This article originally appeared in the February 16, 2018 edition of Columbus Business First.
Understand Builders Risk Insurance
With the continued growth in central Ohio, new development and construction is playing a vital role in meeting the growing demands of the region. Construction projects are popping up all over the city, bringing new opportunities and risks to property owners, developers, general contractors and many subcontractors.
In any new construction project, builders risk insurance is an important yet often overlooked risk management tool and contractual obligation for both owners and contractors.
This type of coverage, sometimes referred to as “course of construction” insurance, protects buildings while they are under construction, including coverage for materials, fixtures and/or equipment.
While vital to protecting a project, securing builders risk insurance is often an afterthought for both owners and contractors. After a loss, such as fire or theft, both parties may find themselves asking “did we buy builders risk insurance?” or “who is responsible for the builders risk?” Many also assume that all builders risk policies are the same. The truth is each insurance company uses their own coverage forms so differences in coverage and exclusions can often occur. Because of this confusion and misconception, parties often end up with either no policy, or a policy that provides inadequate coverage for the project.
Here are three tips for property owners and contractors when looking for the right builders risk insurance:
Start with the Construction Contract
Begin with the understanding that what is important to the project owner by way of coverage may not be as crucial to the general contractor, and vice versa. It is important to remember that there is no one-size-fits-all coverage for builders risk insurance. The construction contract requirements are the starting point to determine proper coverage. It is important for owners and contractors to review coverage forms to craft a policy that best meets the needs of the project and terms of the contract.
Make sure the contract between the owner and general contractor states who is responsible for purchasing builders risk insurance. The contract should also state in detail the coverages to be provided. The responsible party will vary depending on the nature of the project. Once it is determined who is responsible for the builders risk, it is important to ensure all parties are covered (including the owner, general contractor, subcontractors and sub-subcontractors), as well as confirm there is understanding of the mutual benefit to all parties, including waivers of subrogation.
In this stage, parties should also discuss who is responsible for reporting claims and paying deductibles.
Consider Special Coverage
Many projects warrant more specialized coverage, such as Green Building/LEED certification expenses, coverage for mold, fungus, and bacteria, and coverage for mechanical breakdown and start-up testing. Additional considerations for soft costs, business interruption, loss of rental income and expediting expenses should be made to protect against financial loss in the event of a construction delay after a covered claim.
Once the decision is made about who is responsible for purchasing the builders risk policy, the other interested parties should confirm that coverage has been obtained. In addition to getting a certificate of insurance, it is recommended to request a copy of the builders risk policy.
Working with a specialized construction advisor can help owners and contractors get the right coverage for the right premium, specific to the type of building project. Like any insurance policy, understanding builders risk insurance and knowing what is needed before a loss will better protect owners, contractors and other parties involved.
Joe Urquhart, CPCU, CRIS
Becky Hrusovsky, CRIS, CISR
About Overmyer Hall Associates
Overmyer Hall Associates is one of the fastest growing agencies in the country, quickly becoming one of the largest property and casualty insurance agencies in Central Ohio. Recently awarded Columbus Business First "Fast 50" and "Best Places to Work" awards and Columbus CEO Magazine recognized it as the “Best Insurance Broker” in Columbus, Ohio. Overmyer Hall Associates provides clients with insurance and risk management, specializing in Commercial Insurance, Surety Bonds, and Home & Auto Insurance. www.oh-ins.com