April 13, 2015

ISO Form

Summary: The Insurance Services Office (ISO) offers the Builders Risk Coverage Form, IH 00 70 12 13, that is part of its inland marine (IM) program for nonfiled commercial IM exposures. The form is designed to cover building materials, supplies, fixtures and machinery, and equipment used to service the building that is intended to be permanently in or on a building or structure.

Topics covered: Coverage Property not covered Covered causes of loss Additional coverages Exclusions Coverage options Deductible Additional conditions Definitions

Coverage

We will pay for direct physical loss of or damage to Covered Property from any of the Covered Causes of Loss.

1. Covered Property

a.Covered Property means:

(1)The following property provided such property is intended to be permanently in or on the building or structure described in the Declarations:

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

(b)Fixtures and machinery; and

(c)Equipment used to service the building.

Coverage provided under Paragraphs (b) and (c) includes your legal liability for similar property belonging to others;

(2)Foundations of a building or structure described in the Declarations while in the course of construction; and

(3)Temporary structures built or assembled on site, including cribbing, scaffolding and construction forms.

Analysis

This section of IH 00 70 is similar to the commercial property program's Builders Risk Coverage Form, CP 00 20 10 12, insuring agreement, except that IH 00 70 does not cover the actual building under construction. The form promises to pay for direct physical loss or damage to covered property caused by any covered cause of loss.

Three categories of covered property are described. The first category is specific types of property intended to be permanently in or on the building or structure: the insured's building materials and supplies used for construction, fixtures and machinery, and equipment used to service the building.

The question often arises regarding what is meant by “permanently” in relation to the installation of materials, fixtures, equipment, and machinery. Merriam-Webster.com defines “permanent” as “continuing or enduring without fundamental or marked change.” More specific to insurance, property may be considered permanent based on how it is actually attached to or installed in a building. For instance, a washer and dryer in a hotel that was connected by rigid metal pipes, a large drainage pipe, and was directly wired and bolted to the floor may be considered permanent, as opposed to a standard washer and dryer plugged in to an outlet and hooked up to a water hoses or a vent. See Prytania Park Hotel v. General Star Indem. Co., 896 F. Supp. 618 (E.D. La. 1995).

If the listed items are not intended to be permanently in or on the building, they are not covered. For fixtures, machinery, and equipment used to service the building, the insured's legal liability for similar property belonging to others is also covered.

The second type of property covered is the building or structure's foundation while in the course of construction. The building or structure must be described in the declarations for this coverage to apply.

The phrase “in the course of construction” is not defined on the form; 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.

Just considering construction of renovation does not count as “in the course of construction,” as the court found in 38 Sequoia Associates, LLC v. Lumbermen's Mut. Cas. Co., 114 Fed. Appx. 28 (2d Cir. 2004). The insured had intended to commence renovations on the its building, picking up where the previous owners left off and considering it one long event so that the building was in the course of renovation when the loss occurred. The court, though, said that “to commence indicates that something has not yet started,” thus finding that the building was not in the course of construction.

The third type of property covered is temporary structures assembled at the site. These structures would be used in the construction of the building.