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Insight on Installation Floaters and Contractor’s Equipment
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Disclaimer
Insurance forms and endorsements vary based on insurance
company; changes in edition dates; regulations; court decisions;
and state jurisdiction. This instructional materials provided by
Insight is intended as a general guideline and any interpretations
provided by Insight do not modify or revise insurance policy
language. The authors of these materials, Insight Insurance
Consultants is a division of Insight Consulting and Management
Inc. In providing these materials, Insight assumes neither liability
nor responsibility to any person or business with respect to any
loss that is alleged to be caused directly or indirectly as a result
of the instructional materials provided.
Copyright 2010 – 2012 All Rights Reserved
www.insurancecommunitycenter.com
Laurie: 714.803.5830 [email protected]
Marjorie: 714.206.9583
[email protected]
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Your Instructor Today
Al Parizo, AFIS, CISC
In our last session:
On Chautauqua Trail, Boulder CO we found a good Builder’s Risk
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In Depth review
We now go deep into issues of installation and Equipment floaters
Channel Islands CA
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What This Class Will Cover
1. Reasons to purchase an Installation
Floater
2. Covered Property/Excluded Property
3. Coverage Locations/territory/valuation
4. Contractors Equipment eligible and
non-eligible property
5. Limits and Coverage Structure and
review
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Inland Marine and Contractor’s
Equipment
The rest of the project beyond
Builders’ Risk
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Inland Marine
• The client’s exposures should be reviewed and
the insurance coverage specifications
designed to meet those needs as effectively as
possible
• Fit the coverage to the client – do NOT fit the
client to the coverage
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NAIC Definition of Installation Risk
9. Builders’ Risks and/or Installation Risks covering interest of
owner, seller or contractor, against loss or damage to machinery,
equipment, building materials or supplies, being used with and
during the course of installation, testing, building, renovating or
repairing. Such policies may cover at points or places where work is
being performed, while in transit and during temporary storage or
deposit, of property designated for and awaiting specific
installation, building, renovating or repairing. Such coverage shall
be limited to builders’ risks or installation risks where perils in
addition to fire and extended coverage are to be insured. If written
for account of owner, the coverage shall cease upon completion and
acceptance thereof; or if written for account of a seller or
contractor the coverage shall terminate when the interest of the
seller or contractor ceases.
• www.naic.org
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Installation Floater
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Coverages for Builders
Builder’s Risk
Owner or General Contractor
Installation Floater
Sub-contractor
Contractor’s Equipment
Any type of contractor
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Purpose of the Installation Floater
The Installation Floater provides coverage for
the materials, supplies, labor and profit of
subcontractors for their portion of a building
project
The Installation Floater coverage ends when
the contractor’s portion of the project is
complete
The policy is typically written on an annual
basis and covers all work in progress
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Comparison Installation Floater
and Builder’s Risk
Project
Begins
Installation
Begins
Installation
Ends
Project
Ends
Builders
Risk
Policy
Begins
Installation
Floater
Coverage
Begins
Installation
Floater
Coverage
Ends
Builders
Risk
Policy
Ends
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Why A Subcontractor Should
Purchase An Installation Floater
Provides first party
coverage for the
sub-contractor
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The subcontractor’s
payment might be
delayed under the
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Why A Subcontractor Should
Purchase An Installation Floater
Avoids application of large deductible on the
Builder’s Risk policy
Insured’s work that is not covered by a Builder’s
Risk Policy
Insured’s work is below the coverage threshold
of the Builder’s Risk policy deductible
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Commercial Property Policy
• Will not cover away from insured
premises.
• Limited Transit coverage (if any).
• Off site storage issues.
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Covered Property
This type of policy is typically written on a blanket “all
projects / jobs” basis
• Check proximity of jobs to each other for adequacy of limit
Property owned by the insured
Property of others for which insured is responsible
Materials and supplies
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Excluded Or Limited Property
False Work
• Cribbing,
scaffolding, forms,
temporary fencing,
temporary lighting
• The policies often
have a sub-limit or
may exclude entirely
Landscaping
• Excluded or a very
low sub-limit
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Excluded Or Limited Property
Fine Arts
Although these items may be
included if part of the
materials, supplies, labor of
the described project, these
items may need stipulated
(agreed to) valuation as these
items may not be easily
replaced
Stained Glass, Leaded Glass,
Statues, Art Work, such as
murals
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Museum Quality Installation
Museum of Fine Arts Job Site
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Excluded Or Limited Property
Property while
airborne
• Cross check to
Rigger’s Liability
and Non-Owned
Aircraft coverages
• Verify how HVAC
equipment will be
set in place – crane
or helicopter
Property while
waterborne
• Cross check to
Marine
transportation and
coverage territory
description
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Covered?
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Any waterborne exposure?
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Excluded Or Limited Property
Retaining Walls
• Often excluded,
particularly if not
attached as part of the
project structure(s)
Signs
• Temporary Structures
• Often not covered or if
included, a low sublimit
• This exposure will also
necessitate an increase
in the Limit of Insurance
(above the project cost)
to provide coverage in
the policy
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Coverage Locations
Should
include:
• In transit
• At the job site
• In storage
• Temporary locations
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Coverage Territory
Typical Inland
Marine language
United States, its
territories or
possessions Puerto
Rico or Canada
Some forms may
limit to Continental
US
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Valuation
The policy should
always be written
at Replacement
Cost Value
• Include labor and
profit
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When Coverage Begins and Ends
Coverage begins
Coverage ends
• Pick up and
delivery of
materials and
supplies specific
to their work
• When one of the
following first occurs:
• Work is accepted
and Named Insured’s
interest ceases
• Policy ends or is
canceled
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Covered Causes of Loss
• Typically Special Form perils
• There are very few forms that use
named perils – this would be when the
underwriter wants to exclude theft
• Equipment Breakdown coverage may be
needed
• Earthquake, Flood, Wind (Tier 1) or
Named Storms
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Typical Exclusions
• Pollution Clean Up
– Many policies have a limitation for
extraction or removal of pollutants from
land or water at the coverage location only
and will be limited to $10,000 or possibly
$25,000
– This is clearly inadequate for most
construction sites
– Review the need for Pollution Remediation
Coverage
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Exclusions
•
•
•
•
•
•
•
•
Civil Authority
Earth Movement
Flood
Fungus
Ordinance or Law
Penalties
Sewer Backup
Contamination or
Deterioration
•
•
•
•
•
Criminal, Fraudulent
Employee Dishonesty
Electrical Currents
Loss of Use
Mechanical Breakdown
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Typical Exclusions
• Testing
– Frequently excluded, either by specific
language or by removing any loss caused by
Mechanical Breakdown, Explosion, Arcing
(Artificially Generated Electrical Current),
Steam Boiler or Pressure Vessel explosion
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Typical Exclusions
• Error, omission or deficiency in design,
specifications, workmanship or materials as
respects the cost of making good such error,
omission or deficiency
– ALWAYS make sure that the policy contains an
exception to this exclusion, such as:
– However, resulting physical loss or damage to the
insured property is covered
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Typical Exclusions
• Terrorism
– The coverage offer needs to be addressed
for both TRIA and other acts of terrorism,
such as domestic
– Domestic terrorism could be a significant
risk exposure, depending on the geographic
siting of the project
– Domestic environmental groups have been
known to destroy property while under
construction
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Waiver of Subrogation
• Contracts often require a waiver of
subrogation
• Not all forms allow a waiver and can
void coverage
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Contractor’s Equipment
Floater
Tools of the trade
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Coverage Purpose
The purpose of the Contractors
Equipment Floater is to provide
coverage for loss or damage to
business tools and equipment
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Named Insured
Include any owned
entity that has an
insurable interest
The insured may have
leased equipment or a
lender on some or all
of the machinery
Include as Loss
Payable or Lender’s
Loss Payable – get
bank instructions
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Eligible Property
Everything to get the job done
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Tools & Equipment
•
•
•
•
•
•
•
Hand tools
Power drills
Concrete mixers
Compressors
Pumps
Generators
Bulldozers / fork lifts
/ Power shovels
• Derricks / cranes /
Cherry-pickers /
hoists / elevators
• Road construction
and resurfacing
equipment
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Covered Property
Broad Definition
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Owned
All tools and
equipment
• Scheduled
• Blanket
• Combination
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Scheduled
Description of the equipment
Manufacturer
Serial number
Limit of insurance per item
More restrictive but usually less
expensive than blanket
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Blanket
Each piece is
itemized and
provided to the
underwriter
A single limit of
insurance is used
to cover all
defined Covered
Property
• Often used for small
hand tools
• Can contain a sublimit per item
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Combination
Large / valuable
items Scheduled
Small hand
tools blanketed
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Newly Acquired
Newly acquired tools or equipment coverage is
often limited:
Same or similar type as the scheduled
% of total values insured (maximum is often 25%)
Time restrictions often apply (30 days is common)
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Non-Owned
• NEVER assume that coverage is
automatic
• Leased
• Hired
• Rented
• Borrowed from others
• Loaned to others
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Excluded or Limited Property
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Tools or Equipment Loaned or
Rented to Others
Many forms exclude
If the insured allows others to borrow equipment,
determine if with or without an operator and whether
the borrower is required to sign any liability or damage
agreements
Endorse when necessary
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Employee Tools
Endorsement
subject to
underwriting
approval
May be costly
to do so
• Frequency of
loss high
• Rate,
deductible or
renewal may be
affected
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Contractor
may be
required to
insure under
union
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Underground or Underwater or
Airborne/Waterborne
Review job sites and
job site access for
this exposure and
negotiate removal
where necessary
Tunneling
equipment that is
under the ground
surface
• May need to be
negotiated and
covered
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Vehicles Designed for Highway
Use
Road construction contractor
will need this coverage
Determine if other type of
contractor has this exposure
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BAP vs. Marine
• Highway exposure vs. job site. Don’t
depend on BAP Physical Damage.
• Contractor’s equipment policy covers
anywhere in policy territory.
• Can go broader than collision and other
than collision coverage in BAP in
tailoring consequential loss and rental
reimbursement.
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Limits and Coverage Structure
Non controlled form gives you
flexibility
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Covered Locations
•
•
•
•
•
While in transit
While at any job site
In temporary storage
At the insured’s premises
Should include language “while
anywhere in the coverage territory”
– This is a safety net of coverage for the
insured
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Covered Territory
United States of America and its
territories and possessions
While in transit between points
within the U.S.
Other territories may be added by
endorsement, subject to
underwriting approval and availability
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Coinsurance
• Most companies use coinsurance: 80%,
90%, 100%
– Used to ensure that the limits of insurance
submitted are at value
– Penalties will apply if the limits do not
meet or exceed the coinsurance percentage
selected
• Signed statement of values
• Attempt to waive coinsurance
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Valuation
ACV is
typical
RCV
can be
used
Agreed Uncommon
value
Used when insured has customized
equipment
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Deductible
Typically applies per loss
Can apply per item
Negotiate a maximum
per loss
The policy can also be written using a flat
deductible or a percentage of value
The % method is often used when coverage is
on a schedule basis
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Covered Perils
Normally written for “special form” perils –
direct physical loss unless excluded or
limited
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Commonly Excluded Perils
•
•
•
•
Inventory shortage
Dishonesty of insured, employees
Wear and tear
Gradual deterioration / Hidden or latent
defect / inherent vice
• Rust, dampness, or dryness
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Commonly Excluded Perils
• Mechanical breakdown or failure /
electrical arcing
• War and nuclear
• Loss to crane or derrick
– Specified perils are often covered as an
exception to the exclusion
– Attempt to negotiate elimination or
modification of this exclusion
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Commonly Excluded Perils
• Weight of a load exceeding lifting
capacity
– Attempt to negotiate elimination or
modification of this exclusion
• Upset or overturn
– This is a variation on the weight of load or
loss to crane or derrick
– Attempt to negotiate elimination or
modification of this exclusion
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Crane Considerations
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Outriggers add stability
Operator failure can have a bad outcome
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Outrigger Failure
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Boom goes the Crane
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Operator training and supervision
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Exceeded Lifting Capacity
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Boom goes the Boom
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Wind Damage
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Endorsements
• Boom coverage
– Removes the boom limitation
– The underwriter will want to know job supervision,
operator training and experience before adding
the coverage, which will often still be limited,
depending on the length of the extension.
• Overload coverage
– Removes the exclusion wherever possible.
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Endorsements
• Rented, Leased or Borrowed From Others
Equipment
– Provides coverage for equipment that belongs to
others while in the care, custody or control of the
insured
– Often limited to the type of owned property
already insured
• Property loaned to others
– Removes the exclusion when the insured’s own
property is in the care, custody or control of others
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Endorsements
• Rigger’s Liability
– This endorsement provides coverage for damaging
another person’s property while in the insured’s
care custody or control.
– If not available on the Equipment form, check with
the Inland Marine underwriter for stand alone or
cross check to the CGL and ask the underwriter to
consider removing or modifying the exclusion for
care, custody or control in that form.
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Low tech submission, Rigger
Sometimes all you need is a good dog and some rope
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Consequential Losses and Optional
Coverages
Loss of use issues
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Loss of Income
• Covers loss of income arising out of a covered
loss to covered property
• A time deductible may apply
• This coverage may be critical, especially if the
insured has specialized or customized
equipment
• Loss of the equipment may cost the insured a
job
• This coverage is not widely available
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Extra Expenses
• Time deductible may apply
• Coverage applies if a consequence of
covered loss to covered property
• Additional costs to repair, restore or rent
equipment
• Less widely available than Rental
Reimbursement
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Rental Reimbursement
• Limit per day with a maximum for all rental
costs
• Can sometimes apply using a time deductible,
such as first 24 or 48 hours
• Loss must be a consequence of a covered peril
to covered property
• This coverage endorsement is often available
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Underwriting Considerations
The more information provided with the
submission, the more leeway the
underwriter will have to modify coverage
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Underwriting Considerations
• Type of work performed and where
• Type of equipment and inherent
exposures
• Assists in establishing exposures and
rates.
• Total values at risk
• Maximum values at job sites
• Employee tools
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Underwriting Considerations
• Method of transporting equipment
• Maintenance records and mechanic
qualifications
• Security
• At the job site and at insured’s yard or
storage facility
• Where and how garaged when not in
use
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Underwriting Considerations
•
•
•
•
•
Experience of personnel
Loss history
Loss control / prevention measures
Union status and labor relations
Financial condition of insured
– Insured in poor financial condition will
often skip routine maintenance, training,
security, etc. thereby increasing loss
potential
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Good supplemental information
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Summary
• No standard form in the industry
• MUST review the form to verify it
responds for risk exposures of the
insured
– Not as easy as it may seem
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The rest is up to you
• A good Marine Underwriter is your best
asset to tailor appropriate coverage.
• There is insurable interest during the life
cycle of construction for everyone in the
project.
• Help your client identify and cover theirs
as an installer or contractor.
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