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Why Contractors Should Carry Builders Risk Insurance

Ross Squires
Ross Squires
Vice President Client Executive, CSDZ

One of the questions we hear a lot when talking with companies about construction projects is “Who should carry the builders risk insurance policy for this project? Should it be the owner or the general contractor?”

It’s a great question, and we believe the answer is the contractor. If you’re wondering why, let me explain. Here are the top 5 reasons we believe the contractor is best suited to carry the builders risk insurance policy for a construction project.

1) Control of Coverage

Builders risk insurance policies confer certain rights to the first named insured, including responsibility to pay premiums, receive certain communications, and, in some circumstances, serve as the sole agent for the other insured parties. With the contractor controlling the other aspects of the construction process, it makes sense to vest that responsibility with the contractor.

We also see circumstances where a loss occurs, but then an owner is concerned about filing a claim when the insurance is needed most. By putting the policy in the hands of the contractor, coverage can be used to address these things before they become issues for the owner. 

2) Certainty of Coverage

Builders risk insurance has a number of optional coverages that can be overlooked by the average insurance professional or buyer. These optional coverages can make or break the value of a builders risk insurance policy — which, let’s be honest, can make or break the project’s success. By relying upon a sophisticated contractor and its qualified insurance professional, these optional coverages can be easily added to the builders risk insurance policy to increase the certainty the policy will respond in the event of a claim. 

A boy in a hard hat measuring wood

3) Advantageous Terms & Conditions

Given contractors are engaged in the business of constructing projects, it makes sense that contractors are customers of builders risk insurance carriers on a regular basis compared to project owners or developers. This increased frequency of purchases often allows contractors to secure more favorable terms and conditions from insurance carriers.

In fact, in a lot of cases, contractors who establish robust builders risk programs have far superior coverage terms, conditions, and pricing available to support projects.

4) Best Suited Post Claim to Resolve & Restore Timeline

Following a loss, we’ve found that contractors are best suited to get the project back on track. The project management talent sits with the contractor, as do the relationships with specialty restoration contractors. By leaning into this natural advantage, a contractor who is the first named insured on the builders risk policy can get to action right away to help mitigate a loss’s impact on the schedule for the project.

Owners, on the other hand, are a step removed and can create some clunky interactions in the claims resolution process. 

5) Maintain Team Focus

We’ve seen far too many projects teams (project owner, contractor, and subcontractors) get distracted due to negligence-hunting following a loss. 

By properly structuring the insurance policy, the entire team can rest easy knowing that if an incident occurs during construction that damages the work, the builders risk insurance policy will respond without seeking subrogation against any of the other parties. With the entire team on the same page, the project can get back on track to the greatest extent possible. This also ensures that claims are directed at the builders risk insurance policy and avoid becoming general liability claims against the contractor or subcontractor, which can ensure that insurance rates for those lines of coverage stay cost competitive to allow for viability of future projects for the owner. 

Does this all make sense? Have any questions? Don’t hesitate to reach out. This is the business we work in, and we have a team of experts who are ready to tackle any questions you may have about builders risk insurance!

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