Insurance when Rehabbing

Wilkes Barre Scranton, Pennsylvania
Insurance
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Insurance when Rehabbing

Joseph EscamillaPro Member
Lender · Charleston, SC · Member since 2018 · 41 posts · 14 votes

A friend and I are under contract to purchase a property in the Poconos. The primary use will be as a Vacation home for our families to use with the potential to list it as a vacation rental in the future.  We are getting conflicting ideas from different insurance agents and not sure which route to take. 

Since we are rehabbing the property once we close one insurance agent is recommending we get a "Builder's Risk" Policy. The other agent doesn't think we need a Builder's Risk policy they are telling us that as long as the contractor provides us with a Certificate of Insurance and adds us as an additional insured party, then we are protected from anything going wrong during the rehab such as a worker getting hurt or any damage done to the property.

We really just want to make sure we aren't exposing ourselves to future issues/ lawsuits. Obviously every policy will be different but can someone please answer any or all of the following questions below?: 

-What would be covered/not covered for Builder's Risk Policy vs the contractor's COI? 

-If we decided to not go with builder's risk what are exposing ourselves to? 

-Would a contractor ever add us as additional insured? and would they even need to? 

-Would it make sense to just get a builder's risk policy while we are rehabbing and then changing to a regular policy once rehab is done? 

-Anything else to keep in mind? 

THANK YOU!!

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John Mocker
Insurance Agent · Norwalk, CT · Member since 2016 · 2k+ posts · 1k+ votes
3y

Joseph,

At Closing you will want to have a Renovation Builders Risk policy and a Liability policy (if it is not part of the Reno Builder Risk).  The Builders Risk will cover the existing structure (most likely valued at the depreciated value) and the renovations that will be put in (usually at the Replacemement Value).  There are perils that could cause a loss that have nothing to do with the Contractor's Insurance.  Suppose lightening hits the house and causes a fire.  The contractor is not liable for that most likely so you would have an uncovered claim. 

You still want to get proof of insurance from all contractors you hire and have a written contract with them.  It is often recommended that you have them name you as an additional insured on their policy for the Liability coverage.  That, in my opinion, is not a replacement for you carrying Liability coverage yourself. 

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  • John Mocker
    Insurance Agent · Norwalk, CT · Member since 2016 · 2k+ posts · 1k+ votes
    3y

    Joseph,

    At Closing you will want to have a Renovation Builders Risk policy and a Liability policy (if it is not part of the Reno Builder Risk).  The Builders Risk will cover the existing structure (most likely valued at the depreciated value) and the renovations that will be put in (usually at the Replacemement Value).  There are perils that could cause a loss that have nothing to do with the Contractor's Insurance.  Suppose lightening hits the house and causes a fire.  The contractor is not liable for that most likely so you would have an uncovered claim. 

    You still want to get proof of insurance from all contractors you hire and have a written contract with them.  It is often recommended that you have them name you as an additional insured on their policy for the Liability coverage.  That, in my opinion, is not a replacement for you carrying Liability coverage yourself. 

    2Reply
  • Joseph EscamillaPro Member
    OP
    Lender · Charleston, SC · Member since 2018 · 41 posts · 14 votes
    3y
    Quote from @John Mocker:

    Joseph,

    At Closing you will want to have a Renovation Builders Risk policy and a Liability policy (if it is not part of the Reno Builder Risk).  The Builders Risk will cover the existing structure (most likely valued at the depreciated value) and the renovations that will be put in (usually at the Replacemement Value).  There are perils that could cause a loss that have nothing to do with the Contractor's Insurance.  Suppose lightening hits the house and causes a fire.  The contractor is not liable for that most likely so you would have an uncovered claim. 

    You still want to get proof of insurance from all contractors you hire and have a written contract with them.  It is often recommended that you have them name you as an additional insured on their policy for the Liability coverage.  That, in my opinion, is not a replacement for you carrying Liability coverage yourself. 


     Thank you John! In your example you mention that if lightning hits the house and causes a fire then of course the builder is not liable for that. But wouldn't any regular insurance policy already cover that ? Or would it be an uncovered claim due to the fact that the lightning hit the property DURING the rehab? not sure if my question makes sense 

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  • Caroline Gerardo
    Lender · Washington DC · Member since 2015 · 2k+ posts · 2k+ votes
    3y

    I'm NOT an insurance agent but if you intend to walk on the site or tell contractors what to do you need at minimum a million dollar liability policy and maybe E and O as well as Reno Builder's Risk. Builder's Risk covers the construction site.

    Contractors often are under insured. And as @John Mocker mentions there are many other risks. Tornados do touch down in the mountains there (generally not covered under Builder's Risk). 

    Think about: theft of materials from site, bodily injury to contractor's employees (not covered by his Liability Insurance), does the contractor carry workman's comp...

    Rather than worry YOU NEED A BROKER WHO ADVISES. When you find the insurance agent who cares about you they will show up when there is a loss rather than giving you the email to the adjuster. The agent analyzes all your insurance and save you money and heartache. You know the agent. Start the conversation have him/her review all your policies and once a year you meet up to fine tune your changing needs.

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  • John Mocker
    Insurance Agent · Norwalk, CT · Member since 2016 · 2k+ posts · 1k+ votes
    3y

    Joseph,

    The normal progression of the coverage on this is:

    1. Renovation Builders Risk until you get the Certificate of occupancy

    2. Homeowners policy (if it will be owner occupied) or Dwelling/Fire Policy if it will be Tenant occupied.  If it will be up for sale then it would often be under a Vacant Dwelling policy.

    So there should not normally be a Renovation Builders Risk and another policy covering the property for a single building.  

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