The purpose of this writing is to draw attention to key terms and conditions that could influence a builders risk policy, anticipate insurers’ questions relating to a temporary jobsite shutdown, and ensure uninterrupted coverage through the delay of the project and to completion.  

Suspended work jobsites present heightened risks to owners, contractors and insurers

An inactive construction site carries many more risks than an active one. Such projects are at great risk. They are: 

• targets for vandalism, including arson,
• targets for the homeless, or stir-crazy teenagers, who have been known to start fires for various reasons, or injure themselves on sites,
• targets for theft—especially with a growing number of unemployed persons,
• susceptible to large water incidents which do not get immediately noticed and mitigated, creating significant property damage,
• susceptible to fire, if temporary heating is not being carefully monitored and managed,

There are a multitude of other jobsite risks that might have otherwise been noticed and attended to with a physical presence on site

Builders risk policy coverage considerations

Builders risk policies cover the project against physical damage during the course of construction. These policies contain important conditions, including some limitations of coverage. Most have a “cessation of work” provision that voids coverage if work is stopped for an extended period of time, for the reasons identified. The popular IBC 4042 version of the policy (the form referenced and prescribed by CCDC contracts), reads as follows, under the provision entitled CESSATION OF COVERAGE: 

This Form ceases to insure any part or section of the project… when left unattended for more than thirty (30) consecutive days or when construction activity has ceased for more than thirty (30) consecutive days.

In response to the COVID-19 pandemic, some insurance companies have liberalized their wording such that the 30-day period has been changed to 90 days, but others are hesitant to amend their policy wording except on a project-by-project basis.  

In addition to the cessation clause, some higher-risk projects, such as wood-framed structures or remote or unprotected (without municipal hydrants) projects may include security warranty conditions, meaning the site requires monitoring by watchmen, or closed-circuit surveillance systems. Special attention needs to be paid to those projects, which also tend to be the most vulnerable, given that they are combustible and/or remote.   

Contractor and owner obligations relating to project insurance

The construction contract spells out the form of coverage required to be in place, and the party required to place such coverage. Generally the contractor (sometimes the owner) will arrange for such coverage. Bear in mind these facts:   

• The form of the builders risk policy has been prescribed by the contract. It must be maintained until project completion.

• The builders risk policy, as prescribed in CCDC contracts, contains a cessation clause applicable to cases where the project is left unattended or when construction activity is suspended for more than 30 days. 

• Although the policy itself may be effective throughout the shut-down (as required under contract), coverage under the insurance policy will be impaired if the site is shut down for over 30 days.

• The insurer can be engaged so as to provide relief from the terms of such condition, but they consider suspended project sites significantly greater risk and will likely only be amenable to amending the policy conditions if (a) they have reason to believe the project site has been left in such a condition so as to minimize damage during the temporary shut-down, and (b) the project is being visited frequently (daily would be recommended), so as to ensure that any damage to the property is mitigated to the degree possible.

• As a result, the options to maintain uninterrupted coverage during a temporary shut down would be to:

• continue to enable some—albeit modest—level of construction activity on site, so that the policy cessation clause does not become applicable (obviously, this option would not be possible in the case of government mandated shut down, but may apply to cases where owners wish to suspend construction activities) or,
• establish a jobsite protection plan consisting of leaving the site in proper standing, leading to the agreement with the insurer to amending the ‘cessation clause’ to a period longer than 30 days, or that otherwise specified in the policy.

Action required: Advise your broker of any project suspension 

If your project is temporarily shut down, contact your broker immediately, so that they may ensure builders risk coverage is not interrupted. Brokers will be looking for general information, including: 

• the status of the site from a fencing/hoarding point of view,
• any site security, or monitored video surveillance being maintained,
• description of lighting and signage proposed,
• how often you propose to visit the jobsite while construction activities are suspended (recommendation is daily, weekly at a minimum), and
• any other relevant detail the contractor feels considers relevant.

Best practices for temporary jobsite shutdowns

The contractor should maintain and protect the project during the period when construction activities are suspended. Recommended procedures include the following:

• Ensure site access has been restricted completely. Fenced sites should be closed and locked. Buildings should be locked.
• Ensure site lighting is active and operational.
• Site security with 24-hour watch service is preferred.
• Protect the project from weather issues.
• Ensure any materials or equipment awaiting installation have been removed from project site to a secure storage location. If these are kept on site, secure them in a locked facility (e.g., a container, building), and protect them from the elements. 
• Turn off any temporary heating (e.g., salamanders, propane heaters), but ensure the standard building heating remains operational (to mitigate freezing pipes, etc). 
• Turn off the water supply, if possible. 
• Arrange for protection against wind and water damage (g., safety nets, bracing, covers, dewatering devices, etc.)
• Take steps to mitigate flood damage. Ensure drainage/catch basins are free of debris. Move project materials are moved to high ground, or remove them from the site completely.
• Follow manufacturer’s recommendations on maintaining idle equipment.
• Secure all cranes and other mobile equipment in accordance with the manufacturer’s recommendations. Where possible all booms should be lowered.
• Secure all hoist and/or other lifting machinery.
• Remove combustible material, and maintain automatic fire sprinkler protection.
• Remove all construction debris from the site.
• Ensure site gets standard weekly visits. These should include a perimeter walk to ensure all steps outlined above are in place. Record the date and time of each visit, and take photos evidencing the state of the site (with appropriate date shown on photo).

This article was written by the team at Petrela, Winter & Associates. For more information, they can be reached at www.petrela.com.