Along with the millions of businesses losing income as a result of the COVID-19 pandemic, those with construction projects in progress are suffering a different but equally crushing type of loss. Builders and developers in this situation will look to their builder's risk policies to cover those losses.
Builder's risk insurance policies — a form of inland marine insurance also known as course of construction insurance — are akin to first-party property policies. They cover losses or property damage caused by many of the same types of perils. Their significant point of departure from the typical first-party property policy is the classification of damages they cover. Both types of policies cover loss or damage to property, and both cover financial losses associated with a covered cause of loss, often until things get back to normal. But the nature of those covered financial losses is different. Commercial property in operation usually generates income. After the property is harmed by a covered peril, coverage is commonly available for the income lost until the property is restored to full operation.
But property that is under construction and covered by a builder's risk policy usually generates no present income to be covered as a business loss. Instead, the business losses covered by builder's risk are the soft costs associated with the project. Those soft costs may include but are not necessarily limited to:
• Additional financing interest expenses;
• Property taxes;
• Advertising expenses;
• Impacted future revenue streams such as rental income from a covered cessation of construction; and
• Commissions, legal and/or accounting fees
Many of those categories will have increased costs due to COVID-19 and the shutdowns resulting therefrom. And many of those increased costs might be covered by builder's risk…..