and provides substantially more detail.

When your requirements include Builders Risk, specify that you need an ACORD 28 (or equivalent evidence of property insurance) in addition to the ACORD 25 for liability coverages. Reviewing both forms together gives a complete picture of the contractor's insurance program.

Builders Risk Verification Checklist

When reviewing a Builders Risk certificate or ACORD 28, verify the following:

• Insured value — Does the coverage amount match the total project value (hard costs, and soft costs if applicable)?
• Coverage form — All-risk / special form, not named perils
• Project description — The correct project address and description
• Named insureds — Owner, GC, and subcontractors should be covered
• Policy period — Covers the full anticipated construction duration, with provisions for extension if needed
• Flood and earthquake — If the project is in a flood zone or seismic area, verify these endorsements are included
• Soft costs — If required, verify the sub-limit is adequate
• Deductible — Confirm the amount and who is responsible
• Waiver of subrogation — Among all insured parties
• Loss payee — The construction lender should be named as loss payee if applicable