Owners can face significant problems if properties under construction are not adequately protected by insurance. While newly-built or progressing structures may be covered by an existing policy or a special builder’s risk policy, there can be significant variations on the types of coverage, conditions, and exclusions on each policy. Attorney Bill Voss explores essential forms of wind insurance for new construction projects to help owners review and revise their coverage options.
Texas Owners Should Carefully Consider Wind Coverage for New Construction
Whether owners have invested in a new construction project or are performing renovations on a newly-acquired property, it is vital that they ensure these properties are covered for any adverse weather damage before they are completed. The most common form of coverage is builder’s risk insurance, also called “course of construction” insurance. A strong builder’s risk policy will respond quickly to a reported loss, allowing the owner to avoid work stoppages, construction delays, and even potential litigation.
It should be noted that builder’s risk insurance has its limitations, so Texas owners should carefully consider:
- Coverage for each project. Construction coverage will usually cover any new building that has been added to the policy within 30 days after construction begins. However, these policies usually only cover buildings that are explicitly named in the policy, so you may have to add a description of each insured structure.
- Location exclusions. Insurers may not include windstorm damage for properties in several counties along the Texas coast. Owners with commercial property in the 14 coastal counties and parts of Harris County may need a separate windstorm policy from the Texas Windstorm Insurance Association (TWIA).
- Existing coverage exceptions. Owners may purchase a single policy to cover many different business locations, but they may have trouble filing claims if the properties have different risk profiles. In these cases, owners may consider a separate policy for new builds in high-risk areas.
- Types of construction losses. It is worth studying a builder’s risk policy carefully to determine exactly what is and is not covered. For example, some policies will cover materials, fixtures, and other products that are onsite that have not yet been incorporated into the build (such as plumbing pipes, shingles, cut plywood, and bricks). However, not all property on the construction site will be covered by builder’s risk insurance. Common coverage exclusions include damage to the land surrounding the project (including trees or grounds), existing buildings or structures, temporary structures (such as scaffolding), and construction tools and equipment used throughout the work.
- Construction materials coverage. Builder’s risk policies will typically exclude materials that are en route to the site but have already been purchased by the owner. Inland marine coverage insurance may be purchased to cover building materials and goods damaged while in transit to the building site.
- Off-premises property coverage. An extension to an existing property damage policy may cover property located offsite, including damage to lands and structures under development. Ordinance or law coverage may also apply if the structure has recently been completed but is not yet open for business.
- Extra expense coverage. Extra expense coverage pays any additional costs to return your business to normal after it's damaged. It will become available if the policy limits are reached for any one adverse event, and provides an extra amount over and above the limits of the coverage for unforeseen expenses.
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