For contractors with ongoing construction activity, insurance can be one of the more variable and unpredictable project costs. A master builder's risk program helps address that variability. By consolidating coverage across multiple projects under a single framework, contractors can improve cost predictability, reduce duplication and take a more proactive approach to risk.
What is a master builder's risk insurance program?
A master builder's risk insurance program is an umbrella-style arrangement that provides continuous, project-by-project coverage for contractors with ongoing construction or renovation activity. Instead of purchasing a separate policy for each project, a single master policy is established, and projects are enrolled as they begin.
Once in place, new projects are reported into the program and receive consistent coverage without the need to renegotiate terms each time.
Builder's risk insurance (also referred to as course of construction coverage) protects against physical loss or damage to a structure during construction, renovation or remodeling. This typically includes the building, materials (on site, in transit or in storage) and certain temporary structures. A master program extends this protection across an entire portfolio.
Why consider a master builder's risk program?
A master program may be appropriate for contractors that:
- Manage multiple projects simultaneously or in close succession.
- Have a predictable pipeline of construction activity.
- Seek consistency across projects rather than relying on individual contractors or project teams to secure coverage.
While not typically required by law, several factors make builder's risk coverage essential in practice:
- Lender requirements. Most lenders require builder's risk insurance as a condition of financing.
- Contractual obligations. Construction contracts often assign responsibility for coverage.
- Risk management considerations. Uninsured construction exposures can be financially significant.
What does it cover?
Coverage under a master builder's risk program generally includes:
- The structure under construction, including installed materials and fixtures
- Materials and equipment on site, in transit or temporarily stored off site (subject to sublimits)
- Soft costs (e.g., design fees, legal expenses, permits and financing costs) when a covered loss causes delays
- Delay in completion or loss of income related to project delays
- Debris removal following a covered loss
Common covered perils include fire, wind, theft, vandalism and certain types of water damage.
Common exclusions include flood and earthquake (often available by endorsement), faulty workmanship, design defects, and wear and tear. Coverage details vary, and careful review of exclusions and endorsements is important.
Who provides master builder's risk insurance?
One of the most important and often misunderstood decisions in any construction project is who is responsible for securing builder's risk insurance: the contractor or the project owner?
The answer depends on how the construction contract is written, but the two most common arrangements are:
- Owner-controlled programs
The project owner (developer, corporation, municipality, etc.) purchases and maintains the builder's risk policy. This gives the owner direct control over coverage terms, limits, and claims and is the foundation of a master program approach.
- Contractor-controlled programs
The general contractor (or subcontractor) secures the policy and is named as the primary insured. This is common on smaller or one-off projects but can create inconsistency when an owner has multiple projects with different contractors.
For contractors managing multiple projects, owner-controlled coverage under a master program is generally the preferred approach because it eliminates reliance on contractors to secure adequate coverage, ensures uniform protection across the portfolio and keeps the owner in control of the claims process.
How is a master program implemented?
Implementation typically includes the following steps: