Planning a home renovation project this season? Have you let your insurance broker know?
Home renovations have become increasingly popular these days. The reality is due to the pandemic, people have been traveling less and focusing on their homes more.
Home building projects vary in size and complexity. Some are simple and straightforward, whereas some projects require engineering, permits and outside contractors. There are insurance implications for construction and renovation projects that some homeowners may not be aware of.
Builder’s Risk Form and Course of Construction Policy
Homeowners generally aren’t aware that there’s an exclusion in a standard homeowner’s policy that doesn’t cover physical damage from construction projects.
Most homeowners wouldn’t think to check with their insurance broker before beginning a renovation project. A broker can help a homeowner set up a policy to ensure that they are properly covered for the duration of the renovation. Any physical damage, or physical loss to property, while it’s under construction, needs to be covered under a builder’s risk form or course of construction policy.
A builder’s risk form and course of construction policy are essentially the same, although they use different terminology.
Anything structural, new construction, remodeling, or if you’re changing any of the interior structural walls in the home, all count as construction. Major additions or renovations sometimes require underpinning, blasting, shoring; and these wouldn’t be covered under your standard homeowner’s policy.
In these cases, either the builder or the homeowner would take out a course of construction policy. This policy would provide coverage from the beginning of the project until completion. In some cases, the project takes longer than scheduled due to construction delays of material or trades. In these circumstances the policy can be extended for an additional premium. Once the project is complete and an occupancy permit from the township is received, the risk can go back on to a standard homeowner’s policy.
Ideally, any general contractor that a homeowner hires should advise them to obtain a builder’s risk policy, but unfortunately, some contractors may not be aware of the standard exclusion.
In some cases, the homeowner may be advised about the coverage requirement by either their insurance broker, contractor or the township that they’re building in. Otherwise, the onus is on the homeowner to prepare themselves to apply for proper coverage before starting a project.
Here’s a quick summary of the coverage details:
A Course of Construction (CoC) or Builders Risk Policy covers the physical damage to a home while under construction along with liability for the premises or the entire project ( Wrap up).
A Builders Risk Policy is normally placed on a broad form that insures against all perils unless specifically excluded from the policy.
Some of the most common causes of loss include:
– Water damage
– Fire /Explosion
– Theft/ Vandalism (depending on the insurer, this can sometimes be excluded)
– Collapse
A Course of Construction (CoC) or Builders Risk Policy would also include coverage of materials on the job site as well as materials in transit.
A Course of Construction (CoC) or Builders Risk Policy can be purchased by the owner or general contractor.
Faulty Workmanship Exclusion
By default, faulty workmanship is excluded from a Builders Risk Policy. That’s why it is important to ensure you place your coverage with an insurer who provides coverage for the resulting damage from faulty workmanship.
As a point of note, water damage is the leading cause of loss on a Builders Risk Policy.
Here is a quick claim example for faulty workmanship when coverage is provided for the resulting damage.
Let’s say a hired plumber improperly installs a shower valve, which causes the second-floor bathroom to leak. Water leaks down onto the main floor, causing water damage in the bathroom and to the main floor ceiling and walls.
The insurer would not cover the cost of the faulty workmanship (the install of the valve itself) but they would cover the resulting water damage. If resulting damage from faulty workmanship was not covered under the policy, there would be no coverage for the entire loss.
Make Sure You’re Covered
Let’s face it, now is a great time to be considering doing those home renovations. But because there are so many different builders and contractors out there, and because most of them are incredibly busy, it will benefit you as a homeowner to ensure proper coverage is in place before you begin your project. The last thing you want is to have something go wrong and be on the hook for damages that could have been covered under a course of construction policy. It’s just not worth the risk.
Talk to us today about applying for proper construction insurance for your renovation project. You’ll be glad you did.
