Builders risk policies are a key component to a construction professional's risk management program. These policies protect owners and construction professionals from losses arising from unexpected events such as fire or storms which cause substantial damage to a project during construction. In doing so, builders risk policies help protect a construction professional's investment in a construction project and, hence, the construction project's bottom line.

Recently, insurance professionals have seen an increase in builders risk denials from insurers based on the construction professional's failure to comply with policy subjectivities or special conditions. Insurer challenges to builders risk claims are not new. What is new is the increased frequency of denials based on failed subjectivities and the more onerous nature of the subjectivities. Subjectivity denials are, in large measure, avoidable through a little diligence by the construction professionals. However, many times construction professionals either are unaware of policy subjectivities at the time they purchase a builders risk policy or simply forget about the subjectivities during the course of the project as conditions change. Those that fail to pay attention to, and comply with, policy subjectivities run the risk of an unnecessary claim denial – which, in turn, can turn a project's financial picture upside down.

Other times, the subjectivities are simply unclear or of a type with which the construction professionals cannot comply because they are not available or are inconsistent with municipal or other codes.

Simply put, subjectivities are the requirements a builders risk insurer imposes on a policyholder as a condition of coverage. Many subjectivities are safety driven – such as maintenance of security guards, security cameras and active monitoring, fencing, sprinklers, and lighting, etc. Others are more substantive – such as ongoing testing and confirming construction in conformance with geotechnical reports or satisfactorily completing insurer questionnaires.

Subjectivities can be found in a variety of insurer-provided documents, but typically are found first in the policy proposal or binder. Thereafter, insurers often incorporate them into a policy endorsement (the “protective safeguard” endorsement is one such endorsement). If any of these documents are included, but blank, it is important to get the list of subjectivities from the insurer before binding.

To avoid unnecessary (and expensive) subjectivity denials, construction professionals would be well served to do the following four things.

Compliance with subjectivities often carries an increased cost and logistics, which can be a surprise to unsuspecting construction professionals. A qualified construction insurance broker and insurance coverage lawyer with builders risk experience can help a construction professional find and identify policy subjectivities and develop a plan to comply with those subjectivities and assist with the four steps outlined above.

Taking these four steps – eliminating subjectivities which cannot be complied with, clarifying any unclear subjectivities, developing processes to confirm compliance throughout the life of the project, and developing a contingency plan – should help construction professionals avoid unexpected costs and unnecessary claim denials which, in turn, will help protect the profitability of the construction project.