Soft Cost (Delay in Start-Up) Insurance Coverage: An Introduction

Builder's risk insurance provides valuable protection, but it is a specialized coverage that can be unfamiliar to even experienced insurance professionals. In addition to the obvious direct property losses that a builder, owner, or developer can experience during construction, soft costs losses can provide additional substantial financial exposures. Basic builders risk coverage does not cover the delay in completion and resulting loss of business income, loss of rents, interest on loans, and other consequential losses that may have been incurred following an insured property loss. This gap in coverage can be closed with the addition of "soft costs coverage" to a builder's risk insurance policy.

Soft costs (in the context of a builder's risk insurance) are costs arising from a delay in project completion. Developer's and contractor's costs are incurred directly for restoration, and as such these costs are covered under the property damage policy. However, in the event of a loss, the project becomes delayed, making soft cost coverage crucial to the financial implications of the project. Examples of soft costs that could be incurred include: interest, real estate taxes, accounting and legal fees, developer's fees, contractor's general conditions, inspections fees, and consulting and marketing fees.

For more information on soft costs, download the "Soft Cost or Delay in Opening: Insure for the Potential Exposure" edition of Adjusting Today. This in-depth article stresses the importance of accounting for soft cost or delay in start-up coverage. Author Tony D'Amico, with his 30+ years of experience as a Senior Professional Public Adjuster, gives an expert's take on this essential—yet often overlooked—aspect of coverage.