Builder's risk insurance

It is a property policy written for the period of construction. ISO's Builders Risk Coverage Form, CP 00 20, defines the covered property as the "Building Under Construction," including foundations, fixtures and machinery, equipment that services the building, and "your building materials and supplies used for construction," as long as they are meant to be permanently located in or on the building or within 100 feet of the premises. Temporary structures built on site, such as scaffolding and construction forms, are covered if no other insurance covers them. Land is not.

The form does not list perils itself; it points to a causes-of-loss form shown on the declarations. Two details on the ISO special form matter on a job site. It excludes earth movement, including earthquake, and flood. And it limits loss to "building materials and supplies not attached as part of the building or structure, caused by or resulting from theft," so a load of lumber stolen before it is installed may not be covered unless the policy adds theft of materials back. Ask which causes-of-loss form and which endorsements are on the quote.

Builder's risk is not liability insurance. It covers the structure; a claim that someone was hurt on the site or that the work damaged a neighbor's property is general liability, a separate policy, and a project may require both.

Every lender writes its own list, and the list is the document to satisfy; the lists differ. Mercantile Bank makes builder's risk "Mandatory for loan approval and draw disbursements." Michigan First Mortgage asks for a builder's risk policy "in at least the amount of the loan," with a paid receipt for the first year's premium, at the time the loan documents are signed, plus coverage for theft of materials. MSU Federal Credit Union requires the builder or homeowner to provide builder's risk naming the credit union as mortgagee, with its exact ISAOA address, before closing. WHEDA, Wisconsin's housing finance agency, in its requirements for the multifamily developments it finances, sets the limit at "100% of the development's Mortgage Amount at completion" and accepts only carriers rated A-, VII or better by A.M. Best.

Lenders also look past builder's risk. WHEDA lists a certificate of liability insurance, evidence of property insurance, or builder's risk as evidence of coverage at closing. Capital City Bank requires flood insurance when the property is in a Special Flood Hazard Area. Separately, federal rules apply to banks: the FDIC's rule bars an FDIC-supervised institution from making a designated loan, one secured by a building in a special flood hazard area, unless the building is covered by flood insurance, and it defines a building to include a structure "while in the course of construction."

The mortgagee wording matters because it gives the lender rights of its own. Under CP 00 20, a mortgageholder shown in the declarations is paid "as interests may appear" and gets written notice at least 10 days before cancellation for nonpayment and 30 days before cancellation for any other reason. Property evidence goes on an evidence of property form; the ACORD 27 vs ACORD 28 page covers which one.

What varies by place is which perils a carrier will take at your address and what the lender adds, so read the causes-of-loss form and every exclusion endorsement.

Texas. On the coast, a private carrier can remove wind from a policy with an endorsement such as ISO's CP 10 54 Windstorm or Hail Exclusion. The Texas Windstorm Insurance Association writes wind and hail coverage in the first-tier coastal counties for owners declined by a licensed insurer. A 2020 specimen TWIA application filed with the Texas Department of Insurance lists a builder's risk stated value form; ask TWIA or your agent whether it is offered for your project today. TWIA requires a windstorm certificate of compliance for the structure, and TDI has certified ongoing improvements since June 1, 2020, so start the inspection process when construction starts, not at the end.

Florida. We found no Florida-specific builder's risk rule. Ask whether wind is covered or excluded at your address, and expect the flood question if the lot is in a Special Flood Hazard Area: Capital City Bank requires flood insurance there, and the FDIC's definition of a building reaches structures under construction.

California. The ISO special form excludes earthquake, including tremors, aftershocks and related earth movement. If the lender or your own exposure calls for earthquake cover, ask the carrier for it by name. We did not find a California-specific builder's risk rule in the sources we checked.

The phrase is used for renovating an existing, empty building, and two ISO forms bear on it. The Builders Risk Renovations endorsement, CP 11 13, covers the value of the "improvements, alterations or repairs" and says plainly that covered property does not include "the value of buildings or structures existing prior to construction." Ask how the existing structure itself is insured.

That property policy has a vacancy condition. On ISO's Building and Personal Property form, CP 00 10, a building vacant for more than 60 consecutive days loses coverage for vandalism, theft, water damage and several other causes, and other losses are cut by 15%. The same form says buildings under construction or renovation are not considered vacant, so tell the carrier when work starts and if it stops.