I previously discussed the importance of builder’s risk coverage for a construction project. Builder’s risk insurance is not a one-size-fits-all policy meaning an owner or contractor–party procuring builder’s risk–needs to work with their insurance broker to ensure that their during-construction risks are properly being insured. Otherwise, a loss may occur during construction only for the owner and contractor to learn that the loss is not covered under the builder’s risk policy.
By way of example, in Gerald H. Phipps, Inc. v. Travelers Property Casualty Co. of America, 2016 WL 97756 (D.Co. 2016), a contractor was hired to renovate and expand a public library. The existing library contained asbestos in elevator shafts and stairwells. The contractor’s intent was to not disturb the asbestos in these locations. However, during construction, snow melted and water seeped into the stairwells and elevator shafts that consequently mandated the mitigation and remediation of the asbestos in the stairwells and shafts (existing structures).
The contractor submitted a builder’s risk claim for the remediation costs. The contractor’s builder’s risk policy provided that builder’s risk coverage does NOT include: “Buildings or structures that existed at the job site prior to the inception of this policy.” This existing building / structures exclusion is common in builder’s risk policies. The builder’s risk insurer denied coverage for the mitigation costs because the policy did not cover damage to existing structures (i.e., the stairwells and shafts). The contractor filed a coverage lawsuit; however, the court entered summary judgment for the builder’s risk insurer stating:
“Because the stairwells and elevator shafts [existing structures] are excluded from the definition of “Builders’ Risk” and GHP [contractor] has not introduced evidence that the water intrusion damaged its own work, GHP has not shown any loss to covered property.”
Gerald H. Phipps, 2016 WL at *5.
Be watchful for the existing structures / buildings exclusion in builder’s risk policies, especially if you are performing renovation work to existing structures.
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