Hurricane Ian Shoreline Loss: Four Policies, Oh Joy!
October 19, 2023
States, counties and municipalities have issued “stay at home,” “shelter-in-place,” and other orders relating to COVID-19. Many orders require the suspension of non-essential construction projects. The orders typically have exemptions for projects like critical or essential infrastructure, public works, and housing.  In light of these orders, construction projects around the country will be delayed.
Builder’s risk policies may contain delay in completion coverage, also referred to as delay in start-up or, at times, soft costs coverage.
Will orders issued by governmental authorities suspending non-essential construction projects trigger coverage under builder’s risk policies, in particular, under delay in completion coverage? As a general rule, the answer is no.
A builder’s risk policy is a property policy that provides coverage for a project during the course of construction. If part of the project is physically damaged during construction, and if the loss is not excluded, the policy will pay to repair or replace the damaged property. As one court explained:
“Builders risk” insurance is a unique form of property insurance that typically covers only projects under construction, renovation, or repair and insures against accidental losses, damages, or destruction of property for which the insured has an insurable interest. . .The purpose of builder’s risk insurance is to compensate for loss due to physical damage or destruction caused to the construction project itself. 
Builder’s risk policies vary by insurance company. However, as a general rule, they provide two types of coverage: (a) for property damage to the project; and (b) delay in completion coverage. Not all builder’s risk policies contain delay in completion coverage. It has to be purchased separately, and is usually added by endorsement.
A builder’s risk policy, like any property policy, requires there to be direct physical loss or damage to covered property at the insured project. If there is no direct physical loss or damage, there is no coverage, period. Whether the coronavirus causes direct physical loss or damage to insured property has been written about extensively in the last few weeks. In general, it will be extremely difficult for an insured to persuade a court or jury that a construction project has suffered direct physical loss or damage due to the coronavirus.
In addition to paying for the cost to repair or replace the damaged property, a builder’s risk policy will most likely contain additional coverages within the property damage section. These additional coverages will almost always be subject to sublimits. As a general rule, the property damage section will not include civil authority and/or ingress/egress coverage. In fact, the property damage section may contain a civil authority exclusion.
The property damage section will also have exclusions that may apply to COVID-19 claims.
There will most likely be a pollution and/or contamination exclusion. At times, though, builder’s risk policies with these exclusions then provide limited coverage for pollution cleanup and removal costs. There may be a virus or bacteria exclusion. There may also be an exclusion for fungi.
Further, a builder’s risk policy will almost always have an exclusion for consequential losses, including loss caused by delay, loss of use, and loss of market. Courts have not hesitated to uphold these exclusions.  If the insured has also purchased delay in completion coverage, the exclusion will provide, except as provided in the delay in completion endorsement.
Builder’s risk policies may have delay in completion coverage, also referred to as delay in start up or soft costs coverage. The purpose of delay in completion coverage is to compensate the insured for certain, specified losses or costs incurred during the delay period, if the overall completion of the project was delayed by the covered physical loss or damage to the project. Once again, the fundamental requirement is that there has to be direct physical loss or damage to covered property at the project. Further, the delay has to have been caused by the direct physical loss or damage. If there is no direct physical loss or damage, there is no delay in completion coverage.
Policy language will vary, and key terms will be defined. Typical policy language may provide:
Subject to all terms, conditions, limitations and exclusions of this Endorsement, and of the Policy to which it is attached, in the event of direct physical loss or damage to property insured, the Company shall indemnify the Named Insured for scheduled Soft Costs, Loss of Rental Income and/or Loss of Gross Earnings arising out of the resulting Delay in completion of the Project and incurred during the Delay Period. 
Even if there is coverage, it is only for certain, specified losses or costs incurred during the delay period. In particular, a delay in completion endorsement will typically only cover loss of rental income, loss of gross earnings, and listed soft costs. Loss of rental income and loss of gross earnings will be defined in the delay in completion endorsement, and subject to specific sublimits. The delay in completion endorsement will list the specific types of soft costs that are covered. Typical covered soft costs include interest on construction loans, real estate and property taxes, architect, engineer and consultant fees, commissions or fees for renegotiating leases, and insurance premiums. There may be an overall sublimit for softs costs, and/or each listed soft cost may have its own sublimit. Further, delay in completion coverage will most likely have a deductible, usually in the form of a waiting period listed as a number of days.
It is important to highlight that if the insured incurs a delay cost, and it is not one of the listed soft costs (or loss of rental income or gross earnings, if that coverage is provided), the insured cannot recover that cost. This is true even if the cost was incurred because of the overall delay in completion of the project caused by or resulting from the direct physical loss or damage to insured property on the project.
A delay in completion endorsement may also have additional coverage for civil authority and/or ingress/egress. These coverages will usually be limited to a certain number of days or weeks. Once again, for there to be coverage, there has to be direct physical loss or damage to property, this time property adjacent to the project site, caused by a covered cause of loss or peril. I have written about civil authority coverage in my March 2020 blog.
A delay in completion endorsement will also have additional exclusions, i.e., in addition to the exclusions contained in the property damage section. These additional exclusions may be relevant to the governmental orders regarding the coronavirus. For example, a common additional exclusion is for ordinance or law, which may provide that the insurer will not be liable for any loss or increase in delay caused by or resulting from the enforcement of any ordinance or law that regulates the construction, use, operation, repair, or demolition of any property. This same exclusion may go further, and include an ordinance or law that requires an insured to monitor, clean up, remove, treat, or in anyway respond to or assess the effects of pollutants.
In analyzing whether there is delay in completion coverage, you will have to look at the particular language in the policy at issue, and the applicable governmental order or orders issued. However, as a general rule, there should be no delay in completion coverage as a result of governmental orders issued to deal with the COVID-19 issues.
Clark Schirle is a Partner in the Chicago office. He represents insurers in complex, first-party commercial claims around the country. He has litigated numerous builder’s risk claims, including those involving delay in completion coverage. He can be reached at firstname.lastname@example.org, 312-462-9142.
 The number of state, county, and municipal orders that refer to construction in light of COVID-19 is vast. If you have a builder’s risk claim involving a project, you will need to refer to the specific order and guidelines that apply given the location of the project. Although not exhaustive, Partner Engineering and Science, Inc. has an excellent website where it lists, by state, orders impacting construction projects. The lists also include links to the specific orders. See https://www.partneresi.com/services/COVID-19-Risk-Management-%2526-Response/covid-19-construction-impacts.
 Fireman’s Fund v. Structural Systems Technology, 426 F. Supp. 2d 1009, 1025 (D. Neb. 2006).
 James F. Campenella Const. Co. v. Great American Ins. Co., 2010 WL 4812990 (E.D. Pa. 2010); Diamond Beach, VP, L.P. v. Lexington Ins. Co., 748 F. Supp. 2d 648, 655 (S.D. Tex. 2010).
 See also “The ‘Soft Costs’, ‘Loss of Rental Income’ and/or ‘Loss of Gross Earnings’ must be incurred during the ‘Delay Period’ and such ‘Delay Period’ must be caused by insured physical loss or damage to Covered Property at the Location of the ‘Insured Project’.”; “We will pay your ‘soft costs’ during the ‘period of delay in completion’. Such ‘soft costs’ must result from ‘loss’ to Covered Property from any of the Covered Causes of Loss which delays the completion of the ‘project’ beyond the ‘planned completion date’.”