Extension of Contractors' Insurance for Residential Projects - When is it Required? And also:
Does Receiving Form 4 Justify Not Extending Insurance?
Dec 23, 2024
By: Itzick Simon
This article refers to residential construction projects. In another article, we will present the complexity of the issue of insurance completion date and work in office, commercial, and industrial construction.
Is receiving Form 4 sufficient reason to waive the extension of expired contractor work insurance? This is briefly discussed in the article before you, and first an example based on a real case (with the necessary changes to maintain confidentiality).
A criminal breaks into and vandalizes the apartments where the work has not yet been completed.
A contractor purchased construction work insurance for a residential project in central Israel, which was about to expire shortly after receiving a partial Form 4. That is, when some of the apartments had already been occupied, while a few apartments had not yet been delivered to the buyers and remained under the responsibility and supervision of the contractor. The insured accepted the "advice" of the lending bank and decided not to extend the construction work insurance.
"What could possibly happen?" he thought to himself. "Not only have about 85% of the apartments been delivered, but the rest of the apartments have also been sold and the tenants are just waiting for the key." Well, as is often the case in the construction industry, Murphy's Law is working overtime .
In practice, work continued on adapting the apartments to the requirements of various buyers, and while they were being carried out, a fire broke out that spread to parts of the building. The apartments were damaged before delivery and suffered very extensive damage. Since they were still in full possession of the contractor, the incident "fell" between the chairs. Without insurance, without coverage and without a safety net.
All of the above corresponds with the definition of the end date of the insurance for the contractual works.
___________________________________
In most Bit/Peak policies accepted in the market, the definition of the completion date is as follows:
The insurance will terminate immediately with respect to those parts of the insured works that have been delivered to the customer of the insured works, or that have begun to be used, whichever is the earlier, and the same applies even when all the insured works have been delivered to the customer, or that have begun to be used, or that the performance of all the insured works under this policy has been completed. The insurance coverage will terminate immediately upon the expiration of the first of these dates. Even if this date is prior to the date specified in the policy schedule as the end date of the insurance period.
In any case, the insurance coverage under this policy will not continue beyond the end date of the insurance period specified in the list, unless the insurance company has agreed to this in advance and in writing.
By: Itzick Simon
This article refers to residential construction projects. In another article, we will present the complexity of the issue of insurance completion date and work in office, commercial, and industrial construction.
Is receiving Form 4 sufficient reason to waive the extension of expired contractor work insurance? This is briefly discussed in the article before you, and first an example based on a real case (with the necessary changes to maintain confidentiality).
A criminal breaks into and vandalizes the apartments where the work has not yet been completed.
A contractor purchased construction work insurance for a residential project in central Israel, which was about to expire shortly after receiving a partial Form 4. That is, when some of the apartments had already been occupied, while a few apartments had not yet been delivered to the buyers and remained under the responsibility and supervision of the contractor. The insured accepted the "advice" of the lending bank and decided not to extend the construction work insurance.
"What could possibly happen?" he thought to himself. "Not only have about 85% of the apartments been delivered, but the rest of the apartments have also been sold and the tenants are just waiting for the key." Well, as is often the case in the construction industry, Murphy's Law is working overtime .
In practice, work continued on adapting the apartments to the requirements of various buyers, and while they were being carried out, a fire broke out that spread to parts of the building. The apartments were damaged before delivery and suffered very extensive damage. Since they were still in full possession of the contractor, the incident "fell" between the chairs. Without insurance, without coverage and without a safety net.
All of the above corresponds with the definition of the end date of the insurance for the contractual works.
___________________________________
In most Bit/Peak policies accepted in the market, the definition of the completion date is as follows:
The insurance will terminate immediately with respect to those parts of the insured works that have been delivered to the customer of the insured works, or that have begun to be used, whichever is the earlier, and the same applies even when all the insured works have been delivered to the customer, or that have begun to be used, or that the performance of all the insured works under this policy has been completed. The insurance coverage will terminate immediately upon the expiration of the first of these dates. Even if this date is prior to the date specified in the policy schedule as the end date of the insurance period.
In any case, the insurance coverage under this policy will not continue beyond the end date of the insurance period specified in the list, unless the insurance company has agreed to this in advance and in writing.
What (does) need to be done?
Let's start with the bottom line: Receiving Form 4 and even Form 5 (occupancy) does not justify The termination of the contractor's policy. To the extent that the developer/contractor has assets that have not yet been delivered for use and are in the process of being sold and adapted to buyer requirements, it is important to treat them as a construction site for all intents and purposes.
Even more so when there are workers on site who are busy performing completion and adjustment work, various standard tests before delivery, finishing work, etc.
The key questions are " Has delivery been made?" and/or " Is there still work being done on the apartments (including "small" work for completion and finishing touches)?" Pay attention to which parts of the project were delivered with an orderly delivery protocol and transfer of possession to the buyers.
Below are some guiding principles for when and how to extend contractor work insurance:
1. Apartments for which Form 4 and occupancy approval have been received, and which have been delivered to tenants for use - there is no need to include the value of the apartments in the insurance extension.
Third-party liability and employer liability for maintenance repairs are covered under the "maintenance period" in the project's contractor policy, up to 12-24 from the date of completion of the work (as specified in the policy).
2. Apartments in the process of being delivered that have not yet been delivered for use - the insurance must be extended while taking into account the value of the construction cost of these areas.
3. Apartments in the process of being sold where the work has not yet been completed and/or it is known that adjustment or completion work will be required - the insurance for the contractor's work must be extended for the value of the construction cost of these apartments.
4. Unsold apartment inventory - if there is a Form 4 and occupancy permit, and as long as the work on them has been completely completed, there is no need to extend the insurance for them, but it is important to purchase apartment/business inventory insurance for them.
5. Public areas that have been delivered for use and their formal delivery has been made - there is no need to include their construction cost in the insurance extension.
Third-party liability and employer liability for maintenance repairs are covered under the "maintenance period" in the project's contractor policy, up to 12-24 from the date of completion of the work (as specified in the policy).
6. Public areas for which delivery has not been made - the insurance for the contractor's work must be extended for the value of the construction cost of these areas, as the areas are still in the process of completion and inspections.
Let's start with the bottom line: Receiving Form 4 and even Form 5 (occupancy) does not justify The termination of the contractor's policy. To the extent that the developer/contractor has assets that have not yet been delivered for use and are in the process of being sold and adapted to buyer requirements, it is important to treat them as a construction site for all intents and purposes.
Even more so when there are workers on site who are busy performing completion and adjustment work, various standard tests before delivery, finishing work, etc.
The key questions are " Has delivery been made?" and/or " Is there still work being done on the apartments (including "small" work for completion and finishing touches)?" Pay attention to which parts of the project were delivered with an orderly delivery protocol and transfer of possession to the buyers.
Below are some guiding principles for when and how to extend contractor work insurance:
Apartments for which Form 4 and occupancy approval have been received, and which have been delivered to tenants for use - there is no need to include the value of the apartments in the insurance extension.
Third-party liability and employer liability for maintenance repairs are covered under the "maintenance period" in the project's contractor policy, up to 12-24 from the date of completion of the work (as specified in the policy).
Apartments in the process of being delivered that have not yet been delivered for use - the insurance must be extended while taking into account the value of the construction cost of these areas.
Apartments in the process of being sold where the work has not yet been completed and/or it is known that adjustment or completion work will be required - the insurance for the contractor's work must be extended for the value of the construction cost of these apartments.
Unsold apartment inventory - if there is a Form 4 and occupancy permit, and as long as the work on them has been completely completed, there is no need to extend the insurance for them, but it is important to purchase apartment/business inventory insurance for them.
Public areas that have been delivered for use and their formal delivery has been made - there is no need to include their construction cost in the insurance extension.
Third-party liability and employer liability for maintenance repairs are covered under the "maintenance period" in the project's contractor policy, up to 12-24 from the date of completion of the work (as specified in the policy).
Public areas for which delivery has not been made - the insurance for the contractor's work must be extended for the value of the construction cost of these areas, as the areas are still in the process of completion and inspections.
As long as any work continues and workers, contractors, subcontractors, suppliers, etc. move around the site from time to time, and as the threshold tends toward your possession of the assets in interim periods, it is advisable to continue the insurance in the form of a contractor's work policy.
While this is no trivial matter (and see more on the difficulty of extending a contractor policy in today's insurance market landscape ), dealing with an insurance event without coverage will be more complex. Much more so.
They said from now on:
Although contractor work insurance (usually) includes a 12/24-month maintenance period, this is only partial coverage intended to assist in insurance events during the performance of the maintenance work itself. A kind of on-off switch that is activated when workers enter to perform maintenance work and is turned off immediately when they leave the site. This coverage does not provide a solution for insurance coverage regarding the project or parts of the project that have not been delivered for use, and the same is true if it concerns apartments, commercial property, infrastructure work, etc.
Is it possible to be satisfied with the coverage provided by the "maintenance period" as defined in the policy?
To clearly clarify when there is no point in extending the contractor's insurance, but it is important and necessary to purchase structural and third-party insurance, below are a number of guiding principles:
1. A "stuck" structure without Form 4 and occupancy permit if all project work has been completed, there are no workers or suppliers on site and all work has been completely completed. We emphasize that the boundary line here requires a specific examination, as the process of receiving Form 4 and occupancy permit requires performing various physical tests that are part of the project completion work. In such situations, it is in principle correct to extend the insurance for the contractor's work. However, as stated, this requires a specific examination according to the circumstances of the case.
2. Unsold apartment inventory If all project work has been completed, there are no workers or suppliers on site, and all work has been completed, Form 4 and occupancy approval have been received, but the developer still has unsold apartments - it would be appropriate to purchase building and third-party insurance for them until they are sold.
3. Inventory of apartments that have not yet been delivered. If all project work has been completed, there is no work at all in these apartments, there are no workers or suppliers in the apartments, and all work has been completed, Form 4 and occupancy approval have been received, but certain apartments remain in the developer's possession due to bureaucratic reasons with the buyers, failure to complete payments, etc. - it would be appropriate to purchase building and third-party insurance for them until they are delivered.
4. Apartments used as income-producing real estate remain the property of the developer for the purpose of renting them out, provided that all work on them has been completely completed and Form 4 and occupancy approval have been received.
When should you purchase building insurance – and is there no need to extend the contractor's insurance?
In conclusion,
Dear contractors, entrepreneurs and insureds, contractor work insurance should be valid whenever you have not yet delivered the project or parts of it for use and are still undergoing inspections/completions, etc., prior to formal delivery as usual.
Failure to renew insurance could be disastrous for you on a bad day, and in the world of construction insurance, Murphy's Law, as mentioned, always comes at the wrong time.
Are you wondering whether and how to extend your policy? Contact us at the Itzick Simon Insurance Agency, which has specialized in construction insurance and complex situations for about 35 years, and we will be able to find the right, high-quality and most cost-effective solution for you.
Dear contractors, entrepreneurs and insureds, contractor work insurance should be valid whenever you have not yet delivered the project or parts of it for use and are still undergoing inspections/completions, etc., prior to formal delivery as usual.
Failure to renew insurance could be disastrous for you on a bad day, and in the world of construction insurance, Murphy's Law, as mentioned, always comes at the wrong time.
Are you wondering whether and how to extend your policy? Contact us at the Itzick Simon Insurance Agency, which has specialized in construction insurance and complex situations for about 35 years, and we will be able to find the right, high-quality and most cost-effective solution for you.
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