Insurance on my Project Building is being canceled!

MuleHouseSeptember 5, 2012

I'm fairly new to this forum so hope it's ok to post about my problem here on the Kitchen Forum. Adding a kitchen is the biggest challenge of the whole rehab.

But my problem is that the insurance on the building is being canceled. Or at least I got a letter to that effect today. I'm not sure what went wrong, as my Ins. Agt. worked very hard to find a company that would insure an old commercial building during the conversion process.

If anyone has been through a commercial to residential conversion and dealt with an insurance company, I'd love to know who that might be. I'm sure the lending bank covering my mortgage is as distressed as I am right now. I'll be in contact with my insurance agent Thursday morning and sure hope she can say "It's a mix-up, you are fine".

Georgia in Alabama

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I think that you will have better luck getting answers to this one on the building forum.

    Bookmark   September 6, 2012 at 12:11AM
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Georgia, I have nothing to offer except to hope for you that it's someone's screw-up and things are fine.

I can't imagine residential to commercial isn't more demanding, that they'd prefer commercial to residential!

They have to tell you why.

    Bookmark   September 6, 2012 at 12:11AM
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Are you working with a licensed and insured GC and have you pulled all the necessary permits for the project and has it passed all inspections from the local codes enforcement? Multi family dwellings have a higher codes standard for trades to follow than do single family dwellings, and most locations require that only licensed trades to work on them. No DIY. Does the place have fire sprinklers? That is a requirement, and one of the first alterations to the building that would be required and if they don't exist, that would certainly be a really quick way to get any insurance policy canceled.

    Bookmark   September 6, 2012 at 12:55AM
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Sophie Wheeler

I saw on another thread where you are using an unlicensed "handyman" for the work, and I think that's your answer. Insurance companies are averse to risk, and unless yourself are a licensed GC, they want someone who holds a license to have the responsibility to do the job correctly. Not to mention that DIYing such a project will not have it done in a very timely manner. That's also a risk. In addition to finding a new insurance company that insures a multi family dwelling during a rehab, you may have to have a talk with your mortgage holder here to clarify whether this is a comercial space, single family dwelling, or a multi family dwelling. The insurance company will have also sent them a letter of cancellation, and if you applied for the mortgage as one type of building without letting them know you were converting it, they may want to reassess the loan as well. Have you already had the building rezoned?

    Bookmark   September 6, 2012 at 11:41AM
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If you have an unlicensed handyman he may or may not have insurance. If he is employed by someone does his employer have insurance. If he is independent he may not have insurance. The insurance company will require that the GC and all trades have insurance. In the event of a claim the insurance company will pay out BUT if it can be proven that one of the trades was negligent then the insurance company will go against them for the cost of the claim. They can only do that if the trade has insurance.

    Bookmark   September 6, 2012 at 11:50AM
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Is this a builder's risk policy you hold?

    Bookmark   September 6, 2012 at 4:13PM
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Thank you everyone, for all the responses.

CE Freeman, thank you, my ins agt said she'd address it so I'm waiting to hear what she says.

Laura 12, thank you also, I'll go to Builders Forum if I continue to have difficulty.

Green Designs, I have a basic building permit which is all that was required as far as I know. The fire alarm has not been installed yet. It wasn't specified by the city that it should be the first item. I can have the electrician install it if that is the insurance problem. The letter from the insurance company informing me that an inspection would be made was just for the exterior of the building. It stated they did not need access to the interior. As for fire sprinklers I have never had fire sprinklers in a house and don't plan on having them. Are home fire sprinklers really required where you live?
Holly Springs, I really don't feel that who works on the various projects is an issue, as long as plumbing and electrical work are done by licensed individuals. It doesn't take a license to be able to box in heating ducts, take up carpet, or to paint. This insurance policy was written for 14 months, with the option of extending it if I have not completed the work in that time. My mtg. holder is well aware of the building and my plans for it, that isn't an issue at all. The building falls within zoning regulations for downtown, so that isn't a problem either.

Blfenton, I'm quite certain my worker does not carry any type specialty insurance. I don't feel his doing the work is any different than if I were doing it. The policy is for fire insurance on a vacant/unoccupied building also covers fandalism/malicious mischief and water backup of sewers or drains. It does not specify who may do the work.

Grlwprls, It isn't a builder's risk policy, just a basic fire insurance policy on an unoccupied building.

    Bookmark   September 7, 2012 at 11:41PM
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A sprinkler system is required by national building codes in all multi family dwellings and all new residential construction over 3000 square feet, I believe, but I may be wrong on the exact square footage cutoff. Many local municipalities are also requiring them in remodel situations as well. That would be a BIG red flag for an insurance company that that wasn't one of the first things addressed in the dwelling.

Plumbing and electrical requirements are also different for a multi family dwelling vs. single family residential, and not all residential electricians and plumbers are qualified to work on multi family dwellings. Inspections from your codes enforcement office will be different than those for single family residential as well. There is a higher standard of work, as any errors can compromise the health and safety of more people.

Also, even though your change to multi family residential falls within the master plan from planning and development, you still must petition to have property rezoned from commercial to residential.

Your local municipality should have copies of the current national building codes that apply in your jurisdiction available for purchase, but if not, they are available from several sources online for purchase.

    Bookmark   September 8, 2012 at 12:15AM
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"It doesn't take a license to be able to box in heating ducts, take up carpet, or to paint."

Not true. You will need a licensed HVAC company to design the HVAC system and to pull the permit for it as well. There simply isn't a company that will allow you to DIY a job that they design, so essentially, yes, you need a license to box in heating ducts. As for taking up carpets or old tile or painting, again, this is not a single family dwelling. You must perform lead and asbestos testing and comply with current abatement regulations concerning how to handle components contaminated with that, or you can be red flagged and shut down. This usually means taking a class and becoming certified to perform those tasks. Not following the proper building codes for your area can mean wasted time and money when you fail the inspections.

Lenders do require a general liability policy as well as a builder's risk policy for a construction site. If you are acting as GC for the project then you must either carry worker's comp insurance to cover anyone you hire, or else you must only employ independent contractors who carry their own insurance. Not having the proper insurance puts all of your possessions and even your livelihood at risk.

    Bookmark   September 8, 2012 at 12:42AM
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Check and see what year code they are using in your area. The newest one (2012) requires sprinklers. 2009 it was strongly recommended and adopted in many states. The building code will also dictate what type of work you can do, or what you need to hire an electrician or plumber for. When you pull a permit in Maryland, you can't do any electrical or plumbing yourself.

When we built our house ourselves, and served as the GC, we were required to carry a builder'r risk policy and general liability. And that was with only having a few subs who did any additional work (electrical, plumbing, drywall, the Marmoleum floors, and gutters).

    Bookmark   September 8, 2012 at 8:02AM
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Can you please provide more specific information regarding your project?

Is the structure any type of historical structure?
What is the current zoning?
Did it have a valid use permit/certificate of occupancy before any work began?
Will the conversion be for a single residence, or multiple units?
Will the zoning for the completed project be mixed use commercial/residential, or only residential?
Does your city council need to approve any zoning changes?
If it is to be multi unit residential, have you complied with national building codes, ADA modifications, and are you using a stamped and insured architect and structural and also mechanical engineer?
How will the completed property be taxed?

I work in the commercial HVAC business, and see these types of jobs from time to time. Almost always I see a stamped set of architectural and engineered blueprints to lay out the mechanicals of the new space. I would think you would be required to have this to secure your funding.

    Bookmark   September 8, 2012 at 9:24AM
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Where does MuleHouse say this is a multifamily dwelling?

We don't know where the OP was located. In my state the sprinkler code change for single families was laughed off the stage by the regulators.

    Bookmark   September 8, 2012 at 9:33AM
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Hi, Green Designs, I'm not making it multi family. It's 800 sq feet per floor, so the 2400 total sq feet put it below any requirement by size, if the one you are referencing is correct.

I'm going by what my local building permit office indicated were requirements. A hard wired smoke detector, an additional light switch at the base of the stairs to the 2nd floor, and residential outlets in rooms that do not already have them. Some rooms have been upgraded, and those met code when the building permit office did a walk thru with me prior to purchase. Again, there is no penalty for my doing the work, or who I have do it, as long as plumbing and electrical are provided by professionals, which they are so far and will be to the conclusion.

    Bookmark   September 8, 2012 at 10:00AM
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Wow, so many comments that I could make, but I will start with the basics since many have already raised concerns that I would have raised.

When you got your building permit, did you apply for a new certificate of occupancy? Did your insurance company understand that you were legally converting the building to a new use?

There are codes for a reason, as there are licenses for architects and engineers. Was your permit application clear about the use of the property? You mention that you have a "general building permit". typically to get a permit, especially changing use, the Dept of buildings wants to see a copy of your insurance.

So, you should review your application, and review what you are being insured for.

Good luck.

    Bookmark   September 8, 2012 at 10:08AM
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Hi, Live Wire Oak. I thank you for responding to my dilemma. However it's not multi-family and I'm not sure how the possibility that it was ever surfaced.

We aren't designing an HVAC system, we are boxing in existing metal ducting, which surly can not require any type of special permit. Beyond the building permit I have posted in a window.

My lender required a fire policy to cover their 30K investment in my endeavor. They were happy with the one provided at closing, and no other policies were needed by them. My original question was about who, besides Foremost Insurance, might I obtain a fire insurance policy from, if Foremost stands firm on their cancellation plan.

    Bookmark   September 8, 2012 at 10:23AM
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Hi, Senator 13. Sprinkles in ALL housing? I will contact the building permit office on Monday, as it was never mentioned when I got the permit and I was in their office frequently prior to closing.

I hope that with only doing a a conversion from commercial to residential, my situation is different from yours, working from the ground up. May I inquire as to WHO made you carry the builder's risk policy, and at what point you became aware one was needed? If it was at the time of your obtaining your building permit, I am long past that point and have a posted permit in a window.

I'm still paying commercial electrical rates, and will be doing so until a working stove is in place. The rate change can be requested as soon as the stove is in, long before completion of the transformation.

    Bookmark   September 8, 2012 at 10:32AM
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Julie Kcmo, I'll try.

I'm not aware that it is on our town's Historical Registry, although it dates back to 1903 or before. The fire maps show an empty lot in 1893 and the building, marked 'Mule Buggy Storage' in 1903. By 1909, the next fire map I have knowledge of, it had become a hardware store, and the 2 store ladder and track for pulling merchandise from high shelving is still there. Ladder only moves about 6 feet now, due to a 2nd story remodeling at some unknown time.

Photos can be seen on line by Googling 182 W Reynolds, Ozark AL and selecting the Zillow site. These are old MLS photos, I swear I did not paint certain room those garrish colors!

I don't have the current zoning data at my fingertips but it is an area of town designated mixed commercial/residential. Many business building have been/are being converted, putting apartments above the street level business.

I'm looking at my building permit application, which was filled out by them, not myself, and under Builder, it says Owner. Permit Type is Remodel. Building Type is SFR. Type Construction is V, whatever that means. Proposed Work Complies with City Zoning.

Ah, here we have a good one! Sub-Contractor list (Applicable Licenses Required: N/A As in the city states no sub contractor licenses are required.

Valid Use Permit or CO. Before I bought it, the building as last used as an Attorney's office. So, no, no CO. I asked to see who signed off on prior permits and none could be found at City Hall. Building Permits went to the building with me, checked that work done was good, decided permits must have been misfiled and declared it a clean slate. Only work I have done will be subject to inspection. I think I strayed from your question. : )

Conversion to single family.

Zoning is mixed use, Commercial/Residential.

I'm sure City Council must approve zoning changes or requests for variances, but I'm good in that regard.

Not multi.

Taxed residential at completion.

HVAC is already in so that little bollix possibility is moot. Except for boxing in ducting that crosses rooms, which I feel is a non issue.

Think that covers your inquiries but let me know if I overlooked something. It's just a small building, 23 feet on the outside, 15 feet on the inside, with a narrow courtyard along 1 side.

    Bookmark   September 8, 2012 at 11:07AM
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Marcolo, I love you. Visualize that smiley face with the little hearts burbling from it here!

Right, not multi, that's a myth that somehow inserted itself into the dialog here.

I haven't asked yet about compliance with 'New Regs' but have the feeling my town would respond much as yours did. It's an old, small town trying to revitalize it's little 'Uptown Area', which languished when Hwy 231 was built, linking Panama City, Fl with Montgomery AL, and points north. There became 2 'Ozarks'. The old one uptown and the new one, I refer to as 'Ozark on the Highway', a mile south on Hwy 231.

    Bookmark   September 8, 2012 at 11:15AM
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I just want to say I am sorry the insurance has been cancelled. This happened to us too. Insured and paid a year in advance our 1870 home with the company we did business with for about 25 years. Had it about 2 months and we were notified it was cancelled due to being a historic, vacant building. We did find a company that picked us up and have stayed with them since. Call around and good luck.

    Bookmark   September 8, 2012 at 11:27AM
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Hi, Fexix Not. I'm not aware that applying for a CO is a separate application. Perhaps I'm naive, but my understanding is that the CO is issued AFTER the completion of work and an inspection. If my thinking is erroneous, please, let me know.

Insurance was arranged by my Insurance Agent, who was well aware of what the building was like, and what my intentions for it were. I, myself, have had no direct contact with Foremost Insurance.

This is a small town. EVERYBODY here knows my building and the history of its prior uses. Buggy storage and hardware store as mentioned. It's last use as an attorney's office, and in between it's been a gift shop, dance studio for children, and artist's instruction studio.

I've gone over wording of my building permit application today, so won't reiterate here, but yes, I did take the insurance policy with me when I got the actual permit. I'd been working closely with the permit office to assure that all my intentions met with their approval.

    Bookmark   September 8, 2012 at 11:29AM
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Eandhl, thank you for your commiseration. I'm hoping that on Monday my ins agt will have good news for me. Would it be inappropriate to ask which company you now use?

    Bookmark   September 8, 2012 at 11:41AM
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I think I originated the confusion here about this being multi family. You described the building on a post somewhere as being a 3 floor commercial structure, and for some reason, that sounded as though it were going to be a 3 residence apartment when you were done. I apologize for the incorrect assumption.

You might try State Farm or Farmers Insurance to get additional quotes from as they've been friendly to "non standard" residences of acquaintances of mine, although most have had their issues with either codes enforcement or their insurance companies. My friend who owns an 1820 building in downtown Memphis had the codes people write him up for several things when they did an "urban blight" sweep a few years ago. He had to immediately put in a sprinkler system and repoint the entire exterior to be in compliance. He also had to spend about 14K in replumbing the structure because of old cast iron piping and to work to be split into 4 apartments. That's the "master plan" anyway. Right now he only occupies 1/4 of the building. It has 12' tall windows that you can get a glimpse of the river though, and it's worth some sweat and tears!

I did a kitchen in a residence converted from a 1910 cotton gin that the homeowners had a LOT of issues with red tape on the conversion. They used Farmers, but they also had to take out a bond of X amount to serve as the General Contractor on the project. Their mortgage holder required that as they didn't want to end up holding the bag on a half finished project. And that was during the boom construction years.

Last year, my sister couldn't even get a loan to buy a small church to convert to a residence. No bank would talk to her about the project unless she had architectural plans and enough funding in place to hire a GC to do the project. If she had all of that, she wouldn't have needed a bank loan!

I hope you find new insurance ASAP and I'd love to see more pics of your building. It sounds unique!

    Bookmark   September 8, 2012 at 1:41PM
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""It doesn't take a license to be able to box in heating ducts, take up carpet, or to paint."

Not true."

Boxing in ducts is enclosing them behind a finished surface.

It assumes the ducts are already present and has nothing to do with an HVAC contractor at that point.

HVAC has finished their job, designing and installing the duct.

Concealing them is left for carpenters, or just about anyone willing to do the job.

Painting is not normally a permitted activity, not is removing carpet.

    Bookmark   September 8, 2012 at 2:00PM
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Thank you so much, Green Designs for continuing on with my saga. Did you look at the photos from the Zillow site? I don't recall who all said I'd need specialty permits for the work, but those 2 aluminum ducts crossing the rooms have been boxed in now. The garish orangy room has been painted and new vinyl flooring put in. That's going to be my craft room.
The intense green room will have wallpaper on the upper portion and will be our dining room.

I'll be talking to the ins. agt. on Monday morning, first thing. The bank I'm dealing with is local. Two branches total. They hold the mtg for our current residence and loaned me funding for a used motorhome I purchased a couple years ago and paid off early. The bank has an interest in the prosperity of the town and feels what I'm doing is in he town's best interests.

The building just does not have the potential to be a good commercial investment, but as a private residence it's great. The flower shop next to me has apts. above the store. On the other side, the big red building houses the local Girl Scout office. It has an apt. in the basement and one in the upper level, both unoccupied at this time.

The town is seriously looking for people to convert the upper floors of old business structures to residential housing. I just couldn't afford to undertake something large and expensive.

I paid less than the price shown on those MLS listings, Trulia and Zillow, and the 15K I had to put down was enough, in my community, to have the bank happy to underwrite the rest. For 5 years - it's not a 30 year mtg!

My hubby was miffed I got the loan because the same bank turned him down for an aviation loan a couple years ago. I work a block away, in the courthouse, which is visible in one of the Zillow/Trulia photos.

    Bookmark   September 8, 2012 at 2:08PM
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Thank you, thank you, Brick Eyee. : ) I personally, would not have known what to do with the shiny aluminum ducting crossing 2 of the rooms. Fortunately my 'worker guy' did and took care of it.

In that the HVAC system was in place when I bought the building, and the Building Permit guy with the largest office had done a casual inspection and some testing of the building, concealing the unsightly part of the ducts seems like a non issue.

Same with carpet. Worker guys take it up, the hubs hauls it to the landfill. So far we have found sub flooring under the carpet. Three rooms on the main floor have been done, 3 more ramain. We think there may be heart pine board flooring under remaining carpet in at least 1 room.

    Bookmark   September 8, 2012 at 2:18PM
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I want to thank EVERYONE who took time to respond to my dilemma. You offered insight, ideas, and warnings of possible bollixes that I might step into. I had no idea how narrowly I escaped major regulation and requirement drama, by selecting the smaller building we bought, over the larger one I'd been interested in!

Everyone's input was very eye opening to this dilettante building renovator.

Thank you.

    Bookmark   September 9, 2012 at 12:36PM
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First of all, there's no way you'd be required to put sprinklers in. Even though your building was originally commercial, it makes no sense that they would require a sprinkler system retrofit for residential conversion. Obviously it wasn't required for commercial, or the building would already have it. I'm from Mobile and used to work with a draftsman there that did new-build residential exclusively. Plenty of the houses were over 3000 square feet and not a single one needed a sprinkler system. And this is a city with a power-happy inspector who LOVED to find nitpicky things wrong. For a little town like Ozark, you can wipe that worry clear out of your mind.

When we got insurance for our home (in Ohio), we couldn't get traditional coverage because it was not ready for occupancy. We have something called the Ohio FAIR plan, underwritten by a local insurance company but through the state. Now that we live in the house (but it's still not done), we have a different policy through the same plan because the insurance company still can't insure it. I imagine Alabama has a similar program but I'm not familiar with its particulars.

    Bookmark   September 9, 2012 at 4:12PM
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Anenemity, thank you so very much. Alabama DOES have such a plan. It's nearly 5 pm here so I will contact them tomorrow morning.

My insurance agent called this morning, but just to say she is working on it. She'd been in communication with the company and supposedly the building was rejected because it's attached to other buildings. It's not attached on 1 side, as there is a small courtyard.

My worker guy says it's not attached on the other side either, that a similar space is between me and the florist shop. Someone (probably not me) needs to get on the roof and take photographs.

Again, thank you for seeing my thread and posting to it.

    Bookmark   September 10, 2012 at 5:57PM
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Interesting. When I looked at the pictures I wondered if being attached to the next building would be a problem. From the pictures it does appear that it is attached to the next building, and I could see that being a problem regarding fire. Hopefully, if you can prove it is a stand alone building, you will be able to move forward on your project.

    Bookmark   September 10, 2012 at 9:35PM
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I know what you mean Dekeoboe. It shares a solid upper front. There is no break in the brick work and it has detail that clearly shows it as 1 building, me and the florist shop.

I can't personally go up the ladder. Well, I can go up, but cant make the transition from ladder to the low roof ledge above the basement stairs. Plus once at that point there is another ladder that has to be raised and another climb. Need to get my more agile hubs to do it.

I have copies of old fire maps going back to 1893 and the one for 1903 shows a very faint line that could be a small alley way between buildings.

    Bookmark   September 11, 2012 at 12:03AM
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