Permission to Occupy Builders Risk Property Coverage Mistakes

Permission to Occupy Builders Risk Property Coverage Mistakes

Brokers strive to do a great job for their clients, but sometimes they overlook certain coverages. This could lead to a “do not recommend” claim. And greater liability for the agent or broker in case of a loss.

During a webinar for associations of independent agents representing Delaware, Maryland and Pennsylvania. Education consultant Jerry Milton, CIC, detailed occupy builders risk property coverage that intermediaries can ignore for proprietary clients.

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These options may include:

  • Frame construction.
  • Scaffold.
  • Removal of debris.
  • Contamination cleaning.
  • Fire department charges.
  • Valuable document and record coverage.
  • Get permission to occupy insurance (allowing partial occupancy during completion of the building).

Permission to Occupy Builders Risk

Error 1:

Not adequately cover improvements and improvements, for tenants

Milton explains that the improvements and improvements. Although made at the expense of the tenant, become part of the building.

The improvements are included the definition of “construction” in the owner’s commercial property policy. It also included in the definition of “personal commercial property” in the tenant’s policy.

Who insures?

Permission to Occupy Builders Risk
Permission to Occupy Builders Risk

Because improvements are generally attached the property increase the value of the building.

Milton recommends that the owner increase their insurance to cover those improvements.

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Error 2:

Not inform the insured about the occupation.

Vacancy problems with the builder’s risk policies

“Occupation in whole or in part nullifies politics,” says Milton, but building owners do not like empty buildings. Carriers can give the insured permission to occupy parts of the building as construction is completed.

So moving floor by floor, with an endorsement and an additional premium. But this approval is generally only valid for 90 days. And may need to be renewed as construction is completed.

A related issue is the question of the vacancy. If the building has less than 31% occupancy for usual operations. It is considered vacant, explains Milton. In current economic times, tenants can move out leaving a building with less than 31% occupancy, but still partially rented.

The broker renews the policy without knowing whether the building is fully occupied or not. However, if the building is considered vacant for more than 60 days. So the owner will lose coverage. In that case, it is possible that the policy does not pay for any loss caused by vandalism or sprinkler leakage. For example, and other covered losses are reduced by 15%.

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Error 3:

Not insuring 100% of the value and requesting an agreed value

A building with a value of $ 1 million could be subject to an 80% coinsurance, for example. Which would lead to a limit of $ 800,000. What happens at the time of the loss if the building has a real value of $ 1.2 million due to improvements and additions? The owner of the building is out of $ 200,000.

Milton’s advice: “Always press for a value of 100% and request an agreed value. Which will suspend the coinsurance.”

Error 4:

Allowing a tenant to secure a building

If the tenant is the named insured and the owner of the building is added as an additional insured. Milton says that the owner could be excluded for any loss. Now if the tenant, its partners, members, officers or managers commit a dishonest act. Such as arson . Such acts may leave the building owner without coverage.

It’s much better, says Milton, for the owner of the building to carry the insurance and incorporate it into the tenant’s rent.

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Error 5:

Do not recommend construction glass coverage.

In general, a tenant is responsible for any broken glass in the building, says Milton. But the tenant’s commercial property policy that covers commercial property does not include building elements, such as glass. Even though the owner insures the building. It is important that the agent recommend a construction glass endorsement to the tenant’s policy.

How the builder’s risk insurance calculated?

Your premium will depend on the type of coverage and exclusions of the policy. Generally, the builder’s hazard insurance rate is 1 to 4% of the construction cost. The total finished value of the building must include the costs of materials and labor, excluding the value of the land.

What is the purpose of a risk policy for builders?

Builders hazard insurance (also known as inland marine or construction course coverage) is defined as insurance that protects the insurable interest of a person or organization in materials, fixtures and / or equipment waiting to be installed (or after installation) during the construction or renovation of a building.

Can you have additional insurance on a builder’s risk policy?

Builder’s hazard insurance covers the damage or destruction of a construction project. In addition, a builder’s hazard policy may designate a lender who has a financial interest in the property as an additional insured or mortgagee. Similarly, a lender can identified as a loss payee or a transfer of the policy proceeds.

Builders risk occupancy clause

Concurrent Cause:

Coombs calls these exclusions, which emerged in the 1980s to protect insurers against losses from multiple causes, the “broadest yet.” Although the terms vary widely between forms, the concurrent causation exclusions deny coverage for loss or damage caused directly or indirectly by any number of specific hazards listed, regardless of any other cause or event contributing simultaneously or sequentially to the loss. .

Consider a beachside hotel construction project that suffers $ 10 million worth of damage after a hurricane. “Let’s say $ 9 million of that is cause wind and $ 1 million is cause floods. And builders’ risk policy, they have coverage for wind but they don’t have coverage for floods.” says Coombs. “An unsophisticated consumer might think they would at least get $ 9 million. Depending on the actual wording of the exclusion and applicable insurance laws, they may not get anything. “

Coombs, who co-wrote “The Builders Risk Book” with Don Malecki, says that concurrent exclusions of causation are becoming more extensive in builders’ risk policies. “It’s something that agents should be very careful about when reviewing proposals from different insurance companies,” he warns. “Almost everyone has some kind of concurrent causation language, but if you have a list of 10 [dangers excluded] versus a list of just four, there will be a big difference in coverage.”

Partial Occupancy Exclusions:

As renovations continue to gain momentum in the construction industry, many buildings are occupied before construction is complete, says Christie Lucas, vice president of commercial product management for Erie Insurance. “Homeowners want to start generating income as soon as possible, so maybe they fill the first space and then move on to the remaining space to start earning income,” he explains.

Permission to Occupy Builders Risk Property Coverage Mistakes
Permission to Occupy Builders Risk Property Coverage Mistakes

That’s a problem for your contractor clients, because most builders’ hazard policies contain some type of partial occupancy exclusion. “Agents need to remove that if the building is going to be occupied at any point during construction,” Lucas says. “For an individual building, you can buy a partial occupancy endorsement which is basically like a permit. If the agent doesn’t do that, it could be a costly E&O problem. “

Clauses to monitor

Insured Separation:

Almost all builders’ hazard policies insure multiple parties: the owner, the general contractor, and the subcontractors. But most do not contain an insured separation clause, which protects each insured individually. “What that means is that if one insured violates the guarantee or condition of a policy, that affects all the insured,” Coombs explains.

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For example, a builders hazard policy may require the general contractor to keep the entire construction site illuminated and surrounded by an eight-foot high fence. “Suppose the owner insured that policy and the general contractor doesn’t get a copy of it, so they don’t even realize that this guarantee is in the policy,” says Coombs. “And it turns out there wasn’t an eight-foot fence around the entire site, and then there’s a leak, there’s no cover for anyone.”

Coombs notes that in Europe and Canada, policyholder separation clauses are “standard stuff,” but the US insurance industry has been “slow to catch up.”

Other insurance:

Many builder’s hazard policies contain this puzzling clause, which states that in the event that any other insurance applies to a construction project, the builder’s hazard policy is excessive.

“If someone buys a builders risk policy, they intend that risk to be their primary insurance, that’s why they buy it,” says Coombs. “They understand that the contractor may have separate liability insurance or something like that, but the purpose of a builders’ hazard policy is to provide funds for repairs or reconstruction so the parties don’t sit around and spend years litigating.”

Slowly but surely, the industry is building support to confirm that its policies are paramount. “But it’s very slow,” says Coombs. “Agents and brokers should be careful to request an endorsement confirming primary coverage, just for the certainty of the contract.”