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Builder’s Risk Insurance: What Is “Reasonable Security”?

By Carlos Hazbun | Builders Risk | No Comments

Builder’s Risk Insurance: What Is “Reasonable Security”?

In a builder’s risk insurance policy, you will almost always see some use of the term “reasonable security.” But what does this term mean and how does it impact your business?

To answer that question, let’s start with builder’s risk insurance. Once a home is built and purchased, the owners will buy a homeowner’s insurance policy to protect it. Buyers of commercial or industrial properties will take out other types of property insurance to safeguard their investments. Builder’s risk insurance is a different kind of property insurance. It covers a building or property that is presently under construction. This variety of policy usually covers both the structure itself and the on-site materials that the building company will use to complete the structure.

If you are in the construction business, learning about builder’s risk insurance is necessary. Most project developers or property owners will require contractors or building companies to carry this type of insurance. The good news is that, for the most part, builder’s risk policies are relatively easy to understand. If there is a misunderstood aspect of this type of insurance, it is the term “reasonable security.”

What “Reasonable Security” Means

 In most cases, builder’s risk insurance is versatile. It covers an in-progress building project from damage due to the wind, lightning, fire, and other common perils, but it also protects against vandalism and theft. If someone does damage to your construction site, your builder’s risk policy should cover it. The same holds true if someone breaks into your construction site and steals some of your building materials, such as copper wire.

With all that said, a builder’s risk insurance policy that includes coverage for vandalism and theft will usually include a “reasonable security” clause. What this stipulation means is that you, the builder, are required to provide a reasonable level of security for your building site. The idea here is that robust security measures will deter would-be thieves or vandals. Including this condition in an insurance policy is a way for insurance providers to protect themselves against unreasonably elevated levels of risk.

Designing an Appropriate Security System for Your Construction Site

As you might expect, the definition of “reasonable level of security” can vary on a case-by-case basis. A building site in a high-crime area is going to require more security to meet the benchmark of “reasonable” than a site in a quiet, low-crime area. The value of the project and the materials on the construction site will also be a factor.

To meet the “reasonable security” condition stipulated by your builder’s risk insurance policy, you should work with a third-party company on security system design. The right security company—preferably one with experience in construction security—will be able to provide guidance on what types of safeguards are appropriate for your site. In some cases, a good surveillance system will be sufficient. In other scenarios, you might need to implement access control—either by putting secure fences and gates up around your site or by locking materials in secure containers. Either way, your security system should provide strong safeguards for your construction project while also satisfying your insurance company’s call for a reasonable level of security.

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