So, you’re feeling froggy and want to build a new building to house your business? Good for you! The purpose of this article is to give you the step-by-step approach to insuring your new boondoggle, er, I mean, building. In the interest of keeping things simple, I’ll assume that banks are tripping over themselves to loan you the money and the municipal authorities cannot wait to issue your building permit. Your actual experience may vary on both accounts, but let’s pretend you’re all set to move forward.
Step 1 Your first step is likely the acquisition of the land on which your building will be placed. While there is no immediate property exposure, owning raw land does present a liability exposure. Be sure that you secure general liability coverage to protect you should something occur on the property. Do not assume that your existing commercial general liability or homeowners insurance will extend until confirming this with your agent.
Step 2 Presuming you know exactly what you want built and you’re not a commercial builder, your next step is to hire an experienced licensed general contractor. We are blessed in our area with several locally owned, well-qualified choices. In addition to vetting each option based on experience, availability and pricing, be sure to request a copy of an insurance certificate verifying that they carry general liability, commercial auto and workers’ compensation coverage. You may also want to discuss the option of having the contractor provide a performance and payment bond to make sure that the job will get completed should the contractor unexpectedly fall on hard times financially.
Step 3 We’ve got the land, we’ve got the builder and construction is about to begin. Before starting, however, you have some insurance decisions to make. First, you need to determine whether you or your builder will be furnishing the “builder’s risk” insurance policy. This policy covers the structure as well as items awaiting installation during the course of construction and can be written in several different ways. We recommend having the contractor provide a price and also consulting your agent for options if you secure the coverage on your own. Pay close attention to whether the policy is partially refundable should construction be completed before the policy term ends. Second, be sure your general liability insurer that you got to insure the raw land in step one adjusts the policy to account for the fact that they’re comfortable providing coverage when the construction project begins. This typically requires a change in classification on the policy from vacant land to real estate development, but the pricing difference is typically negligible. Finally, consider having your contractor name you as an additional insured on their liability coverage to provide additional protection.
Step 4 Construction is ahead of schedule and the building is almost completed. It is really important now to line up permanent commercial property coverage on the building. Most builder’s risk policies automatically end upon receipt of the certificate of occupancy or your moving into the building, whichever comes first. Be sure you’re not mistakenly relying on the builder’s risk policy when technically you need commercial property coverage. Similarly, have another conversation with your agent about that pesky general liability coverage now that the building will be completed and put to its intended use.
While it may seem like there’s a lot to do in terms of insurance, you can truthfully skip committing these four steps to memory if you do one thing: speak to your insurance agent about your plans. A good agent will do great wonders for you with regard to the risks inherent to constructing a new building.