DIC Builders Risk??
- Thread starter VaDwayne
- Start date
G
Guest
Guest
A couple of instances where I have used a DIC for a construction project was to obtain earthquake coverage and to obtain excess limit of insurance due to the builder's risk policy having a sublimit for damage or theft of construction materials stored on and off site. 
- 1,076
A DIC (difference in conditions) policy and a builder's risk policy are two different coverages. A DIC policy allows coverage to be customized to extend to exposures like water damage, flood, collapse, earthquake, landslide, etc., according to the insured's needs. DIC coverage may be provided by means of a separate insurance policy or it may be added by endorsement to the basic policy.
Is the construction project on a hillside or in EQ area or flood zone?
Is the construction project on a hillside or in EQ area or flood zone?
- Thread starter
- #4
It was my understanding that the DIC is purchased by the G.C to cover himself against exposures that would not be covered by a builders risk policy purchased by the owner of the property.
This is what my study material reads:
Note that the contract usually makes the contractors responsible for damage to the project and
materials to be incorporated into the project. Builders risk insurance is the first-party coverage used to
insure this exposure, and the contract should specify whether the owner or the contractor will
purchase this insurance. Many contractors feel that, since they are responsible for risk of loss or
damage to the property, they should have the right to manage their own risk. For example they should
have the right to negotiate and purchase the insurance to cover it. Nevertheless, it is common for the
owner to retain this responsibility.
If the project builders risk insurance contains deficiencies that result in no coverage for a particular
type of loss, there are two possible secondary insurance programs that may come into play: DIC
builders risk insurance and general liability insurance. Many general contractors buy blanket builders
risk policies that can be used as the primary builders risk insurance on those projects where they are
charged with procuring the insurance and as a type of back-up insurance on projects where the owner
retains the right to procure the insurance. This latter type of approach is called difference-inconditions
(DIC) coverage because the broad policy purchased by the contractor can fill in coverage
gaps created by more restrictive coverage conditions in the owner’s policy. A DIC builders risk
policy can also be used to “buy down” the deductible in a policy purchased by the owner on behalf of
the contractor. Reflecting the insurer’s reduced exposure, the rate used to calculate the premium for
the DIC coverage is much lower than the rate used when the policy is the primary builders risk
insurance on a project.
There are two advantages to using a DIC builders risk policy to back up the owner’s policy. One is
that any losses are paid without the expensive litigation that would be necessary in an attempt to
obtain coverage under the contractor’s liability insurance. The second is that claims will be paid
directly to the contractor, thus relieving the contractor of the need to finance the loss during the
period in which the owner is awaiting proceeds from its own builders risk policy.materials to be incorporated into the project. Builders risk insurance is the first-party coverage used to
insure this exposure, and the contract should specify whether the owner or the contractor will
purchase this insurance. Many contractors feel that, since they are responsible for risk of loss or
damage to the property, they should have the right to manage their own risk. For example they should
have the right to negotiate and purchase the insurance to cover it. Nevertheless, it is common for the
owner to retain this responsibility.
If the project builders risk insurance contains deficiencies that result in no coverage for a particular
type of loss, there are two possible secondary insurance programs that may come into play: DIC
builders risk insurance and general liability insurance. Many general contractors buy blanket builders
risk policies that can be used as the primary builders risk insurance on those projects where they are
charged with procuring the insurance and as a type of back-up insurance on projects where the owner
retains the right to procure the insurance. This latter type of approach is called difference-inconditions
(DIC) coverage because the broad policy purchased by the contractor can fill in coverage
gaps created by more restrictive coverage conditions in the owner’s policy. A DIC builders risk
policy can also be used to “buy down” the deductible in a policy purchased by the owner on behalf of
the contractor. Reflecting the insurer’s reduced exposure, the rate used to calculate the premium for
the DIC coverage is much lower than the rate used when the policy is the primary builders risk
insurance on a project.
There are two advantages to using a DIC builders risk policy to back up the owner’s policy. One is
that any losses are paid without the expensive litigation that would be necessary in an attempt to
obtain coverage under the contractor’s liability insurance. The second is that claims will be paid
directly to the contractor, thus relieving the contractor of the need to finance the loss during the
Can you elaborate on this for me?
- 1,076
Not really but this link might help.
Builder
I have never seen a DIC policy used in that manner. Typically the GC will purchase the builders risk policy. Some owners purchase it as they feel the GC's overcharge them (and many GC's do inflate the costs).
Builder
I have never seen a DIC policy used in that manner. Typically the GC will purchase the builders risk policy. Some owners purchase it as they feel the GC's overcharge them (and many GC's do inflate the costs).
- Thread starter
- #6
Makes sense!!!
G
Guest
Guest
Several statements are troubling:
1. "Note that the contract usually makes the contractors responsible for damage to the project and materials to be incorporated into the project...."
A construction contract does not make the contractor responsible for damage caused by acts of god which is why the contract specifies insurance requirements.
2. "Many contractors feel that, since they are responsible for risk of loss or damage to the property, they should have the right to manage their own risk"
Contractors, as well as, any business owner make an effort to control their cost of insurance. Contractors will not purchase builder's risk insurance unless the construction contract requires it. Certainly, some contractors will offer their builder's risk since their cost may be less than what the owner was quoted and as a inducement to get the job. Futhermore, some contractors will purchase a "construction wrap policy" to avoid the necessity of relying on insurance from subcontractors.
Contractors, as well as, any business owner make an effort to control their cost of insurance. Contractors will not purchase builder's risk insurance unless the construction contract requires it. Certainly, some contractors will offer their builder's risk since their cost may be less than what the owner was quoted and as a inducement to get the job. Futhermore, some contractors will purchase a "construction wrap policy" to avoid the necessity of relying on insurance from subcontractors.
3. "If the project builders risk insurance contains deficiencies that result in no coverage for a particular type of loss, there are two possible secondary insurance programs that may come into play: DIC builders risk insurance and general liability insurance"
This implies that a DIC will cover any loss excluded by the builder's risk. A DIC policy has exclusions.
This implies that a DIC will cover any loss excluded by the builder's risk. A DIC policy has exclusions.
4. "Many general contractors buy blanket builders
risk policies....and as a type of back-up insurance on projects where the owner
retains the right to procure the insurance. This latter type of approach is called difference-inconditions (DIC) coverage because the broad policy purchased by the contractor can fill in coverage gaps created by more restrictive coverage conditions in the owner’s policy."
It would be unusal for a contractor to provide a DIC policy to fill in covage gaps. In order to underwrite the DIC policy the contractor's DIC carrier would have to know the exclusions in the builder's risk policy and then offer coverage based on the desired coverage. A common exclusion is earthquake where in California earthquake coverage is very expensive. It is highly unlikely that a contractor's DIC policy in Calfornia will include earthquake coverage. Typically the only way a contractor will purchase earthquake coverage is if required by contract. Therefore, in lieu of, a contractor obtaining a DIC policy as a stop gap measure the contractor will obtain a DIC policy if required by the construction contract.
It would be unusal for a contractor to provide a DIC policy to fill in covage gaps. In order to underwrite the DIC policy the contractor's DIC carrier would have to know the exclusions in the builder's risk policy and then offer coverage based on the desired coverage. A common exclusion is earthquake where in California earthquake coverage is very expensive. It is highly unlikely that a contractor's DIC policy in Calfornia will include earthquake coverage. Typically the only way a contractor will purchase earthquake coverage is if required by contract. Therefore, in lieu of, a contractor obtaining a DIC policy as a stop gap measure the contractor will obtain a DIC policy if required by the construction contract.
5. "A DIC builders risk policy can also be used to “buy down” the deductible in a policy purchased by the owner on behalf of the contractor."
Since a DIC policy excludes coverage provided by the builder's risk policy a deductible buy down is not possible. If the DIC policy is purchased to provide coverage excluded by the builder's risk policy the DIC policy will have it's own deductible.
Since a DIC policy excludes coverage provided by the builder's risk policy a deductible buy down is not possible. If the DIC policy is purchased to provide coverage excluded by the builder's risk policy the DIC policy will have it's own deductible.
6. "There are two advantages to using a DIC builders risk policy to back up the owner’s policy. One is that any losses are paid without the expensive litigation that would be necessary in an attempt to obtain coverage under the contractor’s liability insurance."
Since the DIC policy has exclusions not all losses will be insured. Liability insurance does not step in to insure direct physical loss not covered by property insurance.
Since the DIC policy has exclusions not all losses will be insured. Liability insurance does not step in to insure direct physical loss not covered by property insurance.
7. "The second is that claims will be paid
directly to the contractor, thus relieving the contractor of the need to finance the loss during the period in which the owner is awaiting proceeds from its own builders risk policy."
This implies that the cost to repair the damage to the structure or materials will be paid twice. Once by the contractor's DIC policy and again by the owner's builder's risk policy. This can never happen because the DIC policy insures specified causes of loss not covered by the buider's risk policy, the builder's risk policy has a "other insurance" clause to prevent mutiple payments for the same claim and the DIC policy will have a excess insurance clause if the DIC policy is obtained to provide an additional amount of insurance to the builder's risk policy.
This implies that the cost to repair the damage to the structure or materials will be paid twice. Once by the contractor's DIC policy and again by the owner's builder's risk policy. This can never happen because the DIC policy insures specified causes of loss not covered by the buider's risk policy, the builder's risk policy has a "other insurance" clause to prevent mutiple payments for the same claim and the DIC policy will have a excess insurance clause if the DIC policy is obtained to provide an additional amount of insurance to the builder's risk policy.
[/quote]
In a builder's risk policy, there is usually no coverage for GL as well. I used to write Zurich North America's Builder's Risk policies and never seen liability on the policy.
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