As a Canadian insurance specialist with deep expertise in Builders Risk, our construction insurance team seen both seasoned and new contractors underestimate the importance of comprehensive policy coverages. To safeguard your construction project—and your bottom line—it’s critical to fully understand the components and limits of your Builders Risk Inclusions. Let’s unpack the essentials.
Builders Risk Inclusions and Hard Cost Limits: The Foundation of Protection
Hard costs—also called “sticks and bricks”—include tangible elements like labour, materials, equipment, and landscaping. In a claim, these are the most straightforward expenses: repair or replacement of damaged property, covered by the policy up to its limit. Because your policy limit is based on your total construction budget, setting this number correctly is vital.
Failing to insure the full hard cost value could result in a coinsurance penalty or out-of-pocket loss. In Canada, lenders typically require full hard cost coverage, and so should you.
Soft Cost Limits: Often Overlooked—Rarely Optional
Soft costs are indirect or delay-related expenses triggered by a covered loss. Think architectural redesigns, permit renewals, extended inspector fees, extra insurance payments, loan interest, and more. Without soft cost coverage, you’re responsible for these additional expenses—even though they arise solely because of the loss.
Consider these scenarios:
- A fire halts construction for weeks—now you’re paying interest on construction loans plus consultant fees.
- A vandalised site delays occupancy—you’re still paying property taxes and marketing expenses to promote your opening.
Soft cost coverage protects against that cascade of unplanned expenses. Brokers often help clients craft a soft cost worksheet to quantify exposures accurately.
Delayed Openings & Business Interruption Coverage
Where projects are intended for commercial use—such as rental properties or commercial buildings— Delayed Openings coverage becomes essential. This extension covers lost income (rent or net profit) during delays resulting from covered perils. It’s especially critical for developers whose revenue depends on timely completion and occupancy.
Policy Term & Extensions: Ending Coverage Isn’t Always Obvious
Builders Risk policies typically run for the duration of a projects, with extensions possible if delays occur. But beware of termination triggers: many policies end when the project is accepted, when occupancy begins, or when interest transfers. Plan ahead—an unplanned gap in coverage can expose you to significant financial risk.
DE4 & DE5: Understanding Design/Defective Work Exclusions
Design and workmanship exclusions—DE4 and DE5—are critical yet often misunderstood in Builders Risk and Course of Construction insurance policies.
DE4 (Defects Exclusion):
- More restrictive than DE5.
- Excludes coverage for loss or damage to any component that is defective in design, materials, or workmanship, including the cost to correct the defect.
- However, if that defective component causes resultant damage to other non-defective parts of the project, that resultant damage is covered.
DE5 (Defects Exclusion):
- Less restrictive than DE4.
- But unlike DE4, DE5 allows coverage for damage resulting from the defective part and the part itself, including collateral damage caused during the repair with the part.
- Due to its broader protection, DE5 often comes with higher premiums or deductibles.
Why These Builders Risk Inclusions Matter:
DE4 covers only resulting damage from the defect.
DE5 expands protection to include both the defective part and the resulting damage.
For projects with innovative materials, untested designs, or new contractors, DE5 offers peace of mind, albeit at a higher cost.
Bringing It All Together: Why Other Builders Risk Inclusions Matter
| Coverage Type | Why It Matters |
| Hard costs | Replaces damaged structure or materials—basic but essential coverage. |
| Soft costs | Prevents catastrophic financial blow from indirect or delay-related expenses. |
| Delayed Openings | Shields lost revenue and mitigates delays in commercial projects. |
| DE4 vs DE5 | Determines whether damage caused by defective work is covered or not. |
| Policy duration | Avoid surprises when coverage ends prematurely—plan for extensions. |
Each inclusion plays a role in managing risk, especially in Canada—where extreme weather, regulatory fees, and high labour/material costs make even minor delays expensive.
Your Next Steps: Getting It Right
- Reconcile hard cost limits with your detailed construction budget.
- Quantify soft costs using worksheets—include loan interest, consultants, permits, and marketing.
- Add delayed openings if the project depends on revenue timelines.
- Review defects exclusions—opt for DE5 where feasible, and avoid DE4 unless necessary.
- Monitor policy term triggers and pre-book extensions if needed.
Talk to Ferrari & Associates’ Construction Insurance Team about Builders Risk
With decades of collective experience advising Canadian contractors, we’ve seen firsthand how costly assumptions can be. Builders Risk policies aren’t one-size-fits-all—and the wrong exclusions, underestimated limits, or missing endorsements can jeopardize your entire project.
Whether you’re building from the ground up, managing a renovation, or just want a second opinion on your existing coverage, our team is here to help. Our construction insurance team specializes in reviewing policies through a contractor’s lens—balancing protection with practicality, and making sure your hard-earned investment is fully protected.
Builders Risk is not just property insurance—it’s your safety net. With the right hard cost and soft cost limits, time-element cover, and prudent exclusion choices (especially around DE4/DE5), you ensure stability, minimize unexpected costs, and maintain momentum—no matter what happens on site. Let’s tailor your policy to match your project’s complexity and risk profile: thoughtful planning today avoids financial pitfalls tomorrow.
If you’d like a quick, obligation-free review of your Builders Risk policy or want to talk through your upcoming project, we’d be happy to offer guidance tailored to your needs.
