The Role of Builder’s Risk and Wrap-Up Policies in Construction Defect Recovery

Builder’s risk insurance is a property-style policy that covers physical damage to a project during construction. It typically attaches at groundbreaking and runs through substantial completion or occupancy. The named insureds usually include the owner, the general contractor, and sometimes major subcontractors.

The coverage is broad on its face: fire, theft, vandalism, water damage, and weather events. But the language that matters most in defect cases is the exclusion language. Standard builder’s risk policies exclude faulty workmanship, design defects, and damage caused by inherent vice. The coverage is for sudden and accidental losses to the structure during construction, not for the defective work itself.

That distinction matters. When a defect surfaces years later, builder’s risk is typically not the policy that responds. But the resulting damage, including mold growth, water intrusion through a defective envelope, and structural decay caused by improper installation, can sometimes trigger ensuing-loss provisions in the builder’s risk policy or in subsequent property coverage.

A capable claims consultant working with coverage counsel will examine the builder’s risk policy not for the defective work itself, but for the resulting damage that may have been overlooked when the claim was first evaluated. For a deeper look at how builder’s risk compares to general liability coverage in defect situations, see our guide on builder’s risk vs. general liability insurance.