(February 2024)
The Builders’ Risk Coverage Form insures the direct damage to the building or structure being
covered. Delay in Completion Coverage complements that coverage in a similar
way that Loss of Income complements direct damage to building and contents
coverage. The Delay in Completion covers
advertising expenses, design fees, additional financing costs, lease
administration expenses, professional fees, and permit fees plus additional
soft costs of interest payments, realty taxes, lease expenses, and insurance
premiums incurred when a project is delayed due to a covered direct loss.
American Association of Insurance Services (AAIS) provides three
different coverage parts to provide this coverage, and each has its own
schedule of coverages.
This analysis will review the IM 7061–Delay in Completion Coverage Part
and its schedule.
IM 7079 and IM 7099 and how they differ from IM 7061 is discussed at the end of this article.
Covered jobsites must be entered in the space provided.
IM 7096–Additional Delay in Completion Schedule is used if the number of jobsites to be covered cannot fit into the
space this schedule provides.
Two coverages are
available. A limit must be entered for each coverage desired. Additional Soft
Costs has spaces for a 30-Day Limit and an Occurrence Limit.
These are limited to Advertising, Design Fees, Financing, Lease
Administration, Permit Fees, and Professional Fees as IM 7061 describes.
These are limited to Insurance Premiums, Interest Payments, Lease Expenses,
and Realty Taxes as
IM 7061 describes.
Sewer Backup Coverage is the only optional coverage available. The box for coverage provided must be checked, and a limit entered in the space provided if coverage is desired. The box for coverage not provided must be checked if coverage is not desired.
There are four
coverage extensions.
Coverage is provided. An entry is not required.
Coverage is provided. An entry is not required.
If more than the two weeks the coverage form provides is needed, the total
number of weeks needed (not just the additional number of weeks) must be
entered in the space provided.
If more than the 30 days the coverage form provides is needed, the total
number of days needed (not just the additional number of days) must be entered
in the space provided.
General
Administration Expenses is the only supplemental coverage. A limit higher than
the $50,000 limit the coverage form includes must be entered in the space
provided.
The number of days
waiting period must be entered in the space provided that a waiting period is
desired and the box checked. The waiting period may be waived by checking the
box so that the waiting period does not apply.
This is not just an
endorsement. It is a coverage part. It opens by stating that its coverage is subject
to the terms and conditions that are part of the specific sections in the
applicable Builders’ Risk coverage form. Those sections are the following:
Because this form can be used with the IM 7054–Builders’ Risk Coverage–Rehabilitation
and Renovation Form a statement is made that when this endorsement is attached
to the IM 7054, the term “building or structure” is replaced by
"rehabilitation and renovation project."
Three definitions
are added.
1. Delay
An interruption in the constructing, fabricating, or erecting a building
or a structure. A covered peril must cause the interruption. Those interruptions
that are due to change in orders, design changes, or other actions and are not
related to direct physical loss or damage due to a covered peril are not
considered delay.
2. Delay period
The amount of time that the construction, fabrication, or erection is
delayed because of a covered direct physical loss. The coverage's expiration
date does not limit the amount of time.
Delay period does not mean any of the following:
3. Expenses and losses
Expenses and costs described under Additional Construction Expenses and
Additional Soft Costs. These apply to only the definition of expenses and
losses if coverage for one or both of these is selected on the schedule of
coverages.
There are two
coverages. They apply if there is an entry for them on the schedule of
coverages.
1. Additional Construction Expenses
a. Coverage
Coverage
applies only for those additional construction expenses incurred during a delay
period.
b. Coverage Limitation
Coverage
is restricted to only those expenses incurred because of a delay related to a
building or structure at a jobsite listed
on the schedule of coverages.
c. Additional Construction Expenses
Reasonable
and necessary expenses that are related to the construction project are covered.
The amount paid is the amount above that which would have been incurred had
there been no delay period. The following are the only covered additional construction
expenses:
Note: This means that expenses for professional
services that began after the loss are excluded even if they were due to the
period of delay and are reasonable and necessary.
d. Limit
The
most paid in any one occurrence is the limit entered on the schedule of
coverages.
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Example: Dave's Delinquent Dwellings (DDD)
constructs single-family homes and small apartment buildings. When a fire
damaged one of its apartment buildings under construction, it delayed it
being ready by three months for the tenants who had already signed leases.
The repairs that had to be done would take three months and require re-doing
the leases based on the original proposed opening date. This coverage applied
to the lease administration expenses DDD incurred to do so. Fortunately,
every lease was re-done, and none of the proposed tenants backed out of their
previous commitments. |
2. Additional Soft
Costs
a. Coverage
Soft costs that are incurred during the delay period are covered.
b. Coverage Limitation
Only those soft costs that are incurred because of a delay that is related
to a building or structure at a jobsite
listed on the schedule of coverages are covered.
c. Soft Costs
Reasonable and necessary expenses that relate to the construction
project and that are over and above those incurred had there been no delay
period are considered soft costs. Only the following soft costs are covered:
d. Interest Payments Do Not Include
Any loss of ownership interest due to a delay
in the project is not considered a covered soft cost.
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Example: A contract,
agreement, or law requires that payment of a finance agreement by a certain
date or equity/ownership will be relinquished. |
e. Limits
There are two limits for this coverage.
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Example: Continuing the example above, Dave's
Delinquent Dwellings (DDD) had to extend its Builders’ Risk Coverage an
additional three months because of the delay, as well as the lease on the
compressors and lifts it rented for this specific project. This coverage
responded to the additional premium to extend the insurance and the additional
rental charge for the equipment. |
Provisions that
Apply to Optional Coverage
There is one optional coverage. Its limit is separate from and not part of the limits that apply to the coverages listed above. It is the only limit available and is not added to the limit for expenses and losses. It is not added to or combined with limits for any other coverage extension or supplemental coverage.
Sewer Backup
1. Coverage
Coverage under this coverage part
extends to apply to those expenses and loss incurred during a delay period
caused by physical loss or damage to covered property caused by or that results from water or
water-borne material due to any of the following:
·
Discharged
through a sewer, drain, sump, or septic tank in any way
·
Below
the ground's surface. Some examples are water or such material that
applies pressure on or flows, seeps, or leaks through or into a covered building
or structure, sidewalk, driveway, foundation, swimming pool, or other
structure.
2. Coverage Limitations
Coverage does not
apply to delay when the loss or damage is caused by or results from the
following:
·
Any
escape from a sump pit that does not have a sump pump
·
Failing
to properly maintain and repair sump pumps and related equipment
·
Failing
to routinely maintain sewers and drains. This includes failing to remove
obstructions in them when the named insured is responsible for such
maintenance.
3. Limit
The most paid in any one occurrence
is the Sewer Backup Limit on the
schedule of coverages.
These four coverage extensions are part of the limits that apply for the coverages listed above, not in addition to them.
1. Expenses to Reduce a Loss
Expenses that the named insured incurs during the delay period that will expedite repairing or replacing the part of the damaged covered property are covered but only for the amount that it actually reduces the amount of loss or damage otherwise payable.
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Example: Continuing the example above, Dave's Delinquent Dwellings (DDD) took advantage of its relationship with its fixture supplier and moved to the top of the supplier's list by paying a $5,000 fee to immediately replace the fixtures destroyed in the fire. Doing so got DDD the replacement fixtures 30 days sooner, reduced the delay to two months, and the lost income loss was reduced by $10,000. Because the fee was less than the benefit obtained, the insurance company paid the $5,000 and saved itself $5,000 by having the delay reduced to two months. This also reduced DDD's Builders’ Risk other charges. |
2. Ordinance or Law
a. Coverage
Ordinances, laws, or decrees may force an additional time delay. If so, this insurance covers expenses and losses related to that additional time delay but only for those ordinances, laws, or decrees that regulate the construction, repair of covered property, or its use. Coverage applies even for laws that require totally or partially demolishing the undamaged property.
b. Coverage Limitations
This coverage does not apply when the law was not in force at the time the loss occurred, or that requires pollutants related action.
3. Interruption by Civil Authority
a. Coverage
Expenses and losses the named insured incurs because a civil authority issues an order that denies access to a covered building or structure is covered.
b. Coverage Limitations
The civil authority's order must be a result of direct physical loss or damage by a covered peril to property that is not at the named insured's jobsite.
c. Time Limitation
This coverage extension is limited
to two consecutive weeks from the order date. This time period can be increased
by entering a different time period on the schedule of coverages.
4. Limited Fungus Coverage
a. Coverage
This very limited coverage extends to the time during which construction is delayed due to a fungus caused direct physical loss or damage to a covered building or structure.
b. Coverage Limitations
The fungus must result from a non-fire or lightning specified peril or flood (if covered) that occurs during the policy period. A further limitation is that the named insured must have taken reasonable steps to protect the property from this type of damage at the time of the specified peril or flood.
Note: The reason damage due to fire or lightning is not covered is because the fungus is covered without limitation when caused by fire or lightning.
c. Time Limitation
The maximum number of days coverage provided is 30 days. The coverage may be needed because only the fungus damage caused the delay or because the fungus increased the time of the delay. Regardless, the maximum number of days, consecutive or not, is 30 unless increased on the schedule of coverages.
There is one supplemental coverage. Its limit is separate from the limits for the coverages listed above, not part of them, and is the only limit available.
General Administration Expenses
1. Coverage
The costs of general administrative and overhead expenses because of additional clerical personnel, security costs, and other expenses incurred during the delay period.
2. Coverage Limitation
The only such expenses covered are those due to a delay in
construction at a listed jobsite.
3. Expenses Means
The expenses must be reasonable and necessary, relate to construction
activities on a covered building or structure, and be over and above those that
would have been incurred had there been no delay period.
4. Limit
The most paid for general administration
expenses in any one occurrence is $50,000, but the limit can be increased on
the schedule of coverages.
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Example: Dave's Delinquent Dwellings (DDD) also had
to pay the costs to have security on the site for two extra months and the
overtime pay to its employees to re-do the leases. DDD paid close attention
to and kept meticulous records of every expense, regardless of the size, and recovered
them from the insurance company. |
These excluded perils are in addition to those in the applicable Builders’ Risk Coverage Form. Any additional expenses, costs, or losses due to an increase in the delay period caused directly or indirectly by, or that result from one or more of the following is not covered. These perils are excluded regardless of any other causes or events contributing to the delay period, either before, during, or after the excluded cause or event.
1. Additional Time
There is no coverage when the reason for the additional time is that any part of a covered building or structure must be replaced or repaired due to any of the following:
Note: These are all indirect, consequential losses that the named insured cannot estimate or control. Several track with corresponding exclusions in the Builders' Risk Coverage Forms.
2. Change Order
Changes, orders, actions, or decisions that result in delays in completing the covered project when they are not associated with a covered direct damage loss.
3. Consequential Loss
Indirect or time element-type losses that follow a direct loss.
4. Customs Regulations
Expenses, costs, or losses due to any import, export, or customs regulations or restrictions.
5. Fire Extinguishment
The costs or expenses to extinguish a fire.
6. Interruption of Utility Service
Any expenses, costs, or losses due to the interruption of any utility service even though needed for a construction, erection, or fabrication project to proceed.
7. Lack of Funds
The inability of the named insured to finance the construction, erection, or fabrication project.
8. Leases, Licenses, Contracts, or Orders
Expenses, costs, or losses resulting from the lease, license, contract, or order being suspended, canceled, or lapsing. The exception is that the loss is covered if their loss was a covered delay.
9. Property Not Covered
Loss or damage to property that is not covered property under the Builders’ Risk Coverage Form.
10. Strikes and Other Interference
Strikers or other persons interfering, at the site of the covered project, with its repairing or the replacing of covered property or resuming the construction activities.
11. Unnecessary Expenses
Expenses, costs, or losses that are considered unnecessary and that cost more than the amount by which the loss is reduced because of them being incurred.
These terms are in
addition to those that may apply in the applicable Builders' Risk Coverage
Form.
1. Due Diligence to
Rebuild or Restore
Only expenses and
losses that occur during the time required to rebuild or restore the damaged
building or structure with similar materials are covered. The named insured
must exercise due diligence and take reasonable steps to minimize the expenses
and losses.
2. Interference and Access
a. Minimize
Interference
The named insured
must minimize interfering with the construction schedule to avoid or reduce
delays.
b. Allow Access
The named insured
must let the insurance company have access to the covered building or structure
to negotiate with any parties involved to do the following:
These terms are in
addition to those that may apply in the applicable Builders’ Risk Coverage
Form.
1. Deductible
Deductibles normally apply only to direct damage losses, so having a
deductible within this endorsement is unusual. Only the Additional Construction
Expenses and the General Administration Expenses are subject to it. These
expenses are combined with the direct damage costs of the builders’ risk
coverage form to meet the coverage form deductible before payment is made.
There remains only a single deductible, and once satisfied, there is no other
deductible for these items.
2. Waiting Period
The soft costs are subject to a waiting period, which is a different
type of deductible. The schedule of coverages must state a number of days. This
endorsement will not pay any soft costs incurred during those initial days.
This condition is
in addition to other terms that may apply in the applicable Builders’ Risk
Coverage Form.
Appraisal for Delay in Completion
If the named insured and the insurance company do not agree on the amount of loss or expenses, the two parties
must work together using Other Conditions–Appraisal
in the applicable Builders’ Risk Coverage Form.
1. IM 7080–Delay In Completion Schedule–Includes Rental Income And
Income Coverage is identical to
IM 7062–Delay In Completion Schedule except that Rental Income and Income
Coverage are listed in the Coverages Section and require both a 30-day limit
and an occurrence Limit.
2. The coverage provided by IM 7079 to IM 7061 is identical except for the rental income and income coverage being provided. The changes due to the addition of those coverages are as follows:
The term Business is added and is defined as the anticipated business or occupancy upon completion of the covered building or structure.
The term Expenses and Losses is modified to be both the expenses and costs described in Additional Construction Expenses and Additional Soft Costs but also the loss of income as described under Rental Income and Income Coverage.
Rental Income is added as a coverage that can be selected
on the schedule of coverages.
The actual rental income that is incurred during the delay period is
covered. However, it is restricted to only the income lost related to the
building or structure at a jobsite listed
on the schedule of coverages. Expenses that do not continue or are not incurred
are deducted from the loss of income before payment is made.
There are two limits. The first is the single 30-day time period, and
the second is a single occurrence limit. No more than the 30-day limit will be
paid in a single 30-day time period. However, no more than the occurrence limit
will be paid for the entire period of the loss.
Income Coverage is added as a coverage that can be selected
on the schedule of coverages.
The actual net income loss that is incurred during a delay period is
paid. There are two types of covered income. The first is the actual loss of
net income that the business that was to occupy the building or structure being
built would have earned. It also pays for continuing expenses normally incurred,
such as payroll expense.
The second type is the loss of income because of a delay related to a
building or structure at a jobsite listed
on
the schedule of coverages.
There are two limits. The first is the single 30-day time period, and
the second is single occurrence limit. No more than the 30-day limit will be
paid in a single 30-day time period. However, no more than the occurrence limit
will be paid for the entire period of the loss.
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Example: Melody’s Best is out six months of rental
income from the proposed tenants because of the loss and the subsequent delay
in opening. This coverage responds to that fact and reimburses Melody’s for
the income it will not receive because of that delay. |
The Intent to Start or Continue Business item
is added that requires the named insured to start or continue work as soon as
possible. This applies only if the named insured plans on doing so following a
loss.
The following
valuation item is added.
The insurance company considers three general areas as it determines an
income coverage loss:
The Waiting Period item is expanded to include loss of rental income and loss of net income.
1. IM 7099–Delay In Completion Schedule–Green Building Form is identical to IM 7080–Delay In Completion Schedule–Includes Rental Income And Income Coverage except that Energy Generating Income is listed on the schedule in the Coverages Section, references are made to the Green Coverage Extension, and a selection can be made for an Alternate Certification Company.
2. The coverage provided by IM 7060 is identical to the IM 7079–Delay In Completion Coverage Part – Includes Rental Income And Income Coverage except for the added green building coverages. The changes due to the green coverage additions are as follows:
Expenses and Losses definition is changed to include loss of income from Energy Generating Income.
The following definitions are added:
Green Certification
A building's certification based on an environmental rating system.
These systems evaluate the building's performance and sustainability through
positive environmental design, operation, and management.
LEED or Green Globes are the standard, but if an alternative
certification is used, that Alternative Certification Company may be entered in
the space provided on IM 7099. A building's certification as green is based on
the environmental rating system that determines the performance and
sustainability of the building through positive environmental design,
operation, and management that company establishes.
Renewable Energy Generating Equipment
Equipment that generates electricity by using renewable resources, such
as solar, wind, geothermal energy, low impact hydro, bio-mass, or bio-gas systems.
Water Conservation System
A water reclamation and conservation system. The plumbing system, underground
pipes and pumps, reservoirs, holding tanks, and structures that collect
rainwater and/or groundwater are all considered part of this system. However, to be considered part of the system, they must
be at or within 500 feet of a covered building or structure and be designed to
circulate gray water, groundwater, or
rainwater to a building's non-potable water supply, an onsite water treatment
facility, or an outdoor irrigation holding facility. Equipment intended solely for
landscape irrigation is not included unless it is part of the overall water
reclamation and conservation system.
The following four
coverages are changed
Green
Coverage Extension is added. This
provides coverage for additional construction expenses incurred during the
delay needed to return the building to the level of green certification that
was incorporated into the building or structure's design.
There
is no coverage for additional time the named insured must use to achieve a
higher certification level.
Professional fees are changed to specifically not provide coverage for such fees incurred for a green certification.
Green
Coverage Extension is added. This
provides coverage for additional construction expenses incurred during the
delay needed to return the building to the level of green certification that
was incorporated into the building or structure's design.
There
is no coverage for additional time the named insured must use to achieve a
higher level of certification.
Green
Coverage Extension is added. This
provides coverage for additional construction expenses incurred during the
delay needed to return the building to the level of green certification incorporated
into the building or structure's design.
There
is no coverage for additional time the named insured must use to achieve a
higher level of certification.
Green
Coverage Extension is added. This
provides coverage for additional construction expenses incurred during the
delay needed to return the building to the level of green certification incorporated
into the building or structure's design.
There
is no coverage for additional time the named insured must use to achieve a
higher level of certification.
Energy Generating Income is added as a new coverage
The actual loss of surplus power income incurred during the delay period is
covered. This only applies if a direct physical loss or damage by a covered
peril to a building or structure delays the renewable energy generating
equipment from becoming operational.
The surplus power income includes both credits and rebates.
Coverage only applies if the damaged building or structure is on the jobsite listed on the schedule of coverages.
Coverage only applies if the named insured had a documented plan that
explained how the surplus power would be generated and how it would be sold
before the loss occurred.
Note: Hopes and dreams are not covered.
Surplus Power is defined as income the named insured expected to earn
for transferring surplus electricity from its renewable energy generating
equipment to a public utility.
The most paid in a single occurrence is the Energy Generating Income
Limit on the schedule of coverages.
General
Administration Expenses is modified by the Green Coverage Extension, which provides coverage for additional construction
expenses incurred during the delay needed to return the building to the level
of green certification that was incorporated into the building or structure's
design.
There is no coverage for additional time the named insured must use to
achieve a higher level of certification.
Waiting Period is changed by adding the loss of energy generating income into the descriptive paragraph.