Coverage — builders-risk
Builder’s risk insurance, written for multifamily.
This is not the generic definition page. It is what course of construction coverage actually does on a multifamily project: a ground-up development, a heavy value-add renovation, a garden community going down to studs between owners. What it covers, who is supposed to buy it, what your construction lender will require, and the places projects and claims commonly go wrong.
What it covers
What it covers on a multifamily project, specifically.
A builder’s risk policy exists because a standard property policy was not built for a building that does not fully exist yet. Values change every month, the structure spends a phase with no doors and no roof, materials sit in lay-down yards, and nobody is collecting rent. The policy follows the project, not the calendar.
Hard costs: work in place and materials
The core of the cover is the project itself: work in place, materials on site, and materials in transit or stored off site. Temporary structures count too: scaffolding, fencing, job-site trailers, signage, and the forms and falsework holding a building up while it becomes one. On a multifamily frame project, theft is the frequency peril. Copper, appliances, and HVAC condensers walk off job sites at a rate that surprises first-time developers, and the schedule of values does not care whether the stolen material had been installed yet.
Soft costs and delay in completion
Hard costs rebuild the project. Soft costs keep the deal alive while it gets rebuilt: construction loan interest, property taxes, insurance premiums, architectural and engineering fees to redesign what burned, permits pulled a second time. If the pro forma assumes lease-up by a date, add the delay-in-completion piece, often written as loss of rents or rental income delay coverage. When a covered loss pushes completion back six months, this is what replaces the income the project was supposed to be producing. It is optional on many forms, it carries a waiting period that works like a deductible measured in days, and it is the first thing cut when someone is trimming premium. On a multifamily deal carrying construction debt, it should be the last.
Renovating an existing structure
Value-add deals are where builder’s risk and the property policy collide. Most commercial property policies restrict coverage when a building sits vacant beyond a threshold, commonly 60 days, and many restrict or exclude coverage during renovation without the carrier’s consent. A builder’s risk policy written for renovation covers the existing structure plus the cost of the work, with the value of the shell stated separately from the value of the renovation. If your business plan takes units offline, the property policy alone is probably not the answer.
Completed value versus reporting forms
Two ways to write it. A single-project policy insures 100% of the completed value from day one: simple, priced once, done. A reporting form insures the project as values actually exist, with monthly reports that step the limit up as work goes in. Reporting forms cost less up front and demand discipline: a missed or understated report can cap what the policy pays at the last values you filed. Owners running a continuous pipeline of renovations usually land on reporting forms. Owners doing one project should not.
When owners actually need it
The trigger events.
Nobody buys builder’s risk as a hobby. It comes up at three moments, and each has its own clock and its own failure mode.
Ground-up development
The classic case. Coverage starts before or at site work, runs through construction, and ends at completion, certificate of occupancy, or the moment the permanent property policy takes over, whichever the form says. The coordination point that matters is the handoff: builder’s risk ends and the property coverage begins with no gap and no argument about which policy owns a loss that happens during the transition week.
Heavy value-add renovation
The trigger most owners under-recognize. A unit-turn program that paints walls and replaces carpet is a property policy conversation. A renovation that guts buildings, replaces roofs, or takes a phase down to the studs is a builder’s risk conversation. The dividing line is roughly this: if the work changes the building’s value materially or leaves portions of it open and unoccupied, the property policy’s vacancy and renovation clauses are in play, and you need to know what they say before the first dumpster arrives.
Construction loan closing
The construction lender will not fund the first draw without evidence of builder’s risk: full completed value, the lender named as loss payee and mortgagee, deductibles inside their caps. This is a due diligence item, not a closing week item, because the premium belongs in the sources and uses before the loan is sized. On an under-contract deal with a renovation budget, that is what our Under-Contract team prices first.
What lenders typically require
What your lender will ask for.
Construction lenders have lost money on unfinished buildings before. Every requirement in the loan documents maps to one of those losses, and knowing the map makes the negotiation faster.
Full completed value
The policy is written at 100% of the completed value of the work, meaning the full hard-cost budget, and on renovation deals the existing structure value as well. Writing it at a lower number to save premium is the classic own goal. Partial losses get settled against the stated values, and a mid-project fire on an under-reported project becomes a partly self-funded rebuild.
Who is named, and how
The lender expects the owner as named insured, the general contractor and sometimes major subcontractors as additional insureds, and the lender itself as loss payee and mortgagee. The order matters, because the policy pays the named insured first. When the GC carries the policy instead of the owner, the owner is relying on someone else’s limit, someone else’s deductible, and someone else’s renewal discipline. Construction contracts usually assign who buys the coverage. What matters is that the assignment matches the policy that actually exists.
Deductible caps and coastal terms
In Texas and Florida, the lender cap that matters is the wind or named-storm percentage. A frame project mid-build is lighter, more open, and easier to blow down than the finished building, and carriers set terms accordingly. Check the percentage against the loan documents early. A policy written at a 5% named-storm deductible does not close on a loan capped at 2%, and finding that out the week of the first draw is expensive.
Permission to occupy
Most forms restrict occupancy during construction. Multifamily projects lease up in phases, and the first residents often move in while later buildings are still underway. The endorsement that allows it is routine, but it has to be on the policy before the first lease signs, not after the carrier notices occupied units on an inspection.
The riskiest phase of an asset’s life is the one the property policy doesn’t cover.
How the price gets made
How the price gets made.
Builder’s risk is priced as a rate per $100 of the completed value, adjusted by a short list of project facts. Most of them are knowable before you close on the land, and a few are things an owner can actually move. None of it should be mysterious.
Construction class and phase of build
Frame burns, and frame blows down. A wood-frame garden project prices differently than concrete podium, and the exposure is not flat across the schedule. The frame phase is the wind-exposed phase, and in Texas and Florida that phase carries the coastal loading. A project that frames through hurricane season is a different submission than the same project that frames in the spring.
Distance to coast
The same wind models that drive property pricing drive builder’s risk, harder. Partial structures fail at lower wind speeds than finished ones, and carriers know the loss history on coastal frame projects. Distance to coast, wind zone, and the project calendar relative to storm season can matter as much as the budget.
Renovation versus ground-up
Renovation pricing reflects the existing structure inside the limit and the occupancy question inside the rating. Ground-up is cleaner. A renovation with tenants still in place through part of the work prices harder and underwrites longer, for obvious reasons.
Duration and extension terms
The policy is priced for a stated term, commonly 12 months. Longer terms cost more, and the extension terms matter as much as the initial price: a project that runs long discovers whether the form allows extensions, at what rate, and whether the carrier will offer one at all after a loss or a bad inspection. Read the extension clause at binding, when it is still boring.
The contractor
Carriers underwrite the builder as well as the building: experience with the project type, years in business, prior losses, safety record. A first-time GC on a large frame project costs you premium, and a proven one with a clean record saves it. Job-site security, fencing, lighting, cameras, and watchmen, moves the theft loading at the margin and is worth documenting in the submission.
Soft cost and delay limits
The delay-in-completion limit, the waiting period, and the soft-cost schedule all move the price. This is where cheap quotes hide: two quotes at the same rate can be different products once you line up the soft-cost terms.
When you get an indication, ask which of these moved the number. The answer should come back in plain terms, and if it doesn’t, that tells you something too.
What commonly goes wrong
What commonly goes wrong.
This is the section most coverage pages skip, because it is uncomfortable. A sophisticated buyer should read it twice. These are the failure modes we see on real projects and real claims, in roughly the order we see them.
1. The property policy left in charge of the renovation
The most common, and covered above because it deserves to be. The owner has a perfectly good property policy, starts a heavy renovation, and never moves the exposure to builder’s risk. Then the vacancy clause, the renovation exclusion, or a protective-safeguards warranty shows up in the claim denial. The fix is a conversation before the work starts, not after the fire.
2. The limit frozen at the original budget
Construction budgets grow. Change orders, scope adds, material escalation: the project that started at $12 million of hard costs finishes at $14 million, and the policy limit never moved. A mid-project loss gets settled against the stated values, and the owner self-funds the difference. Review the limit at every material budget change, same week.
3. The extension trap
The policy was written for 12 months. The project takes 15. Sometimes the carrier extends at a painful rate, sometimes the carrier will not extend at all, and the owner is shopping for a new policy on a three-quarter-built frame building, which is some of the hardest business to place in the market. The defense is boring: buy a term with margin, read the extension clause at binding, and start the extension conversation 60 days out, not six.
4. Everyone assumed the other party bought it
The owner thought the GC was carrying it. The GC thought the owner was. The construction contract says one thing and the policies say another. This gets discovered at closing, when it costs time, or at claim time, when it costs everything. One page of the contract review should answer three questions: who buys it, who is named, who is loss payee.
5. Soft costs bought on principle, priced on defaults
The delay coverage is technically on the policy: a modest limit, a waiting period nobody read, and a form that pays documented expenses only. Then a storm pushes completion six months and the interest carry alone runs past the limit. Soft costs deserve the same spreadsheet as the hard costs. What does a six-month delay actually cost this deal, and does the policy come close?
6. Occupancy before the paperwork
Lease-up starts in the finished buildings while work continues on the rest. Nobody endorsed permission to occupy. A kitchen fire in an occupied building meets a policy that says the project was supposed to be unoccupied, and a routine claim becomes a coverage fight. The endorsement is easy. The timing discipline is the whole job.
7. Materials stored somewhere the policy isn’t
Appliances staged at a warehouse across town, panels in a supplier’s yard, units in transit from the port. Off-site storage and transit are covered by sublimit on most forms, and the sublimit was set when the staging plan was smaller. A theft or a fire at the storage location is a covered loss right up to the sublimit, and a surprise above it. Match the sublimits to the staging plan.
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