Officials of the Bureau of Alcohol, Tobacco & Firearms discuss L.A. fire probe. (AP/Richard Vogel)

Could the latest wood-framed apartment project fire drive up the price of builders' risk insurance in that category?

Investigations are just getting started into the big fire in Los Angeles that destroyed an apartment complex and lit up the southern California skies.

My Los Angeles-based colleague, Luke Abaffy, says the fire department and federal investigators say they are looking for a couple of witnesses to the fire's beginnings.

Arson is suspected, but no one can tell for sure yet.

There are insurance issues.

The developer of the apartment complex, Geoffrey Palmer, was also serving as his own general contractor and was believed to hold the builders' risk policy.

Jeffrey Cavignac, president of Cavignac & Associates, a risk management and commercial insurance brokerage firm, says arson is a covered cause under builders' risk policies (provided the owner isn't the arsonist). 

"No broker in their right mind would sell builders' risk with an arson exclusion," he says.

As for coverage for damage to adjoining property, that's going to have to be claimed by the individual property owners. Their insurers would have the option of suing the liability insurer for the building developer.

The Los Angeles project fire occurred almost exactly a year after the burning of another wood-framed residential complex, this one in Glendale, Colo. That fire, whose cause remains undetermined, melted cars parked nearby.

"Underwriters are getting concerned" about writing builders' risk policies for wood-frame apartment buildings, says Cavignac. "It's driving up the cost of coverage and increasing the warranties requiring the insured to post a guard and use lighting and fencing."