A miswired panel causes a fire. What pays for the fire, and what pays for the rewiring?
By the Rayon research desk · Last reviewed
Builder’s risk pays for the fire damage that follows. The cost of correcting the defective work itself is excluded. How much is carved out depends on which defects clause the policy carries: LEG 2/96 excludes what it would have cost to fix the defect before the damage happened, while LEG 3/06 excludes only the cost of improving the original work.
What is the difference between the damage and the defect?
Property policies for construction separate two things: the faulty part, and what the faulty part destroys. A miswired control panel is the defect. The fire in the hall is the resulting damage. Builder’s risk is written to pay the second and not the first.
How do LEG 2/96 and LEG 3/06 differ?
| Clause | What it leaves out | Effect for the contractor |
|---|---|---|
| LEG 2/96 | The cost that would have been incurred to put the defect right immediately before the damage occurred | The rewiring cost comes out of the claim |
| LEG 3/06 | Only the cost of improving the original design, materials or workmanship | More of the repair is paid, including damage to the defective part itself |
Why does a subcontractor care, if the owner buys builder’s risk?
- The owner or general contractor chooses the clause, and you inherit it.
- Whatever the builder’s risk policy does not pay is likely to be claimed from the trade whose work was defective.
- Your own general liability policy excludes damage to your own work, so the rework usually lands on your balance sheet.
- The deductible on a data-center builder’s risk policy can be larger than a small subcontract’s margin, and contracts often pass it down.
What should I ask before signing?
- Which defects clause the project’s builder’s risk policy carries.
- Whether you are an insured under it and whether the insurer has waived recovery against subcontractors.
- Who pays the deductible when your work is the cause.
Sources
- Carter Newell, Judicial consideration of LEG 2 and LEG 3
- AGC, Insurance Issues in Constructing Data Centers: A GC’s Perspective (2026)
- ISO CG 00 01 04 13, Commercial General Liability Coverage Form
General information, not legal advice or an interpretation of your policy. Policy forms and endorsements control. Form numbers are © Insurance Services Office, Inc. and are cited for reference.