Property and Casualty Insurance · Property Insurance · 6 min read
Construction and Commercial Endorsements
- Identify the property covered, policyholder options, and termination triggers under the Builders Risk Coverage Form.
- Explain the coverages provided by the Ordinance or Law endorsement and the Spoilage Coverage endorsement.
- Compare methods for insuring fluctuating personal property values using the Peak Season Limit of Insurance endorsement and the Value Reporting Form.
Builders Risk Coverage Form
The Builders Risk Coverage Form covers commercial buildings and structures while they are under construction, alteration, or repair. A standard commercial property building policy can cover additions under construction and alterations or repairs to an insured building, but a new building under construction generally needs builders risk or other appropriate coverage. The policyholder on a builders risk policy can be the building owner, the general contractor, or both as named insureds.
Builders risk coverage applies to the building under construction, foundations, fixtures, machinery, and equipment intended to become permanent parts of the structure. Materials and supplies intended to become a permanent part of the building are also covered if they are located in or on the building or within 100 feet of the described premises. For example, if a contractor stores framing lumber and roofing tiles 40 feet from the structure, those supplies are covered against loss.
This coverage can be written on a completed value basis or on a reporting form basis. Under a reporting form, you submit reports of covered property values as required by the policy, including covered work and materials. For completed value coverage, you should set the limit based on the expected value of the covered property when construction is complete. The completed value form includes an adequate-insurance requirement that can reduce a loss payment if the limit is less than the required completed value.
Builders risk coverage does not continue indefinitely. Coverage typically terminates when the policy expires or is cancelled, when the property is accepted by the purchaser, or when the insured's insurable interest in the property ceases. It also terminates 90 days after construction is completed, or 60 days after the building is occupied in whole or in part, or put to its intended use, unless the insurer gives written permission. Finally, coverage terminates immediately if the property is abandoned with no intention to complete construction.
| Termination Event | When Coverage Ends |
|---|---|
| Policy expiration or cancellation | Immediately on policy cancellation or expiration date |
| Acceptance by purchaser | Immediately upon acceptance |
| Insurable interest ceases | Immediately when insurable interest ends |
| Construction completed | 90 days after completion |
| Occupied or put to intended use | 60 days after occupancy or use (unless insurer gives written permission) |
| Abandonment | Immediately when abandoned with no intention to complete |
Common mistakes
- Assuming the Peak Season endorsement requires regular monthly paperwork. Peak season dates and limits are set in the schedule in advance; the Value Reporting Form is the endorsement that requires periodic reporting.
- Believing Ordinance or Law Coverage C pays immediately without rebuilding. Coverage C pays eligible increased costs of construction only when the property is repaired or rebuilt, subject to the endorsement terms.
- Thinking the Value Reporting Form will pay above the policy limit if reported values are higher than that limit. The form never pays more than the stated policy limit of insurance.
- Assuming materials stored off-site are covered automatically by Builders Risk. Materials and supplies must be intended to become a permanent part of the building and located in or on the building or within 100 feet of the described premises.
Key points
- The Builders Risk Coverage Form covers buildings under construction, foundations, fixtures, and permanent machinery, as well as materials within 100 feet of the premises.
- Builders risk coverage can be written on a completed value or reporting form basis, and it terminates when accepted by a buyer, 90 days after completion, or 60 days after occupancy or use without written permission.
- The Ordinance or Law endorsement covers loss to the undamaged portion of a building (Coverage A), demolition costs (Coverage B), and increased costs of construction to meet current building codes (Coverage C), but excludes pollutant cleanup.
- The Spoilage Coverage endorsement protects perishable stock against mechanical breakdown, contamination, or power outages beyond the insured's control, without being subject to coinsurance.
- The Peak Season Limit of Insurance endorsement provides an advance schedule of increased limits for predictable inventory surges without requiring monthly paperwork.
- The Value Reporting Form adjusts annual premiums to actual inventory levels but enforces penalties for late reports and applies the honesty clause to reduce payments if inventory values were underreported.
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