The Builder’s Risk Trap

The builder's risk policy on any construction project is a critical coverage that helps BOTH general contractors and subcontractors make sure the construction project is protected against damages and losses that can delay project completion or even make it impossible to complete!  In most cases, the builders risk policy is purchased by experienced GCs who know what coverages are essential and know how to avoid the coverage gaps and traps created by substandard builder's risk policies.  

BEWARE the inexperienced owner who demands to purchase the builder's risk policy.  Price is usually the overriding consideration by this owner, and price has an inverse relationship with coverage with almost all insurance policies.  

Odds are your contract or subcontract requires your participation in any deductible that has to paid under the builder's risk.  What is the builder's risk deductible?  If it is a percentage of the value of the project, those numbers can get very large real fast.  Watch out!  Even a percentage of that number can be more than you want to chew!

Another question: Are there any warranties under the builder's risk policy?  How do you know unless you have reviewed the policy?  Did the owner let you see it?  HAHAHAHAHAHAHA!  I know that’s a good one!  A warranty is a provision within an insurance policy that VOIDS coverage if it is not met.  Common warranties can include - fencing the project, 24-hour security, or even a water leak detection system.

Who is an insured on the builder's risk policy?  Well, all contractors working on the jobsite should be.  But, that may not be true if the owner only made himself an insured under the policy.

A general contractor might have some say in whether the owner provides its own builder’s risk, but subcontractors will likely have no input.  One thing a subcontractor can do to protect itself and have an installation floater in place that will cover being installed materials at the jobsite.  Your installation floater will have a much more reasonable deductible, and it will not be subject to any bizarre coverage gaps or warranties that may be present in a substandard builder’s risk policy bought on the cheap!