When construction goes wrong during a building project, understanding your insurance options can mean the difference between financial recovery and devastating loss. Builder's risk insurance serves as a critical safety net during construction, but navigating claims under these policies requires understanding both the coverage and your rights under Colorado law.
What is Builder's Risk Insurance?
Builder's risk insurance is a specialized property insurance policy that covers buildings and structures while they're under construction. Unlike standard property insurance that protects completed buildings, builder's risk policies are designed specifically for the unique risks present during construction projects.
This coverage typically protects against losses from fire, theft, vandalism, and certain weather-related damages that occur during the construction process. The policy usually covers the structure being built, materials stored on-site, and sometimes temporary structures used during construction.
Who Can Purchase Builder's Risk Insurance?
Several parties involved in a construction project can purchase builder's risk coverage:
Property owners building new homes or renovating existing structures
General contractors managing construction projects
Subcontractors working on specific portions of projects
Lenders financing construction projects
The key is determining who has an "insurable interest" in the property under construction. Colorado law generally allows anyone who would suffer financial loss from damage to the construction project to obtain coverage.
Understanding Your Coverage
Builder's risk policies vary significantly in their scope and limitations. When reviewing your policy, pay special attention to these critical areas:
Covered Property
Most builder's risk policies cover the structure under construction and building materials at the job site. However, coverage for existing structures can be more complex. If you're renovating an existing building, you'll need to ensure your policy explicitly covers both the existing structure and new construction work, as standard policies often exclude pre-existing buildings.
The distinction between replacement cost value (RCV) and actual cash value (ACV) is particularly important for existing structures. RCV coverage pays the full cost to rebuild or repair without deducting for depreciation, while ACV coverage reduces payments based on the property's depreciated value. Given Colorado's strong real estate market, RCV coverage is typically the better choice despite higher premiums.
Common Exclusions
Builder's risk policies typically exclude certain types of losses that homeowners should understand:
Design and workmanship defects: Damage caused by faulty design, inadequate specifications, or poor workmanship
Weather-related damage: Many policies exclude or limit coverage for wind, hail, or water damage
Theft of materials: Some policies exclude or limit coverage for stolen materials and equipment
Existing structures: Unless specifically included, pre-existing buildings may not be covered
One crucial consideration is whether your policy contains an "anti-concurrent causation" (ACC) clause. These clauses can completely eliminate coverage even when an excluded cause contributes only partially to a loss. For example, if both covered and excluded causes contribute to damage, an ACC clause might deny the entire claim.
Ensuing Loss Coverage
Look for "ensuing loss" provisions in your policy. This coverage can be valuable when an excluded cause leads to a covered loss. For instance, if faulty workmanship (excluded) causes electrical problems that lead to a fire (covered), ensuing loss coverage might pay for fire damage even though the underlying cause is excluded.
Filing a Builder's Risk Claim in Colorado
When damage occurs during construction, prompt action is essential:
Immediate Steps
Secure the site and prevent further damage
Document everything with photographs and detailed notes
Notify your insurance company immediately - delays can complicate claims
Preserve damaged materials for inspection
Maintain detailed records of all communications with insurers
Working with Adjusters
Insurance companies will assign an adjuster to investigate your claim. While adjusters can be helpful, remember that they work for the insurance company, not for you. Be cooperative but cautious about making statements that could be interpreted as admissions of fault or responsibility.
Your Rights Under Colorado Law
Colorado provides strong protections for policyholders dealing with insurance claims, particularly when insurers act unreasonably.
Reasonable Expectations
For construction professionals specifically, Colorado has clarified that the policy of Colorado favors the interpretation of insurance coverage broadly for the insured. C.R.S. § 13-20-808. This principle reflects a broader approach in Colorado courts that generally considers the insured's reasonable expectations when interpreting policy language.
Protection Against Unreasonable Delays and Denials
Colorado law provides significant protections against insurance companies that unreasonably delay or deny valid claims. Under C.R.S. § 10-3-1115, insurers cannot unreasonably delay or deny payment of benefits owed to first-party claimants.
If your insurer acts unreasonably, C.R.S. § 10-3-1116 provides a powerful remedy: you can recover not only your covered benefits but also two times the covered benefit amount, plus reasonable attorney fees and court costs. This statutory remedy requires only proof that the insurer's denial or delay was "without a reasonable basis" - a much easier standard than traditional bad faith claims.
Bad Faith Claims
Beyond statutory remedies, Colorado recognizes common law bad faith claims. C.R.S. § 10-3-1113 establishes that insurers owe their insureds a duty of good faith and fair dealing. This duty is breached if the insurer delays or denies payment without a reasonable basis for its delay or denial.
For first-party insurance claims (like builder's risk), proving bad faith requires showing that the insurer not only acted unreasonably but also knew its delay or denial was unreasonable or recklessly disregarded the fact that its delay or denial was unreasonable. C.R.S. § 10-3-1113(3).
Special Considerations for Construction Projects
Coordination with Other Coverage
Construction projects often involve multiple insurance policies. Your builder's risk coverage may need to coordinate with:
General liability insurance covering injury claims
Professional liability insurance for design professionals
Workers' compensation coverage for on-site injuries
Understanding how these policies interact is crucial, particularly when determining which insurer should handle specific types of claims.
Wrap-Up Programs
Some larger construction projects use "wrap-up" insurance programs that provide comprehensive coverage for all project participants. These programs often exclude ongoing operations coverage, making builder's risk insurance even more critical.
Existing Structure Considerations
If your project involves renovating or adding to existing buildings, ensure your builder's risk policy specifically covers both existing and new construction. This requires careful coordination and may involve additional underwriting considerations like property valuation and condition assessments.
Common Claim Challenges
Cause Determination
Determining the cause of construction damage can be complex. Insurance companies may argue that damage resulted from excluded causes like design defects or poor workmanship rather than covered perils like fire or theft. Having independent experts evaluate damage can be crucial in these disputes.
Coverage Gaps
Claims often reveal unexpected coverage gaps, particularly when multiple policies are involved or when damage affects both existing and new construction. Understanding these gaps before they become problems is essential.
Timing Issues
Builder's risk policies are typically time-limited, and coverage may expire before construction is complete. Understanding your policy's time limits and renewal requirements prevents coverage gaps that could leave you unprotected.
As discussed in our guide on late notice rules for Colorado insurance claims, timing is crucial in insurance matters, and while late notice doesn't automatically void coverage, prompt notification is always best practice.
When to Seek Legal Help
Given the complexity of builder's risk insurance and the potential for significant financial exposure, consider consulting with an experienced construction defect attorney when:
Your claim has been denied or unreasonably delayed
Coverage disputes arise between multiple insurers
The insurance company's settlement offer seems inadequate
Complex causation issues are involved
You're dealing with significant property damage or financial loss
For broader context on construction defect insurance issues, our comprehensive guide to what insurance covers construction defects provides additional valuable information.
Protecting Your Interests
Builder's risk insurance claims can be complex, involving significant money and multiple parties with competing interests. Colorado law provides strong protections for policyholders, but understanding and enforcing these rights often requires professional legal assistance.
If you're facing a builder's risk insurance claim dispute, don't handle it alone. The stakes are too high, and insurance companies have experienced professionals working to minimize their exposure. You deserve the same level of professional representation to protect your interests and ensure you receive the coverage you paid for.
Contact an experienced Colorado construction defect attorney today to discuss your builder's risk insurance claim and protect your rights under Colorado law.
Have Questions About Insurance Disputes?
Our experienced construction defect attorneys are here to help. Schedule a free 15-minute screening call to discuss your situation.
