On most construction projects, the property owner pays for builders risk insurance by default, but the answer depends entirely on which standard contract form the parties signed and whether they amended its insurance clause. Under the American Institute of Architects’ A201 form, the owner buys and maintains the policy. Under the ConsensusDocs 200 form, the general contractor does. Either default can be flipped during negotiations, and on financed projects the lender’s requirements also shape the outcome.
What the Standard Contract Forms Say
The two dominant families of construction contracts take opposite starting positions. Section 11.3 of AIA Document A201 (2017 edition) requires the property owner to purchase and maintain a builders risk policy in an amount at least equal to the initial contract sum, written on a replacement-cost basis. The logic is straightforward: the owner holds title to the land and to the structure being built on it, so the owner insures it.
ConsensusDocs 200, often used as the alternative to AIA, assigns the opposite default. The general contractor (called the “Constructor” in that form) procures the builders risk policy covering the partially completed work and any existing structures for the full replacement cost. That assignment reflects the view that the party running day-to-day site activity is best positioned to coordinate insurance with the actual risks on the ground.
Neither default is binding. Parties regularly rewrite the insurance article during negotiations to move the obligation from one side to the other, and once the contract is signed the amended language controls. If the contract is silent, the answer depends on which form it started from. Read Section 11 (or its equivalent) carefully before assuming anything.
When the Owner Pays
Owners who procure the policy directly keep control over the coverage limits, the policy terms, and the choice of insurer. That control matters because the policy can be shaped to protect the owner’s long-term interests, including any existing structures on the site. It also removes the risk that a contractor lets the policy lapse by missing a payment.
Builders risk premiums generally run between 1% and 5% of the total construction value, driven by project type, location, and the scope of perils insured. On larger jobs, owners often go further and set up an Owner Controlled Insurance Program, commonly called a “wrap-up.” An OCIP is a single program bought by the owner that covers the owner, the general contractor, and every subcontractor on the site. Contractors are instructed to strip insurance costs out of their bids, which can reduce total project cost by eliminating duplicate coverage and using the owner’s purchasing power on a single large placement.
When the Contractor Pays
When the contract shifts procurement to the general contractor, the contractor selects the insurer, pays the premium, and typically lists the owner as an additional insured. Owners in this position should confirm they are named as an additional insured rather than merely a certificate holder, because only an insured has direct rights under the policy if a loss occurs.1ConsensusDocs. Owner’s Builder’s Risk Insurance: Are You an Insured?
Even when the contractor writes the check to the carrier, the premium rarely comes out of the contractor’s profit. It gets folded into the bid, either as a separate line item under “cost of the work” or built into overhead and margin. The owner still pays in substance; the money just travels through the contract price.
A contractor who runs multiple phases or trades on a project may use a Contractor Controlled Insurance Program, the mirror image of an OCIP. A CCIP is a wrap-up purchased and managed by the general contractor that covers the contractor, the subcontractors, and the owner as an additional insured. The contractor runs the safety program and controls the insurance terms.
Paying the Premium Is Not Paying the Deductible
Who buys the policy and who absorbs the deductible when a claim is filed are two different questions, and the standard forms treat them differently.
AIA Document A201 puts the deductible on the contractor. Under Section 11.3.3, the contractor bears the risk of loss within the deductible amount, up to $5,000 per occurrence on projects under $15 million and up to $25,000 on larger projects.2Wisconsin.edu Procurement. Document A201 – 2017 General Conditions of the Contract for Construction So the owner buys the policy, but the contractor eats the first slice of any covered loss.
ConsensusDocs 200 uses a different rule: whichever party primarily caused the loss pays the deductible. If no one caused it (think hail), the deductible falls on the contractor because the contractor procured the policy. When contracts are silent on this question, courts generally enforce the policy language as written. In one federal case, the court held that where the policy language was “clear and unambiguous,” the deductible applied as stated without any look at the equities. If the standard form’s deductible rule doesn’t match what you want, amend it in writing before signing.
Subcontractors Usually Aren’t Automatically Covered
Whichever side pays the premium, subcontractors should not assume the project’s builders risk policy protects them. Many policies do not extend coverage to subcontractors unless they are specifically named as additional insureds. A subcontractor whose tools, materials, or installed work are damaged on site may have no claim under the project’s policy if the policy doesn’t name them.1ConsensusDocs. Owner’s Builder’s Risk Insurance: Are You an Insured?
Subcontractors should read their subcontract to see whether they are listed as additional insureds on the builders risk policy. Negotiation is the time to fix the gap; after a loss is too late. If additional insured status isn’t on offer, the subcontractor may need to buy its own policy or find another way to protect its financial interest in the work.
How Construction Lenders Change the Answer
Financing adds a third voice to the conversation. A construction lender treats the building under construction as collateral and will not release funds without proof that the collateral is insured. The loan agreement typically requires the borrower, usually the owner, to deliver a certificate of insurance showing a paid-in-full builders risk policy before any draw is disbursed. Lenders also commonly require a mortgagee clause giving the lender direct rights to insurance proceeds if the building is damaged or destroyed.
If the borrower doesn’t maintain coverage, the lender can buy force-placed insurance on the borrower’s behalf. Federal rules require lenders to notify borrowers that force-placed coverage “may cost significantly more than hazard insurance purchased by the borrower,” and all force-placed charges assessed to the borrower must be bona fide and reasonable, bearing a reasonable relationship to the servicer’s actual cost of providing the coverage.3Consumer Financial Protection Bureau. 1024.37 Force-Placed Insurance The premium is added to the loan balance. Settle insurance payment duties before closing to avoid that outcome.
What Happens If the Responsible Party Doesn’t Buy the Policy
When a contract tells one party to procure builders risk coverage and that party fails to do it, failing to maintain required coverage is a breach of contract. If an uninsured loss occurs during the gap, the breaching party can be personally liable for the full value of the damage, which on a commercial project can run into the millions.
The exposure is worse for a contractor who received funds from the owner earmarked for the premium but never bought or kept the policy in force. The owner may terminate for cause, and if a loss occurs during the gap the contractor can face a lawsuit for the entire uninsured amount. Courts resolving these disputes look to the specific contract language to work out each party’s obligations, including the scope of required coverage and the deductible terms.2Wisconsin.edu Procurement. Document A201 – 2017 General Conditions of the Contract for Construction That is why the question of who pays is worth settling in writing, in clear terms, before the first shovel hits the ground.