The facts

John, a builder, was overseeing a large residential construction project and had obtained a builders risk insurance policy to safeguard against property damage and loss during the construction process. However, John made the decision not to include soft cost coverage as an endorsement to his policy, assuming that any additional expenses resulting from potential project delays would be covered.

Unfortunately, a fire broke out and completely destroyed the structure when it was 80% complete, leading to a significant delay in the project. As a consequence, the completion of the project was postponed by several months.

During this delay period, John incurred various soft costs that were not covered by his builders risk policy. These costs included architectural and design fees for the extended project timeline, additional inspection fees, increased loan interest due to prolonged financing, project management expenses for overseeing the extended construction period, and advertising costs to inform stakeholders about the revised completion date.

The result

Since John did not have soft cost coverage included in his builders risk policy, he was left to bear these expenses out of his own pocket. The accumulation of soft costs strained his budget and profitability, impacting his ability to complete the project within the initially estimated financial parameters.

Risk factor #1

This scenario highlights the importance of having soft cost coverage in place under a builders risk policy. Without such coverage, builders like John may face significant financial burdens and potential setbacks when project delays occur.

Risk factor #2

It is crucial for builders and project owners to thoroughly review their insurance policies in collaboration with their insurance agent or broker. Considering the inclusion of soft cost coverage as an endorsement or extension, unless it is automatically included, is essential. By taking this proactive step, builders can protect themselves from unexpected out-of-pocket expenses and ensure that their projects remain financially viable, even in the face of delays.

_{*The claim scenario is strictly documented for illustrative purposes only and provides an example of what a policy could cover. It is intended to provide a general overview of the program described. Please remember only the insurance policy can give actual terms, coverage, amounts, conditions and exclusions. Program availability and coverage are subject to individual underwriting criteria.}