Participants - “The Ark was built by Amateurs and the Titanic was built by Professionals” - unknown.
Budget and Financing
Scheduling
Project Delivery Method
Legal Issues
Political Issues
Risk Management
Environmental Exposures
Soil - Construction Waste/Toxic Waste/Buried Materials
Air - Incineration, Dust, Metal Recovery
Surface Water - Storm Water runoff
Ground Water Contamination - Boring/Drilling
Risk Management
Risk Allocation & Transfer is:
Determining how risks should be shared across the Owner, Contractors, Architect/Engineer to avoid:
Bid Contingencies
Admin/Legal Costs for disputes
Property damage and Bodily Injury
Loss of Revenue & Increased Expense from delays
Risk Management
How to Transfer Risk
1. Transfer Risk to other parties
2. Allocation of risks to party best able to control risks
Risk Transfer Mechanisms
Shifting financial obligation of certain risks to other project participants through -
Non Insurance transfers (Hold Harmless & Indemnity)
Commercial Insurance
Bonds
Risk Management
Contractual Risk Allocation
Contracts - Standard/Custom
CCDC 2 - 1994 - Stipulated Price Contact
CCDC 14 - Design-Build Contract Etc;
Choice Depends on Suitability of Standard to Owners Risk Transfer Desires
Risk Management
Indemnification
Limited - Contractor assumes liability to extent own fault
Intermediate - Contractor assume all-except owner sole negligence
Broad - Contractor assumes all liability
Address consequential loss
Risk Management
Construction Insurance is:
Recovery fund for damages caused by negligence - Architect/Engineer or Contractor
Insure (some) risks assumed in indemnity provision
Financial Viability
Risk Management
Limits Should Consider Loss Scenarios
Construction cost
Complexity
Consequential Loss Exposure
Renovation vs New
Environmental
Limits Typically purchased by Contractors
Other (Geography, Climate, Legal Environment, etc.)
Who is at Risk and What are the Risks
Who is at Risk
Owner
Architect
Contractor
What are the Risks
Owners Risks
Damage to the project
Delay in start up
3rd party Bodily Injury / Property Damage
Force Majeure
Error in design - change orders
Environmental
What are the Risks
Architects Risks
Error in design
3rd Party Bodily Injury / Property Damage
What are the Risks
Contractors Risks
Damage to project
3rd party Bodily Injury / Property Damage
Delay by performance
Environmental
Construction Insurance Coverage
Common Construction Insurance Coverage
Common Construction Insurance Coverage
Builder’s Risk
1st Party Coverage for damage to project works
Can include coverage for delay in start up
Covers all parties involved in construction
All risks coverage:
Fire
Lightning
Wind, Hail
Flood
Vandalism
Testing and Commissioning
Builder’s Risk (cont’d)
Subject to exclusions:
War
Nuclear
Faulty workmanship
Error in design
Exclusions vary widely - beware of frost / freezing exclusion, mechanical / electrical breakdown, faulty workmanship / error in design
Insures for full replacement cost
Needs to include transit coverage, off-site storage
Should be non-cancelable - important
General Liability
3rd Party Coverage
Provided by all parties to the construction project
Covers bodily injury and property damage
Owner should be added as additional insured to contractors / subs policies
Subject to exclusions:
Intentional acts
Automobile
Workers comp.
Gradual Pollution
Includes coverage for damage to project
General Liability (cont’d)
Limits shared amongst all contractors’ projects
No dedicated completed operations
Renewable annually
Wrap-up Liability
3rd Party Coverage
Covers all parties in the construction project Owner-Contractor-Sub-Contractor-Consultants (excluding suppliers and security guards)
Coverage for bodily injury and property damage
Same exclusions as general liability policy
Excludes damage to project
Dedicated Limits
Dedicated Completed Operations
Covers entire term of project
Should be non-cancelable - important
General Liability vs Wrap-Up Liability
General Liability Vs. Wrap-up Liability
Question: Which is better?
The simple answer: Neither, as it depends on your point of view!
Let’s look at the issues.
General Liability Vs. Wrap-up Liability
General liability
Either owner’s or contractor’s operational policy
Renews annually
Insures a single entity and its related firms
Single limit (per occ./agg. as applicable) covering all the Insured’s operations
Wrap-up liability
Project-specific
A specialized general liability policy
Covers multiple, unrelated Insureds but limited to a certain purpose i.e. the Project
“One Time” policy with a definitive start and finish that spans the project term plus a fixed “Completed Operations” period
A Comparison
Contractors arrange coverage resulting in inconsistent coverage, sub-limits and gaps
Individual coverage is often more restrictive
Claims handling is complicated with several insurance carriers involved
Insurance costs hidden in price of Contractors’ Bid and, though most individual policies are smaller, in total they may be more costly
A Comparison
Preferred by some Contractors due to established relationships with their own insurers and brokers
Contractor provides evidence of insurance to Owner including interest of the latter. However, such evidence is of questionable value to Owner and does not guarantee the actual existence of coverage
Annual aggregate limit applies to all Contractor’s operations
A Comparison
Owner has to administer and review the existence of the many insurance policies over the potentially many years of the Project, and thereafter
Small Contractors usually carry low limits of liability
Potential dispute between various insurers over which policy(ies) responds
Under this Policy, Owner has to rely on “Additional Insured” status which does not confer privity of contract
A Comparison
Typically lower deductibles more in keeping with Contractors ability to absorb risk
Policy excludes damage to Contractor’s own work after completion unless work was done by a Sub-Contractor (allows insurer to subrogate against Sub-Contractor)
A Comparison
Broad based coverage for damage to the Project limited only by Broad Form Property Damage (BFPD) provisions
Completed Operations trigger for each Contractor as each completes its own work
Coverage is for all operations of the Insured
Automobile
Covers physical damage to vehicle as well as 3rd party bodily injury / property damage
Should cover all vehicles owned, leased or licensed
Should be provided by all parties to the construction project
Should be endorsed to give the owner notice of cancellation
Umbrella / Excess Liability
Excess of general liability - wrap-up or automobile policy
Increases limits of primary policies
Follows form of underlying coverage
Contractors Equipment Floater
Covers all equipment owned / leased by contractor (or subs)
All risk coverage:
Fire
Windstorm
Flood
Earthquake
Theft
Vandalism
Should include rental coverage
Replacement cost or actual cash value
Large contractors may self insure
Marine Insurance
1st party coverage for property in the course of ocean transit
All risks coverage
Can include delay in start up
Professional Liability ( E & O )
3rd Party Coverage
Insures against negligent act, error or omission
Provides coverage for financial loss, as well as bodily injury / property damage
Usually provided by consultants to the project (Architect, Engineer, etc)
Can be provided by contractor
No dedicated limits - covers all professionals work
Renewable annually
Owner cannot be added as an additional insured
Single Project Errors and Omissions
3rd Party Coverage
Insures against negligent act, error or omission
Provides coverage for financial loss, as well as bodily injury / property damage
Covers all consultants on the project
Dedicated limit
Non-cancelable
Dedicated reporting period
Owner can be added as an additional insured (usually only for defence costs)
Owners Protective Insurance
1st party policy for the owner only
Excess of the consultants E & O policy
Pays on judgement against consultant
Much cheaper than single project policy
Dedicated limits
Can also cover more than one project
Remove limitation of liability in contract
Pollution Liability
Can be 1st party clean up or
3rd party coverage for acts, errors and omissions arising from:
Professional Services (A & E)
Contracting Services (Contractor)
Can be single project or practice policy
Liquidated Damages
1st party coverage
Usually taken out by contractor
Very expensive
High deductible
Small insurance capacity
Insurance Program Options
Owner can require contractor and subcontractors to provide necessary insurance coverage
Owner can require contractor to provide a Single Project Insurance Program (CCIP)
