The University’s Master Builders Risk Insurance Program protects Harvard capital project owners against adverse financial impacts resulting from physical loss or damage to buildings, structures, materials, fixtures and equipment during the course of construction. The insurance is designed to cover renovation, rehabilitation and new, ground-up construction projects on all Harvard campuses and at locations leased by Harvard in the United States (see below for "Eligibility" criteria).
Harvard, not its contractors, is responsible for procuring builders risk insurance on its capital projects per Harvard Planning and Project Management’s standard construction agreements. Therefore, project managers should take the necessary measures to ensure appropriate builders risk insurance is put into place for their projects BEFORE the start of construction to ensure compliance with the insurance requirements in the standard agreement and to avoid financial responsibility for uninsured losses which would have been covered by builders risk insurance.
Program Structure and Coverage
Builders risk coverage is integral to protecting the University's property, and in conjunction with the Master Property Insurance program, gives coverage continuity across the entire development process – from ground breaking on new buildings to those undergoing significant renovations, transitioning the site onto permanent coverage once construction activities have concluded. The Master Builders Risk Insurance program (MBR) provides reimbursement of unanticipated hard and soft construction costs incurred because of physical loss or damage to an insured capital project as a result of fire, windstorm, lightning, flood, theft, earthquake, acts of terrorism, and other fortuitous causes. Similar to the Master Property Insurance program, coverage afforded under the MBR program does not apply to financial impacts resulting from loss or damage to property which is expected or intended, arising from faulty workmanship (construction defects), or related to mysterious disappearance of materials and equipment.
The insurance also provides reimbursement of reasonable and necessary costs incurred, including expenses resulting from a delay in Harvard’s use of the improvements being constructed (a.k.a delay in start-up costs) because of insured property loss or damage. Examples of recoverable ‘delay’ costs include additional finance costs, extra expenses incurred to expedite repair/replacement, and additional engineering or permit fees. Coverage for loss of income such as tuition, rental income, or other revenue attributable to the site is also available, but such needs to be declared at time application for builders risk insurance is submitted so the policy can be appropriately amended as this coverage is unique for each project.
In the context of the MBR program, hard costs mean the cost of building materials, fixtures, equipment and other property intended to be permanently incorporated into a project, and the labor and equipment costs necessary to put them in place. Soft costs are capital costs associated with a construction project (other than hard costs and land acquisition costs) such as financing costs, fees paid to architects & engineers, project management firms, legal counsel and other professional service providers, the cost of additional building permits, and costs to expedite the replacement of insured property if the latter is necessary to keep the project on schedule.
Property Insured. The coverage provided under the MBR program insures building materials, fixtures, equipment and other property that is intended to be permanently incorporated in an insured project. Such property is covered while at the project site, while temporarily stored offsite, and while in land-based transit within the continental U.S. to the project site or a temporary offsite storage location.
Property Not Insured. The coverage provided under the MBR program does not apply to:
- Defective materials, fixtures, equipment, etc.
- Machinery, tools, equipment (including motor vehicles and mobile equipment), supplies, trailers, temporary offices, appliances or other property owned, rented, or used by a contractor or subcontractor or anyone employed by them that is not intended to be permanently incorporated into an insured project
- Property of Harvard faculty, students, staff, and visitors
- Property which other Harvard insurance programs have been specifically established to insure
- Other types of excluded property or perils as specified in MBR program policy.
Only capital projects that have undergone Harvard's Capital Project Review Committee process and are listed as having received Construction Authorization (CA) in the CAPS Automated System are eligible for coverage under one of the University's construction insurance programs. Capital projects that have received their CA and have a hard cost value of less than $5,000,000 are eligible for builders risk coverage under Harvard's Master Property Insurance program.The major advantage of obtaining builders risk coverage within the terms of the Master Property Insurance program is that no additional premium is currently assessed for conforming* projects.
Capital projects that have received their CA and have a hard cost value of $5,000,000 or more are automatically eligible* to obtain their builders risk coverage through the University's MBR program. Projects insured under this program have the advantage of broad coverage terms and an expedited binding process.
* Certain aspects of a capital project may render it ineligible for coverage under Harvard's Master Property or Master Builders Risk Insurance programs. If a project will involve joisted masonry construction, work on or around any piers, marine areas, is on a waterfront site, the installation of any large storage tanks, towers, or blasting, underpinning, tunneling, or excavation beneath an existing structure, or otherwise presents an unusually high degree of risk for property loss to the project itself and/or to surrounding buildings (as determined by the Program Administrator), such project would not be eligible for coverage under the noted programs. For projects that are deemed ineligible, an alternative insurance plan is available to project and facility owners through the Risk Financing and Insurance department, and typically involves the placement of project-specific builders risk insurance. Project owners and facility managers who believe that their pending construction project potentially falls within one or more of the ineligibility criteria should present the project to our Program Administrator as soon as possible, following the instructions described under “Purchasing Builders Risk Insurance” below, to begin investigating builders risk insurance coverage options.
Purchasing Builders Risk Insurance
To obtain builders risk insurance for a Harvard capital project, project owners or project managers must submit a coverage request for builders risk insurance using our Online Risk Management Self-Service portal. This tool should be used to initiate the procurement process for arranging builders risk insurance for all types, sizes and profiles of construction/capital projects, including those with questionable eligibility.
For eligible projects (see above), a completed Builders Risk Insurance Request, including all required supporting documents, must be received by the Program Administrator at least 2 weeks prior to the start of construction. Within 10 days of receipt of the completed form, the Program Administrator will review the submission and either issue a certificate evidencing builders risk insurance to the requestor or contact the requestor in order to discuss alternative insurance solutions.
For projects which are not eligible for coverage under Harvard’s Master Property or Master Builders Risk Insurance programs, the process of assessing the project’s risk profile, designing appropriate insurance coverage, and negotiating applicable policy terms with an insurer may take 60 days or more. We highly recommend that the project owner or project manager submit the Builders Risk Insurance Request as soon as a comprehensive project description and a reasonably accurate estimate of the length and total cost of the project are available, but not less than 90 days before the start of construction.
Builders risk insurance is NOT effective on a project until AFTER the Program Administrator issues a certificate evidencing such insurance (usually via Evidence of Commercial Property Insurance ACORD 28 form) or other formal written proof of coverage.
Currently, capital project owners are not assessed a separate premium charge for builders risk insurance coverage when eligible for and insured under Harvard’s Master Property Insurance Program (e.g. hard cost value less than $5 million). Regardless, there are certain costs for which project owners remain responsible:
- Payment of loss costs incurred within the $50,000 deductible applicable to each claim, including, but not limited to a) insured hard and soft construction costs, b) insured delay in start-up costs, and 3) fees paid to consultants (forensic engineers, legal counsel, accounting professionals, etc.) for assistance in substantiating and/or quantifying a claim;
- Financial loss resulting from damage which is outside the scope of insurance or for which the insurance provides only partial reimbursement; and
- The cost of any loss prevention or design drawing/plan review services provided.
Harvard capital project owners insured under the MBR program (or any alternate project specific plan) are responsible for all costs of such insurance, including but not limited to:
- Any applicable policy premiums, taxes, surcharges, and broker commissions and/or placement fees;
- Loss prevention inspection & consulting service fees (a scope of work and cost proposal may accompany the insurance coverage proposal); and
- Design drawing/plan review fees (if requested by the project owner or project manager)
- Loss costs incurred that fall within the policy’s deductible(s)
- Fees paid to consultants (forensic engineers, legal counsel, accounting professionals, etc.) for assistance in substantiating and/or quantifying claims
- Financial loss resulting from property loss or damage which is outside the scope of insurance or for which the insurance provides only partial reimbursement
Engineering, Loss Prevention and Risk Control Services
Harvard capital project owners insured under the MBR program (or any alternate project specific plan) may be subject to mandatory engineering, loss prevention and risk control site visits by the program's insurance carrier depending on the nature of the planned construction work. Should the carrier desire to visit the project site, the Program Administrator will coordinate with the project manager, insurance carrier, and other applicable parties to arrange for such.
For projects insured under the MBR program, fee based engineering and loss prevention services are available to any project owner upon request. Such services may be provided by the insurance carrier or by an independent third-party familiar with Harvard's construction practices. Projects with substantial/unique construction exposures are encouraged to utilize these services; project managers should contact the Program Administrator to investigate the specifics on availability and cost.
Both the mandatory and voluntary visits are intended to be beneficial to project owners as they look to mitigate potential losses which, in turn, allow projects to save costs and finish on schedule.
The valuation basis for loss or damage related to a builders risk insurance claim depends upon the type of cost(s) for which reimbursement is being requested and whether the insured property experiencing loss or damage is to be repaired, replaced or rebuilt, and if so, when.
Hard Cost Loss Valuation. For insurance claim purposes, hard construction costs are valued on a replacement cost basis. In general, this means loss or damaged to insured property is valued at the lesser of:
- The cost to repair the property;
- The cost to rebuild or replace the property on the same site with new materials of like size, kind and quality; or
- The cost of rebuilding, repairing or replacing on the same or another site, but not to exceed the size and operating capacity that existed on the date of loss.
The value of raw construction material and un-repairable electrical or mechanical equipment is the actual expenditure incurred in repairing or replacing such property with materials or equipment that is the most functionally equivalent to that which was stolen, damaged or destroyed.
The value of any property that is not substantially repaired, replaced or rebuilt on the same or another site within two years from the date of insured loss or damage, is the amount it would cost to repair or replace such property, on the date of loss, with material of like kind and quality, with proper deduction for obsolescence and physical depreciation (the Actual Cash Value).
Soft Costs/Delay in Start-Up Cost Loss Valuation. The insurance value of soft costs and delay in start-up costs are the reasonable and necessary costs incurred during the additional period of construction following the original project’s completion date because of the time required to repair or replace covered property experiencing insured loss or damage.
Notification of any actual or suspected builders risk claim is done by submitting a Builders Risk Claim report using our Online Risk Management Self-Service platform. This tool should be used to report builders risk insurance claims for all types, sizes and profiles of construction/capital projects.
In the event of a loss, success in negotiating a satisfactory recovery from the builders risk insurer is directly dependent upon the completeness and quality of the information available to clearly and accurately establish the insurable financial costs incurred by Harvard as a result. Project owners and facility managers can take steps to strengthen their position for negotiating a recovery of hard costs before loss or damage occurs by maintaining a complete inventory, including architectural & engineering specifications, of all materials, fixtures, machinery and equipment used in each project. With respect to soft costs, project managers should notify Risk Financing and Insurance as soon as possible after loss or damage is discovered or suspected so a process may be developed for documenting the necessity and reasonableness (i.e. insurability) of soft costs and extra expenses, before they are incurred, to avoid a total or partial denial of claims for these costs by the insurer.
Immediately upon discovery of property loss or damage, or conditions indicating property loss or damage has occurred, appropriate measures must be taken to prevent further loss or damage. All damaged building materials, fixtures and equipment must be protected and retained for inspection by the insurance company adjusters. Please take photographs and/or digital video to document as much of the loss or damage as possible. The Risk Financing and Insurance department should be notified as soon as possible after such measures have been taken. A delay in providing notice to Risk Financing and Insurance may lead to a reduced or no insurance recovery due to a failure to take the necessary actions to preserve Harvard’s full right of recovery from the insurer and/or the party responsible for the loss or damage; and/or a failure to maintain the documentation required to obtain a maximum recovery.
Upon receipt of a completed Builders Risk Claim report, Harvard’s Master Property Insurance Program Administrator will assess the loss or damage and:
- Inform the Project Manager what actions must be taken to preserve Harvard’s right of recovery under the builders risk insurance policy and/or from parties responsible for loss or damage not covered by builders risk insurance (e.g. a contractor who has created or exacerbated a pollution condition);
- Inform the Project Manager what information is necessary to document the property loss or damage and the cause of the damage;
- Prepare an insurance coverage assessment, identifying the costs for which reimbursement is expected to be received from the insurer and those for which reimbursement is not expected;
- Develop a strategy and process for documenting the hard costs, soft costs and delay in start-up costs to be recovered from the insurer, and for establishing the insurability of those costs to simplify negotiations with the insurer; and
- Develop a strategy, process and overall timeline for recovery from the insurer and/or parties responsible for loss or damage not covered by the Project’s builders risk insurance.