Florida 2-20 General Lines Agent (Property, Casualty, Commercial Lines and Florida Law)Property InsuranceMedium
A client is building a new custom home. They have obtained a Builders Risk policy to cover the structure during construction. A severe windstorm, a covered peril, causes significant damage to the partially completed framing and newly installed roof. The policy has a limit of $500,000. Which of the following statements is true regarding the coverage for this loss?
- AThe policy will cover the damage to the framing and roof, but only up to the Actual Cash Value (ACV) at the time of loss.
- BThe policy will cover the damage, but only if the contractor carries a separate general liability policy.
- CThe policy will not cover the damage as construction is not yet complete and the home is uninhabited.
- DThe policy will cover the damage to the framing and roof, and the coverage limit will increase automatically as construction progresses.
Show answer & explanationAnswer & explanation
Correct answer: D. The policy will cover the damage to the framing and roof, and the coverage limit will increase automatically as construction progresses.
A Builders Risk policy is designed to cover a building under construction. The coverage limit typically increases automatically as the value of the structure increases during construction, up to the stated policy limit.
Why the other options are wrong
- A. While ACV can apply, the more distinctive feature of Builders Risk is its increasing limit as construction progresses, making this statement less complete.
- B. This is incorrect. The Builders Risk policy covers property damage, not liability, and is independent of the contractor's general liability policy.
- C. This is incorrect. Builders Risk policies are specifically designed to cover property during construction, before it is completed or inhabited.
Builders Risk Policy
A Builders Risk policy provides coverage for buildings and structures under construction, including materials, fixtures, and equipment, against covered perils.
- Covers property during construction.
- Coverage limit increases as project value grows.
- Typically covers direct physical loss or damage from covered perils.
Memory trick: As the building grows, so the coverage flows.