Summary: The Insurance Services Office (ISO) offers the Builders Risk Coverage Form, IH 00 70 12 13, that is part of its inland marine (IM) program for nonfiled commercial IM exposures. The form is designed to cover building materials, supplies, fixtures and machinery, and equipment used to service the building that is intended to be permanently in or on a building or structure.

Topics covered: Coverage Property not covered Covered causes of loss Additional coverages Exclusions Coverage options Deductible Additional conditions Definitions

Coverage

We will pay for direct physical loss of or damage to Covered Property from any of the Covered Causes of Loss.

1. Covered Property

a.Covered Property means:

(1)The following property provided such property is intended to be permanently in or on the building or structure described in the Declarations:

(a)Your building materials and supplies used for construction;

(b)Fixtures and machinery; and

(c)Equipment used to service the building.

Coverage provided under Paragraphs (b) and (c) includes your legal liability for similar property belonging to others;

(2)Foundations of a building or structure described in the Declarations while in the course of construction; and

(3)Temporary structures built or assembled on site, including cribbing, scaffolding and construction forms.

Analysis

This section of IH 00 70 is similar to the commercial property program's Builders Risk Coverage Form, CP 00 20 10 12, insuring agreement, except that IH 00 70 does not cover the actual building under construction. The form promises to pay for direct physical loss or damage to covered property caused by any covered cause of loss.

Three categories of covered property are described. The first category is specific types of property intended to be permanently in or on the building or structure: the insured's building materials and supplies used for construction, fixtures and machinery, and equipment used to service the building.

The question often arises regarding what is meant by "permanently" in relation to the installation of materials, fixtures, equipment, and machinery. Merriam-Webster.com defines "permanent" as "continuing or enduring without fundamental or marked change." More specific to insurance, property may be considered permanent based on how it is actually attached to or installed in a building. For instance, a washer and dryer in a hotel that was connected by rigid metal pipes, a large drainage pipe, and was directly wired and bolted to the floor may be considered permanent, as opposed to a standard washer and dryer plugged in to an outlet and hooked up to a water hoses or a vent. See Prytania Park Hotel v. General Star Indem. Co., 896 F. Supp. 618 (E.D. La. 1995).

If the listed items are not intended to be permanently in or on the building, they are not covered. For fixtures, machinery, and equipment used to service the building, the insured's legal liability for similar property belonging to others is also covered.

The second type of property covered is the building or structure's foundation while in the course of construction. The building or structure must be described in the declarations for this coverage to apply.

The phrase "in the course of construction" is not defined on the form; 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.

Just considering construction of renovation does not count as "in the course of construction," as the court found in 38 Sequoia Associates, LLC v. Lumbermen's Mut. Cas. Co., 114 Fed. Appx. 28 (2d Cir. 2004). The insured had intended to commence renovations on the its building, picking up where the previous owners left off and considering it one long event so that the building was in the course of renovation when the loss occurred. The court, though, said that "to commence indicates that something has not yet started," thus finding that the building was not in the course of construction.

The third type of property covered is temporary structures assembled at the site. These structures would be used in the construction of the building.

b.Coverage Ceases

The insurance provided by this coverage form will end when one of the following first occurs:

(1)This Policy expires or is cancelled;

(2)The property is accepted by the purchaser;

(3)Your interest in the property ceases;

(4)You abandon the construction with no intention to complete it; or

(5)Unless we specify otherwise in writing:

(a)90 days after construction is complete; or

(b)60 days after any building described in the Declarations is:

(i)Occupied in whole or in part; or

(ii)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.

Property Not Covered

Covered Property does not include:

a.Existing buildings or structures to which improvements, alterations, repairs or additions are being made;

b.Land (including land on which the property is located) or water; or

c.Lawns, trees, shrubs or plants.

Analysis

This section makes clear that the coverage is intended to cover only property to be permanently used in the building, foundations under construction, and temporary structures used in the construction and not lawn, trees, shrubs, plants, land, water, and existing buildings or structures being repaired, altered, improved, or to which additions are being made.

Although coverage for land and water is excluded, the form 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. There is also an additional limited coverage for lawns, trees, shrubs, and plants.

Covered Causes of Loss

Covered Causes of Loss means Direct Physical Loss Or Damage to Covered Property except those causes of loss listed in the Exclusions.

Analysis

This is an open perils policy; every type of peril is covered unless specifically excluded in the exclusions section of the form.

Additional Coverages

a.Building Materials And Supplies Of Others

(1)We will pay for loss or damage that is caused by or results from a Covered Cause of Loss to building materials and supplies that are:

(a)Owned by others;

(b)In your care, custody or control; and

(c)Located in or on the building described in the Declarations, or within 100 feet of its premises.

(2)The most we will pay for loss or damage under this Additional Coverage 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 be for the account of the owner of the property.

b.Debris Removal

(1)We will pay your expenses to remove debris of Covered Property 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 the direct physical loss or damage.

(2)The most we will pay under this Additional Coverage is the lesser of 25% of:

(a)The amount we pay for the direct physical loss or damage to Covered Property; plus the deductible in this Policy applicable to that loss or damage; or

(b)The applicable Limit of Insurance for Covered Property:

(i)At the Job Site;

(ii)At a location other than the Job Site; or

(iii)In Transit;

where the loss occurs.

But this limitation does not apply to any additional debris removal limit provided in the Limits Of Insurance Section.

(c)This Additional Coverage does not apply to costs to:

(i) Extract "pollutants" from land or water; or

(ii) Remove, restore or replace polluted land or water.

Analysis

Of note amongst the typical additional coverages is the limited coverage for building supplies and materials of others. Up to $5,000 is available for building supplies and materials owned by others; in the insured's care, custody, or control; and located in or on the building or within 100 feet of its premises. Higher limits can be chosen by entering a different amount in the declarations. Unlike the insuring agreement for covered property, this provision does not specify that the property must be intended to be permanently in or on the building or structure.

Expenses to remove debris of covered property due to a covered cause of loss are covered if the loss occurs during the policy period. The expenses will be paid only if they are reported in writing within 180 days of the date of the direct physical loss or damage. The most the insurer will pay is the lesser of 25 percent of the amount paid for the direct physical loss or damage to covered property; plus the deductible or the limit for covered property at the job site, at a location other than the job site, or in transit.

c.Lawns, Trees, Shrubs And Plants

We will pay for loss or damage to lawns, trees, shrubs and plants outside of buildings on the described premises, if the loss or damage is caused by or results 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 Additional Coverage 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.

d.Pollutant Cleanup 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 "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. The limit for this Additional Coverage is in addition to the Limit of Insurance.

Analysis

While lawns, trees, shrubs, and plants are property not covered on the form, a limited amount of coverage—$1,000, but no more than $250 for any one tree, shrub, or plant—is provided for loss or damage caused by fire, lightning, explosion, riot or civil commotion, or aircraft.

The 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 a 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 material 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 limit for pollutant clean-up and removal is in addition to the policy's limit of insurance.

e.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.

f.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, 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

The preservation of property and fire department service charge additional coverage are fairly common. 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. 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.

g.Limited Coverage For "Fungi", Wet Rot And Dry Rot

(1)The coverage described in Paragraphs (2) and (5) only applies when "fungi", or wet or dry rot is the result of one or more of the Covered Causes of Loss, except fire or lightning, that occur during the policy period and only if all reasonable means were used to save and preserve the property from further damage at the time of and after the time of the occurrence.

(2)We will pay for loss or damage to Covered Property by "fungi", or wet or dry rot. As used in this Limited Coverage, the term loss or damage means:

(a)Direct physical loss or damage to Covered Property caused by "fungi", or wet or dry rot, including the cost of removal of the "fungi", or wet or dry rot;

(b)The cost to tear out and replace any part of the building or other property as needed to gain access to the "fungi", or wet or dry rot; and

(c)The cost of testing performed after removal, repair, replacement or restoration of the damaged property is completed, provided there is a reason to believe that "fungi", or wet or dry rot is present.

(3)Unless a higher Limit Of Insurance for this coverage is shown in the Declarations, the most we will pay is $15,000 for loss or damage to Covered Property. Regardless of the number of claims, this Limit of Insurance is the most we will pay for the total of all loss or damage arising out of all occurrences of Covered Causes of Loss (other than fire or lightning) which take place in a 12-month period (starting with the beginning of the present annual policy period). With respect to a particular occurrence of loss which results in "fungi", or wet or dry rot, we will not pay more than a total of $15,000 even if the "fungi", or wet or dry rot continues to be present or active, or recurs, in a later policy period.

If the Declarations indicate that the Separate Locations Option applies, then the amount of coverage ($15,000, unless a higher amount is shown in the Declarations) is made applicable to separate locations as described in the Declarations. For each location so described, the amount of coverage is an annual aggregate limit, subject to the terms set forth above in this Paragraph (3).

(4)The coverage provided under this Limited Coverage does not increase the applicable Limit of Insurance on any Covered Property. If a particular occurrence results in loss or damage by "fungi", or wet or dry rot, and other loss or damage, we will not pay more, for the total of all loss or damage, than the applicable Limit of Insurance on the affected Covered Property. If there is covered loss or damage to Covered Property, not caused by "fungi", or wet or dry rot, loss payment will not be limited by the terms of this Limited Coverage, except to the extent that "fungi", or wet or dry rot causes an increase in the loss. Any such increase in the loss will be subject to the terms of this Limited Coverage.

(5)The following, (5)(a) or (5)(b), applies only if Business Income and/or Extra Expense Coverage applies and only if the "suspension" of "operations" satisfies all terms and conditions of the Business Income And Extra Expense Coverage endorsement.

(a)If the loss which resulted in "fungi", or wet or dry rot does not in itself necessitate a "suspension" of "operations" but such "suspension" is necessary due to loss or damage to property caused by "fungi", or wet or dry rot, then our payment under Business Income and/or Extra Expense is limited to the amount of loss and/or expense sustained in a period of not more than 30 days, or the number of days shown in the Declarations. The days need not be consecutive.

(b)If a covered "suspension" of "operations" was caused by loss or damage other than "fungi", or wet or dry rot but remediation of "fungi", or wet or dry rot prolongs the "period of restoration", we will pay for loss and/or expense sustained during the delay (regardless of when such a delay occurs during the "period of restoration"), but such coverage is limited to 30 days, or the number of days shown in the Declarations. The days need not be consecutive.

Analysis

Fungi is covered only when it is a consequence of a covered cause of loss. Damage to property is subject to a sublimit of $15,000 per policy, applicable on an annual aggregate basis. The cost of tearing out and replacing any part of the building or other property to gain access to the fungi and the cost of post-remediation testing are included.

Coverage for fungi may be increased. The new limit may not exceed the limit of insurance since coverage for fungi is part of the limit of insurance and not additional to the limit. The revised limit on fungi remains an annual aggregate limit; it can be changed from a per-policy annual limit to an annual aggregate limit that applies separately to specified locations.

When a suspension of operations is caused by fungi and the policy contains time element coverage, coverage is limited to the amount of business income loss and extra expense sustained in a period of thirty days. If fungi prolongs the period of restoration but the suspension of operations is caused by loss other than fungi, time element loss sustained during the delay is covered but is limited to thirty days. The thirty days are cumulative and not necessarily consecutive.

Coverage Options

a.Earthquake

If a Limit Of Insurance for Earthquake is shown in the Declarations, the Earthquake Exclusion in the Exclusions Section is deleted. All earthquake shocks that occur within a 168-hour period will constitute a single earthquake occurrence. The expiration of this insurance will not reduce the 168-hour period. This Coverage Option is included within the Limits of Insurance applicable to the Covered Property at the premises where the loss occurred.

b.Water Damage

If a Limit Of Insurance for Water Damage is shown in the Declarations, the Water Exclusion in the Exclusions Section is deleted.

This Coverage Option is included within the Limits of Insurance applicable to the Covered Property at the premises where the loss occurred.

Analysis

Both earthquake and water are excluded, but for additional premium and by choosing the appropriate limits on the declarations, these coverages can be added to the policy. The earthquake coverage option deletes the earthquake exclusion and provides coverage for earthquake. The same is true for water, so the policy may be amended to provide coverage for losses caused by flood, surface waters, waves, tides, tidal waves, overflow of any body of water, or their spray, all whether driven by wind or not.

Exclusions

1.We will not pay for loss or damage caused directly or indirectly by any of the following. Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss or damage.

a.Ordinance Or Law

(1)The enforcement of or compliance with any ordinance or law:

(a)Regulating the construction, use or repair of any property; or

(b)Requiring the tearing down of any property, including the cost of removing its debris.

(2)This exclusion applies whether the loss or damage results from:

(a)An ordinance or law that is enforced even if the property has not been damaged; or

(b)The increased costs incurred to comply with an ordinance or law in the course of construction, repair, renovation, remodeling or demolition of property, or removal of its debris, following a physical loss or damage to that property.

b.Earthquake

But if earthquake results in fire, we will pay for the direct loss or damage caused by that fire, if the fire would be covered under this coverage form.

c.Governmental Action

Seizure or destruction of property by order of governmental authority. But we will pay for loss or damage caused by or resulting from acts of destruction ordered by governmental authority and taken at the time of a fire to prevent its spread if the fire would be covered under this coverage form.

d.Nuclear Hazard

Nuclear reaction or radiation, or radioactive contamination, however caused. But if nuclear reaction or radiation, or radioactive contamination results in fire, we will pay for the direct loss or damage caused by that fire if the fire would be covered under this coverage form.

e.War And Military Action

(1)War, including undeclared or civil war;

(2)Warlike action by a military force, including action in hindering or defending against an actual or expected attack, by any government, sovereign or other authority using military personnel or other agents; or

(3)Insurrection, rebellion, revolution, usurped power, or action taken by governmental authority in hindering or defending against any of these.

f.Water

(1)Flood, surface water, waves (including tidal wave and tsunami), tides, tidal water, overflow of any body of water, or spray from any of these, all whether or not driven by wind (including storm surge); or

(2)Waterborne material carried or otherwise moved by any of the water referred to in Paragraph (1).

This exclusion applies regardless of whether any of the above, in Paragraphs (1) and (2), is caused by an act of nature or is otherwise caused. An example of a situation to which this exclusion applies is the situation where a dam, levee, seawall or other boundary or containment system fails in whole or in part, for any reason, to contain the water.

But if any of the above, in Paragraphs (1) and (2), results in fire, explosion or theft, we will pay for the direct loss or damage caused by that fire, explosion or theft if these causes of loss would be covered under this coverage form.

g.Fungi, Wet Rot And Dry Rot

Presence, growth, proliferation, spread or any activity of "fungi", or wet or dry rot. But if "fungi", or wet or dry rot results in a Covered Cause of Loss, we will pay for the loss or damage caused by that Covered Cause of Loss.

This exclusion does not apply:

(1)When "fungi", or wet or dry rot results from fire or lightning; or

(2)To the extent that coverage is provided in the Additional Coverage – Limited Coverage For "Fungi", Wet Rot And Dry Rot with respect to loss or damage by a cause of loss other than fire or lightning.

h. Virus, Bacterium Or Other Microorganism

Any virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease.

However, this exclusion does not apply to loss or damage caused by or resulting from "fungi", wet rot or dry rot. Such loss or damage is addressed in the previous exclusion.

The terms of this exclusion, or the inapplicability of this exclusion to a particular loss, does not serve to create coverage for any loss that would otherwise be excluded under this Coverage Part.

This exclusion applies to all coverage under all forms and endorsements that comprise this Coverage Part, including but not limited to forms or endorsements that cover business income, extra expense or action of civil authority.

Exclusions B.1.a. through B.1.h. apply whether or not the loss event results in widespread damage or affects a substantial area.

Analysis

Loss or damaged due to ordinance or law is excluded if loss or damage is caused by the enforcement of or compliance with any ordinance or law that regulates the construction, use, or repair of any property or that requires the tearing down of any property, including the cost of removing its debris. Coverage can be added by using the Ordinance or Law Coverage endorsement, IH 99 21 12 13.

Earthquake is excluded, but not loss or damage from a resulting covered fire. The earthquake exclusion can be removed by adding the earthquake coverage option.

Seizure or destruction of covered property as an act of governmental authority is not covered, except for destruction of property ordered to prevent the more general spread of fire when the fire itself would be a covered cause of loss.

The nuclear hazard exclusion eliminates coverage of loss by nuclear reaction, radiation, or radioactive contamination regardless of the cause. Ensuing fire loss is covered.

The war and military action exclusion applies to three related causes of loss: war (including undeclared or civil war); warlike action by any governmental military force; and acts of insurrection, rebellion, revolution, or usurped power.

Water, including waterborne material moved by the water described in the exclusion, is excluded. The water exclusion can be removed from the policy by adding the water damage coverage option.

While fungi and wet and dry rot are excluded, the additional coverage for fungi and wet and dry rot provides limited coverage for damage caused by these perils. "Fungi" is a defined term on the policy and means "any type or form of fungus, including mold or mildew and any mycotoxins, spores, scents or by-products produced or released by fungi." However, virus, bacterium, and other microorganisms are excluded, and the fungi additional coverage does not apply to these perils.

2.We will not pay for loss or damage caused by or resulting from any of the following:

a.Theft from any unattended vehicle unless at the time of theft its windows, doors and compartments were closed and locked and there are visible signs that the theft was the result of forced entry. But this exclusion does not apply to property in the custody of a carrier for hire.

b.Delay, loss of use, loss of market or any other consequential loss.

c.Unexplained disappearance.

d.Shortage found upon taking inventory.

e.Dishonest or criminal act (including theft) committed by:

(1)You, any of your partners, employees (including temporary employees and leased workers), officers, directors, trustees, or authorized representatives;

(2)A manager or a member if you are a limited liability company; or

(3)Anyone else with an interest in the property, or their employees (including temporary employees and leased workers) or authorized representatives;

whether acting alone or in collusion with each other or with any other party.

This exclusion applies whether or not an act occurs during your normal hours of operation.

This exclusion does not apply to acts of destruction by your employees (including temporary employees and leased workers) or authorized representatives; but theft by your employees (including temporary employees and leased workers) or authorized representatives is not covered.

f.Artificially generated electrical, magnetic or electromagnetic energy that damages, disturbs, disrupts or otherwise interferes with any:

(1)Electrical or electronic wire, device, appliance, system or network; or

(2)Device, appliance, system or network utilizing cellular or satellite technology.

For the purpose of this exclusion, electrical, magnetic or electromagnetic energy includes, but is not limited to, electrical current, including arcing; electrical charge produced or conducted by a magnetic or electromagnetic field; pulse of electromagnetic energy; electromagnetic waves or microwaves.

But if artificially generated electrical, magnetic or electromagnetic energy, as described above, results in fire, we will pay for the direct loss or damage caused by that fire if the fire would be covered under this coverage form.

g.Voluntary parting with any property by you or anyone entrusted with the property if induced to do so by any fraudulent scheme, trick, device or false pretense.

h.Unauthorized instructions to transfer property to any person or to any place.

i.Neglect of an insured to use all reasonable means to save and preserve property from further damage at and after the time of loss.

j.Theft by any person (except carriers for hire) to whom you entrust the property for any purpose, whether acting alone or in collusion with any other party.

This exclusion applies whether or not an act occurs during your normal hours of operation.

k.Rain, sleet, ice or snow that enters the interior of a building or structure described in the Declarations.

However, this exclusion does not apply when the exterior of the building or structure is completed. The exterior of a building or structure is considered completed when it is fully weather resistant and all of its components and systems have been completely and permanently installed. These components and systems include, but are not limited to:

(1)The roof, exterior walls (including siding), windows, doors and vents; and

(2)Drainage, electrical, mechanical, ventilation, heating and air-conditioning systems.

But Exclusion B.3.a. still applies.

Analysis

The 2013 revision to the form updated the dishonest acts exclusion for consistency with updated policy language that has been included in other commercial property forms. The exclusion specifies that theft is included as a dishonest or criminal act; the term "employees" includes temporary and leased workers; the exclusion applies to officers; and with the exception of theft, the exclusion applies to authorized representatives of the insured.

The 2013 revision also added 2.j, which excludes theft by any person to whom the insured entrusts property (except carriers for hire). This represents a broadening of coverage as previously dishonest and criminal acts committed by those to whom the insured entrusted property were excluded—the excluded act by those persons is narrowed to theft.

Also added with the 2013 revision is an exclusion for rain, sleet, ice, or snow that enters the interior of a building or structure unless the exterior is completed. The exterior is considered completed when it is fully weather resistant and all of its components and systems have been completely and permanently installed. Again, "permanently" is not defined on the form. See the discussion in the Coverage portion of this article for more information.

3. We will not pay for loss or damage caused by or resulting from any of the following. But if loss or damage by a Covered Cause of Loss results, we will pay for the loss or damage caused by that Covered Cause of Loss.

a.Weather conditions. But this exclusion only applies if weather conditions contribute in any way with a cause or event excluded in Paragraph 1. to produce the loss or damage.

b.Acts or decisions, including the failure to act or decide, of any person, group, organization or governmental body.

c.Faulty, inadequate or defective:

(1) Planning, zoning, development, surveying, siting;

(2)Design, specifications, workmanship, repair, construction, renovation, remodeling, grading, compaction;

(3) Materials used in repair, construction, renovation or remodeling; or

(4) Maintenance;

of part or all of any property wherever located.

d.Wear and tear.

e.Any quality in the property that causes it to damage or destroy itself, hidden or latent defect, gradual deterioration.

f.Mechanical breakdown.

g.Insects, vermin, rodents.

h.Rust or other corrosion, dampness, extremes of temperature.

Analysis

These exclusions are common in property policies and include exclusions for loss or damage that happen over time, such as wear and tear, rust, and corrosion. They also include the exclusions for faulty work performance and maintenance and damage from insects, vermin, and rodents. The commercial property Causes of Loss – Special form, CP 10 30 10 12, is more specific in its exclusion and specifically mentions birds and other animals, as well as their waste products, so the IH 00 70 appears to provide broader coverage. The provisions of the weather conditions exclusion still apply even with the addition of exclusion 2.k. for rain, sleet, ice, or snow that enters the interior of a building or structure.

Limits of Insurance and Deductible

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.

Payments under the following Additional Coverages will not increase the applicable Limit of Insurance:

1.Preservation Of Property; or

2.Debris Removal; but if:

a.The sum of direct physical loss or damage and debris removal expense exceeds the Limit of Insurance; or

b.The debris removal expense exceeds the amount payable under the 25% limitation in Debris Removal Additional Coverage; we will pay up to an additional $10,000 in any one occurrence under the Debris Removal Additional Coverage.

The limits applicable to all other Additional Coverages are in addition to the Limits of Insurance.

D. Deductible

We will not pay for loss or damage in any one occurrence until the amount of the adjusted loss or damage before applying the applicable Limit of Insurance exceeds the Deductible shown in the Declarations. We will then pay the amount of the adjusted loss or damage in excess of the Deductible, up to the applicable Limit of Insurance. The Deductible does not apply to Covered Property in transit.

Analysis

The policy makes clear that the most that will be paid for any one occurrence is the limit shown in the declarations page and that two of the additional coverages—preservation of property and debris removal, unless certain conditions are met—will not increase the limit. The pollutant cleanup and removal additional coverage specifies that its limit is in addition to the policy limit.

In the Inland Marine Handbook, Insurance Services Office (ISO) states, "A standard deductible used with Builders Risk policies is $500. The rates found in the Loss Cost Section reflect a $500 deductible." Note that the deductible does not apply to covered property in transit.

Additional Conditions

1.The Valuation General Condition in the Commercial Inland Marine Conditions is replaced by the following:

We will determine the value of Covered Property at actual cash value as of the time of loss or damage.

2.The following conditions apply in addition to the Commercial Inland Marine Conditions and the Common Policy Conditions:

a.Coverage Territory

(1)We cover property wherever located within:

(a)The United States of America (including its territories and possessions);

(b)Puerto Rico; and

(c)Canada.

(2)We also cover property being shipped by air within and between points in Paragraph (1).

b.Coinsurance

If a Coinsurance percentage is shown in the Declarations, the following condition applies:

We will not pay the full amount of any loss or damage if the value of the Covered Property at the time and location of the loss or damage times the Coinsurance percentage shown in the Declarations is greater than the Limit of Insurance for all Covered Property at that location. Instead, we will determine the most we will pay using the following steps:

(1)Multiply the value of the Covered Property at the time and location of the loss or damage by the Coinsurance percentage;

(2)Divide the Limit of Insurance for the Covered Property at the location by the figure determined in Step (1);

(3)Multiply the total amount of loss or damage at the location, before the application of any deductible, by the figure determined in Step (2); and

(4)Subtract the deductible from the figure determined in Step (3).

We will pay the amount determined in Step (4) or the applicable Limit of Insurance, whichever is less. For the remainder, you will either have to rely on other insurance or absorb the loss yourself.

Analysis

The coverage territory includes the airspace between points in the United States, Puerto Rico, and Canada for covered property in transit. If, for example, property were being shipped by air between Los Angeles and Honolulu, it is covered. If it was being shipped by air between Los Angeles and Guadalajara, Mexico, it would not be covered because Mexico is not part of the coverage territory.

In the Inland Marine Handbook, ISO states, "Builders Risk policies are commonly written on a 100% coinsurance basis reflecting the completed value of the building."

Definitions

1."Fungi" means any type or form of fungus, including mold or mildew and any mycotoxins, spores, scents or by-products produced or released by fungi.

2."Pollutants" means any solid, liquid, gaseous, or thermal irritant or contaminant including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes material to be recycled, reconditioned or reclaimed.

Analysis

These definitions help clarify exactly what is included in the additional coverages for fungi and pollutant cleanup and removal and what is excluded in the fungi exclusion.