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

3. Insurance Community University Objectives 1.Exposures to loss 2.Insureds to be named on the policy 3.Review of Construction Contract 4.Methods of writing Builders Risk 5.Review of Policy 3

4. Insurance Community University Builder’s Risk Completed value and Beyond

5. Insurance Community University Exposures to Loss and What To Look For First – review the construction contractWho purchases the policy – owner or builderWhat perils need to be insured Fire and AOP Flood / Earthquake / Wind

6. Insurance Community University Exposures to Loss What kind of building or structure Residential Commercial Building items Underground work Underground foundations Retaining walls Pavement / paving

7. Insurance Community University Required Property Coverage Materials and suppliesEquipment to be part of the buildingExisting buildingTemporary structuresOffice trailerFencingLandscaping

8. Insurance Community University 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. Insurance Community University 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. Insurance Community University Available Coverage Forms Forms for this class of business are un-filed and uncontrolled forms Most insurance companies create their own forms The forms have common language but are often unique to that company

11. Insurance Community University Policy Structure How to Put it Together

12. Insurance Community University Builder’s Risk Coverage The policy is designed to insure the materials and supplies to be used in the construction as well as the value of the building as it is being built until the project is completed

13. Insurance Community University Project Specific This type of policy covers an individual building project May be purchased by either Project Owner or General Contractor A deductible is used and will apply per loss

14. Insurance Community University Reporting Form - Completed Value Premium adjustment at end of policy Reports are provided periodically (Monthly / Quarterly / Annually) Penalties can apply if under-reported Purchased by the General Contractor Annual policy – multiple projects

15. Insurance Community University New Construction or Remodel Either may be covered Check construction agreement for requirements to insured existing structure Policy must be endorsed

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

17. Insurance Community University Named Insured Often requires the Owner to Be a named insured Receive the claim proceeds Act as fiduciary for all other parties Policy purchaser (check the contract) OwnerContractor

18. Insurance Community University Named Insured Include as “insureds” to protect their financial interest in the project Subcontractors Sub-subcontractors Not necessary to include these parties as Named Insureds

19. Insurance Community University Coverage Locations Here, there and anywhere!

20. Insurance Community University Coverage Locations Insurance policy language will vary among the company forms It will be important to review the insuring agreement to determine locations of coverage

21. Insurance Community University What to look for: Materials and supplies should be covered at the project site, in transit, in storage or any other temporary location Include any warehouses or storage sites, even if the warehouse is owned or occupied by the insured (this is sometimes excluded)

22. Insurance Community University Covered Property What is it and how much?

23. Insurance Community University The policy description: The policy should be clear that coverage applies to the materials, supplies, building or structure and includes all fixtures, machinery and equipment that will be included in the completed project

24. Insurance Community University 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. Insurance Community University The policy description: Scaffolding and forms The construction agreement typically requires coverage Many forms restrict coverage to $5,000, $10,000 or $25,000

26. Insurance Community University Excluded Property Why not?

27. Insurance Community University Commonly excluded property: Landscaping Or sub-limits Contractor's tools and equipmentBlueprints, drawingsDamage to existing buildings

28. Insurance Community University Commonly excluded property: Property located in a permanent warehouse of insured (try to remove) Property in the open against loss by rain, snow, sleet or hail except while in custody of carriers for hire (not appropriate and should be removed)

29. Insurance Community University When Coverage Begins At policy inception At the time the insured becomes legally liable (according to the construction contract)

30. Insurance Community University 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. Insurance Community University 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. Insurance Community University 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. Insurance Community University Most appropriate: After no party has any interest in the covered property other than the owner and any mortgagee as shown in the policy

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

35. Insurance Community University 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. Insurance Community University Causes of Loss Risks of direct physical loss to covered property unless excluded

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

39. Insurance Community University 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. Insurance Community University 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. Insurance Community University 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. Insurance Community University 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. Insurance Community University 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. Insurance Community University 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. Insurance Community University 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. Insurance Community University 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. Insurance Community University 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. Insurance Community University Poll#4 The perils required in the construction contract always match the Builders’ Risk policy. True? False?

49. Insurance Community University Coverage Territory As this is an Inland Marine form, coverage is typically restricted to: United States, its territories and possessions, Canada or Puerto Rico Occasionally the form will restrict coverage to Continental United States

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

51. Insurance Community University Provisional Limit of Insurance The form typically requires a limit of insurance to equal the expected completed value of the project Even if the word is not used, this is a type of coinsurance clause – 100% to value

52. Insurance Community University Provisional Limit of Insurance Completed value is not the same as contract value Change orders Debris removal Pollution clean up Ordinance or law compliance

53. Insurance Community University Valuation clause The coverage should be written at Replacement Cost Value Include labor and profit

54. Insurance Community University Policy Conditions Another contract

55. Insurance Community University Waiver of subrogation May be required in the construction contract May not be allowed in the policy Negotiate this when placing coverage

56. Insurance Community University Delayed Completion Coverage Soft Cost Coverage

57. Insurance Community University Delayed Completion Coverage Pays the consequences to the insured if the project is delayed Coverage triggered by covered loss to covered property – Could be restricted to project location only The Owner and the Contractor can both experience additional costs in the aftermath of a direct loss

58. Insurance Community University Delayed Completion Coverage Typically written as an endorsement to the Builder’s Risk policy – Specific description of coverage – Specific limits When possible, provide Business Income and Extra Expense coverage – Provide Extended Period of Indemnity

59. Insurance Community University Examples Loss of rental income or loss of incomeAdditional interestAdditional licensing fees or building permit feesAdditional project management costsAdditional utility or data line installation feesArchitect / engineering feesInsurance costs

60. Insurance Community University Summary Builder’s Risk coverage is different carrier to carrier ALWAYS review both the construction contract and the policy – Make sure they match

61. Insurance Community University 61 Upcoming Dates University Classes FREE Community Classes 2/14 Voluntary Benefits 2/15 – 2/16 Ethics 2/22 Business Income — Five Key Issues 2/9 The 5 Major Hiring Mistakes---Only Hire the BEST! 3/20 2012 Commercial Property Forms Explained Join the Community TODAY at: www.insurancecommunitycenter.com