CHANGING LEGAL LANDSCAPE


Reconceiving Builder’s Risk Coverage for General Conditions and General Requirements


BY WILL BENNETT, SAXE DOERNBERGER & VITA, P.C. N


early every builder’s risk claim involving impact to a proj- ect’s critical path includes


submission of the general contractor’s general conditions. Yet, these costs are a heavily mis- understood aspect of builder’s risk claim submissions. We are frequently asked to evaluate denials of coverage for general conditions after the claim has already been presented with the general conditions presented in a disadvantageous manner in the claim submission. To understand the issue, it is critical to understand what general conditions are. Put simply, general conditions (also general requirements) are on-site project-specific overhead costs – costs necessary to keep the project running day-to-day. General conditions are measurable in at least two ways – (1) cost associated with a defined scope of work, and (2) cost associated with a defined project timeline.


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CALIFORNIA CONSTRUCTOR MAY/JUNE 2024


Measuring General Conditions With respect to scope, the general con- tractor typically agrees with the owner to receive a certain sum of money for general conditions to complete the scope of work outlined in the contract. However, this agreement can also be conceived of as time-based, as these costs are also asso- ciated with the project timeline. When a loss occurs that impacts the critical path of the project, both measurements are relevant, as the contractor will likely incur additional general conditions as a result. First, there is additional resulting scope of work not originally contem- plated. If the contractor must repair a water intrusion event, then those general conditions allocated to those repairs are clearly tied to an additional scope of work that was not within the original calculated general conditions. Second, the added general conditions


are measurable by the additional time it will take to complete the project. Te contractor, while also doing work that was


not originally contemplated, will simply be on the project site for a longer duration.


Significant Implications to Builder’s Risk Policy Unfortunately, the construction industry has developed a misunderstanding that addi- tional general conditions arising out of such a loss are purely a time-based component of the associated builder’s risk claim. Tis misconception has significant implications for how these costs fit within the coverage parameters of a builder’s risk policy. Builder’s risk policies typically include


at least (1) a base policy form and (2) a delay in completion endorsement. A common base form will insure “all risks of direct physical loss or damage” unless otherwise excluded. A loss within that insuring agreement is then adjusted ac- cording to the policy’s valuation provision, which is likely to have language saying the loss will be adjusted based on “the cost to repair or replace the lost or damaged property, valued as of the time and place of loss, with material of like kind and quality, less betterment, including contractor’s reasonable profit and overhead.” When the contractor is forced to allo-


cate general conditions to a scope of work (i.e. the repair) that was not originally contemplated, they are a pure expression of “the cost to repair or replace the lost or damaged property … including contrac- tor’s reasonable … overhead.” Te con- tractor cannot do the repair without the appropriate general conditions support. On the other hand, the policy’s delay in completion endorsement typically applies only to the owner and insures “in the event of direct physical loss or damage not otherwise excluded to prop- erty insured under this Policy which results in a Delay in completion of the Insured Project, Soft Costs incurred….” “Soft Costs” is usually defined to include “Project Administration Expense.”


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