Preconstruction — Risk & Contracts

Builder's Risk Policy

Property insurance covering a project while it's under construction against physical loss.

Quick Answer

A builder's risk policy is property insurance covering a project during construction against physical loss or damage — fire, wind, theft, and similar perils. It's usually written on an all-risks basis, often on inland marine forms, and covers materials on site, in transit, and in storage. The completed value of the project sets the limit of insurance.

The Full Picture

Builder's risk exists because a project under construction is a large, exposed, uninsured asset until it's finished. A standard property policy covers completed buildings; it doesn't cover a half-built structure, the materials staged around it, or the equipment in transit to it. Builder's risk fills that gap for the course of construction.

Most builder's risk policies are written on inland marine forms rather than commercial property forms, on an all-risks basis. Coverage typically extends beyond the site to materials in off-site storage and in transit. The policy can be written on a completed-value basis or a reporting form, but either way the project's estimated completed value sets the limit of insurance.

A well-designed policy covers more than the cost to repair physical damage. It can also respond to the downstream consequences of a covered loss — business interruption or delay-in-completion losses and 'soft costs' like extended financing, additional design fees, and re-permitting. Those soft costs are often where an uninsured or thinly insured loss really hurts.

In preconstruction, the team decides who provides builder's risk — the owner or the contractor — and how it coordinates with the contract's risk allocation and any wrap-up program. Gaps between what the policy covers, what the contract makes the contractor responsible for, and what a force majeure clause excuses are exactly where disputes surface after a loss.

Real Examples

→Fire during construction: A fire damages a partially framed building; builder's risk covers the cost to rebuild the lost work and materials that a completed-property policy would never have touched.
→Materials in transit: Curtain-wall units are damaged on the truck to the site; because the all-risks policy covers property in transit, the loss is recoverable, not the contractor's to eat.
→Soft-cost coverage: A covered loss delays completion, and the policy's soft-cost coverage responds to the extended construction-loan interest and additional design fees the delay triggers.

Common Misconceptions

People assume: Builder's risk is a form of liability insurance.

Actually: It's property insurance. It covers physical loss or damage to the project itself, its materials, and equipment — not third-party bodily injury or property damage claims, which are the job of general liability coverage. The two protect against entirely different exposures.

People assume: Builder's risk only covers property physically at the job site.

Actually: Most policies also cover materials in transit and in off-site storage. Because it's typically written on an all-risks inland marine form, coverage follows the property, not just the fenced site — though the specific extensions and sublimits vary by policy.

Does MeltPlan Solve This?

Not directly

A builder's risk policy is an insurance product placed and administered by an owner or contractor with their broker and insurer. Structuring and buying coverage is a risk-transfer activity, not document review or quantity takeoff, so it's outside MeltPlan's scope. Your broker and insurer handle placement; MeltPlan works upstream on the drawings, quantities, and bids.

Frequently Asked Questions

What does a builder's risk policy cover?

Physical loss or damage to a project during construction — the work in place, materials, and often equipment — from perils like fire, wind, and theft, usually on an all-risks basis. Many policies also cover materials in transit and storage and respond to soft costs and delay losses from a covered event.

Who buys builder's risk insurance?

Either the owner or the general contractor, depending on the contract. The party responsible is specified in the agreement, and the coverage is coordinated with the project's overall risk allocation and any wrap-up insurance program in place.

How is the limit on a builder's risk policy set?

By the project's estimated completed value. Whether the policy is written on a completed-value or a reporting-form basis, the completed value of the structure is used to set the limit of insurance, so an accurate project value matters.

What's the difference between builder's risk and general liability?

Builder's risk is property insurance covering damage to the project itself. General liability covers the contractor's liability for third-party bodily injury and property damage. A project needs both — they address property loss and liability, which are separate risks.

Related Terms

OCIP / CCIP (Wrap Policy)One insurance program covering the owner, general contractor, and subs on a single project.Force MajeureA clause excusing a party from delay caused by events beyond its reasonable control.Indemnification ClauseA contract provision making one party cover certain legal liabilities of another.Risk Allocation (Construction)Deciding, in the contract, which party carries each of a project's risks.Preconstruction Risk ManagementFinding and assigning a project's risks before ground breaks, while they're still cheap to manage.Risk RegisterThe living log of every identified project risk, its owner, its score, and its response.

More Preconstruction — Risk & Contracts Terms

Sources

  1. IRMI — Builders Risk Policy (insurance definition)
  2. IRMI — Building the Right Builders Risk Policy (expert commentary)
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