Two Policies That Cover Completely Different Things
Contractors often assume their general liability policy covers everything on a job site. It does not. GL and builders risk protect against different risks, and having one without the other leaves a major gap in your coverage.
What General Liability Covers
GL protects you when your work causes harm to other people or their property. It is a third-party policy. The key word is "other."
Examples of GL claims:
- Your scaffolding falls and injures a pedestrian walking past the job site
- Your plumbing work causes water damage to a unit below
- A homeowner trips over your extension cord and breaks a wrist
- Your completed tile work cracks and damages the floor underneath
GL does not cover damage to the building you are constructing. It does not cover stolen materials on your job site. It does not cover a fire that destroys the framing before the project is complete.
What Builders Risk Covers
Builders risk is a first-party property policy that covers the structure under construction itself. It protects the building, materials, and fixtures from the moment construction begins until the project is complete and the owner takes occupancy.
Examples of builders risk claims:
- A fire destroys the partially framed structure
- A windstorm rips off the newly installed roof
- Vandals break in and damage drywall and fixtures
- $30,000 in copper pipe stored on site gets stolen overnight
- A water pipe bursts during a freeze and floods the interior
Without builders risk, whoever owns those materials and that structure absorbs the full loss.
Who Carries Which Policy
General Liability: The contractor carries this. Every contractor on the job, GC and subs, should have their own GL policy.
Builders Risk: Depends on the contract. On many commercial projects, the property owner or GC purchases builders risk. On residential custom homes where the contractor is the GC, the contractor often buys it. Some lenders require builders risk as a condition of the construction loan.
Read your contract carefully. If it says the contractor is responsible for builders risk and you do not have it, any loss to the structure comes out of your pocket.
Where Contractors Get Confused
The most common mistake is assuming GL covers a fire at your job site. It does not. GL covers damage your operations cause to other people's property. If the building you are constructing burns down, that is a property loss. Only builders risk covers it.
Another common gap: materials stored on site. You ordered $50,000 in custom windows and they are sitting in the garage of the house under construction. Overnight, someone breaks in and steals them. Your GL policy does not cover theft of construction materials. Builders risk does.
Cost Comparison
| Coverage | Annual Premium | What Determines Cost | |----------|---------------|---------------------| | General Liability | $500-$4,500/yr | Trade, revenue, claims history | | Builders Risk | 1-5% of project value | Project value, construction type, location |
Builders risk is typically purchased per project and lasts the duration of construction. A $500,000 residential build might cost $2,500 to $5,000 for the builders risk policy.
The Bottom Line
You need both. GL protects your business from lawsuits. Builders risk protects the physical structure you are building. Carrying only one leaves you exposed to losses the other is designed to cover.
Call (949) 200-7171 and we will review your current coverage to make sure you have no gaps between GL and builders risk on your active projects.