As the COVID-19 pandemic continues to make global headlines, contractors wonder if their contractor insurance policies will cover COVID-related losses.
If you had a project shutdown by local municipalities to limit the spread of the pandemic, project financing withdrawn by a lender, or experienced significant delays from material suppliers; you might be wondering the same.
Builders Risk Insurance May Cover COVID Losses
One contractor insurance policy that may protect you against COVID-related losses is builder's risk. Builder's risk policies are meant to protect your investment in a project during the construction phase. They can cover hard material costs and soft costs, which we'll dive into in just a moment.
Builder's risk policies typically aren't written as a standard form of insurance, and coverage can vary depending on the insurer and policy language. But there are some common features to most builder's risk policies.
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Builder's risk coverage is usually all-risk, meaning you get coverage for any loss or property damage not explicitly excluded by the policy. Unless your policy specifically excludes "virus" or "pandemic" as the cause of a loss, you're likely to be covered for the following:
The costs needed to physically repair or replace items damaged in the event of a loss are considered "hard costs."
Hard costs could include materials, supplies, reconstruction work, erecting and maintaining fencing, scaffolding, and temporary structures, cleaning, and debris removal.
If you had to replace materials and supplies because of a COVID exposure or erect protective fencing and 24-hour surveillance service to secure a project site and equipment due to a government-mandated shutdown, you might be covered for these hard costs (depending on your policy language).
Builder's risk policies usually cover soft costs, also known as Delay in Opening Expenses.
These costs can include additional interest on construction loans, property taxes, marketing and advertising expenses, architectural/ engineering fees, legal fees, and administrative expenses incurred as a result of a covered loss.
A typical soft cost provision would include coverage for the soft costs incurred from the anticipated completion date -- had no loss occurred -- until the date construction is completed.
Builder's risk policies often contain a civil authority coverage grant that extends to losses resulting from government orders prohibiting access to the project. This coverage is typically included within the soft cost coverage part of your policy.
Builder's Risk Exclusions
All-risk builder's risk policies cover a loss unless it's specifically excluded.
For example, a policy exclusion for pollution, fungus, mold, or bacteria is not likely to apply to COVID-19 losses.
Look for an exclusion that explicitly excludes "virus" in an all-risk policy; if you don't see "virus" excluded, you're likely covered.
What Should You Do Now?
If the COVID-19 pandemic has resulted in a loss for your project, here are three things to do to ensure you're covered:
Review Your Policy
As we mentioned above, a builder's risk policy is not a "standard" policy. Be sure to read your policy carefully, paying close attention to exclusions and definitions of "damage," "destruction," and "loss."
Contact Your Insurer
Get in touch with your insurance provider right away. Review your policy with your insurer and ask questions about your specific coverage and policy language. Discuss your current losses and delays.
Your insurer is likely to ask you for details, so start documenting:
- Government-mandated shutdowns
- Records of onsite or nearby infections
- Records of incurred expenses, including administrative and clean-up
- Details of slowdowns due to labor or material shortages
- Increased construction costs
- Intent to return to the project, not abandon it
Secure Your Site
Your insurer may have a project shutdown checklist to ensure proper site protection during a government-mandated shutdown. Be prepared to secure the project site and equipment with fencing, lighting, surveillance video or personnel, and physical damage from water or fire.
COVID-19 has impacted the entire construction industry across the globe. Contractor insurance coverage like builder's risk insurance may offer you protection from losses resulting from shutdowns and delays. Review your policy and get in touch with the contractor insurance specialists at Aegis Insurance Markets today to see if your project is covered against COVID-related losses.