Builder’s Risk Policy Claim Checklist

Originally published as an Op-Ed by the Oregon Daily Journal of Commerce on August 20, 2020.

Determining whether property damage on a project site is covered by insurance can be a daunting task.

The first challenge is determining which insurance policy could provide coverage. Reading through each policy can be tedious and confusing. The second challenge is determining what property damage and related losses are covered and how to approach calculating delay costs.

When property damage occurs during construction, the first place to look is the builder’s risk insurance policy, which provides broad coverage for property damage losses. Typically, delay-in-completion coverage can be added by endorsement to cover the delay costs and related expenses caused by the covered property damage.

Documenting a claim and working with an insurance adjuster while keeping your project moving forward can be difficult. Below are some tips to help prepare a builder’s risk claim and maximize recovery:

• Read the insurance policy. This should always be the starting point when seeking insurance coverage for a loss, but the importance of this step is even greater with builder’s risk policies because these policies can vary greatly. Generally, the policy outlines what types of costs are covered. Delay-in-completion coverage is commonly added by endorsement to a builder’s risk policy, and the endorsement usually will specify what soft costs are covered and not covered. Typically, delay-in-completion coverage includes reimbursement for interest expenses on construction loans, the costs for additional permits and licensing, project administration costs, and additional equipment rental expenses, among other things. Knowing upfront what is covered and what is not covered will help focus time and resources on maximizing recovery.

• Establish a claims handling team. Many people are often involved with the claims process, including the project manager, contractors and subcontractors, claims consultants, and others. Typically, these people have many other responsibilities and dealing with insurance claims is not a part of their daily lives. Designating a specific group of people who will be responsible for documenting the claim and clearly defining each person’s responsibilities can help ensure that tasks get completed and the claims process stays on track. It can help to retain a lawyer early in the process. Coverage counsel can take the lead on communicating with the insurance carrier and can provide guidance on internal email communication and whether it is appropriate to send litigation hold notices to preserve documents. The claims team should avoid emails that opine on damages and coverage because, in the event of litigation, those communications could be used as evidence at trial. While the claims handling team takes responsibility for collecting information, documenting losses, and communicating with the insurance carrier, the rest of the construction team can focus on the project schedule.

• Establish separate accounting codes to track losses. It is critical to differentiate normal project costs from losses caused by the covered property damage. After all, the workers onsite for the project often will also be the workers handling the repairs. Using separate accounting codes will make it easier to identify covered losses and will help avoid some of the nitpicky questions the insurance adjuster will ask about whether certain losses are normal project costs. Remember that many builder’s risk policies also provide reimbursement for the internal costs of documenting a claim and calculating losses, so track those costs separately as well. Setting up separate accounting codes can save a lot of time and mitigate some of the frustration that often comes with trying to recall (and prove) months or years after the fact what costs are related to the claim.

• Be vigilant about collecting and organizing documents. Insurance adjusters request a lot of documentation when evaluating a builder’s risk claim. Frequently, this is the most daunting part of the process. It doesn’t have to be. Chances are the general contractor is already collecting most of the documents that will be necessary to prove a claim. Required documents often include daily reports, meeting minutes, site inspection and progress photos, payment applications, and schedule iterations. Insurance adjusters analyze those documents to determine where the project was at the time of the loss, where it was heading, and how the loss impacted the project schedule. To save time and work effectively, it may make sense to ask the insurance adjuster what documents to collect and how it wants information organized. After establishing a filing system for claim documents, be vigilant in updating and logging those documents so there is a clear record of what was provided to the insurance carrier to prove the claim.

• Document all communications with the insurance carrier and adjuster. It is easy to lose track of what documents and information you provide to the insurance carrier. The insurance carrier’s financial consultant may call to ask specific questions about your delay claim and then forget to share that information with the adjuster. To avoid providing answers to repetitive questions—or worse, contradicting yourself—it is critical to document all communications with the insurance carrier and its team. That means sending “summary emails” after phone calls or in-person meetings that describe what happened, including any requests made by the insurance carrier and any information or documents you provided.

We hope that all your projects are completed without a hitch and that you never need to use these tips. If an accident happens, reviewing the above checklist can help reduce the headache of managing insurance issues and should allow more focus on job one: completing the project.