Filed Under:Claims, Catastrophe & Restoration

Under Construction or Renovation?

When Coverage Might Not Apply

With the housing market in its current state, there are more foreclosed homes up for grabs than usual. Some individuals are able to take advantage of this situation and purchase a home for much less than what it is worth. While many of these houses are in good condition, some are in need of extensive amounts of repair, which brings us to the topic of this month’s column: What is the difference between construction of a property and renovation of a property, and how is coverage affected?

I have received a number of questions at FC&S lately regarding the difference between construction and renovation. Many people feel that if a house is being extensively renovated, then the policy exception stating that a home being constructed is not vacant would apply, and that a home under renovation would not be considered vacant. For example, a recent subscriber asked about an insured who purchased a foreclosed home and took out a non-owner-occupied policy on the dwelling. The property needed significant framing work, which the insured was completing while the property stood uninhabited. Although the insured was away from the premises, the property was broken into and vandalized. The carrier, however, denied the loss because the property was vacant. The subscriber felt that since the property was “under construction,” then the exception should have applied. But does it?

A Complicated Framework

But what about renovations where entire rooms are being added? That is considered new construction, and it could be argued that a room being built onto the back of the house is under construction. However, the home must be looked at as a whole. The rest of the house is already standing; it exists. While part of a foundation must be poured and framing, plumbing, and wiring must be added to the extension, the remainder of the house is still livable. Therefore, even though in one sense adding a room is new construction, it really is just the renovation of an existing dwelling.

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