Devastating forest fires have ravaged the west coast of the US this year. No one was immune from the effects, whether it was damage from the fire itself or the smoky air. Seeing so much devastation brought this question to mind: What happens when a construction site is damaged by fire, whether caused by nature or humans? Where do contractors turn to recover the lost work and money?
Whether the project was completely burned to the ground or just suffered smoke damage, fire on or near a construction site will result in damage, likely causing schedule delays for everyone involved.
Contractors and subcontractors need to be prepared and know where to turn to recoup their losses. They also need to know how much of the damage, if any, is their responsibility. Once you know who’s covered for what, you can make some business decisions to help protect your work and your business in the event of a fire.
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The risk of construction fires
You should know how big the risks of a fire are on a construction site. According to the National Fire Prevention Association (NFPA), from 2013 to 2017, there was an estimated average of 3,840 fires in structures under construction (new buildings) and 2,580 in renovation projects each year. Those fires caused an average of $408 million in damages each year during that period.
Construction projects are particularly vulnerable to fire because the building is incomplete. The barriers and protection systems often aren’t in place and operational. There are also additional flammable sources, such as chemicals and equipment, that are found on sites under construction. These sources can accelerate a fire’s growth, leading to more damage to the building and site.
Who is financially responsible for construction fire?
At the end of the day, the project owner is ultimately responsible for the damages done by a fire on their project. The owner’s insurance will be responsible for paying the costs for rebuilding, as well as the cleanup and hauling off of debris.
Fire insurance coverage
The owner should have insurance to cover both their business operations as well as the properties and buildings they own. There are two types of insurance coverage that an owner should have during a project, and they cover different aspects of the business and project, depending on the type of project being performed.
Business general liability and fire insurance
The owner’s business general liability and fire insurance will cover their business operations and any buildings and properties they own. It covers costs if someone is injured on their property, sues them over a business transaction, and protects the buildings they own or lease. However, it does not cover buildings under construction.
After project completion, the owner adds the finished building to its current general liability policy, but during construction, the building is covered by a different kind of policy.
Builders risk insurance
Builders risk insurance protects project owners by covering any work that is in process on a project.
Builders risk protects from damage from fire, theft, weather, vandalism, and hail. It’s also known as “course of construction” or inland marine coverage, and it covers installed materials, stored materials, and equipment kept on site.
The policy is usually purchased and carried by the project owner, but contractors can also provide this type of insurance. When issued in smaller amounts, it can also be called an “installation floater.”
This type of insurance is pretty cut and dry when it comes to an owner constructing a new building on a piece of property they own. The building, all its contents, and site improvements are covered from ground break until the final completion.
If a construction fire occurs on a new building project, builders risk will cover all the cleanup costs as well as any necessary inspections. It also funds the necessary costs to rebuild the project back to its previous level of completion.
Where builders risk gets tricky is when an owner is constructing an addition to a building they currently own. Their general liability policy covers the existing building up to the point where the addition starts, and builders risk covers the addition that is under construction. A fire that crossed into both spaces could potentially require claims on both policies.
Fires, whatever the cause, should always be covered by a builders risk policy. Policies can also include business continuation expenses and other coverages as added by the insured.
Contractors general liability insurance
Contractors and subcontractors are required in most states to carry general liability insurance for their business. These policies cover the business in case of bodily injuries or property damage on their premises and provide liability coverage for potential accidents and accusations of negligence or property damage.
This insurance has limited coverage on jobsites, but will protect your tools and equipment from theft, vandalism, or fire.
After fire damage occurs
Making an insurance claim after a fire
To help both the owner and you with filing claims after a fire, it’s a good idea to take photos to document the work as it progresses each week. Photos can be taken to show progress in each area, then uploaded to a secure site where they can be accessed from any device with an internet connection.
All contractors and subcontractors should keep track of the equipment and tools they have on each job site. This list will help when making police reports and insurance claims. Include the brand, model, and serial number for equipment and take a photo as well. Keep records of how much each tool cost when you purchased it to give to the insurance company with your claim.
Managing schedule delays
The project can be shut down for days, if not weeks, while insurance claims are made and processed, clean up begins, and inspectors visit the site to make sure it is safe. Most contracts will allow an extension in contract time for these kinds of delays, but they don’t allow you to recoup your added costs. Review the construction contract terms to see if you can recover some of these lost costs, and how to apply for an extension or make a claim.
Getting paid for work & materials
When a fire occurs on a project, you may have materials and work completed on-site that you haven’t been paid for yet. Just because that work or those materials were destroyed doesn’t mean that the owner is off the hook for the payment.
The owner’s insurance will most likely be responsible for paying for the damages, but insurance payments can take a long time.
Make sure you are protecting your payment rights with the proper notices at the beginning of the project and by filing a lien or claim before the deadline. You’ll want to maintain your lien rights in case there is a dispute and the insurance company doesn’t pay.