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How to Underwrite Installation Floater Coverage

Updated on December 17, 2015
Randi Glazer profile image

Randi Glazer is a Sr. Insurance Professional with experience underwriting, marketing, organizational leadership & managing large staff

Installation Coverage

The Nation-Wide Marine Definition permits coverage on machinery, equipment and building materials while in transit to a construction site of installation, while at the project site awaiting installation and while in the course of installation until the interest of the Insured ceases or the project is accepted as satisfactory by the owner or buyer, whichever first occurs. Coverage at temporary storage locations is permitted if the property has been assigned to a specific project site.

When Coverage Ceases

Coverage on Building Materials must cease after they are installed and become a physical part of the realty (meaning a building). When building materials such as steel and lumber are set in position and the last rivet, bolt or nail has been secured, they are considered as having become a physical part of the building or 'real property'. The same is true of bricks, blocks or stone after the mortar has been applied and the Item is set in its final place.

Plumbing, heating, air conditioning and electrical equipment are considered machinery and equipment and may be insured until the interest of the Insured ceases or the project is accepted as satisfactory, whichever first occurs.

Installation Using a Crane

Installation using a crane; photo by Randi Glazer
Installation using a crane; photo by Randi Glazer | Source

Installation Coverage Forms

Because Installation coverage is an "uncontrolled Inland Marine class", there is no industry standardization of forms. Most companies have printed forms that are used in conventional risk situations. Very large and unusual risks generally are written on manuscript forms. Underwriters, brokers and insureds must be sure to compare perils, exclusions and conditions, as well as price and deductible when analyzing prospective accounts for competitive advantages.

Installation vs. Builder's Risk Policies

Which type of risks do you write the most; Builder's Risks or Installation Floaters?

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Types of Installation Operations

Common Installation Operations:

The most common and frequently encountered installation exposures are the operations of plumbing, heating, air conditioning and electrical contractors. These contractors vary in size from small family operations to large corporations with projects of varying sizes spread throughout the country. Their operations can sometimes include lifting or lowering the machinery and equipment onto roofs or into basements. Insulation, siding, cabinet makers, tile contractors and roofing contractors have exposures similar to those operations above.

Types of Installation Coverage

Special Installation Operations:

The following types of installation operations have many high hazard exposures requiring an in depth knowledge of the specific risk characteristics. Many Companies may not be an active market for these types of risks, although in each category there may be individual risks of low hazard and value that Companies may consider in order to support a good pr larger account. These types of risks are generally 'referral' types or risks requiring a lot of information:

1. Bridge and tunnel construction may be insured under an installation policy, although most are insured under a Bridge Builders' Risk policy.

2. Power generating station construction. While a high percentage of values of such plants consist of machinery and equipment eligible tor coverage under an installation policy, most are insured under a Builders' Risk form.

3. Electrical, telephone and cable television lines, poles and towers, which can span hundreds of miles, and go over or under rivers . Such work can include the use of helicopters or waterborne equipment.

4. Water pipelines (both fresh and waste water) including tunnels, aqueducts, offshore facilities such as intake and discharge cribs, and including on-line propulsion equipment.

5. Oil and gas pipelines including on-line propulsion equipment. The Alaska pipeline is an example, which was the largest engineering project ever undertaken.

6. Seaport installations such as offshore docking and off-loading equipment, sophisticated containerized cargo facilities and other complex materials handling arrangements.

7. One of a kind experimental scientific installations.

8. Risks which are primarily riggers, wreckers, dismantlers, or salvage operations. This includes operations specializing in very heavy or highly damageable property such as boilers, printing presses, etc., being installed in or removed from buildings. Some contractors are strictly a crane service, presenting only a rigging exposure. If the risk is acceptable, the Installation coverage form would be appropriate. Others may also perform over the road moving of heavy machinery and equipment. In these types of situations to provide legal liability coverage it is best to extend a Motor Truck Cargo Legal Liability coverage form to include the rigging operation.

Underwriting Considerations for Installation Floaters

Building codes, union regulations, and licensing requirements have been major factors contributing to the virtual demise of the "jack of all trades" contractor. Those that still exist handle primarily small jobs, and "sub-out" any operations requiring special work. In their place, contractors specializing in specific segments of the construction process have evolved. These contractors ''subcontract" with the owner, general contractor, or developer to perform their specialty. The Installation policy is written to insure property owned by the insured or property of others for which the insured is legally liable, that the insured will install, erect or fabricate.

How to evaluate the insured for this exposure

The Insured is of first importance. The insured, if experienced, will be working in a familiar field, will have learned how best to do the project, and in doing the project right the first time in the most efficient manner will be most profitable for the contractor and usually least hazardous for the Insurance Company.

Continuing this type of work over a long period of time is an indication that the past work was satisfactory to customers and the venture successful to remain in the same business. This does not mean a new business Is unacceptable, but that it must receive a closer scrutiny to determine the ability of those In charge. Did they work for others in the same field, or is this a new venture? If the type of work is new to them proceed very cautiously. As an underwriter you do not want to finance (through claim payments) their education.

The agent/broker and a D&B report will be your primary sources of such information. As a general rule, it is not appropriate to insure a general building contractor and all subcontractors as named insureds under an Installation Policy. This would amount to covering all work being done on the project during and after installation. (In other words, the policy would cover the construction of a building, which is the purpose of a Builders' Risk Policy.)

Underwriting Installation Perils - Part I

Fire: Fire is usually the predominant exposure for installation risks. If the installation is in a building under construction, the tire potential is usually greater than within a complete structure.

Construction: The construction of the building, if any, in which the property is being installed will have a direct bearing on the risk. If it is under construction, all the hazards of a builders' risk will apply.

Temporary Storage Locations: If property for the installation is temporarily stored in another structure, that building must be evaluated for any exposures which might call for a surcharge, special restriction, or reinsurance cession, giving due consideration to the values at the storage location.

The policy limit for the temporary storage location, if there is such an exposure, should be realistic and generally be considerably less than the installation job site limit.

Occupancy: If the installation is within a structure, the occupancy could increase the loss potential if hazardous operations are in process during the term of the installation. An example would be installation of electrical equipment within an operating chemical, fiberglass or woodworking plant; or, a weld~r ,Installing pipe in a dynamite factory.

Exposure: What is close enough to the risk that it might increase the possibility of a loss, and how severe is the potential? If the installation is not in a building or structure, then the fire exposure would be either from the materials being installed, or adjacent properties. Examples are adjacent restaurants, hazardous manufacturing operations, gasoline tank farms, grain silos, brush or forest, or waterways.

Protection: The town protection grade at the project site will indicate the speed of response to a fire and the amount of personnel and equipment available to fight it. The location of the hydrants and the size of water mains will indicate the accessibility and adequacy of water. This information is particularly important on the large risk since it will have a major bearing on fire loss potential,

Underwriting Installation Perils - Part II

Theft: Theft losses make up a considerable number of the total claims under installation coverage. While losses can be sizeable, they seldom approach policy limits. However, a sizeable theft loss, or a frequency of losses, can make the coverage unprofitable. Protection can vary from a full time watchman within a flood-lighted and fenced area, to nothing. For example, renovation of a heating system in an operating bank would be "perfect" protection.

The area in which the installer operates is a factor. If in an urban area, the probability of theft loss could be far greater than If most projects were in smaller, primarily residential communities. The type of occupancy is a factor. Installation in operating industrial or office buildings should be less susceptible than in residential buildings under construction.

Windstorm: Installations in the open, or in buildings under construction are more susceptible to wind damage than are contents of a completed structure. There is a loss potential both from direct wind damage and resulting collapse of the structure, which during construction is not as resistant to wind damage as a completed structure. Determine if all reasonable precautions are taken to prevent wind loss by adequate bracing, shoring and construction methods. Are materials firmly secured as erected? Also consider the severe storm/hurricane/hail potential of
certain areas, particularly coastal regions.

Any type of tower (radio, TV., wind-powered machinery, electric transmission line, microwave, etc.) will be subject to wind damage during the erection process, since cranes and even helicopters are generally utilized. Even modest wind velocities can cause difficulty by causing property being hoisted to collide with other objects, and can sometimes cause overturn of the hoisting crane with resultant damage to the covered property.

Flood and Water Damage: In new construction, it is common that ground cover will be removed, ground contours altered, and if heavy rains occur before drainage Is completed, property in low areas either Inside or out of buildings can be inundated. It is common for contractors to temporarily store property to be installed in the ground or basement levels of buildings until needed, which can subject it to local flooding or surface runoff water.

It is recognized that on other than specific project coverage, it will be difficult to determine If some of the operations will be subject to flooding. However, a familiarity with the type of work the insured does, and the region and its susceptibility to flooding will allow the underwriter to recognize those risks working in flood prone areas where some special restrictions (exclude flood or have a sub-limit for flood when policy limits are high) or additional rate is appropriate.

It is difficult for the underwriter to control the water damage potential. If operating practices and past experience of the insured reflect a prudent attitude, the underwriter will probably have to make a judgement that the exposure is acceptable unless specific information (inspection, etc.) reveals otherwise.

© 2015 Randi Glazer


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