When buildings are under construction, they face the same risks completed buildings face. Buildings that are not yet finished face the dangers of vandalism, fire, winds, storms and a variety of other incidents that may result in significant losses. To pay for such losses, cost of construction insurance is available. Most forms provide lists of various incidents that are covered. However, some insurers offer all-risk coverage, which means that the coverage pays for all losses, except for exclusions listed on the policy. Liability coverage is usually not part of a course of construction policy, this should be secured through a separate policy. The policy basically covers the building property, including material that may have yet to be attached to the building. In addition, the policy covers:
When a direct loss occurs, there are often other losses that come with it. These are commonly referred to as soft costs. Examples of soft costs include legal fees, construction loans and other related expenses. They are often things that are not normally covered during the regular course of business but may be covered only if there is a major loss that will slow the construction process. It is important for policyholders to understand whether such costs are covered or not under their individual policies. When these items are covered, the policy pays for several expenses that the insured must pay for as a result of the loss.
Several systems in the building must be tested to confirm that they are in working order. Before the building can be considered complete, air conditioning, heating and electrical systems must all be functional and safe. If there are malfunctions or mistakes, the results could be disastrous. Some buildings have caught fire, and utility units have exploded when building systems were not properly tested. Course of construction policies may include testing coverage, which pays for system damages due to testing. Coverage is provided as long as the damage was a result of a system error and not the fault of the contractor.
Since projects vary and policies are created according to specific insurers’ rules, it would be time consuming to read a list of every possible incident that would be covered for every type of project. Some policies have special inclusions that may not exist on other insurers’ policies. For example, contract penalties and contractor negligence may be covered. Policyholders should check to see if they have replacement cost endorsements on their policies. These endorsements allow policyholders to obtain new items instead of being paid the depreciated value of their damaged property.
The majority of these special policies have several exclusions, which are listed in the proper section. For additional fees, policyholders may be able to buy coverage for certain exclusions. To learn more about these options, discuss them with an agent. Some examples of exclusions include employee theft, loss without proof and water damage.