First of all most reputable home builders provide both workers compensation and liability insurance coverage as part of the building agreement for a new home. Don't assume this. Ask for a worker's compensation clearance letter to assure that coverage is in place and that the builder is in good standing (premiums are paid and up to date). Also ask for a certificate of liability insurance. Given the nature of the business and level of risk a minimum you should expect would be 2,000,000.00 of liability coverage.
Worker's Compensation covers injuries to a worker at work or, specifically in this case, on your job site. Liability insurance offered by your builder provides coverage for any damages as a result of errors or omissions on the part of your builder, his employees or subcontractors.
So what else could go wrong and why would you need any coverage if you make sure all this is in place.
Acts of god like windstorms and lighning strikes wouldn't be the builders responsibility and, as such, become the homeowners liability. These are just a couple of examples.
Most insurers wouldn't share this point of view but most people don't have any idea of what they have for insurance until they have a loss. The same is true for your builder. He could provide you a libility insurance certificate for 2,000,000.00 in good faith and figure that everything's covered. Then along comes a loss and the builders insurer disputes responsibility for the builder. This has and does happen. Best case scenario is that both the buider and homeowner have insurance and the issue is given to the two insurers to sort out.
This scenario provides the best chance for a Builder/Homeowner relationship to survive an insurance loss and still reach a successful conclusion to the project.