Builder’s risk insurance is a form of all-risk property insurance that protects an owner’s property / project from perils during the course of construction subject to the exclusions identified in the policy. Sometimes there is the question when negotiating a contract between an owner and general contractor whether to name the contractor as an additional named insured (along with the owner) and/or a loss payee under the builder’s risk insurance policy procured by the owner. A contractor prefers, and should prefer, to be included as a named insured and/or loss payee to ensure it is protected and paid for a covered loss during construction. In reality, it is much better for the contractor to be identified as a named insured; being identified as a loss payee simply means the contractor can be paid insurance proceeds (it can be named on the check), but it is not an insured under the policy.
Each of the standard form construction agreements contain slightly different language regarding a contractor’s interest under a builder’s risk policy procured by the owner. For example, the AIA would require the builder’s risk insurance to include the interests of the owner, the general contractor, subcontractors, and sub-subcontractors. Ok; this makes sense but it does not specifically require the owner to name these entities as named insureds under the policy and/or loss payees. Rather, the AIA contains language that allows the owner to adjust the claim as a fiduciary with the payment made to the owner as a fiduciary. The ConsensusDOCS provide better language for the contractor that would require the owner to name the contractor as a named insured. Again, being identified as a named insured is preferable as it allows the contractor to assert a builder’s risk claim directly against the policy as an insured. And, from an owner’s perspective, sometimes it is preferable to allow the contractor to assert a claim for a loss associated with a peril that may be covered even if the peril is due to the negligence of the contractor. While the standard form contracts require the owner to bear the cost of the deductible, an owner may want to shift that deductible to the contractor if the contractor is seeking to recoup losses under the policy for a peril due to its negligence.
Finally, the standard form contracts do contain a waiver of subrogation for losses against the owner, contractor, subcontractors, etc. to the extent covered by property insurance. This means that the property insurer is waiving rights to recoup insurance proceeds it paid associated with a claim against a third party included in the waiver of subrogation provision. This provision should not be deleted as the contractual waiver of subrogation benefits both the owner and contractor.
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