Claim Stories: Theft Loss on Renovation-Only Policy During Demolition

Each quarter, US Assure Chief Underwriting Officer Rachele Holden joins us in the studio to share real builders risk claim stories and provides guidance to help you and your clients prevent similar mishaps.

Read the Video Transcript:

Tell us about this project.

The policy that was written was a remodeling project for a commercial structure, covering renovations only, excluding the existing structure.

What was unusual about this policy?

The policy canceled for nonpayment of premium. After 30 days of the policy being canceled, we get a request from the agent for reinstatement.

Underwriting looks at it, and underwriting and billing were willing to reinstate it, even though it was past 30 days, as long as we got the Zurich no loss letter. We left it in the agent's hands to obtain the no loss letter.

Later, we find out that the no loss letter could not be sent to us and could not be signed because a theft loss had been reported.

What happened to result in a claim?

Theft happened at the job site. It was theft of materials, and the materials happened to be part of the existing structure, but the contents were not included in the actual commercial project being renovated.

What did the adjuster discover?

The adjuster uncovered that first the loss was reported 18 days past the actual loss date. It shows some signs of why was it delayed? Right. It's a theft. The insured wants his coverage. So as they start researching it even further, they come to find out what was stolen was actually appliances from the commercial building that they were renovating.

Well, remember I told you that this was a renovations only, excluding existing structure coverage. So now we have another issue. There is no coverage for existing structure. The materials stolen, the appliances, are not covered property under this policy. The claims adjustor found something else. During this project, all they were doing was demolition.

There had been no remodeling being performed and installed at this job site.

How did Zurich respond to the claim?

The actual claim was denied. No covered property and at the time of the loss, it was during that cancellation period. So there was no active coverage. There was no choice for the claims adjuster other than deny the loss.

We then get a request from the agent. It went to the adjuster. The adjuster contacted me asking if there could be an exception made to reform the policy and add the existing structure so we could cover the claim.

Reformation could not be done. We didn't get payment in time. The policy was canceled. The loss occurred prior to our policy.

The best we could do is to rewrite the coverage going forward, but we could not pick up the loss. The policy was rewritten to be able to provide ongoing coverage later, but as respect to this claim, it remains denied.

What did the agent get right?

The agent asked the questions. They delivered a policy that the insured requested. They asked for renovations only. The insured didn't ask for existing structure, so that was done properly. I don't know if the signed application was obtained, but if they did, that would have been done properly.

What should have been done differently?

Verify with the insured that no existing structure was needed to understanding on an insurance point of view to look at it and say I'm doing renovations. They might be assuming that the value they gave you already included the existing structure, but they didn't realize they need to tell you. Go ahead and ask the insured to make sure you don't need the existing structure of this covered.

Do you have this covered somewhere else under another property policy? Just double check just to make sure you're writing the proper coverage that they're looking for without them telling you.

The other thing, when we add existing structure coverage, the HBIS-37 form includes a condition called the construction inactivity clause.

And it states if there are no renovations within 60 consecutive days from the date of loss, major perils are not covered, and theft is one of them. But for the existing structure, you'll still have fire, hail, and so on. Unfortunately, the insured will suffer a 15% penalty. So that is why it's a key question that we ask you, "Is it going to start within 60 days?”

So, what should the agent do?

Double check that with the insured. Show them the conditions when you're adding that existing structure coverage and ask them “Can you comply with this condition? Because here's what's going to happen. Here's what's going to be excluded for perils. And here's the 15% penalty.”

It never hurts to go the extra yard and make sure they understand their policy.

Have them initial the HBIS-37 form. That just protects your agency. And that's what we're here for. That's why we do these lesson learned videos. To help nurture your relationship with your insured, and to not suffer issues after a claim occurs. Right?

It's a win-win for everyone. You sold them the right policy. It delivered. And now we're paying the right proper loss. Policy correct.

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