Wrap Insurance

7 Common Builders Risk Claim Mistakes
(and How to Avoid Them)

Take a proactive approach to avoid unpaid claims.

1. Incorrectly Reporting a Project
   Our reporting form policies are designed for builders with multiple projects in a 12-month period, and they require a diligent contractor who submits regular reports according to the established period, typically month-to-month.
   If a contractor’s “filing cabinet” is a truck dashboard, they may be a better candidate for multiple single-project policies or a blanket-type policy that doesn’t require frequent reporting.
   When a loss occurs, the carrier’s claims department will rely on the “new start” report to determine the project’s start date. If a contractor hasn’t submitted that report yet or if it was submitted late, coverage could be denied.
   Missing report penalties will also apply until all reports are caught up.
   Be sure the insured has a clear understanding of what to report and when to report when it comes to the reporting form policies.
   Take a proactive approach to avoid unpaid claims.
2. Not Listing an Address for Each Property
   When a home is built in a new neighborhood, nailing down an address can be tricky and is sometimes delayed until a formal street name is established. These subdivisions typically don’t have legal addresses right away — a project may only have a lot number.
   When securing a course of construction policy for a new home, make sure to list the subdivision name and lot number (or legal address, if available) so any future claims can be matched to the policy. The carrier’s claims department cannot trigger coverage and pay the insured unless the address where the loss occurred can be identified.
3. Miscalculating the Percentage Complete
   Claim payment may be denied if the policy doesn’t accurately reflect the scope of work or progress of the project.
   Ensure you are reporting the correct percentage complete on the application.
   Calculating the proper percentage complete is easy: Divide the amount invested in the project by the total
   completed value. If you’re building a $100,000 structure and you’ve put $25,000 into it thus far, it’s considered
   25 percent complete.
4. Misunderstanding When to Report Actual Cash Value or Replacement Cost During Renovation
   The actual cash value of the existing structure and the cost of replacement are very different evaluations. With remodeling builders risk insurance, policyholders receive Actual Cash Valuation (ACV) on the existing structure and replacement cost when the renovation coverage excludes the existing structure. Don’t inflate the value of the existing structure by saying the future renovations will make it worth more. Instead, rate the existing structure value at ACV.
   There are several tools available to help calculate it, such as Marshall & Swift’s valuation calculator.
5. Including the Value of the Existing Structure When It’s Not Covered
   Always calculate the value of the existing structure and the value of the renovation separately. In the case of coverage for a renovation only, do not include the value of the existing structure.
   Improperly combining these values when the existing structure isn’t covered only creates more headaches down the road should a claim be filed. Overcharging the premium by over-insuring the value can cost you the account or lead to an upset insured when they don’t get the value they paid for. Under-insuring the value could cost you the account when your insured suffers a coinsurance penalty.
6. Drafting a Project Description That Is Too Broad
   Don’t assume anything about your client’s project. Even if it feels like overkill, ask a lot of questions and write very detailed project descriptions so you don’t leave any gray area open to interpretation.
   For example, if your client says, “We’re adding another story to the home,” don’t just assume that means they’re building on top of an existing structure. Ask them exactly what they plan to do. We experienced a risk where a homeowner tried to add a new first floor by raising the entire structure off its foundation — an automatic disqualifier for builders risk coverage — but the agent was not aware of the severity of the risk because a thorough description of the project was not captured during the application process.
7. Not Getting a Signed and Dated Application at the Time of Issuance
   This is a big one! Always have your client sign and date a copy of the application at the time of issuance, detailing exactly what information was provided to you to generate the policy. This application should be kept in your file at all times in case the carrier ever needs it, but it’s also crucial to protect yourself if a dispute arises. This signed documentation can cover your back and prevent a potential “he said, she said” situation.