Builder's risk insurance

Builder's risk insurance

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Builder's risk insurance is a special type of property insurance
Property insurance
Property insurance provides protection against most risks to property, such as fire, theft and some weather damage. This includes specialized forms of insurance such as fire insurance, flood insurance, earthquake insurance, home insurance or boiler insurance. Property is insured in two main...

 which indemnifies against damage to buildings while they are under construction. Builder's risk insurance is "coverage that protects a person's or organization's insurable interest in materials, fixtures and/or equipment being used in the construction or renovation of a building or structure should those items sustain physical loss or damage from a covered cause."

Necessity


Buildings are subject to many different risks while under construction. They may catch fire, be damaged by high winds, or fall victim to other force majeure
Force majeure
Force majeure or vis major "superior force", also known as cas fortuit or casus fortuitus "chance occurrence, unavoidable accident", is a common clause in contracts that essentially frees both parties from liability or obligation when an extraordinary event or circumstance beyond the control of...

. A principle of common law is that any new construction or other improvement to land becomes property of the owner of the land - the title holder - once there has been an "improvement" to the owner's site. The general contractor may be responsible for any losses caused by his own negligence, but the owner is responsible for most other losses. Builder's risk insurance indemnifies against some of these losses.

Coverage


Builder's risk insurance usually indemnifies against losses due to fire, vandalism, lightning, wind, and similar forces. It usually does not cover earthquake, flood, acts of war, or intentional acts of the owner. Coverage is typically during construction period only, and is intended to terminate when the work has been completed and the property is ready for use or occupancy.

Who buys builder's risk insurance?


It is usually bought by the owner of the building but the general contractor constructing the building may buy it if it is required as a condition of the contract.
It may be necessary to show proof of insurance to comply with local city, county and state building codes.

Alternatives


If the project involves renovations or additions to an existing building, the owner's existing property insurance may cover the work under construction, obviating the need for builder's risk insurance. (Policies vary.) However, in the case of new buildings under construction on vacant sites, the owner may not have an existing policy that provides coverage.