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Construction Insurance Questions


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Mancong's Forum Posts: 31
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By Mancong in Seattle, WA on 6/11/2007


The house we are building is small, only 1,500 sf. We'll get the building permit next week and plan to break ground in July. Because it is 1.5 hours from our current house and we both work full-time, we plan to hire a contractor to "dry-in" and then we will do the rest ourselves. We used a HELOC instead of a construction loan. So technically, there is no bank to "require" us to carry insurance. 

Everyone we talked to said we should buy insurance for construction. Here is what we think: the contractor (limited scope GC) will have his own license and insurance, which should also cover his subs. We also need insurance, but we are confused with all the terms. Can someone tell us what kind of insurance we need and what should be covered? I'm going to ask around, starting with the current house insurance company. We are in Washington State (if that matters).

Thanks in advance for your help.


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By Kenneth in Lees Summit, MO on 6/12/2007


You need Builders' Risk insurance. This is like a homeowners insurance policy for your construction site, it does not duplicate workers' compensation insurance obtained by your subcontractors for their employees.
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By Mancong in Seattle, WA on 6/14/2007


Kenneth,

Thanks for the lead. We are talking to Allstate and will find out more details.


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By Mancong in Seattle, WA on 6/21/2007


Kenneth,
 
Here s a quick update. We are talking to the insurance carrier of our current house (Allstate). Here is the number we've got:
 
dwelling protection:    $270,000
other structures            $27,000
personal property        $67,500
additional living expense up to 12 months
deductibles:                   $5,000 (raised from $1,000 and premium dropped $300)
 
premium: $387
 
We asked about the liability coverage and was told it's the same as our current residence. I need to review this with the agent.
 
We would like to know if this is adequate. Anything we need to add? How do other O-B's handle this? 
 
Thanks!

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By Mancong in Seattle, WA on 7/3/2007


One more question: how much liability should we get, is $500K enough?
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By Richard in Coventry, CT on 7/11/2007


Hi,

I am an Allstate Agent in CT.

There are a couple things you need to check with your Allstate agent.

1) If the contractor is not signing off as GC on your building permit then the policy will probably not cover you.

2) Most Allstate policies do not cover theft of materials.

Things are different from state to state, so this might be incorrect, but I would definitely double-check.

Hope this helps!


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By Mancong in Seattle, WA on 7/11/2007


Richard,

Thanks for the help. A couple of questions:

1. Can you explain why the policy doesn't cover us as O-B? The permit states that it's owner-builder. The GC we hired carries his own insurance.
2. We are looking into homeowners insurance and Builder's Risk insurance for the house. Is it redundant? 
3. Theft: where to get that insurance? The contractor said the island is very safe and he never had material stolen. He won't store material on site (there is no staging area anyway). Not sure if want to take the risk.

I plan to meet with our agent this weekend to go over the policy. What other questions should I ask?

Thanks again!

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By Richard in Coventry, CT on 7/12/2007


Again, things could be different in your state but I doubt it.

1) The application will have a question asking if the home will be built by a general contractor, if the answer is -- No -- then the company will not issue the policy. If it is answered -- Yes - which is the case a lot of the times, then technically the insurance company could deny any claims.

2) If you can find homeowners insurance with a builders risk endorsement (that covers building material) then that would be ideal.

This is a tricky situation because course of construction insurance that is available in most situations will cover the dwelling and building material, but does not cover liability coverage. The homeowners typically would.

You may want to check to see if your current homeowners, renters or condo policy covers liability for land you own that you are building a home on as a primary residence. Most do.

I am not sure what the framer is referring to that he will not store material on site. If 40 windows are delivered on Friday afternoon, is he going to move them somewhere else? They will probably sit on site till Monday morning. Hopefully where you are building the people are a little more considerate of others belongings because in CT theft is rampant on new construction homes.

Again these are generalities, hopefully things are either different in your state or everything works out for you.

If you have any other questions please ask.

Hope this helps!


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By Mancong in Seattle, WA on 7/12/2007


Richard,

It sounds like a Catch-22. I talked to our agent today. He said we only need a builder's risk policy, which covers both the house and material. To qualify for this, the contractor has to be licensed (he is) and the O-B has to be supervised by the GC or have his own license. We happen to be in the industry (architecture) so we qualify (sounds pretty strange).

You had a good point on the liability. I'll ask him tomorrow.

Thanks!

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By Richard in Coventry, CT on 7/13/2007


Hi,

It seems to me that someone is confused. The contractor that you are hiring is your framer who most likely is also a GC, but he is NOT YOUR GC, otherwise you are not owner-building or the GC on this project. Do not get confused that your framer/contractor is the GC just because he is doing the shell and maybe giving you some subs' names and advice. If he does not sign the building permit, you do NOT have a GC.

Is he GC on the whole project, site supervisor or what is the actual agreement with him?

I have never seen any insurance policy have any type of reference/exception/guideline referring to site supervisors, owner-builders or anything else along those lines.

Either you have a general contractor - contracting your home or you don't.

Maybe the town requires a site supervisor for permitting, but probably not an insurance company.

Hope this helps!


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By Mancong in Seattle, WA on 7/13/2007


Richard,

Here is our situation: we would love to O-B the entire project if it's feasible. The site is on an island at least 1.5 hours away (not rush hour), not to mention that we both have demanding jobs, frequent overseas business trips and a young child. We decided to hire a contractor to dry-in, and O-B the rest. At the time we submitted the permit, we didn't have the GC picked; so it says O-B on the form. The county does not require a GC. Now we are negotiating a limited scope contract with a GC. He will do framing and also sign up and coordinate other subs (site, concrete, electrical, plumber, roofer, etc.). I'm not sure if we can call him GC? Site supervisor? 

I'm trying to arrange a meeting with our Allstate agent so he can explain to me. I'm still confused. 

Thanks for your help. It's great to have someone from the industry to explain the rules. Insurance is so complicated and I would never figure this out on my own.


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