What is a 'Work And Materials Clause'

Work and materials clause refers to a provision in many property insurance policies that allows policyholders to use their insured premises to store materials and to use potentially dangerous materials in the manner required by their line of work.

The work and materials clause circumvents the increased hazard clause in standard fire policies, which states that the insurer is not liable for losses occurring when a hazard is known by and within the control of the insured.

Without the work and materials clause, a policy could be voided for misrepresentation of an undisclosed hazard, fraud or concealment related to the use of dangerous materials.

BREAKING DOWN 'Work And Materials Clause'

The work and materials clause is particularly useful in the event of accidental fires at job sites. It acts as protection for policyholders against an insurance company claiming that the insured knowingly increased a hazard by using and storing flammable materials at the insured facility, for example. Provided the policyholder’s line of work required the use of such materials, the work and materials clause protects against a fire claim being denied based on the insured's prior knowledge and failure to control such a hazard.

Many industrial maintenance facilities use flammable solvents, adhesives, paints and other materials daily at their respective job sites. For that matter, the janitorial staff at many office buildings and schools use flammable cleaners they must store somewhere within an office building. The work and materials clause keeps insurance companies from improperly claiming those materials cause an increased hazard.

What Is Covered by a Work and Materials Clause

In many cases, a work and materials clause covers the main building or job site, as well as insured garages or storage facilities. Many contracts also cover personal property under the work and materials clause, such as furniture and personal items, including computers. Depending on the policy, some also cover the loss of use of a facility. Many also cover the cost of water damage caused by firefighters.

As with most property insurance, some policies pay on the actual cash value of damaged property, while others pay out based on the cost of replacing damaged items or buildings. In general, replacement value is better for the insured in the event of a loss, but it also costs more than actual cash value coverage.

Moreover, some policies have extended replacement coverage, meaning they let the insured replace damaged property at real prices, even if the cost of doing so is more than stipulated under the policy. A few also stipulate the quality of materials allowed during reconstruction of a damaged building, as well as whether the policy will cover construction upgrades based on updated building codes.

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