Can You Be an Additional Insured on a Builder’s Risk Policy?

Builder’s risk insurance protects construction projects while they are underway. It covers damage from perils like fire, theft, storms, and more. While the property owner or general contractor typically purchases the policy, others involved in the project can request to be added as additional insureds.

Being named as an additional insured on the builder’s risk policy provides important protections that stakeholders should understand when participating in a construction project.

What Is Builders Risk Insurance?

Builders risk insurance, also called course of construction insurance, is a specialized property insurance policy for buildings under construction. It covers materials, equipment, and the partially completed structure for damage during the construction phase.

Common perils covered by builder’s risk insurance include:

• Theft
• Vandalism
• Fire
• Water damage
• Weather events like hail, wind, lightning
• Explosions
• Collapse

It also covers materials and supplies at the site or in temporary storage/transit. Plus soft costs like construction delays may be covered.

Builder’s risk insurance does not cover liability exposures – general liability policies are still needed. It also excludes flaws in design or materials and wear and tear.

Who Typically Purchases the Builders Risk Policy?

The builder’s risk policy is usually purchased by either:

• The property owner
• The general contractor

The specific project contract will generally stipulate which party is required to obtain the builder’s risk coverage.

For example, the owner may opt to purchase the builder’s risk policy and require proof of coverage from the contractor before allowing work to start. Or the contract may state the general contractor will obtain the builder’s risk coverage.

Why Be Added as an Additional Insured?

While the property owner or general contractor normally purchases the builder’s risk policy, others involved in the project can be included as additional insureds. Here are some key benefits to additional insured status:

Access to Coverage

Being named as an additional insured provides direct access to the builder’s risk coverage for your work and materials in the event of a covered loss.

If damage occurs, you can file a claim just as the purchaser of the policy can. Without additional insured status, you would need to rely on the policyholder to file claims on your behalf.

Mitigate Subrogation Risk

Most builder’s risk policies allow the insurer to subrogate against third parties that cause a loss. This means if your work causes damage, they can seek to recover what they paid out for the claim from you.

But when you are an additional insured, you have protection from these subrogation claims for losses covered under the policy. The insurer cannot seek damages from its own insured parties.

Participate in Claims Process

As an insured party, you have full involvement in claims processing, evidence collection, and settlement discussions after a loss. Rather than relying on another party to represent your interests, you have a seat at the table.

Meet Contract Requirements

Many construction contracts stipulate that the builder’s risk policy must name other parties involved in the project as additional insureds. Securing this additional insured status satisfies contractual obligations.

Without evidencing you are an insured, you may not be compliant with contract terms. In a worst case scenario, this could preclude you from working on the project altogether.

Additional Insured Endorsements

To add other parties as additional insureds to the builder’s risk policy, an endorsement must be issued naming them as insureds.

The insurer’s underwriters first need to approve adding the requested party after reviewing their role in the project. Once approved, the endorsement gets issued with specific wording designating the party as an insured.

Different builder’s risk insurers may have different endorsement forms used, but all essentially extend insured status to the other entity. This endorsement should get provided along with the standard certificate of insurance when requested.

Typical Additional Insured Parties

While the owner or general contractor are the named insureds under the base builder’s risk policy, coverage often gets extended to others involved through additional insured endorsements:

• Subcontractors: Any specialty trades doing work on the project benefit from direct builder’s risk access.

• Architects & engineers: Design professionals involved in the project plans and drawings.

• Lenders: The bank or other entity financing the construction will want insured status.

• Partners / investors: Any other groups investing capital into the project.

• Tenants: For commercial projects, future tenants leasing space often want protection.

Requesting Additional Insured Status

If you want additional insured status on a builder’s risk policy as a specialty contractor, subcontractor, or design professional, here are key steps:

Discuss early in bidding or negotiation process

Consider raising the topic of builder’s risk additional insured status early when first bidding or negotiating your contract, especially for major projects.

Get builder’s risk policy details

Ask to see the full builder’s risk policy to identify any provisions regarding additional insured requirements and confirm the coverage offered.

Add required language to contracts

Have your contracts include verbiage specifying that you are required to be named as an additional insured under the builder’s risk policy in place.

Secure endorsement copy

Formally request a copy of the actual additional insured endorsement listing you as a named insured under the builder’s risk policy.

Evidence on COIs

Make sure certificates of insurance note your status as an additional insured on the builder’s risk policy.

Review and understand policy

Carefully review the builder’s risk policy, even as an additional insured. Know exclusions, limits, claims processes, etc. to protect yourself.

Owner & Contractor Coverage Responsibilities

While owners and general contractors typically purchase builder’s risk coverage, it can create confusion around who is ultimately responsible for insuring project risks:

• The owner generally wants protection for their financial interest in the property.

• The contractor wants coverage for materials, equipment, and work performed.

Ideally, open communication and coordination between the two when obtaining builder’s risk policies prevents coverage gaps. Even with both parties pursuing their own builder’s risk policies, gaps can still inadvertently occur.

For their own protection, subcontractors and other project participants may want to consider purchasing their own builder’s risk coverage in some cases rather than relying solely on the owner or general contractor’s policies.

Owner-Arranged Insurance Considerations

Many construction contracts stipulate the owner will provide builder’s risk coverage for the project. When this owner-arranged insurance is in place, here are some important considerations:

• What specific perils or causes of loss are covered?
• Are materials/equipment covered when in transit or storage?
• What sub-limits or coverage caps are in place?
• Who is currently named as additional insureds?
• Does the policy have adequate limits for the full project value?
• What is the claims process if a loss occurs?

Ideally, it is best practice for other parties like general contractors and subcontractors to request a full copy of the builder’s risk policy that the owner has arranged. Fully understanding the coverages and exclusions allows other project participants to identify any potential gaps that need to be addressed.

If the owner’s builder’s risk policy proves deficient, other involved parties may need to supplement with their own builder’s risk coverage.

Builder’s Risk Claims Scenarios

Understanding potential claims scenarios helps underscore the importance of builder’s risk insurance and additional insured status:

• A rain storm causes water damage to finished flooring on the 2nd floor – the flooring contractor files a claim as an additional insured to recoup costs.

• Vandals break into the site overnight and damage plumbing materials and equipment – the plumbing subcontractor files a claim under their additional insured status.

• A small fire linked to electrical wiring damages framing and structural steel – the electrical sub files a claim to avoid having to absorb the damages.

• Windstorm blows down scaffolding which then damages poured concrete – the concrete subcontractor files a claim as an additional insured for the damaged concrete work.

In each scenario, being added as an additional insured on the builder’s risk policy provides protection that simply relying on the general contractor or owner to file claims on your behalf does not.

Key Takeaways

Builder’s risk insurance is vital for protecting construction projects. While usually purchased by the owner or general contractor, specialty trades should strongly consider requesting additional insured status through endorsements.

Being named as an insured on the policy allows you to file claims directly and helps mitigate risks. Carefully review builder’s risk coverages and seek additional insured status early in the project process.