Claim Stories: How Overlooking Dual Residential Projects Led to a Costly Coverage Gap

Lessons Learned with SVP, Head of Product Underwriting

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5 min

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.

This was a new construction home to be built that was $2.1 million. The application was submitted for a ground up construction, and there were no issues based on the answers that were provided on the app to produce the policy.

What happened to result in a claim?

So, as it happens with Mother Nature everywhere, a major wind storm came through and the the wind knocked a large tree into the home and a garage. The loss reported was around $481,000 in damage. It was a major storm. And so the loss was reported and the claims adjuster started their process.

What did the adjuster discover?

The adjuster gets to the job site and they notice there is a new home under construction. But the damage that the insured is claiming is to an existing home. Apparently there was already a dwelling with a garage that was on the premises, and they were building a second home at this property location. The damage had nothing to the new construction, but it happened to the existing structure.

That is a major issue when we wrote a new construction only policy. We were not intending to cover any other buildings other than this one.

How did Zurich respond to the claim?

The claims adjuster reviewed the policy and there was no existing structure coverage provided. There was no mention that there was going to be any remodeling being done. So they talked to the insured and they said yes, they had planned to do remodeling. But, at the time of the wind loss, there had been no remodeling performed. And there was no coverage to the existing.

And since there's no remodeling being done yet, there's no coverage to trigger for any new work because none had been performed. The new constructed building that was there did not suffer any damage.

What did the agent get right?

So, they intended to cover the new construction, dwelling that was being done. That was correct.

What should have been done differently?

I don't know if the insured failed to tell them they were also going to be remodeling. Had they told their agent that, what should have been done is you start with a remodeling policy, include an existing structure. So, you have to first trigger that coverage. Once you have that in play, there is a question that we ask on our application.

“Are you going to be insuring other buildings within 100ft?” And they would have said yes. And then they would have filled in underwriting notes to let us know that they've got a new construction ground up. They would provide the value of that structure and allocate how much is going to be for the renovations to the existing structure that was there.

And the underwriting notes will actually show that they intended to cover remodeling and a new construction.

How can agents avoid a situation like this?

Whenever you're writing a new construction, look on Google. See if a home exists that would prompt you immediately to say, “Hey, are you demolishing this building and now adding this home in place of it?” And then that will allow your insured to say “Well, no, we're remodeling that.” Now you know a little bit more about the information.

There was no homeowner policy written for this property, but at the very least, a homeowner policy should have been in effect. If they don't plan on doing remodeling, make sure that's intact. And then you're just doing a new construction policy for your actual second home.

Final thoughts?

Always get that signed application. A signed application represents what the insured told you. So, if you had probed them, let's say you asked them questions. “So, it's just a new construction from ground up?” And they say yes. And then all of a sudden this circumstance happens when a loss occurs, when we find out there is an existing home that's going to be remodeled, that signed app is shows they represented that they were only intending to cover the new construction, not the remodeling.

Protect yourselves.

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