How Do You Protect From Coverage Gaps in Builder’s Risk Policies?

I am often asked, “Who is contractually responsible for placing Builder’s Risk Coverage on a construction project?”

In the construction world, contractual obligations are established on paper and the trust is established with a handshake. Far too often that trusting handshake disguises an insurance coverage gap, which can lead to a major dispute. What most contractors don’t know is that:

  1. 90%of all construction project insurance is placed by the owner;
  2. 50% of that insurance is placed incorrectly or not properly defined in the construction contract;
  3. Which means as many as 50% of the gaps in insurance fall on the shoulders of the contractor.

You CAN Avoid the Liability Gap

I recently worked on a project where my contractor was covered by an owner purchased Builder’s Risk Insurance Policy. Luckily my client was smart about how he approached it. You see, midway through the project there was a fire that destroyed a large portion of the work in progress. While the owner’s policy covered that event, it was determined that one of the contractor’s workers caused the fire, so the owners tried to stick the contractor with the liability. However, the contractor had the foresight to add verbiage in the contract that specified owner coverage.  When the owners tried to shirk liability, my client simply pulled out the contract and clarified the owner’s responsibility.

Recommendations: In order to save yourself an expensive liability nightmare

  • Obtain a Copy of the Builder’s Risk Policy and/or the Master Property Insurance Policy – If the owners is reluctant to release copies due to the proprietary nature of insurance policies, you can obtain a certificate of insurance or an ACORD 27 or 28 “Evidence of Property Insurance Form” from the owner and send it to us. We will investigate on your behalf.
  • Send Us a Copy of the Contract –We will work with you and your attorney to identify certain “coverage gaps” that are presented in the current contract.
  • Fill Out the Builder’s Risk Checklist – My client downloads the checklist from our website and completes it for every project. They have found our checklist to be extremely helpful in the negotiation of the builder’s risk within the contract.

Part of the Construction Practice Group’s service is protecting your interests by helping you cover all of your bases. By bringing us in at your contract phase, you can avoid a lot of cost and headaches down the road.

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