Builder's Risk Insurance: What California Contractors and Homeowners Need During Construction

Whether you're a homeowner doing a major renovation or a contractor running multiple projects, you need to know how builder's risk insurance works. The wrong assumption — that your homeowners policy or the contractor's general liability covers the project — leads to expensive surprises when something goes wrong mid-build.

What builder's risk actually covers

Builder's risk (also called course of construction insurance) is a specialized property policy that covers buildings under construction, including:

• The structure itself, while being built or renovated
• Building materials at the site, in transit, and sometimes in temporary storage
• Foundations, fixtures, and machinery that will be part of the finished building
• Sometimes scaffolding, temporary structures, and on-site tools and equipment (varies by policy)

Common causes of loss it covers

• Fire
• Wind and hail
• Theft (including theft of building materials)
• Vandalism
• Lightning
• Some water damage (depending on policy form)
• Vehicle and aircraft damage to the structure

Common exclusions

• Earthquake and earth movement (separate endorsement)
• Flood (separate policy required)
• Faulty workmanship or design (the work itself is excluded, though resulting damage may be covered)
• Wear and tear
• Employee theft (covered under separate crime insurance)
• Mechanical breakdown

Who needs to carry it

For homeowners

If you're doing a substantial renovation — addition, full kitchen remodel, second-story addition, ADU build, or new construction — your standard homeowners policy probably doesn't cover the project. Most policies exclude or limit coverage during construction, and some void coverage entirely once the home is unoccupied or substantially altered.

You need builder's risk. The decision is usually whether you carry it or your general contractor does.

For general contractors

Contractor's general liability covers your liability if someone is injured or your work damages someone else's property. It does not cover the building you're working on.

Contractors typically carry builder's risk for projects they're managing, with the homeowner or developer added as a named insured.

For developers

Always required by the construction lender. Most lenders won't fund a draw without proof of builder's risk in force for the full project value.

Who should buy the policy: contractor or owner?

This varies by project and by contract.

Owner-purchased

Gives the owner direct control over the policy, coverage amounts, and claim handling. Recommended for owner-occupied renovations and for owners who want to maintain visibility into coverage.

Contractor-purchased

Simpler for the owner — the contractor includes it in the project cost. Risk: if the contractor's coverage is inadequate or lapses, the owner may not find out until it's too late.

The construction contract should clearly state who buys the policy, what the coverage minimums are, and who is listed as an insured. Verify the certificate of insurance before construction starts.

How much coverage

The policy limit should equal the total completed value of the project — not the cost of construction. That includes materials, labor, contractor overhead, and any built-in features.

Underinsurance is common. A $400,000 renovation project insured at $250,000 will not pay full claim costs if a fire occurs at 80% completion.

Soft costs

Most builder's risk policies cover the hard cost (physical building). Soft costs — interest on construction loans, real estate taxes, additional architect fees, leasing commissions — are not covered unless you add a soft costs endorsement.

Policy term and extensions

Builder's risk is usually written for the expected duration of construction: 6 months, 12 months, sometimes 18 months. If the project runs long, you need to extend the policy. Most carriers allow a 90-day extension; longer requires a new policy.

Coverage typically ends at one of these triggers, whichever comes first:

• The policy expires
• Construction is completed
• The building is occupied (this is the silent trap — partial occupancy can end coverage)
• The building is sold or transferred

Key endorsements to consider

Theft of materials

Standard coverage usually includes building materials at the site. Theft from materials waiting at a supplier, in transit, or in off-site storage may need an endorsement.

Debris removal

After a covered loss, removing damaged materials and debris can run into tens of thousands. Most policies include a sub-limit; bigger projects need an endorsement to expand it.

Ordinance or law

Building code changes that affect rebuild costs after a covered loss. Especially important on renovations of older structures.

Earthquake / flood

Both excluded by default in California. Required separately if you want protection during construction.

Soft costs and loss of income

Cover the financial cost of construction delays after a covered loss. For commercial projects with anticipated lease income, this is significant.

What every California construction project should do

• Confirm in the construction contract who is buying builder's risk
• Verify the policy is in force before any work begins — request a certificate of insurance
• Confirm coverage amount equals total completed project value
• Confirm the policy lists all parties with insurable interest (owner, contractor, lender) as named insureds
• Confirm the policy term extends at least 30 days beyond expected completion
• If renovation, confirm the existing homeowners or commercial property policy is coordinated to avoid coverage gaps or duplications
• If in a flood, fire, or earthquake zone, decide consciously whether to add the relevant endorsements

The mistake we see most often

Homeowner agrees to a $300,000 renovation with a general contractor. Contractor 'has insurance.' Homeowner assumes everything is covered. Fire at month 4 destroys the partially-built addition.

Contractor's general liability won't cover the structure. Contractor's builder's risk policy (if they have one) might cover it — but they bought a $100,000 limit, so it pays $100,000 against a $250,000 loss. Homeowner's regular homeowners policy is voided because the home is 'under substantial renovation.'

Net: homeowner is out $150,000 they didn't expect to be. All preventable with the right policy and a 10-minute coverage review before the project started.

If you're starting a project — or in the middle of one — let us look at the coverage in place before something goes wrong. The review is fast and the savings are real.