Your Commercial Builder’s Risk Policy May Not Cover All Construction Fire Losses

Expanding or remodeling your business can be an exciting venture, with the potential for increased reach to customers and exponential profit growth. However, the failure to protect new structures throughout the building process can cause a promising future to go up in smoke. Attorney Bill Voss explores the risks of fires to commercial properties undergoing construction and identifies common coverage gaps under standard builder’s risk insurance.

Each Construction Project Has Its Own Unique Fire Risks

Every commercial building project will face different fire hazards depending on its design, size, location, proximity to other structures, and type of industry. The risk of loss may be relatively low while the building is incomplete and unfurnished, but the owner has a greater potential for loss as each new stage of construction is completed—especially if workers must raze a damaged project and start all over again.

All commercial construction projects face some risk of fire damage, including:

• Ground-up construction. A relatively new construction project may suffer the loss of lumber or building materials that were on site waiting for installation, tools that melted in the fire, carpets that suffered water or smoke damage, and stone or tiles that must be discarded due to scorch marks or aesthetic damage. If the building was in its framing stages, a fire may burn quickly through the exposed wooden supports and put a crack in a newly-poured foundation.
• Partially-finished structures. Building materials are designed to work together to support the structure and slow the spread of a fire, placing incomplete buildings at risk of extensive damage. If drywall has not been installed, fire may easily climb into attics and engulf wooden truss areas. Owners may have to replace wiring, roof shingles, insulation, and other materials that were only weeks old, doubling the cost of construction. Fire may also damage scaffolding surrounding the project, which will need to be repaired before workers can resume building.
• Renovations or extensions. You may be forced to rebuild the portion of the structure that was not slated for construction if it was damaged in the fire, as well as replace lost furnishings and equipment (especially if sprinkler systems were not functional while the building was under renovation). In addition, the entire property could be damaged by explosion if gas, paint, varnish, or other combustible liquids used in the building process were left at the site.

How to Maximize Fire Coverage on Your Commercial Builder’s Risk Policy

Most commercial fire damage policies cover existing structures, but do not pay for damage to structures added after the policy was created—and new structures may not be insured until they are approved and inspected. Owners must purchase builder’s risk insurance to protect the work-in-progress, machinery, and building materials onsite until construction is complete.

Builder's risk insurance varies widely depending on the provider and coverage selections, so it is important to review your policy to ensure that you are covered for:

• Whole site property damage. A commercial fire policy may cover damage to an extension but exclude losses to preexisting structures, which can cause problems if the entire building is destroyed in the fire.
• Matching materials. Partial-loss fires may cause line-of-sight issues if the exact materials used in the first build cannot be located, or if soot and smoke damage cause the need to replace carpeting, tile, or wallpaper throughout the property.
• Cleaning and disposal. Construction sites must be inspected after a fire to determine if the structure is sound or of the supports must be torn down and construction must begin from scratch. Owners will need to clear away debris and make provisional repairs to make the site safe until construction can resume.
• All causes. Some policies will only cover certain fire perils, such as lightning strikes or ignition of gas or boilers on the property. A strong policy will cover fires from all potential causes, including accidental fires set by workers (such as during welding and hot work), or intentional fires set by squatters, rioters, or vandals.
• Business income loss. Business income or business interruption insurance can pay for the costs of moving the business to a temporary location, paying employee wages, and other daily operations until repairs are complete.

If you are having trouble getting an insurer to cover the costs of a fire, we can examine your policy and get you the full amount you are owed. Simply fill out the form on this page today to contact the Voss Law Firm or order a free copy of our book, Commercial Property Owners Must Read This BEFORE Filing an Insurance Claim.