For developers, general contractors, and property owners, a construction site is a high-stakes environment where timing is everything. When a hurricane or severe summer storm hits a project mid-construction, the damage is not just to the physical materials; it is to the entire project timeline and financial structure. Builder's Risk insurance is designed to protect these projects, but when a claim arises, the resulting disputes can be as complex as the construction itself.
At The Voss Law Firm, P.C., we represent developers and contractors in high-value builder's risk litigation. We understand that a storm-related delay can trigger liquidated damages, interest on construction loans, and the loss of key tenants. This article explores the unique challenges of builder's risk claims and how to protect your project's viability when the insurance company refuses to play fair.
What is Builder's Risk Insurance?
Builder's Risk insurance (also known as Course of Construction insurance) is a specialized type of property insurance that covers buildings and structures while they are under construction, renovation, or repair. Unlike a standard property policy, it is designed to cover the unique risks of a construction site, including materials in transit, temporary structures, and the "soft costs" associated with delays.
The High Stakes of Construction Delays
In a commercial development, time is literally money. A storm that causes three months of physical repairs can lead to a six-month delay in the project's completion. This delay triggers a cascade of financial losses:
- Soft Costs: These are non-physical costs such as additional interest on construction loans, real estate taxes, architectural and engineering fees, and insurance premiums that continue during the delay.
- Loss of Rents/Income: If the project was intended for lease or sale, the delay in completion means a delay in realizing revenue.
- Liquidated Damages: Contractors may face penalties for failing to meet contractual milestones.
Common Triggers and Exclusions in Builder's Risk
Builder's Risk policies are often "all-risk," but they contain specific exclusions that insurers exploit after a storm:
- Defective Design or Workmanship: Insurers often try to blame a storm-related failure (like a collapsed wall) on poor construction rather than the wind.
- Testing and Commissioning: Disputes often arise over whether a loss occurred during the "testing" phase, which may have different coverage limits.
- Cessation of Work: If a project is idle for a certain period (often 30 or 60 days) before the storm, the insurer may argue the policy was suspended.
The "Soft Costs" Battleground
The most litigated area of builder's risk is the "Soft Costs" or "Delay in Completion" endorsement. Insurers often use aggressive tactics to minimize these payouts:
- Disputing the "Period of Delay": Just like the "Period of Restoration" in business interruption claims, insurers will argue that the project could have been completed sooner.
- Challenging the Necessity of Costs: They may claim that certain professional fees or interest payments were not "directly resulting" from the storm delay.
- Applying Inadequate Sub-limits: Many policies have very low sub-limits for soft costs that don't reflect the true financial scale of a large commercial project.
Common Mistakes Policyholders Make
Developers and contractors often jeopardize their own claims by:
- Failing to Update the "Expected Completion Date": If the project was already behind schedule before the storm, the insurer will use that to reduce the delay claim.
- Inadequate Documentation of Site Conditions: Without daily logs, photos, and weather reports, it is difficult to prove exactly what stage the project was in when the storm hit.
- Not Reviewing the "Additional Insured" Status: Disputes often arise between the owner, the GC, and subcontractors over who is entitled to the insurance proceeds.
Insurance Company Tactics in Builder's Risk Claims
Insurers in the construction space are highly sophisticated. They often use:
- The "Concurrent Cause" Defense: Blaming the loss on a combination of a covered storm and an excluded construction defect.
- Aggressive Audits: Demanding years of financial records and loan documents to find any excuse to reduce the soft cost payout.
- Pressure to Settle the Physical Claim First: They may try to get you to sign a release for the physical damage before the full extent of the delay costs is known.
Relevant Legal Considerations
In 2026, we are seeing more litigation over the "Leg 3" vs. "Leg 2" defects exclusions in builder's risk policies. These are international standards (from the London Engineering Group) that determine how much coverage is provided for damage resulting from a defect. Understanding which version is in your policy is critical for any project involving complex engineering.
When to Speak with a Policyholder Attorney
Builder's risk claims involve a complex web of contracts and insurance provisions. You should seek legal counsel if:
- The insurer is blaming the storm damage on a "design defect."
- Your soft cost claim is being denied or severely undervalued.
- There is a dispute between the various parties on the project regarding the insurance proceeds.
A builder's risk policy should be a shield for your development, not a source of further litigation. However, when a storm strikes a construction site, the insurance company's interests are often directly opposed to yours. By understanding the nuances of soft costs and the common tactics used to deny construction claims, you can better protect your project's bottom line.
If your insurance claim has been denied, delayed, or underpaid, speaking with an experienced policyholder attorney may help you better understand your rights. The Voss Law Firm represents businesses and property owners nationwide on a contingency fee basis, meaning you pay nothing unless a recovery is made. Contact our office for a free consultation.
