Insight on The Builder’s Risk Policy

1. Insight on The Builder’s Risk Policy • 100% Participation in Polling Questions is required to receive credit for this class. Even if you do not intend to receive credit, please participate in the polls. • The webinar will begin shortly. • There is no audio at this time. • This presentation is being recorded for your viewing pleasure at a future date. • The attendance and proctor forms are available under ‘Materials’ in the Webinar’s Console to the right. • The PowerPoint presentation is also available under ‘Materials’. • You will receive the course number for your state near the end of class. • Use the ‘chat’ window for questions on the content.

2. Your Instructor Today Al Parizo, AFIS, CISC On Chattauqua Trail, Boulder CO in quest of a good Builder’s Risk

3. Objectives • Exposures to loss • Insureds to be named on the policy • Review of Construction Contract • Methods of writing Builders Risk • Review of Policy

4. Builder’s Risk Completed value and Beyond

5. Exposures to Loss and What To Look For

6. Exposures to Loss

7. Required Property Coverage

8. Contract Example • 11.4.1.1 “Property insurance shall be on an “all risk” or equivalent policy form and shall include, without limitation, insurance against the perils of fire (with extended coverage) and physical loss or damage including, without duplication of coverage, theft, vandalism, malicious mischief, collapse, earthquake, flood, windstorm, falsework, testing and startup, temporary buildings and debris removal, including demolition occasioned by enforcement of any applicable legal requirements, and shall cover reasonable compensation for Architect’s and Contractor’s services and expenses required as a result of such insured loss.”

9. Contract Example • 11.4.1.4 The Property insurance must cover portions of the work stored off the site and also portions of the work in transit. • 11.4.1.5 Occupancy is not permitted without getting the consent of the insurance company. • 11.4.2 Owner shall purchase Boiler and Machinery coverage as required in the contract documents. All of the interests covered shall be insureds, and the Owner and Contractor shall be named insureds.

10. Available Coverage Forms

11. Policy Structure How to Put it Together

12. Builder’s Risk Coverage

13. Project Specific

14. Reporting Form - Completed Value

15. New Construction or Remodel

16. Insureds The construction agreement typically requires all parties to the project with an insurable interest in the project are included for coverage

17. Named Insured

18. Named Insured

19. Coverage Locations Here, there and anywhere!

20. Coverage Locations

21. What to look for:

22. Covered Property What is it and how much?

23. The policy description:

24. The policy description: • The construction agreement may require that coverage apply to temporary structures • Fencing (not part of the project itself) • Trailers • Lighting • If required, send the underwriter the portion of the construction agreement that states the obligation, endorse the policy as needed and adjust the limit of insurance

25. The policy description:

26. Excluded Property Why not?

27. Commonly excluded property:

28. Commonly excluded property:

29. When Coverage Begins

30. When Coverage Ends • The policy language will differ • The policy will typically contain at least three different provisions and will provide an automatic cessation of coverage when one of the provisions first occurs

31. Examples of common coverage language: • 30 (60 or 90) days after completion • Once the building is occupied or put to its intended use • Amend this at time of placement • On expiration date of policy or cancellation • The policy could be placed on a project duration basis

32. Renewability • When writing the policy on an annual basis, the policy should include a condition that allows the Named Insured to automatically renew for at least 6 months beyond the stated expiration date

33. Most appropriate:

34. Typical Limitations • Debris Removal • 25% of paid loss amount • Subject to deductible • Additional coverage limit may be available

35. Typical Limitations • Pollution Clean Up • Many policies have a limitation for extraction or removal of pollutants from land or water at the coverage location only and will be limited to $10,000 or possibly $25,000 • This is clearly inadequate for most construction sites • Review the need for Pollution Remediation Coverage(e.g.Contractor’s PLL)

36. Causes of Loss

37. Typical Exclusions • Equipment breakdown, electrical arcing or steam or pressure explosion • Most construction contracts require either this coverage form or the perils typically covered under Equipment Breakdown Coverage • Collapse Coverage • Typically provided for specifically named causes

38. Collapse A partial collapse at a casino construction site Friday injured dozens of workers, and police are investigating the cause.

39. Typical Exclusions • Earth Movement, volcanic eruption, soil erosion, subsidence requirements in contract • Very difficult exclusions to remove • Underwriter may require soil testing results, compaction, sloping, grading and existing retaining wall information before considering removal request • Earthquake coverage

40. Typical Exclusions • Testing • Frequently excluded, either by specific language or by removing any loss caused by Mechanical Breakdown, Explosion, Arcing (Artificially Generated Electrical Current), Steam Boiler or Pressure Vessel explosion

41. Typical Exclusions • Flood • Often provided on a separate limit basis and separate deductibles • Flat deductibles are sometimes used • If the project is in a designated flood zone – the deductible will likely be a percentage • Check contract requirements and risk exposure and provide insurance where necessary

42. Typical Exclusions • Wind • Tier 1 wind location may require special coverage • Sometimes a flat deductible is used – may be a percentage in high frequency / severity exposure areas

43. Typical Exclusions • Mudslide, mudflow • Not covered by Flood unless as a result of a covered flood • Not covered as a result of Earthquake • May need separate endorsement • Back up of sewer or drains • This may be an important exclusion when writing an insured who installs any kind of pipe or drainage system • Negotiate for removal of this exclusion

44. Typical Exclusions • Error, omission or deficiency in design, specifications, workmanship or materials as respects the cost of making good such error, omission or deficiency • ALWAYS make sure that the policy contains an exception to this exclusion, such as: • However, resulting physical loss or damage to the insured property is covered

45. Typical Exclusions • Water pressing, seeping or leaking into, under or on foundations, walls, floors, pavement or underground foundations or basements. • This is typically not found as part of flood coverage and will have to be separately negotiated

46. Typical Exclusions • Ordinance or Law exclusion • Ordinance or Law coverage should be included or endorsed • Ordinance or Law compliance is an exposure for new construction • If a loss triggers the tear down ordinance, then the insured needs coverage for demolishing the undamaged portion of their work and rebuilding the undamaged portion

47. Typical Exclusions • Terrorism • The coverage offer needs to be addressed for both TRIA and other acts of terrorism, such as domestic • Domestic terrorism could be a significant risk exposure, depending on the geographic siting of the project • Domestic environmental groups have been known to destroy property while under construction

48. Poll#4 • The perils required in the construction contract always match the Builders’ Risk policy. • True? • False?

49. Coverage Territory

50. Loss Payment and Valuation Provisions Who’s on First?