By no means should anyone be shown as a loss payee, not even a financial institution. When it comes to covering a financial institution’s insurable interest, the proper language is mortgagee, on a separate mortgagee provision; or designation of mortgagee, on a lender’s loss payee endorsement.
Most builder’s risk policies are executed on a completed value form. The exception is a reporting form when a contractor is involved in more than one project at a time. The determination of which form will be used is usually an option left to the underwriter.
Under the completed value form the insurance limit is set at the expected completed value of the project, sometimes with a coinsurance clause. If, as is frequently the case the actual cost of the project exceeds the initial estimate, the limit should be increased as soon as this is discovered.
Caremust be takenwhen determining the insurance limit to be applied. Common errors include:
As changes are required and permitted by the owner or architect, they invariably will result in additional costs. If the insurance limit is not adjusted to reflect these changes, the amount of insurance will fall below the completed value. In one case, involving the collapse of a large free-standing sign being constructed for a hotel, there were three change orders before construction began. With the policy subject to a coinsurance clause, the insurance limit was grossly inadequate even before work on the project started. The project owner did not learn about the significance of change orders until after the loss, which amounted to thousands of dollars.
Some builder’s risk policies specifically mention these items as being covered, but many policies do not. Some builders choose to leave these items out when...