Use of the term "builders risk" relating to insuring buildings and structures under construction goes back at least two centuries. In 1810, Hartford Fire Insurance Company was founded. The first policy it sold, Policy No. 1, was referred to as a "builders risk policy." The purchaser was James Lathrop, a building contractor from Hartford, Connecticut. The policy afforded a limit of $4,000 for 3 months, and the term premium was $5. This policy undoubtedly insured against the peril of fire only, as was the custom and practice of the day.
Even in this early era, insurers differentiated between types of construction and hazard classes in developing premiums. The following annual rates were listed in a Hartford Fire Insurance Company advertisement, as it appeared in the Connecticut Courant on August 2, 1810.
•$.25 per $100 of insured value—Hazard Class I (brick/stone buildings covered with slate, tiles or metal; no hazardous goods contained therein).
•$.375 per $100 of insured value—Hazard Class II (brick/stone buildings covered with wood; no hazardous goods contained therein or hazardous goods contained in Class I buildings).
•$.50 per $100 of insured value—Hazard Class III (sides are part brick/stone and part wood; no hazardous goods contained therein or hazardous goods contained in Class II buildings).
•$.75 per $100 of insured value—Hazard Class IV (sides are wood; no hazardous goods contained therein or hazardous goods contained in Class III buildings).
The state of builders risk insurance, as written in 1849, was summarized in an article in The Hartford Agent. The standard policy continued to be written for the estimated term of construction (usually measured in weeks), with extensions by "renewal receipt" as required. Coverage applied to loss by fire only, as extended coverages were not yet available.
From a mechanical standpoint, it was necessary to endorse fire policies to provide coverage during the construction period. The guide referenced above provided these instructions:
Fifteen days' builders risk may be allowed in any one year during the life of a policy without charge; when the risk exceeds 15 days, charge, in addition to the normal rate ... always stipulating in the policy the time for which the privilege is granted.
An acceptable clause adding coverage would have been "Builders Risk granted for 90 days from date, charge therefor $6.75." That was one insurer's approach to adding builders risk coverage to a fire policy. The reality was that each insurer had its own way of doing things, which led to much confusion and little consistency among policies.
- IRMI, The History of Builders Risk Insurance