Summary: The AAIS commercial property program utilizes two forms to cover builders risks. Form CP-14 covers such risks on completed value basis, while CP-15 provides coverage on a reporting basis.
Topics covered:
Completed value form CP-14 Completed value form CP-14, additional coverages Completed value form CP-14, perils covered Completed value form CP-14, supplemental coverages Completed value form CP-14, what must be done in case of loss Completed value form CP-14, valuation Completed value form CP-14, how much we pay Completed value form CP-14, conditions Completed value form CP-14, other conditions Reporting form CP-15 Reporting form CP-15, how much we pay Reporting form CP-15, reporting requirements
As mentioned, this form is used when writing a builders risk policy for the completed value of the building under construction. It must be written for 100 percent of the completed value and coverage must be provided at the start of construction.
PROPERTY COVERED
We cover the following property for which a limit is shown on the declarations.
BUILDING PROPERTY UNDER CONSTRUCTION
This means buildings and structures described on the declarations, while being built, including:
1. foundations;
2. the following property located in the buildings and structures described on the declarations or in the open (or in vehicles) on or within 100 feet of the described premises and intended to become a permanent part of the described building or structure:
a. fixtures, machinery, and equipment used to maintain or service the described building or structure or its premises; and
b. materials, equipment, and supplies used in construction, alteration, or repair of the building or structure;
3. if not covered by other insurance, temporary structures constructed or assembled on the site and used in construction while at the site.
Analysis
Note that the policy clearly covers property under construction. It also covers the building's foundation, which is excluded under the building and personal property coverage part. This is to cover a loss that might occur to the foundation before the rest of the building is upon it. The builders risk form also covers the materials, etc. that are being used to construct the building. The only things covered in the absence of other insurance are temporary structures on site used during the construction process.
PROPERTY EXCLUDED AND LIMITATIONS
1. Antennas and Signs—We do not cover outdoor:
a. radio, television, satellite, dish-type, or other antennas including their masts, towers, and lead-in wiring; or
b. signs, other than signs attached to buildings.
2. Land, Water, or Growing Crops or Lawns—We do not cover:
a. land, including land on which the property is located;
b. underground or surface water; or
c. growing crops or lawns.
3. Trees, Shrubs, and Plants—We do not cover trees; shrubs; plants; and grain, hay, straw, or other crops, when outdoors.
Analysis
This list of items not covered is considerably shorter than on form CP-12 (building and personal property form, see AAIS Commercial Property Program. Note that the builders risk forms still pick up machinery, equipment, and fixtures as building property. Many of those items would fall under the category of business personal property. No exclusion or limitation of these properties is needed in this policy, since it covers only building property. Note that the builders risk policy covers the following building items that are not covered or limited some way in the CP-12 form:
1. Awnings, canopies, and fences.
2. Foundations, retaining walls, pilings, piers, wharves, or docks.
3. Cost of excavation, grading, or filling; paved surfaces; or underground pipes, flues, or drains.
Completed Value Form CP-14, Additional Coverages
The builders risk form offers the same four additional coverages as the BPP form.
Completed Value Form CP-14, Perils Covered
PERILS COVERED
See the applicable Perils Part shown on the declarations.
If the Additional Coverage—Collapse is included in the Perils Part, we do not pay for loss caused by direct physical loss involving collapse of a building or structure or any part of a building or structure caused by the use of defective material or methods in construction, remodeling, or renovation if the collapse occurs during the course of the construction, remodeling, or renovation.
Analysis
The builders risk form makes a noteworthy exception to the collapse coverage. The BPP form says that one of the covered causes of collapse is the “use of defective material or methods” while a building is under construction. However, since a building under construction is the subject of a builders risk policy, the collapse coverage from that peril has been removed.
Completed Value Form CP-14, Supplemental Coverages
SUPPLEMENTAL COVERAGES
We provide the following supplemental coverage.
This supplemental coverage:
a. applies for loss caused by a covered peril;
b. applies to property in or on buildings or structures described on the declarations or in the open (or in vehicles) within 100 feet of the described premises; and
c. is an additional amount of coverage.
Building Materials and Supplies of Others—We pay up to $2,500 for building materials and supplies in your care that are owned by others and are intended to become a permanent part of the building or structure. This coverage is only for the benefit of the owners of the building materials and supplies.
Analysis
The builders risk policy provides a small amount ($2,500) of coverage for building materials that belong to others. In order for this coverage to apply, the materials must be in the care of the named insured, must be owned by someone else, and must be intended to become part of the building under construction. This is the only supplemental coverage in the builders risk form.
Completed Value Form CP-14, What Must be Done in Case of Loss
The loss conditions are identical to those in the BPP form.
Completed Value Form CP-14, Valuation
VALUATION
1. Actual Cash Value—The value of covered property is based on the actual cash value at the time of the loss (with a deduction for depreciation), except as provided in paragraphs 2. through 4. below.
2. Glass—The value of glass is based on the cost of safety glazing material where required by code, ordinance, or law.
3. Pair or Set—The value of a lost or damaged article which is part of a pair or set is based on a reasonable proportion of the value of the entire pair or set. The loss is not considered a total loss of the pair or set.
4. Loss to Parts—The value of a lost or damaged part of an item that consists of several parts when it is complete is based on the value of only the lost or damaged part or the cost to repair or replace it.
Analysis
The builders risk form offers only ACV loss adjustment. Unlike the BPP form, the builders risk form does not address the following items as part of the valuation condition:
1. Limited Replacement Cost.
2. Merchandise Sold.
3. Valuable Papers and Records.
4. Tenant's Improvements.
5. Replacement Cost.
Note that the builders risk does not address numbers one and five, because replacement cost is not available on the builders risk. The builders risk situation would not involve merchandise for sale; there would be no valuable papers at the location; and since the building is under construction, there would be no tenants.
Completed Value Form CP-14, How Much We Pay
HOW MUCH WE PAY
4. Completed Value—If the limit is less than the value of the covered property on the date of completion, we only pay a part of the loss. Our part of the loss is determined using the following steps:
a. Determine the value of the covered property on the date of completion;
b. Divide the limit for covered property by the figure determined in 4.a. above;
c. Multiply the total amount of loss, after the application of any deductible, by the figure determined in 4.b. above.
The most we pay is the amount determined in 4.c. above or the limit, whichever is less. We do not pay any remaining part of the loss.
If there is more than one limit shown on the declarations for this Coverage Part, this procedure applies separately to each limit.
If there is only one limit shown on the declarations for this Coverage Part, this procedure applies to the total of all covered property to which the limit applies.
Example—Underinsurance
Value of covered property
on the date of completion…………………………………………………………….$100,000
Limit…………………………………………………………………………………………$60,000
Loss…………………………………………………………………………………………$21,000
Deductible…………………………………………………………………………………..$1,000
Step a.: $100,000
Step b.: $60,000 / $100,000 = .60
Step c.: $21,000 – $1,000 = $20,000
$20,000 x .60 = $12,000
We pay no more than $12,000. We do not pay the remaining $9,000.
Example—Sufficient Insurance
Value of covered property on the date of completion……………………………$100,000
Limit………………………………………………………………………………………….$100,000
Loss…………………………………………………………………………………………..$21,000
Deductible……………………………………………………………………………………$1,000
Step a.: $100,000
Step b.: $100,000 / $100,000 = 1.00
Step c.: $21,000 – $1,000 = $20,000
$20,000 x 1.00 = $20,000
We pay no more than $20,000 in excess of the deductible. No penalty applies.
Analysis
This section is the same in the builders risk policy as in the BPP, with one exception. Instead of a “coinsurance” paragraph, the builders risk has a section labeled “completed value.” Functioning like a coinsurance clause, this provision reduces any payment by an amount equivalent to that by which the amount of insurance does not satisfy the 100 percent completed value requirement.
Completed Value Form CP-14, Conditions
CONDITIONS
“Subrogation” is amended by the following with respect to this Coverage Part:
You may not waive your right to recover from an architect, engineer, or building trades contractor or subcontractor with respect to the described premises unless agreed to in writing by us.
Analysis
While most property policies allow the insured to waive the insurer's right of subrogation against certain parties, prior to a loss, that may not be done in some cases under the builders risk policy. Specifically, the insured may not waive the insurer's right of subrogation against the following without first getting the insurer's permission: an architect, engineer, or building trades contractor or subcontractor, working on the described premise.
Completed Value Form CP-14, Other Conditions
OTHER CONDITIONS
4. When Coverage Ends—Coverage under this Coverage Part ends when:
a. this policy expires or is canceled;
b. the property is accepted by the purchaser;
c. you no longer have an interest in the property;
d. you abandon the construction with no intention to complete it;
e. unless otherwise specified in writing by us, when covered property is occupied or put to its intended use or 90 days after the date of completion
whichever occurs first.
Analysis
The AAIS builders risk form is subject to four “other conditions.” The first three are identical to those found in the BPP form. However, the fourth, When Coverage Ends, is unique to the builders risk form. While other policies end when terminated or at expiration, the builders risk form has four other possible ending dates:
1. The date the purchaser accepts the property.
2. When the named insured no longer has an interest in the property.
3. If the named insured abandons the property, with no intention to complete it.
4. When the covered property is occupied or put to its intended use or 90 days after the date of completion.
Note that the policy ends as of the earliest of the above dates.
If the insured chooses form CP-15 to cover a builders risk exposure, the insurer requires monthly reports of values. The form to report these values is form CP-160. It then adjusts the premium each month, as well.
The insurer bases the initial premium on the actual cash value of the property at the inception of the policy. When the insured files form CP-160, the insurer calculates the additional premium as follows:
from the midpoint between the date of the latest report and the date of the preceding report (or from the policy inception in the case of the initial report),
to the expiration of the policy term.
The following two sections of the reporting form differ from the completed value form.
Reporting Form CP-15, How Much We Pay
HOW MUCH WE PAY
4. Full Reporting—If the total value last reported (prior to the loss) is less than the actual cash value of the covered property as of the date of that report, we only pay a part of the loss. Our part of the loss is determined using the following steps:
a. Determine the actual cash value of the covered property as of the date of the last report prior to the loss.
b. Divide the total value reported as of the date of the last report prior to the loss by the figure determined in 4.a. above.
c. Multiply the total amount of loss, after the application of any deductible, by the figure determined in 4.b. above.
The most we pay is the amount determined in 4.c. above or the limit, whichever is less. We do not pay any remaining part of the loss.
If there is more than one limit shown on the declarations for this Coverage Part, this procedure applies separately to each limit.
If there is only one limit shown on the declarations for this Coverage Part, this procedure applies to the total of all covered property to which the limit applies.
Example—Underinsurance
Actual cash value of covered property as of the date of the last report……….$100,000
Total value reported as of the date of the last report…………………………………$60,000
Loss………………………………………………………………………………………………$21,000
Deductible………………………………………………………………………………………..$1,000
Step a.: $100,000
Step b.: $60,000 / $100,000 = .60
Step c.: $21,000 – $1,000 = $20,000
$20,000 x .60 = $12,000
We pay no more than $12,000. We do not pay the remaining $9,000.
Example—Sufficient Insurance
Actual cash value of covered property as of the date of the last report……..$100,000
Total value reported as of the date of the last report……………………………..$100,000
Loss……………………………………………………………………………………………$21,000
Deductible……………………………………………………………………………………..$1,000
Step a.: $100,000
Step b.: $100,000 / $100,000 = 1.00
Step c.: $21,000 – $1,000 = $20,000
$20,000 x 1.00 = $20,000
We pay no more than $20,000 in excess of the deductible. No penalty applies.
Analysis
The reporting form requires the insured to report 100 percent of the values at risk each month. If he under-reports those values, a penalty is applied. This section details that penalty.
Reporting Form CP-15, Reporting Requirements
REPORTING REQUIREMENTS
The following provisions apply separately to each described premises:
1. Value at Inception—Values for each property at the described premises must be reported at inception. The values at inception should be the actual cash value of each property as of that date.
2. Reports of Value—Values must be reported within 30 days of the end of each month. You must report the total value of each property at the described premises as of the end of the previous month. The total value of each property should be the actual cash value of each property.
3. Late Reporting—If you do not file reports of value as required, we will not pay more than the value shown in the last report filed prior to the loss.
If you have not filed any reports of value, we will not pay more than the actual cash value as of the inception date of this Coverage Part.
4. Premium Adjustment—The initial premium is based on the actual cash value of each property as of the inception date of this Coverage Part.
The premium is adjusted each month using the reports of value. The additional or return premium is calculated:
a. from the midpoint between the date of the latest report and the date of the preceding report;
b. to the expiration date of this Coverage Part.
Analysis
This final section of the policy details how the insured is to make the monthly reports of values. The policy begins with the initial cash value of the property, then values are reported each month. If the insured is late with a report and a loss occurs, the insurer will base any payment on the last report received. The premium is also adjusted for the additional amount at risk.