Builder's Risk Insurance: Coverage During Construction, Renovation, and Remodeling

Builder’s risk insurance — sometimes called course of construction insurance — is a specialized property policy that covers buildings while they are being constructed, renovated, or remodeled. Unlike a standard homeowner’s or commercial property policy, which protects a completed structure, builder’s risk covers the building as it is being built. That means covering raw materials, partially completed structures, and everything in between.

If you are building a new home, renovating an existing property, or managing a commercial construction project, builder’s risk insurance is not optional — it is essential. A fire, a storm, theft of materials, or vandalism on an unprotected job site can wipe out months of work and hundreds of thousands of dollars in investment. Without builder’s risk coverage, that loss comes entirely out of your pocket.

Who Buys Builder’s Risk Insurance

Builder’s risk policies are purchased by property owners, general contractors, developers, or any combination of the three. The question of who buys the policy matters because it determines who the named insured is, who can file a claim, and who controls the claim proceeds.

• Property ownerstypically purchase builder’s risk when they are hiring a general contractor to build or renovate. The owner has the insurable interest in the completed structure and wants to protect that investment.
• General contractorsoften carry builder’s risk as part of their standard coverage, especially on spec builds or when the construction contract requires the contractor to provide it.
• Developersbuilding multiple units or large-scale projects typically carry builder’s risk on the entire development, sometimes with coverage that adjusts as individual units are completed and sold.

What Builder’s Risk Insurance Covers

Builder’s risk policies cover the structure under construction and related property. The specific coverage varies by policy, but a typical builder’s risk policy covers:

• The structure itself:The building under construction, including all permanently installed materials — framing, roofing, plumbing, electrical, HVAC, drywall, flooring, and fixtures
• Building materials on-site: Lumber, steel, concrete, roofing materials, appliances, and other materials stored at the construction site awaiting installation
• Materials in transit: Many policies cover building materials while they are being transported to the job site, typically with a sublimit
• Temporary structures: Scaffolding, concrete forms, temporary fencing, construction trailers, and other temporary structures necessary for the project
• Foundations and underground work: Footings, foundations, underground piping, and site preparation work that has been completed

Soft Costs Coverage

Some builder’s risk policies include soft costs coverage, either built into the base policy or available as an endorsement. Soft costs are the indirect expenses that increase when a construction project is delayed due to a covered loss. These can include:

• Extended general conditions:The ongoing costs of maintaining the construction site during the delay — supervision, portable toilets, temporary utilities, site security, and equipment rental
• Additional financing costs: Interest on construction loans that continues to accrue during the delay period, plus any loan extension fees
• Delay penalties: Contractual penalties or liquidated damages owed to the property owner or tenants because the project was not completed on time
• Permit renewal fees: Building permits that expire during the delay and must be renewed, along with any re-inspection fees
• Professional fees: Architect, engineering, and design fees required to re-evaluate or modify plans after the loss
• Lost rental income: Revenue the owner expected to receive from the completed building during the period of delay

Soft costs are frequently the most undervalued and under-documented portion of a builder’s risk claim. Carriers routinely challenge soft costs because the documentation requirements are significant, and many policyholders do not realize these costs are covered until after the loss has occurred. For a deeper discussion, see our article on soft costs claims.

What Builder’s Risk Does Not Cover

Builder’s risk policies contain significant exclusions. Understanding these exclusions before a loss occurs is critical, because many policyholders discover gaps in coverage only when they file a claim.

• Employee tools and equipment: Tools, equipment, and personal property belonging to workers on the job site are typically excluded. Contractors need separate inland marine or tools and equipment coverage.
• Faulty workmanship and design errors: The cost to redo defective work is not covered. However, resulting damage from faulty workmanship may be covered. For example, if a plumber installs a pipe incorrectly and the pipe bursts, the cost to redo the plumbing is excluded, but the water damage to the surrounding structure may be covered.
• Earth movement and earthquake:Most builder’s risk policies exclude earthquake, landslide, mudflow, and earth movement — a significant concern during construction in California, where seismic activity is constant and partially completed structures are especially vulnerable.
• Flood:Standard builder’s risk policies exclude flood damage. Flood coverage must be purchased separately, typically through the National Flood Insurance Program or a private flood insurer.
• Landscaping: Some policies exclude landscaping, trees, shrubs, and plants. Others provide limited coverage with a sublimit.
• Normal settling, shrinkage, and expansion: Cracking or movement that occurs as part of the normal curing and settling process is not a covered loss.
• Wear and tear and gradual deterioration: Materials that deteriorate because they were left exposed on site for too long may not be covered if the deterioration is considered gradual rather than the result of a sudden event.

Reporting Form vs. Completed Value Form

Builder’s risk policies use one of two methods to track the insured value as construction progresses:

Completed Value Form

Under a completed value form, the policy is written for the full anticipated value of the completed project from day one. The premium is calculated on the total completed value, and the full limit is available at any point during construction. This is the simpler approach — you pay for the full coverage up front, and there is no risk of being underinsured at any stage.

Reporting Form

Under a reporting form, the policyholder reports the current value of the project at regular intervals — typically monthly or quarterly. The premium adjusts based on these reports, so the policyholder pays less at the beginning of the project when only the foundation has been poured and more toward the end when the building is nearly complete.

The risk with a reporting form is that if the policyholder fails to file timely reports or underreports the value, the carrier may limit recovery to the last reported value. If a fire destroys a building that is 80 percent complete but the last report only showed 50 percent completion, the policyholder may face a significant shortfall.

Perils Covered: Open-Peril vs. Named-Peril

Most builder’s risk policies are written on an open-peril basis — also called “all risk” — meaning they cover any direct physical loss unless it is specifically excluded. This is the broadest form of coverage and is standard for most commercial and residential construction projects.

Some lower-cost policies are written on a named-peril basis, meaning they only cover losses caused by perils specifically listed in the policy — typically fire, lightning, windstorm, hail, explosion, vandalism, and a few others. Named-peril policies are significantly narrower and leave the policyholder unprotected against any cause of loss not specifically listed.

On an open-peril policy, the burden of proof shifts in the policyholder’s favor: the policyholder must prove that a loss occurred, and the insurer must prove that an exclusion applies. On a named-peril policy, the policyholder must prove both that a loss occurred and that it was caused by one of the listed perils. For any significant construction project, an open-peril policy is worth the additional premium.

Who Is the Insured

The named insured on a builder’s risk policy typically includes the property owner and the general contractor. Both parties have an insurable interest in the project — the owner has invested in the property and the contractor has invested labor, materials, and profit expectation.

Subcontractors present a more complicated question. Some policies automatically extend coverage to subcontractors working on the project, while others do not. If a subcontractor installs $50,000 worth of cabinetry and a fire destroys it before the project is complete, the question of whether the builder’s risk policy covers that subcontractor’s loss — or whether the subcontractor must look to their own coverage — depends entirely on the policy language.

Construction contracts should address this directly. If the owner’s builder’s risk policy does not cover subcontractors, the general contractor should require each subcontractor to carry their own coverage, or the general contractor should ensure their policy extends to subcontractors’ work and materials.

Common Claim Scenarios

Fire on a Job Site

Construction sites are high fire risks. Open flames from welding and cutting, improperly stored flammable materials, temporary electrical wiring, and hot work near combustible framing all contribute to the risk. A fire on a partially completed building can destroy months of work in minutes. The builder’s risk claim will cover the cost to rebuild the damaged structure, replace destroyed materials, and — if soft costs coverage is included — compensate for the project delay.

Weather Damage During Construction

A building under construction is uniquely vulnerable to weather. Before the building envelope is complete — before the roof is on, windows are installed, and exterior cladding is in place — rain, wind, and hail can cause extensive damage to exposed framing, insulation, drywall, and electrical work. A single rainstorm can saturate unprotected framing and create conditions for mold growth, requiring demolition and replacement of affected materials.

Carriers sometimes argue that weather damage to an open structure is not covered because the building was “not properly protected.” This argument is usually weak — a building under construction is, by definition, not yet enclosed, and the builder’s risk policy exists precisely to cover losses during this vulnerable period. However, if the contractor failed to take reasonable protective measures — such as tarping exposed framing when rain was forecast — the carrier may have a stronger argument for a coverage defense.

Theft of Building Materials

Theft is one of the most common losses on construction sites. Copper wire, copper pipe, appliances, HVAC equipment, lumber, and power tools are frequent targets. Construction sites are particularly vulnerable because they are often unoccupied at night and on weekends, may lack permanent security measures, and contain high-value materials that are easily removed and resold.

Builder’s risk policies typically cover theft, but some policies require that reasonable security measures be in place — fencing, locked enclosures for valuable materials, or surveillance cameras. Document the security measures at your job site and keep records of all materials delivered. Without delivery receipts and installation records, proving what was stolen becomes significantly more difficult.

Vandalism on Construction Sites

Vandalism ranges from graffiti on exposed concrete to deliberate destruction of installed work — smashed fixtures, cut wiring, broken windows, and damaged plumbing. Like theft, vandalism is more likely on sites that are unoccupied after hours and lack adequate security. Builder’s risk policies generally cover vandalism as a named peril or under the open-peril coverage.

Storm Damage to Unfinished Structures

High winds can topple framed walls, tear off partially installed roofing, and scatter building materials across the site. Hail can damage roofing materials, exterior finishes, and windows. A storm that would cause minor damage to a completed building can cause catastrophic damage to a structure that is still under construction, because the structural elements are not yet fully connected and braced.

The Transition to Permanent Coverage

Builder’s risk policies are temporary. They are designed to cover the construction period and expire on a specific date or when the project is completed — whichever comes first. When the project is finished, the builder’s risk policy terminates, and the owner must have a permanent property insurance policy in place.

The timing of this transition is critical. If the builder’s risk policy expires or terminates before the permanent homeowner’s or commercial property policy takes effect, there is a coverage gap. Any loss that occurs during that gap is uninsured. This happens more often than it should — construction projects run behind schedule, certificates of occupancy are delayed, and the permanent policy is not bound because the building is not yet considered “complete” by the permanent insurer.

Builder’s risk policies also typically define what “completion” means. Some policies terminate when the building receives a certificate of occupancy. Others terminate when the building is occupied, when it is put to its intended use, or when the owner accepts the building from the contractor. If you move into the building or begin using it before the permanent policy is in place, the builder’s risk policy may have already terminated automatically — even if the expiration date has not yet passed.

Renovation and Remodeling Endorsements

Builder’s risk is not just for new construction. When you are renovating or remodeling an existing building, a builder’s risk policy — or a renovation endorsement to an existing policy — covers the new work being performed. The existing homeowner’s or commercial property policy continues to cover the existing structure.

Coordinating between these two policies is important and often mishandled. Consider a scenario: you are renovating your kitchen, and a fire starts in the new electrical work and spreads to the rest of the house. The builder’s risk policy covers the new kitchen work. The homeowner’s policy covers the existing structure. But which policy covers the fire damage to the existing house caused by the new work? The answer depends on the specific policy language, and disputes between the two insurers can delay your claim significantly.

Before starting any renovation, notify your homeowner’s insurance carrier. Many homeowner’s policies contain exclusions or limitations that apply during renovation — for example, some policies void coverage if the home is “under construction” or “vacant” for more than a specified period. Failing to notify your carrier can jeopardize coverage under both policies.

California-Specific Considerations

Contractor Licensing Requirements

California Business and Professions Code §7031 requires that anyone performing construction work valued at $500 or more must hold a valid license from the Contractors State License Board (CSLB). This requirement is directly relevant to builder’s risk claims because an unlicensed contractor cannot legally enforce a construction contract in California, and the involvement of an unlicensed contractor can create complications in the claims process — particularly when determining the value of completed work and the cost to complete the project.

When filing a builder’s risk claim, carriers will often verify that the general contractor and subcontractors are properly licensed. If unlicensed work is discovered, the carrier may use it as grounds to dispute the value of the loss or challenge the reasonableness of repair costs. Always verify your contractor’s license status through the CSLB before construction begins.

Building Permit Requirements

California requires building permits for virtually all construction, renovation, and remodeling work beyond minor cosmetic changes. After a builder’s risk loss, the repair work will require new permits, and the cost of those permits is part of the covered loss. Additionally, if the original construction was not properly permitted, the carrier may argue that the unpermitted work was not insurable or that it must be brought to current code as part of the repair — which can significantly increase the cost and complexity of the claim. For more on permit costs in claims, see our article on building permits and insurance claims.

Seismic Considerations During Construction

California is earthquake country, and buildings under construction are especially vulnerable to seismic events. A partially framed building without its full structural bracing, shear walls, and connections is far more susceptible to earthquake damage than a completed structure. Standard builder’s risk policies exclude earthquake, and earthquake coverage must be added by endorsement if available, or purchased through a separate policy.

This exclusion is particularly significant in California, where the risk of a damaging earthquake during a multi-year construction project is not hypothetical. If your construction project is in a seismically active area — which is most of California — discuss earthquake coverage with your insurance broker before construction begins.

The Faulty Workmanship Exclusion and Resulting Damage

The faulty workmanship exclusion is one of the most litigated provisions in builder’s risk policies. The exclusion bars coverage for the cost of correcting defective work itself, but most policies contain an exception for “resulting damage” — meaning damage that results from the defective work, as opposed to the defective work itself.

For example, if a roofing subcontractor installs flashing incorrectly and rain enters the building, the cost to remove and reinstall the flashing is excluded as faulty workmanship. But the water damage to the framing, insulation, drywall, and electrical work below the flashing may be covered as resulting damage. The line between the excluded defect and the covered resulting damage is not always clear, and carriers frequently try to characterize as much of the damage as possible as part of the excluded defect rather than resulting damage.

Under California’s efficient proximate cause doctrine, if the defective workmanship sets in motion a chain of events that leads to a covered peril — such as water intrusion — the resulting damage should be covered. For a deeper discussion of how this doctrine applies to property claims, see our article on construction defects and insurance claims.

How a Public Adjuster Helps on Builder’s Risk Claims

Builder’s risk claims are among the most complex property insurance claims. They involve specialized valuation issues, multiple parties with competing interests, and policy language that differs significantly from standard property policies. A licensed Public Adjuster provides critical expertise in several areas:

• Valuation of partially completed work:Determining the value of a partially completed building requires an understanding of construction costs, progress billing, and the distinction between work in place and materials on site. The carrier’s adjuster may undervalue the loss by failing to account for labor already invested in installed work, or by depreciating materials that were new and unused at the time of the loss.
• Soft costs documentation and recovery:Soft costs are frequently overlooked or underpaid. A Public Adjuster identifies all recoverable soft costs, assembles the supporting documentation — loan agreements, construction schedules, contractor overhead records, and penalty provisions — and presents them in a format the carrier cannot easily dismiss.
• Coordination with contractors and bonding companies:Builder’s risk claims often involve the general contractor’s surety bond, subcontractor disputes, and questions about whether the contractor or the owner bears responsibility for specific aspects of the loss. A Public Adjuster navigates these relationships and ensures the policyholder’s interests are protected.
• Scope of loss documentation: Accurately scoping the damage on a construction site requires distinguishing between work that was damaged by the covered peril and work that was simply incomplete. Carriers frequently attempt to exclude incomplete work from the claim, even when it must be redone because the covered loss rendered it inaccessible or structurally compromised.
• Resulting damage analysis: When the carrier invokes the faulty workmanship exclusion, a Public Adjuster documents the chain of causation to demonstrate that the resulting damage is covered, and quantifies the covered damage separately from the excluded defect.
• Delay and business interruption calculations:A construction delay caused by a covered loss affects project financing, contractual obligations, and revenue projections. A Public Adjuster works with the policyholder’s accountant and construction manager to build a defensible delay claim.

Protecting Your Construction Investment

Whether you are building a custom home, renovating an investment property, or managing a large commercial project, builder’s risk insurance is a critical part of your risk management strategy. The following steps will help ensure you are properly covered:

1. Purchase builder’s risk coverage before construction begins.Do not rely on the contractor’s coverage unless you have verified the policy, confirmed you are a named insured, and reviewed the coverage limits and exclusions.
2. Insure for the full completed value. If using a completed value form, make sure the limit reflects the total cost of the finished project, including materials and labor. If using a reporting form, file accurate and timely reports.
3. Include soft costs coverage. Soft costs can easily add 10 to 20 percent to a major loss. Without soft costs coverage, you absorb those costs yourself.
4. Evaluate earthquake and flood exposure. If your project is in a seismically active or flood-prone area, discuss supplemental coverage with your broker.
5. Document everything. Maintain detailed records of construction progress, material deliveries, installed work, and job site conditions. Photograph the site regularly. These records are your evidence if a loss occurs.
6. Plan the transition to permanent coverage.Coordinate with your insurance broker to ensure the permanent property policy is bound before the builder’s risk policy expires. Request extensions if the project runs behind schedule.
7. Notify your homeowner’s carrier during renovations.If you are renovating an existing structure, make sure your homeowner’s insurer knows about the project to avoid a coverage defense when you need the policy most.

Builder’s risk insurance exists for one reason: buildings under construction are uniquely vulnerable to loss, and the financial consequences of an uninsured construction loss can be devastating. The policy is temporary, the coverage is specialized, and the claims are complex. Get it right before the first nail is driven.