Builder Structural Warranties as Necessary as Risk Insurance

March 19, 2020

Builder Structural Warranties as Necessary as Risk InsuranceResidential developers and general contractors must maintain insurance policies for every project. While insurance is a requirement for new home construction, builders have a wide range of options from which they can choose. General liability insurance covers bodily injuries and property damage. Professional liability insurance is a separate policy, which covers contractor errors, as well as third-parties hired by the contractor.

For further protection, many developers implement additional insurance and other builder risk management strategies. Supplemental coverage helps builders protect their bottom line and uphold their integrity in the industry. Risk insurance and builder structural warranties are both becoming necessary components of a risk management portfolio. 

 

What Is Builder’s Risk Insurance?

Sometimes referred to as ‘course of construction insurance,’ residential builder’s risk insurance is a type of supplemental property insurance. It covers a structure and building site during the course of a project. In other words, builder’s risk insurance is a temporary form of coverage that insures a development only while it’s under construction.

What does builder’s risk insurance cover? This type of construction insurance policy covers a number of liabilities and incidentals throughout the building phase of a development.

 

A builder’s risk insurance policy will typically cover:

  • Fire
  • Vandalism
  • Theft
  • Explosions
  • Accidental damage caused by vehicles or building equipment
  • Some weather damage, such as wind, hurricanes, lightning, and hail (varying among regions)

In general, builder’s risk insurance companies do not cover earthquake damage, water damage, rust, corrosion, employee theft, mechanical failures or weather damage caused by an uncovered structure. Other exclusions include, among others,  government interventions on zoning requirements or building approval, faulty design, workmanship errors, and voluntary abandonment of a project.

The limitations and specific coverage of a builder’s risk insurance policy will vary among developers, regions and individual projects. Coverage commences on the effective date and ends upon completion of the project, or in some instances, when the home is occupied.

 

What Is a Home Builder Warranty?

When new homes are sold and occupied, builders may still be held liable for structural defects or construction mistakes for a period of up to a decade. This may result in lengthy legal battles, complicated claims management and an expensive obligation to pay for defects. Ultimately, this liability can be devastating to a developer’s profit margins. A new home builder warranty provides comprehensive protection for post-construction defects on a property.

Builder structural warranties allow residential developers to minimize the cost of potential errors or damage discovered after the completion of a project. 

 

Why Builders Need Both

As stated above, builder’s risk insurance is temporary, and it will not cover any structural defects sustained after a home is purchased or during occupancy. An effective risk management portfolio will provide liability coverage for every stage of a project, including the years following its completion. 

It’s crucial for builders to know not only what’s included in their builder’s risk insurance policy, but also when the coverage expires. By setting up a new home warranty policy in advance, residential builders can ensure they are not without coverage for even one day.

 

New Construction Home Warranties from PWSC

Professional Warranty Service Corporation offers full-service risk management support. Warranties from PWSC cover structural failures and other defects over which buyers may file claims. In addition to new home warranties, PWSC provides administrative support, claims management, including mediation and arbitration services, as well as legal assistance, regulatory monitoring and other risk management products and services. 

New home warranty coverage will pick up where builder’s risk insurance leaves off, providing developers with a more robust risk mitigation and litigation avoidance strategy. Contact our team today to get started.