How Does Builders Risk Insurance Work? A Guide for Colorado Contractors

Imagine your crew is months into a construction project. The framing is up, materials have been delivered, and everything is moving toward completion. Then a severe Colorado storm rolls through overnight, damaging part of the unfinished structure and thousands of dollars in materials.

Who pays for the damage?

That is where builders risk insurance may come into play.

Construction projects create unique property risks because an unfinished building doesn't fit neatly into the same insurance category as a completed property. Contractors, developers, owners, and other stakeholders can have significant amounts of money invested in a project before anyone receives the keys.

So, how does builders risk insurance work? Builders risk insurance, also called course of construction insurance, is property coverage designed to protect a building or structure while it is being constructed or renovated. Depending on the policy, coverage may extend to materials, supplies, fixtures, and equipment that will become a permanent part of the structure.

For Colorado contractors, understanding this coverage can be an important part of protecting a project from the first stages of construction through completion.

What is Builders Risk Insurance?

Builders risk insurance provides temporary property coverage for a construction or renovation project.

Unlike commercial property insurance intended for a completed building, builders risk coverage addresses the changing property exposure of an active construction site.

Consider a new commercial building. At the beginning, there may be little more than a foundation. Months later, the site may contain framing, windows, roofing materials, plumbing fixtures, electrical components, HVAC systems, and other valuable materials.

Builders risk insurance can help protect that growing investment from covered losses during construction.

Coverage can be appropriate for projects including:

• New residential construction

• New commercial buildings

• Major renovations

• Building additions

• Remodeling projects

• Certain installation projects

  
  

The right coverage depends on factors such as project value, location, construction type, duration, and contractual requirements.

How Does Builders Risk Insurance Work?

A builders risk policy generally covers a specific construction project for a defined period.

Before work begins, the owner, contractor, developer, or another responsible party purchases coverage based on the characteristics and expected completed value of the project.

If covered property is damaged by a covered event during the policy period, a claim can be filed. The insurer evaluates the loss based on the policy's terms, limits, deductibles, conditions, and exclusions.

For example, suppose a contractor is constructing a new commercial building in Colorado and a covered windstorm damages partially installed roofing and materials stored at the jobsite. If the damaged property and cause of loss fall within the policy's coverage, builders risk insurance may help pay for repairs or replacement.

However, policies can differ considerably. Contractors should never assume that every builders risk policy provides the same protection.

What Does Builders Risk Insurance Cover?

Builders risk coverage generally centers on the construction project and property intended to become part of the finished structure.

Structure Under Construction

The partially completed structure itself is generally the primary focus of the policy.

As more labor and materials become incorporated into the building, its value increases. A major loss near the end of construction can therefore be especially expensive.

Building Materials and Supplies

Depending on the policy, builders risk insurance may cover materials and supplies intended to become part of the finished structure, such as:

• Lumber and drywall

• Roofing materials

• Windows and doors

• Electrical components

• Plumbing fixtures

• Flooring and cabinets

• HVAC components

  
  

Contractors should pay particular attention to materials that are being transported or stored away from the jobsite. Coverage for property in transit or temporary off-site storage can vary and may be subject to separate limits.

Fixtures and Installed Equipment

Equipment and fixtures that will become a permanent part of the completed building may also be covered, depending on policy terms.

This distinction matters because reusable contractor tools and equipment are generally a different exposure. Tools, machinery, and mobile equipment may require contractors equipment or inland marine coverage rather than relying on builders risk insurance.

Additional Expenses

Some policies may also provide or offer coverage for expenses such as debris removal or certain additional costs resulting from a covered loss.

Other protections, including certain soft costs or delays associated with a covered loss, may require additional coverage or endorsements.

What Types of Losses May Be Covered?

The exact causes of loss covered vary by policy. Depending on the form, builders risk insurance may provide protection against events such as:

• Fire

• Lightning

• Wind

• Hail

• Theft

• Vandalism

• Certain explosions

  
  

For Colorado contractors, weather deserves particular attention. Hail, high winds, snow, freezing temperatures, and rapidly changing conditions can create challenges for active construction projects.

However, a hazard being common in Colorado does not mean every builders risk policy automatically covers it. Contractors should verify how their specific policy handles relevant weather exposures, deductibles, and exclusions.

What Doesn't Builders Risk Insurance Cover?

Builders risk insurance is not designed to cover every problem that can occur during construction.

Depending on the policy, exclusions or limitations may apply to issues involving:

• Normal wear and tear

• Employee theft

• Faulty workmanship

• Defective materials

• Faulty design or planning

• Mechanical breakdown

• Certain water damage

• Flood or earth movement

• Contractual penalties

• War or government action

  
  

Some excluded or limited exposures may be addressed through endorsements or separate policies.

Because exclusions vary, contractors should focus on the actual policy language rather than assuming a particular loss will or won't be covered.

Builders Risk vs. General Liability Insurance

One common source of confusion is the difference between builders risk and general liability insurance.

They serve different purposes.

Builders risk is property coverage. It is designed to protect covered property associated with the construction project against covered physical losses.

Commercial general liability insurance generally addresses claims involving bodily injury or property damage to others arising from business operations, subject to policy terms and exclusions.

For example, if a covered fire damages an unfinished structure, builders risk coverage may apply to the project damage. If a visitor is injured at the jobsite and alleges the contractor was negligent, general liability coverage may be relevant instead.

Colorado contractors may need both because one is not a substitute for the other.

Who is Responsible for Builders Risk Insurance?

Depending on the project, builders risk insurance may be purchased by the:

• Property owner

• General contractor

• Developer

• Another party with an insurable interest

  
  

Construction contracts frequently specify who is responsible for obtaining coverage.

Contractors should review those requirements before beginning work rather than assuming the owner or another party has taken care of everything.

Multiple parties can have a financial interest in a project, including owners, general contractors, subcontractors, developers, and lenders. The policy should be structured appropriately for the contractual arrangement and the parties involved.

Even when someone else purchases the policy, contractors should verify that appropriate coverage is actually in place.

How Much Builders Risk Insurance Do You Need?

Builders risk limits are commonly based on the project's expected completed value rather than simply what has been spent at the time the policy begins.

The appropriate valuation method depends on the policy, but contractors should be prepared to provide accurate project information, including:

• Total project value

• Construction type

• Square footage

• Location

• Project scope

• Start and completion dates

• Materials being used

• Storage arrangements

• Existing structures involved in renovations

• Site security and protection measures

  
  

Accurate values matter. A project that is only 20% complete today could eventually represent a much larger property exposure.

When Does Builders Risk Insurance End?

Builders risk is temporary coverage, so understanding when the policy ends is critical.

Depending on the policy, coverage may terminate when:

• The policy expires

• Construction is completed

• The property becomes occupied

• The insured's interest in the property ends

• Permanent property coverage takes effect

• Another termination condition in the policy occurs

  
  

Contractors should pay particular attention to this transition near the end of construction. If builders risk coverage ends before permanent property coverage begins, a potential insurance gap can result.

Project delays are another consideration. If construction takes longer than expected, the policy may need to be extended if the insurer permits it.

What About Renovation Projects?

Builders risk isn't limited to ground-up construction. It can also be important for major remodeling and renovation projects.

These jobs can create an additional complication: the existing building.

Suppose a contractor is renovating an existing commercial building and a fire damages both the newly installed materials and part of the original structure. Whether both portions are covered depends on how the insurance program is structured.

Contractors should specifically ask how existing property is treated when arranging builders risk coverage for renovations. Never assume the existing structure is automatically covered.

Why Builders Risk Matters for Colorado Contractors

Colorado construction projects face a wide range of exposures.

Wind and hail can damage unfinished structures and materials. Snow and freezing temperatures can complicate projects. Depending on location, contractors may also need to consider wildfire, flood, or other site-specific exposures.

Then there are risks common to construction sites everywhere, including theft, vandalism, and fire.

A significant property loss can do more than destroy materials. It can interrupt the construction schedule, delay other trades, push back completion, and create additional expenses.

Builders risk insurance cannot prevent those events, but appropriate coverage can help protect the financial investment in a project when a covered loss occurs.

Common Builders Risk Mistakes to Avoid

Understanding how builders risk insurance works is only part of the equation. Contractors should also avoid several common mistakes.

Assuming Someone Else Has It Covered

If the owner or developer is purchasing the policy, verify the coverage instead of simply assuming the project is protected.

Choosing Coverage Based Only on Price

Premium matters, but so do deductibles, exclusions, limits, and coverage for materials in storage or transit. A less expensive policy could provide less protection.

Forgetting About Materials Away From the Site

If valuable materials will be stored at another location or transported to the project, determine how the policy treats them.

Ignoring the Completion Date

Know what triggers the end of coverage and what happens if the project is delayed.

Treating Builders Risk as Complete Contractor Coverage

Builders risk is only one part of a contractor's insurance program. Depending on the business, additional coverage could include general liability, commercial auto, workers' compensation, contractors' equipment, umbrella liability, and other specialized policies.

Questions to Ask Before Starting a Project

Before purchasing or relying on a builders risk policy, ask:

• Who is responsible for purchasing coverage?

• Who is protected under the policy?

• What is the project's completed value?

• Which causes of loss are covered?

• What are the major exclusions?

• How are wind and hail handled?

• Is theft covered?

• Are materials in transit or off-site storage covered?

• How is an existing structure handled during renovations?

• What deductibles and special limits apply?

• When does coverage begin and end?

• What happens if the project takes longer than planned?

  
  

Addressing these questions before construction begins can help uncover potential gaps before they turn into costly surprises.

Protect Your Colorado Construction Project

So, how does builders risk insurance work? At its core, it provides temporary property protection for a construction project during a time when the building, materials, and financial investment may be particularly vulnerable.

But the details of the policy matter.

Every construction project has its own combination of values, timelines, contractual requirements, materials, and risks. Colorado contractors should make sure their builders risk coverage reflects the actual project rather than relying on assumptions or a one-size-fits-all approach.

Weedin Agency can help Colorado contractors evaluate builders risk insurance and other business coverage based on the projects and risks they face. Before breaking ground on your next project, consider reviewing your insurance needs with an experienced professional.

Frequently Asked Questions on How Builders Risk Insurance Works

Is builders risk insurance required in Colorado?

There is not a blanket requirement that every private Colorado construction project carry builders risk insurance. However, coverage may be required by a construction contract, lender, owner, or other party. Certain public project contracts may also contain specific builders risk requirements.

Who pays for builders risk insurance?

The owner, general contractor, developer, or another party may purchase the policy. The construction contract should establish who is responsible for obtaining coverage.

Does builders risk insurance cover theft?

Builders risk policies may cover theft of covered property, but coverage varies. Contractors should verify the policy's theft provisions, exclusions, security requirements, and applicable limits.

Does builders risk cover subcontractors?

Subcontractors may have an insurable interest in the project, but their protection depends on the specific policy and contractual arrangement. Review how contractors and subcontractors are addressed under the policy.

Does builders risk cover existing structures during renovations?

Not necessarily. Coverage for an existing building can vary considerably. Contractors working on renovation projects should specifically determine whether and how the existing structure is insured.

How long does builders risk insurance last?

Builders risk insurance generally provides coverage during construction for the policy's specified term. Coverage may end upon expiration, completion, occupancy, or another event defined in the policy.