Blog Question: Definition of Building Under a ISR Policy (1)

buildingI received the following question seeking a definition of ‘Building’ under an ISR Policy

Hi Allan,

I am trying to find the definition of Building under the  ISR wording.   The Insurer  can’t tell me where it is and are referring me to the basis of settlement which does not confirm what is covered under ‘building’.

Would you please provide me some guidance with finding this?

Thanks

Adam” [surname and email provided]

I provided the following explanation:

Hi Adam,

The ISR does not contain a definition of  Building. This is true for the Mark IV and Mark V form, whether it be the Advisory or Modified versions. What the policy covers is “all real and personal property”. This is found under the heading: “The Property Insured”. The actual clause reads:

“All real and Personal Property of every kind and description (except as hereinafter excluded) belonging to the Insured or for which the Insured is responsible or has assumed responsibility to insure prior to the occurrence of any damage, including all such property in which the Insured may acquire an interest during the Period of Insurance.”

Under English law, which Australia and New Zealand follow, ‘real property’ is land and all property that transfers with the title of the land eg fences; buildings, handstands, swimming pools etc.

‘Personal property’ is property that can be moved, such as stock or contents and, in fact, is any property other than the interests of freehold land. As such, personal property is not limited to the personal belongings or the personal effects of individuals.

There are only two scenarios that I can think of that could arise under an ISR why anyone would be interested in knowing what the term ‘building’ means.

The first is in the Schedule of Declared Assets. The original drafting sheets just showed the total value of assets at each location. It was then split out between buildings, machinery and plant/other contents and stock (or other similar classifications) to assist the underwriter in determining the maximum probable loss and is used for rating but not for any claim settlement. The amount selected is not a Sub-Limit of Liability nor is it a Sum Insured.

Further, it is not used on its own for the test for coinsurance. What is tested is the value of all real and personal property at the situation (other than the property that is excluded, there are several types listed in the Property Exclusions such as the land itself) with the valuation being in accordance with the basis of valuation as set out in the policy for the applicable asset classification. There is a different basis of settlement for each of the following categories of property:

a)      Buildings, Machinery, Plant etc;

b)      Raw Materials Supplies and Other Merchandise not Manufactured by  the    Insured

c)       Material in Process

d)      Finished Goods

e)      Rewriting of Records

f)       Patterns, Models, Moulds, etc

g)      Glass

h)      Directors’ & Employees’ Clothing & Tools of Trade

i)        Empty Premises Awaiting Demolition

This means if you got the Declared Value out by a $1 million or more for ‘Buildings’, but over-declared ‘Contents’ by the same amount and the total of both as shown on the Schedule of Declared Assets was within 85% (tolerance in a base Mark IV or Mark V wording) of the total value at risk at the situation, then coinsurance would not apply to the building or any other part of the claim. This is only fair as the premium rate is the same for all categories of asset/property as insured under the policy.

The other place you may believe a definition is to be required is when you look at the Basis of Settlement. Here it states that ‘buildings’, but again it is not limited to ‘buildings’ but is:

“Applicable to buildings, machinery, plant and all other property and contents; other than those specified in items b) to i) under Basis of Settlement.” (Refer to my list above for what makes up items b) to i).)

As such I cannot think of a single time in my career where I had to look at what was ‘building’ under an ISR. The only issue is landlord’s fixtures and fittings v tenants fixtures and fittings as to who owns them and/or who was to insure them.

As with any contract, if there is no definition then you use a dictionary definition or the normal every day definition.

As I am about to close off, I just thought of a third reason you might be asking and that is in respect of theft or storm in the open air. The building has to be lockable with all doors and windows etc. The issue here is more on what does ‘open air’ mean, more than what does a ‘building’ mean?

container 2There are issues from time to time as to whether a locked shipping container permanently sitting at a premises is a building. Some insurers accept it is while others do not. I recommend that this be addressed before any claim and not afterwards.

I could keep guessing but it would be much quicker if I have not already answered the question for you to advise why you are interested and I will see if I can help. (Could readers please keep this in mind when posing a question as it does save time for both you and I.)

I hope what I have provided does help and answer your question.

Allan

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