His virtual class, Soft Costs in Builder's Risk Insurance, Navigating Coverage and Expenses, hosted by the Marine Underwriters Association. I'm Eileen Monreale, Education Training Specialist at IMUA. Thanks for joining us today. I also want to thank my colleagues who were also logged in, Lillian Coulson and Ali Monreale, for their work behind the scenes to ensure the success of today's class. We all work equally in time and effort to ensure successes and I appreciate the teamwork that we have here. On your screen, you'll see the Attendee Control Panel, where handouts are listed and you can download a PDF of the presentation, as well as the AAIS forms, which will be referenced today. This is also where you find the question box, where you can share your questions with our instructors. They look forward to addressing them at the end of the class. To encourage your engagement, IMUA will award a $25 Amazon fee gift card to the most engaged attendee with the best question or most engagement. We all learn better when we're engaged, so please do share your questions. If the control panel minimizes by default, simply click the orange arrow to bring it back. You can also go to the View menu on the top of the control panel and uncheck the auto-hide option. The class is scheduled for three hours. Our instructors will announce two five-minute breaks today. And I must share that our instructors invested a lot of time to prepare for today and it should be a very content-rich and engaging class. I'll move the slide. Please be aware of the IMUA statement. And now I'm honored to introduce today's instructors. I think I get a little echo, so maybe if the others shut off their microphones for now, it might get rid of the echo. And hopefully once I'm done, there won't be echoing anymore because I won't be speaking. So I'm honored to introduce today's fabulous instructors. Aubrey Shea is an Executive Vice President in the Global Practice League for Forensic Accounting with JS Health. Aubrey has extensive experience in quantifying claims related to cyber, builders' risk, construction defects, physical damage, stock and contents, business interruption and extra expense. Based out of Philadelphia, Aubrey utilizes her experience to lead a team of experts around the globe to address complex financial matters across various industries. Her passion for claims and continuing to better the support the industry is evident in all she does, including presentations related to specific qualifications, quantifications, as well as best practices for handling claims and communications. Aubrey is a graduate of West Virginia University and holds a Bachelor of Science in Accounting and a minor in Communications. In her spare time, Aubrey enjoys traveling and completing various athletic challenges to raise funds for charities, recently completing the National Three Peaks Challenge in the UK. Vicki Hartman is Senior Builders' Risk Underwriting Management for Ionshore and has been with the company for over 13 years. She resides in the Greater Cincinnati area. Previously, Vicki worked for ACE Group of companies in Cincinnati, Chicago and Atlanta. Vicki started her career as a Commercial Lines Underwriting Trainee with Great American Insurance in Cincinnati. She has over 30 years of experience in the land marine line of business. Vicki earned a Bachelor's Degree in Management on Northern Kentucky University and her MBA from Xavier University. She has attained her CPCU, AMIM and CRIS designations. Vicki is currently a member of IMUA's Board of Directors, as well as a member of the Education Committee. She is a past Chairperson of IMUA Southeast Regional Committee and in 2019, she was awarded IMUA's Committee Person of the Year. Vicki has a passion for learning and enjoys sharing her knowledge with others. Most recently, Vicki was a panelist in this October's IMUA Southeast Regional meeting, speaking on what else but villagers risk issues. On a personal level, Vicki is a certified master gardener who enjoys growing flowers and vegetables, woodworking and spending time with her husband, Bill, and their wire fox Terria, Holly. Sean Crawley is Chief Operating Officer, North America Claims with SOMPO. Sean's experience includes over 30 years managing claims and claim operations for global specialty insurers across multiple product lines in both the admitted and excess and surplus lines markets. In his spare time, Sean enjoys all things in the low country, South Carolina, and beach living. And last, but by no means least, Randy McGinnis is a shareholder of Flood & Peterson Insurance. Flood & Peterson is one of Colorado's largest insurance brokers with offices in Denver, Fort Collins, and Greeley. Randy has over 37 years experience in the insurance and bonding industry, including 21 years in various underwriting and underwriting management positions with the Traveler St. Paul, St. Paul's Travelers, and Zurich, prior to becoming an insurance agent. Ricky, Randy has extensive experience in exposure analysis, insurance program design and risk management, and claim management for large construction clients. Randy earned a Bachelor of Arts degree in business administration from Western State College of Colorado, now Western Colorado University. Randy's interests outside of insurance are spending time with his grown children, grandchildren, family and friends, snow skiing, golfing, and riding his Harley. We're delighted to have these three, these four talented instructors with diverse interests and backgrounds with us today. Welcome all. The floor is all yours. All right. Thank you, Eileen, and thank you for all the work that you've done as well. See if I can take control here. All right. So thanks for joining us today. Randy, Sean, Aubrey, and I are excited to be here to share our thoughts on what can be a confusing topic. We're thrilled that over 300 people have registered for this class and includes underwriting, claims, reinsurance, risk control, brokers, all joining us today. So why have this many people come together to discuss a topic that has already been discussed so many times over the past 40 years? The short answer is because there's still inconsistencies, gray areas, and challenges when it comes to understanding soft costs from each entity involved in a builder's risk project. The cost of a project, the time to build it has increased significantly over the past few years. These projects often require complex financing arrangements. Lenders, owners, contractors want to make sure their interests are protected in the event of a catastrophic loss. As presenters, we understand the opinions on the topic will vary depending on your job role. Our goal today is to present the issues we have experienced, seen, and read about and provide insight into what you're aware of so you can make an informed decision when dealing with the topic. We will offer some suggestions to help all entities gain a better understanding of the coverage provided so that in the event of a claim, it can be settled in a timely and efficient manner. We've got a great deal of information to go over today, so we won't be answering questions until the end. If you do have a question, put it in the question box and we'll do our best to get to them in the time allotted. We know we won't be able to solve everything in the three-hour session, so if the interest is there, we will have a roundtable discussion in the first quarter of 2025. Let's see if I can get the screen to move forward. All right, so why another soft cost presentation? The first presentation to be done over the past year is noting the following issues. As you can see on the slide, this is just a sampling of some of the comments. From a 2006 IMUA event that was, quote, passionately debated presentation on soft costs, the following was noted. Quote, every underwriter seems to have a different definition of soft costs and how they're defined. Another quote, there was very little data assembled on soft costs. There seems to be no universally accepted definitions. And from a 2006 AAIS Viewpoint article titled, Soft Costs, Hard Concept, I love that title because it really hits the nail on the head, it said, soft costs may be another term that obscures more than it clarifies. In 2014, again, another IMUA presentation with a panelist of experts that included an owner, claims adjuster, and an underwriter, it was a comprehensive 68-page presentation that said, why so much confusion? And in 2019, Stephen Combs, author of the Builder's Risk book, said the term soft cost has been a moving target for the insurance industry. And here we are back again to discuss the topic. For goal today is to help each stakeholder involved in a builder's risk project to gain a better understanding of the challenges and gray areas with the hope this discussion will lead to improvements from all entities in settling a loss. So I will be taking care of the underwriter perspective. So my portion, I'm going to go over the evolution of the builder's risk policy, who are the entities involved and why they're important. We're going to use the AAIS coverage form for my discussion and for most of the references, although we are aware that obviously there's many proprietary forms out there. So what are the coverage form gray areas? What are other issues? Why did the AAIS builder's risk form change in 2008? And then there's a soft cost flowchart that kind of ties everything together. To understand where we are today, we need to take a look back at how the modern day builder's risk policy has evolved. In the United States, insurance coverage for buildings under construction has been around for over two centuries. However, the original policies were limited in that they only covered one peril, which was fire. In the 1800s, coverage was expanded to include specified perils. Steve Coombs, the author of the builder's risk book, points out that in 1939, the completed value builder's risk coverage form was introduced due to the combined efforts of the American Institute of Architects and the Association of General Contractors of America. This was considered a major improvement in insuring construction projects, as the entire project could be insured by a single policy for the life of the job. Coverage continued to evolve over the years, and after World War II, more fire insurers began to broaden the perils insured. But it wasn't until 1976 that the words builder's risk were added to the nationwide inland marine definition. Coverage for delaying completion and soft costs as we know it today did not evolve until the early 1980s. Our focus today is very specifically soft cost, not loss of income or rents, that's a topic for another day. Just a tip before I go any further, if you're serious about learning more about everything builder's risk, you need to get a copy of the builder's risk book it's written by Stephen Coombs. There's an entire chapter on delay in project completion and soft costs, but it's rich with everything you need to know about builder's risk. All right, so on to the entities. There are many entities involved in a construction project that have to work together for the project to be successful. These are just a few, the owner developer, architect, contractor, lender, financing, broker, insurance carrier, underwriting and claims. It'll either be the owner or the contractor that secures the builder's risk policy. The broker needs to make sure they do a proper evaluation of the exposure and secure policy that covers the interest of all covered entities, take into consideration the requirements that are in the contract between the owner and the contractor. Builder's risk coverage forms vary by carrier, so you can't assume one size fits all. A big misconception some owners and contractors as well as lenders have, is that if their contract between each other has a requirement such as just as an example, coverage for penalties, which is excluded from the AIS builder's risk policy, they assume the builder's risk insurance policy covers it. You only find out after a loss that there is no coverage. If the contractor is the entity securing the insurance, getting the correct loss of rents or loss of income pro rata statement can be a challenge. The owner may not wanna share this information with their contractor or the contractor's agent or broker. As strange as it sounds, they are negotiating insurance between the owner and the lender. Having insurance for the owner's revenue stream controlled by a third party may not be the best situation for the owner or the lender. Each entity has their own definition of what soft costs are and has their own language within their group. Not including the interest of all entities will leave gaps in coverage and lead to a dispute between parties. Settling a claim is challenging enough fighting between the parties just increases the difficulty. So two questions I would say to look at first is who is responsible for purchasing the builder's risk policy and does the builder's risk policy meet the requirements of each entity's contract with each other? All right, so now we're gonna take a poll and ask what entity is responsible for causing so many gray areas in soft costs? So we'll give you a few seconds to answer. All right, and 88% is the correct answer. It's all of the above. All right, so for purposes of our discussion today, we'll be using the AAIS builder's risk coverage forms shown here. A big thank you to AAIS for allowing the IMUA to use their forms in our presentation. You should have received the forms or the ability to download them in your invite. You may wanna pull them out and refer to them during the presentation because that's what we will be referring to. So to understand hard costs, you have to first understand what hard costs are. Hard costs are material used in the construction of the building as well as labor used to build it. These are direct costs and tangible. But ironically, you won't see the words hard cost in the AAIS policy and most of the other builder's risk policies. So where do you find what are considered hard costs in a builder's risk insurance policy? For AAIS, it's under property covered. In proprietary forms, it may be under the insuring agreement section, the covered section, or the property insured section. This slide shows the AAIS wording and you can see what's covered. It's also important to note a specific item that is not covered, land. This is important to note because a lender may require the builder's risk policy to cover the full amount of the loan, which includes the cost of the land, which needs to be excluded because land is not covered in a builder's risk policy, specifically in the AAIS policy. All right, now on to, why don't we finally get to our topic, soft costs. Soft costs are more specifically defined in both the AAIS coverage form as well as the proprietary forms. Soft costs are indirect, intangible, and limited to categories defined in the policy. It's a short list, typically less than 12 categories. In the AAIS delaying completion form, coverage is separated into two distinct categories, additional construction expenses, which include advertising, design fees, financing, lease administration, professional fees, permit fees. And then there's also another category called additional soft costs, which includes interest payments, realty taxes, lease expenses, and insurance premiums. AAIS defines their terms and their policy. Many proprietary forms do not. The way AAIS structures their wording is a little bit different in that many proprietary form, and it's different than many proprietary forms because they have the two categories where AS proprietary forms typically just have one category called, they don't have a category called additional construction expense. Additional construction expenses are separated from additional soft costs because these construction expenses tend to be incurred on a lump sum basis. Additional soft costs are incurred over time based on the length of delay in completion. Right, so now we get to the coverage form gray areas. Is it a hard cost, a soft cost, or both? This could be considered a trick question as it depends on who you ask. In the owner and developer world, furniture fixtures and equipment, also known as FF&E, is a soft cost because it does not become a permanent part of the building. However, because it's tangible material in the insurance world, it's considered a hard cost. The underwriter can usually catch this in the rating process, so typically it's an easy correction. General conditions, it's both. It's a hard cost during the policy period, and it's a soft cost during the period of delay when it is known as extended general conditions. Architects' and engineers' fees, which are included in the definition of design fees in the AAAS form, is both a hard cost and a soft cost. These costs occur during the policy period as well as the period of delay. Not defining hard costs with soft cost terms in the policy can be costly. The insurance policy is a contract of adhesion, meaning it's a legally binding agreement where one party has more power than the other to set the terms of the contract. Undefined words are left up to interpretation. Ambiguous terms will go in favor of the insured. Not defining a word, even if the meaning is self-evident, can be a problem. The definitions of insured, additional insured project, and increased cost of construction have all been litigated in court because they were not defined. I bet you can guess who lost. Sean will discuss the BCC partners and the KB Home cases later in the presentation. Increased cost of construction, that was the Oceanside Peerview versus Travelers. I'm not gonna go over the cases. They're in here, you can look them up because we just don't have time to go over all the details and I couldn't do them justice. We will go over a few cases though. So one of the words that causes confusion is general conditions because it has a different meaning for the contractor than does the insurance company. The definition of general conditions depends on who you ask. For the contractor, it establishes the responsibilities of the owner, contractor, and architect in their contract. In the insurance policy, it outlines basic regulatory principles between the insured and the insurer. In the builder's risk insurance policy, it's the indirect costs and expenses that are required to complete a project but are not directly related to the construction work itself. These costs are not specific to any one trade that are needed by all to complete the project. It's easier to give examples of what it is rather than a definition. So in the AAIS policy, it includes but it's not limited to utility charges, maintenance fees, facilities, communications, or administration personnel. Fortunately, AAIS provides definitions for their specific soft costs. Many proprietary forms do not. On the surface, the first two examples look, again, self-evident. Interest payments sounds fairly simple but in KB Home versus Illinois Union, the insurer did not use traditional lending sources but rather internal financing through senior notes. The court said the policy did not define what a construction loan should look like to be afforded coverage under the policy and that any financial instrument used by KB Home that required it to repay interest could be considered a construction loan. Insurance, again, looks pretty simple on the surface. What insurance is covered? Is it any insurance or is it limited to certain types? Of insurance. And what about bonds? What about parametric insurance, auto? So again, important to understand the definition. Extended general conditions typically isn't defined in many policies. AAIS has a definition and a coverage for general administration expense. This is a combination of general conditions and project administration expense. And of course, proprietary forms will use the term project administration expense, which I believe is one of the big problem areas for the claims adjusters is it is typically not defined in the policy. Another issue that needs to be addressed is soft cost coverage for the contractor. Will Bennett, an attorney for Saxton Burger and Vito put it well when he said, the delay in completion endorsement is an owner-only coverage, meaning that the contractor will only recover such costs through the owner who must in turn submit the cost as part of its own claim. This must happen despite an owner-contractor relationship that is often rapidly deteriorating due to the same delays leading to the claim. So I would ask, does the soft cost, does a contractor have soft cost exposure? And I would argue that they do for the following. Permits, the contractor is required to have the permits, to secure the permits in the AIA contract. They could have construction loan interest. They certainly have insurance expenses. They have extended general conditions and they could have increased costs of construction. All right, time for another poll. And the poll says, soft cost coverage does not include which one of the following? Everyone can give your answer. I'll give you a few seconds. All right. The answer is furnish your fixtures in the classroom. Yeah, it's tangible, it's hard, but there's the discrepancy between the, between the, what the owner believes it is and what we call it in the insurance world. So. All right, we can move on to the next slide. All right. This is the right slide here. All right, here we go. Yep. So, I'm going to move on to other issues with soft costs. First up is expediting expense expense, which is defined. Is an expense necessary to address the delay and completion of construction caused by covered peril. So, as to complete the construction within the timeframe specified in the construction contract, and specifically those, these expenses are labor over time transportation cost storage expense expense to run additional equipment and similar construction expenses. While not included in the form, many proprietary forms will also have a category called extra expense. So that's another item consider when reviewing a coverage form. So, the question is, are the limits in the policy for expediting expenses adequate. Is it better for the underwriter to give higher limits in the hard cost portion of the policy to avoid a huge loss during the period of delay. Are the underwriters being too stingy with the coverage. I would bet the claims professionals on the call would say, yes, and we'll revisit this question later in the presentation. On to the next issue, which is phasing is another issue that doesn't get much attention unless there is a loss. So, the question is what happens if the project is being built in phases. Does the builders was contemplate an expected date of completion for each phase of the project or just the overall project. So, here, I'm putting up an example. So, let's take a project with a policy period of 7122 to 1231 24 project has three phases construction of three separate buildings that will all be completed at a different time a few months apart from each other. So, let's assume there's a loss on nine three shortly after building two has been completed. Since the policy states, the anticipated data completion is not until 1231 26. No, I'm sorry about that 1231 24, the date that all three buildings would be completed coverage for soft costs would not be available until after 1231 24, even if the loss occurred on 9, 324. Phase one phase two and phase three would each need to show an anticipated data completion date along with the soft cost limits for each phase for the coverage to apply. All right, next up. Other issues anticipated data completion not based on the Gantt chart also known as the construction schedule. Not using the correct anticipated data completion for the policy expiration date. And when I said the correct date, that is, like I said, the date that's on the Gantt chart for the completion date. So, are most builders policies completed on time? No, they're not. Should the broker extend out the expiration date to build in a cushion so they don't go through negotiating an additional extension? Again, I would argue no. The Gantt chart already builds in a cushion for things like poor weather and delays and not getting the supplies and shortage of labor and those type of things. Pushing forward the expiration date is a disservice to the insured because just as we discussed with the phasing endorsement in the event of a loss, the insured would have to wait longer for the soft cost coverage to be triggered. An alternative may be to negotiate extension terms up front for a few months. Another issue escalation clause. Does a policy have an escalation clause for soft costs? What happens if the soft cost limit needs to increase? Don't assume that the underwriter can increase their capacity if the exposure changes. Know the capacity of the carrier before placing the coverage. Another issue. Does the insurance carrier have a maximum policy term? Know the maximum term for the carrier for each participant if it's a quota share situation. Some reinsurance treaties and companies, they might limit their term of the policy to three years. So still other issues. Finally, I'll talk about lack of knowledge and experience of all entities. There's just a few, but one is the owner assuming the builder's policy covers the insurance requirements in their contract with the contractor. The broker not understanding all the nuances, what's covered and not covered in a builder's risk policy. The underwriter not understanding the exposure. The insurance carrier not utilizing claims adjusters that understand the coverage differences between property and builder's risk. All right. So why did the builder's coverage forms change in 2008 and specifically AAIS? And it's because of a landmark case, which was Zurich American Insurance Company versus Keating Corporation, which was settled in 2007. The details of the case are as follows. And note, this is a very quick summary of a very complicated and difficult case. That I can't do justice in the time that we have, but so I would encourage everyone to look it up for more details. But basically Keating was the GC building a 27 story hotel expansion. There were three retail levels, seven parking levels and 17 hotel floors for the AISTART Tropicana Hotel in Atlantic City, New Jersey. On October 30th, 2003, six floors of the structure collapsed. The insurer declined coverage for the increased cost of construction due to the undamaged portion of the property. However, the court disagreed saying the term property lost or damaged as a result of the collapse refers to the entire structure, not just the location of the collapse. What happened was they had to re-sequence and because of that, it caused a delay on a lot of construction. What happened was they had to re-sequence and because of that, it caused a delay on other portions of the building. Zurich policy did not state that the delay in completion was a consequential loss. So the court awarded AISTART additional costs associated with the delay in completion. The point I'm trying to make is that proprietary coverage forms differ and that you need to review the coverage forms to see if increased cost of construction is covered. In the form that you're using, this is particularly important if there is phased construction, which we talked about a minute ago. So why did the AIS form change? So after the competing decision, you can see the changes the AIS policy made to their coverage form, which excludes the increased cost of construction due to delay in completion and change in sequencing of the construction. Many proprietary forms are silent on this increased cost of construction. Read the coverage form so you know if increased cost of construction is covered for the undamaged portion of the project. And so finally, because everything is so confusing, I created this graph or chart that gives a better idea of what's covered where and for who. So on the left side are what we would call the hard cost coverage. Hard cost is for the contractors and the owners, but it's important to know if you look down at the bottom box, it applies during the policy period. And then when we go over to the right, this is an owner coverage. And the gray boxes that I show are what we just described in the AIS coverage form. They have coverage for expenses to reduce the loss. And then as we talked about additional construction expense and additional soft costs and other items. So anyway, it's a good chart. When you start getting confused, you can go back and maybe look at this. All right. I think it is time for Randy to take his turn. Great. Thank you. Yeah. Let's say hi again. I'm Randy McGinnis. I'm the agent on the panel. I'm in Colorado. And I have been doing this for a very long time. I used to always be the young guy in the room, and now I'm definitely not. So it's an honor and a privilege to be sitting on the panel with such esteemed colleagues here that truly are experts in their focus in the business. I have clients who work with JS Health. A little commercial for them. They're excellent at what they do. Vicky's incredibly knowledgeable, and so is Sean. The experience is great. So my pleasure. I would say, you know, we handed out these or sent out the PowerPoints. And some of these, and you'll see in my slides, are a little small. They're a little detailed. And that's intentional. A lot of times with presentations, they don't get as deep as you'd like to. We wanted to put a lot of detail into it so you guys could actually have some reference material to refer to and take away from this. And one example is that last slide. Let's see if I'm on here. I don't know. Yeah, this last slide that Vicky put together. This is fabulous. This is one of those things that when I go to different seminars and I'll get my hands on some PowerPoints, these are things I stick on my wall next to my computer. Pretty handy. It's a great, great refresher of what the issues are. So thanks, Vicky. So, Vicky really set the table well. It's what the purpose of this webinar is, what the issues are, what the coverage is, where the gray areas are, set the table really well. And she's spoken a lot from what is covered, what's not covered, what definitions are from the AAIS coverage form. I'm an independent agent. I represent lots of different insurance companies. So hopefully what I'll be talking about is complementing what Vicky's put on, you know, into the presentation regarding how other proprietary coverage form carriers provide the coverage definitions they use. And hopefully, you know, you'll find that my section will complement what's already been presented by Vicky. So we'll start with, as Vicky had said, yeah, billed as risk is really kind of two coverage exposures. You have hard costs, often referred to as direct costs. And then you have soft costs, often referred to as indirect costs. Hard costs, you know, are costs of labor and materials intended to become a permanent part of the structure. It's all the costs of materials, equipment, labor that will become a final part of the structure. But as Vicky said, you know, insurance carriers in almost no form will define hard costs. I've never seen it. I haven't found it. But a lot of different coverage forms will define it by providing several different definitions for things. And I didn't really give credit everywhere here. This first slide, some of it's taken from my friends at Zurich, and I'm sure they won't mind. But you'll have multiple definitions of what I'd consider hard costs coming as like how they define builder's risk property. And that can be defined by a handful of definitions, such as property under construction. I don't know that I'll read all these, but it's the materials and supply, fill, backfill, equipment, machinery, furniture, fixtures, and equipment, which, you know, I totally agree with Vicky. It's hard costs, you know, it's not a soft cost, but I understand why developers oftentimes will see it that way. They'll define landscaping materials, define temporary works, includes formwork, false work, structure, shoring, temporary bracing. And then we get into, you know, general conditions. And that's where Vicky talks about as well. You know, general conditions, contractor definitely has these. They're all the costs, like general overhead of a project site, things that have to be, that are cost to run the job, doesn't exactly relate to construction materials becoming a permanent part of the job. But you'll see it's providing the dumpers, dumpsters, temporary utilities, aerial photographer. This is pretty comprehensive definition. Cell phones, equipment rentals, you know, lighting, that kind of stuff. And while the project's being constructed, these are definitely considered, you know, hard costs. If you get into a construction delay situation, well, a contractor's still going to have all their overhead profit that they need to have covered and paid for. And that's where it will fall under, they'll be considered like extended general conditions. These are a few more of the definitions of hard costs, going to continue it. You'll see construction costs, identified as direct contractor costs for labor, materials, equipment, services, overhead and profit. Because that's one thing, I don't know, in my career as I've worked with some younger claim adjusters getting their feet wet with it, they think, well, you already got your profit once. I don't want to pay you for that again. It's like, yeah, but if there's a real loss and my client has to rebuild it for six months to a year, you know, they don't want to do that for free, you know. So you include profit and overhead within your policy limits within this, pay premium on it. And almost all carriers agree to pay for profit and overhead, reasonable amounts, you know. And then I list out here, Ermey's, the builder's risk book, Steve Coombs, who, you know, I've been doing this a long time. I've gone to the national like Ermey convention, you know, for probably 25 to 30 years. I sat in on several seminars he's presented, maybe there, maybe at some other conventions around the country. But it is fabulous, you know, after I listened to him one time, I went and got the book. It's on my, it's in my credenza, it's online, you know, it's great. As Vicky said, it covers builder's risk, you know, soup to nuts and has a great section on soft costs, which is the focus here. So, and here's how the builder's risk book really defines hard costs. Oh, yeah, Vicky, there she has it right there. With building permits, materials, products, and equipment, labor, security, and equipment used in construction, temporary fencing, material storage facilities, power line installation, utility costs, contractors' profit and overhead, including supervision, insurance, and performance bonds. So, pretty comprehensive. Now you get into more of the soft costs. As we said, indirect costs, costs for items other than labor and materials that are necessary for construction, but are not typically part of the construction contract. So, you'll have the owner has a prime contract with the general contractor. That construction, that's pretty much construction costs. It doesn't include all of these extra soft costs that the owner may have, you know, and the contractor has, too. And as we say, you know, definitions definitely vary by carrier. And I've got a couple of comprehensive definitions here that will, you know, they'll exist in the policy forms, but it's legal and accounting expenses, architect and engineers, design professional fees, real estate taxes, insurance premiums. And then you'll look at interest expense, you know, and sometimes, as Vicki said, yeah, a lot of times in the insurance policies, you'll have maybe up to 10 defined, you know, well, 10 soft costs, not always defined for sure. In the builder's risk book, Steve Coombs wrote, they identify up to 50 different soft costs. Now, a lot of times you can combine a number of those would fit in like the 10 different buckets of definitions that are included in a builder's risk policy. But that's where, you know, there can be concern as to, hey, do we have enough limit? Are we being provided coverage for the soft cost expense that we are incurring when you get into a delay situation? But you'll see like, and one thing we'll find is project administrator or a project administration or administration fees, those are rarely, if ever, defined. And so I know this, you know, causes headaches, I'm sure, for Aubrey and Sean in claim situations sometimes that if there is, you know, soft cost limit out there and there's some expenses they're incurring that don't fit in a specific bucket of the insurance policy, contractors, you know, owners, developers, insurance brokers, you know, will push that, oh, well, that all falls under additional administration costs because it must be that, you know. And so that's where you get into, well, is that really where it was intended or not? But yeah, then I talk about, yeah, I already mentioned how a lot of policies have 10 definitions versus you can, you know, ERME identifies up to 50. Let's see if I can get this back. Okay. Okay. So from the broker perspective, a big concern to me is, you know, do the project owner and the contractor understand hard costs and soft costs? A lot of times, no, they don't. So, you know, just got a comment here, explain it to them. And as, and we've provided numerous different, you know, definitions and how to describe it. But, you know, hard costs are direct costs to the construction costs of the project. They're incurred during the project construction. Soft costs are indirect costs that are additional costs and expenses during a project delay. And it's critical to set expectations with the owner and contractor regarding soft costs. You know, one thing is, here's a few things that I like to convey to clients. You know, coverage is triggered when a covered cause of loss results in a project's delay in completion. These are additional costs as a result of the project's delay, not the ones you were incurring prior to delay. So soft costs are not an advance payment. You know, rather, these costs are indemnified after they incur, and they're actually provided, or often actually provided on a actual loss sustained basis. So you're only going to get reimbursed from after the project actually has been delayed beyond the original completion date on the policy. And then here's a key one that you run into. And every, you know, a lot of claims, they're not black and white. There's a lot of things going on. And this is one area where, hey, coverage for soft costs is only for project delay resulting from a direct damage loss. Not for other delays that can happen on a project, such as weather, it doesn't cause a direct loss, schedule management, change orders, material delays. You know, things that happen that aren't related to a direct physical damage, property loss to the job. And there's, as Vicki asked earlier, hey, are all projects completed on time anymore in the construction industry? And usually not. And so then your delay, well, why is that? Well, it's a whole bunch of things. And you can definitely have a delay result from a covered cause of loss. But most times the job's already delayed for a handful of other reasons as well. So then you got to get into, well, how much of a loss and all these expenses relates just to that, you know, just to your physical damage loss. And so that's where, you know, we try to explain to clients, hey, just because your project's delayed and you have soft cost coverage on a builder's risk policy doesn't mean that limit's going to be available to you. Because you, the owner, might have caused this job to be delayed. Because you decided you want to add a 25%, you know, cost to the job and expand it. So there's a few rules of thumb that, you know, in my experience, I see out there as to trying to identify, well, what kind of soft cost limit should we have? How 15 to 20%, you know, of what the hard cost is. It's kind of a rule of thumb I hear used quite a bit. You know, and then sometimes, you know, 50% of a project's total soft cost exposure might be chosen. And the best place to get this kind of information from an owner is like somewhere, the owner has a budget that either they as the developer or they have a developer partner who's helping them with this. Every penny that's going to go into this project cost, they've got it identified, line itemed, and placed somewhere in a spreadsheet as to what it is. And so they will identify a whole bunch of soft costs. And a lot of, and what I mean by taking 50% of it, you know, as I said before, the soft cost coverage will only be for additional soft cost expenses resulting during the delay, and a lot of times developers will say, well, you know, here's our entire cost for interest, legal, marketing, accounting, all these kind of expenses. If we have a loss, we're probably likely only to incur at most half of those expenses yet again. You know, those are standard rules of thumb, might not always be accurate. Let's see. Yeah, so here's a few coverage terms that you should know. You know, what is delay in completion? Most of the policy forms will define it. You know, here's a common one. The period of time between the scheduled date of completion and the actual date on which the commercial operation or use and occupancy can commence. So there's, and then there's scheduled completion date. What is that? You know, usually we see it being the substantial completion date of a project, because you can have substantial completion, then construction completion, and you can have final completion, which is when all the paperwork gets done between the owner and the contractor, and that could be six months to a year later. But most times regarding soft costs in construction delay situations, we're talking about substantial completion. And that's normally, you know, when an agent is looking at putting coverage in place with the underwriter, you've looked at schedule, Gantt schedule, and see, all right, when was it expected to start? What's the substantial completion date? That's usually when an agent puts the substantial or puts a completion date on the soft cost endorsement of the builder's policy. And, you know, that's when it can be put to its intended use. That's typical. Standard period of indemnity, like how long will coverage extend for all the soft costs during a delay? You know, typical is 12 months. But, you know, if you're in a very late stage of a construction project and you have a significant loss, 12 months might not be adequate to rebuild the portion that's damaged. So, you know, this is one of the things that like Vicki recommended, hey, negotiate these things up front. Think about it. Can you get 18 months? Can you get 24 months? Kind of seen with a lot of standard market carriers in the United States, they pretty much don't like going beyond 24 months. And there's reasons for that, but know it, be aware of it upfront. And then with these soft costs, with soft cost coverage and calculating true claims, the deductible that you see, it's normally not a dollar amount. It's a time amount. It can be anywhere from five days to 90 days. Typically we'll see based on contract project size, you'll see 30, 45, and 60 days on, you know, the deductible timeframe that, and all the expenses you're having in that time period, that's not going to be covered. And the insurance carrier is not going to write a check for it. That's basically the deductible that the policy holder is going to have to incur before the coverage limits start to be provided. So yeah, some carriers will only provide coverage for soft cost project owners. You know, I asked, I'm asking the same question Vicki did, you know, do contractors often have soft cost exposure? I definitely say yes. There's additional project administration expense, the general overhead. There's additional costs that go on for a contractor. They're having to rent additional rental expenses, additional security costs to protect the project site. Yeah. And then I'd say this is, I have a bullet here about, yeah. Such general conditions are often referred to as extended general conditions during this delay period. Okay. I have a bullet in here about, yeah. Many carriers are having reinsurance issues regarding project durations being longer than three years, you know, both for all other perils and catastrophe coverages of earthquake, flood, and named storm. And Vicki hit on these things. These can definitely have an impact on their ability to provide delay in condition soft cost coverage. I've got a section on these coverage extension sublimits. I'll try to get through them pretty quick. Vicki brought them up in her portion of the presentation, but to me, these are critical to have, and they're critical to have at higher limits. You know, they can assist in mitigating delay in completion claims. You know, you, the contractor, the owner, nobody wants to see a project delayed, they will do everything they can to make sure it's still on schedule. But you can incur some significant costs in doing that. You know, there can be contractor and owner extra expenses and having a limit for that can definitely help in maintaining the schedule and provide compensation to the owner and the contractor. So they don't have to pay out of pocket for it, but it can cover things such as the labor supervision, management, and administration costs, rental fees, additional equipment. And then there's expediting expenses to accelerate the repairs and reduce the delay period. You know, these can be additional, you know, for the repairing the temporary repairs of the project, expediting the repair and replacing the main project. And then, you know, it's a little bolded here. These are some of the examples of costs that can fit within the expediting expenses, but additional overtime. I mean, you could go, if you have one shift per day, you can load up to two shifts working of labor, whole lot of additional costs, expediting expense too could relate, Hey, if you have some significant equipment that's been damaged and you know, and there's a big, long lead time in order to get some electrical switch gear from Europe to the job. And as we've all seen from COVID, the cost of everything is more. And the time delay in the, in the supply chain of getting materials, definitely with a critical path type of, uh, electrical switch gear, it's extremely longer, it still hasn't come back to pre pandemic, uh, timeframes. So it can be very costly. So to have adequate limits of this. So the contractor and owner are incented to spend the money upfront. If I spend the money upfront, you can save a lot of money in the end and avoid delay claims. Now, oftentimes these limits are, are pretty small. It depends upon the size of the job is what's, uh, what makes sense or not. A lot of times, uh, such coverage limits will be subject to a 20 to 25% of the value of the insured project with a cap of only like two and a half million bucks. But as we've all seen, projects are getting bigger and bigger. And, uh, it's, uh, it's good to have conversations with the underwriters about, Hey, could we get more limit for that, maybe pay a little bit more rate and premium upfront. Just cover a few basic points on what information is needed in order to determine the exposure and adequate coverage, you know, get a builders, a risk project application, obtain a delay in completion, supplemental application, number of carriers have these are, you know, one page. Uh, supplements that are list, Hey, here's all these different expenses that contractor should work with the owner, you know, and it can depend. Yeah. Are you representing the owner? I could represent the owner. Sometimes we do, sometimes we're representing the contractor, but it's really good to go through that. But as you're, if you're representing a contractor and he, as Vicki said, you go to the owner and say, help us, you know, you've asked us to provide the builders coverage, uh, help us identify the exposure so we can ensure that it properly. A lot of times owners, you know, say, Hey, we don't want to share that with you. But if you worked with them and push them out, they'll share the soft cost, you know, expense, they might not want to lay out to you what an acceptable loss of income value is because they don't want the contract to know how much they might intend to make when the, on this project, when it's completed. So those can be some issues you'll have to work through, but you know, obtain a project budget. You know, if you can, your, your contractor's budget for sure. And owner developers budget will definitely address all these soft cost exposures. And then the construction schedule. That's critical, um, to know when you should make your policy effective when you should have it expire. And then, you know, phrase phase projects. I put a bullet in here. We're seeing a lot more phase projects and you really got to make sure, Hey, on these different portions of the project that are completing earlier, that you also have multiple, uh, project completion dates in your soft cost coverage form, and not just one final one when the whole job's done, or you're going to have big coverage gaps. Just got, uh, some latest trends. As I thought about this the last couple of days, I probably should have updated these a little bit. But, you know, I talk about, you know, trends and suggestions. Um, and here's more at the first one's more informational, you know, soft cost and the rates that get applied to them in the whole builder's risk premium determination, they're definitely higher on average that, you know, they can be, you know, 50% more than the standard hard cost builder's risk rate. But it's, it's worth having it, you know, and the soft cost limits can definitely impact a carrier's probable maximum loss in their analysis of the PML for a project. And, you know, a lot of times underwriters will consider, hey, that's going to be 100% loss. If there's a delay at that limit, it's being spent. So, it might impact their ability to put up capacity. I say, hey, more effort on the front end of project builder's risk coverage to identify what the soft cost coverage exposures are and the limits you provide can definitely prevent a lot of claim pain in the end. I put a few things, yeah, as I mentioned, just project phasing, that's a trend we're seeing because of the capacity limits the carriers are willing to provide, jobs got really big. There are multi-billion dollar jobs going all over the country, a lot of data centers fall into that category. But you're seeing a lot of phasing, which, you know, 10 years ago, I was doing this quite a bit. It was more from a cost saving standpoint. Hey, just apply a builder's risk rate to the exposures during construction while you're at risk to insure it. It can save a lot of money, but now it can really save and help you put up a lot of capacity on these multi-billion dollar jobs. But what's critical with that, as we've mentioned, you got to make sure your policy has phased completion dates on it as well, so you don't have a coverage gap with soft cost. And I just, you know, kind of goes to this point, hey, everybody's really busy and sometimes you'll blow through this stuff, you know, and it takes time to educate the owner, contractor and everybody about hard costs, soft costs, are you adequately insured, but this stuff's critically important. Those are all the reasons Vicky stated before, and I have that, hey, take a breath, spend a little bit of time up front, identify these issues, and it will save everybody a lot of time, pain and headache later. So thank you very much. And I'm done with my session. I think we've run probably five minutes over because we're set now to do a five minute break. So, Eileen, I don't know if you want to jump in and say something, but if we come back at five minutes from now. I will say, fabulous so far. Thank you so much. So we will take a five minute break. It's two o'clock. We'll be back at 2.05. Feel free to close your cameras and your microphones, unless you just want to cover your camera to make sure it comes back without any blips. Enjoy your five minutes. Thank you. There we go. There you go. Okay, perfect. I'll go ahead and get started. So good afternoon. Thank you all for giving us your time this afternoon. I know it's difficult sometimes, the large chunks, but we do appreciate that. So we're going to move now really away from what I'll call the buying side, the underwriting and buying side, and move a little bit into the loss side. There's a fair amount of overlap and intersection between all of them, and I think you'll see that my presentation and Aubrey's will have probably a great deal of overlap, but we will do our best to focus on different headlines as we go through these. And as I start the presentation here, really where we started the day out was talking about the key stakeholders and understanding who they are. I think we've got owners, developers, contractors, and lenders. They all have their own unique financial interest and risk that they are at risk for and looking to protect. And I think it's important when you get a loss, when a loss comes in the door and lands on a climate adjuster's desk, the very first question that I consistently teach our younger and earlier career adjusters is that you need to understand who the parties of interest are. Who are the stakeholders? How are they connected? What is their contractual relationship at and what's going to drive their interest over the coming months as you begin to work that loss? I think, you know, Vicki mentioned a couple of the cases. I think I can bring in a brief discussion around BCC partners versus travelers at this point. The underlying issue in that case, which has been, there was a ruling on it, dealt with additional named insureds, additional insureds, and whether or not they would be entitled to any cover, whether it be hard costs or soft costs, in this instance soft costs, under the terms of the policy. That particular coverage form was very specific in how it referred to and defined terms like you and your and named insured, which became critical in the court's review of that case. And ultimately, the court determined that the policy language was clear and unambiguous and found in favor of the insurer, in that instance, and therefore denying any cover to an additional named insured. And so it's important, you know, from a loss-adjusting perspective, just to understand how that language reads. It's equally important to the risk manager and to the broker to understand what those forms are going to look like and to ensure that their particular interest is addressed. As I said, here's a, our second slide is an overlapping slide. I'm not going to get into the policy terms themselves, but what I want to say is that again, so question number one, who's your parties of interest? Question number two, what are the coverages under the policy? In this session, we are focused on the AIS form. And so just understanding that you've got the soft cost coverage form attached to your policy and that you take a look at the additional definitions, which include coverage around additional construction expenses, the soft costs. So that definition being particularly important because in almost every instance, there will be a list of items that are actually spelled out as being covered. It does not obviously specify what's not covered, but that list becomes critical and understanding the buckets that you have available in order to put expenses that the insured may believe are a loss to them. As well as coverage extensions, especially around expenses to reduce the loss and then your general administrative expenses. In almost every soft cost coverage form, the primary trigger of coverage is, it is spelled out very similarly in this form, a rise out of a delay to buildings or structures at the job site described on the delay in completion schedule. And so understanding what that means. So on a standard property loss, where you sustain a casualty, there is a period, what's called a period of restoration, which equates to that length of time necessary to repair the building. And then any time element type of cover gets defined around what that period of restoration is. In a soft cost coverage form, it is nowhere near the same concept and really does not start, soft cost cover does not start, does not get triggered until there is an actual delay in the completion of that project. And so having the ability to read a critical path report, a project plan, to understand the health of that project at the time of the loss, to understand what other delays that Randy had alluded to might have existed up until that loss and understanding what a period of restoration might do to your overall critical path in that project plan become key in understanding what that loss might look like. I want to point out here that oftentimes claim adjusters save this piece until the end. I would suggest that there is a beginning point where once you look at this the day the loss comes in, that will begin to really guide your journey down this loss and what that critical path may look like. And really that becomes critical in understanding how you address things like extra expenses and expediting expenses that may be provided by the policy. Just a quick differentiation between soft costs and time element. Soft costs are those indirect and auxiliary in nature. They occur during the delay. Randy mentioned this several times. These are not expenses that occur outside of that delay or even during the period of restoration as the period of restoration may or may not match up with what your delay period looks like. And that these are outside of labor and material costs. Time element, on the other hand, are things like loss of income and rent. They resolve from an inability to operate and are caused by or due to physical damage to the actual property being insured. One of those documents that was referred to earlier as part of this session to take away, I think this, I tried to put this together to be a helpful reference doc, whether you're at time of submission or whether you're at time of a loss and understanding what is necessary to put together to assess and analyze any soft cost alleged type. So the project documents themselves, having a construction schedule on hand, a current schedule with any and all amendments and change orders is critical, all contracts and agreements, and then of course the project budgets so that you can understand how those expenses got categorized when those budgets were put together. Obviously we all know budgets are never static across all time. They do change. And so again, asking for the most recent budget is important to have. Records on the expenses that are being claimed under the soft cost cover, to document those, there should be invoices and receipts, and this is more on a back end than a front end, we're going to be looking for those invoices, receipts for the incurred expenses, loan statements that demonstrate what the actual additional interest is or will be, any professional fees, including architectural, engineering, and legal and accounting. And so there's a lot of different categories where some of these types of expenses can fall, especially around the legal and accounting fees. But if those fees, generally speaking, if those fees are labeled within the soft cost cover, there needs to be a correlation to the project itself and the management of the project, but they are not necessarily outside of what could be considered the expenses covered under this particular product. Project management costs, showing records of additional management fees outside of your actual repair work and labor and material. You've got an army of PMs that are managing that project day in and day out, and they do incur additional fees and elevated fees at time of loss. Marketing and advertising records, demonstrating additional costs during the delay, and then of course, temporary facility records, whether that be lease agreements or other temporary facilities required coming out of the delay, whether you need to move materials, equipment, different things may need to be protected away from the site. And so there are generally a myriad of expense types that can fall within there. But again, on the back end, costs incurred is a relevant and important term because those are to be recoverable, they do need to be incurred or fully expected and documented as such to be incurred. Complicating factors, the handling of a soft cost claim, generally speaking, is one of the most complex types of claims that can be handled. Adding to that, in most instances, it's a property adjuster, not a construction adjuster who is going to be handling that claim. And so having a broad understanding of a number of elements is really important. Things like the legal landscape, there's a number of cases that are ongoing right now. The KB Home is still pending. The Factory Mutual case is also still pending. And while we're on the KB Home, just again briefly, this was in 2017, this was a severe rainstorm in California. I think we have novel names for those rainstorms these days, but blew through, damaged a number of project sites, as you all know or should be aware of. KB Homes is a large home builder. They've got multiple project sites going on at any one time. At any one project site, they will have multiple homes being built across the board, all at different phases of completion. In this instance, KB Home, at both a hard cost and a soft cost claim, or so they believe, they were paid for their hard cost claim, and their soft cost claim was denied. And the theory under which is currently being reviewed by the court that the insurer took is that the project was the entire subdivision that was being built, not any one individual home. And so again, I think Randy mentioned phased projects, or these may not be technically phased projects, they are built in phases, and the insurer pointed to the entire subdivision as a start and expected finish date, denied any benefits under the soft cost cover, as while there was a delay in individual homes being built, there was not a delay in the overall project completion. And so that one is still under review by the courts. In additional complicating factors, we've got increased cost of construction issues, there could be escalation causes. COVID was mentioned, supply chain management continues to be an issue, labor continues to be an issue. And so any number of things that can increase the cost of reconstruction, expediting and extra expenses, how do you classify and consider those? As we were putting this session together, just as an interesting side note, we had a conversation around extra expenses and when and where you might issue an advance payment on a soft cost claim. And in most instances, I think most would tell you... Sean, we are not hearing you, and your video is paused too. He'll probably dial in again because I think he signed out, his audio is not on right now. So we'll give him a few seconds to dial in. we'd never get through a whole presentation without some technical issue, so. For sure, Aubrey. So while we're waiting, Vicki, we had a few people ask where they can buy Steve Coombe's book. I think you're unmuted. You're on mute. It's put out by ERMI, International Risk Management. And I believe that- Is it on the ERMI website? Am I back? You are back, Sean. Yes. Just to quickly answer the question, I believe Steve Coombe's is on the call. So maybe if he could put in the question, maybe a link or something to his book. That'd be great. Yes, and then we can share that. So Sean, we don't have your video yet. I don't know if you want to put it on or if you feel like, oh, you do have this video. It will come back on. My apologies. We've clearly got tight security around here. Oh my God. So your video was on. I apologize for that. Sorry. It was, but it looked like it was frozen, but we have your audio. Okay. I will keep going. Maybe. Yeah, there we go. Someone else, can someone else advance that slide? Yeah, Alina- Sorry, I just gave you back control, Sean. That was my- Okay, thank you. There we go. There we go. Just a further, a deep dive into what extended general conditions may be. Again, they're typically covered under soft cost cover. They are additional indirect costs incurred due to delays or interruptions in the project. They can include things like additional supervision and project management, extended site facilities and utilities, so continuing to keep power on site, extended equipment rental, security, insurance premiums, temporary facilities, legal and accounting fees. Again, where this legal shows up and then interest on construction loans. But again, it's typically not necessarily a defined section. And so just understanding what those may be. Mitigating considerations on the opposite end. And so both from a loss adjustment perspective, as well as I think in underwriting and at time of submission and quoting perspective, the ecosystem, clearly understanding the project at hand, start and finish dates, all the parties involved, what the project is, but having clarity and being able to tailor your coverages and limits, particularly around that entire ecosystem. And making sure there are clear and unambiguous terms and conditions in the policy always helps. Inflation causes an incredibly valuable tool from an underwriting perspective, just to ensure that you're protecting those, especially in those projects that are 24, 36 months or longer, being able to anticipate where inflation might go and elevated costs when you get closer to the end. And then syncing that submission documentation to what would be required claim documentation to ensure that you've got full clarity back around that ecosystem. And then I added leveraging technology. And so there are tons of insure techs up there right now that will tell you, it will sell you all kinds of predictive analytics and AI, gen AI, large language models that are actually very helpful. And it can start at time of submission by understanding and being able to read through using NLP contracts and matching it up against policy form terms, just to highlight areas of risk around the platform. So both from a client as well as an underwriting perspective, just so those can be clearly addressed. Computer vision, understanding, being able to elevate and improve the adjustment process. And then like I said, the NLP models, just being able to quickly add robustly, read through all of the contract documents that exist in the life of a project and understand where your weak points are and being able to then predict what the future might be where there's a propensity for either slippage or loss or leakage that you can address ahead of time. Using RPA in order to monitor your project schedules and what's going on. And then just other decision support systems that can either be supportive in understanding weather impacts and supply chain management impacts. We ourselves as an insurer have implemented a number of different cap modeling tools within CLAIM that allow us to create damage estimates coming out of weather events within hours that we have found to be very helpful to clients just to ensure that we are getting to sites along with the insurers as early as possible. I believe that is the last slide. And I can take over here and then edit too. Take it over. Great, thank you, Sean and Randy and Vicki. Great discussion so far and really have laid the groundwork here. As we said, I'm gonna repeat some of the same things but hearing it again will help bring additional clarity to it and a different perspective from us actually calculating in the delay period and from the accounting side. You're also going to hear a little bit about business income or lost earnings. This is not a presentation for that but there's points where we need to bring it up where all these areas overlap. So to be an entire other presentation around the business income portion that we couldn't squeeze into the three hours that we have today. So that being said, kind of an overview here for us is really separating out these direct repair costs from the time-related or delay costs. We have to do that first. What buckets do they fall in and where do they need to be considered? And they could be other costs as well. So you've heard a little bit about expediting. You've heard about extra expense. Some of them could be continuing normal expenses that they would have had had the project opened on time. So say that they were about to open and they already had payroll that they were paying employees. Is that a continuing expense? Is it part of the business income portion? Does it fall somewhere within the soft costs? Where do we handle it? So we've heard all these other ones, hard costs, expediting, extra expense, soft costs. What buckets do they fall? So we can calculate them correctly, apply the appropriate limitations to them as well as the appropriate deductibles. But to do that, we also need to know the delay period. We can't quantify anything if we don't know what that period is. We're gonna talk about that a little bit more, but we can get them into the right buckets. But what period of time do they actually get captured for and when are they considered? And then are they properly supported? So Sean talked about some documentation that we'll need. I'm gonna go over it in a little bit more detail as well, but we have to actually review that. Where does it fall? Is it actually all incurred during this delay period if there's a big invoice? Is there documentation to support it? Are these estimates? Are they actually incurred costs? So digging into those details a little bit more, let's talk about the delay period. So you've heard that this may be substantially different than the period of repairs. And it can be different in a few ways. So our delay period could be three months, where our repair period was over the course of five months. So just because the repairs took five months does not mean that that corresponds to a five month delay. At the same time that they're doing the repair work, they could also be doing the normal work that they had planned. Maybe it's a little bit of a different sequence. Maybe there's other things that are happening, but maybe everything that they're doing doesn't revolve around the repairs. So those two periods of time could be completely different. You also could have the period of repairs and not have a delay at all. Maybe they're able to continue to do the other work. Maybe it took one month to do the repairs. They kept doing everything else. Maybe they expedited some things and now we don't have a delay period. So just because there is a loss does not mean that there is a delay. And then also, typically not the same period of time depending on where the project is in the phase. So if the project is only 25% complete when the loss happens, if that was on May 1st of 2023, we might not start our delay period until March of 2024 when it was supposed to be completed. So there's also instances where maybe it is really close. So what if we were really close, we were about to turn the lights on in the building and something happened. We were 99% complete. That period of repairs and that period of delay might correspond with each other a lot more closely because of the timing in the project. So understanding that, and you've heard it over and over again between all of the speakers today, that period is key. And having experts in to determine that, review some of the technologies that Sean had just discussed is essential for us to then to be able to quantify where these soft costs fit, what period of time they'd be considered for, and also what deductibles used. So we've also heard a lot about the hard costs, the soft costs. I just mentioned getting them in the right bucket. This graph, this shows in very nice form how they overlap. They might be very strictly a hard cost. They're dedicated to the repairs. Or they might very well be strictly a soft cost. It's interest expense. It's a soft cost. Pretty black and white. But then there's the gray. And some of the things that can be gray would be like permit fees. So permit fees might be a named and defined soft cost, but they might also need permit fees to do some of the repair work. So in that case, the loss has happened. They're starting the repairs. They needed to get a permit to do some of the work. That would fall into the hard cost bucket. Whereas in the delay period, say they needed a permit to just have the construction ongoing. And that permit now, they had to get another one because they're on site for six months longer. There's a six-month delay. That's when it would fall into the delay period and be part of the soft cost. So it really is understanding them. Whenever we're starting to see these costs come in as an accountant, it's not just, oh, it's a permit fee, so it has to be a soft cost. There's a lot of discussion that can go around it of, where does this actually fall? What was this for? And not just looking at it as a title and putting it into one of the buckets because of that. So into the soft cost, let's go back one. It was a little delayed there. We've heard through the different policy terminology some of them being defined. And these are really the typical ones that we see very frequently. So in the interest piece, that's generally the biggest one. That's where most of the costs are at and one that can very well be presented with documentation. Everything that we'll talk through, there should be records for. These should be really easily, readily available documents that we can look at and be able to quantify it correctly. So the interest on the construction financing, there's going to be a loan agreement. Let's see that. Let's see if there's any changes to it with time. Let's see what those percentages are and what they're based off of. And then in addition to that, we'll have the actual interest statement. What amount of interest are they paying? And understand this loan completely and look at what it was through the date of the loss and then monitor that through the repairs and through the delay. What would the interest have looked like on this project had there been no delay compared to what is the interest now that there is a delay? So really looking at it full picture, it's not just picking up that one month during the repairs and it's not just picking up one month during the delay, it's what does it actually change overall in the project? Where was it additional? And we're going to keep repeating that word, additional real estate taxes. So real estate taxes are another one. We generally get these either on an annual or semi-annual basis where they're going to pay the real estate taxes on this property. What were additional real estate taxes that they had to pay during the delay period? Again, maybe they already paid them up front. So maybe they paid for the full year and now we have to look at, well, what part of that period now fits into the delay? Maybe they didn't incur it during that period of time, but they did incur it and now we have a period here where it's being picked up on the project. That cost is one that would have been picked up and being paid for when the operation was open. So we have to keep that in mind of how this might play into the business income portion. And that's what I mentioned with all of these things intertwined. The hard costs intertwined, the soft costs intertwined, and then they might leak over into the business income. And if we're considering things here like real estate tax during the delay period, we have to consider what that might do on a business income portion as well and make sure that it's not getting picked up twice. Additional marketing and leasing expenses. This one's a little bit tricky sometimes. So the additional marketing and leasing, we might see that that was going to start. And now because of the delay, they just held out on actually incurring those costs. So depending on where we were in the project, maybe they haven't even started incurring any marketing or leasing expenses yet. So they have none. And now during the delay period, they started to pick them up, but maybe they're not additional. They might be incurred then, but if there wasn't a period of time where they actually overlapped, were they additional? So we have to understand that. Was it just a delay in them actually starting up these expenses? Or was it that they were paying them, they're paying them for a longer period of time, and now they're additional expenses because of the delay? Same with architect and engineering costs. So understanding what these were, when are they paying them, and what do they actually represent? A lot of times we'll see where there's just a fixed fee, that they'll have an architect, and this is really the same on the legal and accounting too, so I'm gonna combine them both. They'll have an architect, or they'll have a law firm that they have that they're utilizing on a monthly basis. Maybe it's $3,500 a month that they're paying them. And now there's a delay, they're going to keep paying them this $3,500 a month. They have to keep them on, they have to have them as resources to go to, and we pick that up during that period of time. If the additional architect and engineering costs or legal and accounting are related to, again, for the repair work, maybe there was something that they needed to do from a legal perspective, maybe they needed to review something. Are there opportunities for those costs to show up in the hard costs before there's ever a delay? Yes. So if right away the loss happens, and they have legal on staff, and they're talking to them about some things, it's not during the delay period, it's during the repair period, and we have to keep those in mind. The deductible is typically a waiting period, and you heard Randy talk about the different periods of time that it could be. I've seen them from five days all the way up to 90 days, and everything in between. That's from the date of the delay, not the date of the loss. Really important to remember that the waiting period isn't going to kick in until we actually have the delay period. So if the delay starts on September 1st of 2024, and there's a 30-day waiting period, we're not going to start picking up these costs until October 1st of 2024. So not that the loss happens back on March 1st, that's not when the waiting period starts, it's when we're actually in our delay period. And then they can be subjected to a time limitation. You've heard about this too. 12 months, 24 months, maybe 36. But we also are seeing some other time limitations that are interesting, that we're going to show up in a case study later, where there might actually be time limitations from the date of loss, so not from the date of the delay. And how those impact our analysis, I'm getting some background here too, sorry. Not sure if everybody else wants to mute. So how those could impact our calculations are key. If we're really early on in our project, and we have a 12-month limitation from the date of loss, we might never get to the delay period in that instance. So we're going to go through a case study on that in a little bit. And into the typical dispute. So where we're, you've heard about all the different things, how do they play into having issues in the actual claim scenarios? And one of the areas that we see very frequently are with advances prior to the delay period. You've heard about this a little bit. So from a scenario perspective, the loss happened, the insured's panicked, this project that they've been working on is in disarray, they need to get it back on track, they're worried about funding, and they need to keep paying the interest expense, they need to keep paying all these things that we saw as a soft cost, and then they're also already starting to worry about the business income. Well, before there's ever a delay period, they're actually not financially impacted by this. Yes, there's interest that they have to keep paying, but they would have been paying that interest regardless during the course of construction. So a lot of times things get off on the wrong foot because there's an expectation of an advance, and they want money in their pocket, they need to figure out how they're going to pay everything, and we don't even know if there's going to be a delay. So we talked about the repair period, we talked about the delay period. On day one, we don't know that. So to advance on soft costs, or to advance on business income before knowing a delay, that really could be over advancing, there could never be a delay. Just because there's a loss doesn't mean that there is a delay, and really can't advance on that until we can see what it is and what the additional costs are for us to consider. Another area that there's a typical dispute is the date that the project would have completed had no loss occurred. So sometimes it can be defined in the policy that it's going to be on X date, and we go with that date. and other times it's the anticipated date of completion. So when would it have been complete? You heard Sean talk about different documentation that they have, different models that they might be able to show, what the project schedule is. Is that date on the project schedule, the time of the loss, accurate? And having someone dig in and actually understand that is really key. And then getting an understanding with the insured, is this accurate? You have this date on your project schedule, but we see all of these things with it. Talk through what's happening on the project and understanding it, and agreeing that this is the date at the time of the loss that the project would have been completed. So very big area that there can be a dispute, and it's a key date that we need to know to start to be able to calculate the delay period. Then the period of loss-related delays. So the loss happens, we're working on the repairs, there's other things happening in the project. We heard about supply and demand and some issues with that. There's maybe other factors, maybe there's change orders that have happened. So the loss happened, and we're seeing that the anticipated date of completion was supposed to be on August 1st. And because of the loss, we're going to say it's not going to be completed until November 1st. But maybe there's other things that are happening in there too. And is there anything else that's causing that November 1st date? Or is there anything else that might cause it to go past November 1st? So what is actually happening on the project, understanding that and making sure that our delay period is specific to the delay from the loss event itself, not from other contributing factors. Ramp-up and full stabilization. Again, we're not talking about business interruption here, but it is a big area of dispute. So what would it have been during the delay period for their operation? And would they have started at 100% or do they need time to ramp up like maybe their budget shows? Big area of contention. We'll save that for the business income discussion, but one to keep in mind that you're likely to see on the delay. Continuing expenses being claimed as a soft cost. So the soft costs are defined. We see them all. We know that it was the interest, the real estate taxes, the legal fees. But maybe there's other costs that they're starting to incur that are continuing expenses. Utilities. Payroll. They already brought staff in that were going to be working on the actual use of the building. Maybe there's other items out there that aren't defined as soft costs, but they are paying them. And they want to get them into that bucket. And a lot of times when we see that is if there isn't business income coverage. So they've only elected on the soft costs. There's no business income. They have these costs that they're continuing to pay. What do we do? So making sure that we're mindful again. We don't just see the words of what an expense is, but we actually understand where it fits and what it was being incurred for. And then consideration of saved soft costs on business income. So we can't just look at one and not look at the other. I've said that before. But if we consider things like the interest on the soft costs, we need to know that for what gets considered on the business income. Were they going to have interest expense that they'd be paying out of their revenues? And if so, that needs to be considered. They don't have that expense anymore because it's getting picked up and paid on the soft costs. Again, you can't just look at things in tunnel vision, but how the expenses that are being considered in the claim might impact other areas of the claim. And then the project admin expenses. What is it? So many times we'll see it just says project admin. And that's a big area where we'll start to see these other costs get put into them. Well, that could fit as project admin. Don't you think this could be project admin too? And it's then trying to determine what is actually intended by project admin if it hasn't been defined. Is it really admin? Is it an extended general condition? Is it something that fits into this delay period or not? What does it mean? Big area of dispute, which we've talked about through this pretty frequently. And then moving on to other areas of consideration, especially in underwriting. So are there dollar limitations by soft cost items? Sometimes we'll see that there's limits that are for soft costs overall. And then sometimes we'll see that they're actually defined by items. So interest expense being the biggest one that typically is claimed, if the overall soft cost limit is $2 million, is there a sublimit for interest at say $500,000? And if so, is that accurate? Is putting that sublimit in really going to capture and cover everything that you need to in the event of a delay for the interest? Great that the overall limit is $2 million, but if the interest is limited to 500 and you're going to have 700, there's a $200,000 discrepancy. So really understanding those dollar limitations by soft cost items, are they accurate and do they make sense for what the insured had going into this? The wait period deductibles, making sure they're clear and that the insured understands that they have that. This is part of your policy. There's a waiting period. It doesn't start on day one. This is how it gets applied and when it gets applied after the delay started. The time limitations on soft cost items or business income, we've already talked about that, but really understanding what those are and getting them aware upfront. These are limitations that you have. So the loss happened, they're not sure what to do. Maybe it was a total loss and they're really trying to figure out, do we rebuild? Are we going to do this project even though this happened? Do we need to just walk away? There's a lot of things that have changed and started and those are all things that they're considering, but what does that do from time? And if there's a time limitation on the policy, how could that impact them? So things to make sure that they're aware of, if it's in the policy from the beginning that we're making sure that they're aware of it for an event of a loss. Signed lease wording. We had an example in about this and we took it out because it is a soft cost presentation, but we are seeing some wording in different policies on rental income coming off of signed leases. So where was it in the project that the loss happened? Would they even have leases yet? And they're going to have a delay, but they didn't have any leases that were signed at the date of the loss. So making sure that we're cautious of that and aware of where in the project might we be where this would cause an impact that we wouldn't be able to quantify lots of rents because of it. Limitations on original costs for soft costs. So you've heard about prices rising and things going up and the builder's risk premiums are doing that. So we have started to see some limitations based on what the initial value was on the item during the extension. So if there's an extension to the policy and they've already maybe extended it a few times because there's been other issues that have happened and the premiums keep going up. There's other issues that are happening. We're gonna just raise this premium. We do have a case study for this as well, but it's at the original rate. So they've now had a loss. They've extended the policy again and it's going to cost them more now to extend it. It's not all getting picked up in the soft cost here because it's limited to what it was originally. And then the project admin expenses, it wouldn't be a presentation if we didn't touch on them one more time. Where have they been considered? So could they fall into other categories? Are they a soft cost? Are they potentially a hard cost? Are they part of extended general conditions? Again, understanding what they are and where they fall and have they been considered appropriately and clearly to limit those gray areas in the underwriting. So I think that is my last slide before we get into the case studies. I think we pause now. I know we're close to our natural break of three o'clock. So why don't we pause for another five minutes and we'll come back and get into our case studies. So we'll say just right around 2.55, we'll get started again. So welcome back for the last section of the presentation or last hour here. And thank you all for the time again. I know it's a big commitment and hope it's been great so far for all of you. Our case study section is going to be a little bit more interactive with some discussion between all of the team here. So we'll go into the first one. And this one is an instance of non-damaged cost escalation. I'm trying to control the screen here. There we go. So the insured was advancing the notion that portions of the project that had not been started yet at the time of the loss will certainly experience cost escalation. This is due to logistics, labor, overall inflation, and that these costs should all be picked up by the policy. So they're claiming that these costs were escalated by $6.7 million. And there was an expert that looked at them and said, well, the actual increase to the cost is about 5.4. So it is real, these costs are higher, but should non-damaged portions of the project consider future cost escalation? And I'd lay it out to our team here, if anybody wants to go first, maybe from the underwriting perspective, Vicki, if you want to chime in. Yeah, so it all depends on the coverage form. Can you guys hear me? Yeah. Okay. Yeah, it all depends on the coverage form. If it's the AAIS coverage form, I would say probably not because it includes increased costs of construction. If it's on a proprietary form, it depends on is it silent or is it addressed? Is it defined? So everything is in the details of the coverage form, so. So I would say, yes, I concur with that. However, I think if a policy holder can tie the increased cost of this nature to the overall cost of the project or the delay in the project caused by an otherwise covered event, I think there becomes an argument that these are potentially recoverable costs under the cover, regardless of the form. And my responsibility as a broker, I will make that argument every time and try to find a way to stipulate that, yes, those increased costs, I mean, but they do have to be related, right? I mean, it's got to be tied to it. But most times there is, especially in today's inflationary environment over the last five years. So I'll make that argument because I hate to see my client or their client, the owner, paying out of their own pocket. Yeah. Yeah, there's a good article on this topic in the resources by, I think, an attorney. So, and then this is also the case, the Keating case. So you can go back and refer to that and see how that might apply or not apply. Perfect, yeah, I think it's just so that it is the gray. And I think the discussions on the specific project are really important at the beginning. So before they're started, whenever that policy is first coming into inception, understanding what the project is, and if there are certain areas that they know could be substantially more if there is a delay in understanding that. So certain products might have different things in them, whether it's equipment or other items that are really gonna change if there is a delay and the time goes on longer. Okay. Hard costs versus soft costs. So this is one of those examples where they did not have any coverage for soft costs or business income. And the insured argued that $700,000 of interest expense should be considered during the repair period as part of their hard costs. So during the repair period, not during a delay, and as a hard cost, because there's not any consideration for soft costs. So interest was not considered in the values for the hard cost limitations. So it wasn't a matter of, well, we presented all of these numbers and we just didn't pick up the right coverage bucket. Coverage was specifically not considered for soft costs. And it was clearly defined of the wording of interest under soft costs. The claim that they're making, again, not during the delay period, but during the repairs, and they could not identify a delay either. So is there ever, or in this instance, a consideration for the interest expense as a hard cost? From the entering perspective, if it's, you have to go by what the policy says, and if they didn't pay for it, and they didn't have the coverage, and there was actually no period of delay, then from the underwriting perspective, I would say this would not be covered. From a claim perspective, I'm going to say, I'm going to have a similar answer, but I'm going to say, no, it's not covered to begin with. But even if it were covered, the question I would have is whether or not they were going to pay that interest anyway. And so it's not extra interest, it's interest that was already owed. So they wouldn't, even if covered, they wouldn't be entitled to it. I don't disagree with either of those positions. And I think it changes maybe a little bit if during the process they just said, I didn't understand that interest should have been separate. I looked at my total value, interest was in there, I just had hard costs that needed to be considered, and maybe they did pay a higher premium on it than they expected and just said, oh, we thought it was all going to be covered under hard costs. I think maybe the discussion's changed a little bit, and all the scenarios could be different. I guess my thoughts as the broker on that would be like, yeah, if I could really establish that, were those interest costs included in total policy limit and they paid premium for it, I'd make the argument that then maybe it should be considered from, not from a delay perspective, just, hey, you had the loss, but the real question is, well, were you going to have those costs anyway? Did you really suffer a loss? That's what you get down to, and it's kind of hard for me to think that it'd be an answer other than no, really. I agree, if there's, yeah. If there is no, how do you pick it up, because it's not additional, so, fine. Another, go ahead. I thought Sean was going to add something. I was just going to add that I think another argument that if I weren't insured, I would be making is that this is a confusing cover, and I'm not necessarily a sophisticated buyer, I'm assuming this is not a large contractor, and potentially head in that way. The BCC Partners, I believe it's the BCC Partners versus Traveler's Case, actually talks about that concept a little bit as well, if you're so inclined to go read it. Great resource. So, legal fees. We know that legal fees can be defined soft costs. So, legal fees of $45,000 were being claimed for costs associated specifically with the claim. Legal fees are included in the soft costs. They did have soft cost coverage, and they did have a delay. They also have coverage for extra expenses. The delay period was determined, and the legal fees were partially incurred during the delay period. The legal fees, though, were not additional as a result of the delay. Remember I explained that they just have an attorney on staff, and they pay them X amount of dollars per month, and now they need to pay them for a few months longer because of the delay. These are actually additional as a result of potential litigation related to the claim. So, there are other aspects included in this as well, such as workers' comp issues, and some other liability concerns. In this case, would the legal fees be considered, and would they be considered under soft costs or any other potential buckets? Well, I think they can certainly be considered under, and I think it might be called professional fees or whatever, legal fees or whatever. But it's possible, but the builder's risk wouldn't, you know, they have to take out whatever was workers' compensation, other liability, and those type of things. So, it would depend on exactly what the fees were for, if it was, you know, for some type of a retainer, or there were fees that were actually expended during the period of delay. Yeah, I would comment that I think the second from last bullet confuses the picture unintentionally, and that if you just peel it back, and but for the delay, the project would have ended sometime before, and legal fees would have come back. Sometime before, and legal fees would have cut off, but because it's ongoing, and the legal fees are ongoing, they're potentially recoverable. And what if these additional legal fees started before the delay period? So, the loss happens, and they immediately get counsel to help with some issues that they're having. And they have additional legal fees, you know, right after the date of loss. Any consideration there? I think it adds to the complexity of the question, but I also, I think it would depend on, I think I'm gonna, it would depend on a number of things, and what those fees were actually related to. So, if so, for example, if they were defending, spending defense costs to defend, let's just call it a worker's comp claim, or even a casualty claim, I would say that they were gonna incur those regardless, and therefore, covered or not, they're not entitled to recovery. I think this all goes back to, again, not just looking at what it is. So, we're seeing legal fees come in, and they don't automatically get placed into the legal fee soft cost bucket without an understanding of what's actually being incurred, what are they doing, and what period are they doing it for? I would just say that with some of the various proprietary forms that are out there, under coverage expenses, sublimits that'll be provided, sometimes you'll get a specific one for claim handling expense or claim preparation expense. And that's nice to have for sure. I mean, it's identified, they'll kind of define it, but it still has to be specifically related to the fiscal damage covered cause of loss. Can't be associated with representing the insured for, you know, the potential work comp or TL or all that kind of stuff. They'd still have to be identified specifically to the fiscal damage loss. And then whether it's delay or not, depending upon how the form reads, but it's kind of a nice to have. Yeah. And sometimes that wording specifically excludes lawyers. So another caution is on. Yeah, true. So in this case, we have a 12 month limitations from the date of loss. So the insured should state a total loss on a multi-use building on June 1st of 2022. The anticipated date of completion at the time of the loss was not until October 22nd of 2023. So well over 12 months from the date of loss. The policy included a 12 month limitation on soft costs and earnings from the date of loss. There's essentially no coverage for soft costs or earnings unless the date of loss and the delay periods are within 12 months of each other. And I have a little snippet of the wording there, pay only for soft costs on loss of rental income, loss of earnings incurred within 12 consecutive months after the loss to covered property. In this case, do you have any consideration for the soft costs or the earnings with the 12 months limitation? And so there, I'll add a little more to it and just complexity here. So they have a delay. The delay isn't actually starting until sometime after October of 2023, but that's after the 12 month limit that they had from the date of state of law. Yeah. As the agent, I read that and look at how they tied the 12 month limitation from the date of loss. I start having a little cardiac arrest. It's a little problematic. Just call your E&O carrier before you do. Okay. Well, yeah. Yeah. I almost said that as well. Yeah. Yeah. Yeah. I don't think it would be covered, but it's kind of illusory coverage. So yeah, I guess it depends on it. Did they pay? Did they pay coverage for this? Did they pay for anything? Then if they did, then they took it to court. It might be a trouble. I don't think this would make it through a summary judgment motion to say the least. Okay. So we'll move on to the next one. Then I think I have control back. All right. So we saw Vicki's great example of the phasing and the dates and how phasing should really be considered in the policy if it's a phased project. So this one, the covered property was a large assisted living community with various types of units and different amenities. A portion of the complex and the communal facilities were impacted from the fire. Some of the units had already been occupied. Additional units were still available to be occupied even after the loss occurred. The project was being completed in phases, but it had one defined anticipated date of completion in the policy of July of 2024. The overall project still ended up being completed in July of 2024 and did not sustain a delay. However, various sections of the property were delayed. So they thought that one part of it would come up in January of 2024 and it actually now wasn't ready until July. The insured offered discounts to some residents and they also offered credits to them because they were already utilizing the facility. So if it was somebody new that was coming in, they said, come in at a discount. All these things aren't available yet. And if it was somebody who was already there, they said, we're going to just give you a little bit of credit on your fees each month because of what's happening here as well. The insured claimed soft costs during the repair period. They were claiming interest and other items while they were making the repairs. The insured did not hold a separate policy. So where everybody was already moved in and they were already earning revenues, not a separate policy for that. Could there be any consideration for soft costs if there's no overall delay? They thought that they would have revenues coming in to help pick up some of these costs because it was a phased project. They're paying in their mind more for these soft costs, but it's during their repairs and before there's ever a delay and there is no delay. Yeah, so if a soft cost is triggered during the period of delay. So if there's no delay, if they didn't phase the project, then from the underwriting perspective, I would say they didn't have any coverage. Right. I would agree with you. I think these are marketing discounts, expenses, whatever you want to call them in order to keep residents and mitigate their loss, which is great. But there's no technical, there's no technically no coverage that exists, whether or not you could shove this into a Sue and labor clause, I don't know. But I don't know that there would be any way to pay these expenses. Yeah. Yeah, this is a this is a great example for things that Vicki and I and everybody's talked about with these phase projects. You know, you know, we're writing a lot of builders risk policies, identifying the phases and from a premium standpoint, limit standpoint. But you know, it's so key, and I've seen it, you know, several times in the last 10 years. This is a great example of boy, you had better not just have the one final completion delay limit you should that should tie if you've got three or four phases on a policy, you should also have three or four phases, you know, or completion. And really look at it, but then you have to you have to get in the weeds a little bit and then identify well for for the four different phases and in apartment buildings like this pretty common. What would your revenues be? What would your additional soft costs be per building? You know, and then you have to make sure you've got adequate limits for each. But yeah, you need to sync it up. I look at this. This example, and I just think, oh, my E&O carrier better be good. Yeah. I think it goes back to the basics, right? Understanding what the actual project is at the time of underwriting, and making sure that if it is phased, that phases are being considered. And that being short is really clear on if this data is in here, what that means for the balance. And into I think, our last one here. So this is an insured that had a multi-use housing complex. And the project has been delayed to various non-loss related reasons. The project had many policy extensions due to these delays before the loss. And the premiums were continuing to increase. So as I was talking back about the insurance expense, in this case, the newest policy considered a cap on builder's risk policy premiums. It limited the new, if they had to extend again, that premium to the average daily value of the premium of this policy. The location ended up sustaining a water loss, and they had a delay. And they had to extend the policy yet again. And when they extended it this time, the extension was actually $350 more on average per day than the initial policy that was in place. So the additional expense to extend the policy be considered in any of the coverage categories. So we know that the soft costs are limited to $150 or $150 a day on average, and now $350 more. So there's that gap of $350 per day that we're missing out on that they right now want to try to claim as a soft cost. Would you consider it in the soft cost? Or are there any other buckets that you might consider it in this scenario? I think, you know, again, it goes back to the policy wording. If the policy limits, what did you say it was? 100? Whatever it was, but it's $350 more a day. If that's how the policy is worded, you're getting X number of dollars a day, then I would say that the additional cost for the insurance is not covered. Yeah, I would concur. It's a it's a clear limitation, and it would restrict any additional on top of the original. Kudos to the owner. Yeah, this is definitely can get really complex, especially in really large projects where we're seeing delays after delay, and some that are delays that are result of covered items and some that are delays that are not. So I think that it's just one to watch and where there can be some areas of discrepancy and dispute over these additional costs and now that they have to be picking them up. I think that takes us through all of our case studies and trying to get to the next one. So I think, Vicki, you want to go over into the recommendation? I will. All right. So, so challenge and consequences, challenges and consequences. Get to my right. Right slide here. So we've got a number of them. So lack of knowledge of all the entities. So not knowing what the gray areas are and the issues are, many of which we have discussed today. And I think the the scenarios that Aubrey came up with were great because there isn't an exact answer. Or if there is, then, you know, shame on, you know, the broker for not, you know, looking at the form and making sure that, you know, the proper coverage was in place. But, but of course, we're not talking about anybody on this call because they were smart enough to come to learn more about soft costs. It's a time consuming process. For the owner, it's easier to take a percentage of the hard costs and use that as a soft cost rather than this is one thing we really talk about. But I think to really get what the soft costs are, the owner and the broker have to go through a scenario and say, okay, what would happen if there was a water damage loss on the fourth floor of a four story building? What would happen if it was wood frame? What would happen if the building burnt to the ground? And then how much would these soft costs be? And I would think, and again, I'm not on the lending side, but I would think that if it's financed, they would have to outline these costs. So I would, I would think that the broker would need to push for these costs. But I would strongly encourage to go to have the broker go through a loss scenario to see what might be the, you know, and Randy touched on it, you know, probable maximum loss. And the next area, entity self-interest, they're only gonna look out for themselves. So you got to watch out who's buying the, buying the form. And if they're going to be cheap about it, and just go on price, then you might get the lowest cost, but you might not get the coverage. So you're shooting yourself in the foot in the long run. Another area is the insured not understanding the claims process. So it's important for the broker to set the expectations up front with the documentation needed, and to return it quickly. And then how the payment process works, you're not going to get soft cost coverage until after, until the delay period kicks in. Then we go into the consequences of not understanding. So there's damage to the reputation and the relationships. This can be between the broker and the carrier, they own their contract, or the list goes on and on. So, you know, that could certainly damage your future revenue stream, somebody who had been consistently giving you premium, and now because they didn't agree with the, you know, how the claim was handled, they're going to go elsewhere. And then that goes into the financial impact. This could be from a loss not being covered, from soft costs that wasn't purchased, it could be a loss not covered because there's an exclusion in the policy. It could be because there wasn't enough limit, they didn't purchase a high enough limit. I know Audrey, you know, referred to interest being one of the, you know, the biggest soft costs. And if you had, you know, $700,000 in interest expense, but only about $500,000 worth of coverage, again, somebody's got to eat that $200,000. And then if it gets, if it goes worse, then, then we have a lawsuit. And so we know how expensive those can be. And then from the broker's perspective, it can get into, to their, you know, insurance, which obviously nobody wants to get into. And then three is the lengthy claims process, the lack of knowledge from all parties, all entities discussed throughout the time we've spent together, adds to the process that's already long enough. Let's see if I can get control of the slide and move forward. Did I go too far? Can you skip one? All right. Let me see. All right. So, all right. So we got through that one. And then we've got the suggestions for the owner and the developer. Let me get to my slide. All right. So these are pretty self-explanatory. You know, you need to evaluate the exposure, go through the possible loss scenarios. You need to share critical documents. Randy did a good job of going over that. Sean did as well. And get those documents up front. Because if you try and go back after a loss two or three years later, it's, sometimes it's hard to get those documents. The due diligence in selecting the broker, the carrier in their coverage form is, is absolutely critical. I mentioned before, don't just go on price. You need to go with what is, what's going on with the form. And then it's critical for the broker. And I know Randy had highlighted, keep the broker and the carrier in the loop regarding changes. So, you know, it could be that they've changed the scope of work. And now, instead of a four-story building, it's a five-story building. If that happens, then you run into, you know, underinsured problems and that type of thing. So don't wait till the last minute to spring it on the underwriter that, that there's a change. If you go along, adjust the construction schedule, because we know how important that is. If you need to adjust the, you know, estimated data completion, then you need to keep the broker and the insurance carrier in the loop. And obviously, you know, report claims in a timely manner. The longer there is in the gap between the loss and when the adjuster can get out there, that's just nothing but trouble. And then, as we said, provide the claims adjuster, you know, with the requested documentation in a timely manner. And I would also add, just send them what they asked for. Don't deluge them with, you know, 300,000 pages of documents so that they have to pick through and figure out, you know, what they, what they asked for. Yeah, I just make a comment. These are critical points, you know. You know, here's the one thing, a common theme with a lot of contractors, you know, they build things, they think they're the best at it. And if they have problems on the job site, because they have problems every day, they fix them. The one thing you've really got to, you got to know your insured, you know, and your contractor, got to let them know, hey, if you have a significant problem, one, you got to call us, your broker. And you got to just take a timeout a minute, maybe check with your legal counsel. Don't just start spending money to fix a problem right now. You've got to identify what it is. And you've got to put your carrier on notice now. Because a lot of times carriers, they're not going to compensate you for any of those costs and expenses you put in to try to fix a problem before you've made them aware of it. You know, so timely notice, and then the documentation. And a lot of times, clients and contractors, well, they're busy building, they don't have time for this stuff. It's like, well, they all have the original contract schedule with the budget. It's in their best interest. It really is to provide that stuff, get it up front to expedite the claim handling process. Because I tell you, no claim really gets sweeter with time, you know, as it goes on and on. It just people, you know, it causes a lot of hard feelings and all that. So yeah, report it timely, have your documents and share it in to try to expedite the claim handling process. It's just it's worth a lot to do that. So sorry. Good points. All right. And then as far as suggestions for the for the broker and the insurer, I mean, again, these are self owned, you know, assist the owner in evaluating the exposure, you know, from the broker perspective, you know, provide a quality submission with the documents that Randy had talked about. Review the contract between the owner and the contractor for the requirements. What are they asking for? Make sure the naming of the insureds is correct. You know, from the if the policy is a first named insured or named insured, additional insured, same thing with the mortgages and the lost payees, make sure you get those in there up front. Select a builder's risk coverage form to meet the exposure of the project and the entities involved. And then, you know, communication between the broker and the underwriter and clarify gray areas up front. Don't do it after the law. And then the insurer, it's incumbent upon the insurer to review the coverage form for gray areas. That could be from not defining the policies. Sometimes an insurer wants to have very broad coverage and they specifically don't want to define, you know, to give the flexibility to pay for the losses that are that are out there. But then it's a double edged sword. So I think, too, another big topic that we talked about, because most forms don't have soft cost coverage for the contractor. But I believe that there is, you know, the contractor does have soft costs. So I think it would be incumbent upon carriers to to develop the forms. Also, I would suggest a designated experienced adjuster in the policy. I know on a lot of quarter share policies that's done up front. So that way you know who the who the adjuster is and you can get started right away. Another another big thing, which is critical, is regular feedback between claims and underwriting. Underwriters, you need to know who the claims people are and claims people you need to know who the underwriters are and have a dialogue. If you see something that you're having a problem with, then, you know, point it out and make sure that that they know. And then the next time the coverage form is changed, then they can go, you know, possibly go back and fix that in the coverage form. And then the last thing is then monitor the court rulings, because once a ruling comes out, that could really change things. And, you know, kudos to AIS for making that change and acknowledging the Keating case. There's recent cases that have come out on leg three, which it'll be interesting to see what happens as a result of that. I would add in there too, Vicki, on the regular feedback between claims and underwriting, the experts too. So not just in the insurer side, but with the experts on what they're seeing it from an accounting side, where we're having issues or where we struggle with maybe laying things out in certain ways. I think that can be really important because we're seeing it across a lot of areas. So adding us in there. I would just mention this, you know, the monitoring of court rulings, and this is off topic and I'm sure, you know, be great for future presentations, but mass timber, you know, you're seeing a lot of mass timber, a lot of interest in it, a lot of projects taken off that have mass timber. Well, there's a lot of fear out there based upon a lot of good common sense of likely increased cost, you know, of loss or what might be lost. But it's like, is it really lost or is it just now it's cosmetic in nature and it doesn't look the way the owner wanted? Well, there's a couple of court cases. Well, there's a couple of claims out there right now. They might make their way to the courts, but when those things get settled, you're most likely going to see some coverage form changes in how damage is defined. What is damage? But that's kind of a new trend coming, a lot of mass timber. I'm seeing a lot right now and that's going to be real interesting. So just, yeah, stay tuned to court rulings and impacts on the carriers. Yep. Very good point. So I'll conclude the presentation, then we'll go on to the question area. But again, this goes back to 2003. It's an excellent, there's a link in the resources, but an excellent resource. And I couldn't describe it any better than this. It's very concise and it says, maintaining insurance standards in this line of business at an appropriate level for all parties involved, demands prudent underwriting, adequate pricing, clearly drafted wordings, comprehensive progress monitoring, and thorough claims investigation routines. So I think that sums it up very succinctly. And we've just spent two hours talking about it. All right. So we will move on to the moderated Q&A portion of the program. So Eileen, I think you've got... Excellent job, everyone. Thank you so much. Just to let everyone know, the information on how to get Steve Coombe's book has been popped into the chat if anybody wants to take a look there. Also, before we start the Q&A, I wanted to draw your attention to the QR code on the screen. You can scan the code and complete today's survey. We definitely look forward to your feedback. What you might want to see in part two of the soft costs on the year-round table or if there's another topic of interest to you, we look forward to your response on there. So let me see what we have in the way of questions here. We have Donald... Randy's already volunteered to be working on the cross-laminate timber portion. I wrote that down, Randy, because that's a hot topic. Well, it is. I'll be bringing my friend Lori Montoya from Hartford who recommended me for this panel. So she'll be there with us too. Yeah, absolutely. Lori's an awesome presenter. She presented at our last national meeting. For sure. So we have a question from Donald. It was, are there any particular types of projects where soft cost losses are more common or severe? Can you repeat that? I mean, I didn't know. Sure. Are there any particular types of projects where soft cost losses are more common or severe? I think it really depends on the value of the project, right? Say it's not that they're... Think about the interest expense, right? It's based on what they needed to take out as a loan to build it. So it's going to be more severe in the higher value project. That's kind of what I would think about most of the items is they're just more based on projects and for the value of the project versus the type. But I'll defer to the rest of the panel. Yes. My thoughts would be the first thing that pops to mind for me is private development projects where there's big loans, right? Big value, but big loans. And they're counting on a quick build, but like a high-rise apartment building, for example. They're planning on having that completed and rent it out right away. And they're planning on having that completed and rent it out right They're planning on having that completed and rent it out right away. And with the additional interest costs are a major play there. Things we didn't get into and that's really in a separate topic would be like loss of income, that we talk about that. Like casino projects. When I've seen, hey, you missed a deadline on that. Well, they can show you on the books, they're going to lose $7 million a day every day. That stuff can add up big, but it's projects where you've got a large value, big loans out there is a significant cost. Yeah. To that point, Randy, I was going to just add on. I think where the soft cost type cover leans more toward delay and startup is where you're going to see bigger and more complex losses. Just, you know, tie into the casino anywhere where you're going to tie a delay to the actual startup of the operation. You're going to see a significantly more complex claim. Okay. We have James Wood question on OH&P should be based on contract bid and monthly pay requirements or requests, not flat 10 and 10 should be based on what was established on the project. Sorry, I'm- No, I'll probably talk to this at length, but I think just generally speaking, once you get into overhead and profit, this is where contracts come into play and understanding what's been agreed to and not just going at a flat 10 and 10. And so whether they rebid, how they go about doing the restoration work and whether they rebid it or doing it themselves, I think drives a lot of what's recoverable under there. And again, it goes back to what it says in the policy. Some policies might have the term reasonable overhead and profit, or it might say the same amount of profit that was, you know, originally in the policy. But then it depends on, you know, two or three years later, and, you know, labor supply is short depending on where it is. If it's more out in the middle of nowhere than in a large city, it might be harder to get workers and that type of thing. And so I think Randy had said earlier, you know, nobody works for free, but nobody wants to be gouged either. Excellent. We have a question from Estras. Interest payments and loss of revenue, how to avoid double dipping? So the easiest way to avoid double dipping is just, again, seeing both sides. So if interest, I'll have to use example. So if we have a delay period, that's three months, and the interest gets paid on the soft costs for those three months, then looking out on the business income side for the same period of time, what was expected to be an expense for interest on the budgeted profit and loss statement for the business side? So if there's interest there, and maybe the loan would change, et cetera, we need to dig into a little bit. But making sure on the business income side that we're saying, okay, there's lost revenue that's calculated. And then you're looking at the expenses. They don't have the expense of the interest now, because the interest is getting paid over on the soft costs. So it's just going through each of those items and saying, all right, is it a continuing expense? Or is it something that they save because of the delay? And just seeing it in both sides. Excellent. We have a question from Freddie Kehoe. It's a little long. Why is labor considered a hard cost? My thought process is you had a delay resulting from a covered peril. So now the project will take six months more to complete. You now need to pay for an additional six months of labor, and that cost wouldn't have been incurred had it not been for the delay. I could take a stab at this. My thought would be that it is a hard cost during the original construction duration. To me, it would kind of be soft cost and compensable in a delay situation. So kind of an extended general condition. But I know my other panelists could talk to me. Because to me, that's a cost and a delay that, yeah, hopefully you have a soft cost. I mean, that it would be, well, that would really come under of the repair period. You know, you're going to have a repair period to fix the loss. And I would expect that that's going to be considered a hard cost there and compensate it under your original limit. I would argue that it's strictly a hard cost. You don't have to buy soft cost coverage. Clearly, materials and labor are included under the definition. Well, there's no hard cost, but however you want to call it. You know, you have to have the material, you have the labor to put the material, no matter how long it takes. So I would say it's a hard cost. Yeah, I agree. Okay, moving on, we have James Woods. Is there... Oh, sorry. I would add it depends on what the labor... So we're talking about the labor to actually do work. Are we talking about labor for, you know, project admin type people that are on the project longer? Are we talking about labor of people that were going to start actually operating, you know, the facility after it started to be used? So I think it also depends on what labor it is and just add to the gray of it all. Well, that's right. And I think we're... Vicki and I were ahead. It was labor related to the actual construction and to fix the, you know, repair the damage, not additional, you know, the admin and the overhead and all that kind of stuff. Yeah. Excellent. Good point. We have James asking, is there an unrelated uncovered delay that occurs after a covered delay period that affects the completion date of the project? Is that taken into consideration of the schedule analysis? Yeah. I'm happy to go here, but step in if anybody else wants to. But yeah, so we have anticipated data completion compared to actual data completion at the time of the loss. And something else happens that pushes that data out when it actually completes has to be taken into consideration. So it goes back to what is the delay period as a result of the loss, making sure that it's all from that. And if there's other factors, if there's another loss that occurs, if there's something else that just occurs, maybe a change order that happens that causes it to be delayed. All that has to come into consideration, not just saying from data loss, anticipated data completion was X and it ends up being Y. What actually happened on the in-between has to be known. Yeah, I would agree. Next question from Donna Sharp. IM 7050 valuation replacement cost definition includes other related construction costs and expenses that are re-incurred. What types of related construction costs slash expenses would be considered? Are they different than what is provided under IM 7061 delay in construction, additional construction expense coverage part? Can you repeat the question again? Because that's a reference to the AIS form. And if it's too technical, we could just, we have other questions, but it's IM 7050 valuation replacement cost definition includes other related construction costs and expenses that are re-incurred. What type of related construction costs slash expenses would be considered? Are they different than what is provided under IM 7061 delay in construction, additional construction expenses coverage part? I think we'd have to actually see what the, what the expenses that were submitted were in order to make the determination. Because I think as Sean and Aubrey will tell you that the person adjusting the claim is going to do everything they can to try and find, you know, coverage and adjust the claim because they want to put the insured back to the position they were immediately before the loss. So I think it would depend on, you know, what the specific expense was. Ready for the next question. Donna Sharp has a second question. She asks for underwriting best practices, how to determine the appropriate waiting period in parentheses number of days for a new project? I think from an underwriting perspective, I think it depends on the size. Obviously, the larger the size of the project, the longer the delay period is going to be. I know that Randy, you had shown like a five-day period. I can't say that I've ever seen a five-day waiting period. It usually starts, especially when we're talking about large projects. At a minimum, it would be 30 days. But, and then you can also have a different delay period, you know, for cat perils. You might have a different one for flood named windstorm or earth movement as well. You know, and maybe you could give a little rules of thumb. It's funny. Yeah. Have I ever seen a five-day waiting period? No. I actually, I put that in my slide because I thought you'd mentioned it originally or somebody. I've seen five days, 10 days. I've seen really small ones. Yeah. In smaller value projects, yeah. We used to see 10 and 30 a lot. I'd see, you know, I don't see that so much anymore. Now it's like 30 days and 45 days and that's for all of the peril loss and then cat loss, you know, named storm, earthquake, flood, you know. So, yeah, I'll see a lot of split. But, yeah, we don't see them very often. It's got to be a pretty small project to get down to like less than, you know, 15 days. I mean, most times the common I'm seeing now is like 30. But maybe, Vicki, I don't know, maybe you could talk. What are some rules of thumb that you might have seen on based on size of job? What kind of number of days? I said the smallest I've seen is 30 days, but it seems like that's more to the 45, especially the size of the project. And I don't have any specific, you know, size, but, you know, you get up over a hundred thousand, I mean, a hundred million, you're probably looking at 45 days. And then you get into the billion dollar projects and you can have a much lengthier period. But, yeah, yeah. From a claim handler's perspective, I would say if you can push 60 as the minimum, that would be a really good target to go after. I think two months worth of expenses is a good SIR, if you will, to try to achieve. Next question. We have Faye Song. I heard the market no longer offers leg three. Is that true? Offers what? I'm sorry? Leg three. I heard that the market no longer offers leg three. Yeah, and this is not a soft cost coverage, but I think because there were two rulings on this, and I think one was Capitol Bridge and I can't remember the name of the other one, but just within the past year, year and a half, I think a lot of carriers are taking a step back to decide, hey, do we want to do this? Because, you know, the wording does not carry out the intention of the underwriter. And we could do a day session on this whole topic. And we touched on it at the national meeting, but this isn't a topic that's going away. So let's move on. I can make a few comments. I'm not seeing it go away, but unless you're talking to MassDenver Project, then nobody's wanting to provide leg three coverage on that yet. So it's still out there quite a bit. One thing we're seeing in the past year with these two rulings, and I believe they involve the same contractor in both situations, and I need to refresh myself with it too, we're definitely seeing the pricing. There's additional surcharge pricing in a builder risk policy to have it, and the deductibles are increasing significantly. I mean, you're seeing at least minimum, and it doesn't really depend on the size of a project as much, but you're seeing a minimum $250,000, $500,000 deductibles for leg three. But I still see it. It's still out there with a lot of the carriers that my agency works with. Excellent. We're coming up on time, and I know we have just a couple more things to do after the Q&A. So this will be our final question from Hillary Mayo. On the subject of soft costs, maintenance and security costs, is it common that these types of costs are beyond the original contract because of the loss? For example, more security is added to preserve the location or because of the phase. Some areas are already in need of maintenance. Would these become extra expenses under the project who are not considered at all because they are outside of the original contract scope? So I think you hit it squarely in your question, and that is that it is determined by its underlying purpose. So if it's additional security expense during the delay because you need it during the delay, it'll find its way to coverage. If it's expense that you are going to begin to implement anyway, it probably falls outside of it. That would be under extended general conditions under the soft cost portion of the coverage. Perfect. Well, let us move on. We are coming up on time, and I know there's just a couple more things to cover here. We have one last poll. Would you like to have a follow-up? Okay, excellent. 82%. We'd like to have a follow-up, so we'll do, hopefully the panel can remain and we'll get some additional people on the panel. I don't know if Stephen Coombs is still on the call, but I know that I talked to him this week and asked him if he might be willing to do that, and he indicated he would have an interest in being on a discussion or roundtable. That would be excellent, yeah. You know, the panelists did not get a chance to vote on that, so. If anybody does have any areas that they want covered, just chat them, put them into the question, what areas so we can have some direction, and it's also included in the survey. I'm always looking for your input to help build out the education. And Vicki, you want to wrap it up with the resources? Yeah, so I've done a tremendous amount of research and documented the articles that I've looked at and preparing my part of the presentation. A lot of the stuff comes from, of course, Stephen Coombs, who's the absolute expert on everything builders risk, but there's also other resources. So there's different articles from Sachs, Goenberg, and Vita. They represent owners as opposed to insurers, so they just know that they take that slant on things, but there's a number of things with regard to general conditions, scope of work and soft costs, naming of insureds. Let's see, what else? Just a whole number of things, how to measure builders risk losses. I mean, there's just a whole bunch of resources in here with the links. So hopefully, you spent a lot of time reading them, but they are interesting articles, especially if you have some kind of a question or a loss or need to be able to explain something further. I know a lot of things we glossed over because we didn't have time to go into details, but I would certainly stress going back and looking at some of these court cases that some are in the process, some have been finalized. That's where it goes. Some of them are just fascinating to look through because we only scratched the surface on some of the things that they decided because we were just talking about soft costs, but there were other issues like debris removal and all kinds of other things in some of these cases. So I would suggest going through that. So anyway, this concludes our presentation. Sorry, what's that? I said, yes, it does. Thank you so much. You were all amazing. Yeah. So I want to thank everybody for attending and then a huge thank you to you, Eileen, for coordinating and all of your help and coordinating the speakers and putting the slide deck together and setting up the meetings because it's like herding cats getting everybody scheduled together. And then all of your suggestions along the way. So just a big shout out. Thank you for all your help there. Oh, I'm happy to do it. You're all you're all amazing. The time and expertise you brought to this. So thank you so much. Now you have to do one final thing and pick the most last best engage folks. And then there were two great questions. You're getting a lot of thank yous in here in the chat questions, but we can't see the questions for everybody. But, you know, as a panelist, I've got to say Vicky was a big reason for this thing happening and put in pretty more time than I did. I know that. But everybody did a fantastic job. This is to me, it's extremely beneficial to those of us in the in the insurance world, you know, brokers, underwriters, claim people for sure. So, Vicky, thank you so much because you put a ton of her idea. Vicky has been talking about this for a long time and it took a while to get the four of you together. So this is fantastic. But and the attendees, great questions. Thanks for your participation too. Any names stand out as to who had the best question? Don, I think he had a couple of questions. I don't remember Don's last name. Donna Sharpe. All right. Donna Sharpe. Congratulations. Well, that ends today. So thank you once again. I think there might be a link for the survey. Either way, you'll receive it afterwards. So fantastic presentation so much. Very appreciated. Thank you very much. Thanks, everybody. Thank you to the panel. Appreciate that. Yeah.

Soft Costs

Builder's Risk Insurance

Marine Underwriters Association

Eileen Monreale

Lillian Coulson

Ali Monreale

Aubrey Shea

Vicki Hartman

Sean Crawley

Randy McGinnis

Claims Analysis

Policy Evolution

Construction Project

Insurance Coverage

Industry Understanding