Builders risk renovations CP 11 13

Builders risk Q&As

Builders Risk Under CP 00 10

The ISO building and personal property coverage form CP 00 10 provides building coverage for additions under construction, alterations, and repairs to the building or structure. That building or structure must already be insured under the same policy for this coverage to apply, it cannot be a new construction on the premises. For the applicable builders risk project, the form will also cover the insured's materials, equipment, supplies, and temporary structures being used for making the additions, alterations, or repairs, as long as that business personal property is located on or within 100 feet of the described premises. One caveat to the coverage is that there must be no other coverage that would apply to that project; for example, if the builders risk coverage form CP 00 20 is attached to the policy that coverage will override that provided by the CP 00 10.

So what about the contractor's tools and supplies? There is no coverage for this property except if the items are within the care, custody or control of the insured at the time of loss. In this case, they would would have limited coverage as personal property of others. In this case, in event of loss payment will go directly to the contractor who owns the property.

Any of the exclusions that would otherwise apply under the CP 00 10 will also apply to the builders risk project. In the list of property not covered, there are several that could be of particular importance in a given builders risk project, such as:

d. Bridges, roadways, walks, patios or other paved surfaces;

f. The cost of excavations, grading, backfilling or filling;

g. Foundations of buildings, structures, machinery or boilers if their foundations are below:

1. The lowest basement floor; or
2. The surface of the ground, if there is no basement;

h. Land (including land on which the property is located), water, growing crops or lawns (other than lawns which are part of a vegetated roof);

i. Retaining walls that are not part of a building;

m. Underground pipes, flues or drains;

The additional coverages and coverage extensions of the CP 00 10 mostly apply in connection with a covered loss. For example, if there is a need to remove debris following a fire loss this coverage would extend to debris in connection with the renovation project. The provision for increased cost of construction would apply only if the building is insured at replacement cost value. This coverage would not apply for instance if the owner was simply doing a renovation to put in handicapped ramps to meet current building codes without there having been a loss that necessitated the renovation. Of notable mention is the coverage for newly acquired building coverage. This coverage will cover a new building being constructed on the property; however it will not cover the construction of that new building. Separate builders risk coverage is needed for such new construction.

As long as there are no exclusions that would apply to the builders risk project being considered, or if the property not covered does not adversely impact the financial considerations of the project, then most additions, repairs, or renovations should be able to be adequately covered by the CP 00 10, eliminating the need for a separate builders risk policy.

One of the most important considerations to make when covering a builders risk project under the CP 00 10 is the insurance value of the building or structure being renovated. If there is a loss either during or after construction, and the building value has not been increased to incorporate the renovated value of the building, this could have devastating financial consequences for the insured.

Builders Risk Under CP 00 20

When the building is a new construction, or the coverage under the CP 00 10 is inadequate for the exposures of the builders risk project, the builders risk coverage form is a viable option. The amount of coverage is based on the value of the completed building, including its permanent fixtures. The insured value should include anything that will become a permanent part of the building, any machinery and equipment used to service the building, as well as building materials and supplies owned by the insured. As early as day one of the construction, the building will be valued at its finished value, all throughout the course of the project until it ceases, as described in the form.

Covered property here is much broader than in the CP 00 10, as it also includes foundations, and if not covered by other insurance, temporary structures built or assembled on site, including cribbing, scaffolding and construction forms. There is no coverage however for theft of building materials and supplies. As with the CP 00 10, materials and supplies of an outside contractor have limited coverage under property of others, if it is in the insured's care, custody and control, and located in or on the building, or within 100 feet of the premises.

Interestingly, there is no coverage for signs not attached to buildings. Large construction projects typically will have signs posted that are not attached to the building itself, but rather posted at the edge of the property to alert the public that it is a construction site. These unattached signs would not be covered under either the CP 00 10, nor the CP 00 20.

Some construction projects may include items such as a koi pond, or a water fountain. These also would not be covered. Endorsements are available to provide coverage for some exposures. A full analysis of the CP 00 20 and its endorsements is available here.

Builders Risk Renovations CP 11 13

This endorsement applies specifically to the builders risk coverage form, and does not amend the building and personal property coverage form. The endorsement restricts coverage to apply specifically and only to the renovation under construction. Covered property consists only of the value of the renovation being done, including the fixtures and machinery, service equipment, construction materials – restricted to such property that is intended to be a permanent part of the covered building or structure, or within 100 feet of its premises. The endorsement eliminates coverage for the existing building, so only the builders risk project is covered. For example, an insured is adding on a new building section that will attach to the current building. With this endorsement only the value of the addition will be covered under the builders risk coverage. The insured will need other building coverage for the existing building. Or, in the case of a new building being constructed on the same premises as the existing building, the builders risk coverage will only apply to the new construction, and there will be no coverage for the existing building.

The need for adequate insurance condition that is in the application will include only the value of the improvements, alterations or repairs at the described premises.

This endorsement contains a loss payable clause to protect the interests of both the insured and the loss payee shown in the endorsement schedule.

The endorsement amends the condition for when coverage ceases. Coverage will end when one of the following first occurs:

1. The policy expires or is cancelled;
2. The property is accepted by the purchaser;
3. The insured's interest in the property ceases;
4. The insured abandons construction with no intention to complete it.

Builders Risk Q&As

We have responded to numerous questions in relation to builders risk projects. While not all encompassing, here are a few Q&As that will help shed light on coverages and valuations in a few different builders risk scenarios.

Builders Risk Coverage and the Meaning of "Completion"

Most builders risk policies have a condition, among others, that states coverage will end when the building or structure has been completed for more than ninety days. The policy, however, does not define "completed." A homebuilder could build a home and have it completed except for minor items such as door or cabinet knobs, or the like, which need to be picked out by the eventual homebuyer. At what point is a building or structure considered to be completed?

Answer:

The ISO Builders Risk form, CP 00 20 04 02, states that coverage ceases ninety days after construction is complete or sixty days after any building is occupied in whole or in part or it is put to its intended use. On this type of form, occupancy may equate to completion.

If the form states only that the coverage ceases when the building is complete (or if the building is not yet occupied), the word "complete" would take its lay meaning since it is not defined on the policy.

Merriam-Webster Online defines complete as, among other definitions, "a: having all necessary parts, elements, or steps…4 a: fully carried out: thorough." These definitions indicate the project should be fully finished in order to qualify as "having all necessary parts" or "being fully carried out."

In general, interior trim and cabinet knobs are not thought to equate with "having all necessary parts" or construction completion. Construction completion implies construction crews being gone, heavy equipment being taken away, and other similar actions. So, when such actions occur, the project is complete, and the Builders Risk form provides coverage for ninety days past that point, even if some minor trim work remains to be done.

Note: If endorsement CP 11 13 were also attached, that endorsement amends when coverage ceases as discussed earlier.

Builders Risk – Coverage for Existing Structure?

We are an adjusting company. Our client is insured under a standard builders risk form. The insured was in the beginning stages of converting his existing building to a storage warehouse. His agent advised him that the commercial property form should be replaced with the builders risk form.

The building roof is corrugated asbestos, which is no longer manufactured. It was damaged severely in several areas as a result of Hurricane Georges.

The insurer raises two issues. First, that the roof was not being renovated, and is therefore not covered under the policy. Second, the insurer says that even if the loss were covered they would only owe to replace the damaged asbestos panels with acceptable material and renail the remaining asbestos panels down. They estimate replacing about 10% of the panels, although they may likely damage more in nailing them down.

We do not think this is a reasonable settlement. What is your opinion? Answer:

Having reviewed the builders risk coverage form, there is nothing to exclude the loss to the roof. The insuring agreement—the "building under construction" — meaning the building or structure described in the declarations, applies to the warehouse. There is no exclusion for wind damage to the roof.

In the case of Patton v. Aetna Insurance Co., 595 F.Supp. 533 (1984), a builders risk policy was issued to cover a building scheduled for renovation. When fire destroyed a portion of the building before renovation began, the court held that the insured and insurer understood that renovation was intended, and so therefore "construction" could be interpreted as alterations of any type.

This appears similar to your situation. The insurer, the insured location on the builders risk form, and the amount of coverage requested were identical to the location and amount of coverage on the prior commercial property form. The insurer does not appear to have raised the question as to why a commercial property policy was replaced with a builders risk policy, if renovations were all that were intended.

We are of the opinion the loss is covered, and that the entire roof must be replaced in accordance with policy terms.

Builders Risk Coverage and Fences

Would you cover fences under a CP 00 20 Builders Risk form, due to fire damage, considering it as a structure?

Answer:

So if I am understanding correctly, we are looking only at coverage under CP 00 20 Builders Risk Coverage Form. It is our opinion that the only way a fence would be covered under the form is if it is: (1) a structure described in the declarations while in the course of construction; or (2) a fixture, but this coverage applies only if the fence is intended to be permanent at the premises.

A fence qualifies as a structure, as Merriam-Webster'sMerriam Webster's definition of a structure is in part something (such as a building) that is constructed; or something arranged in a definite pattern of organization. So if the fence is described in the declarations, then it is covered as a structure while it is being used for construction.

A fence could also be considered an outdoor fixture. A fixture is defined in part as something that is fixed or attached (as to a building) as a permanent appendage or as a structural part; and an item of movable property so incorporated into real property that it may be regarded as legally a part of it. So, a fence would be covered in the form, but only if it is intended to be permanently located on or within 100 ft of the premises.

An existing fence that is not used in the construction project, or a fence that is not part of the completed project work, is not covered.

Building Renovation and Vacancy Provision

Often we see in property extension endorsements coverage for Newly Acquired or Constructed Property. For Buildings, the policy's covered causes of loss prevail for buildings built on the premises or on a newly acquired premises intended for similar use as described on the Declarations. I am confused as to how the common exclusions for vacancy (VMM, glass, theft, etc.) are addressed during the period of construction. Do those exclusions apply during construction, as the building is vacant during construction? If so, is the Builders Risk the better option rather than depending on the extension endorsement?

Answer:

In the ISO Commercial Property Building and Personal Property Coverage Form, the Vacancy provision specifically states, "buildings under construction or renovation are not considered vacant". Therefore, the vacancy exclusion would not apply, and the vacancy provision that excludes coverage for vandalism, sprinkler leakage, building glass breakage, water damage and theft if building has been vacant for more than 60 days also would not apply to a building under construction or renovation.

However, to support an argument that a vacancy exclusion does not apply because the building was under construction or renovation, evidence should be presented that shows substantial, continuous construction or renovation activity. Sporadic entry is insufficient. To be under construction or renovation, there should have been an ongoing presence of construction personnel working on the building that can be validated, including the number of people working on the project, the amount of time they spent in the building, and how much of the building they occupied.

Builders Risk Needed for Ordinance or Law Coverage on Building?

We are insuring the builder of a seventeen floor apartment building. Would we have a potential coverage problem if we had a fire loss, or other covered peril loss, on a lower level that so damaged the integrity of the structure that the city authorities stepped in and required the owner to demolish the entire structure? We refer, of course, to the exclusion of expenses arising out of the enforcement of building ordinances and laws. Do we require ordinance or law coverage by way of endorsement to cover this exposure? We are not concerned about the increased cost of construction aspect, as the building is designed to state-of-the-art specifications.

Answer:

In this case, the property policy—unadorned by the ordinance or law endorsement—would respond to the total loss, up to policy limits. The answer is essentially that this is no different, really, than settling any fire loss where damage is so great as to cause a total loss.

Ordinance or law coverage responds to the additional expense that a building owner encounters after a loss due to laws or municipal building codes enacted after the building of the structure, but which the owner must now comply with in rebuilding his building. In your scenario, it is not the enforcement of law or code that adds to the loss, but the fact that the building was so damaged as to be construed a total loss. As in any fire loss, the cost of clearing and rebuilding is covered, subject to applicable policy provisions and limits

Builders Risk Renovation Loss Valuation

I've attached a [Lloyds] policy for a recent fire, and I'd appreciate your opinion as to coverage.

The schedule of forms and endorsements can be found on pages 6 & 7. The only forms that pertain to my inquiry are "Property Declarations" (page 9), the "CP 00 10" (pages 57-70), the "CP 00 20" (pages 71-77), and the "CP 11 13" (page 86).

The situation is as follows. The insured purchased this property approximately 10 months ago. Over the following 9 months, he had significantly improved/renovated the building. This included new baths, kitchen cabinets, roof, and interior painting. The only renovation work that needed to be done prior to completion was the refinishing of hardwood floors. Oily rags ignited and caused significant damage (in excess of $700k). As he was doing the work himself, subrogation for negligence is not a possibility.

The question/issue is this. The renovation work was considerably more than the $20k listed under "renovation". However, the CP 00 10, provides coverage for "completed additions" (page 1, A.1.a.(1)). Except for the floor refinishing, repairs/renovation were complete. The CP 00 20 (Builders Risk Coverage Form) addresses "building under construction, while in the course of construction" (A.1.). The CP 11 13 (Builders Risk Renovations Form) changes that language to "repairs to building or structures under renovation {emphasis added}". Additionally, "this endorsement only modifies insurance provided under the following: BUILDERS RISK COVERAGE FORM". It does not appear to modify the coverage provided in the CP 00 10 regarding "completed additions".

I believe that the $20k should apply only to the work that was under renovations at the time of the fire, and that the completed work should be covered by the $400k available under the CP 00 10.

What do you think?

Answer:

The building and personal property coverage form CP 00 10 will not apply to this builders risk renovation project because item 1.(5) under Coverage A states that additions under construction, alterations and repairs to the building are only covered under that form if they are not covered by other insurance. Since the insured has purchased builders risk coverage, that coverage is the prevailing coverage for this loss. The building has not yet been put to its completed use. In the builders risk form CP 00 20, section F. Additional Conditions, paragraph 4.e. states that coverage under this form ends either 90 days after the construction is complete; or 60 days after the building is occupied in whole or in part; or put to its intended use. As such, since the building was not occupied, and it had not yet been put to its intended use, then for purposes of the coverage, it was still under construction/renovation.

Since CP 00 20 is the applicable coverage form, then the provisions of CP 11 13 also apply since that endorsement modifies the builders risk coverage form. As such, there is no coverage for the value of the existing building prior to construction of the improvements, alterations or repairs.

Based on these coverage provisions, the limit of insurance applicable to the loss is $20,000.

Named Insured on Builders Risk Policy Entitled to Total Value of Loss

If the named insured on an inland marine builders risk policy is only the owner of the project, in the event of a loss, would the owner receive the total value of the loss? What if the owner has not yet paid the contractors for all of their work? Would the owner receive only the portion of the loss for which he has paid for or his insurable interest? Would it make a difference if the construction contract specifically required the owner to insure the building during the course of construction? Would this give the owner total insurable interest?

Answer:

This answer is based on the ISO Commercial Inland Marine Builders Risk Form, IH 00 70, which covers the building materials, supplies, fixtures, machinery, and equipment to service the building. Foundations while in the course of construction and temporary structures assembled or built on site are also covered. In our opinion, the insured would receive the total value of the loss (up to policy limits). The insured would still be responsible for any outstanding amounts due to the contractors, but the total value of the insured loss should still be paid to the insured.

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