(April 2015)
The American
Association of Insurance Services (AAIS) IM 7079–Delay in Completion Coverage
Part–Includes Rental Income and Income Coverage provides delay in completion
coverages for additional construction expenses. This consists of Advertising
Expenses, Design Fees, Additional Financing Costs, Lease Administration
Expenses, Professional Fees, and Permit Fees. It includes additional soft costs
of Interest Payments, Realty Taxes, Lease Expenses, and Insurance Premiums. It
also includes Rental Income and Income Coverage. It is written in conjunction
with any of the AAIS Builders' Risk Coverage Forms.
IM 7079 has one
schedule used in conjunction with the schedule of coverages used with the
applicable Builders Risk Coverage Form.
IM 7080–Delay in Completion Schedule–Includes Rental Income and Income Coverage
states the coverages that apply, their limits, optional coverages, coverage
extensions, supplemental coverages, and the waiting period (if any).
This analysis is of
the 01 12 edition of IM 7080 and the 09 11 edition of IM 7079. The one major
change in each form is in bold print. There
are a number of minor editorial changes that do not affect coverage. They are
not illustrated in this analysis.
Policy
Number (01 12 addition)
The 01 12 edition added a space to enter the
policy number.
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.
Four coverages are
available. A limit of insurance must be entered for each
coverage desired. The limit for Additional Construction Expenses is the
most paid in any one occurrence. Additional Soft Costs, Rental Income, and
Income Coverage each require an entry for both 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 7079 describes.
These are limited to Insurance Premiums, Interest Payments, Lease
Expenses, and Realty Taxes as IM 7079 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.
Waiting
Period
The number of days
waiting period must be entered in the space provided if a waiting period is
desired and the box is checked. The waiting period may be waived by checking
the box for waiting period does not apply.
This is not just an
endorsement. It is a coverage form. 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:
A separate note
states that the references in those sections in IM 7054–Builders’ Risk
Coverage–Rehabilitation and Renovation Form to “building or structure” are
replaced by "rehabilitation and renovation project."
Four definitions
are added.
This means the
expected business or occupancy in the covered building or structure when
construction is completed.
2.
Delay
This is an
interruption in constructing, fabricating, or erecting a building or structure.
A covered peril must cause the interruption. Interruptions due to change
orders, design changes, or other actions that are not related to direct
physical loss or damage that are the result of a covered peril are not
considered delay.
3.
Delay period
This is the amount
of time construction, fabrication, or erection is delayed because of direct
physical loss or damage a covered peril causes. The coverage's expiration date
does not affect this period.
Delay period does
not mean any of the following:
4.
Expenses and losses
This definition
applies only if one or more of the following is selected on IM 7099–Delay of
Completion Schedule.
Expenses and losses
are both the expenses and costs entered under Additional Construction Expenses,
Additional Soft Costs and the loss of income under Rental Income, and Income
Coverage.
There are four
coverages. Only the coverages selected on IM 7080 apply.
1.
Additional Construction Expenses
a. Coverage
Coverage applies
for only 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
delay to a building or structure at a jobsite listed on IM 7080.
c. Additional
Construction Expenses
These are only
expenses that relate to the construction project that are both reasonable and
necessary. The amount of the expense paid is the amount above that which would
have been incurred if there was no delay period. The following are the only
covered 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 IM 7080.
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Example: A sudden, violent windstorm seriously
damages the strip shopping center that Keystone Konstruction
& Kontracting (KK&K) is building. KK&K
plans to occupy the end unit for its office operations and set up a contractor's
yard on the land adjoining it when construction is completed. The repairs and
replacements needed push the project back six months. KK&K has to re-do
the leases previously done for some of the spaces. This coverage applies to
the lease administration expenses KK&K incurs to do so. KK&K is
extremely pleased when none of the prospective tenants change their minds,
despite the additional six-month wait. |
a. Coverage
This is coverage
for soft costs incurred during the delay period.
b. Coverage
Limitation
Coverage is
restricted to only those soft costs incurred because of a delay related to a
building or structure at a jobsite listed on IM 7080.
c. Soft Costs
These are the
reasonable and necessary expenses that relate to the construction project over
and above those incurred if there was no delay period. The following are the
only covered soft costs:
d. Interest Payments Do Not Include (09 11
addition)
A delay may
cause the named insured to forfeit or lose a part of ownership interest in a
project for any reason. In that case, there is no coverage for that loss as
additional soft costs coverage. An
example of this might be when a contract, agreement, or law requires paying 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, Keystone Konstruction & Kontracting
(KK&K) reluctantly extended its Builders' Risk Coverage for six months
because of the delay, as well as the leases on the equipment it rented for
this project. Fortunately for KK&K, this coverage responded to the
additional premium to extend the insurance and the additional rental charges
for the leased equipment. |
a. Coverage
The insurance
company pays for the actual loss of rental income incurred during the delay
period.
b. Coverage
Limitation
Coverage is
restricted to only the rental income lost because of a delay related to a
building or structure at a jobsite listed on IM 7080.
c. Deduction
from Loss of Rental Income
Unincurred or unnecessary expenses that do not
continue due to a delay are deducted from the loss of rental income.
d. Limits
There are two limits for this coverage.
a. Coverage
The insurance
company pays for the actual loss of net income incurred during the delay
period.
Note: Net income is net profit or loss before
income taxes.
b. Coverage
Limitation
Two types of loss
of income are covered.
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
that are 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 IM 7080.
c. Limits
There are two limits for this coverage.
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Example: Continuing the example above, Keystone Konstruction & Kontracting
(KK&K) is also 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 KK&K for the income it will not
receive because of that delay. |
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 a single occurrence is the Sewer Backup Limit on IM 7080.
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
The insurance company pays expenses the named insured incurs during the delay period that are necessary to expedite repairing or replacing the part of covered property that sustained direct physical loss or damage. However, this is only to the extent that it reduces the amount of loss or damage otherwise payable.
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Example: Continuing the example above, Keystone Konstruction & Kontracting (KK&K) is presented with a timely opportunity it cannot refuse. A building supplies dealer who is a close personal friend of KK&K's owner tells him that he is swamped with orders but offers to fill KK&K's order within 30 days instead of the normal 60 days if he pays $10,000 for the privilege. This helps the supplier get over a short-term cash-flow problem but also helps KK&K because it means a savings of over $20,000 to get the project done in five months instead of six. Because the expenditure is far less than the benefit obtained, the insurance company pays $10,000 and saves itself $10,000 by having the delay reduced by a complete month. |
a. Coverage
Ordinances, laws, or decrees may force an additional time
delay. In that case, this insurance covers expenses and losses related to that additional
time delay but only if the ordinances, laws, or decrees regulate construction,
repair of covered property, or its use. Such laws could even require totally or
partially demolishing undamaged property.
b. Coverage Limitations
This coverage does not extend to include delay caused by enforcing any law that was not in force when the loss occurred or that requires any action with respect to pollutants.
3.
Interruption by Civil Authority
a. Coverage
This insurance extends to expenses and losses the named insured incurs when a civil authority issues an order that specifically denies access to a covered building or structure.
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 date of the order. This time period can be increased by entering a different time period on IM 7080.
4.
Limited Fungus Coverage
a. Coverage
Coverage applies to expenses and losses the named insured incurs due to delays caused by or that result from direct physical loss or damage to a covered building or structure caused by fungus.
b. Coverage Limitations
Coverage is provided only if the fungus results from a specified peril or flood (if covered) that occurs during the policy period. Coverage applies only if the named insured took reasonable steps to protect the property from additional damage when the loss occurred.
Note: This Coverage Extension does not apply if the damage is due to fire or lightning. This is because the basic coverage form does not exclude fungus when it is due to fire or lightning.
c. Time Limitation
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 for it.
a. Coverage
This supplemental coverage applies to the costs of general administrative and overhead expenses for additional clerical personnel, security costs, and other expenses incurred during the delay period.
b. Coverage Limitation
The only such expenses covered are those due to a delay in
construction at a jobsite listed on IM
7080.
c. Expenses
Means
These are the
reasonable and necessary expenses that relate to construction activities on a
covered building or structure over and above those that would have been incurred
if there was no delay period.
d. Limit
The most paid for
general administration expenses in any one occurrence is $50,000 unless there
is a different limit on IM 7080.
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Example: Keystone Konstruction
& Kontracting (KK&K) realizes it will have
to maintain security on the jobsite for an extra five months and pay its
employees overtime wages to re-do the leases and deal with all the little
related nuisances that also cost money. KK&K pays close attention to and
keeps meticulous records of every expense, regardless of the amount, and
recovers every dollar it had coming from the insurance company. |
These excluded perils are in addition to those in the applicable Builders' Risk Coverage Form. The insurance company does not pay for 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 them. This is regardless of any other causes or events that contribute to the delay period, either before, during or after the excluded cause or event.
1.
Additional Time
Coverage does not apply to the additional time required to repair or replace any part of a covered building or structure due to 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
There is no coverage for changes, orders, actions, or decisions that result in delays in completing the covered project that are not associated with a loss that a Builders Risk Coverage Form insures.
3.
Consequential Loss
These are indirect or time element-type losses that follow a direct loss and are excluded.
4.
Customs Regulations
The insurance company does not pay expenses, costs, or losses due to any import, export, or customs regulations or restrictions.
5.
Fire Extinguishment
Coverage does not apply to the costs or expenses to extinguish a fire.
6.
Interruption of Utility Service
There is no coverage for expenses, costs, or losses due to interruption of any utility service needed in order for a construction, erection, or fabrication project to proceed.
7.
Lack of Funds
This is simply the named insured's inability to secure the funds necessary for the construction, erection, or fabrication project and is excluded.
8.
Leases, Licenses, Contracts, or Orders
The insurance company does not pay expenses, costs, or losses caused by or that result from any lease, license, contract, or order being suspended, cancelled, or lapsing. However, it does cover such losses if they result directly from a covered delay.
9.
Property Not Covered
Coverage does not apply to loss or damage to property that the applicable Builders' Risk Coverage Form does not insure.
10.
Strikes and Other Interference
There is no coverage when strikers or other persons interfere with repairing or replacing covered property or resuming construction activities at a covered project.
11.
Unnecessary Expenses
There is no coverage for expenses, costs, or losses that are unnecessary and that are more than the amount by which they reduce a loss.
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.
Intent to Start or Continue Business
If the named
insured plans to start or continue the business after a covered loss, it must
do so as soon as possible.
3.
Interference and Access
a. Minimize
Interference
The named insured
must minimize interfering with the construction schedule in order 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:
VALUATION
The insurance
company considers three general areas as it determines an income coverage loss:
These terms are in
addition to those that may apply in the Builders' Risk Coverage Form that
applies.
The deductible
provisions in the Builders' Risk Coverage Form that applies include covered
expenses as described under Coverages 1. Additional
Construction Expenses and Supplemental Coverages–General Administration
Expenses.
If there is a
waiting period, the insurance company does not pay additional soft costs, loss
of rental income, or loss of net income until the number of days entered on IM
7080 pass.
This condition is
in addition to other terms that may apply in the applicable Builders' Risk
Coverage Form.
Appraisal for Delay in Completion
This condition applies in conjunction with this coverage part. If the named
insured and the insurance company do not agree on the amount of loss or
expenses, they are determined according to Other Conditions–Appraisal in the
applicable Builders' Risk Coverage Form.