What is not covered by builder's risk insurance?
Builder's risk insurance does not cover damage from earthquakes, floods, employee theft, contract penalties, or normal wear and tear unless these are specifically added. Coverage also excludes liability for injuries and contractor mistakes.
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Complete Guide to Builder's Risk Insurance Exclusions
Why This Question Matters for Colorado and Utah Residents
Builder's risk insurance is designed to protect construction projects, but knowing what isn't covered is essential for avoiding uncovered losses. In Colorado and Utah, where extreme weather and unique legal requirements play a big role in construction outcomes, understanding exclusions helps business owners, contractors, and property developers make smarter decisions.
- Extreme Weather Risks: Both states face hazards like hail, wildfire, and post-fire flooding—many of which are excluded unless coverage is added.
- Regulatory Realities: Colorado's mandatory flood waiver and NAIC standards require transparent disclosure of exclusions, so it's critical to review your policy.
- Financial Impact: The average excluded event (employee theft, government action, or uncovered disaster) can cost tens of thousands—well above the average $800-$3,000/year premium for $1M in coverage.
What Most People Get Wrong
Many assume builder's risk insurance acts as a catch-all for all construction risks. However, exclusions for floods, earthquakes, theft by employees, contract disputes, and neglect are standard in both Colorado and Utah. Relying on basic coverage or ignoring policy add-ons leaves vital exposures unprotected.
Another common misstep: confusing builder's risk with general liability coverage. Builder's risk insures the property; it does not protect against third-party injuries or most legal liabilities.
The Complete Picture
Builder's risk insurance in Colorado and Utah generally does not cover:
- Earthquake or flood damage (unless endorsed/added)
- Employee theft or dishonest acts
- Consequential losses like contract penalties, lost profits, or project delays
- Normal wear and tear, mechanical breakdown, or faulty workmanship
- Damage caused by government action, war, or nuclear hazards
- General liability (bodily injury to third parties)
With regional factors—like wildfires leading to floods in Colorado, or severe snowmelt in Utah—these exclusions can leave big gaps. Smart project owners and contractors consult with local agents to arrange separate policies or endorsements for these risks, ensuring full protection throughout a build. Always read your declaration page and clarify with your advisor if a critical risk is not clearly covered.
Making the Right Decision for Colorado and Utah Residents
Question 1: What natural disaster risks does my project face, and are they excluded?
Both states have strong regional risks—Colorado’s frequent hail and wildfire seasons, Utah’s flood zones from snowmelt—that may only be covered with special endorsements. Consider these points:
- Does your location have a known flood or earthquake risk?
- Have you recently experienced wildfires (raising flood risk in burn scars)?
Question 2: How will exclusions affect my financial exposure?
Work with your agent to calculate the cost of uncovered events. For example, an employee theft might not be covered—are you prepared for a $20,000+ direct loss? Review contract penalties for delays or site stoppages not insured under builder’s risk.
Question 3: Are important risks insured elsewhere?
Map your total risk picture. Liability for jobsite injuries needs a separate general liability policy. Flood and earthquake risks may require dedicated coverage. Checking each exposure with your local independent agent ensures you don’t miss a critical gap relevant to Colorado or Utah projects.
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Real World Examples
When a Storm Turns Into an Excluded Loss — Fort Collins, CO
Background: Sarah, a builder in Fort Collins, purchased builder’s risk for her Old Town renovation project. The policy had standard exclusions, including for flood.
Coverage: Builder’s risk policy with $500,000 limit, $2,500 deductible. No flood endorsement added.
Monthly Premium: $150/month ($1,800/year)
The Incident: After a June hailstorm, a flash flood swept through the area—water entered the in-progress building, damaging $38,000 in finished carpentry and materials. Builder’s risk paid nothing because flood was excluded under the standard policy.
Total Claim Cost: $38,000 (damage to new materials, mold remediation)
Sarah’s Cost: $38,000 – full loss, as the event was excluded.
“I thought I was covered for any weather, but my agent explained flood requires a separate policy—it’s an expensive lesson I won’t forget.”
Employee Theft on a Downtown Project — Denver, CO
Background: Mark, a general contractor in Denver’s LoDo district, had a builder’s risk policy in place for a retail shell construction.
Coverage: Builder's risk policy, $750,000 limit, $5,000 deductible. Standard exclusions for theft by employees.
Monthly Premium: $220/month ($2,640/year)
The Incident: A subcontractor’s employee stole copper wiring and fixtures valued at $17,500 over multiple weeks. Discovery came after the job was delayed.
Total Claim Cost: $19,500 (materials plus delay and electrical rework costs)
Mark’s Cost: $19,500 – no insurance coverage because employee theft is excluded.
“I learned the hard way—internal theft isn’t covered. We’ve changed our security policies to prevent this from happening again.”
Unexpected Costs from a Contract Penalty — Salt Lake City, UT
Background: Julia oversaw a multifamily build near downtown Salt Lake City. Her builder’s risk policy was standard for the area, with no add-ons for consequential losses.
Coverage: Builder’s risk policy, $1,200,000 limit, $10,000 deductible. No coverage for penalties or loss of use.
Monthly Premium: $340/month ($4,080/year)
The Incident: A supplier error delayed window installation, pushing completion 35 days past contract. The owner triggered a $30,000 late penalty in addition to lost rental income. Builder's risk declined the penalty portion, as contract penalties are explicitly excluded.
Total Claim Cost: $30,000 (owner penalty, not covered under insurance)
Julia’s Cost: $30,000 – out of pocket, since standard builder’s risk doesn’t cover contract penalties.
“Nobody told me contract penalties weren’t insurable under this policy. Now, I ask detailed questions so I know exactly what’s protected.”
Avoid These Common Mistakes
Mistake #1: Assuming All Weather-Related Damage Is Covered
What People Do: Many clients believe builder’s risk includes every kind of storm-related loss, including flood or earthquake, without reading the actual exclusions page.
Why It Seems Logical: Weather is the top cause of construction damage in Colorado and Utah. It feels reasonable to think storm-related losses are automatically covered.
The Real Cost: Flood or earthquake damage can mean uncovered losses of $30,000–$100,000 or more, well beyond the $2,000–$5,000 typical annual premium for a mid-sized project.
Smart Alternative: Work with a FoCoIns advisor to assess site-specific risks. Request flood and earthquake quotes if you’re near high-risk areas—these add-ons or separate policies can save you enormous out-of-pocket costs after a disaster.
Mistake #2: Overlooking Employee Theft as an Excluded Loss
What People Do: Builders frequently rely on builder’s risk to pay for any jobsite theft, unaware the policy only covers theft by outsiders, not employees or subcontractors.
Why It Seems Logical: Theft is theft, right? Many assume all losses are treated equally.
The Real Cost: Internal theft averages $15,000–$50,000 per incident in Colorado projects—losses that must be paid out of pocket if excluded from coverage.
Smart Alternative: Enhance internal controls. Discuss specialized employee dishonesty coverage or a commercial crime policy with your FoCoIns advisor to plug this gap.
Mistake #3: Ignoring Contract Penalties and Delay Exclusions
What People Do: Project managers wrongly expect builder’s risk to pay for contract penalties or income lost due to construction delays.
Why It Seems Logical: When coverage is described as “comprehensive,” people assume it covers all costs of a delay or dispute.
The Real Cost: Contract penalties can be in the tens of thousands, such as a $30,000 penalty for missing a deadline—almost never covered by builder’s risk, putting project margins at serious risk.
Smart Alternative: Carefully review project contracts. Discuss delay and penalty provisions with your insurance advisor and legal counsel, and consider separate insurance or contractual risk management strategies for delay-induced costs.
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