The Hollywood Hills House That Shook Apart
A custom home builder was 8 months into a $6.8M residence perched above Laurel Canyon when a 4.7 magnitude earthquake on the Hollywood Fault jolted the project at 2:47 AM. The home was in the framing phase — steel moment frames had been welded, the foundation was poured, and the second-floor deck was complete.
The shaking shifted the hillside enough to crack two of the four retaining walls supporting the building pad. Three steel moment frame connections fractured at the welds. The foundation developed a diagonal crack running 22 feet through the footings. The structural engineer red-tagged the site and ordered full remediation before any further construction.
The builder called his insurance agent. "Sorry," came the reply. "Your builder's risk policy excludes earth movement. Earthquake isn't covered."
Total damage: $1.2M in structural repairs, re-engineering, and four months of construction delays that added $220,000 in soft costs (extended loan interest, additional general conditions, permit renewals). The builder absorbed the entire loss personally. The business didn't survive.
This isn't hypothetical. It's the reality of building in Los Angeles without proper builder's risk coverage. And earthquake is just one of the perils that make LA's builder's risk market uniquely complex.
Why LA Builder's Risk Is Different
Los Angeles sits at the intersection of multiple catastrophic risk zones that don't exist in combination anywhere else in the United States:
Seismic Exposure
LA County has more than a dozen active fault systems:
| Fault System | Last Major Event | Estimated Magnitude | |-------------|-----------------|-------------------| | San Andreas | 1857 (Fort Tejon) | 7.9 | | Newport-Inglewood | 1933 (Long Beach) | 6.4 | | Hollywood | Active, no major recent event | Est. 6.0-6.4 | | Santa Monica | Active, no major recent event | Est. 6.0-6.6 | | Raymond | Active, no major recent event | Est. 6.0-6.5 | | Puente Hills Thrust | Active, no major recent event | Est. 7.0-7.5 | | Elsinore | 1910 (Temescal Valley) | 6.0 |
The USGS estimates a 60%+ probability of a magnitude 6.7+ earthquake in the LA region within the next 30 years. For construction projects that span 12-36 months, the exposure is real and immediate.
Standard builder's risk policies exclude all earth movement — earthquake, landslide, subsidence, mudflow, and ground settling. An earthquake endorsement must be added separately.
Endorsement costs: 15-40% above the base builder's risk premium, depending on:
- Proximity to active faults
- Soil classification (liquefaction zones carry higher rates)
- Structural design (wood frame vs. steel vs. concrete)
- Foundation type (deep piles vs. spread footings)
- Building height
For a $5M residential project in a standard LA location, an earthquake endorsement might add $7,500-$20,000 to a base premium of $50,000. In high-seismic zones near the Hollywood or Santa Monica faults, it could add $20,000-$40,000.
Wildfire Exposure
The 2025 Palisades fire didn't just destroy existing homes — it destroyed construction projects. Two custom homes under construction in the Palisades burned to the foundations. Neither had fire suppression systems operational during the construction phase.
LA County's wildfire-urban interface (WUI) zones create extreme builder's risk challenges:
Very High Fire Hazard Severity Zones (VHFHSZ):
- Pacific Palisades, Malibu, Topanga Canyon
- Hollywood Hills, Griffith Park area
- San Gabriel foothill communities
- Palos Verdes Peninsula
- Mandeville Canyon, Brentwood Hills
Insurance market reality: Standard carriers routinely decline builder's risk in VHFHSZ zones. Available carriers in surplus lines markets charge 3-5x standard rates. A $5M project that might cost $50,000 to insure in Santa Monica could cost $150,000-$250,000 in Pacific Palisades.
Mitigation requirements: Carriers that will write VHFHSZ builder's risk typically require:
- 100-foot defensible space around the construction site
- Fire-resistant construction methods (Class A roof assembly, ignition-resistant exterior)
- Fire watch protocols during Red Flag warnings
- Documented brush clearance to LAFD standards
- Sometimes a dedicated water supply on-site
Soft-Story Retrofit Risk
LA's mandatory soft-story retrofit program covers 13,500+ buildings — mostly older apartment buildings with tuck-under parking or large ground-floor openings that are vulnerable to seismic collapse.
Builder's risk for retrofit projects is more complex than new construction:
Existing structure value: The policy must cover the existing building's value, not just the improvement cost. A $200,000 seismic retrofit on a $5M apartment building requires coverage for the full $5M+ structure during construction, because your retrofit work could cause damage to the existing building.
Occupied building exposure: Most soft-story retrofits occur in occupied residential buildings. This creates:
- Tenant displacement liability if construction makes units uninhabitable
- Loss of rents coverage for the building owner
- Personal property exposure if construction damages tenant belongings
- Noise and vibration claims from ongoing occupants
- Temporary shoring failure risk affecting occupied units above
Completed operations tail: The retrofit must perform during future seismic events. If a retrofitted building suffers structural failure in an earthquake 5 years after completion, the completed operations question becomes: did the retrofit fail, or was the event beyond design parameters? Builder's risk transitions to products-completed operations GL exposure after project completion.
What Builder's Risk Actually Covers
A properly structured LA builder's risk policy includes:
Base Coverage:
- Structure under construction at full replacement cost
- Materials on-site and in transit
- Temporary structures (scaffolding, formwork, temporary power)
- Equipment and machinery installed in the building
- Plans, blueprints, and models (limited, typically $25K-$50K)
Essential LA Endorsements:
- Earthquake/earth movement — non-negotiable for any LA project
- Flood — required for projects in FEMA flood zones along the LA River corridor, Ballona Creek, and coastal areas
- Debris flow/mudslide — critical for hillside and post-fire areas
- Ordinance and law — covers increased costs when rebuilding must comply with updated building codes (common after earthquake damage triggers code upgrades)
Soft Cost Coverage:
- Extended loan interest during construction delays
- Additional architect and engineering fees
- Extended general conditions (superintendent salary, site security, temporary utilities)
- Permit renewal costs
- Marketing and lease-up delays for commercial projects
In LA's high-cost market, soft costs can equal or exceed physical damage costs. A 6-month delay on a $10M project can add $500,000+ in carrying costs. Soft cost coverage is an endorsement — it's not included in base policies.
Pricing Builder's Risk in Los Angeles
Builder's risk premiums in LA vary dramatically based on location, project type, and peril selection:
| Project Type | Base Rate | With Earthquake | VHFHSZ Zone | |-------------|-----------|----------------|-------------| | Wood frame residential | 0.8-1.5% | 1.0-2.0% | 2.5-5.0% | | Steel/concrete commercial | 0.5-1.0% | 0.7-1.5% | 1.5-3.5% | | Soft-story retrofit | 1.0-2.0% | 1.5-3.0% | N/A | | High-rise (over 5 stories) | 0.4-0.8% | 0.6-1.2% | N/A |
Rates shown as percentage of total project value
Example: A $10M wood-frame luxury home in the Hollywood Hills (VHFHSZ zone) with earthquake endorsement:
- Base rate: 1.5% = $150,000
- Earthquake endorsement: +35% = $52,500
- Wildfire surcharge: +200% = $300,000 (surplus lines)
- Soft costs: +15% = $75,000
- Total estimated premium: $577,500
Compare to a $10M steel-frame commercial TI in Santa Monica:
- Base rate: 0.7% = $70,000
- Earthquake endorsement: +25% = $17,500
- Soft costs: +15% = $13,125
- Total estimated premium: $100,625
Location and construction type drive 5-6x premium differences in the LA market.
Claims That Changed How We Think About LA Builder's Risk
The Altadena Debris Flow
After the 2025 Eaton fire burned the hillsides above Altadena, a contractor rebuilding a fire-damaged home faced a secondary disaster. The first significant rainstorm sent a debris flow across the construction site, filling the newly poured foundation with 4 feet of mud, rock, and ash. The excavator on-site was buried. Temporary power systems were destroyed.
The builder's risk policy covered fire damage (the original loss) but excluded flood and debris flow. The secondary damage — $340,000 in cleanup, foundation re-work, and equipment recovery — was uninsured.
Lesson: Post-fire construction in hillside areas requires debris flow and flood endorsements, even if the original project wasn't in a flood zone. Burned hillsides change the hydrology dramatically.
The DTLA High-Rise Crane Incident
A 45-story mixed-use tower under construction in DTLA experienced a tower crane malfunction during high Santa Ana winds. The crane's load — a steel beam — swung into the partially completed curtain wall system, destroying 6 floors of installed glass panels and aluminum framing.
Builder's risk covered the physical damage ($2.8M in curtain wall replacement). But the real cost was the 5-month delay while replacement panels were fabricated and shipped from Germany. Without soft cost coverage, the developer absorbed $4.2M in extended loan interest and delayed lease-up costs.
Lesson: Soft cost coverage on large LA projects isn't optional. The delay costs frequently exceed the physical damage.
How to Buy Builder's Risk in LA
Start early. Don't wait until the building permit is issued. For projects in VHFHSZ zones or with earthquake exposure over $10M, begin the placement process 60-90 days before construction starts. Surplus lines placements take longer than standard market.
Provide complete project information:
- Detailed project description and construction timeline
- Total completed value (including all hard and soft costs)
- Construction type and structural system
- Site address (for fault proximity and fire zone analysis)
- Soil report (if available — liquefaction zones affect earthquake pricing)
- Fire protection plan (for VHFHSZ projects)
Consider course-of-construction vs. annual policies: Projects under 12 months can be written on a single-term basis. Longer projects may benefit from annual policies with renewal options. Multi-year policies lock in rates and avoid renewal underwriting mid-project.
Name all parties correctly: Builder's risk policies should name the general contractor, the project owner, and all subcontractors as insureds. In LA's multi-tier subcontracting environment, unnamed parties can create coverage disputes after a loss.
Getting Started
We place builder's risk for LA construction projects ranging from $500K residential renovations to $500M+ commercial developments. Our carrier relationships include standard markets for straightforward projects and surplus lines specialists for earthquake-heavy and VHFHSZ locations.
Call (949) 200-7171 for a builder's risk quote. Provide your project address and estimated value — we'll identify the risk factors and recommend coverage within 24 hours.