Soft Cost or Delay in Opening: Insure for the Potential Exposure



...of indemnity when setting up and procuring the policy. In addition, it is prudent to be proactive in dealing with other circumstances that may delay the project following a loss occurrence so as to eliminate or mitigate loss adjustment issues arising from the need to separate loss-related factors from non-loss related factors.

Throughout the course of this article, we have referred to the “anticipated completion date.” What does this mean and what implications does it have in the evaluation and adjustment of a builders risk loss?

The anticipated completion date is typically the date set forth in the construction contract for the completion of such project. Typically, the policy will reflect this date as being the anticipated completion date against which any subsequent delay will be measured. This date is a very significant factor, however, it is often overlooked or not given due consideration. Insomuch that coverage commences at the anticipated completion date, careful attention must be given to scheduling changes that may occur throughout the term of the project. All such changes should be reported and the policy modified accordingly.

Most readers will opine that construction projects are typically behind schedule and that is just a reality of life. In some cases, on the other hand, projects are actually finished ahead of schedule. Take, for example, a project with an anticipated completion date of June 30 which is specified in the policy. Due to acceleration efforts implemented by the contractor, the completion date is moved up to March 1. For purposes of this illustration, assume further that a major fire occurred in February and as a result of the damage, the period of indemnity and delay is 10 months.

Based on the policy language, coverage would not commence until June 30, which is the stated anticipated completion date. As indicated, the project was on course to be completed March 1, if not for the loss. In the absence of the anticipated completion date being modified, coverage would not commence until June 30, thus leaving a four-month gap for which the delay costs will not be compensable.

The risk manager, insured, or broker should closely monitor the construction progress and report any changes in the anticipated completion date to the insurance company.