In Part 2 of our construction insurance series, we dive into builder’s risk insurance. Builder’s risk insurance is intended to cover loss or damage suffered during the construction process so as to provide funds to the owner to rebuild in case of a loss. Generally, the insuring agreement in a builder’s risk policy generally specifies the property that is being insured under the policy, the perils being insured against, their territory where coverage applies, and the dates when coverage begins and ends. The broadest of the standard insurance company forms commonly used in Canada provides protection for property used during construction, installation, and reconstruction or repair owned by the insured or others. This includes temporary structures such as hoarding, scaffolding, and site preparations necessary to complete the project.
There are of course, as with all policies, limitations placed on their coverage. Because insurers will strictly rely on the wording of the insurance contract, owners and contractors should take care to negotiate additional protection, if required.
Insurance will typically cover all risks of direct physical loss or damage subject to any exclusions in the agreement. Although it will usually be obvious when there has been physical loss or physical damage, less tangible losses arising will likely not be covered. The wording of these clauses is extremely important – parties should consider whether changes to the language make sense for their project before formally entering into the insuring agreement.
Term of Coverage
Coverage generally begins when the property falls under the control of the insured and ends when all or part of the project is occupied (except where such use or occupancy is for construction purposes), installing, testing, or storing equipment and machinery or office or habitational purposes. It also ends if the site is unattended or construction has ceased for 30 consecutive days. These restrictions may not suit all projects and care must be taken to anticipate possible coverage needs if there were to be any delays in substantial completion to ensure adequate insurance coverage covering any delays.
Exclusions in Coverage
In addition to the concerns discussed above, the standard builder’s risk policy contains a number of exclusions that contractors must address in order to avoid problems. These include but are not limited to:
- Materials in Transit
- Flood Damage
- Faulty Workmanship or Materials
- Faulty Design
The above exceptions involve more detail than we have space to explain in this brief blog post. If you would like more information regarding the exceptions to coverage or about builder's insurance, please reach out. Next week, we will be reviewing “Commercial General Liability Insurance.”
Written by Jeremy Power, a lawyer in Cotney Construction Law’s Toronto office.