While this coverage extension also addresses the named insured's business personal property, it is not discussed here. It will be addressed separately.

Topics covered Introduction

New construction

Newly acquired property

Other cases

Conclusion

 Introduction

 The subject of this discussion is concise but can be troublesome. Since independently filed property policies can vary in wording, the provision addressed here is the standard ISO Building and Personal Property Coverage Form, CP 00 10 10 12. The appropriate section reads as follows:

 (1)Buildings

If this policy covers Building, you may extend that insurance to apply to:

(a)Your new buildings while being built on the described premises; and

(b)Building you acquire at locations, other than the described premises, intended for:

(i)Similar use as the building described in the Declarations; or

(ii)Use as a warehouse.

The most we will pay for loss or damage under this Extension is $250,000 at each building.

(3)Period of Coverage

With respect to insurance provided under this Coverage Extension for Newly Acquired or Constructed Property, coverage will end when any of the following first occurs:

(a)This policy expires;

(b)30 days expire after you acquire the property or begin construction of that part of the building that would qualify as covered property; or

(c)You report values to us.

We will charge you additional premium for values reported from the date you acquire the property or begin construction of that part of the building that would qualify as covered property.

 New Construction

 It is important to note that insofar as construction is concerned, the coverage extension applies solely to a building and not to a structure. A building is a structure but not all structures are buildings. Coverage here is limited to a structure with four walls and a roof.

 The building that is being newly constructed has to be at the described premises and, unlike newly acquired property, not at a different location. If what is involved here is merely additions to existing buildings, coverage applies under a different section of the commercial property form.

 When owners of premises undertake construction projects, those assisting with the plans, such as the owners' attorney or architect will usually introduce the use of the American Institutes of Architects contract specifications. When this happens, owners generally are obligated by these contracts to obtain property insurance to also cover the interests of contractors. As a reminder, the standard ISO Building and Personal Property Coverage Form CP 00 10 10 12, does not cover anyone's interest in the construction of a building other than the owner (named insured). This means that if the owner were able to obtain coverage under this extension, it may still have a problem in those cases when the owner promises to cover others but fails to do so.

 It does not say so under the period of coverage provision of this extension, but if the producer for the named insured were to bind builders risk coverage, this extension is automatically nullified. While this coverage extension may serve as a safe haven for those who fail to report new exposures as they arise, it is for a limited period which can best be described as "time is of the essence."

 It also does not matter when, during the coverage period, the newly constructed property is reported to the insurer, the premium for the exposure commences when the construction first commences.

 Newly Acquired Property

 What may beg a question here is the meaning of "acquire." One argument is that "acquired" means "to buy" and does not include renting property. The issue is if "to acquire" includes an element of control or must involve ownership. Absent a specific policy definition of the word, the insured is entitled to the most favorable common dictionary meaning. "To come into possession of" does not necessarily connote ownership; it is broad enough to encompass other forms of possession, such as renting, leasing, or borrowing. Additionally, the policy uses the word "acquired" rather than "purchased" or some other term meaning obtaining title. Since "acquiring" is a broader term than "purchasing," it is appropriate to include a means of obtaining property other than acquiring ownership through purchase.

 Note, however, that whether the extension applies hinges on one of two conditions:

 1. They must be intended for a similar use as the described premises; or

2. They must be intended for use as a warehouse.

 What also may beg a question here is the meaning of "similar use."

 One case that considered the meaning of "similar use" and consisted of the same wording as the standard ISO provision dealing with newly acquired property is AMCM, Inc. v Philadelphia Indem. Ins. Co., No. 1:10CV80LMB, 2012 WL 10489 (E.D. Mo. Jan. 3, 2012). The insurer issued a policy to AMCM covering a warehouse, two daycare centers, and an office building; all four locations were in St. Louis.

 While the property policy covering those locations was in force, the named insured entered into a real estate lease for what was known as the Clubb Property. This property consisted of thirty-eight acres of land on which a farmhouse, barn, and shed were situated and was intended, by the named insured, to be used in connection with the named insured's daycare business. According to the named insured, the leased property was intended for use with its summer program for inner-city children where the children could enjoy a country experience and to hike and fish.

 However, about ten days after its purchase, this property sustained a fire that destroyed the vacant house on that property. The named insured sought coverage under the terms of its property policy's newly acquired or constructed property provision. The insurer, on the other hand, maintained that the Clubb Property was not covered under the newly acquired property provision because its intended use was similar to those of the other named insured's premises. The insurer argued that the intended use of the Clubb Property as country property, an overnight destination, a petting zoo, or farm implicated risks separate and distinct from the daycare or office operations undertaken at each of the named insured's St. Louis locations.

 The named insured argued that it was undisputed that it acquired the Clubb Property for use as an extension of the named insured's daycare business to be used as a "destination" daycare location. The named insured, furthermore, contended that this usage of the Clubb Property satisfied the "similar use" provision for coverage of newly acquired property under the policy.

 The commercial policy, of course, does not define "similar use," and the court did not go into depth in determining what "similar use" means. It quoted one case dealing with uninsured motorist coverage, which quoted Webster's II New College Dictionary (1995) and said that the term "similar" was defined as "resembling though not completely identical."

 The insurer also maintained that, even if the named insured had intended to use the Clubb Property as a destination daycare, the average layperson would not find that the named insured's use of the Clubb Property was similar to that of the named insured's other premises. This new venture, the court went on to say, would reasonably be expected to involve different risks from an insurer's perspective than the risks involved in operating a licensed daycare facility. As such, the court ruled that Clubb Property did not qualify as newly acquired property.

 Other Cases

 In Sherman Intern. Corp. v. Liberty Mut. Ins. Co., 922 F.2d 729 (11th Cir. 1991), part of the dispute was over "constructed" versus "acquired." The named insured acquired property on which an office-warehouse was built in 1987 when it purchased the assets of a concrete product firm covered, at the time, by Liberty Mutual. With the purchase of the concrete product firm, the named insured was added to all of the policies. When the policy was renewed, the only structure on the site was a concrete plant. In early 1988, the named insured constructed a block plant at the site but did not inform Liberty Mutual about the new plant.

 In April 1988, the named insured contracted with a construction firm to build the office warehouse. Construction began on May 1, 1988. The contract called for a "turn-key job," which meant that the building was to be ready for occupancy and immediate use by the named insured when the project was completed. The named insured moved into the new building on August 18, 1988. Once again, however, the named insured failed to notify Liberty Mutual of the new building on the premises.

 Fire damaged the building on August 20. In a letter dated September 1, 1988, the named insured requested that the insurer increase the general building and contents coverage to include the office-warehouse and block plant. The named insured had never before requested insurance for either building. Recall that the newly acquired or constructed property extension granted coverage only for newly constructed property while it was being constructed. The insurer therefore notified the named insured that the August 20 fire was not covered under the extension of coverage provision because the named insured had not notified the insurer within the thirty days required that it was constructing the office-warehouse. The loss had occurred more than thirty days after the named insured began construction on the building.

 The named insured's principal contention was that it was entitled to coverage, under the extension provisions, because its loss occurred within thirty days after it occupied—and thus acquired—the warehouse. The named insured said it acquired the warehouse from the contractor, rather than constructing it, because the contractor was an independent contractor and its employees, rather than the named insured's, performed the labor needed to construct the warehouse.

 The court stated that the named insured's principal contention was meritless. An owner of real property, the court explained, who hires an independent contractor to build a building on that real property "constructs" that building. The warehouse, it was explained, stood on land that the named insured owned under its agreement to purchase the other firm's assets, and the building was at all times part of the real property on which it stood. Thus, the court explained further, at no time did the contractor have a possessory interest in the warehouse that the named insured or anyone else could acquire. Furthermore, said the court, the contractor did the work on the building at the request of, and according to the specifications provided by, the named insured. In short, the court stated that the named insured constructed the warehouse.

 As has been mentioned, what can break the chain of coverage under the extension provision is when a binder is issued on the new risk, a coverage is added to the policy that encompasses the new risk, or when newly acquired property is listed on the policy, however inadequate the information describing it. For example, in GTM, Inc. v. Transcontinental Ins. Co., 5 F.Supp.2d 219 (D. Vt. 1998), a barn used by the insureds to store business property after a move from another state was not "acquired property," where the barn was listed as a "described premises" for which no coverage was provided without an accompanying limit of liability.

 Conclusion

 Based on the research of cases involving specifically the commercial property coverage extension for newly acquired or newly constructed property, named insureds are not too successful in obtaining the coverage offered. Part of the reason is that time is of the essence, and those insureds who forget to notify their insurers or producers of these new exposures usually forget well past the grace period given by insurers. The ISO commercial property coverage form provides thirty days in which to give notice. Some other insurers offer ninety days, which apparently is not enough when insureds simply forget to notify their insurers or producers.

 It also needs to be kept in mind that the chain of coverage under this extension can be broken anytime the named insured purchases some coverage that may pick up the new exposure or when a binder is issued on the new risk.