Facts on Builder’s Risk
By Amy Brown
When constructing a new facility or expanding a current one, it is critical to include insurance in the planning of the project. Construction sites involve unique risks that may not be included in a standard business-insurance policy. It is important to research the potential hazards of a project prior to breaking ground.
Facilities under construction are vulnerable to damage from the elements and other threats. For example, they are an easy target for thieves looking to steal tools or materials left on site. They may also increase an owner’s risk of liability. Construction sites are considered “attractive nuisances.” That is, they contain items and conditions—such as machinery, dirt piles, open pits, tools, and building components and materials—that make them appealing to “explorers.” Liability could be placed on the owner or controller of the premises in the event of an accident, regardless of whether the person was trespassing.
Storage owners should take precautions to safeguard their construction sites. The best way to avoid accidents is to block access to the site with a locked fence and signs that indicate trespassing will not be tolerated.
Builder’s-risk insurance is a specialized policy designed to cover the property-loss exposures associated with construction projects. This coverage protects the owner’s investment from direct physical loss to the storage buildings during the progress of construction. Coverage may be written for the completed value of the project and can be extended for facilities under expansion. Buildings under construction may be included, and then endorsed to finished operations.
The insurance-requirements section of the construction contract should specify who is responsible for purchasing the builder’s-risk insurance and exactly what coverages to include in the policy. In some cases, the builder may be responsible for providing coverage. In others, it may be the storage owner/developer’s responsibility.
It is important to read and understand the details of a builder’s-risk policy, as such policies can vary significantly. Property coverage will depend on the wording of the “Property Insured” and “Property Excluded” sections. Both should be read carefully to understand what is covered, as well as the amounts, limits and restrictions.
Property covered by a builder’s-risk policy can include all fixtures, materials, supplies, machinery and equipment to be used in the construction. Scaffolding, false work, fences and temporary structures may be also covered. It is important to know where property coverage will take place, as there may be limits on property that is off site or in transit. Some policies may exclude theft, wear and tear, ordinance or law, machinery, testing, workmanship or materials, design error, collapse, flood, earthquake, etc.
Knowing what perils are excluded from the policy will help an owner avoid surprises if a loss occurs. It also provides him the opportunity to purchase any available endorsements for additional protection.
Disclaimer: This article was written as a guideline to aid in minimizing risk in self-storage facilities. The information contained in this document is intended to be of general interest and does not address the circumstances of any particular individual or entity. Nothing in this document constitutes legal advice, nor does any information constitute a comprehensive or complete statement of the issues discussed or the laws relating thereto.
Universal Insurance Facilities Ltd. offers a comprehensive package of coverages specifically designed to meet the needs of the self-storage industry. For more information, or to get a quick, no-obligation quote, call 800.844.2101; e-mail firstname.lastname@example.org; visit www.vpico.com/universal.
Protect Yourself With Insured Contractors
During facility construction, accidents resulting in property damage or injury to tenants, employees or the general public can happen, even with the most reputable company. Hiring contractors with proper insurance coverage is a good way to protect your facility from vendor-liability exposures.
The best way to prevent blame is to take appropriate measures when hiring contractors. Seek out reputable firms that are licensed, bonded and insured. Get references from business associates or friends who have had good experiences. Request from the contractor a certificate of general-liability and workers’-compensation insurance.
A certificate of insurance is evidence the vendor is insured by a financially stable company and carries adequate amounts of coverage for the service being performed. It should contain information on the insurer, insurance agency, types of insurance, policy numbers, effective dates, limits, certificate holders and any special provisions. Check to see the vendor’s policy limits are at least equal if not greater than those for your facility and the policy effective dates are current. Hiring licensed professionals with proof of insurance may drastically reduce your liability in a vendor-related claim.