Avoiding Builders Risk Pitfalls: Why proper coverage review can save your development project
When development companies secure builders risk insurance, the focus is often on getting the project started quickly not always on the fine print of coverage. Yet overlooking key details like limits of insurance, coinsurance clauses, and policy safeguards can create serious financial exposure down the line. A few extra hours of review now can prevent months of costly disputes later.
1. Review the Limit of Insurance for Both the Existing Structure and the Additions
Builders risk policies often cover both the existing building and the new additions or renovations. Many developers assume the total policy limit automatically covers everything on-site but that’s not always the case.
You should:
• Confirm that the limit of insurance reflects the full combined value: the existing structure plus all planned improvements and materials.
• Reassess coverage as the project progresses costs rise quickly with material changes and mid-project upgrades.
If the policy limit only reflects the construction value and not the existing structure, you may face an unexpected shortfall after a loss.
2. Understand Coinsurance and How It Impacts You
Coinsurance is one of the most misunderstood and financially dangerous clauses in builders risk policies. It requires the insured to carry a minimum percentage (often 80% to 100%) of the property’s total value in coverage.
If your coverage limit falls below that threshold, you’ll be penalized even on partial losses. For example, if your project is valued at $10 million and your coverage is only $7 million on an 80% coinsurance clause, you may recover only a portion of your claim even if the damage is small.
To avoid this:
• Match your limit of insurance to the total anticipated project cost, including the structure, additions, and all soft costs.
• Review your loan amount (before interest) to ensure it aligns with the total construction cost. A properly matched loan and coverage limit can help avoid coinsurance penalties.
3. Include Carrying Costs and Delay Expenses
Builders risk insurance isn’t just about bricks and beams. Policies can also include coverage for carrying costs, interest on loans, and delay-related expenses that continue even when construction stops due to a loss.
Make sure your policy includes:
• Soft cost coverage for financing charges, architectural fees, permits, and extended overhead.
• Delay in completion coverage to protect against income or use losses from project interruptions.
These add-ons can make a major difference in a real-world loss scenario especially when a fire, storm, or flood stalls progress for months.
4. Don’t Overlook Safeguards and Policy Conditions
Most builders risk policies include safeguard provisions requirements that the policyholder must comply with to keep coverage valid. These can include maintaining security systems, heat during winter months, or temporary protections after a storm.
Failing to comply with these conditions could void or reduce coverage. Always review:
• What safeguards are specifically listed in your policy.
• What the carrier defines as “reasonable care” or “protective maintenance.”
• Who is responsible for ensuring those safeguards remain active during the project.
5. Bring in the Right Experts: Public Adjusters and Local Agents
Your insurance agent plays a vital role in placing your builders risk coverage. However, public adjusters can also be a powerful resource — especially before a loss occurs. Because we handle damage assessments every day, we see how policies perform under pressure.
Public adjusters can:
• Help review your builders risk policy alongside your agent.
• Identify potential coverage gaps or coinsurance risks before they become problems.
• Provide insight into real-world claims outcomes and best practices in policy design.
A short review with both your insurance agent and a seasoned public adjuster can ensure your policy not only satisfies lender requirements but truly protects your investment.
Final Thoughts
For development companies, builders risk insurance is more than a box to check it’s a critical financial safeguard. Reviewing limits, coinsurance, soft costs, and safeguard provisions can make the difference between a fully funded recovery and a painful out-of-pocket loss.
By taking a proactive approach and collaborating with your insurance agent and public adjuster you can ensure your next project is protected from every angle, from groundbreaking to completion.
Seltser & Goldstein has a long history as a public adjusting Firm in New England. We made a commitment in 1935 when we opened our doors that our focus would be to educate and represent all our clients to the best of our ability.
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