CP 11 13–BUILDERS RISK RENOVATIONS

(June 2019)

INTRODUCTION

The builders risk rating procedures contemplate that coverage on a building will start with a value of close to $0 but that over the course of the policy the value will grow to the full finished value. A building that is being renovated will fall into that methodology unless the value of the building itself is removed from both the coverage and the calculation.

The Insurance Services Office (ISO) CP 00 20–Builders Risk Coverage Form can be modified to coverage to remove the value of the building and coverage for only the value of the renovations by attaching CP 11 13–Builders Risk Renovations.

CP 11 13–BUILDERS RISK RENOVATIONS

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.

Note: This endorsement can be added to the CP 00 99–Standard Property Policy only when CP 11 99–Builders Risk-Standard Property Policy is also attached to it.

B. Covered Property

Covered Property in this endorsement replaces the Covered Property section in CP 00 20.

Renovations under Construction

This term replaces Building under Construction. Improvements, alterations, and repairs made to buildings or structures are covered along with the following:

• Machinery and fixtures
• Building service equipment
• The named insured’s building materials and supplies that are part of and used in the construction project

The bulleted items above are covered only if they are to be permanently installed in or on the building or structure listed on the declarations or within 100 feet of the premises.

Temporary structures on the job site are also covered. Examples of such structures are cribbing, scaffolding, and construction forms but this item is not limited to only these. An exception to temporary structure coverages applies so that any such structure that is insured elsewhere is not covered under this form.

Example: Jeremy brings $10,000 of scaffolding on premises to assist in painting and brickwork. The scaffolding is covered under his Contractors Equipment coverage form. A fire occurs and Jeremy decides to list the scaffolding under his builders risk loss in order to prevent having to pay a deductible under both the builders risk and the contractors equipment. His scaffolding claim is denied because of it being covered under the contractors equipment coverage form. And yes, he must pay a deductible for the scaffolding under the contractors equipment and another deductible for the builders risk loss.

C. Property Not Covered

Property Not Covered in this endorsement does not replace Property Not Covered in CP 00 20. It provides only an addition. The addition is the value of buildings or structures that existed prior to the renovation project. This means that the renovations and all materials associated with them are covered but value of the existing structure is not covered at all.

Example: Little and Little LLC purchases a building from a tax auction for $30,000. It purchases coverage under
CP 00 20 with CP 11 99 attached. It is effective 02/01/19. The completed value is entered as $250,000. Work begins but a fire destroys the entire structure on 04/01/19. A claim for $70,000 that includes the $30,000 purchase price is submitted but the insurance company pays only $40,000 because coverage does not apply to the $30,000 purchase price of the existing structure.

Note: The first and most important step when considering renovating or remodeling an existing building or structure is deciding how to cover the existing building or structure’s value. The named insured must understand that the coverage this endorsement provides does not apply to that value. If the named insured decides to not insure that value and essentially "go bare," the agent or broker should require a signed and dated statement to the effect. This added step is important because an asset is intentionally not being protected.

Example: Radical Change Corporation specializes in buying and rehabilitating “distressed” properties. It buys them directly and at sheriffs’ auctions. It then rehabilitates and renovates them. Radical purchases builders risk coverage on each property with CP 11 13–Builders Risk Renovations. Handling coverage this way lets it avoid including the structure’s value and paying the extra premium. It also simplifies writing coverage on the existing building or structure because many insurance companies do not want to provide builders risk coverage on an existing building or structure. Radical purchases separate property coverage on the building or structure when its renovations reach a certain point. A tornado recently destroyed a home Radical was rehabilitating before it could purchase the separate property coverage. The value of the renovations was only $20,000. However, Radical's claim was for $100,000 because the existing structure’s value was much higher than when it was purchased because of the renovations made. Radical tried to argue that its insurance agent had not properly explained the coverage restrictions in CP 11 13. Regardless of the outcome, the insurance agent probably lost a customer.

D. Need for Adequate Insurance

Additional Conditions 2. Need for Adequate Insurance Condition in CP 00 20 is amended. It lists the items used in determining if the limit carried is adequate. Only the value of the improvements, alterations, and repairs are considered. The increased value or worth of the existing building or structure is not part of the value.

E. When Coverage Ceases

Additional Conditions 4. When Coverage Ceases in CP 00 20 is unchanged except for the portion under subparagraph e. with respect to limitations that involve the date that construction is complete, or occupancy is established. As a result, coverage ends only when:

· The policy expires or is cancelled.

· The purchaser accepts the property.

· The named insured no longer has a financial interest in the property.

· The named insured abandons the project and does not plan to return and complete it.

This means the building can be occupied during the time that renovations are being made without affecting the coverage provided.

F. Loss Payable Clause

The insurance company adjusts losses on covered property where the named insured and a loss payee both have an insurable interest. It pays claims for covered loss or damage to both the named insured and the loss payee as their interests appear.

Note: Renovation projects frequently include a variety of loss payees. This endorsement includes this clause to eliminate issuing a separate endorsement. Loss payees must be listed on this endorsement’s schedule or on the declarations. The insurance company then adjusts losses with the named insured and pays claims for covered loss or damage to the named insured and the loss payee jointly, as their individual respective interests appear.

CONCLUSION

This endorsement is very useful for the right named insured. That named insured must be aware that only renovations are covered. The existing structure should be covered elsewhere. It must be used cautiously and only after a complete discussion of the restrictions and a written acknowledgement of those restrictions.