Insurance During a Custom Home Build in BC: Who Covers What

A client in Capitol Hill called us the week before demolition with a question their insurance broker had raised. The policy on the old house was about to change. So who was insuring the new one while it was a hole in the ground, then a foundation, then a frame with no roof?

Four separate things protect a custom home while it is being built, and they are carried by different people, start on different dates, and cover different losses. Owners tend to assume they overlap. They do not, and the gaps sit at two predictable points: demolition day and move-in day.

Course of construction insurance covers the building while it is a building site

This is the policy people are usually thinking of when they ask the question. Insurers also call it builder's risk. It covers the structure under construction and the materials on site against physical loss: fire, theft, vandalism, wind and water damage, a delivery of windows stolen off the driveway on a Sunday night. It runs from the start of work until the home is complete and occupied.

On our contracts, we carry it. The certificate names the owner and the construction lender as additional insureds, and the insured value is set to the contract value. When change orders push the contract value up, the insured value has to move with it, which is a detail worth asking about at every draw. A house insured for the original contract and then finished with a larger scope is under-insured for the last few months, which is exactly when the most value is sitting on site.

Some owners prefer to hold the policy themselves, and some lenders ask for it that way. Either arrangement works. What does not work is both parties assuming the other one has it. Before the excavator shows up, one of the two names has to be on a certificate, and the other has to be named on it.

Ask three things about this policy before you sign a building contract: who holds it, when it starts and ends, and whether materials stored off site or in transit are included. Windows, cabinetry and appliances are often paid for and sitting in a supplier's warehouse for weeks before installation. If they burn there, somebody's policy has to respond. This belongs on the list in our 12 questions before signing a builder contract.

The builder's liability insurance covers everyone and everything outside the work

Course of construction insurance covers the house. Commercial general liability insurance covers what the building of the house does to other people and their property. The neighbour's fence that gets clipped by the excavator. A retaining wall next door that shifts during a deep dig on a Burnaby Heights lot. A visitor who trips on site.

We carry it, and our subtrades carry their own. Before a trade starts on one of our jobs we have their certificate on file, because a subtrade without liability coverage pushes the exposure up to us and, in the worst case, to the owner. That is also why we do not let owners bring in their own trades mid-build without the same paperwork. An owner-hired tile setter with no coverage who floods the suite below is a problem for the owner, and it is the kind of problem the contract should have prevented.

The certificate for this policy should name the owner. If a builder cannot produce it within a day of being asked, that tells you something about how the rest of the paperwork will go.

WorkSafeBC covers the crew

This one is a legal requirement, and it is the one owners ask about least. WorkSafeBC states that a business that hires one or more workers, whether full-time, part-time, casual or on contract, is required to register for coverage. Every framer, every labourer, every apprentice on our site is covered through that registration.

Where you sit in this matters. WorkSafeBC's guidance for homeowners is that when you hire an independent business and are a customer of that business, the business is the employer of its crew, and WorkSafeBC lists you as ineligible for coverage of your own. That protection disappears the moment you start hiring workers directly, which is one of the quiet reasons owner-builder projects carry more risk than people expect.

The check is a clearance letter. WorkSafeBC describes it as confirmation that a business is registered and paying its premiums, and its advice to anyone hiring a contractor is to get one before the work starts and again after it finishes, because a customer who hires a contractor that is not in good standing can be held liable for the unpaid premiums tied to that work. We hand one over at contract signing and again at completion without being asked. Any builder can do the same. It costs nothing.

Four policies, four different dates. The owner's job is to know which name is on each one before the excavator arrives.

Icon Projects Team

Your existing home policy on a teardown lot

Most Burnaby custom homes start with an older house on the lot. That house has a policy on it, written for an occupied home with a roof, a furnace and people sleeping in it.

Call your broker before demolition, and be specific about the dates. The insurer will decide what stays in place for the land and for your liability as the owner of a construction site, and what is replaced by the builder's course of construction coverage. Some insurers keep a reduced policy running on the lot. Some cancel the existing policy and write a new one at occupancy. The sequence differs by insurer, and the only bad outcome is discovering after the fact that the old policy lapsed on demolition day and nothing replaced it.

If you are living in the house until the day the crew arrives, tell the insurer that too. A house that sits empty between your move-out and demolition can fall outside the policy's terms for an occupied home, and an empty house in Edmonds or Highgate with the utilities still on is a target for the few weeks it stands.

The handover gap: substantial completion to your own policy

The second gap is at the other end of the build, and it catches more owners than the first one.

The course of construction policy ends when the home is complete and occupied. The owner's own home policy has to start that same day. That sounds simple, and it is, as long as somebody has set a date and told both insurers.

What goes wrong in practice: the occupancy date moves, as they do, and the owner's policy was bound for the original date. Or the owner moves furniture in the week before occupancy is issued, so the house has contents in it that neither policy has picked up. Or deficiency work drags on and the owner assumes the construction policy is still open because "the builder is still here."

We give owners a target occupancy date early enough to bind a policy, confirm the exact date in writing once the final inspection is booked, and treat the day the keys change hands as the day the construction policy closes. Deficiency work after that date is covered by the warranty and by our liability policy, so the construction policy does not need to stay open for it. The lender will want to see the new home policy before it releases the final draw, which is one more reason to line the dates up; our post on construction financing and draw mortgages covers what else the lender expects at each stage.

The 2-5-10 warranty is a different thing

Here is where the vocabulary trips people. The 2-5-10 warranty is formally called home warranty insurance, and it is provided by insurance companies, so owners hear "insurance" and file it with the policies above. It covers something else.

BC Housing describes the coverage as 2 years on materials and labour, 5 years on the building envelope, and 10 years on structural defects, and states that it begins at occupancy or the first occupancy permit, whichever comes first. The Homeowner Protection Act makes it mandatory: section 22(1) says a person must not build a new home unless it is registered for coverage by home warranty insurance from a warranty provider. As a BC Housing licensed builder, we arrange that coverage through one of the licensed warranty providers, and the owner receives the policy documents at occupancy.

So the warranty covers defects in the work, and it starts the day the construction policy ends. A leak at a window flashing in year three is a warranty matter. A fire during framing is a course of construction matter. A framer who falls from the second floor is a WorkSafeBC matter. The neighbour's cracked driveway is a liability matter. Each one has exactly one policy that responds, and owners who understand that map before the build never have to learn it during a claim. We wrote a full breakdown of the layers in our post on what the 2-5-10 warranty covers in a Burnaby build.

What we hand over before the excavator arrives

On every build, in Burnaby, Coquitlam, Abbotsford or anywhere else we work, the owner has a folder before demolition with the following in it: the course of construction certificate showing the owner and lender as additional insureds and an insured value that matches the contract; our commercial general liability certificate naming the owner; a current WorkSafeBC clearance letter; and confirmation of the warranty provider that will cover the home.

Then we ask for two things back. The broker's written confirmation of what happens to the existing policy on demolition day, and, later, the binder for the new home policy dated to the occupancy date we confirm together.

That is the whole system: a short list of documents and two dates. The builds that go wrong on insurance are the ones where nobody wrote the list down, and the loss showed up in the one week that nobody was covering.

Frequently asked questions

Who carries course of construction insurance on a custom home build in Burnaby?

On an Icon Projects contract, we carry the course of construction policy, and the certificate names the owner and the construction lender as additional insureds. Some owners and lenders prefer the owner to hold the policy directly, which works as long as one party clearly holds it and the other is named. Before demolition, ask your builder for the certificate and confirm the insured value matches the contract.

What does course of construction insurance actually cover?

It covers the building under construction and the materials on site against physical loss such as fire, theft, vandalism and weather damage, from the start of work until the home is complete and occupied. Defects in the workmanship are the 2-5-10 warranty's job, and injuries to people belong to the builder's liability policy and WorkSafeBC.

Does my builder need WorkSafeBC coverage for a custom home in BC?

Yes. WorkSafeBC states that a business that hires one or more workers, whether full-time, part-time, casual or on contract, is required to register for coverage. As a homeowner hiring a registered builder you are a customer of that business, and the builder is the employer of its crew. Ask for a WorkSafeBC clearance letter, which confirms the business is registered and paying its premiums.

What is a WorkSafeBC clearance letter and why should I ask for one?

A clearance letter confirms that a business is registered with WorkSafeBC and paying its premiums. WorkSafeBC recommends that customers get one before hiring an independent business, because a person who hires a contractor that is not in good standing can be held liable for unpaid premiums tied to that work. We provide one at contract signing and again at completion.

What happens to my home insurance when I tear down my Burnaby house to rebuild?

Tell your insurer before demolition, because the policy on the existing house was written for an occupied home, and demolition changes what is on the lot. Your broker will decide what stays in place for the land and your liability as owner during construction, and what is replaced by the builder's course of construction policy. The wrong sequence here is finding out after the fact that the old policy lapsed the day the house came down.

Is the BC 2-5-10 home warranty the same as construction insurance?

No. The 2-5-10 warranty, which BC Housing describes as 2 years on materials and labour, 5 years on the building envelope and 10 years on structural defects, covers construction defects and begins at occupancy or the first occupancy permit, whichever comes first. Fire, theft or storm damage during the build is covered by the course of construction policy, which ends when the warranty begins.

When does the builder's construction insurance end and my own home policy need to start?

The course of construction policy ends at completion and occupancy, and your own home policy has to be in force on that same day. We give owners a target occupancy date early enough to bind a policy, then confirm the exact date in writing so the two policies meet with no gap. Deficiency work that continues after move-in is covered by the warranty and by our liability policy, so it does not need the construction policy to stay open.

Does the construction lender require proof of insurance on a Coquitlam custom home?

In our experience yes, a construction lender in Coquitlam, Burnaby or anywhere in BC will want to see the course of construction certificate with the lender named, plus the builder's liability certificate and WorkSafeBC clearance, before the first draw is released. Ask the lender for its list at the start so the documents are ready when the draw schedule begins.