The Basics of Course of Construction (COC) Insurance

March 13, 2023

As a builder, general contractor or property developer, you already know that there are many different types of hazards at a job site. As a result, you also know that Course of Construction (COC) insurance is important. Also referred to as "Builder’s Risk Insurance", Course of Construction Insurance (COC) provides property & materials coverage for your construction project while it’s being built. It protects you from a variety of risks and can prevent you from being on the hook for a massive bill if a claim does occur.

If understanding the risks weren't enough to see the value of Course of Construction Insurance, lenders will ultimately do that for you. They will almost always require that you carry this insurance if they are involved in the financing of any project and dictate the minimum requirements which must be met. This is because they recognize how frequently losses can occur on construction sites. In fact, the construction industry accounts for 20% of all workplace deaths in the US. Additionally, they understand the repercussions if a project needs to be restarted from scratch, which often sets a developer back up to 12 months, if not longer.

So what losses are covered under a Course of Construction (COC) insurance Policy?

- Fire (including Wildfire)

- Wind & Hail

- Explosion

- Lightning

- Vandalism & Theft

There are a few causes of loss that are NOT covered under a standard COC policy, but can be added for an additional premium:

- Flood

- Earthquake

- Sinkholes

One unique aspect of Course of Construction (Builder's Risk) Insurance policies is that they will have more warranties than a typical property insurance policy. But what does a warranty mean and why should you care? Well, a warranty is a special condition which must be met for the policy to be considered valid. If a claim occurs and the adjuster realizes the warranty was not met, the entire claim may (and likely will) be considered void. Warranties are never something you want to cut corners on, as they can cost you hundreds of thousands, even millions of dollars in a claim scenario. This is why it is extremely important that you work with a broker that understands warranties and how to comply with them. You should understand what they mean for your project, and work with a broker who clearly explains them to you.

Below are a few examples of common warranties for Course of Construction insurance policies:

- Contractors Proof of Insurance Warranty: This is a requirement that the insured (ex. the general contractor) shall obtain written proof of liability insurance (ex. $1 million minimum) from contractors in specific trades, such as roofing and plumbing.

- Fire Extinguisher Warranty: This is a requirement that there will be fire extinguishers on each level of the project in a visible and accessible location.

- Burning of Refuse Warranty: A requirement that there is no burning of refuse or construction unless a permit from a local authority has been granted.

- Hot works / Heating Devise Warranty: This is a requirement on where an open-flame heating device is allowed to be operated and stored. There may also be requirements on what specific type of device is allowed to be used.

- Site Fencing Warranty: This is a common requirement on minimum fence heights and the minimum duration of which they must be present during the construction phase.

So now that we know what a COC policy covers and the special conditions (warranties) that must be met, what are some common claims examples for COC policies?

- A severe windstorm blows a 2x4 through a window, causing severe water damage to the interior of the building totaling $110,000.

- An electrical fire starts in the kitchen of a home that is under construction and damages the framing. Luckily a fire extinguisher was able to limit the damage, but there were still significant repairs and fire department service charges levied, totaling $38,000.

- Vandals break into a job site overnight and steal tools and equipment totaling $45,000.

Every project has risks which are unavoidable, but with the proper risk management strategy and COC (Builder's Risk) insurance in place, you can rest a little easier knowing that your project is protected. If you have any questions about your policy or COC insurance in general, please reach out to a specialized insurance broker. Making sure you understand your policy with a specialized insurance broker are critical to complying with complex warranties and your overall risk management strategy. There are always going to be some risks which are not covered by insurance, it is important to understand what these are and how you can use alternative methods to mitigate them. Review your policy with your broker regularly, and make changes as needed to ensure that you are always adequately covered.

Please note: This is only meant to be an introductory guide and is not all-inclusive. Please speak to one of our construction specialists for more information.

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