Claim Stories: Flawed Remodel Project Summary

Each quarter, US Assure SVP - Head of Product Underwriting Rachele Holden joins us in the studio to share real builders risk claims stories and provides guidance to help you and your clients prevent similar mishaps.

Read the Video Transcript:

Tell us about this project.

What was written was a remodeling policy, including existing structure, for a 26-year-old home that was going to be renovated. They were going to add a story and it was located at the beach. And so far, no problem on the application based on the answers that we received to deliver the policy.

What happened to result in a claim?

So apparently someone decided to throw a Molotov cocktail at the structure. It hit an outside air conditioning unit that was attached to the structure, and did minimal damage. But, they did report a claim, and it was turned in as a vandalism because it was attempted fire.

What is a Molotov cocktail?

So, a Molotov cocktail is where you put a flammable liquid in a bottle. You put a rag into the top of the bottle, and then you set it on fire, and you throw it.

What did the adjuster discover?

So the adjuster got out there and to his surprise, he goes out there to see a structure sitting 15 feet in the air on pallets. There were pallets for every corner of this structure in the air. He asked the insured for a copy of the structural engineering plans because the application said there was a structural engineer. Report gave us the person's name. Adjuster looks at it, it's got some stamped plans. But he was in awe that this building was being supported by pallets. He notified me immediately that he didn't think that this was where the story was intended so it's a different picture than what we had assumed.

How did Zurich respond to the claim?

Zurich paid the loss and it was minimal. There's nothing in the coverage form that would have stopped them from paying this. But, the issue was eligibility. With Zurich's program, we would not have written this had we known they were going to raise this building off its foundation and put the second floor underneath the structure. That's not eligible under the program. So, we set up the policy for non-renewal and notified the agent that we would not be extending this remodeling project.

What did the agent get right?

The agent completed the application based on the information provided by the insured. They made the assumption that the story was going to be added on top. We all make that assumption. Underwriting would have made that assumption. Before this, I'd never seen an instance where you had to worry about a story being built underneath. 

What should have been done differently?

So, the additional story we should have figured out it was being done below. We should have gotten more information, which we would have gotten from the structural engineer to find out exactly how this was going to be done. How was this additional story going to be supported? And had we seen that it was going to be done on pallets, we would have went ahead and turned it down anyway. But for the security of the agent, make sure you get these signed applications. These applications are your protection that the insured told you this information.

What should agents do if they discover the project scope is different from what they thought?

Notify your carrier. Not just us, any of your carriers. Notify your carrier immediately, give them a chance to review it and see if it's still eligible. If it is, they'll continue the coverage. They'll make notes on the file. If it isn't, it allows the carrier a possible chance to actually cancel the policy mid-term for misrepresentation, as the risk exposures have changed and increased. It allows the agent to properly place the coverage where it should be. So should a claim occur, there will be no question. And the coverage that's intact would then pay the loss with no issues.

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