CP 11 05-Builders Risk Reporting Form

CP 11 05–BUILDERS RISK REPORTING FORM

(June 2019)

 

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INTRODUCTION

The Insurance Services Office (ISO) CP 00 20– Builders Risk Coverage Form is written on a completed value basis. The value is established as of the policy’s inception date and the premium charged is based on that value. Changes in that value during the policy period must be endorsed to the policy effective on the inception date.

This approach is suitable when the project involves one building or structure. It may not be appropriate in other cases or under different circumstances such as:

In these and many other situations, a reporting basis is a better approach because the named insured maintains an adequate limit of insurance but pays for only the amount of property exposed in a specific 30-day period.

CP 11 05–BUILDERS RISK REPORTING FORM

Schedule

Only buildings or structures listed on the endorsement schedule are subject to reporting. Each building must be listed along with its actual cash value as of the policy’s inception date. The value could be zero if it is a new building. However, if the risk is a renovation project, the value is the actual cash value of the building being renovated. It is important to understand that the valuation basis is actual cash value.

Note: A limit is required to be entered on the declarations. The endorsement works with that limit. It does not replace it.

 

Example: We’ll follow Grange Construction in this analysis to illustrate how the reporting form works. Grange Construction is building a bridge. The limit of insurance on the declarations is $3,000,000. The actual cash value on the reporting form endorsement as of the inception date is zero.

A. Standard Property Policy

The term Policy replaces the term Coverage Form when this endorsement is added to CP 11 99–Builders Risk Changes–Standard Property Policy.

B. Reporting responsibilities

The named insured selects a day of the month to use as the reporting value effective date. This flexibility allows it to match the reporting requirement with its accounting operations instead of treating it as a separate transaction. The named insured reports the value(s) to the insurance company within 30 days of that selected effective date.

 

Example: Grange’s policy runs from 01/01/19 to 01/01/20. It selects the 15th as the day of the month as the reporting effective date. The value of the bridge on 01/15/19 is $25,000. This means that Grange must report the $25,000 value to the insurance company no later than 02/15/19.

 

C. Penalty for not reporting

If a loss occurs and values have not been filed as required, the most paid is the value as of the latest report.

 

Example: Grange filed a report on 03/15/19 for $70,000. This represented the value as of 2/15/19. However, Grange’s bookkeeper forgot to file the 3/15/19 $300,000 value by the due date of 4/15/19. A loss occurred on 04/20/19. The most paid for the loss would be $70,000 because of that late reporting.

 

If a loss occurs before any report is filed, the most paid is the actual cash value as of the policy’s inception date. This requirement is more stringent than corresponding requirements in other reporting forms because it means that there is no coverage until the first report is filed. As a result, it is to the named insured’s advantage to file the first report as quickly as possible because coverage is limited to the building or structure’s actual cash value as of the policy’s inception date until then.

 

Example: Grange had a $2,000 loss on 01/15/19. Grange had not yet filed any reports. As a result, the insurance company paid nothing due to the value as of the inception date being zero.

D. Full reporting

Additional Conditions 2. Need for Adequate Insurance in CP 00 20–Builders Risk Coverage Form does not apply when the named insured chooses the reporting option. However, this does not mean that there is no penalty. This endorsement adds a new condition that states that any loss is paid based on the proportion of the property’s actual cash value as of the effective date of the most recent report and the value last reported.

 

Example: The value as of 06/15/19 was $900,000. The bookkeeper made a mistake when the report was filed on 7/15/19 and reported a value of only $750,000. A $50,000 loss occurred on 08/01/19. The insurance company discovered the error and assessed a penalty. It settled the loss for $41,667 [($750,000 ÷ $900,000) X $50,000].

E. Limit of Insurance

The limit on the declarations is the most the insurance company pays for a covered loss. This is very important to remember because if the monthly reports are filed on time and are accurate, but the amount reported exceeds the limit on the declarations, the maximum paid is that limit. The named insured, working with its agent or broker, must ensure that the limit is high enough to cover any possible loss that might occur. The limit must be increased by endorsement if the present limit is not adequate.

The named insured must request a change in limit. Some insurance companies notify the agent that the values reported exceed the limit as a courtesy, but they are not required to do so. If the named insured fails to notice that the value reported exceeds the limit, it absorbs the difference between the two figures when a loss occurs. All parties are best served by comparing the value on the monthly report to the limit to be certain it is adequate.

 

Example: The bridge’s value of $3,500,000 as of 11/15/19 is reported on 12/15/19. A total loss occurs on 12/01/19 when the bridge’s value is $3,700,000. The loss should be settled at $3,700,000 because reporting has been accurate, but the payment is capped at $3,000,000 by the limit of insurance on the declarations.

 

Note: Remember that the premium charge is based on the values reported, not the limit of insurance. This means that the named insured has no incentive to maintain a low limit.

F. Premium Calculation and Adjustment

The insurance company charges a deposit or provisional premium as of the inception date based on the 100% actual cash value of the building or structure under construction. The reporting form endorsement schedule has spaces to list the premises number, building number, and each building or structure’s actual cash value as of the inception date.

The insurance company calculates the monthly premium charge based on the values reported that month. It makes an additional premium charge if the values reported that month are higher than the values reported previously. Conversely, the named insured receives a credit or return premium if the values are lower. This endorsement differs from some other property reporting forms because there is not a final adjustment.