Property and Casualty Insurance Practice Exam

What happens when the insured abandons the construction with no intention of completing it?

1. Coverage continues for another year

2. Coverage is automatically voided

3. Claim payouts are restricted

4. The terms revert to personal property coverage

The correct answer is: Coverage is automatically voided

When an insured abandons a construction project with no intention of completing it, the coverage typically becomes automatically voided because the risk associated with the insured property changes significantly. In construction insurance, the insurer expects that work will be actively ongoing, and if the project is abandoned, this creates a scenario where the insured is no longer pursuing the intended use of the covered property. Insurance contracts are based on the principle of insurable interest; when the property is abandoned, the interest essentially dissolves, which can result in a lack of coverage. Abandonment implies that the property no longer has the same value or intended purpose, and as such, the insurer may choose to void the coverage entirely. This reflects the understanding that the risks do not align with what was initially insured, as there is no ongoing construction activity to protect. The other options detail scenarios that do not align with the abandonment of a construction project. For example, continuing coverage for another year or reverting to personal property coverage would imply some degree of active risk management or potential utility of the property which is not applicable in a clear abandonment situation.