Builders Risk. Builders Risk and Installation Floater: Insuring the Building Project. Personal use only. Not for reproduction.

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1 Builders Risk and Installation Floater: Insuring the Building Project Catherine Trischan, CIC, CRM, CPCU, ARM, AU, AAI, CRIS, MLIS Wall, NJ Builders Risk Builders Risk

2 General Considerations Each carrier s form is different. Know the needs of your customer. Discuss the customer s needs with your underwriter; negotiate Don t assume anything; read all forms carefully!!! Builders Risk Purpose: To cover buildings and structures during the course of construction or renovation The interest of various parties may be included. The exposure to risk changes during the course of construction. ISO Commercial Property CP Commercial Property Policy Pitfalls Named Insured Property Not Covered Property of Others Property off Premises Property in Transit Theft Limitations

3 Property Not Covered Bridges, roadways, walks, patios, paved surfaces Excavations, grading, backfilling or filling Foundations of buildings Land, water, crops, lawns Bulkheads, pilings, piers, wharves and docks Retaining walls (not attached to building) Underground pipes, flues or drains Property of Others Standard ISO property policy includes $2,500 coverage for Property of Others (on premises only) Property of Others coveage must be specifically added if additional limits are needed. Property off Premises Covers property - temporarily at other locations - at new storage locations - at fairs, trade shows and exhibitions No coverage for property in a vehicle No coverage for salesperson s property No coverage for property of others $10,000 limit Coverage Territory US, its territories and possessions, Canada, Puerto Rico

4 Property in Transit Special Form Cause of Loss - Extension $5,000 limit Applies only to the named insured s personal property, not personal property of others Does not apply to property in the custody of salespersons Property must be in or on a vehicle owned, leased, or operated by the named insured. Limited Perils Coverage Property in Transit Fire, lightning, explosion, windstorm or hail, riot or civil commotion, or vandalism Vehicle collision, upset or overturn Theft of an entire package from a securely locked vehicle where there are signs of forced entry Special Form Issues Builders' machinery, tools and equipment more than 100 feet from premises are covered only for damage by specified cause of loss fire; lightning; explosion; windstorm or hail; smoke; aircraft or vehicles; riot or civil commotion; vandalism; leakage from fireextinguishing equipment; sinkhole collapse; volcanic action; falling objects; weight of snow, ice or sleet; water damage

5 Special Form Issues No coverage for theft of building materials that are not attached to the building Theft of Building Materials and Supplies (Other than Builders Risk) CP Who Can Be Insured? The project owner/developer The general contractor All subcontractors subcontractors of every tier Construction manager Architects and engineers The lender Many forms include numerous parties by definition. Who Can Be Insured? Example: We cover the interest, which your subcontractors, your sub-subcontractors and your suppliers have in the Covered Property, but only while such property is situated at construction sites you have reported to us

6 Who Can Be Insured? Example: If a signed construction contract requires they be included, and if the value of their work has been included in the contract value declared, the following are additional insureds: The principal and/or the principal s rep Architects Consulting engineer or designer Subcontractors and sub-contractors or every tier Good Waiver of Subrogation A named insured provision that includes the general contractor, all subcontractors, and the construction manager where appropriate, as insureds Better A subrogation clause allowing the insured to waive recovery rights against others in writing prior to loss Some policies affirmatively grant this right. Some policies take the CGL approach. Waiver of Subrogation Best A waiver of subrogation endorsement in favor of the general contractor, all subcontractors, and the construction manager

7 Property Generally Covered Building or structure under construction or being renovated Materials, supplies, machinery and equipment that will become a permanent part of described project Property owned by the insured and property of others for which the insured is legally liable Coverage (with a sublimit) is often included for scaffolds, construction forms, temporary structures (e.g. fencing) Property Generally Covered Building or structure under construction or being renovated Materials, supplies, machinery and equipment that will become a permanent part of described project Property owned by the insured and property of others for which the insured is legally liable Coverage (with a sublimit) is often included for scaffolds, construction forms, temporary structures (e.g. fencing)

8 Property Generally Covered Building or structure under construction or being renovated Materials, supplies, machinery and equipment that will become a permanent part of described project Property owned by the insured and property of others for which the insured is legally liable Coverage (with a sublimit) is often included for scaffolds, construction forms, temporary structures (e.g. fencing) Property Generally Covered Property off Premises/Property in Temporary Storage (sublimit applies) Property in Transit (sublimit applies)

9 Potential Problem Areas Form may or may not cover: Underground pipes, drains, and pilings; other underground works Sidewalks and other paved surfaces Excavations, site works, site preparation, grading, filling Landscaping materials, trees, shrubbery, grass, plants Existing Structures (endorsement is most always needed) Property Covered Example: We cover direct physical loss caused by a covered peril to buildings and structures described on the declarations while in the course of construction, erection, or fabrication. This includes materials and supplies which will become a permanent part of the buildings or structures, foundations, excavations, grading, filling, attachments, and permanent fixtures. When Does Coverage Begin? Policies cover property in the course of construction. Coverage normally begins when the insured becomes responsible for the property.

10 When Does Coverage End? Earliest of: The project has been abandoned At completion of the job or within a specified number of days after completion Named Insured's interest in the project ends Project is accepted by owner or buyer Project is leased or rented to others On expiration or cancellation date of policy Building is occupied for its intended purpose Occupancy and Use When occupancy occurs, coverage ends immediately or within a specified number of days. Permission to Occupy can often be added by endorsement. Negotiate Permission to Occupy before even partial occupancy begins. Occupancy and Use Example: This coverage is void if, without our prior written consent: 1. the building or structure described on the declarations is occupied in whole or in part; or 2. the building or structure described on the declarations is put to its intended use.

11 Covered Causes of Loss Direct physical loss to covered property Coverage applies unless otherwise excluded or limited. Named Perils coverage is less common. Construction contracts commonly require All Risk coverage. AIA A Property insurance shall be on an all-risk or equivalent policy form and shall include, without limitation, insurance against the perils of fire (with extended coverage) and physical loss or damage including, without duplication of coverage, theft, vandalism, malicious mischief, collapse, earthquake, flood, windstorm, falsework, testing and startup, temporary buildings and debris removal including demolition occasioned by enforcement of any applicable legal requirements, and shall cover reasonable compensation for Architect s and Contractor s services and expenses required as a result of such insured loss. AIA Document A Common Exclusions Criminal, fraudulent, intentional acts War, nuclear Governmental Action/Civil Authority Mysterious disappearance Wear and tear/deterioration Rust, rot, mold, corrosion, insects, vermin Settling, cracking, shrinking or expansion of structure

12 Common Exclusions Temperature/humidity change Damage to property in the open by rain, ice etc. Freezing (unless property is protected) Release of pollutants Delay, loss of use and other consequential loss Ordinance or law Flood and other water exclusions Earth Movement Design error (resulting damage is covered) Faulty workmanship (resulting damage is covered) Design Error/Faulty Work Defective, deficient or flawed workmanship or materials, or for expenses to redesign or revise flawed or defective plans or architectural designs. But we will pay for loss to other Covered Property that results from such defective workmanship, materials or design provided such loss or damage is not otherwise excluded in this policy. Collapse Common Exclusions Coverage may apply only if Collapse is due to certain specified causes of loss. Is there coverage for property in the State of Imminent Collapse? Mechanical breakdown, electrical injury, boiler explosion Voluntary parting, unauthorized transfer Testing, start up

13 Common Additional Coverages Debris Removal Pollutant Clean Up and Removal Preservation of Property/Emergency Removal Valuable Papers and Records Fire Department Service Charge Fire Protection Equipment Recharge Common Additional Coverages Coverage for certain types of property Claims preparation expenses Back up of sewers and drains Expediting Expenses Extra expenses incurred to meet the schedule in the construction contract if a job falls behind due to a covered cause of loss Common Additional Coverages Ordinance or Law Coverage for the Undamaged Portion of the Building Demolition Cost Increased Cost of Construction

14 Common Additional Coverages Testing Loss occurring during testing of equipment is normally excluded. Supplemental coverage may give a small amount of coverage. Hot testing - testing a newly constructed processing facility by running the substance that the facility was designed to process through the system, to determine whether the facility meets specifications. Common Additional Coverages Green building coverages e.g. recycling debris removal, re-certification fees, engineer expenses, testing and recalibrating systems

15 Coverage Territory United States (including territories and possessions), Canada or Puerto Rico is common. Some forms limit US coverage to the continental US. Keep this in mind for temporary storage and transit coverages. AIA A property insurance written on a builders risk all-risk or equivalent policy form in the amount of the initial Contract Sum, plus value of subsequent contract modification and cost of materials supplied or installed by others, comprising total value for the entire project at the site on a replacement cost basis AIA Document A Jobsite Limit Completed Value basis Limits 100% coinsurance is commonly required. Consider: Change orders Costs of material may increase Cost of any temporary works covered by the policy and included in the limit

16 Limits Property in transit limit Temporary storage location limit Valuation Replacement Cost, not to exceed the amount actually spent to repair, replace, rebuild Actual Cash Value at the time of loss (less common) Deductible Flat amount per occurrence Percentage of limit deductibles are sometimes used. Separate deductibles often apply for Flood and/or Earthquake. Separate deductibles for wind and/or theft may apply.

17 Warranties A warranty is a condition that forms part of the policy. The insured guarantees that something shall be done or shall not be done during the term of the policy. Approaches to Writing Builders Risk Individual Project Completed Value basis 100% coinsurance is commonly required. Consider: Change orders Costs of material may increase Cost of any temporary works covered by the policy and included in the limit Approaches to Writing Builders Risk Value Completed Reporting Form One policy covers all reported work. Insured agrees to report the actual value of the work completed at the time the report is due (monthly/quarterly/annually.) 100% coinsurance is commonly required. Automatic coverage for new jobs if properly reported Not widely used due to complex reporting process

18 Approaches to Writing Builders Risk Completed Value Reporting Form One policy covers all reported work. Insured agrees to report what the estimated value of each job will be when the job is completed at the time the report is due (monthly/quarterly/annually.) 100% coinsurance is commonly required. Automatic coverage for new jobs if properly reported Soft Costs Coverage trigger Damage by a covered peril causes a delay in the project s completion date Necessary expenses relating to the construction, erection, or fabrication of covered property that are over and above those costs which would have been incurred without the delay Soft Costs Expense Examples Additional interest on borrowed money, refinancing fees Advertising and promotion expenses Additional real estate taxes for the extended construction period Costs related to licenses and permits Additional commissions from re-negotiations of leases and other contracts Additional professional fees Additional Insurance premiums

19 Soft Costs A waiting period normally applies. Coverage Ends: When project is complete; or Number of months shown in the form Common Exclusions Strikes, ordinance or law, adverse weather conditions, unavailability of funds or materials Suspension, lapse or cancellation of a lease, contract or order Business Income Business Income and/or Rental Value Projected loss of revenue Projected loss of rental earnings Differs from soft costs coverage

20 Option #1 The Renovation Project Insure existing structure and new work under a Commercial Property Policy Option #2 The Renovation Project Insure existing structure and new work under a Builders Risk Policy Existing structure coverage usually requires an endorsement. Valuation of existing structure is usually ACV. May need Permission to Occupy Option #3 The Renovation Project Insure the existing structure under a Property Policy, and the new work under a Builders Risk Policy Claims settlement could be difficult, especially if different carriers are involved. Hard to do if old and new are difficult to distinguish

21 Installation Floater Installation Floater Installation vs. Builders Risk Installation Floater covers property in transit, in temporary storage and during the installation period. Installation Floater usually has one insured; Builders Risk may have many insureds. Installation Floater is often purchased by a trade contractor, not the general contractor or project owner.

22 Property Generally Covered The insured s materials, machinery, equipment and property which will become a permanent part of the installation Property of others for which the insured is responsible and which will become a permanent part of the installation Property Generally NOT Covered Property on the insured s premises Money and securities Trees, shrubs, plants and lawns Contractors machinery, tools and equipment Waterborne property Contraband, or property in the course of illegal transportation or trade Where is Property Covered? At a jobsite At scheduled locations At unscheduled storage locations In transit

23 When Does Coverage End? Earliest of: The project has been abandoned Property is put to its intended use At completion of the job or within a specified number of days after completion Insured's interest in the property ends Property is accepted by owner or buyer On expiration or cancellation date of policy Covered Causes of Loss Direct physical loss to covered property Coverage applies unless otherwise excluded or limited. Named Perils coverage is less common. Common Exclusions Criminal, fraudulent, intentional acts War, nuclear Governmental Action/Civil Authority Mysterious disappearance Wear and tear/deterioration Rust, rot, mold, corrosion, insects, vermin Temperature/humidity change Weather damage to property in the open Freezing (unless property is protected) Release of pollutants

24 Common Exclusions Delay, loss of use and other consequential loss Ordinance or law Flood and other water exclusions Earth Movement Design error (resulting damage is covered) Faulty workmanship (resulting damage is covered) Mechanical breakdown, electrical injury, boiler explosion Voluntary parting, unauthorized transfer Testing, start up Valuation Actual Cash Value at the time of loss Replacement Cost, not to exceed the amount actually spent to repair, replace, rebuild Coinsurance commonly applies. Approaches to Writing Installation Individual Project Individual policy for each project Coverage restricted to named project Insured for 100% of the project value

25 Approaches to Writing Installation Reporting Form One policy covers all reported work. Premium basis can be gross receipts, contract price or values at risk at a specific time Automatic coverage for new jobs if properly reported Possible Additional Coverages Debris Removal Pollutant Clean Up and Removal Preservation of Property/Emergency Removal Ordinance or Law Contract Penalties Fire Department Service Charge Fire Protection Equipment Recharge Expediting Expenses Claims Preparation Expenses Trees, Shrubs, Plants Testing Builders Risk and Installation Floater: Insuring the Building Project Thank You for Joining Us