Course of Construction Vs. Builders Risk Insurance

Key takeaways

• Course of construction insurance (“COC”) and builders risk insurance are two names for the same policy. Both cover physical property damage to buildings under construction or renovation.
• This insurance covers property under construction, not liability. It typically protects the structure, materials (even in transit or storage), and equipment on site against perils like fire, theft, vandalism, and certain weather events.
• Coverage typically starts when work begins and ends when construction finishes. Policies generally remain in effect through the build period and expire once the project is completed or the property is occupied or ready for use.
• Important gaps exist: builders risk has notable exclusions. It won’t cover accidents causing injuries to others (those are covered by separate general liability insurance), nor issues like contractor errors, poor workmanship, normal wear-and-tear, or unapproved perils (e.g. flood or earthquake without specific endorsements).
• Course of construction insurance is often required by lenders or contracts. Even if not mandated by law, most banks and project owners insist on it to protect their investment. It provides crucial peace of mind against costly construction setbacks.
• Work with an experienced insurance broker. A broker can tailor coverage (including adding needed endorsements) to fit your project and advise on additional coverages (like liability or equipment insurance) so you’re fully protected from all sides.

What is Course of Construction Insurance?

Course of construction insurance, often called builders risk insurance, is a type of commercial property insurance that protects a building or project while it’s under construction or substantial renovation. Its purpose is to cover the physical structure and materials from unexpected events during the build.

How does course of construction insurance work?

A course of construction (builders risk) policy is temporary coverage that spans the duration of a construction project. Here’s how it works, step by step:

• Start of coverage: The policy typically incepts (begins) just before construction starts – often when you start moving materials or equipment to the site for the project. In fact, it’s crucial to have the policy active by the time any construction materials are delivered, so they’re covered from day one.
• End of coverage: The policy terminates when the project is completed or when the building is ready for its intended use (e.g., a new building is occupied or a renovated space is put back into use). Some policies may also end coverage if the project is abandoned or put to use before completion. Always check your policy’s exact terms for when coverage ends.
• Policy structure: You can purchase builders risk insurance as a standalone policy dedicated to the project’s construction phase. In some cases, it may also be available as an endorsement added to an existing commercial property policy for the property owner, but typically it’s separate. The coverage limit generally equals the completed value of the project (excluding land value).
• Who buys it: Either the property owner or the general contractor usually purchases the coverage, depending on what your construction contract specifies. Whichever party is responsible should ensure all stakeholders with an insurable interest (such as the owner, GC, and major subcontractors) are named in the policy as insureds to extend protection to everyone involved.
• Why it’s needed: Course of construction insurance provides financial protection that standard property insurance doesn’t during a build. Without it, any fire, theft, or other disaster at the site could leave the responsible parties with huge out-of-pocket costs, since a normal property policy would not yet apply and the project could grind to a halt due to lack of funds.

What does course of construction (builders risk) insurance cover?

• The structure under construction: The partially built building or structure itself is covered while it’s being constructed, renovated, or repaired.
• Materials and supplies on-site: Building materials, supplies, fixtures, and equipment stored at the construction site are protected if they’re damaged or lost due to a covered peril. This can include things like lumber, roofing materials, windows, appliances waiting to be installed, etc.
• Materials in transit or storage: Many builders risk policies can be extended to cover materials in transit (being transported to your site) and items stored off-site that will be installed in the project. This ensures that, for example, if a shipment of expensive fixtures is damaged in a truck accident or stolen from a temporary storage location, you can file a claim.
• Common perils (causes of loss): The policy typically covers damage from events such as fire, lightning, windstorms or hail, theft or vandalism, explosions, and possibly vehicle collision or aircraft impact (if something flies into or crashes into the structure). Essentially, it’s often written as an “all-risk” (or “open perils”) policy, meaning any cause of loss is covered except those specifically excluded.
• Temporary structures & project site property: Coverage can include not just the building itself but also temporary structures like scaffolding, construction forms, fencing, or even temporary buildings such as trailers used at the site. Debris removal costs after a covered loss can also be included, helping pay to clear the site after an incident (e.g., removing rubble after a collapse or fire).
• Optional coverages (endorsements): Depending on your needs, you may add extra protections. Common options include “soft costs” coverage (for additional expenses that result from a delay due to a covered loss, such as lost rental income, interest on loans, architectural/engineering fees to re-do work, or permit costs), and inland marine coverage for contractors’ tools and equipment (since builders risk covers some equipment on-site, but contractors often get separate inland marine or “contractors equipment” insurance for their valuable machinery). Other add-ons include coverage for specific perils like flood or earthquake, as well as coverage for things like ordinance or law changes, and ‘delay in completion’ coverage for financial losses if a project is delayed by a covered claim.

What does it not cover? (Key exclusions and gaps)

• Third-party liability: Builders risk is not a liability insurance. It generally will not cover injuries to third parties (like visitors to the site) or damages your work causes to someone else’s property. For that, you need a separate Commercial General Liability (CGL) insurance policy (and possibly other liability coverages, like professional liability for design professionals, or an Owner/Contractor Controlled Insurance Program for large projects).
• Professional mistakes & faulty workmanship: If there’s a loss due to design errors, faulty workmanship, or use of defective materials, the cost to repair those mistakes is usually excluded. For example, if a poorly installed beam causes a wall to collapse, the collapse damage might be covered, but the cost of redesigning or rebuilding the faulty beam itself is not. To protect against design/work errors, parties might need professional liability insurance or warranties, not covered by a standard COC policy.
• Normal wear, tear, or maintenance issues: Builders risk covers sudden, accidental events – not gradual deterioration. Damage from neglect, rust, corrosion, or general wear and tear is excluded. For instance, if materials deteriorate because they were left exposed to weather for too long, that loss wouldn’t be covered since it was preventable through proper site management.
• Certain weather & disaster events (without endorsements): Floods, earthquakes, and sometimes hurricanes or other named windstorms are typically not covered by a basic builders risk policy. These high-severity events usually require special endorsements or separate policies. If your project is in an area prone to these risks, discuss adding coverage.
• Acts of war or government action: Almost all property policies, including builders risk, exclude damage from war, terrorism (sometimes covered separately), or government seizures.
• Employee theft or dishonesty: While theft by outsiders is often covered, theft by your own employees or insiders is usually excluded. There are separate crime insurance or fidelity bonds to cover employee theft if needed.
• Financial or contract penalties: Builders risk won’t cover things like fines, penalties, or economic losses due to not completing the project on time (unless you add a specific “delay in completion” coverage). For example, liquidated damages for missing a contract deadline would not be paid by builders risk.

Comparison: Course of Construction vs Builders Risk

Bottom line: There’s no meaningful distinction between course of construction and builders risk insurance – they are two names for the same essential coverage.

Who should have a course of construction (builders risk) policy?

• Property owners or real estate developers: If you are building a structure (be it a new home, commercial building, or any property), you need to protect your investment during construction.
• General contractors and builders: Contractors often carry builders risk to protect the projects they’re responsible for. In many cases, the contract between the owner and the contractor dictates which party must purchase the policy. Regardless of who buys it, contractors should ensure they’re named on the policy to cover their work and materials.
• Subcontractors or trades with significant materials on site: While usually the main contractor or owner provides the coverage, subcontractors should confirm a policy is in place and that they’re included as insured. If not, a subcontractor might consider an installation floater for their materials until they are installed.
• Lenders or financial institutions: Banks financing a construction project typically require evidence of builders risk insurance as a loan condition. They want assurance that their collateral (the partly built property) is insured against disasters. (Lenders are often named as loss payees on the policy to protect their interest.)

How much does builders risk insurance cost?

• Project value: The total completed replacement value of the structure is a primary factor. Insuring a $500,000 home build will cost less than a $5 million commercial project, since the potential loss is smaller.
• Construction type & materials: Projects built with fire-resistant materials (steel, concrete) often cost less to insure than wood-frame constructions, which are higher risk for fire. Similarly, renovation projects involving older buildings (which might have outdated wiring or structural issues) could cost more to insure than new construction.
• Project duration: The longer your construction timeline, the greater the exposure period. A 6-month build typically costs less to cover than an 18-month project, because there’s less time for something to go wrong. If you need to extend the policy due to delays, expect additional premiums.
• Location and hazards: If the project is in a region prone to natural disasters (e.g., hurricanes, earthquakes, floods) or in an area with high theft/vandalism rates, those risk factors will increase the premium. For example, coastal projects might have higher rates due to hurricane risk unless mitigation measures are in place.
• Coverage specifics & deductibles: Higher coverage limits (bigger project values) and additional endorsements (like adding flood coverage or higher soft cost limits) will raise costs. Conversely, opting for a higher deductible (the amount you pay out-of-pocket on a claim) can reduce your premium, as it shifts a bit more risk back to you.
• Contractor experience and safety measures: Insurers may offer better rates to projects run by experienced contractors with a strong track record of safety, or for projects that have robust security and fire protection measures (e.g. fenced site, alarm systems, on-site watch, sprinkler systems active as soon as installed, etc.). These reduce the risk of losses and can be reflected in premium savings.

Canada vs. U.S.: What to know

Course of construction (builders risk) insurance is common and available in both Canada and the United States, with similar purpose. Here are a few regional considerations for a Canada/U.S. audience:

• Not legally mandated, but standard practice: In both Canada and the U.S., there’s typically no law requiring builders risk insurance. However, it’s often contractually required in construction agreements and by lenders for construction loans. If you’re working with a bank or a client, expect to need a policy in place.
• Coverage wording can vary by jurisdiction: Insurance policy wordings and terms (like what perils are covered or excluded) may differ slightly by insurer and regions (e.g., Canadian insurers might automatically include certain coverages that U.S. insurers offer as add-ons, or vice versa). Always review the policy language and ensure it meets any local building code or regulatory requirements for your area.
• Climate and catastrophe risks: North America’s climate diversity means different concerns by region. For instance, projects in coastal U.S. states might need named windstorm/hurricane coverage; parts of California or British Columbia may need earthquake insurance; certain river valleys in both countries might need flood coverage. These perils are not standard in a basic builders risk policy, so if your project is exposed to these, you’d add endorsements or separate policies.
• Construction standards and fire protection: Insurers in both Canada and the U.S. will consider local fire protection (distance to fire stations, hydrants, etc.) and building codes. Projects in areas with stronger building codes or better emergency response may benefit from lower premiums.
• Provincial vs state nuances: Terms like “course of construction” are more commonly used in Canada, whereas “builders risk” is widely used in the United States. But both terms are understood in each country. Some insurers or brokers in Canada might use “COC” often, while U.S. counterparts say “builders risk.” The coverage goal remains the same.
• Insurance broker expertise: Regulations and industry practices vary between provinces and states, so it helps to consult a broker familiar with local requirements. ALIGNED Insurance, being licensed in both Canada and the U.S., can guide you through region-specific considerations so your policy complies with any regional nuances.

Checklist: Before you request a builders risk insurance quote

• Location & type of project: Exact site address and whether it’s new construction, a major renovation, an addition, etc.
• Total project value (budget): Estimated completed value of the project (excluding land). This helps determine your coverage limit.
• Project timeline: Expected start date and completion date (or duration of the construction).
• Construction type: Materials and methods (e.g., wood-frame house vs steel/concrete structure) – affects risk and coverage needs.

• Required policy limit: The full value of the finished structure (this should be the coverage amount to fully protect your investment).
• Named insureds: All parties who should be covered (owner, general contractor, key subcontractors, lenders as loss payees, etc.).
• Coverage extensions needed: Will you need endorsements for soft costs, materials in transit, equipment on site, flood/earthquake, etc.? Identify any exposures beyond standard coverage.
• Deductibles & policy form: What deductible amounts are you comfortable with? Are you getting an “all-risk” policy (covers all perils except exclusions) or a “named peril” policy (specific events listed)?

• Site security measures: Are there fences, lighting, or security guards/alarm systems to prevent theft or vandalism? (May impact coverage and premium.)
• Fire protection: Proximity to fire hydrants or stations, and on-site measures (like maintained fire extinguishers or early use of sprinklers).
• Unique risk factors: Is the project in a floodplain or seismic zone? Are there environmental hazards (e.g., old buildings with asbestos)? These factors might need special cover or risk mitigation.

• Liability insurance: Ensure you have a general liability policy for the project in case of third-party injury or property damage claims (builders risk won’t cover those). If employees are on-site, have required workers’ compensation coverage in place.
• Equipment/Tools coverage: Consider an inland marine (contractor’s equipment) policy for your valuable tools, machinery, and equipment that might not be fully covered by the builders risk policy, especially if you own expensive equipment used on site or moving between sites.
• Contractual obligations: Check your construction contract or loan agreement. Who is contractually responsible for obtaining builders risk insurance? This may dictate whether the owner or contractor should secure the policy. Ensure compliance with any required coverage terms (limits, specific endorsements, etc.).

1. What risks or perils are excluded from this policy, and can I add coverage for them if needed? (Understanding exclusions like flood, earthquake, design defects, etc.)
2. Will the policy cover all stages of my project? (Confirm when coverage starts and ends, and how to extend if your project is delayed beyond the policy term.)
3. What deductible and coverage limits make sense for my project? (Ensure you’re comfortable with out-of-pocket costs and have adequate coverage for worst-case scenarios.)
4. How can I coordinate this with my other insurance? (For example, adding all relevant parties to the policy, and making sure you have liability, commercial auto, or other complementary policies in force.)

Frequently Asked Questions (FAQ)

Final Step: Protect Your Project with the Right Partner

• Tailored advice: One of our experienced commercial insurance brokers will review your project details and recommend coverage that fits your unique needs.
• Fast, no-pressure process: We’ll guide you through our Audit. Optimize. Execute. approach – identifying your risks (Audit), customizing coverage to optimize protection (and cost), and swiftly executing your policy so you can focus on building. No obligation, just helpful guidance.
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