Construction Liability Insurance vs Builders Risk Insurance

Chris Freitas • Nov 27, 2020
construction liability insurance vs builders risk insurance

For those who are in the construction business, there are certain insurance policies you need to carry to protect your project and business. Without the right coverage level, companies could face a substantial loss due to potential lawsuits or damages.

Construction liability insurance and builders risk insurance are two essential insurance policies for every construction project. Though many think these two types of insurance policies are interchangeable, that is not the case. Each covers and excludes different risks and damages, as outlined below.

 

CONSTRUCTION LIABILITY INSURANCE


Construction lawsuits and losses are costly. Protecting a business against claims of negligence is also very expensive. That’s why construction liability insurance is necessary for any construction or contractor business.


Construction liability insurance covers the contractor’s liability needs. Specifically, it covers and protects against liability that might occur due to potential accidents that result in property damage or bodily injuries. Most policies protect the insured’s project against damages from collapse, fire, explosion, and more.


General construction liability insurance also protects against claims of property damage, bodily injury, and negligence. This kind of insurance assists with legal costs to protect your business against such claims and lawsuits. If unfortunately, such claims and losses arise, your business operations can continue without facing financial ruin with the right coverage level. 


Construction liability insurance generally covers:


  • Lawsuits claiming libel, slander, copyright infringement, and false advertising
  • Covered damages to commercial space you are renting
  • Injury caused by you or your employees or contractors
  • Property damage caused by you or your employees or contractors
  • If someone is injured on the business’s property


WHAT IS NOT COVERED BY CONSTRUCTION LIABILITY INSURANCE?


Construction liability insurance does not cover damage or risks associated with the contractor’s equipment. Builder’s risk insurance, discussed next, generally covers those types of losses.


General liability insurance typically excludes losses due to errors or omissions and negligence. It also excludes lawsuits that don’t involve bodily injury, false advertising, libel, slander, copyright infringement, personal injury, and property damage. 

BUILDER’S RISK INSURANCE


Builder’s risk insurance is a temporary policy that protects the contractor during the construction process. In other words, it mitigates risks for structures and buildings while they are under construction.


Builder’s risk insurance covers contractor equipment, property related to the construction of the structure or building, and materials. In most cases, the amount of builder’s risk insurance secured should cover the total estimated value of the completed building or structure.


Builder’s risk insurance traditionally covers damage or loss due to:


  • Theft
  • Weather-related events, including lighting and hail
  • Vandalism
  • Fire
  • Explosions
  • Mechanical breakdown
  • Vehicles crashing into the building or structure


Additional coverage might include:


  • Changes required to meet environmental standards
  • Debris removal
  • Costs associated with rental income, lost sales, and real estate taxes


WHAT IS NOT COVERED BY BUILDER’S RISK INSURANCE?


  • Builder’s risk insurance typically excludes claims for:
  • Damages caused by earthquakes, hurricane wind damage, and floods
  • Damages caused by weather-related property damage when the property is left unprotected
  • Losses due to faulty design, workmanship, planning, and material
  • Losses due to war and mechanical breakdowns
  • Contractual penalties
  • Employee theft


Builders risk insurance policies generally only cover the insured. Therefore, policies will not cover property, workplace injuries, or equipment and tools of anyone other than those insured.

ADDITIONAL INSURANCE POLICIES FOR CONSTRUCTION BUSINESSES


Construction liability insurance and builder’s risk insurance provide a high level of protection against loss related to construction work. However, they do not mitigate all of the risks associated with operating a business. As a result, construction businesses should secure additional insurance policies to reduce risks, including professional liability, contractor equipment, workers compensation, and auto insurance. 


PROFESSIONAL LIABILITY INSURANCE


Many individuals in business can benefit from the protection of professional liability insurance which is errors and omissions insurance. It covers you if a client sues you due to a construction oversight or error.


CONTRACTOR EQUIPMENT INSURANCE


As the name suggests, contractor equipment insurance covers a contractor’s equipment. Equipment covered includes large equipment, like bulldozers and diggers, building materials, and tools.

Damaged and stolen construction equipment less than five years old is covered. Items stolen or damaged in transit are also covered. 


WORKERS’ COMPENSATION INSURANCE


Safety is a priority on construction sites. However, accidents do happen. Workers’ compensation insurance covers your workers who are injured on the job. It covers a worker’s lost wages and medical bills due to a job-related injury.


The majority of states require businesses to have workers’ compensation insurance. The state in which the construction business is located and conducting business dictates the level of coverage. 


COMMERCIAL AUTO INSURANCE


Commercial auto insurance is required for construction businesses that own vehicles. Auto insurance covers damages and injuries from vehicle accidents. The minimum coverage required is set by the states in which the business operates.


HIRED AND NON-OWNED AUTO INSURANCE


When a business requests that its employees use their personal vehicles for business purposes, other than driving to and from work, it increases the risk of auto liability claims. Hired and non-owned auto insurance is necessary for construction businesses that utilize personal, rented, or leased vehicles for business purposes.

KBI CAN HELP YOUR BUSINESS SECURE CONSTRUCTION INSURANCE


There is a lot to consider to ensure your construction business is protected. The last thing you want to happen is for damages to occur, or get sued only to discover you don’t have the type or level of coverage necessary. These kinds of circumstances can lead to construction halting or your business struggling to keep afloat financially.


Fortunately, construction liability insurance and builder’s risk insurance can mitigate a significant amount of risk for the duration of construction projects. It is also possible to purchase riders to cover any potential gaps or exclusions in policies.


If you're in the market for construction business insurance, KBI Benefits can help. Our team of brokers will work with you to identify construction insurance policies to meet each of your construction project's needs. We will help ensure you are fully protected at the level required to mitigate potential risks based on project requirements.


Contact us today by submitting our online contact form or calling us at 408.366.8880. We look forward to working with you!

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