Written in Conjunction with Builders Risk Policies

Summary: The typical builders risk policy covers only property on the described premises. Neither does it provide coverage for the property while in transit. An installation floater covers a certain type of property while that property is being installed and, to a degree, while in transit. Usually purchased by a contractor or a subcontractor, the installation floater covers expensive types of property being installed—such as machinery or generators. Insurance Services Office, while offering a builders risk policy in its commercial property portfolio, does not offer an inland marine installation floater. The standard in this line comes from the American Association of Insurance Services (AAIS), Installation Floater Coverage, IM 7100. This article examines the AAIS installation floater and revisions that were made in 2010.

Topics covered:

Property coverage Perils and exclusions Conditions Endorsements

Property Coverage

The AAIS installation floater provides coverage for materials, supplies, fixtures, and equipment the insured is installing, constructing, or rigging as part of an installation or construction project and that will become a permanent part of the insured's project.

The property described as “not covered” more clearly defines the purpose of this form, i.e., to cover only certain types of property while being installed. One group of the items not covered is “buildings, structures, or land.” While most property policies do not cover land, this form clearly excludes buildings or structures—again covering property being installed.

The installation floater also does not cover the insured's machinery, tools, or equipment. Another type of policy is available for that purpose. The AAIS policy does not cover property while airborne in transit on a regularly scheduled airline flight. Waterborne property is not covered except when in transit in the custody of a carrier for hire. Money, securities, trees, shrubs, and plants are also not covered.

The AAIS installation floater provides three coverage extensions: emergency removal; debris removal; and limited fungus coverage.

Seven supplemental coverages are available: contract penalty, earthquake, flood, pollutant cleanup and removal, sewer backup, storage locations, and transit.

Limits for supplemental coverages may be indicated in the schedule of coverages. If no limit is indicated, coverage is provided up to the full limit of the applicable covered property. The supplemental coverage limit cannot be combined or added to the limit of other supplemental coverages, endorsements, or coverage extensions.

Perils and Exclusions

The AAIS installation floater covers on an open perils basis, subject to the usual exclusions, which include civil authority, earth movement or volcanic eruption, flood, fungus, nuclear hazard, ordinance or law, sewer backup and water below the surface, and war and military action.

The installation floater does contain one exclusion not common to property policies—penalties. The insurer declines to pay any penalties the insured may incur as a result of noncompletion of the project or any noncompliance with any contract terms or conditions. The penalty exclusion has been relocated to the earlier section of the policy, and appears in section four of Property Covered.

Other exclusions that apply are contamination or deterioration; criminal, fraudulent, dishonest, or illegal acts; explosion, rupture, or bursting; defects, errors, and omissions; electrical currents; loss of use; mechanical breakdown; missing property; pollutants; temperature/humidity; voluntary parting; and wear and tear. A new exclusion appears in the IM 7100 08 10 form; the exclusion is for delay in completion and increased installation costs. Loss or damage caused by a delay in the completion or change of sequence of an installation, construction, or rigging of an installation project is excluded.

Conditions

The remainder of the policy consists of the conditions. The insured's responsibilities in case of a loss are fairly standard: notice of loss, protect property, proof of loss, examination, records, damaged property, volunteer payments, abandonment, and cooperation.

The valuation provision contains three subparts. The first specifies that the insurer's payment for a covered loss is the lesser of: the actual cost to repair, replace, or rebuild the property or the amount that the insured actually spends to repair, replace, or rebuild the property. The valuation provision also contains a pair or set clause and a loss to parts provision.

The pair and set clause says that just because the lost or damaged property is part of a set, the loss is not a total. The lost item's value is to be based on a “reasonable proportion of the value of the entire pair or set.” The same principle applies in the loss to parts provision. When the lost or damaged property is one part of many, the loss payable is the “value of only the lost or damaged part or the cost to repair or replace it.”

The first provision under the How Much We Pay provision is insurable interest. AAIS specifies that the insurer will not pay more than the insured's interest in the property. Although insurable interest has always been enforced in other property contracts, it is interesting that it is specified here. Other provisions in this section are deductible, loss settlement terms, earthquake period, coinsurance, insurance under more than one coverage, and insurance under more than one policy. That final provision explains that the AAIS policy will contribute pro rata with other like policies but is excess over other policies.

The remaining provisions of the AAIS installation floater are similar in wording and intent to those of other property and marine policies: loss payment options; your losses (losses to be adjusted with the named insured); property of others; appraisal; [no] benefit to others; conformity with statute; estates (death of the named insured); misrepresentation, concealment, or fraud; policy period; recoveries; restoration of limits (paid losses do not reduce the available amount of insurance); subrogation; suit against us; and territorial limits.

The final two provisions are unique.

Under carriers for hire, the insurer gives permission to the insured to accept a bill of lading or shipping receipt from the carrier that may be for an amount less than the property is worth. To the extent that the insurer might have to pay for a loss to property being transported, they are abrogating the earlier condition of “[no] benefit to others.”

The typical insurance policy has definite beginning and ending dates. The installation last provision of the floater, an additional coverage limitation, specifies that coverage ceases at the earliest of the following six times:

1.the policy expires or is cancelled;

2.the purchaser accepts the covered property;

3.the insured no longer has an insurable interest in the covered property;

4.the insured abandons the installation or construction project “with no intent to complete it”;

5.the project has been completed for more than thirty days;

6.the covered property is put to its intended use.

However, recognizing that roofs and walls may be used long before any other use of the project, provision six does not apply to those items.

Endorsements

The AAIS installation floater may be modified via the addition of certain endorsements. The first, Business Personal Property Endorsement, IM 7111, extends the policy to cover items that will not become a permanent part of the installation. Such items might include the insured's furniture or equipment.

The insured may choose to have the premium determined on a reporting basis by adding form IM 7112, Reporting Conditions Endorsement. It requires the reporting of earned installation receipts. This may be done on a monthly, quarterly, or annual basis.

Contractors who are involved in the testing of their installations need “testing coverage.” If so, the policy must be endorsed with form IM 7114, Testing and Commissioning Coverage Endorsement, to cover their property while it is being tested or commissioned. The endorsement has been changed to clarify that testing losses are not covered if the insured knew or should have known of a suspension or impairment of a described protective safeguard and did not provide notification of such suspension or impairment.

Such testing may be of two types: cold or hot. Cold testing involves checking the installation under dry run conditions. Hot testing checks the components under actual operational conditions.

A third type of testing is commissioning. This involves operating the installed processing machinery in order to obtain specification requirements or to train operational personnel.

Property while waterborne may be covered by IM 7117, Waterborne endorsement.

Fraud and Deceit Coverage, IM 7118, provides coverage for theft of covered property by voluntary parting under certain conditions.

IM 7119, Equipment Breakdown endorsement, provides coverage for explosion, rupture, or bursting; mechanical breakdown; or electrical currents.