AAIS Perspective
Builders risk sub-limits
AAIS Inland Marine Guide clarifies impact of coverage extensions and supplemental coverages
By Joseph S. Harrington, CPCU
Most property/casualty professionals are familiar with the coverage extensions and supplemental, or additional, coverages that are built into property and inland marine coverage forms. These coverages have their own sub-limits.
What agents may not be familiar with is the extent to which coverage extensions and supplemental coverages may have an impact on the final payment for a loss.
To address that, the American Association of Insurance Services (AAIS) recently added a new subsection to the Builders Risk section of its Inland Marine Guide.
AAIS is a national advisory organization that develops standardized policy forms and rating information used by more than 600 property/casualty insurers throughout the United States. The Inland Marine Guide is a standard industry source for forms, rating procedures, and underwriting guidelines for the traditionally nonfiled classes of inland marine insurance.
The Guide’s new subsection categorizes the various sub-limits built into its Builders Risk forms and describes how those limits relate to the total amount that can be paid for a loss.
Three categories
The Guide’s new subsection identifies three categories of sub-limits built into most AAIS Builders Risk forms. (One scheduled jobsite form and a renovation and rehab form offer fewer such sub-limits.)
The first category is “Coverage Extensions,” wherein the sub-limits are part of the building property limit, not in addition to it. These coverages can increase a partial loss but cannot increase a loss beyond the building property limit.
These sub-limits extend coverage to losses due to emergency removal, fraud and deceit, and waterborne property, as well as limited coverage for fungi (mold), part of the cost of debris removal, and the portion of ordinance or law coverage attributed to work on the undamaged part of a building.
The second category is comprised of supplemental coverages; the sub-limits for these coverages are not part of, but are in addition to, the building property limit.
This category of supplemental coverages will not increase the total amount paid in a single occurrence for a building property loss because these sub-limits are for off-premises exposures or are the only coverage available for a specific peril. They include built-in coverages for sewer backup, storage locations, testing, and transit exposures, plus optional coverage for flood and earthquake losses.
For example, a building under construction that is damaged by sewer backup would be covered only up to the supplemental coverage sub-limit, not for the full building property limit plus the sub-limit.
The third category of sub-limits identified in the Guide is for supplemental coverages that can increase a total loss, i.e., sub-limits that are paid in addition to the building property limit.
These include contract penalty, emergency removal expenses, expediting expenses, fire service charges, personal property losses, pollutant cleanup and removal, rewards, and trees/shrubs/plants, plus a portion of debris removal expenses that is paid in addition to the policy limit.
“These are the sub-limits that underwriters are recommended to add to the building property limit to determine the total exposure,” says Robert Guevara, AAIS vice president of inland marine. *
The author
Joseph S. Harrington, CPCU, is director of corporate communications for the American Association of Insurance Services (AAIS) in Wheaton, Illinois. He may be reached by phone at (800) 564-AAIS, Ext. 217, by fax at (630) 681-8356, or by e-mail (joeh@aaisonline.com). The AAIS Web site is www.aaisonline.com
This article is general in nature and is not intended to provide definitive information regarding use of AAIS products and services, which is restricted by copyright and license agreements. This article in no way alters, supplants, or supersedes what is written in AAIS policy forms, manuals, bulletins, or other communications, and it does not indicate any official AAIS position on the matters discussed in the article.