“Early Works” Coverage
When insuring a construction project, it is easy to overlook the risks that may exist prior to “vertical construction”. Most project managers understand that the “all risks” builders risk policy should provide coverage in the event the project under construction suffers physical loss or damage. The project itself generally consists of numerous building materials and parts being constructed in a linear way and the policy covers physical loss to those materials (as well as the costs to construct, build, erect, or install such materials), which collectively make up the building or property. This physical loss or damage exposure is often contemplated in the form of construction hard costs.
One of the features of a modern (or broad) builders risk policy is that it provides coverage for parts of the project which are temporary or the costs of certain work or materials that will not constitute part of the final construction project but are necessary and/or incidental to construction.
These temporary works can include (depending on the policy wording): shoring, falsework, formwork, scaffolding, hoarding, and other forms of temporary or incidental construction work or materials. This work will not become part of the final project, but in the event these temporary works suffer physical loss or damage, would need to be repaired or replaced in order for construction of the insured project to continue.
Another point of interest is “site preparation”. In some wordings “site preparation” is specifically insured or referenced in the insuring agreement or description of property insured. Generally, this refers to costs of site clearing, excavation, fill, and grading work. In the event an insured peril causes these costs to be incurred again, the builders risk policy can respond.
In a practical example, if a water main bursts adjacent to the project site and causes significant flooding and water damage to the excavated project site then the site will need to be drained, re-excavated, and fill material (which is no longer usable) replaced. The owner or contractor can file a claim to have these covered by the builders risk policy on a first party basis rather than attempting to recover costs from a third party such as a municipality or professional whom may be responsible.
It is worth noting that the level of coverage is not uniform across the industry and policy wordings vary in the broadness of both “temporary works” and “site preparation” coverage. For example, a party trying to recover a claim such as the above example with a policy containing a “land” exclusion may run into problems with the insurer who may attempt to use the exclusion to avoid liability. Similarly, if “site preparation” (or similar language) is not specifically referenced in the insuring agreement or description of covered property then more work may be required in order to prove your claim to the insurer. Some insurers may require that the costs of excavation or shoring be included in the construction budget/hard costs amount provided to them at underwriting in order to be covered.
Often, the builders risk/physical loss or damage exposure is not contemplated until “vertical construction” has commenced which may be interpreted as the beginning of concrete pouring. This is typically after excavation, grading, foundation drilling, and/or other works necessary before the actual structure of the project can begin construction.
Because the builders risk policy can provide coverage for “early works” exposures we recommend to our clients that coverage be obtained at excavation instead of start of “vertical construction”. Moreover, the risk of loss or damage to the early works is low, and as a result we find insurers are willing to be flexible with rates, pricing, or limits to cover the “early works” exposures. In our experience early works coverage can be readily obtained for a reasonable cost – but special attention may be required to the policy wording.
For more information or assistance in reviewing the early works exposure please feel free to contact us.
Manager, Lender Insurance Services
INTECH Risk Management (“INTECH”) is an independent insurance consulting company involved in the analysis, design, development, implementation and management of insurance programs. INTECH does not sell insurance, nor is it affiliated with any insurance company or brokerage. This unique independent position in the marketplace enables our consultants to avoid conflicts of interest and provide our clients with unbiased, expert advice. INTECH has received the 2017 Award for Excellence in Risk Management from Insurance Business Canada, the 2017 Insurance Adviser of the Year as well as 2015 and 2016 Due Diligence Provider of the Year Award from IJGlobal, and has achieved Platinum Elite Status on ReNew Canada’s Top100 Projects.
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