Coverage for insureds with construction exposures beyond the limited parameters of a standard commercial property form is accomplished through the use of the simplified language builders risk form and endorsements.
The policy may be used to cover the interest of the building owner, the contractor, or both, as their interests may appear.
Here are eight important facts about builders risk insurance that contractors, building owners, agents and brokers should know.
1. 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.
2. The rules in the Insurance Services Office's (ISO) Commercial Lines Manual 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.
3. The rules permit pro rata cancellation when construction is completed, whether insurance on the completed structure is rewritten in the same company or companies or not. If the policy is cancelled before the structure is completed, the general cancellation provisions found in the common policy conditions apply.
4. Builders risk coverage can be written on exposures during construction that may not be eligible for certain coverages when occupied. The rationale is that buildings eligible for builders risk coverage are commonly unoccupied; therefore, eligibility criteria that depend on occupancy or use don't apply during the course of construction. Examples of such exposures include boarding or rooming houses (with a maximum of four units), dwellings and farm properties.
5. ISO's Builders Risk Coverage Form, 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.
6. 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.
7. Insurers consider builders risk coverage to cease when the insured occupies the structure because builders risk rates don't contemplate the increased exposures of premises that are occupied.
8. ISO also provides another Builders Risk Coverage Form, IH 00 70 12 13, which is designed to provide broad coverage for the property that building contractors need to insure: building materials and supplies, fixtures, machinery and equipment to service the building.
Editor's note: This information is excerpted from the FC&S Online article, “Builders Risk Insurance.”
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