Insurance during home construction  & post completion insurance.


Insurance during home construction 
post completion insurance.
December 1, 2017

Insurance during construction is composed of insurance on
the home itself and additional insurance carried by the contractor.  Generally, the contractor carries general
liability, completed operations, auto insurance, workman’s compensation and
various other coverages.  For the homeowner
the important coverages to confirm are the limits of the general liability insurances,
confirming the contractor has workman’s compensation insurance and completed
operations coverage.  I will review these
various coverages below.
General Liability Insurance
covers the builders’ business operations as well as damage to property other
than the home being built such as damage to a neighboring property.  Most responsible companies should have this
coverage, so I won’t spend further time discussing it.
Compensation Insurance
is required in Florida for all construction
companies that have not filed valid Workman’s Compensation forms.  Florida will allow a company with 3 or fewer
officers/owners to exempt themselves from this insurance.  This allows the company to save the costs for
this policy, however, it also allows them to hire subs that don’t have
Workman’s Compensation insurance.  This
can result in large savings for the construction company, however, the burden
of the risk of worker injury is transferred directly to the contractor and homeowner.  Presuming small companies who are not paying
for Workman’s Compensation have limited assets, the real burden is borne by the
homeowner.  Many people are confused on
what the exemption form means.  The
exemption form allows the company to legally operate without the
insurance.  It does not provide any
coverage or replacement for the insurance. 
Companies that have Workman’s Compensation insurance are required by
their policy to hire only subs with Workman’s Comp insurance (or they can accept
a sub with valid exemptions).  Without
this insurance, the homeowner can be sued by workers who are injured working on
the home.  This can be a catastrophic
event for a homeowner who did not fully understand or check the insurance of
the considered contractor.
Completed Operations Insurance
coverage provides protection for items that occur to the homeowners’ property
after completion.  Without this coverage,
the burden of any warranty item is born by the contractor and/or sub
contractor.  Large costs can result in a
contractor not being able to do the required work.  This is an often overlooked coverage.  For instance many water intrusions at decks
and other areas may have multiple sources which contribute to the problem and
if discovered after several years the damage may be well over $100,000 to
repair.  In these cases, subs may point
the finger at each other and/or the contractor. 
The contractor may not be financially able to correct the problem
himself without the subs help.  Completed
Operations Insurance covers the claim and then sorts things out with the subs
and vendors involved later.
The remaining insurance is specific to the house, the only
question is who is responsible for purchasing the coverage.  The main policy protecting a house under
construction is called Builders Risk. 
This is the coverage that protects against theft, fire, and other
actions to the house itself.  Some of
these policies will have wind protection built in and others will require a
separate wind policy.  The deductible is
where the financial strength of the contractor comes in.  Most wind coverage carries a large deductible
which is 3-5% in most cases.  So a
contractor with four $1,000,000 homes under construction could have $200,000 of
out of pocket damages on insured homes. 
Many cost plus contracts do not address who is responsible for these
costs as well which can cause an enormous surprise.
Flood insurance is not required by banks when the home is
not in a flood zone (X zone).  As we have
seen in Houston and other areas, it is not uncommon for flooding to occur in
areas not in a flood zone.  Builders Risk
insurance specifically does not cover any flood damages and most flood
insurance is limited to $250,000 in damages. 
Replacement costs above these limits are borne by the contractor, so
once more it is important to know who you are dealing with and what their
financial capability really is.
After closing, the homeowner is always responsible for
insurance coverages.  If a bank is
involved they will have requirements for insurance coverage and limits.  In our area of coastal Florida I would
encourage you to consider flood coverage whether you
need it or not.  If a bank is not
involved the home owner must determine what limits and coverage they want to
have.  While home and wind insurance is
expensive, replacement of a home is as well. 
While Irma’s direct hit on Collier County resulted in limited damage to
newer homes, we can’t assume the next storm will have the same impact.
Written By, 

Stephen Kauffman, CEO of DIVCO Custom Homes