Builder’s Risk vs General Liability: Which Insurance Do You Need and When?

If you’re building or renovating property in California—whether you’re a contractor, homeowner, or real estate investor—you’ll often hear two important insurance terms: builder’s risk and general liability. Both help protect you—but they cover very different risks. Let’s break it down simply, with real examples, California laws, and practical advice.

What Each Insurance Covers

Builder’s Risk Insurance

• Also called “course of construction” coverage.
  
• Protects the physical structure while it’s being built or renovated—including materials, equipment, scaffolding, and temporary buildings.
  
• Insures against fires, thefts, vandalism, storms, accidents, and other unexpected physical damage .
  
• Duration runs from ground-breaking until project is complete or a set milestone, like final inspections.
  
• California specifics: wildfire, heavy rain, and earthquake risks mean you may need endorsements—standard policies often exclude these.

Commercial General Liability (CGL) Insurance

• Covers legal claims if someone outside your business is injured, or their property is damaged, due to your operations.
  
• Includes coverage for:
  
  • Bodily injury to visitors (e.g. a dropped tool injuring a passerby)
    
  • Third-party property damage (e.g., accidentally busting a neighbor’s fence)
    
  • Advertising or personal injury claims (e.g., defamation)
    
• Defends your business legally and pays settlements or judgments up to the policy limits.

Why Both Are Important – Especially in California

1. Different Risks, Different Coverage

• If a storm topples a wall under construction, builder’s risk insurance covers it.
  
• If injury to a guest from falling debris occurs, general liability steps in.

2. Legal & Contract Requirements

• California general contractors typically must carry general liability insurance to be licensed by the Contractors State License Board (CSLB).
  
• For financing or permits—especially from city or county building departments—builder’s risk insurance is often required.
• Lenders and clients usually won’t proceed without proof of both coverages.

3. Climate & Natural Hazards

• California faces wildfires, heavy rains, earthquakes, and mudslides. Activities like clearing brush or pouring foundations during rain increases exposure.
  
• Builder’s risk policies may exclude wildfires or earthquakes unless you pay extra for those “riders” .

Real-World Example from California

In KB Home v. Illinois Union Insurance Co. (C.D. Cal.), a rainstorm delayed home construction and caused extra expenses. The court ruled the builder’s risk insurer must pay “soft costs” like interest on construction loans and real estate taxes—because these costs resulted from covered delays.

• What this means: builder’s risk policies can cover more than just rebuilding—if your project is delayed, you might be reimbursed for things like loan interest, advertising costs, and permit fees.

Costs & Market Trends

• In 2024, builder’s risk insurance in the U.S. cost roughly $134/month, depending on project value and duration.
  
• Premiums rise for high-risk areas—like wildfire zones, earthquake regions, or wood-framed buildings.
  
• General liability premiums increased ~7% in early 2024, due to growing legal costs (“social inflation”) and more frequent lawsuits.
  

Practical Guide: Which Do You Need and When?

If You’re…	You Need…	Why It Matters in California
Building or renovating a home or commercial site	Builder’s risk insurance	Protects against damage to the structure or materials during construction
Hosting contractors or open to visitors	General liability insurance	Covers third-party injuries or property damage
Financing a project with a lender	Both policies	Lenders require proof for both types of protection
Working in wildfire or earthquake zones	Builder’s risk with specific riders	Needed to cover region-specific hazards

Best Practices & Tips for Californians

1. Check your CSLB license requirements – general liability is usually mandatory.
   
2. Ask your lender or city office what insurance they require before starting.
   
3. Get insurance early—builder’s risk should begin before materials arrive.
   
4. Add wildfire or quake riders if building in at-risk areas in CA.
   
5. Review policy details—check how long it lasts, insure proper value, and ask about “soft cost” coverage.
   
6. Monitor project changes—if timelines or costs shift, update your builder’s risk policy to avoid being underinsured .
   
7. Bundle coverages where possible—like adding a commercial umbrella policy to increase liability protection.
   
8. Work with a CA-based insurer—they’ll know state codes, common hazards, and legal norms.

Bottom Line

In California’s ever-changing climate and strict building environment, relying on just one insurance policy isn’t enough. Builder’s risk covers your physical project, while general liability safeguards you from lawsuits if someone gets hurt or their property is damaged. Together, they form a protective shield for your business, your clients, and your financial investment.

Understanding builders risk vs general liability isn’t just good knowledge—it’s essential. It keeps your project legal, financially secure, and ready to withstand the unique risks Californians face every day.