In this resource, we answer some of the most common questions so you can learn more about how to make sure your vision is protected throughout the course of construction.
Nuts and Bolts
Q: What types of projects are appropriate for commercial builders risk insurance?
A: Commercial builders risk coverage is not just for small shops or offices. Common businesses and entities eligible to secure builders risk insurance include warehouses, wastewater treatment facilities, municipal buildings, institutional properties, stadiums, bus stations, and more. Commercial builders risk insurance can also provide coverage for the installation of light poles, benches and playground equipment at city parks, to name a few. Although apartment buildings and condominium buildings typically operate as residences, these structures are considered commercial properties when more than four units are involved. In addition, when the property under construction will be used for business and residential purposes, insurers may often consider it a commercial project.
Q: What kinds of clients can be covered by a builders risk insurance policy?
A: Agents are often surprised to learn that the client purchasing commercial builders risk insurance can be the builder, owner, municipality, retailer, or anyone else with an insurable interest. The policy can also be written in a name other than the contractor or the owner. For example, a school might want the builders risk policy to reflect the name of the school district or the specific school itself.
Q: What considerations should be made when securing a commercial builders risk insurance policy?
A: Not all builders risk policies are the same. The scope of coverage varies from provider to provider and there are important distinctions between policies even within the same provider. For example, some plans insured by carriers offer two options for policy issuance, which vary depending on project value, the scope of coverage needed, and the project term. Most carriers allow agents to issue a policy entirely online in minutes when risks do not exceed $10 million. To tailor the terms and coverage even further, agents can submit online and then work directly with underwriters who will manually review the risk and issue the policy when valued at up to $75 million. Contrary to a common misconception, clients who encounter delays can potentially extend the policy term. Other considerations include whether coverage can be issued for projects that are already underway and what type of policy limits are available. You all get coverage for the course of construction projects valued up to $75 million, with many optional coverages, and may even provide coverage for projects that have already started.
Coverage and Policy Options
Q: What payment options are available?
A: Payment options vary from provider to provider, so customers should fully understand available choices. As is the case with most commercial builders risk policies, most carriers offer direct billing, where the client is invoiced directly and responsible for submitting the premium payment(s). As an alternative, wholesale billing arrangements may be available, allowing the agent to submit premium payments on behalf of the client. The option to pay in installments is also commonly available.
Q: What policy types are available?
A: Commercial builders risk insurance can be purchased under a single policy form—designed for a single construction project—or under a reporting form policy. Reporting form policies allow the policyholder to cover more than one new construction project with the same insurance policy. Another option is installation builders risk coverage, which provides for the installation of materials, and equipment.
Q: Can flood and earthquake coverage be included?
A: Most commercial builders risk insurance policies exclude losses that result from floodwaters or earthquakes, but policyholders may be able to add an endorsement to ensure coverage for these common causes of loss. This added protection is subject to underwriter approval and may be available for the full policy limits or a sub-limit. Some commercial builders risk providers have limited capacity to offer coverage for flood and quake. Where coverage is available for a given risk, your agent must offer it as an option. Even if the commercial construction project is not in a designated flood zone, you could nevertheless sustain high losses if a flood or earthquake occurred.
Q: Is occupancy allowed?
A: With commercial construction projects, clients are typically motivated to begin using the constructed facilities as soon as they can do so. When a commercial builders risk policy includes an occupancy clause, clients may be able to use the portion(s) of the structure that are completed while construction on other sections is still underway. For example, a client building a strip mall may want to allow one tenant to begin operations as soon as their space is ready, even if the rest of the mall has yet to be completed. Check to make sure your policy includes a 90-day occupancy clause, or at the minimum a 60-day occupancy clause. Additional days can be extended with underwriter approval, and the occupancy endorsement can be added to the policy after it is already in effect.
Q: What additional coverages can be added to the policy?
A: As with any type of insurance, it is important to tailor coverage to meet your specific needs. A variety of optional endorsements are available for commercial builders risk policies, including business income and extra expense, soft cost coverage, water intrusion, and more. To get a complete list of these robust coverage options for our single project and reporting form policies, reach out to your insurance agent.
Misconceptions
Q: Are protective safeguard warranties, such as 24-hour surveillance, fencing, and fire extinguishers required?
A: In most cases, the Builders Risk Plan does not require a protective safeguard warranty. However, some insurance companies do include protection warranties in their policy forms, requiring policyholders to take actions that can lower or mitigate the risk of loss. If a claim occurs under one of these policies and the policyholder did not follow what the policy specified, the claim may be denied.
Q: Can site work be excluded for commercial structures?
A: Cost-conscious commercial builders risk clients may be interested in excluding site work from coverage. Site work refers to work such as landscaping, underground piping, installing sprinkler systems, and similar activities for which clients don’t feel they need the full protection builders to risk insurance offers. Under certain plans, site work may be excluded, depending on the coverage form selected. With that said, you should always discuss with your agent the potential ramifications and risks of excluding coverage. If site work is excluded and a loss occurs, you won’t be able to collect claims dollars for the cost of the excluded site work.
Q: I don’t have all the specifics on the project, can I still get a quote for my client?
A: Complete details on the full project scope are not required to obtain a premium indication. When you submit basic information about the project, including its location, limit, and construction type, a dedicated commercial builders risk underwriter can provide a non-binding estimate you can review. Specific coverage quotes and decisions to issue policies depend on the receipt of fully completed applications.
Conclusion
Commercial builders risk accounts can be time-consuming from beginning to end. But with the answers to these common and crucial commercial new construction questions at the ready, you’ll be well-equipped to discuss your project. The Oregon Contractors Resource Center can connect you with the best agent that has the experience and expertise that you need to make sure your projects are protected.
For more guidance on insuring your course of construction projects, contact our dedicated team to get connected with the right insurance agent that focuses on the contracting industry.