ISO Builders Risk Coverage Form

ISO BUILDERS RISK COVERAGE FORM ANALYSIS

(April 2024)

 

Introduction

Policy Construction

IH DS 70–Builders Risk Declarations

IH 00 70–Builders Risk Coverage Form Analysis

Introduction

A. Coverage

   1. Covered Property

   2. Property Not Covered

   3. Covered Causes of Loss

   4. Additional Coverages

   5. Additional Coverage

   6. Coverage Options

B. Exclusions

C. Limits of Insurance

D. Deductible

E. Additional Conditions

F. Definitions

Endorsements

Underwriting Considerations

INTRODUCTION

The Insurance Services Office (ISO) Builders Risk Coverage Form insures primary buildings that are being built. The building is covered as it is being built as well as property that is intended to become a permanent part of the final project. Coverage may be written on a reporting or non-reporting basis.

POLICY CONSTRUCTION

Builders Risk Coverage requires at least the following six forms:

Related Article: IL 00 17–Common Policy Conditions Analysis

Related Article: CM 00 01–Commercial Inland Marine Conditions

IH DS 70–BUILDERS RISK DECLARATIONS (05 17 change)

The advisory Builders Risk Declarations does not have spaces for the named insured, its mailing address, and other named insured information, the policy period, or the description of the insured business. That information is on the Common Policy Declarations. IH DS 70 contains the following information:

Insurance Company and Producer Name

The name of the insurance company that provides the coverage and the name of the agent or broker that produces the business are entered in the spaces provided.

Construction Project

Only property that is part of the described construction project is covered. Many coverages are only provided while the property is at the described jobsite, so it is very important to complete the following information very precisely.

Limits of Insurance

Limits of insurance must be entered for the following items:

o    Ground Up Construction

o    Renovations

o    Existing Building or Structure

Note: This applies only if IH 70 04–Existing Building or Structure Coverage or IH 70 05–Existing Building or Structure with Limited Collapse Coverage is attached.

Note: This is similar to a catastrophe limit. There is no specific explanation in the coverage form as to how this limit works, though.

Additional Coverages

All of the following additional coverages apply at a defaulted limit in the coverage form. This area is used to change that default to a different limit.

The limits entered for this first grouping are sublimits of the Property at the Jobsite limit. This means that if these defaults are increased significantly, that jobsite limit should also be increased, or not all coverages may be provided as anticipated.

o    Revised Limit – the default is $15,000

o    Business Income/Extra Expense–Revised Number of Days – the default number of days is 30

o    Separate Locations – if yes, the separate locations must be entered

The limits entered for this second grouping are separate and independent limits that have no impact on the coverage limits of Property at the Jobsite:

·         Business Personal Property – the default limit is $25,000

·         Claim Preparation Costs – the default limit is $10,000

·         Contractual Penalties – the default limit is $10,000

·         Expediting Expenses – $25,000

·         Extra Expense – $25,000

·         Fire Department Service – the default limit is $10,000

·         Fire Extinguishing Systems Expense – the default limit is $10,000

·         Lawns, Trees, Shrubs and Plants – the default limit is $25,000 per occurrence and $1,000 per item

·         Pollutant Cleanup and Removal – the default limit is $25,000

·         Preservation of Property Expense – the default limit is $10,000

·         Temporary Structures Expense – the default limit is $25,000

·         Trailers and Contents – the default limit is $25,000

·         Valuable Papers and Records – the default limit is $10,000

Optional Coverages

Soft costs, Business Income and Rental Value per occurrence must be entered if desired. The occurrence limit is subject to any entered monthly aggregate Limits, but these are optional.

Builders Risk Policy Limit of Insurance

A place to enter this limit is available, but there is no statement about the limit in the coverage form. It could be a catastrophe-type limit that caps the insurance company’s liability, but there is no statement about how this is to be used. An entry made in this area should be handled with extreme caution because it could be used as a cap over all of the coverages provided in the coverage form, plus all coverages provided in any attached endorsements.

Coinsurance

This section has a space to enter the coinsurance percentage that triggers the coinsurance additional condition if coinsurance applies.

Existing Building or Structure

Note: This applies only if IH 70 04–Existing Building or Structure Coverage or IH 70 05–Existing Building or Structure with Limited Collapse Coverage is attached.

A check in the box changes the valuation of that existing building or structure from ACV to Replacement Cost.

Deductible

This section has spaces to enter the amount of deductible that applies to the following:

Rates and Premiums–Non-reporting

The following entries are made when coverage is written on a non-reporting basis:

Rates and Premiums–Reporting

The following entries are made when coverage is written on a reporting basis:

Special Provisions

Any special provisions are entered in the space provided.

IH 00 70–BUILDERS RISK COVERAGE FORM ANALYSIS

This analysis is of the 05 17 edition. Changes from the previous edition are in bold print.

Introduction

This section encourages carefully reading the entire coverage form to determine what is covered, what is not covered, rights, and duties. It defines we, us, and our as the insurance company that provides this insurance coverage. It also defines you and your as the named insured on the declarations. The reader is also pointed to the Definitions section because certain words or terms used in the form have a more broadened or restricted meaning.

A. Coverage

The insurance company pays for direct physical loss or damage to covered property, but only when that loss is from a covered cause of loss.

1. Covered Property (05 17 change)

a. The following is covered property but only while it is at the jobsite of the project described in the declarations:

Description: Description: Cabin_1

Example: Carol acts as her own general contractor for constructing her new home and purchases builders risk coverage for the project. The construction materials and supplies arrive, and she keeps them in a shed awaiting the construction crew’s arrival. A sudden severe windstorm destroys the shed and $35,000 worth of the building materials and supplies. The materials and supplies are all intended to become part of the house, are considered covered property, and the loss is covered.

b. The items in a. above are covered while at a temporary storage location and while in transit.

c. Coverage ends on the earliest date that one of the following occurs:

 

Description: Description: ApartmentConst

Example: Ace Construction finishes building a 30-unit apartment building for Heartland Communities. Heartland accepts the property and makes its final payment to Ace but delays placing the building in its insurance program because none of the units are occupied, and Heartland thinks its insurance company will treat the building as vacant. It assumes that Ace's coverage will apply until the tenancy is established because Ace has not yet removed its construction debris from the premises. Vandals start a fire in the debris pile that scorches and damages the building’s exterior wall. This loss is not covered because Heartland accepted the property, and Ace no longer had a financial interest in the project.

2. Property Not Covered

The following described property is excluded:

a. Any existing building or structure.

Note: This is particularly important for any renovation work because that structure is never covered unless special arrangements are made. IH 70 04–Existing Building or Structure or IH 70 05–Existing Building or Structure with Limited Collapse Coverage would need to be attached.

Example: Ace Construction now turns its attention to renovating an older multi-story apartment building. Ace's builders risk policy is written correctly for the value of the renovations and improvements. The building’s owner mistakenly assumes that Ace covers the residual value of the building and the value of the improvements. A violent windstorm blows down some scaffolding and forms as well as a large part of an existing exterior wall. Ace's insurance company responds to the loss of the forms and scaffolding but not the loss to the wall.

b. Bodies of water or land. Land includes the land where the property is located.

c. Lawns, plants, shrubs, or trees

d. Tools and equipment of contractors

3. Covered Causes of Loss

Covered causes of loss are direct physical loss or damage to covered property with the exception of causes of loss that are listed in the exclusions section.

4. Additional Coverages

Note: It is confusing, but there are two sections of additional coverage. Item 4. Additional Coverages is part of the limit of insurance while Item 5. Additional Coverages is not.

The following additional coverages are provided within the limits of insurance and not in addition to those limits. This means that any amounts paid out for these items will reduce the limits available to pay for other losses in the occurrence. The only exception is limits provided in the Debris Removal Coverage.

a. Below Ground Water and Backup of Sewer and Drain (05 17 addition)

Water or waterborne material damage to covered property is covered when water or waterborne material does any of the following:

This coverage requires that the named insured keep up maintenance or repair of sump pump and equipment and also keeps the sewers and drains obstruction free. No payment will be made if the named insured does not do so.

Any loss due to the sump pump not working because of power failure is not covered.  

The most paid is $25,000 per occurrence. This limit can be increased.

b. Debris Removal (05 17 change)

Coverage applies to the costs to remove the debris of covered property from a covered loss at a described premises. The expenses must be reported to the insurance company in writing within 180 days of the date of loss. The most paid is the lesser of 25% of the following:

An additional $10,000 is available to pay for debris removal if either of the following apply:

Costs to extract pollutants from land or water or remove, restore, or replace polluted land or water are not covered under this Additional Coverage.

c. False Pretense (05 17 addition)

When the named insured, its agents, consignee, or customer voluntarily gives away covered property because they have accepted a fraudulent bill of lading or due to any other type of trick, scheme or similar type of con game, coverage applies for up to $25,000 per occurrence. The limit can be increased.

The only exception is when the perpetrator of the fraud or con is an employee.

d. Limited Coverage for Fungi, Wet Rot, and Dry Rot

(1) Coverage applies only if the fungus, wet rot, or dry rot results from a specified cause of loss or flood, if flood coverage is provided. Fire and lightning losses are excepted from B. Exclusions 1. Primary Exclusions g. Fungus, Wet Rot, or Dry Rot. As a result, this Additional Coverage excludes losses that result from them.

This coverage also applies only if the named insured takes all reasonable steps to prevent further damage to property during or following a loss.

(2) Loss or damage includes more than the direct damage to the property by the fungus, wet rot, or dry rot. It also includes the costs to remove them, as well as the costs to tear out and replace walls and other parts of the building to gain access to the problem area. Any testing necessary to verify the property is clean and the situation mitigated is also covered.

(3) The limit of insurance for this coverage is an aggregate limit of $15,000 per policy year. This means that the limit for the policy year is $15,000, regardless of the number of locations and occurrences. There is no additional limit available once the limit is exhausted. If the condition continues over multiple policy years, the limit available in the policy year when the loss occurred that caused the fungus, wet rot, or dry rot is the only limit that applies.

The limit can apply per premises but is still an aggregate limit per policy year. This option is available if it is selected on the declarations.

(4) The $15,000 limit is a sub-limit. It does not increase the limit of insurance.

(5) If business income and/or extra expense coverage is provided, this Additional Coverage provides coverage in two different situations:

Example: A tornado strikes the Ace Construction warehouse and badly damages the building and some of the contents inside. Out of fear that the building might collapse because of the heavy damage, Ace moves all undamaged property outside under a temporary shelter it erects and under some protective tarps. Despite all these efforts, some property develops mold that must be mitigated and removed. Subject to this coverage’s sub-limit of insurance, the costs to mitigate and remove the mold are covered.

e. Rewards (05 17 addition)

The insurance company reimburses a reward that is paid by the named insured for up to $10,000 per occurrence, subject to the following conditions:

f. Site Preparation Costs (05 17 addition)

This additional coverage recognizes that the building cannot start until the site is properly prepared following a loss. The costs the named insured incurred for the site preparation, such as excavating, filling, backfilling and other types of activities needed to prep the site, are covered. This applies only to the jobsite shown on the declarations.

Note: Because of the wording, being specific to a specific jobsite coverage may be denied when the building at a described jobsite is not permitted, and the building must take place at another jobsite.

g. Testing (05 17 addition)

When covered equipment sustains a mechanical breakdown during any testing, the loss or damage to covered property is paid for up to $50,000. This applies only when the equipment is at the jobsite.

Example: The boiler is put under pressure as a test. Unfortunately, the test was unsuccessful, and damage to the boiler and surrounding property occurred. Exclusion 2.l would exclude coverage for this loss, but this additional coverage will pay up to $50,000.

5. Additional Coverages

Note: It is confusing, but there are two sections of additional coverage. Item 4. Additional Coverages is part of the limit of insurance while Item 5. Additional Coverages is not.

The following additional coverages provide additional limits that are not within the limits of insurance and do not reduce the amounts available to pay for other losses in the occurrence.

a. Business Personal Property (05 17 addition)

Five types of personal property are covered. The property must belong to the named insured or be property belonging to others for which the named insured is legally liable. The covered personal property is:

These are covered only as a part of the described construction project and when damaged by a covered cause of loss. Coverage applies while it is at the described jobsite, in transit or while at a temporary storage location. This property is not covered if it is to become a permanent part of the building project.

The limit of insurance is $25,000 unless increased on the Declarations.

b. Claim Preparation Costs (05 17 addition)

Gathering the information to file a claim can be an expensive proposition. This additional coverage provides up to $10,000 to cover them. Only those costs that are considered both reasonable and necessary are covered. The costs must be related to loss or damage to covered property by a covered cause of loss.

Even if they meet the requirement above, the fees or expenses from the following are not covered:

c. Contractual Penalties (05 17 addition)

This coverage applies only when the first named insured is the general contractor for the project described on the declarations.

Penalties stated in the contract for the described project on the Declarations between the first named insured and its customer are covered. To be paid, the penalty must meet all of the following criteria:

The most paid is $10,000 per occurrence, but the limit can be increased.

d. Expediting Expense (05 17 addition)

When a covered loss occurs a certain amount of time is required to complete the repairs or replace the covered property. This additional coverage pays extra expenses incurred to reduce the “standard” amount of time needed for the repairs or replacement. Those extra expenses paid are for both of the following:

The most paid is $25,000 per occurrence, but the limit can be increased.

e. Extra Expense (05 17 addition)

After a covered cause of loss has damaged covered property there is a period of restoration. This additional coverage pays for expenses incurred by the named insured to reduce or avoid entirely the suspension of the named insured‘s operations.

The most paid is $25,000, but the limit can be increased.

If extra expense is more specifically covered elsewhere this coverage is not in addition to that other coverage.

f. Fire Department Service Charge (05 17 change)

The insurance company pays up to $10,000 when the fire department is called to save or protect covered property from a covered cause of loss. The limit can be increased. The limit applies regardless of the number of responding fire departments, fire units, or the number or type of services performed.

This coverage applies to only the named insured's liability for fire department service charges it either contractually assumes before a loss occurs or that a local ordinance or law requires.

This Additional Coverage is not subject to a deductible.

g. Fire Extinguishing Systems Expense (05 17 addition)

When a fire extinguishing system or handheld extinguisher is discharged due to a covered cause of loss, up to $10,000 is available to pay for its recharging or replacement. The cost of hydrostatic testing is included in this coverage.

When a fire extinguisher system accidentally discharged, up to $10,000 is available to pay for loss or damage to covered property due to that discharge.

There is no coverage if any such discharge happens during testing or installation. 

The limit is per occurrence and can be increased.

h. Lawns, Trees, Shrubs, and Plants (05 17 change)

Loss or damage to lawns, trees, shrubs, and plants intended for the described construction project is covered. This coverage applies to only loss or damage caused by or that result from specified perils. There is a limitation that the wind and weight of snow, ice, or sleet are not covered causes of loss.

The items are covered while at the jobsite, a temporary storage location or while in transit.

The most paid in a single occurrence is $25,000, regardless of the type or number of items involved, but not more than $1,000 for any one tree, shrub, or plant. The limits can be increased.

i. Pollutant Clean Up and Removal

The insurance company pays to clean up pollutants caused by or resulting from a covered cause of loss that occurs during the policy period. The most paid is $25,000 per premises as an aggregate amount during each separate 12-month policy period. The expenses are paid only if they are reported to the insurance company in writing within 180 days of the date of loss.

This coverage does not apply to costs to evaluate the presence or effects of pollutants. However, it does pay for testing that is part of the extracting of pollutants process from either land or water.

The limit can be increased.

j. Preservation of Property Expense (05 17 addition, change, and removal)

Note: The Preservation of Property additional coverage has been eliminated, and this Additional Coverage that covers only the expense to do so is added. The prior form did not cover the expense, so it is a bonus, but this version does not provide the expanded coverage that is part of the Preservation of Property. The coverage for the property being moved would be under the Transit coverage and the Temporary Storage location coverage.

Covered property may need to be moved from an insured location to prevent damage by a covered cause of loss. In that case, the insurance company pays up to $10,000 per occurrence for the costs incurred by the named insured to place it in temporary storage and the costs to move it there.

The maximum time away is 90 days.

k. Temporary Structure Expense (05 17 addition)

When a covered cause of loss causes damage to covered property other than temporary structures, the cost to re-erect the temporary structure is covered for up to $25,000 in a single occurrence.

Example: The windstorm tore off part of the brickwork and other exterior finish on the building that had almost been finished. The cost to repair the damage to the brickwork and finish is covered, and this coverage pays to re-erect the needed scaffolding.

l. Trailers and Contents (05 17 addition)

Trailers and their contents are covered while on the construction project. The trailer can be leased, rented, or owned and can be either an office or a construction trailer. Nothing that is meant to become a permanent part of the building project is covered. In addition, valuable papers are also not covered.

The limit of insurance is $25,000 per occurrence, but can be increased.

Note: This is a per occurrence limit and not a per trailer limit. It is important to determine how many trailers could be damaged in a single occurrence and the value of personal property in the trailers.

m. Valuable Papers and Records (05 17 addition)

The costs the named insured incurs to research, restore, and replace the information lost when valuable papers or records are part of the construction project were damaged or lost by a covered cause of loss. The valuable papers and records can be in any media, including electronic media.

The limit of insurance is $10,000 per occurrence. This limit can be increased.

6. Coverage Options

a. Earthquake-Volcanic Eruption (05 17 change)

The parts of the Earth Movement exclusion that are in conflict with this coverage option do not apply when a limit for Earthquake-Volcanic Eruption is on the Declarations.

Earthquake and Volcanic Eruption are added as a covered cause of loss. A volcanic eruption is defined as not only the eruption but also the explosion or effusion of a volcano. Volcanic and earthquake occurrences include all shocks that occur within 168 consecutive hours. The policy’s expiration date does not reduce this period as long as the event began before the policy expired.

The limit provided is within the limits and not in addition to the limits of insurance. It is also an aggregate limit so that only the remaining limits available after the first earthquake loss can be used to pay for any subsequent loss.

b. Water Damage

The parts of the Water exclusion that conflict with this coverage option do not apply when a limit for Water damage is on the Declarations. The limits provided are within the limits and not in addition to the limits of insurance. An occurrence limit and a separate 12-month aggregate limit can be entered. This means that only the remaining aggregate limits available after the first water damage loss can be used to pay for any subsequent loss. If only one occurrence limit is entered, it becomes the aggregate limit, too.

Water damage is added as a covered cause loss. It is defined as flood, surface water, waves, tidal water, tides, and the overflow of a body of water or spray from any of the proceeding. It is also mudslide or mudflow.

B. Exclusions

1. Primary Exclusions

The first group of exclusions applies whether or not the loss event results in widespread damage or affects a significant geographical area and is essentially absolute. Subject to specific exceptions, each is totally excluded, regardless of any other cause or event contributing to a loss, either concurrently or in any other sequence. The insurance company does not pay for any direct or indirect loss or damage caused by or that results from any of these events.

Related article: Concurrent Causation and Anti-concurrent Causation Clauses–A Discussion

a. Ordinance or Law

This exclusion applies to enforcing or complying with any law or ordinance that regulates either how property can be constructed, used, or repaired or that requires a property to be torn down. The exclusion also applies to any associated debris removal.

This exclusion applies even if the loss or damage is from a law or ordinance that must be enforced despite the fact that the property was not damaged or when a law or ordinance is enforced during the constructing, repairing, renovating, remodeling, or demolishing of property following its physical loss or damage.

b. Earth Movement

Earth Movement consists of five separate components:

(1) Earthquake includes any sinking, rising, or shifting of the earth directly related to the earthquake. 

(2) Landslide includes any sinking, rising, or shifting of the earth directly related to the landslide.

(3) Mine Subsidence applies to only man-made mines and applies whether the mine is operating or not. Mine subsidence coverage is an option that may be purchased separately. In some states, mine subsidence coverage is required to be offered in certain counties. If coverage applies to property located in Illinois, Indiana, Kentucky, Pennsylvania, or West Virginia, the laws in those states should be reviewed carefully to determine the way to properly handle this exposure.

(4) Sinkhole Collapse is covered but all other sinking, rising, shifting, eroding, contracting, or expanding of the earth is excluded. Loss or damage caused by or resulting from water movement beneath the ground and poor soil conditions is also excluded.

However, if any of the events described in (1)-(4) above cause or result in a fire or explosion, the insurance company pays for the ensuing loss or damage the fire or explosion causes.

(5) Volcanic eruption is not covered unless fire, breakage of building glass, or volcanic action ensues. Volcanic action includes airborne blasts and shockwaves, dust, ash, and particulate material the volcano emits, as well as lava flow. The costs to remove dust, ash, and particulate matter is excluded unless there is direct damage to the covered property.

Volcanic eruptions are unpredictable, cause widespread damage, and usually occur over a period of days. An eruption that takes place over a period of 168 consecutive hours is treated as one occurrence. This is very important to an insured that has a substantial deductible for this coverage. Instead of a number of deductibles applying to multiple events, only one deductible applies to each 168-hour period. On the other hand, this also means that only one limit is available for all losses that occur within that same time period.

All aspects of this exclusion apply regardless of whether nature or any other force causes the event.

The following property is not subject to this exclusion:

c. Governmental Action

This exclusion applies to the legal and authorized seizure or destruction of property by a government entity’s order. There is one exception. Loss or damage that is caused when the governmental entity orders property to be destroyed is covered if used as a method to prevent a fire from spreading is covered. However, this exception applies only if the fire being contained would have been a covered fire under this coverage form.

d. Nuclear Hazard

Nuclear reaction, radiation, or radioactive contamination is not covered. There is an exception. If a fire results from the nuclear reaction, radiation or radioactive contamination there is coverage for the direct loss or damage caused by that fire.

e. War and Military Action

This exclusion lists three specific warlike activities.

f. Water (05 17 change)

Loss or damage caused by the action of water outside the building is excluded. To clarify this exclusion further, it is broken down into five separate components. Each defines exactly what water means.

(1) Flood is excluded. Flood is surface water, tides, tidal water, and waves. Waves include tidal waves and tsunami. Overflow of any body of water is also excluded. A body of water is a natural or man-made river, creek, ocean, or lake. Spray from any of the above, wind-driven water, and storm surge are also excluded.

(2) Mudslide and mudflow occurs when a sudden large volume of water mixes with unstable soil conditions and is excluded.

(3) Water backing up, overflowing or being discharged in any way from a sewer or drain is not covered. Such backing up, overflowing or discharging of water from a sump, its pump, or related equipment is also excluded

(4) Water saturated ground can create hydrostatic pressure against a building's surface or subsurface portions. Loss or damage caused by or that results from such water that enters through foundations, walls, floors, paved surfaces, basements, doors, windows, and other building openings is excluded.

(5) Damage caused by waterborne material that is carried by waters described in (1), (3), and (4) above is also excluded. Such material moved or carried by mudslides or mudflow described in (2) above is also excluded.  

ISO adds a paragraph that explains when this entire exclusion applies. It applies whether any of the events are caused by an act of nature or otherwise. To clarify the term "otherwise," ISO provides an example that uses the terms “dam,” “seawall," "levee," "boundary" or "containment system" and states that any of them failing to contain the water is an "otherwise" type situation. However, it is important to note that using this example format does not limit the exclusion to failure of only those specific items. The goal is to define the term "otherwise" as broadly as possible.

Much like other exclusions, if fire or explosion occurs because of any action of water, coverage applies to the loss or damage the fire or explosion causes. In addition, if a sprinkler leakage loss occurs due to these actions of water, coverage applies to the loss or damage the sprinkler leakage causes. Sprinkler leakage coverage applies only if sprinkler leakage is a covered cause of loss on the coverage form or policy.

g. Fungi, Wet Rot, and Dry Rot

This is loss or damage caused by or that results from the existence or any activity of fungi, wet rot, or dry rot. However, if the existence of fungi, wet rot, or dry rot causes a specified cause of loss to occur, coverage applies to the loss or damage that the specified cause of loss causes.

This exclusion does not apply if the fungi, wet rot, or dry rot resulted from a fire or lightning loss. It also does not apply to coverage that Additional Coverages Limited Coverage for Fungus, Wet Rot, and Dry Rot provides.

Note: Refer to F. Definitions 1. Fungi for a list of items that Fungi includes.

h. Virus, Bacterium, or Other Microorganism

Virus, bacterium, or other microorganism means any of these that induces (or is capable of inducing) any physical distress, illness, or disease. This exclusion does not apply if the loss or damage is caused by or results from fungi, wet rot, or dry rot.

This exclusion, or the application of its terms to a specific loss, is not intended to create coverage for any loss otherwise excluded. It also applies to all coverages that this coverage form includes, including forms and endorsements covering business income, extra expense, or acts of civil authorities.

2. Secondary Exclusions

The second group of exclusions applies to loss or damage caused by or resulting from any of the following loss events. Some of these exclusions have exceptions, conditions, or limitations that should be noted and reviewed carefully. The insurance company does not pay for any loss or damage caused by or resulting from any of these events.

a. Theft from an unattended vehicle

This is loss due to theft from an unattended vehicle. There are two exceptions.

b. Delay, loss of use, and loss of market

These are consequential or indirect losses that develop as a result of a direct loss or damage.

c. Unexplained disappearance

When covered property is gone, and there is no obvious cause or explanation of what happened to it.

d. Shortage found upon taking inventory

Any loss discovered as a result of an inventory shortage, and there is no explanation as to what happened to the property, similar to the unexplained disappearance. This is sometimes referred to as "inventory shrinkage."

e. Dishonest or criminal acts 

These are any dishonest or criminal acts the named insured, its partners, employees, temporary employees, leased workers, officers, directors, trustees, authorized representatives, or members and managers of a limited liability company commit. This also includes theft.

Such acts committed by anyone with an interest in the property, their employees, temporary employees, leased workers, or authorized representatives who act alone or who act in collusion with other parties or with each other are also excluded. This exclusion also applies whether or not the acts take place during regular working hours.

This exclusion does not apply to acts of destruction by the named insured’s employees, temporary employees, leased workers, or authorized representatives. However, there is no coverage for theft by the named insured’s employees, temporary employees, leased workers, or authorized representatives.

f. Artificially generated electrical, magnetic, or electromagnetic energy (05 17 change)

Loss or damage that is caused by or that results from artificially generated electrical, magnetic, or electromagnetic energy damaging, disturbing, disrupting, or interfering with any of the following:

Examples of this excluded energy are electrical current, charges a magnetic or electromagnetic field produces, and microwaves, but this is not limited to just these. There are two exceptions:

g. Voluntary parting (05 17 change)

The named insured or anyone else entrusted with the property being tricked or deceived into giving that property away. There is one exception. This does not apply if coverage is provided in the False Pretense Additional Coverage.

h. Unauthorized instructions

When covered property is transferred to another person or place because unauthorized instructions were received to do so.

i. Neglect

Neglect on an insured’s part to take reasonable measures to preserve and protect covered property from subsequent damage during and after the time of loss.

j. Theft

Theft by any person the named insured entrusts with covered property for any reason, whether they act alone or in collusion with any other party. This exclusion applies 24 hours a day/7 days a week. There is one exception. Covered property that is in a carrier for hire’s care, custody, or control is not subject to this exclusion.

k. Rain, sleet, ice, or snow

Loss or damage caused by or that results from rain, sleet, ice, or snow that enters the interior of a covered building or structure but only when the exterior is not considered completed. A building or structure’s exterior is considered completed when it is weather resistant in all respects and the installation of its systems and components is complete and permanent.

Some examples of components are exterior walls and their siding, windows, doors, vents, and the roof. Some examples of systems are heating, air-conditioning, ventilating, mechanical, electrical, and drainage. This list of examples is not inclusive and is not limited to just these.

Nothing in this exclusion impacts how the 3. Other Exclusions a. Weather Conditions applies.

l. Explosion (05 17 addition)

The following types of explosions are excluded:

There are three exceptions:

3. Other Exclusions

This group of exclusions applies to loss or damage caused by or resulting from any of the following loss events. In every case, if loss or damage by a covered cause of loss occurs as a result of one of these excluded events, coverage applies to the loss or damage the resulting covered cause of loss causes. The insurance company does not pay for any loss or damage caused by or that results from any of these events.

a. Weather conditions

Loss or damage to covered property that weather conditions cause. This exclusion applies only if the weather conditions contribute in any way to a cause or event that involves the following 1. Primary Exclusions to produce the loss or damage:

·         a. Ordinance or Law

·         b. Earth Movement

·         c. Governmental Action

·         d. Nuclear Hazard

·         e. War and Military Action

·         f. Water

·         g. Fungi, Wet Rot or Dry Rot

·         h. Virus, Bacterium or Other Microorganism

b. Acts or decisions

Acts or decisions any person, group, organization, or government entity makes that result in loss or damage. Failing to act or to make decisions is also excluded.

c. Faulty, inadequate, or defective

With respect to all or part of any property wherever located, coverage does not apply to any of the following faulty, inadequate, or defective:

d. Wear and tear

Loss or damage that is due to normal use or age that occurs naturally.

e. Any quality in the property

These are any qualities in the property that cause it to destroy or damage itself.

Note: An example is loss or damage caused by hidden or latent defects in the property.

f. Mechanical breakdown

Loss or damage that is caused by or that results from machines, tools, or mechanisms failing to operate or to function properly.

g. Insects, vermin, or rodents

Loss or damage to covered property when caused by or that results from insects, vermin, or rodents.

Note: Some examples are damage from mice, rats, cockroaches, squirrels, beavers, spiders, ants, centipedes, and ticks. Each is characterized by destructive habits that cause damage, such as gnawing and nibbling.

h. Rust, other corrosion, dampness, or extremes of temperature

This is rust, other corrosion, dampness, or extremes of temperature that cause loss or damage to covered property.

Notes:

Rust and corrosion are low-temperature oxidation processes that result in deterioration over time due to inactivity or neglect.

Dampness and temperature extremes can affect the oxidation process that affects different forms of property and can have other effects on the same and other forms of property.

i. Settling, cracking, shrinking, bulging or expansion (05 17 addition)

There are no exceptions.

C. Limits of Insurance

The most the insurance company pays for loss or damage in a single occurrence is the limit of insurance on the declarations for the applicable coverage.

D. Deductible

The deductible on the declarations must be exceeded before the insurance company pays anything. Once the deductible is satisfied, the insurance company will pay up to the limit of the insurance that applies. The deductible applies on a per occurrence basis.

There is one exception. Property in transit is not subject to the deductible.

E. Additional Conditions

1. Valuation (05 17 change)

This condition replaces the Valuation General Condition in the Commercial Inland Marine Conditions.

The valuation of any covered property is based on its replacement cost as of the time of loss. Replacement is what it will cost to replace that property without taking into consideration depreciation.

The named insured has the option to make a claim initially for actual cash value instead of replacement cost. This allows the named insured to obtain a monetary settlement to start rebuilding. It can then make a replacement cost claim later. This option of a second claim is permitted only if the named insured notifies the insurance company, within 180 days of the loss, that it will be doing so.

Replacement cost is paid only after the property is repaired or replaced and then only if the repair or replacement was handled within a reasonable amount of time. If both conditions are not met, the claim is paid as actual cash value.

The replacement cost-based payment will be no more than the least of the following:

The property is not required to be built at the same premises, but payment is limited to no more than what it would have cost to build at the same premises.

Any cost to repair or replace must not include ordinance or law enforcement increases.

When the damage or lost property belongs to others, and there is a written contract that determines the named insured liability for that property, the valuation of that property is based on that liability established in that contract. However, it is still subject to the replacement cost of the property and the limit of insurance.

2. Other Conditions

These conditions apply in addition to the Commercial Inland Marine Conditions and the Common Policy Conditions.

Related Articles:

IL 00 17–Common Policy Conditions Analysis

CM 00 01–Commercial Inland Marine Conditions

a. Coverage Territory

The coverage territory is the United States of America, its territories and possessions, Puerto Rico, and Canada. This includes property that is shipped by air within and between these points.

b. Coinsurance

This condition applies if there is a coinsurance percentage on the declarations.

The insurance company does not pay the full amount of any loss or damage if the value of the covered property at the time of loss or damage multiplied by the coinsurance percentage is more than the limit of insurance for all covered property at that location. In such cases, the amount the company pays is determined as follows:

Step 1. Multiply the value of the covered property at the time and location of the loss or damage by the coinsurance percentage on the declarations.

Step 2. Divide the limit of insurance for covered property at the location where the loss or damage occurred by Step 1.

Step 3. Multiply the total amount of loss or damage at the loss location by Step 2. before applying the deductible (if any).

Step 4. Subtract the amount of deductible from Step 3.

The insurance company pays the lesser of Step 4. or the limit of insurance. Any amount that remains must be paid by other insurance, or the named insured must pay it from its own funds.

F. Definitions

There are 17 definitions.

1. Breakdown (05 17 addition)

The physical loss causing damage to covered equipment in such a way that it must be repaired or replaced. The loss must be due to:

The following are not included within this definition:

2. Computer equipment (05 17 addition)

Electronic equipment that belongs to the named insured and is programmable. It must be used to store, retrieve, and process information. The term is broad and includes the safety features needed for the equipment such as air conditioning, fire suppression system and other devices that are exclusive to the computer operations.

Peripheral equipment that goes with the other computer equipment described above in order to provide additional functions such as printing and communication.

3. Covered Equipment (05 17 addition)

a. Covered equipment is the following:

b. Covered equipment does not mean or include the following:

Note: As used in chemistry, a catalyst is a substance that modifies and increases the rate of a reaction without being consumed in the process.

Note: Equipment otherwise covered and only occasionally used on dragline, excavation, or construction equipment is covered.

4. Data (05 17 addition)

Programmed and recorded material that is stored on media. It is also programming records that are used for electronic data processing or to electronically controlled equipment.

5. Extra Expense (05 17 addition)

The additional cost the named insured incurs to operate its business during the period of restoration. It is those costs that are in addition to the normal costs of operations that would have been incurred during the same period had there been no loss.

It does not include repair or replacement expenses unless the expenses reduce the loss that would otherwise have been paid. Similarly, research, replacement, and restoration costs related to information is not covered unless incurring those expenses reduces the loss that would otherwise been paid.

6. Fungi

These are any type or form of fungus. Fungi include mold, mildew, mycotoxins, spores, scents, or any by-product that fungi produce or release.

7. Media (05 17 addition)

This is electronic data processing or storage media. Examples are films, tapes, discs, drums, or cells.

8. Money (05 17 addition)

Currency, coin, or bank notes that have a face value and that are in current use. It also means traveler’s checks and money orders being held for sale.

9. Operations (05 17 addition)

Those business activities of the named insured that depend upon the covered property.

10. Period of Restoration (05 17 addition)

This is the period of time during which coverage applies. It begins either:

Under either of these, coverage ends on either the date when property at the described premises should be repaired, rebuilt, or replaced or the date the business reopens at a new location. A major sticking point in evaluating when a premises should be ready is the clarifying statement that the repairs, building, or replacing must be done on a timely basis and with substantially similar materials.

The period of restoration does not include any increased time period required because of an ordinance, regulation, or law being enforced or because of the compliance with any ordinance, regulation, or law regulating the construction, use, repair, or demolition of any structure.

The period of restoration also does not include any increased time period required to test for, monitor, clean up, remove, contain, treat, detoxify, neutralize, or in any way respond to or assess the effects of pollutants.

The policy expiration date does not affect the period of restoration.

11. Pollutants

These are irritants and contaminants such as smoke, vapor, soot, fumes, acids, alkalis, chemicals, and waste of a solid, liquid, gaseous, or thermal nature. Waste includes property to be disposed of, as well as property to be recycled, reconditioned, or reclaimed.

12. Securities (05 17 addition)

Securities represent money or property, but they are not money or property. They are instruments and contracts and can be negotiable or nonnegotiable. Examples of such instruments or contracts are tokens, tickets, revenue, and other stamps, including stamps in a postage meter. Evidence of debt related to credit or charge cards are securities, but only if the named insured did not issue the cards.

Note: Some securities may represent commodities, such as grain or coal.

13. Specified Causes of Loss (05 17 addition)

This means only the following causes of loss: Fire, lightning, explosion, windstorm, hail, smoke, aircraft, vehicles, riot, civil commotion, vandalism, leakage from fire extinguishing equipment, volcanic action, and weight of snow, ice, or sleet. The following are also considered specified causes of loss:

a. Sinkhole collapse is the sudden sinking or collapse of land into spaces created by water acting on dolomite or limestone. The cost to fill sinkholes and the sinking or collapse into man-made underground spaces is not part of this cause of loss.

b. Damage caused by falling objects is covered. However, coverage does not apply to loss or damage to personal property left in the open. It also does not apply to loss or damage to the interior of a building or personal property inside the building unless the falling object first damages the roof or an outer wall.

c. Water damage is accidental discharge or leakage of either of the following:

The water or sewer pipe must be part of a municipal water supply system or municipal sanitary sewer system. Wear and tear must cause the pipe to crack or break.

This definition is limited by conditions in the Water Exclusion. Any situation the Water Exclusion excludes is not considered water damage. CP 10 30 then provides two examples of when situations that may appear to be water damage are not water damage because they are not covered under the Water Exclusion.

ISO Example 1: Weather induced flooding causes a pipe to break apart, causing water damage. There is no coverage even if wear and tear contributed to the pipe breaking because flooding caused the pipe to break.

ISO Example 2: A pipe breaks because of wear and tear. Damage that occurs following that break because of weather-induced flooding or that becomes worse because of it is excluded.

14. Suspension (05 17 addition)

The complete closure of the named insured’s business operations or a slowdown.

15. Temporary storage location (05 17 addition)

Any location where property that is supposed to become part of the construction project is stored as it awaits being taken to the jobsite.

16. Testing (05 17 addition)

Only the three types of testing described below are considered testing under this coverage form:

17. Valuable papers and records (05 17 addition)

These are documents, manuscripts, and other written, printed, or inscribed records. They include mortgages, maps, films, drawings, books, deeds, and abstracts, but they do not include money or securities.

ENDORSEMENTS

ISO has developed the following endorsements for exclusive use with the Builders Risk Coverage. All are new in the 05 17 edition:

IH 70 01–Permission to Occupy the Premises

The coverage form ceases coverage when a premises is occupied and used for its intended purpose. This endorsement deletes that part of the condition but only for the specific property described in the endorsement schedule.

IH 70 02–Limited Coverage for Specified Equipment

This is to be used only when IH 70 03–Builders Risk Breakdown Protection Coverage is attached because it limits the coverage it provides. When the covered equipment scheduled on this endorsement is damaged, only labor and material costs are covered as described.

IH 70 03–Builders Risk Breakdown Protection Coverage

The exclusions related to equipment breakdown coverage in the builders risk coverage form are eliminated. The property at a jobsite as a part of the construction project is covered for mechanical breakdown when this endorsement is attached. Limits for the coverage must be scheduled in the endorsement.

IH 70 04-Existing Building or Structure Coverage

The existing structure is excluded from the Builders Risk Coverage Form. If coverage for it is desired, this endorsement is attached. The limit for it is entered on the Builders Risk Declarations. The valuation is actual cash value unless replacement cost is selected on the same declarations. A vacancy condition is contained that excludes certain causes of loss if there are no operations at the site for over 60 days.

IH 70 05–Existing Building or Structure with Limited Collapse Coverage

This is more restrictive than the coverage in IH 70 04.

The Builders Risk Coverage Form does not exclude Collapse. This means that when the IH 70 04 endorsement described above is attached, the existing building is not subject to a collapse exclusion. Because most commercial property coverage forms DO exclude collapse and then add it back only in a named way, this endorsement is needed.

The Collapse exclusion is added for only the existing building or structure, and then collapse coverage is added back in a similar way that it would be added to a commercial property coverage form. 

IH 70 06–Building Risk Escalation of Limit

The Escalation of Limit is similar to the inflation guard optional coverage in the commercial property coverage forms, except it is not scaled by number of days. Instead, the full amount of whatever percentage is entered is multiplied by the limit of insurance to develop the additional limit available to pay for a loss.

IH 70 07-Production Machinery Exclusion

Coverage for production machinery is excluded when this endorsement is attached. This type of machinery is extremely expensive and may be placed in the building very late in the building process. Eliminating coverage for this may reduce the entire builders risk cost significantly. There should be a written agreement between parties as to who is actually covering this property prior to attaching this endorsement, along with evidence that the coverage has been obtained.

IH 70 08–Project Reporting Form

When the Builders Risk Declarations states that the policy is on a reporting basis, this endorsement must be attached to provide an explanation of how a reporting form works.

IH 70 09–Project Protective Safeguards

This is a very restrictive endorsement. If the protective safeguards described in the endorsement schedule are not in place and active when a fire, theft, or vandalism loss occurs, there is no coverage for that loss.

However, there are also eight general-purpose endorsements that may be used.

IH 99 12–Separate or Subcontractors Coverage

Separate coverage for a portion of a construction project may be provided. In that case, this endorsement is used to provide that coverage.

IH 99 13–Separate or Subcontractors Exclusion

Separate coverage for a portion of a construction project may be excluded. In that case, this endorsement is used to exclude coverage for that portion of the construction project.

IH 99 14–Mortgageholders

This endorsement is used to outline the mortgagee’s rights and duties when the covered property is subject to a mortgage.

IH 99 15–Delay in Completion (05 17 change)

This endorsement covers soft costs, business income, and rental value after direct loss or damage to covered property. Examples of soft costs are additional interest, taxes, advertising expenses, insurance expenses, commissions, legal and accounting costs, architectural and building inspection expense, permit fees, storage charges, and survey costs.

Entries must be made on the Builders Risk Declarations if this endorsement is attached.

IH 99 21–Ordinances or Law Coverage

Ordinance or law is excluded in the Builders Risk Coverage Form. If coverage is desired, this endorsement is attached with the schedule completed to show the coverages and limits desired.  

IH 99 22-Loss Payable

Loss payees with insurable interests in covered property are listed on this endorsement along with the property in which they have that interest.

Note: No commitment is made to notify them of any cancellation.

IM 99 26–Named Storm Percentage Deductible

Any loss due to a storm that has been named by either the National Hurricane Center or the Central Pacific Hurricane Center is subject to the deductible scheduled on this endorsement when it is attached.

IM 99 27-Increased Cost of Loss and Related Expense for Green Upgrades

When a property is being built to green certifications, this endorsement should be attached to provide the needed green upgrades. This is particularly needed if the certification had been received prior to the loss and must be recertified.

UNDERWRITING CONSIDERATIONS

Builders risk coverage forms cover both building materials and supplies at the construction site, in transit to the site and similar property intended for the construction project at other locations as necessary (or because of lack of storage space at the construction site). The principal exposures and causes of loss are fire, theft, vandalism, windstorm, collapse, and transit. The underwriting process involves evaluating the location and transit exposures and the protective services and arrangements incorporated into the project to eliminate or reduce the possibility of loss.

The most important element in underwriting builders risk insurance lies in understanding the nature of the contractor involved. The contractor should have experience in building the type of structure being considered. A residential contractor may be very successful in building one and two-family homes, but that does not mean it will be similarly successful in building a six-family condominium building or some other kind of commercial property. Similarly, a commercial building contractor may not be aware of all of the aspects and pitfalls involved in residential construction. Simply being a contractor is not sufficient. A good contractor is aware of all the aspects and hazards of a specific job and takes the appropriate steps to address all of them, both in advance planning and as they come up during the course of the construction project.

Another major issue is job site supervision. Some contractors are "paper contractors." These contractors bring together the various subcontractors to handle the job but do not regularly have any of their own employees on the job site. In situations like these, relationships are extremely important. A good "paper contractor" uses the same subcontractors on as many jobs as possible, to the extent possible. This makes it more likely that the different crews will work well together. The contractor should have a detailed checklist and an established timetable to check the work. The general contractor is usually responsible for all functional aspects at the job site and should be aware of all elements of job site safety and the normal arrangements that should apply.

The number of jobs being worked on at the same time is also important. In the case of multiple job sites, the contractor should have sufficient regular supervision at all sites at all times. Job sites over which the contractor has authority but does not regularly visit can quickly become disorderly and fall behind schedule. Inferior workmanship in plumbing, electrical, and framing is quickly covered up and hidden if not observed regularly and frequently.

If the building is being constructed in areas subject to high winds, the walls should be properly shored up and braced before the roof is added to eliminate or reduce the chance of wind losses. Any other similar atmospheric or geographic issues that can affect construction must be evaluated, and adequate protection or needed safeguards must be implemented to reduce loss potential.

Written contracts and agreements are as important in the construction field as they are anywhere else. Contracts should be in place to establish ownership and responsibility and to reduce the chances of ambiguity and disagreement if a loss occurs.

Attention to detail early in the process pays benefits later. Small and insignificant details may not seem important until a loss occurs. The nature and details of the transit exposure should be analyzed, and all affected parties should understand them. Paper contractors usually have little or no exposure in this area compared to contractors active and involved on the job site. Workers’ tools, scaffolding, and related equipment are frequently overlooked but are subject to transit exposures and losses as much as building materials. Some types of property should be insured under contractors’ equipment coverage. Others should be insured under builders risk coverage. It is important to be certain that the transit limit is sufficient to cover the values exposed to various transportation hazards.

The type of construction is a major factor in both underwriting and rating. Construction methods vary greatly, as do wind and fire exposures. Frame construction is by far the most common construction type and is most subject to wind and fire losses. Brick veneer construction has little impact on loss potential because it is simply a layer of masonry veneer attached to the wood frame, and the basic construction is still considered frame.

Solid brick or masonry bearing walls construction stands up better to wind and fire but requires greater construction time, and damage can be more expensive to repair. Metal buildings are similar to frame with respect to the wind exposure. Metal building construction is vulnerable to a number of issues until the roof is securely attached. However, fire is not ordinarily one of them. Masonry, non-combustible and fire-resistive are the best types of construction, but construction using these materials takes more time and is considerably more expensive.

Every type of construction has its own issues that relate to job site security against vandalism and theft. The more involved, elaborate, and expensive types of construction require using a variety of heavier equipment, which affects the job site security issue more than anything else. As a result, these job sites require more security measures than those of lesser quality and have less equipment on the site, whether occupied and operating or not.

It is important to understand the financial interests of all the parties in the property under construction and any contractual obligations they have to one another. The worst-case scenario is where each party believes the other is responsible for purchasing the builders risk coverage, and no one purchases it at all. If more than one policy is purchased, the only damage done is the amount of extra premium paid. If nobody arranges for coverage, it means the entire project is not covered.

The coverage form to be used must be considered since reporting forms are available in addition to scheduled and non-reporting forms. Each approach has advantages, disadvantages, and responsibilities the named insured must understand. The reporting form is flexible and leads to a greater feeling of security, but improper or inadequate reporting can diminish those advantages and spell disaster in the event of a loss.