CP 00 20–BUILDERS RISK COVERAGE FORM ANALYSIS

(June 2019)

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This analysis is of the 10 12 edition of this coverage form. Changes from the 06 07 edition are in bold print.

CP 00 20–BUILDERS RISK COVERAGE FORM ANALYSIS

INTRODUCTION

This coverage form opens by stating that various policy provisions restrict coverage. For this reason, the named insured should carefully read it to determine and understand its rights and duties and to understand what is covered and what is not covered.

It also defines the terms "you or your" as the named insured and "we, us, and our" as the company that provides coverage. Named insured is not defined. As a result, it means only entities listed or named on the declarations. If a given entity is not listed, there is no coverage for its property, even if the property is described on the declarations.

This coverage form has one word that has special meaning. It is defined in G. Definitions.

A. COVERAGE

This coverage form obligates the insurance company to pay for direct physical loss or damage to certain types of property. The property must be at a location listed or described on the declarations. However, this is not open-ended coverage. The loss or damage must be due to a covered cause of loss described in the causes of loss form attached to the policy in order for coverage to apply.

Coverage applies to only loss or damage that occurs at a definite place and time. There is no coverage for a loss event that is not tangible or that cannot be measured.

The reference to premises means that coverage applies to only property located in or on the premises listed or described on the declarations. For this reason, the declarations is a very important document. Coverage does not apply if the location and type of property are not properly listed or described.

1. Covered Property

Covered Property is defined in two ways. In the first, the coverage form lists the types of property that are covered. In the second, it identifies the types of property that are not covered.

Building under Construction is the only type of property this coverage form insures. It is the building or other structure listed or described on the declarations being built. In addition to the building or structure the following property is covered:

a. Foundations

b. The following property but only if it is intended to be located permanently at the premises. The intention must be that it will be either in or on the building or structure listed on the declarations or within 100 feet of the premises:

Machinery and fixtures
Building maintenance and service equipment
The named insured’s supplies and building materials which will be used in the construction

c. Temporary structures that are constructed and used on the job site. Scaffolding, cribbing, and construction forms are examples of such structures, but coverage is not limited to only these. An important exception is that coverage for these structures applies only when no other insurance covers them.

Example: Buildings-R-Us always has an office trailer on the construction job site where it stores tools and similar items. A fire completely destroys the trailer and its contents. The trailer is excluded because it was not built on the premises, even though it was temporary. The tools are also excluded because they are not a structure and they are intended to be a permanent part of the building.

2. Property Not Covered

This section modifies A. Coverage to apply to the typical insured's coverage needs. If coverage for any of these items is needed, separate coverage options are often available for an additional premium charge.

The following property is excluded:

a. Land and water. Land includes the land beneath the covered building or structure. Water simply means all water on the premises.

Example: Acme Spa Retreat’s construction is almost complete when it sustains extensive smoke damage. All of Spa’s deluxe, Olympic-sized spas must be emptied, cleaned, and refilled because of smoke contamination. The expense to drain and refill their three dozen spas is not covered.

b. The following specific property while outside buildings:

Trees, plants, shrubs, and lawns. Lawns, trees, shrubs, and plants that are part of a vegetated roof are exceptions to this exclusion and are covered. (10 12 change)
Television and radio antennas and their towers, masts, and lead-in wiring. Satellite dishes are also not covered.
Signs that are not attached to buildings

Note: This property is excluded while outside buildings. This suggests that such property is covered when inside buildings. In addition, 5. Coverage Extensions b. Sod, Trees, Shrubs, and Plants provides a limited amount of coverage on this property.

SatelliteDishGround

Example: Buildings-R-Us recently received the satellite dish and its wiring and placed it in the trailer for safe keeping. A fire destroyed the trailer. The dish and its wiring were covered because they were not outside the building at the time of loss.

3. Covered Causes of Loss

This coverage form requires that one or more of the causes of loss forms be attached. Different types of property may have different causes of loss forms. The cause of loss form that applies is entered on the declarations.

Endorsements are available that provide additional covered causes of loss. One that specifically relates to this coverage form is CP 11 21–Builders Risk–Theft of Building Materials, Fixtures, Machinery, and Equipment.

4. Additional Coverages

a. Debris Removal (10 12 changes)

After a loss that involves physical loss or damage, debris must be removed. Coverage to pay for the removal costs is needed. Over the years, this relatively simple concept has become a hotly debated issue under commercial property coverage forms as insurance buyers search for alternate sources for pollution coverage. Debris removal coverage was never intended to be environmental clean-up coverage but in various court decisions, prior policy language was found to cover such losses. Efforts to eliminate any misunderstanding have made this coverage much more complicated but the concept remains the same.

This coverage is explained as follows:

(1) Actual expenses to remove debris are paid if all of the following apply:

The named insured actually incurs the debris removal expenses.
The debris to be removed is covered property.
The debris to be removed is not covered property but it meets all of the other criteria in this paragraph and also the criteria in paragraph (2) below. (10 12 addition)
The property became debris because of a covered cause of loss.
The loss occurs during the policy period.
The expenses are reported within 180 days of the direct physical loss.

Example: The Point construction project is vandalized and a fire the vandals set destroys much of the building materials on the site. The debris must be removed before replacement materials can be delivered. The cost to remove the debris is covered if The Point pays the costs of debris removal; the debris is actually removed; the property damaged is covered property; the loss occurs during the policy period, and the expense is reported to the insurance company within 180 days of the date of loss.

MaterialsScattered

The coverage this paragraph provides is subject to limitations as outlined below.

(2) This paragraph is broadened significantly in the 10 12 edition. The 06 07 edition limited itself to only pollutant-related items. This paragraph is needed because paragraph (1) has been broadened to include debris of certain types of property that is not considered covered property. This paragraph limits that broadening of debris coverage. Although these items appear to be limiting, they actually establish the boundaries for the broadened coverage in paragraph (1).

The costs to remove the following items are excluded:

Debris that belongs to the named insured that is of the type of property listed under 2. Property Not Covered
The debris of the landlord’s property when the named insured is a tenant. However, the costs are covered if both of the following apply:

o The named insured is contractually obligated to insure the landlord’s property.

o The landlord’s property is insured under this policy.

Any property item described in 2. Property Not Covered. This even applies to property that has limited coverage under 5. Coverage Extensions b. Sod, Trees, Shrubs, and Plants.

Note: This limitation does not mention debris of such property. It applies to the property itself.

Any property belonging to others that is not considered covered property under this form.

Note: This limitation does not mention debris of such property. It applies to the property itself

Mud or dirt that is deposited on the grounds of the premises.
Any pollutants from land or water
Polluted land or waters. The cost to restore or replace the polluted land or waters is also excluded.

Example: Continuing the example above, the vandals also tip over the upright gasoline storage tank and its contents flow down the slope into the retention pond. The value of the gasoline is covered but the cost to extract it from the pond is not.

(3) This paragraph explains the amount of coverage provided under the basic limits. There are two distinct limitations:

(a) The total amount paid for a direct loss PLUS the debris removal is the lesser of:

· The actual physical loss or damage PLUS the debris removal expense

· The limit of insurance for the damaged covered property

(b) The total amount paid for debris removal is the lesser of:

· The sum of the amount paid for the direct physical loss (plus any applicable deductible amount) multiplied by a factor of .25. The formula is:

(Paid Loss Amount + Deductible Amount) x .25 = Debris Removal Coverage Amount

· The actual debris removal expense

Example: A small fire breaks out in the temporary storage structure erected on The Point’s construction site. The amount of loss is $5,000. The limit of insurance on the temporary structure is $25,000 and the deductible is $500. The maximum debris removal expense available is $1,375 [($5,000 + $500) X .25]. The sum of $5,000 + $1,375 = $6,375. Because this is less than the $25,000, $1.375 is the maximum amount available to pay for debris removal.

If there is no direct physical damage to covered property, the most paid to remove the other property debris is $5,000 per location, subject to other items in this Additional Coverage.
(10 12 change)

(4) This paragraph provides an additional amount of insurance to remove debris if one of the limitations in paragraph (3) above applies. The additional amount of coverage is $25,000, subject to the following:

(a) The total amount paid for a direct loss PLUS the debris removal is the lesser of:

· The actual physical loss or damage PLUS the debris removal expense

· The limit of insurance for the damaged covered property plus $25,000 Debris Removal Additional Coverage

Example: Let’s change the loss amount in the fire to the temporary structure example above to a $23,000 physical damage paid loss and $5,000 in debris removal expenses. The maximum debris removal expense available is $5,875 [($23,000 + $500) X .25]. However, because the limit of insurance is $25,000, the most paid for debris removal expense is $2,500 [$25,000 – ($23,000 -
$ 500)]. This results in The Point paying $2,500 out of pocket. However, when the $25,000 Additional Coverage is used, The Point has full coverage and no out of pocket expense.

(b) The total payment for debris removal is the lesser of:

· The total of the amount paid for the direct physical loss plus any applicable deductible amount multiplied by a factor of .25 PLUS $25,000. The formula is [(Paid loss amount + deductible amount) x .25] + $25,000 = Debris Removal Coverage Amount.

· The actual debris removal expense

Example: Let’s continue the example that involves fire to the temporary structure at The Point. This time the loss involves chemicals that environmental specialists remove and take to a special disposal facility. The removal cost is $10,000. Because the debris removal expense in step (3) (b) is limited to $5,875, $4,125 of the loss is not covered. However, the additional $25,000 limit in (4) (b) provides the necessary coverage to fully fund the loss.

The last point to make with respect to this additional coverage is that the maximum amount of insurance available for direct physical loss and debris removal expense does not exceed the coverage limit of insurance plus $25,000.

Example: The Point’s builders risk coverage form limit is $1,000,000. The Point sustains a significant fire loss and a large amount of debris remains. The direct damage paid loss is $980,000,000 and the debris removal cost is $75,000. In this case, The Point does have an out of pocket loss:

Direct Damage Paid Loss Amount	$980,000
Add Debris Removal Expense	+$75,000
Total Loss	$1,055,000
Limit Of Insurance	$1,000,000
Add Additional Debris Removal Amount	+$25,000
Available Limit of Insurance	$1,025,000
Debris Removal Expense Not Covered	$30,000

CP 04 15–Debris Removal Additional Limits is used to provide higher limits for debris removal.

Related Court Case: Debris Removal Obligation Was Paid

b. Preservation of Property

If you do not have insurance, know that your business is being threatened, and have time to act, you probably start by moving your most valuable possessions out and away from danger. The same course of action is just as important when you do have insurance. CP 00 20 encourages the named insured to protect its property by providing coverage as an incentive to do so.

If covered property must be moved from an insured location in order to avoid it being damaged by a covered cause of loss, the insurance company pays for any direct loss or damage that such property sustains during the move to safety and for its return. In addition, coverage applies at the location where the property is stored for up to 30 days after the date it was moved there.

There are several important points to consider:

The only property insured is covered property at a location listed on the declarations. Property eligible for coverage moved from a location that is not covered does not create coverage.

Example: Jason keeps building materials for the building insured under his builders risk at two separate locations. One is the premises where the building is taking place and the other is at a nearby warehouse. He is worried about a potential riot and moves all of the materials to a building in the next county. A flood occurs while the material is being stored and destroys all of the material. The property that was moved from the scheduled premises is covered but the property moved from the warehouse is not.

The potential loss or damage from which the property is being protected must be from a covered cause of loss.

While the property is being moved to and from and while at the "safe" location, it is covered for ANY cause of loss. This coverage applies for up to 30 days.

ApproachingFire_1

Example: The Point is aware of an approaching wildfire and moves its uninstalled building materials to a safe location. Along the way, one of The Point’s trucks overturns and part of the property is destroyed. The rest of the vehicles continue the trip and the property arrives at and is stored temporarily in a general warehouse on the river. Heavy rains extinguish the wildfire but also cause a flood that destroys the building materials at the riverfront warehouse. Both the overturn loss and the flooding loss are covered because they occurred within the 30-day time period and the effort to preserve the property was made to save it from fire, a covered cause of loss.

Note: The property removed must be moved back to the covered location or the temporary location must be added to the policy within 30 days from the date of the move because coverage ends after 30 days.

c. Fire Department Service Charge (10 12 changes)

This additional coverage responds to situations where the named insured must pay for the expense of a fire department that responds to an emergency. The old maxim: "He who hesitates is lost" applies to this coverage. The sooner a fire is reported, the faster it is controlled. Taking the time to consider the cost of fire department response is time lost in fighting the fire.

This coverage pays only if the named insured is contractually obligated to pay for the expense of a fire department that responds to an emergency or is required to pay because of a local ordinance. It provides up to $1,000 per premises to apply to the service charge and is not subject to a deductible. Higher limits are available. The $1,000 is a premises limit that applies regardless of the number of departments that respond or the number of services provided. (10 12 changes)

Note: This could be a significant reduction in coverage for certain risks. Higher limits should be recommended in such cases.

d. Pollutant Clean Up and Removal

The second paragraph of Additional Coverage Debris Removal specifically excludes expenses to extract pollutants from land or water. This additional coverage provides a limited amount of coverage for those expenses. Each of these requirements must be met in order for coverage to apply:

The expenses must be the named insured’s actual expenses to extract pollutants from land or water at the described premises.
The pollutants must result from a covered cause of loss that occurs.
The covered cause of loss must occur during the policy period.
All expenses must be reported to the insurance company within 180 days of the date that the covered loss occurred.
The only covered expenses for testing, monitoring, or assessing for levels of pollution are tests conducted in the course of extraction.

The $10,000 limit for this additional coverage is unusual because it is an aggregate limit, not an occurrence limit. It is the total amount available during a single annual coverage period and is not affected by the number of locations or the number of losses that occur during that period. As a result, any and all losses that involve eligible expenses reduce the $10,000 aggregate limit.

Note: CP 04 07–Pollutant Clean Up and Removal Additional Aggregate Limits of Insurance is used to increase the limit.

Related Court Case: Pollution Cleanup Coverage Inapplicable

5. Coverage Extensions

a. Building Materials and Supplies of Others

Coverage can be extended to apply to building materials and supplies that others own but only if the materials and supplies meet all of the following criteria:

In the named insured’s care, custody, and control
In, on, or within 100 feet of the building that is listed and described on the declarations
Intended to be permanently added to the building

The most paid is $5,000. Higher limits are available. Payments on this property are for the sole account of the property’s owner.

b. Sod, Trees, Shrubs, and Plants (10 12 changes)

Coverage can be extended to apply to loss or damage to sod, trees, shrubs, and plants that are outside the building or structure but that are still at the described premises. Sod, trees, shrubs, and plants located inside the building or structure are already included as covered property so are not part of this extension.

Coverage applies only if the loss or damage is due to fire, lightning, explosion, riot, civil commotion, or aircraft. The most paid per occurrence is $1,000, subject to a $250 sub-limit for any one tree, shrub, or plant. The limit must cover both the damaged property’s replacement or restoration and its debris removal. (10 12 change)

Note: The 10 12 edition debris removal revision specifically states that it does not apply to removing anything this coverage extension insures.

The expense to remove the debris of sod or any tree, shrub, or plant owned by others is also covered unless the named insured is a tenant, the landlord owns the sod, tree, shrub, or plant, and the named insured occupies the premises. (10 12 addition)

Examples:

A fire damages a building under construction and the loss is covered. The same fire destroys eight trees and eight shrubs that are at the same location but are outside the building. The shrubs are valued at $50 each and each tree is valued at $250. In addition, the cost to remove the debris is $500. The total loss is $2,900. The loss payment is limited to only $1,000.
A windstorm destroys a nearly completed construction project, including three trees valued at $300 each. There is no coverage for the trees because a covered cause of loss that applies to this extension did not cause the damage. However, the sod in the garage awaiting installation valued at $10,000 is covered as part of building coverage.

B. EXCLUSIONS AND LIMITATIONS

Exclusions and limitations are in the Causes of Loss Forms that apply. More than one causes of loss form may be attached based on entries on the declarations.

Note: Carefully review F. Additional Conditions 3. Restriction of Additional Coverage–Collapse. This very important restriction of collapse coverage should be part of the causes of loss forms. However, it is part of this coverage form instead.

C. LIMITS OF INSURANCE

This section states the maximum limits the insurance company pays in any one loss. In most cases, the limit on the declarations is the total amount that can be recovered for a single loss. If an outdoor sign (whether attached to the building or not) is damaged or destroyed, coverage applies up to $2,500 per sign in each occurrence.

The limits provided for the coverage extensions and the following additional coverages are in addition to the limits of insurance for other coverages listed on the declarations:

Fire Department Service Charge
Pollutant Clean-up And Removal

Payments the insurance company makes under A. Additional Coverages b. Preservation of Property does not increase the limit of insurance that applies.

D. DEDUCTIBLE

The deductible is the amount of a loss that the named insured must pay. However, the amount of loss is adjusted based on F. Additional Conditions, 2. Need for Adequate Insurance before the deductible is applied. This becomes the adjusted loss amount.

The adjusted amount of loss is compared to the deductible amount. If it is less than the deductible, the named insured is responsible for the entire amount of loss.

If the adjusted amount of loss exceeds the deductible, the insurance company pays the lesser of the amount of loss above the deductible or the limit of insurance.

If the occurrence that causes the loss involves two or more items of covered property and each has its own limit of insurance, the occurrence deductible is applied only once.

An optional deductible endorsement is available. CP 03 20–Multiple Deductible Form is used to apply different deductibles to different coverages or types of property.

Related Article: Deductible Plan

E. LOSS CONDITIONS

These Loss Conditions apply in addition to CP 00 90–Commercial Property Conditions and IL 00 17–Common Policy Conditions.

CP 00 90–Commercial Property Conditions Form Analysis

IL 00 17–Common Policy Conditions Analysis

1. Abandonment

The named insured still owns the property after a loss and is responsible for all expenses associated with it, unless or until the insurance company agrees to accept ownership of the property.

Example: Primary Builders is close to finishing building a one family dwelling in a new development when a propane tank inside the house explodes. The city government demands that Primary demolish the house and clear the site within 48 hours, or it will impose fines. Although Primary may want to abandon it to We’re Not That Dumb Insurance Company, it cannot due to this condition. Primary Builders must respond to the city's demand or be fined. We’re Not That Dumb may become involved but it is not required to do so.

2. Appraisal

The insurance company and the named insured may occasionally disagree on the value of the property or on the actual amount of loss. The appraisal condition is designed to solve this problem. In the first step, one of the parties decides it has reached an impasse with the other party and makes a written request for an appraisal. Each party then hires an independent appraiser. Each appraiser must be both competent and impartial.

Example: Primary Builders and its insurance company, Down ‘N Durty Mutual, disagree on the value of the roof damaged by a lightning strike. They both agree to submit the dispute to appraisal. Primary’s experienced appraiser happens to be its principal’s wife. Down ‘N Durty’s appraiser recently lost his appraisal credentials. Both appraisers are rejected. Primary’s selection is biased and Down ‘N Durty’s is not qualified.

The appraisers then choose an umpire. If they cannot agree on one, they can request that a judge of a court that has jurisdiction over the matter select one. Once all parties are selected and in place, each appraiser states the value of the property and the amount of loss. If both parties agree, the amount of loss is settled. Only disputed amounts are submitted to the umpire. Any decision made by any two of the three is binding on both the insurance company and the named insured.

The expenses associated with this process fall outside the category of expenses the coverage form pays. The named insured pays the following costs or expenses. The insurance company does not reimburse it for them:

Its appraiser
Its equal share of the cost of the umpire
Its equal share of any other appraisal expenses

The insurance company pays the following costs and expenses. None of these expenses reduce the limit of insurance:

Its appraiser
Its equal share of the cost of the umpire
Its equal share of any other appraisal expense

3. Duties in the Event of Loss or Damage

The named insured is expected to act reasonably whenever a loss occurs. The insurance company’s obligation to pay the loss may end if it does not. The named insured must:

Notify the police or other law enforcement authorities if a law may have been broken. Even though this requirement may sound obvious, the circumstances surrounding a loss may make this issue more complicated than it appears.

Examples:

Scenario 1: Ace Building’s comptroller informs Heavy Metal Mutual, its insurance company, that copper tubing was stolen from the storage building at the new Amherst Condominiums project. Ace’s comptroller does not file a police report because she is concerned that a criminal investigation will delay construction. However, Heavy Metal refuses to pay unless she files the report. She must decide to either report it or not have the loss covered.

Scenario 2: Paraklete Construction uses local vocational school students to help build a warehouse. A fire damages the building. Paraklete’s supervisor is concerned that one of the students may have intentionally started the fire and does not want to notify the police department. Virtue and Diligence Insurance Company suspects arson and refuses to adjust the loss until Paraklete notifies the police.

In cases like these, the insurance company has the right to refuse to pay the loss. It needs this requirement to protect its interests, which include being certain that the claim is legitimate as well as making sure there is a chance that the responsible parties are found and punished. When theft of property is involved, police involvement increases the chances that the property will be recovered.

Give prompt notice to the insurance company of loss or damage and describe the property involved. This notice is not a complete and thorough report but instead provides enough information for the insurance company to begin to process the claim and decide how to respond. Some court cases have challenged the meaning of "prompt." As a result, the best advice is for the named insured to send as much loss information to the insurance company as soon as it knows that a loss has occurred.
Give a description of how, when, and where a loss occurred as soon as possible after it occurs. This requirement is slightly different than the prompt notification obligation. That obligation is to inform the insurance company on a timely basis that a loss has occurred. This obligation assists the company to determine if the loss is actually covered.

HOW is what actually caused the loss. The answer determines if the loss is covered.
WHEN is the exact time of the loss. Because coverage applies only if the loss occurs during the policy period, this information is very important. There is coverage if the loss occurs at 12:02 a.m. on the inception date. There is no coverage if it started at 11:59 p.m. the day before the inception date. In addition, accurate information on when the loss or damage occurred may help resolve whether the loss occurred suddenly or over a period of time. This is important. There is a distinction because sudden losses tend to be fortuitous and covered while losses that take place over a period of time may be maintenance issues that are not covered.
WHERE is important because most coverages require that the property be at a location or premises listed on the declarations. If the loss occurs elsewhere, the coverage form must be examined carefully to determine if any coverage applies at such locations.

Take appropriate steps to protect the covered property from any further damage. The requirement to protect property involves taking reasonable measures, not extraordinary or unreasonable ones. Covering property with tarps to protect against moisture damage, boarding up windows, and hiring security guards are examples of reasonable measures to take after a loss. Any expenses the named insured incurs are taken into consideration in the loss adjustment and settlement but paying these expenses does not increase the limit of insurance. Finally, the named insured should separate the damaged property from the undamaged property and set the damaged property aside for examination whenever possible.
Provide inventories of the damaged and undamaged property when the insurance company requests them. This includes quantities, costs, values, and the amount of loss claimed. This detailed information is important to properly adjust the loss and offer a fair settlement. The named insured controls the inventory and is responsible for supplying the information needed.

The insurance company has the right to verify that the information the named insured provides is accurate and correct. For this reason, it may inspect the property in order to prove the loss or damage. It may also examine the named insured's books and records that relate to the loss or damage. The insurance company can also take samples of the damaged and undamaged property and make copies of the named insured's books and records.

This condition states that the insurance company must be reasonable in its requests. The term “reasonable” is not a defined term though. Two parties might disagree on how to apply this condition. For example, the company may take the position that repeat visits are necessary in order to be thorough. The named insured may view the same actions as being a delaying tactic that slows down the settlement. While the essence of this condition is to prevent the carrier from harassing the named insured, it also benefits the insurance company. Because of the way it is written, an uncooperative insured cannot claim that a single visit is sufficient for the carrier to adjust and settle a loss.

Show good faith in the truth and accuracy of a claim for loss by providing the insurance company with a signed and sworn proof of loss. This must be done no later than 60 days after the company requests it, along with any other information needed. The insurance company provides the necessary forms and instructions on exactly the information it needs.

Note: If the company's requests are unclear and the named insured is confused, any delay in providing the information cannot be used as an excuse to deny coverage.

Cooperate with the insurance company in investigating and settling the claim.

In addition to the points outlined above, the insurance company has the right to examine any insured under oath. The examination can take place without another insured being present. The examinations can be done as often as necessary with respect to anything related to either the insurance coverage or the claim itself. They can include examinations of the named insured's books and records. In all examinations, the written document used to record the insured's answers must be signed.

Note: Loss investigation is a serious part of the insurance claims process. The insurance company must have complete access to information it needs to investigate and settle the claim. This may include information the named insured would rather not disclose. Claims adjusters want to believe their insurance customers are honest but the sheer number of incidents of fraud makes them cautious. While the insurance company cannot use intimidation or harassment, it must still be diligent in order to protect its assets and to prevent or limit fraud.

4. Loss Payment (10 12 change)

a. and b. The insurance company must use one of the four options below to settle a claim:

Pay the value of the lost or damaged property.
Pay the cost to repair or replace any lost or damaged property. This cost does not include any expense for increased cost due to enforcing or complying with any ordinance or law that regulates use, repair, or construction of any property.
Take all or any part of the property at an agreed or appraised value.

Pay to repair, rebuild, or replace the damaged property with property of similar type and quality. This payment does not include any expense for increased cost due to enforcing or complying with any ordinance or law that regulates use, repair, or construction of any property.

The value of the damaged or destroyed property or the cost to repair or replace is based on the terms of the valuation condition of the coverage form or any other provision that amends or replaces the valuation condition.

c. The insurance company must tell the named insured the option it will use within 30 days after it receives a properly prepared and signed sworn proof of loss.

d. Insurance is meant to indemnify, not reward. As a result, the insurance company does not pay more than the named insured's financial interest in the covered property at the time of loss.

e. The insurance company has the right to adjust claims for loss or damage to property the named insured does not own directly with the property's owner. However, the insurance company has the right to settle those claims with the named insured and allow the named insured to work with the property’s owner. Any settlement reached must satisfy all claims for the property because the insurance company pays only once. The most the insurance company will pay for such a loss is the property owner’s financial interest in the property.

f. The insurance company that provides the property coverage may decide to defend the named insured against suits due to claims brought by the property's owner. In such cases, the insurance company does so at its own expense.

g. The insurance company must pay the loss within 30 days of receiving the named insured's signed and sworn proof of loss. This obligation depends on the named insured meeting all policy conditions as well as the value of the loss being determined by one of the following:

The parties having agreed on the amount of loss
An appraisal award having been made

h. Buildings that abut one another often share a party wall. This wall separates the two buildings but is also part of each building. Loss settlements are not affected if the same insured owns all buildings. However, loss settlements may be more difficult if different insureds own the shared party wall.

When both building owners plan to repair and rebuild, the insurance company pays its named insured’s proportional share of the damage to the party wall. However, the insurance company pays the full value of the party wall if the named insured wants to rebuild but the other building owner does not. It then has the right to subrogate against the owner of the adjoining building.

5. Recovered Property

Either the named insured or the insurance company may recover property after a loss is paid. When this occurs, the party that recovers the property must promptly notify the other and inform it of the recovery. The named insured has the right to decide whether to return the claim payment and keep the recovered property or allow the insurance company to keep the recovered property. The insurance company is responsible for recovery expenses and any repair to the recovered property, subject to the limit of insurance.

Example: Burglars break into The Point’s temporary storage building and steal $25,000 in toilet fixtures. The insurance company pays the claimed amount of $25,000. Four years later, the police notify The Point that they found the toilet fixtures at a warehouse. The Point notifies the insurance company of this development. The insurance company representative and The Point’s representative visit the warehouse. The Point representative realizes that the current value of the toilet fixtures is negligible due to their age and the technological breakthroughs in similar models currently in use. He decides to keep the claim payment and let the insurance company keep the toilet fixtures.

6. Valuation

Loss or damage to covered property is valued at its actual cash value at the time of loss. The coverage form does not define actual cash value but court decisions state that it is replacement cost new minus accumulated depreciation.

Example: Patrick’s Construction work on a house was almost finished when a tornado destroyed it. Patrick reported the loss but there were some delays in providing all of the information needed for loss settlement that he could not control. By the time the information was received, the housing market was in free fall and the price of building materials had plummeted. The actual cash value at the time of the loss was $1,500,000 but it was determined to be $1,250,000 when the loss was finally settled. The Fair Insurance Company was obligated to pay the $1,500,000 actual cash value as of the time of the loss.

F. ADDITIONAL CONDITIONS

These two additional conditions are extremely important. Mistakes in either can be extremely costly.

1. Mortgageholders

Mortgageholder is not defined but this coverage form states that trustees are considered mortgageholders. The insurance company pays for covered loss or damage to buildings or structures to each listed mortgageholder in the order of precedence and as its respective interest appears. The mortgageholder must prove its interest at the time of loss.

The mortgageholder retains the right to receive loss payments even when foreclosure proceedings or similar actions are being taken against the insured. However, it loses those rights after the foreclosure is complete because the named insured no longer has any interest in the property. Instead, the bank is the owner and its policy should respond.

If the insured’s claim is denied because of its actions or because it failed to comply with any of the policy's terms and conditions, the mortgageholder retains the right to receive loss payments but only if it has done all of the following, as applicable:

Paid any premium due when the insurance company notified it that the named insured had not done so
Submitted a signed, sworn proof of loss within 60 days after the insurance company notified it that the named insured had not done so
Notified the insurance company of any change it knows of in ownership, occupancy, or substantial change in risk

Once the mortgageholder takes such intervening action, the coverage form’s terms apply to the mortgageholder because it assumed the named insured's position.

If the insurance company pays the mortgageholder for a covered loss or damage but refuses to pay the named insured because of its actions or because it did not comply with the terms and conditions of the coverage form:

The mortgageholder’s rights under the mortgage transfer to the insurance company to the extent of the amount paid.
The mortgageholder’s right to recover the full amount of its claim is not impaired.

The insurance company has the option to pay off the entire mortgage including accrued interest. If it does so, it owns the mortgage and the insured must pay the remaining mortgage debt to the insurance company.

Example: The Findlay Industrial Park is being built on a very attractive piece of property in a suburban community. ACME Insurance is providing the builders risk policy. The occupancy on the application was an office building but it changed to a foundry. A fire erupts when testing is taking place. ACME denies the loss because of the increase in hazard. However, ABC Mortgage, the mortgageholder had also been kept in the dark about the occupancy change and therefore its claim will be honored but in doing so it must give up the mortgage on the desirable property. Of course, ABC can await default by Findlay due to the lack of coverage and take over the property.

Nice_OfficeBuilding

If the insurance company cancels the policy for non-payment of premium, it must give at least 10 days prior written notice to the mortgageholder before the cancellation takes effect. It must give at least 30 days written notice to the mortgageholder for any other reason.

If the insurance company decides to not renew the policy, it must give at least 10 days written notice to the mortgageholder prior to the expiration date.

2. Need for Adequate Insurance

Builders risk coverage is unusual in that the building under construction must be insured to its full, completed value. The rating approach recognizes that the initial value is low and increases over the term of the construction project. The premium charged is adequate only if the estimated final limit is accurate. The limit is to be the anticipated completed value of the building or structure. Like other commercial property coverage forms and policies, this coverage form imposes a penalty if the limits are not adequate. The insurance company does not pay a greater portion of any loss than the proportion that the limit of insurance bears to the what would have been the completed value of the insured building or structure.

Example: The original contract construction cost of the Turners’ new home was $300,000. Bountiful Builders began construction and the Turners began peppering with suggestions and add-ons that added to the project’s cost. Bountiful willingly complied with the requests. The Turners arranged the builders risk coverage and the $300,000 limit reflected the original construction cost. They never informed their agent of all the changes and additions that were being made. Construction was almost finished when a violent windstorm caused $100,000 in insured damage. The Turners were very surprised and bitterly disappointed when presented with the following calculations:

Building limit	$300,000
Completed value after requested changes	$450,000
Fraction from insured limit divided by required limit	$300,000 ÷ $450,000 = .667
Amount of loss	$100,000
Loss amount multiplied by fraction determined above	($100,000 X .667) = $66,667

The Turner’s total recovery was $66,667 before applying the $1,000 deductible that applied. As a result, the insurance company paid $65,667 and the Turners were responsible for $34,333.

3. Restriction of Additional Coverage–Collapse

Editor’s note: This very important restriction of coverage should be part of a Causes of Loss Form, not part of the coverage form.

Additional Coverage–Collapse in CP 10 20–Causes of Loss–Broad Form and CP 10 30–Causes of Loss–Special Form is amended to exclude coverage for any collapse that occurs during or after construction when the collapse results from using defective materials or construction methods.

Example: The stairway that leads to the second story of Patricia’s new dwelling collapses, resulting in $25,000 in damages. Build It Right or Else Insurance Company denies the claim because the contractor did not use the fasteners the architectural firm specified. Patricia must pay the damage and then attempt to recover from the contractor.

An endorsement is available to remove this major restriction of coverage and provide coverage.

4. When Coverage Ceases

Builders risk insurance is designed to cover a building or structure under construction until construction is complete. This condition provides the exact time when the insurance this coverage form provides ends. Coverage ends immediately when any one of the following takes place:

The policy expires or is cancelled.

Example: Restaurante Extraordinaire is built with meticulous attention to detail. It has the finest building materials and employs custom craftsmen to do the finish work. The builders risk coverage on the building runs from 03/03/19 to 03/03/20. The meticulous attention to detail causes the work to fall behind schedule and the new projected completion date is 06/01/20. Unless the coverage provided is renewed or extended, it ends on 03/03/20.

The purchaser accepts the building or structure.
The named insured's financial interest in the project ends.
The named insured abandons the project and does not intend to return and complete it.
Ninety days after construction ends or 60 days after the building is put to its intended use or is occupied to any extent. The insurance company can change this, but it must be in writing. However, changing this one item does not also change the previous four items.

Example: Restaurante Extraordinaire asked permission to begin occupying the kitchen once it was complete but while the work was being completed on the rest of the building. The insurance company granted permission in writing. However, the coverage still ends on the expiration date of 3/3/20.

G. DEFINITIONS

This coverage form has only one definition.

Pollutants

This term refers to any solid, liquid, gaseous, or thermal irritant or contaminant. It includes smoke, vapor, soot, fumes, acids, alkalis, chemicals, and waste. Waste includes materials to be recycled, reconditioned, or reclaimed.