The news reports came in throughout the day March 20, 2017:
“Large fire at Overland Park, Kansas, apartment construction site.”
“Eight-alarm blaze consumes apartment building under construction, sparks fires at nearby homes.”
“Devastating fire started by welding torch, investigators conclude.”
Due in part to exceptionally strong winds that day, the fire at the Royale at City Place development leveled the apartment building and damaged or destroyed more than two dozen nearby homes. Total estimated cost: $23 to $25 million. The community was relieved to learn there were no serious injuries or deaths.
That incident is a clear case study for having builder’s risk insurance – and plenty of it. This critical category of insurance covers damage to materials, fixtures and equipment involved in the construction or renovation of a building or structure. Think fire, hail, lightening and equipment theft. The policies also can cover wind, flooding or earthquake damage, if they specify it.
Do you have enough builder’s risk insurance?
Most construction companies are smart about getting the coverage. But you’d be surprised at how many are underinsured. If you think about the risk of losing a $25 million project, the cost of this coverage is just a small fraction.
Consider your materials
Recent economic conditions have stoked high demand for multi-family housing, which has led to rapid building with cheaper materials. We’ve seen three or four big builder’s risk claims in the past year, and all have been involved with apartments using wood-frame construction, which is much more combustible than steel or masonry. The materials you’re working with obviously affect the cost of the insurance. We’ve even seen some builders decline wood-frame jobs.
What’s not covered by most builder’s risk policies
It’s also important to consider what’s not covered by a typical builder’s risk policy. Think about all the related costs if the project is delayed by a fire or weather-related setback. Who will pay the cost of delays in apartment leasing, increased labor needs, additional advertising, supply price increases and longer storage for construction materials? As the contractor, you could be held responsible for these costs, so talk with your broker about adding them to your coverage.
Keep your builder’s risk claim from being denied
While claim denials are rare, we do see situations that invalidate even the best coverage:
- Incorrect documentation: Be sure to have the right documents to validate your exposure. Specifically, check to see that you’re insured for the type of materials you’re using. If you sign a policy that describes steel-frame construction but end up using wood-frame, your coverage will not be valid.
- Failure to add flood, wind or earthquake coverage: Many quotes may exclude these conditions unless you bring them up. You will pay extra for them, but it’s a judgement call you have to make.
- Inadequate limits: As with all insurance, you’ll want to purchase enough coverage to help you recover from a loss. For example, don’t put $500,000 in equipment on the job and insure it for $250,000.
All of the recent claims are a great reminder of the importance of builder’s risk coverage. Talk with your broker and make sure you’re covered for all the possibilities.