Summary: Coverage for insureds with construction exposures beyond the limited parameters of the Building and Personal Property Coverage Form is accomplished through use of the simplified language Builders Risk form and endorsements discussed in this article.
The policy may be used to cover the interest of the building owner, the contractor, or both, as their interests may appear.
The builders risk program includes the following forms: Builders Risk Coverage Form, CP 00 20 10 12; Builders Risk Reporting Form, CP 11 05 04 02; Builders Risk Adjustment Form, CP 11 06 06 07; Builders Risk Renovations, CP 11 13 06 95; Builders Risk – Separate or Sub-Contractor's Exclusion, CP 11 14 07 88; Builders Risk – Separate or Sub-Contractor's Coverage, CP 11 15 07 88; Builders Risk – Collapse During Construction, CP 11 20 06 07.
A complete builders risk contract is formed by combining the Builders Risk Coverage form, CP 00 20, with a declarations page, common policy condition, and commercial property conditions forms (see Common Policy Conditions and Commercial Property Conditions), a causes of loss form (see Causes of Loss), as well as any of the endorsements selected from the forms listed in the previous paragraph.
The one exception to the modular format of the commercial property program is the Standard Property Policy, CP 00 99 10 12. It is a self-contained unit that includes causes of loss and applicable conditions and is used for insuring risks for which the coverage under the other forms of the program is too broad. The Builders Risk Changes – Standard Property Policy endorsement, CP 11 99 10 12 is used to modify the standard property policy for builders risk coverage.
Additionally, ISO offers an inland marine builders risk policy IH 00 70 12 13, which provides broad coverage for property both on the construction site and in transit if the property is intended to be a permanent part of the project.
Topics covered: General eligibility and rules Builders Risk Coverage Form, CP 00 20 Covered property Property not covered Covered causes of loss Additional coverages Debris removal Preservation of property Fire department service charge Pollutant clean up and removal Coverage extensions Building materials and supplies of others Sod, trees, shrubs and plants Exclusions and limitations Limits of insurance Deductible Loss conditions Additional conditions Definitions Builders Risk Coverage Form, IH 00 70
General Eligibility and Rules
Builders risk coverage is written for a minimum one year term to cover a new building or structure under construction or an existing structure undergoing additions, alterations, or repairs. The rules in the Commercial Lines Manual (CLM) state that policy inception should begin no later than the date that construction “starts above the level of the lowest basement floor” or, if there is no basement, the date construction begins. The rules permit pro rata cancellation when construction is completed, whether or not insurance on the completed structure is rewritten in the same company or companies. If the policy is cancelled before the structure is completed, the general cancellation provisions found in the common policy conditions apply.
The rules specifically provide that builders risk coverage can be written on exposures during construction that may not be eligible for certain coverages when occupied, the rationale being that buildings eligible for builders risk coverage are commonly unoccupied; therefore, eligibility criteria that depend on occupancy or use do not apply during the course of construction. Boarding or rooming houses (with a maximum of four units), dwellings, and farm properties are examples of such exposures.
Blanket insurance, covering more than one building or structure, is subject to the rating rules for such coverage. This is useful for housing projects and other large risks with several units being erected at the same time.
Builders Risk Coverage Form, CP 00 20
CP 00 20 is the basic avenue to builders risk coverage in the simplified language commercial property program. The amount of coverage is based on the value of the building upon completion (including the value of permanent fixtures and decorations). Insurance on that value is provided from the outset of construction until coverage ceases. When coverage ceases is discussed later in this article.
A. Covered Property
We will pay for direct physical loss of or damage to Covered Property at the premises described in the Declarations caused by or resulting from any Covered Cause of Loss.
1.Covered Property
Covered Property, as used in this Coverage Part, means the type of property described in this Section, A.1., and limited in A.2. Property Not Covered, if a Limit Of Insurance is shown in the Declarations for that type of property:
Building Under Construction, meaning the building or structure described in the Declarations while in the course of construction, including:
a.Foundations;
b.The following property:
(1)Fixtures and machinery;
(2)Equipment used to service the building; and
(3)Your building materials and supplies used for construction;
provided such property is intended to be permanently located in or on the building or structure described in the Declarations or within one-hundred feet of its premises:
c.If not covered by other insurance, temporary structures built or assembled on site, including cribbing, scaffolding and construction forms.
Analysis
Covered property (for which a limit of insurance must be shown in the declarations) includes the building or structure while in the course of construction and extends to foundations and certain items of property intended to become a permanent part of the building while located in, on, or within 100 feet of the described premises. Such items include fixtures, machinery and equipment to service the building, as well as building materials and supplies owned by the insured. (See the theft coverage limitation, that applies to building materials and supplies.) In addition, if temporary structures that are built or assembled on site are not covered by other insurance, they are considered covered property. Temporary structures include cribbing, scaffolding, and construction forms.
The phrase “in the course of construction” is not defined on the form; therefore common usage should prevail. (According to Webster's Third New International Dictionary, “construction” is “the act of putting together to form a complete integrated object; fabrication.”) However, in Patton v. Aetna Ins. Co., 595 F. Supp. 533 (N.D. Miss. 1984), the term was construed to include activities related to, but prior to, actual construction. The case concerned a builders risk policy issued to cover a building scheduled for renovation. At the time of a fire loss, only preparatory work towards the renovation had been done by the insured. This included removing the furnace and lattice work, unhooking the gas and plumbing lines, and engaging in discussions with contractors regarding the lowering of the building. The court determined that since the insured and the insuring company understood that renovation of the house was intended, it was reasonable to interpret “construction” to mean alterations of any type, whether additions or removals. As a result, the activities of the insured were considered to be construction and thereby covered under the provisions of the builders risk policy.
2.Property Not Covered
Covered Property does not include:
a.Land (including land on which the property is located) or water;
b.The following property when outside of buildings:
(1)Lawns, trees, shrubs or plants(other than lawns, trees, shrubs or plants
which are part of a vegetated roof);
(2)Radio or television antennas (including satellite dishes), and their lead-in wiring, masts or towers; or
(3)Signs (other than signs attached to buildings).
Analysis
Land and water are specifically excluded from builders risk coverage as is the following outdoor property (though it is possible to purchase coverage for these items by endorsement): lawns, trees, shrubs, plants; radio or television antennas, including lead-in wiring, masts or towers; and detached signs. The 2012 revision added an exception to lawns, trees, shrubs, or plants for those types of materials used as part of a vegetated roof.
Although coverage for land and water is excluded, form CP 00 20 contains a pollutant clean up and removal clause that provides limited coverage for the extraction of pollutants from land or water at the described premises; see Additional Coverages discussion, which follows later in this article.
3.Covered Causes Of Loss
See applicable Causes Of Loss Form as shown in the Declarations.
Analysis
The builders risk coverage form employs the commercial property program's causes of loss forms, CP 10 10 10 12 (Basic), CP 10 20 10 12 (Broad), and CP 10 30 10 12 (Special). See Causes of Loss.
There are four additional coverages under the builders risk form: debris removal, preservation of property, fire department service charge, and pollutant clean up and removal.
a.Debris Removal
(1)Subject to Paragraphs (2), (3) and (4), we will pay your expense to remove debris of Covered Property and other debris that is on the described premises, when such debris is caused by or resulting from a Covered Cause of Loss that occurs during the policy period. The expenses will be paid only if they are reported to us in writing within 180 days of the date of direct physical loss or damage.
(2)Debris Removal does not apply to costs to:
(a) Remove debris of property of yours that is not insured under this policy, or property in your possession that is not Covered Property;
(b) Remove debris of property owned by or leased to the landlord of the building where your described premises are located, unless you have a contractual responsibility to insure such property and it is insured under this policy;
(c) Remove any property that is Property Not Covered, including property addressed under the Sod, Trees, Shrubs And Plants Coverage Extension;
(d) Remove property of others of a type that would not be Covered Property under this Coverage Form;
(e) Remove deposits of mud or earth from the grounds of the described premises;
(f)Extract “pollutants” from land or water; or
(g)Remove, restore or replace polluted land or water.
(3)Subject to the exceptions in Paragraph (4), the following provisions apply:
(a)The most we will pay for the total of direct physical loss or damage plus debris removal is the Limit of Insurance applicable to the Covered Property that has sustained loss or damage.
(b)Subject to (a) above, the amount we will pay for debris removal expense is limited to 25% of the sum of the deductible plus the amount that we pay for direct physical loss or damage to the Covered Property that has sustained loss or damage. However, if no Covered Property has sustained direct physical loss or damage, the most we will pay for removal of debris of other property (if such removal is covered under this Additional Coverage) is $5,000 at each location.
(4)We will pay up to an additional $25,000 for debris removal expense, for each location, in any one occurrence of physical loss or damage to Covered Property, if one or both of the following circumstances apply:
(a)The total of the actual debris removal expense plus the amount we pay for direct physical loss or damage exceeds the Limit of Insurance on the Covered Property that has sustained loss or damage.
(b)The actual debris removal expense exceeds 25% of the sum of the deductible plus the amount that we pay for direct physical loss or damage to the Covered Property that has sustained loss or damage.
Therefore, if (4)(a) and/or (4)(b) applies, our total payment for direct physical loss or damage and debris removal expense may reach but will never exceed the Limit of Insurance on the Covered Property that has sustained loss or damage, plus $25,000.
(5)Examples
The following examples assume that there is no Coinsurance penalty.
Example 1
Limit of Insurance$90,000
Amount of Deductible$ 500
Amount of Loss$50,000
Amount of Loss Payable$49,500
($50,000 – $500)
Debris Removal Expense$10,000
Debris Removal Expense
Payable$10,000
($10,000 is 20% of $50,000)
The debris removal expense is less than 25% of the sum of the loss payable plus the deductible. The sum of the loss payable and the debris removal expense ($49,500 + $10,000 = $59,500) is less than the Limit of Insurance. Therefore, the full amount of debris removal expense is payable in accordance with the terms of Paragraph (3).
Example 2
Limit of Insurance$90,000
Amount of Deductible$ 500
Amount of Loss$80,000
Amount of Loss Payable$79,500
($80,000 – $500)
Debris Removal Expense$40,000
Debris Removal Expense
Payable
Basic Amount$10,500
Additional Amount$25,000
The basic amount payable for debris removal expense under the terms of Paragraph (3) is calculated as follows: $80,000 ($79,500 + $500) x .25 = $20,000, capped at $10,500. The cap applies because the sum of the loss payable ($79,500) and the basic amount payable for debris removal expense ($10,500) cannot exceed the Limit of Insurance ($90,000).
The additional amount payable for debris removal expense is provided in accordance with the terms of Paragraph (4), because the debris removal expense ($40,000) exceeds 25% of the loss payable plus the deductible ($40,000 is 50% of $80,000), and because the sum of the loss payable and debris removal expense ($79,500 + $40,000 = $119,500) would exceed the Limit of Insurance ($90,000). The additional amount of covered debris removal expense is $25,000, the maximum payable under Paragraph (4). Thus the total payable for debris removal expense in this example is $35,500; $4,500 of the debris removal expense is not covered.
Analysis
This coverage provides restitution for expenses incurred in cleaning up covered property after a covered cause of loss. The formula used for paying debris removal expenses is specific, but the examples in the policy should help the insured understand how much can be recovered from the insurer for debris removal.
The 2012 revision to the form increased the additional limit for this coverage from $10,000 to $25,000. Example 2 was updated to reflect the revised limit.
Also in 2012, ISO broadened coverage by including removal of debris of property of others. Due to this broadening, several specific aspects of coverage were added to show exactly what is not included under debris removal: the insured's property that is not covered property or that is not insured by the policy; property owned or leased by a landlord, with certain exceptions; property that is part of the property not covered section of the form; property of others that would not be of the type that would be covered property; and deposits of mud or earth from the grounds of the described premises.
To emphasize that coverage does not extend to losses occurring after the end of the policy period, changes made in the 1991 edition (effective October 1, 1991) provided that loss reporting must occur within 180 days of the physical loss, rather than “within 180 days of the earlier of: (a) The date of direct physical loss or damage; or (b) The end of the policy period.” And, the point is made that the debris removal coverage does not apply to pollution cleanup costs.
b.Preservation of Property
If it is necessary to move Covered Property from the described premises to preserve it from loss or damage by a Covered Cause of Loss, we will pay for any direct physical loss or damage to that property:
(1)While it is being moved or while temporarily stored at another location; and
(2) Only if the loss or damage occurs within 30 days after the property is first moved.
Analysis
If a covered cause of loss creates the need to move covered property to preserve it from further loss or damage (by a covered cause of loss), the policy covers that property while it is being moved or temporarily stored but only if the loss or damage occurs within thirty days of the property being moved.
Fire Department Service Charge
c. Fire Department Service Charge
When the fire department is called to save or protect Covered Property from a Covered Cause of Loss, we will pay up to $1,000, for service at each premises
described in the Declarations, unless a higher limit is shown in the Declarations.
Such limit is the most we will pay regardless of the number of responding fire departments or fire units, and regardless of the number or type of services performed.
This Additional Coverage applies to your liability for fire department service charges:
(1)Assumed by contract or agreement prior to loss; or
(2)Required by local ordinance.
No Deductible applies to this Additional Coverage.
Analysis
Without applying a deductible, the policy will pay up to $1,000 for fire department service charges assumed by contract or prior agreement or which are required by local ordinance.
The 2012 revision added language making it clear that the form pays up to $1,000 for service at each premises described in the declarations. The limit is the most that will be paid no matter how many departments or units respond to the fire or what types or the number of services performed.
The 2007 form added the option of purchasing higher limits by indicating a different amount in the declarations.
Pollutant Clean-up and Removal
d.Pollutant Clean-up and Removal
We will pay your expense to extract “pollutants” from land or water at the described premises if the discharge, dispersal, seepage, migration, release or escape of the “pollutants” is caused by or results from a Covered Cause of Loss that occurs during the policy period. The expenses will be paid only if they are reported to us in writing within 180 days of the date on which the Covered Cause of Loss occurs.
This Additional Coverage does not apply to costs to test for, monitor or assess the existence, concentration or effects of “pollutants”. But we will pay for testing which is performed in the course of extracting the “pollutants” from the land or water.
The most we will pay under this Additional Coverage for each described premises is $10,000 for the sum of all covered expenses arising out of Covered Causes of Loss occurring during each separate 12-month period of this policy.
Analysis
The builders risk policy contains a pollutant clean up and removal clause that provides limited coverage for the extraction of pollutants from land or water at the described premises. Coverage applies only if the discharge, dispersal, seepage, migration, release or escape of pollutants occurs during the policy period and results from a covered cause of loss. The term “pollutant” is the only specifically defined term in the policy, and means “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed.”
There is no coverage for costs to test for, monitor or assess the existence of pollutants; however, costs of testing performed in the course of extracting the pollutants is covered.
The most the insurer will pay under this additional coverage is $10,000 during each separate twelve-month period of the policy.
The builders risk policy contains two coverage extensions: building materials and supplies of others; and sod, trees, shrubs, and plants.
Building Materials and Supplies of Others
a.Building Materials and Supplies of Others
(1)You may extend the insurance provided by this Coverage Form to apply to building materials and supplies that are:
(a)Owned by others;
(b)In your care, custody or control;
(c)Located in or on the building described in the Declarations, or within 100 feet of its premises; and
(d)Intended to become a permanent part of the building.
(2)The most we will pay for loss or damage under this Extension is $5,000 at each described premises, unless a higher Limit of Insurance is specified in the Declarations. Our payment for loss of or damage to property of others will only be for the account of the owner of the property.
Analysis
Coverage for material and supplies owned by others is limited to $5,000—an additional amount of insurance—at each described premises. Losses to property of this kind are settled for the account of the owner of the property. In order for this coverage extension to apply, the property of others must be in the insured's care, custody, or control and located in or on the described building, or within 100 feet of the premises.
The property must be intended to become a permanent part of the building, which precludes coverage for the builder's machinery and equipment. Builders risk coverage form CP 00 20 was released in 1986 with no separate item of coverage for builders machinery, tools, and equipment as was found on the previous builders risk forms. According to explanatory information from ISO, the provision was deleted because broader coverage is available through inland marine policies.
However, the current edition of the form provides limited coverage for builders' machinery, tools, and equipment owned by or entrusted to the insured when special causes of loss form CP 10 30 is attached to the builders risk coverage form. This coverage allows for specified perils coverage to builders' machinery, tools, and equipment whether the items are on or off the described premises. (Note that when the special causes of loss form is attached to any of the other property forms of the commercial property program, a similar provision serves to limit coverage for the specified causes of loss only while the machinery, tools, and equipment are away from the described premises.)
A higher limit than $5,000 is available but must be specified in the declarations.
Sod, Trees, Shrubs, and Plants
b.Sod, Trees, Shrubs and Plants
You may extend the insurance provided by this Coverage Form to apply to loss or damage to sod, trees, shrubs and plants outside of buildings on the described premises, if the loss or damage is caused by or resulting from any of the following causes of loss:
(1)Fire;
(2)Lightning;
(3)Explosion;
(4)Riot or Civil Commotion; or
(5)Aircraft.
The most we will pay for loss or damage under this Extension is $1,000, but not more than $250 for any one tree, shrub or plant. These limits apply to any one occurrence, regardless of the types or number of items lost or damaged in that occurrence.
Subject to all aforementioned terms and limitations of coverage, this Coverage Extension includes the expense of removing from the described premises the debris of trees, shrubs and plants which are the property of others, except in the situation in which you are a tenant and such property is owned by the landlord of the described premises.
Analysis
Sod, trees, shrubs, and plants are specifically property not covered under the builders risk policy; however, limited coverage for these items is given under coverage extension b. Such items are covered for the perils of fire, lightning, explosion, riot or civil commotion, or aircraft. Coverage is limited to $1,000 per occurrence, regardless of the types or number of items lost, with a limit of $250 for any one tree, shrub, or plant.
To correlate with the change in the debris removal additional coverage, this provision added language in the 2012 revision to include the expense of removing the debris of trees, shrubs, and plants that are the property of others from the described premises, except when the insured is a tenant and such property is owned by the landlord of the described premises.
B.Exclusions and Limitations
See applicable Causes Of Loss Form as shown in the Declarations.
Analysis
Three causes of loss forms are available for use with the builders risk policy, a basic, broad and special form. Each of those forms carries their own exclusions and limitations. For details, see Causes of Loss.
C.Limits Of Insurance
The most we will pay for loss or damage in any one occurrence is the applicable Limit Of Insurance shown in the Declarations.
The most we will pay for loss or damage to outdoor signs attached to buildings is $2,500 per sign in any one occurrence.
The limits applicable to the Coverage Extensions and the Fire Department Service Charge and Pollutant Clean-up And Removal Additional Coverages are in addition to the Limits of Insurance.
Payments under the Preservation Of Property Additional Coverage will not increase the applicable Limit of Insurance.
Analysis
Limits under the builders risk policy are determined by the applicable limit of insurance stated in the declarations. The 2007 edition increased the outdoor signs attached to buildings limit to $2,500 per sign in any single occurrence. Limits applicable to the coverage extensions and fire department service charge and pollutant clean-up and removal additional coverage are in addition to the policy limits stated in the declarations; however, payments under the preservation of property additional coverage fall under—and do not increase—the stated policy limits.
D.Deductible
In any one occurrence of loss or damage (hereinafter referred to as loss), we will first reduce the amount of loss if required by the Additional Condition – Need For Adequate Insurance. If the adjusted amount of loss is less than or equal to the Deductible, we will not pay for that loss. If the adjusted amount of loss exceeds the Deductible, we will then subtract the Deductible from the adjusted amount of loss, and we will pay the resulting amount or the Limit of Insurance, whichever is less.
When the occurrence involves loss to more than one item of Covered Property and separate Limits of Insurance apply, the losses will not be combined in determining application of the Deductible. But the Deductible will be applied only once per occurrence.
Example 1:
(This example assumes there is no penalty for underinsurance.)
Deductible: $1,000
Limit of Insurance – Building #1: $60,000
Limit of Insurance – Building #2: $80,000
Loss to Building #1: $60,100
Loss to Building #2: $90,000
The amount of loss to Building #1 ($60,100) is less than the sum ($61,000) of the Limit of Insurance applicable to Bldg. 1 plus the Deductible.
The Deductible will be subtracted from the amount of loss in calculating the loss payable for Building #1:
$60,100
- 1,000
59,100 Loss Payable – Building #1
The Deductible applies once per occurrence and therefore is not subtracted in determining the amount of loss payable for Building #2. Loss payable for Building #2 is the Limit of Insurance of $80,000.
Total amount of loss payable: $59,100 + $80,000 = $139,100
Example 2:
(This example, too, assumes there is no penalty for underinsurance.)
The Deductible and Limits of Insurance are the same as those in Example No. 1.
Loss to Building #1: $70,000 (exceeds Limit of Insurance plus Deductible)
Loss to Building #2: $90,000 (exceeds Limit of Insurance plus Deductible)
Loss Payable – Building #1: $60,000 (Limit of Insurance)
Loss Payable – Building #2: $80,000 (Limit of Insurance)
Total amount of loss payable: $140,000
Analysis
The deductible provision offers details of how the deductible would be applied in the event of a loss under CP 00 20. The insurer first applies what is, in effect, a coinsurance condition on the amount to be paid and then, applies the deductible. The adequate insurance condition acts as a coinsurance clause and is to be read and used in conjunction with this deductible clause; this condition is discussed later.
The deductible clause also notes that the deductible is applied only once per occurrence. This addresses the issue of how many deductibles are applied should more than one piece of covered property be damaged in the same occurrence.
There are six loss conditions applicable to the builders risk form: abandonment; appraisal; duties in the event of loss or damage; loss payment; recovered property; and valuation.
E.Loss Conditions
The following conditions apply in addition to the Common Policy Conditions and the Commercial Property Conditions.
1.Abandonment
There can be no abandonment of any property to us.
2.Appraisal
If we and you disagree on the value of the property or the amount of loss, either may make written demand for an appraisal of the loss. In this event, each party will select a competent and impartial appraiser. The two appraisers will select an umpire. If they cannot agree, either may request that selection be made by a judge of a court having jurisdiction. The appraisers will state separately the value of the property and amount of loss. If they fail to agree, they will submit their differences to the umpire. A decision agreed to by any two will be binding. Each party will:
a.Pay its chosen appraiser; and
b.Bear the other expenses of the appraisal and umpire equally.
If there is an appraisal, we will still retain our right to deny the claim.
3.Duties In The Event Of Loss Or Damage
a.You must see that the following are done in the event of loss or damage to Covered Property:
(1)Notify the police if a law may have been broken.
(2)Give us prompt notice of the loss or damage. Include a description of the property involved.
(3) As soon as possible, give us a description of how, when and where the loss or damage occurred.
(4)Take all reasonable steps to protect the Covered Property from further damage, and keep a record of your expenses necessary to protect the Covered Property, for consideration in the settlement of the claim. This will not increase the Limit of Insurance. However, we will not pay for any subsequent loss or damage resulting from a cause of loss that is not a Covered Cause of Loss. Also, if feasible, set the damaged property aside and in the best possible order for examination.
(5)At our request, give us complete inventories of the damaged and undamaged property. Include quantities, costs, values and amount of loss claimed.
(6)As often as may be reasonably required, permit us to inspect the property proving the loss or damage and examine your books and records.
Also permit us to take samples of damaged and undamaged property for inspection, testing and analysis, and permit us to make copies from your books and records.
(7)Send us a signed, sworn proof of loss containing the information we request to investigate the claim. You must do this within sixty days after our request. We will supply you with the necessary forms.
(8)Cooperate with us in the investigation or settlement of the claim.
b.We may examine any insured under oath, while not in the presence of any other insured and at such times as may be reasonably required, about any matter relating to this insurance or the claim, including an insured's books and records. In the event of an examination, an insured's answers must be signed.
4.Loss Payment
a.In the event of loss or damage covered by this Coverage Form, at our option, we will either:
(1)Pay the value of lost or damaged property;
(2)Pay the cost of repairing or replacing the lost or damaged property, subject to b. below;
(3)Take all or any part of the property at an agreed or appraised value; or
(4)Repair, rebuild or replace the property with other property of like kind and quality, subject to b. below.
We will determine the value of lost or damaged property, or the cost of its repair or replacement, in accordance with the applicable terms of the Valuation Condition in this Coverage Form or any applicable provision which amends or supersedes the Valuation Condition.
b.The cost to repair, rebuild or replace does not include the increased cost attributable to enforcement of or compliance with any ordinance or law regulating the construction, use or repair of any property.
c.We will give notice of our intentions within thirty days after we receive the sworn proof of loss.
d.We will not pay you more than your financial interest in the Covered Property.
e.We may adjust losses with the owners of lost or damaged property if other than you. If we pay the owners, such payments will satisfy your claims against us for the owners' property. We will not pay the owners more than their financial interest in the Covered Property.
f.We may elect to defend you against suits arising from claims of owners of property. We will do this at our expense.
g.We will pay for covered loss or damage within thirty days after we receive the sworn proof of loss, if you have complied with all of the terms of this Coverage Part; and (1) We have reached agreement with you on the amount of loss; or (2) An appraisal award has been made.
h.A party wall is a wall that separates and is common to adjoining buildings that are owned by different parties. In settling covered losses involving a party wall, we will pay a proportion of the loss to the party wall based on your interest in the wall in proportion to the interest of the owner of the adjoining building. However, if you elect to repair or replace your building and the owner of the adjoining building elects not to repair or replace that building, we will pay you the full value of the loss to the party wall, subject to all applicable policy provisions including Limits of Insurance, the valuation and Coinsurance Conditions and all other provisions of this Loss Payment Condition. Our payment under the provisions of this paragraph does not alter any right of subrogation we may have against any entity, including the owner or insurer of the adjoining building, and does not alter the terms of the Transfer Of Rights Of Recovery Against Others To Us Condition in this policy.
5.Recovered Property
If either you or we recover any property after loss settlement, that party must give the other prompt notice. At your option, the property will be returned to you. You must then return to us the amount we paid to you for the property. We will pay recovery expenses and the expenses to repair the recovered property, subject to the Limit of Insurance.
6.Valuation
We will determine the value of Covered Property at actual cash value as of the time of loss or damage.
Analysis
The loss conditions section contains several provisions that are fairly standard in commercial property policies and are identical or similar to those found in the Building and Personal Property Coverage form, CP 00 10. For more information on the loss conditions, see Building and Personal Property Coverage Form.
The 2007 form added a provision for party walls to the Loss Payment section. A party wall divides two adjoining properties in which the owners share rights, although ownership may not be shared. Loss payment for losses to party walls reflects the insured's partial interest, but if the owner of the adjoining building elects not to repair or replace, the insurance will pay the full value of the party wall, subject to the policy's other provisions.
F.Additional Conditions
The following conditions apply in addition to the Common Policy Conditions and the Commercial Property Conditions.
1.Mortgageholders
a.The term mortgageholder includes trustee.
b.We will pay for covered loss of or damage to buildings or structures to each mortgageholder shown in the Declarations in their order of precedence, as interests may appear.
c.The mortgageholder has the right to receive loss payment even if the mortgageholder has started foreclosure or similar action on the building or structure.
d.If we deny your claim because of your acts or because you have failed to comply with the terms of this Coverage Part, the mortgageholder will still have the right to receive loss payment if the mortgage holder:
(1) Pays any premium due under this Coverage Part at our request if you have failed to do so;
(2)Submits a signed, sworn statement of loss within sixty days after receiving notice from us of your failure to do so; and
(3)Has notified us of any change in ownership, occupancy or substantial change in risk known to the mortgageholder.
All of the terms of this Coverage Part will then apply directly to the mortgageholder.
e.If we pay the mortgageholder for any loss or damage and deny payment to you because of your acts or because you have failed to comply with the terms of this Coverage Part:
(1)The mortgageholder's rights under the mortgage will be transferred to us to the extent of the amount we pay; and
(2)The mortgageholder's right to recover the full amount of the mortgage holder's claim will not be impaired.
At our option, we may pay to the mortgageholder the whole principal on the mortgage plus any accrued interest. In this event, your mortgage and note will be transferred to us and you will pay your remaining mortgage debt to us.
f.If we cancel this policy, we will give written notice to the mortgageholder at least:
(1)ten days before the effective date of cancellation if we cancel for your non-payment of premium; or
(2)thirty days before the effective date of cancellation if we cancel for any other reason.
g.If we elect not to renew this policy, we will give written notice to the mortgageholder at least ten days before the expiration date of this policy.
2.Need For Adequate Insurance
We will not pay a greater share of any loss than the proportion that the Limit of Insurance bears to the value on the date of completion of the building described in the Declarations.
Example 1 (Underinsurance):
When: The value of the building on the date of completion is: $200,000
The Limit of Insurance for it is: $100,000
The Deductible is: $500
The amount of loss is: $80,000
Step (1): $100,000 divided by $200,000 = .50
Step (2): $ 80,000 x .50 = $40,000
Step (3): $ 40,000 – $500 = $39,500
We will pay no more than $39,500. The remaining $40,500 is not covered.
Example 2 (Adequate Insurance):
When: The value of the building on the date of completion is $200,000
The Limit of Insurance for it is: $200,000
The Deductible is: $1,000
The amount of loss is: $80,000
The Limit of Insurance in this Example is adequate and therefore no penalty applies. We will pay no more than $79,000 ($80,000 amount of loss minus the deductible of $1,000).
3.Restriction of Additional Coverage – Collapse
If the Causes Of Loss – Broad Form is applicable to this Coverage Form, Paragraph C.1.b.(6) of the Additional Coverage – Collapse does not apply to this Coverage Form. If the Causes Of Loss – Special Form is applicable to this Coverage Form, Paragraph D.2.c. and D.2.d. of the Additional Coverage – Collapse does not apply to this Coverage Form.
4.When Coverage Ceases
The insurance provided by this Coverage Form will end when one of the following first occurs:
a.This policy expires or is cancelled;
b.The property is accepted by the purchaser;
c.Your interest in the property ceases;
d.You abandon the construction with no intention to complete it;
e.Unless we specify otherwise in writing:
(1)ninety days after construction is complete; or
(2)sixty days after any building described in the Declarations is:
(a)Occupied in whole or in part; or
(b)Put to its intended use.
Analysis
Insurers consider builders risk coverage to be ended when the insured occupies the structure because builders risk rates do not contemplate the increased exposures of premises that are occupied. No definition of “occupied” is supplied. In the past, courts have often held that a building is not considered occupied until it is put to the practical and substantial use for which it was designed, thus defining “occupied” as synonymous with a building being put to its intended use. The current policy language distinguishes between occupancy and a building being put to its intended use, so that coverage ceases in either case.
An example of a case decided under previous policy language is Fireman's Fund Ins. Co. v. Millers' Mut. Ins. Ass'n., 451 F.2d 1140 (1972). In that case, one insurer had written a builders risk policy for the contractor and the other had permanent insurance for the building owner. A fire destroyed a building only a few days after the owner had moved in but while the contractor still had some corrective work to do. The insurers settled the loss equally with the building owner and then asked the court to determine whether the builders risk policy or the permanent policy should apply. The lower court's ruling in favor of the builders risk insurer was upheld by a federal district court of Oklahoma, which agreed that the evidence showed that the building had been “put to a practical and substantial use for the purpose for which it was designed,” that it was thus “occupied” by the insured, and that the builders risk coverage was thereby terminated.
However, as shown in the following case, it was possible under language that did not distinguish between “occupancy” and “use” for insureds to occupy a portion of the property that was under construction and maintain their builders risk coverage. In Hartford Fire Ins. Co. v. Riefolo Const. Co., 410 A.2d 658 (1980), where the school board made use of a school building that was 95 percent completed, the New Jersey court held that the building was still “in the course of construction” since the remaining work to be done prevented its use as a school. The current policy's distinction between a building that is occupied or put to its intended use will make such outcomes much less likely.
G.Definitions
”Pollutants” means any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed.
Analysis
This is the standard definition of “pollutants” found in the ISO coverage forms. The definition is broad in its scope, allowing an insurer to include just about anything under the terms of the definition. However, some courts are limiting its application to environmental hazards and those substances that the government officially lists as pollutants.
Builders Risk Coverage Form, IH 00 70
The Builders Risk Coverage Form, IH 00 70 12 13, is designed to provide broad coverage for the property building contractors need to insure: building materials and supplies, fixtures, machinery, and equipment to service the building. When combined with the Commercial Inland Marine Conditions form, CM 00 01 09 04, and Common Policy Conditions, IL 00 17 11 98, the resulting policy insures property on the construction site as well as in transit, as long as the property is intended to be a permanent part of the project. Additionally, the policy covers the legal liability of the contractor for fixtures and machinery plus equipment to service the building that belongs to others.
Form IH 00 70 is different from the CP 00 20 in that it is an open perils policy—covered causes of loss means “direct physical loss or damage to covered property except those causes of loss listed in the exclusions.” Thus, there is no need to add CP 10 30, Causes of Loss – Special form, as with the CP 00 20.
The form provides limited coverage for the following: $5,000 (may be increased) for building supplies and materials owned by others in the insured's care, custody, or control, so long as they are located in or on the described building or within 100 feet of its premises; up to 25 percent of the limit of insurance plus the policy deductible for debris removal; $1,000 for trees, lawns, and shrubs, but not more than $250 for any one tree, shrub, or plant; $10,000 for pollutant clean-up; up to thirty days coverage for preservation of property removed; $1,000 for fire department service charge; $15,000 for clean-up of fungi (which may be increased) if the result of a covered cause of loss.
There are two optional coverages: earthquake and water damage. When selected, these coverage options are included within the limits of insurance.
There are three sets of exclusions. The first set is prefaced by the anti-concurrent causation language: ordinance or law (coverage may be added by endorsement); earthquake (an optional coverage); governmental action; nuclear hazard; war and military action; water damage (an optional coverage); fungi, wet or dry rot not the result of a covered cause of loss, and virus, bacterium, and other microorganisms.
The lead-in language to the second set of exclusions states that the insurer “will not pay for loss or damage caused by or resulting from any of the following”: theft from an unattended vehicle unless at the time all windows, doors, or compartments were securely locked and there are visible signs of a forced entry (does not apply to property in the custody of a common carrier); delay, loss of use, or loss of market; unexplained disappearance; dishonest or criminal acts of the named insured, managers, employees, and others as specified; artificially generated electrical current; property lost as the result of voluntary parting or unauthorized instructions; or neglect of the insured to use reasonable means to protect and preserve property at the time of loss.
The final set of exclusions precludes coverage for loss caused by or resulting from the following, but if loss or damage by a covered cause of loss ensues, there is coverage for that loss or damage: weather conditions, but only if contributing to a cause or event in the first set of exclusions to cause the loss or damage; acts or decisions; faulty or inadequate planning, design, maintenance, or materials; wear and tear; hidden vice; mechanical breakdown; rodents, vermin, or insects; or rust or other corrosion.
Coverage ceases when one of the following first occurs: the policy expires or is cancelled; the property is accepted by the purchaser; the named insured's interest in the property ceases; the named insured abandons the construction with no intention of completing it; or, unless the insurer specifies otherwise in writing, ninety days after construction is complete, or sixty days after any described building is occupied in whole or in part or is put to its intended use.