Builders Risk vs. Installation Floater

Contractors regularly purchase materials long before those materials become a permanent part of a finished project. A fire, theft, windstorm, collision or other loss can occur while property is in transit, temporarily stored or awaiting installation. Builders risk and installation floaters address parts of this exposure, but they are not interchangeable.

What is builders risk insurance?

Builders risk is a type of property insurance designed for a building or structure while it is under construction, renovation or substantial improvement. It may protect the project and certain materials that will become a permanent part of it, subject to the policy’s terms.

The project owner or general contractor commonly purchases builders risk, although the construction contract should establish who is responsible for obtaining it.

Depending on the form, builders risk may address property such as:

• The building or structure under construction
• Permanent materials incorporated into the project
• Materials temporarily stored at the jobsite
• Materials stored at an approved temporary location
• Materials in transit to the project
• Existing structures involved in a renovation, when included
• Temporary structures, scaffolding or construction forms

These items are not automatically included under every builders risk policy. Limits, covered locations, transit protection, existing structures and temporary storage should be reviewed before work begins.

What is an installation floater?

An installation floater is inland marine coverage designed to protect property that a contractor owns, sells or is responsible for installing. Protection may begin when the property leaves the contractor’s premises and continue through transit, temporary storage, installation and a defined completion or acceptance point.

Installation floaters are especially relevant for contractors who regularly move valuable materials or equipment between suppliers, storage locations and jobsites.

Examples can include:

• HVAC units and mechanical systems
• Electrical panels, generators and switchgear
• Plumbing fixtures and piping
• Sprinkler and fire-protection systems
• Alarm and low-voltage equipment
• Cabinets, millwork and custom fixtures
• Flooring and other finish materials
• Machinery or specialized equipment awaiting installation

The main difference

Builders risk generally focuses on the construction project. Installation coverage generally focuses on the materials and equipment for which the installing contractor is responsible.

Who has an insurable interest?

Several parties can have a financial interest in the same construction project. These may include:

• The property owner
• The general contractor
• Subcontractors
• Construction lenders
• Developers
• Suppliers or equipment owners

A builders risk policy may include multiple parties as named insureds or other insured interests. An installation floater is commonly purchased by the contractor responsible for the materials or installed property.

The construction contract may assign responsibility, but the insurance policy must still be structured consistently with that responsibility.

Can a project have both coverages?

Yes. Builders risk and installation floater coverage can exist on the same project. That does not necessarily mean the project is overinsured or that either policy will automatically pay first.

When more than one policy may apply, the policies’ other-insurance provisions, covered-property definitions, deductibles and insured interests become important. The parties should coordinate coverage before work begins rather than waiting until after a loss.

Transit and temporary storage

Materials may spend considerable time away from the final project. They might be transported by the contractor, shipped by a supplier, stored in a warehouse or held at another jobsite before installation.

Contractors should determine:

• Whether transit is included
• Whether there is a separate transit limit
• Which transportation methods are covered
• Whether temporary storage is included
• Whether storage locations must be reported
• Whether theft limitations or protective safeguards apply
• Whether property remains covered after delivery to the jobsite

Testing can create a significant exposure

Mechanical, electrical, boiler, refrigeration, alarm, sprinkler and other systems may need to be tested before acceptance. Testing can expose equipment to electrical, mechanical, pressure or operational losses.

Testing coverage is not identical under every builders risk or installation floater form. If a contractor installs equipment that must be energized, pressurized, commissioned or run under load, the testing process should be disclosed during underwriting.

Existing structures and renovation projects

Renovation projects create a special issue because the value of the existing building may greatly exceed the value of the new work. Builders risk does not necessarily protect the existing structure unless that property is specifically covered.

The owner’s permanent property policy may continue to cover the existing building, but renovation exclusions, vacancy provisions and increased-hazard restrictions should be reviewed.

An installation floater generally does not replace property coverage for the existing building.

Flood, earth movement and water damage

Builders risk and installation policies can contain important limitations involving flood, earth movement, water intrusion, weather exposure, sewer backup and property stored below grade.

Contractors working in coastal, flood-prone or low-lying areas of Virginia should not assume flood is included. If required, flood may need to be added, quoted separately or addressed through another policy.

When does coverage end?

Project-property coverage does not continue indefinitely. Depending on the policy, protection may terminate or change when:

• The project is completed
• The owner accepts the work
• The building becomes occupied or put to its intended use
• The contractor’s interest in the property ends
• The property is installed and accepted
• The project is abandoned
• The policy expires or is canceled
• Ownership transfers

Partial occupancy and phased construction can create uncertainty. The anticipated project timeline and occupancy plan should be discussed with the insurer before those events occur.

What these policies generally do not replace

Builders risk and installation floater coverage protect certain property interests. They do not replace the contractor’s entire insurance program.

Contractors may still need:

• General liability insurance
• Workers’ compensation
• Commercial auto insurance
• Contractors equipment and tools coverage
• Contractor professional liability
• Contractors pollution liability

Information needed to compare the options

The appropriate structure depends on the project, the contractor’s responsibility and where the property will be throughout the job.

• Complete project description
• Project address and construction type
• New construction or renovation
• Existing-structure value
• Completed project value
• Value of materials and equipment
• Maximum value at any one jobsite
• Maximum value in transit
• Maximum value at temporary storage locations
• Project start and anticipated completion dates
• Testing or commissioning requirements
• Occupancy or phased-completion plans
• Written contract and insurance requirements