The provision in the Builders Risk Coverage Form that penalizes underinsurance is called?

• A. Coinsurance
• B. Full Reporting
• C. Agreed Value
• D. Adequate Insurance Clause

Answer: (D)

The key idea here is that the policy penalizes underinsurance by reducing what’s paid when the insured amount isn’t enough to cover the project’s value. The Adequate Insurance Clause is the provision that enforces carrying enough insurance; if the coverage falls short, the insurer lowers the settlement proportionally to the ratio of actual insurance carried to what should have been carried for full value. For example, if the replacement cost of the project is $1,000,000 but only $700,000 is insured, a loss would be paid at roughly 70% (subject to other policy terms). This mechanism discourages underinsurance and ensures the insured can’t rely on protection that’s far less than the project’s full value.