Introduction to Builder’s Risk (Course of Construction) Insurance

Builder’s Risk Insurance, also known as Course of Construction (COC) insurance, is a specialized form of property insurance covering buildings and structures while they are being constructed or renovated. It protects against physical loss or damage to the project arising from perils such as fire, theft, vandalism, windstorm, or collapse.

Summit Commercial Solutions offers Builder’s Risk Insurance solutions tailored for Canadian businesses involved in new builds and renovations. The placement and evidencing of coverage are influenced by the project structure, lender requirements, and contractual arrangements between owners and general contractors (GCs).

Placement Comparison: Owner vs. General Contractor (GC)

Summary Table References

• Summit Construction & Realty Insurance

• ICLR Canada - Builder’s Risk Best Practices

Lender Requirements

Lenders and financial institutions (banks, credit unions, CMHC, private lenders) frequently require comprehensive Builder’s Risk insurance to protect their collateral during construction or renovation (ref: Summit Builder's Risk)

Common Lender Requirements:

• Loss Payee Clauses: The bank or mortgagee must be listed as loss payee and/or mortgagee on the policy.

• Minimum Policy Limits: Coverage must at least match total project construction value, including hard and, sometimes, soft costs (interest and fees).

• Named Insured: Typically, owner must be a named insured, even if GC places the policy.

• Policy Term: From commencement of construction to substantial completion/occupancy.

• Perils Insured: All-risk policy form preferred, covering fire, theft, vandalism, windstorm, collapse, water damage, etc.

• Subrogation Waivers: Waiver of subrogation language to benefit owner, lender, and sometimes all project participants.

• Deductibles: Must be reasonable and often capped (excessive deductibles may be restricted).

• Proof/Evidence of Insurance: Certificate of insurance provided prior to first advance and maintained through project.

• Endorsements: Soft cost coverage, delayed opening, testing, temporary works, debris removal, sewer backup, flood/earthquake endorsement (if required in region).

Example: Lender's Insurance Exhibit Checklist

• Copy of full policy, with all extensions, issued before 1st draw/fund release.

• Certificate naming lender as First Loss Payee (and often as Additional Insured if project owned in special-purpose vehicle).

• Policy limits equal to replacement value (may factor in total contract value/contingency).

• Endorsements for soft costs and delayed start-up (if project is $2M+ or CMHC-backed, etc.).

Project Evidence: Documenting and Proving Coverage

Required Documents

• Certificate of Insurance: Summarizes key details, must show:

• Named insured(s) (owner, GC, lender)

• Property address/project description

• Policy number, effective date, expiration date

• Limits and sub-limits, deductibles

• Loss payee/beneficiary details

• Copy of Policy (or Binder): Including all forms, endorsements, schedules

• Special Endorsements: Evidence special lender or contractual requirements are met

• Waiver of Subrogation Evidence: Where required by contract

• Proof of Payment: In some cases, lenders may request proof that the premium is paid

For new builds and substantial renovations, lenders and project stakeholders (including municipalities, CMHC for multi-res, partners, etc.) may require updated evidence at certain construction milestones (draws, occupancy, completion).

Features of Builder’s Risk Insurance

• Scope: Covers property under construction, incl. building, materials on-site or in transit, scaffolding, temporary works.

• Insured Perils: Fire, explosion, vandalism, theft, windstorm, lightning, impact, collapse, accidental damage

• Partial Coverage: Property in transit, temporary storage offsite (by endorsement)

• Soft Costs: Financing interest, planning fees, realty taxes, marketing, professional fees during delay (must be endorsed)

• Delay in Opening/Start-Up: Protects against extra expenses if completion is delayed by insured peril

• Debris Removal: Costs to clear damaged materials post-loss

• Testing and Commissioning: For machinery/equipment projects

• Coverage Ceases: Typically on occupancy, project acceptance, or after specified time post-completion.

See: Summit Builder's Risk Insurance

Typical Builder’s Risk Coverage Structure at Summit

At Summit, Builder's Risk (COC) insurance is:

• Custom-tailored: Designed for new builds and major renovations on all types of real property (residential, multi-res, commercial, mixed-use, retail, hospitality, etc.)

• Market-neutral: As an independent broker, Summit compares multiple insurers to maximize value and fit

• Expert-guided: Dedicated account manager assists clients and facilitates required evidence or lender negotiation

Use Cases: Owner-Placement vs. GC-Placement

Owner-Placement Ideal For:

• Developers managing risk across multiple projects

• Situations where owner’s lender requires direct control or interest

• Projects with complex or nontraditional contract structures, e.g., CMHC-insured loans, private equity financing

• Sensitive projects (heritage building, major public/private partnership)

GC-Placement Ideal For:

• Traditional design-bid-build delivery

• Lump-sum or fixed-price contracts where the GC controls the site and project

• Projects where the GC’s insurer offers better pricing or expanded risk appetite

• Owner wants to simplify administration (GC manages insurance logistics)

Contractor, Owner, and Lender Benefit Comparison

FAQ: Owner vs. GC-Placement, Lender Requirements, and Evidence

Who should place the Builder’s Risk insurance – the owner or the general contractor?

• There is no legal requirement for either. It depends on contract language, lender requirements, and project delivery model. For projects with mortgages or large institutional lenders, owner-placement is often mandated. For traditional GC-managed builds, GC-placement may be more common.

Does lender always need to be loss payee?

• In almost every mortgage-backed construction/renovation project, yes. The lender’s interest as a loss payee protects their collateral should a significant loss occur during construction.

Can the builder’s risk policy cover both owner and GC?

• Yes. Both should be named insureds, with all relevant contractors, trades, and subs as additional insureds. A well-brokered policy (e.g. through Summit) ensures all major parties are named.

What special evidence do lenders require?

• Certificates of insurance, policy binders, proof of payment, endorsements, and evidence of tailored policy features (loss payee, soft cost, sub-limit endorsements). These are provided by Summit to clients and their lenders.

What happens if evidence lapses mid-project?

• Most lenders will halt further funding draws. This can cause costly construction delays.

What is the typical timing for providing evidence?

• Before project start (usually before first mortgage advance), at each draw, and in some cases, at substantial completion/occupancy.

Will a single Builder’s Risk policy cover both new builds and renovations?

• Yes, provided project description and scope are detailed at policy inception. Renovation projects should specify if structure is to be partially occupied during work; insurers may need clarifying endorsements.

Real Project Scenarios and Summit’s Approach

• Rapid Response: Summit regularly provides urgent Builder’s Risk insurance for developers facing tight contract or lender deadlines (see customer testimonial: "The team at Summit reached out to us within minutes and got us a package that fit exactly what we were looking for, AND FAST!").

• Complex Ownership Structures: Summit routinely insures projects owned by special-purpose vehicles (SPVs), real estate partnerships, or multi-investor syndicates, ensuring all interests (owner, lenders, partners) are protected and documented on the policy and certificates.

• Renovation Risks: Summit tailors coverage for both full gut renovations and partial occupancy refits; builder’s risk can cover existing structure (by endorsement) or just new work, as required.

Related Summit Solutions and Advantages

• Surety Bonding: For performance and completion guarantees, which can complement builder’s risk on high-value projects see Surety Bonding

• General Liability and Contractors Coverage: Separate from Builder’s Risk but often coordinated for compliance and project protection see Contractors Insurance

• Claims Service: Summit provides streamlined claims service, supporting clients in documentation and liaison with insurers/lenders to ensure projects stay on track see Claims Service

Key Takeaways

• Owner vs. GC placement of Builder’s Risk insurance depends on contract structure and lender requirements; owner-placement offers control but more admin, GC-placement centralizes but may need extra endorsements for lender/owner needs.

• Lender requirements are strict: loss payee, properly named insureds, full replacement limits, endorsements; evidence of insurance must be provided in correct form at project milestones.

• Summit Commercial Solutions offers expert, market-neutral guidance for optimal placement, lender negotiation, and timely certificate/policy delivery, helping projects of every scale stay fully compliant and protected.

References & Further Reading

• Summit Commercial Solutions - Construction & Realty Insurance

• Summit Builder's Risk Insurance

• Canadian Construction Documents Committee - CCDC 41

• ICLR Canada: A Guide to Managing Construction Risks

• Insurance Bureau of Canada – Builder’s Risk Overview (for regulatory context in Canada)

Related FAQ Resources

• What Are The 4 Types of Construction Insurance?

• Managing Asbestos Risks During Building Renovations

Need Project-Specific Guidance?

Summit Commercial Solutions provides customized builder’s risk insurance and risk consulting for construction, realty development, property owners, and contractors across Canada. For tailored analysis, direct evidence form issuance, and comparative market quotes, contact Summit’s Construction and Builder’s Risk team.