I would wish to express my sincere thanks to Srikanth Ghanathay; Hari Radhakrishnan; Ravinder Dhingra and ABDULLA SARGURO for your comments on my yesterday post on insuring completed building and interior works. Highly appreciated.
Insuring building under fire policy since it is completed, and bare shell has been handed over to the owner is most appropriate. Buying a CAR policy for interiors along with coverage for surrounding property is also the most appropriate risk transfer solution. There is also a viewpoint that both Building and Interior works can be covered under a fire policy under “Building in Course of Construction”.
In these days when underwriters are to force-fit the fire rates into one of the occupancies mentioned in GIC RE circular (rather than take an independent rating decision based on exposure), questions are arising as to under what occupancy should the building be rated?
a) Building under course of construction?
b) Shops (its ultimate occupancy)?
c) High hazard storage risk because of high levels of storage of interior materials?
d) Carpentry works?
e) Any other more appropriate occupancy classification?
Let’s assume Building has been covered under Fire Policy and Interiors have been covered under CAR policy with Surrounding property and TP liability coverage.
Building Sum Insured : USD 2 million- Covered under Fire Policy
Interior Sum Insured : USD 1 million- Covered under CAR policy with Owners surrounding property coverage of USD 500,000.
TPL Coverage under CAR Policy for USD 200,000.
Surrounding property coverage under CAR policy wording as follows:
Loss of or damage to property located on or adjacent to the site and belonging to or held in care custody or control of the Principal (s) or the Contractor(s) shall only be covered if occurring directly due to the construction of the items insured under Section I and happening during the period of cover, and provided that a separate Sum therefore has been entered in the Schedule under Section I, for Principal’s surrounding specified property…….”.
While doing interior works, due to some careless welding activity, fire started and burnt the partially completed interior works as well as due to high fire load, the building was also badly damaged. The loss to the interior works was paid under CAR policy.
The loss to the building was assessed as (before any deductions) as USD 1 million.
The fire policy was on Reinstatement Value. The reinstatement value of the building as on the date of reinstatement was valued at USD 2.5 million.
Assume for these calculations that salvage is nil and excess is also nil both under Fire policy and CAR policy.
Questions:
a) How much loss will be paid under the fire policy?
b) How much loss will be paid by CAR policy under the “Owners Surrounding Property extension”?
c) Will the TP liability under CAR policy trigger? If yes, under what conditions?
