ISO Commercial Property Program

Summary: Coverage for insureds with construction exposures beyond the limited parameters of the Building and Personal Property Coverage Form is accomplished through use of the simplified language Builders Risk form and endorsements discussed in this article.

The policy may be used to cover the interest of the building owner, the contractor, or both, as their interests may appear.

The builders risk program includes the following forms: Builders Risk Coverage Form, CP 00 20 10 12; Builders Risk Reporting Form, CP 11 05 04 02; Builders Risk Adjustment Form, CP 11 06 06 07; Builders Risk Renovations, CP 11 13 06 95; Builders Risk – Separate or Sub-Contractor's Exclusion, CP 11 14 07 88; Builders Risk – Separate or Sub-Contractor's Coverage, CP 11 15 07 88; Builders Risk – Collapse During Construction, CP 11 20 06 07.

A complete builders risk contract is formed by combining the Builders Risk Coverage form, CP 00 20, with a declarations page, common policy condition, and commercial property conditions forms (see Common Policy Conditions and Commercial Property Conditions), a causes of loss form (see Causes of Loss), as well as any of the endorsements selected from the forms listed in the previous paragraph.

The one exception to the modular format of the commercial property program is the Standard Property Policy, CP 00 99 10 12. It is a self-contained unit that includes causes of loss and applicable conditions and is used for insuring risks for which the coverage under the other forms of the program is too broad. The Builders Risk Changes – Standard Property Policy endorsement, CP 11 99 10 12 is used to modify the standard property policy for builders risk coverage.

Additionally, ISO offers an inland marine builders risk policy IH 00 70 12 13, which provides broad coverage for property both on the construction site and in transit if the property is intended to be a permanent part of the project.

Topics covered: General eligibility and rules Builders Risk Coverage Form, CP 00 20 Covered property Property not covered Covered causes of loss Additional coverages Debris removal Preservation of property Fire department service charge Pollutant clean up and removal Coverage extensions Building materials and supplies of others Sod, trees, shrubs and plants Exclusions and limitations Limits of insurance Deductible Loss conditions Additional conditions Definitions Builders Risk Coverage Form, IH 00 70

General Eligibility and Rules

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. The rules in the Commercial Lines Manual (CLM) 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. The rules permit pro rata cancellation when construction is completed, whether or not insurance on the completed structure is rewritten in the same company or companies. If the policy is cancelled before the structure is completed, the general cancellation provisions found in the common policy conditions apply.

The rules specifically provide that builders risk coverage can be written on exposures during construction that may not be eligible for certain coverages when occupied, the rationale being that buildings eligible for builders risk coverage are commonly unoccupied; therefore, eligibility criteria that depend on occupancy or use do not apply during the course of construction. Boarding or rooming houses (with a maximum of four units), dwellings, and farm properties are examples of such exposures.

Blanket insurance, covering more than one building or structure, is subject to the rating rules for such coverage. This is useful for housing projects and other large risks with several units being erected at the same time.

Builders Risk Coverage Form, CP 00 20

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. When coverage ceases is discussed later in this article.

Covered Property

A. Covered Property

We will pay for direct physical loss of or damage to Covered Property at the premises described in the Declarations caused by or resulting from any Covered Cause of Loss.

1.Covered Property

     Covered Property, as used in this Coverage Part, means the type of property described in this Section, A.1., and limited in A.2. Property Not Covered, if a Limit Of Insurance is shown in the Declarations for that type of property:

Building Under Construction, meaning the building or structure described in the Declarations while in the course of construction, including:

a.Foundations;

b.The following property:

(1)Fixtures and machinery;

(2)Equipment used to service the building; and

(3)Your building materials and supplies used for construction;

provided such property is intended to be permanently located in or on the building or structure described in the Declarations or within one-hundred feet of its premises:

c.If not covered by other insurance, temporary structures built or assembled on site, including cribbing, scaffolding and construction forms.

Analysis

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. Such items include fixtures, machinery and equipment to service the building, as well as building materials and supplies owned by the insured. (See the theft coverage limitation, that applies to building materials and supplies.) In addition, if temporary structures that are built or assembled on site are not covered by other insurance, they are considered covered property. Temporary structures include cribbing, scaffolding, and construction forms.

The phrase “in the course of construction” is not defined on the form; therefore common usage should prevail. (According to Webster's Third New International Dictionary, “construction” is “the act of putting together to form a complete integrated object; fabrication.”) However, in Patton v. Aetna Ins. Co., 595 F. Supp. 533 (N.D. Miss. 1984), the term was construed to include activities related to, but prior to, actual construction. The case concerned a builders risk policy issued to cover a building scheduled for renovation. At the time of a fire loss, only preparatory work towards the renovation had been done by the insured. This included removing the furnace and lattice work, unhooking the gas and plumbing lines, and engaging in discussions with contractors regarding the lowering of the building. The court determined that since the insured and the insuring company understood that renovation of the house was intended, it was reasonable to interpret “construction” to mean alterations of any type, whether additions or removals. As a result, the activities of the insured were considered to be construction and thereby covered under the provisions of the builders risk policy.

Property Not Covered