Canadian Accredited Insurance Broker (CAIB) Two Practice Exam

What is one exclusion to the Builders Risk Policy?

1. Damage from natural disasters

2. Payment of losses from faulty workmanship

3. Accidental water damage

4. Theft of materials

The correct answer is: Payment of losses from faulty workmanship

The exclusion of payment for losses from faulty workmanship in a Builders Risk Policy is significant because this type of insurance primarily covers direct physical loss or damage to a construction project while it is being built. Builders Risk is designed to protect against unforeseen events affecting the structure itself, such as fire, theft (under certain conditions), and vandalism. However, coverage does not extend to issues arising from inherent defects in the work, which includes any damage or loss attributed to faulty workmanship or materials. This means that if the construction process doesn't meet the industry standards or if the materials used are defective, the policy will not cover the losses suffered as a result. Understanding this exclusion is critical for contractors and builders, as it influences the risk management strategies they must employ in their projects.