Get to know: Building renovation and vacancy provisions
Coverage Q&A: How are common vacancy exclusions addressed during the construction of insured properties?
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Question: 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 constructed 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 builders risk the better option rather than depending on the extension endorsement?
— Connecticut Subscriber
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 a 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.
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