Managing and Insuring the Risks of Affordable Housing Development April 16, 2014

Transcription

1 Managing and Insuring the Risks of Affordable Housing Development April 16, 2014 Jeffrey D. Masters Kenneth Williams Cox, Castle & Nicholson LLP Los Angeles John E. Tastor Arthur J. Gallagher & Co. San Francisco v1 1

2 OVERVIEW AND SESSION OBJECTIVES Understand the development and operational risk landscape What are the risks? Environmental issues Design and construction defects Delay in completion Bodily injury to tenants and others Loss of tax credits 2

3 OVERVIEW AND SESSION OBJECTIVES Offer strategies to: Avoid Minimize Shift Insure Retain risks 3

4 OVERVIEW AND SESSION OBJECTIVES How to implement contractual risk management strategies Professional services agreements AIA construction contracts How to employ insurance structures and strategies Conventional liability insurance structures Wrap-up liability insurance programs: OCIPs and CCIPs Builder s risk and permanent property insurance 4

5 LIABILITY ISSUES Why implement a risk management program? Litigation threat Match insurance coverages to the major risks Protect brand equity Deductibles and self-insured retentions (SIRs) Insurance purchasing challenges in a firming market Enhance loss history 5

6 INVESTOR, LENDER AND AGENCY INSURANCE REQUIREMENTS Investors, lenders and agencies typically impose specific insurance requirements Cannot assume these minimum standards must be good enough Developers must proactively address coverages in advance to meet their individual project and entity insurance challenges 6

7 INSURING ENVIRONMENTAL RISKS Site acquisition Environmental issues onsite and offsite Environmental insurance tools CPL PLL Cost cap Lender s coverage 7

8 Design Professional Risk Issues PSAs need careful attention whether an OCIP is in place Major risk transfer concerns Standard of care Indemnity Insurance Limitations of liability Waiver of consequential damages Short time limitations for claims 8

9 Design Professional Risk Issues Consider an owners protective professional indemnity (OPPI) policy? 9

10 CONTRACTUAL RISK TRANSFER IN OWNER-CONTRACTOR AIA FORMS AIA Construction Contracts Indemnification Insurance Limitation of liability and waivers of special, consequential and loss of use damages Concealed conditions Short time limitations for claims Warranties 10

11 INTEGRATION OF INSURANCE AND CONTRACTS Critical interface of insurance coverages and contracts Example: California anti-indemnity statutes Example: Wrap-up disclosures required by California law Developers must integrate the insurance coverages and contractual risk transfer provisions 11

12 QUALITY ASSURANCE PROGRAMS Four main components Design peer review Construction observations Closure of open items Document retention and retrieval systems 12

13 QUALITY ASSURANCE PROGRAMS What does your CGL insurance require? Why would you institute a QA program even if you are not required to? 13

14 DESIGNING AND IMPLEMENTING EFFECTIVE INSURANCE PROGRAMS Commercial general liability (CGL) Excess or umbrella liability Builder s risk and permanent property Soft costs Loss of rental income Loss of tax credits Other coverages to consider Lender, investor and agency requirements 14

15 INSURANCE STRUCTURES Conventional annual renewal liability policies For the developer For the contractor For the subcontractors 15

16 INSURANCE STRUCTURES Wrap-up insurance programs What is a wrap-up? Project specific vs. rolling OCIP (owner controlled) vs. CCIP (contractor controlled) 16

17 INSURANCE STRUCTURES Drivers for wrap-ups Pros and cons of wrap-ups 17

18 WRAP-UP COVERAGES TO CONSIDER CGL and excess liability Builder s risk CPL or PLL Workers comp/employer s liability 18

19 CGL INSURANCE MARKET REPORT Who is writing residential developers? Preparing for a firming insurance market 19

20 THE APPLICATION AND UNDERWRITING PROCESS What are underwriters looking for? How to craft an effective submission 20

21 PRACTICAL TIPS FOR SUCCESSFUL RESIDENTIAL INSURANCE PLACEMENTS Practical tips for successful placements 1. Start early 2. Use specialized resources 3. Tell your risk management story 4. Beware non-standard forms and endorsements 5. Recognize different coverage structures Occurrence vs. claims made Is completion during the policy period required? 6. Beware non-concurrency primary vs. excess policies 21

22 PRACTICAL TIPS FOR SUCCESSFUL RESIDENTIAL INSURANCE PLACEMENTS 7. Understand coverage restrictions and their impact on your operations 8. Revisit lender, investor and agency requirements 9. Enlist design professionals and the contractor early 10. Be prepared to make fast decisions 22

23 PRACTICAL TIPS FOR SUCCESSFUL RESIDENTIAL INSURANCE PLACEMENTS Are you binding what you ordered? Watch subjectivities and commitments made in the application 23

24 SELECTED OCIP COVERAGE ISSUES Non-standard policy forms revisited Modifiability of the forms and endorsements 24

25 SELECTED OCIP COVERAGE ISSUES Extended products-completed operations coverage 25

26 SELECTED OCIP COVERAGE ISSUES Coverage for post-completion repair work How is repair work defined? Duration of the coverage Substitutability of contractors and subcontractors 26

27 SELECTED OCIP COVERAGE ISSUES Cancellation Property damage to the project during construction Makes broad builder s risk coverage even more important Loss of tax credits revisited Insured vs. insured and cross-suits exclusions Earth movement and subsidence exclusions 27

28 SELECTED OCIP COVERAGE ISSUES Deductibles and SIRs Per occurrence vs. other structures How is the deductible or SIR eroded? Special notice and reporting requirements Who may satisfy the deductible or SIR? 28

29 CONTRACT ADMINISTRATION ISSUES Certificates of insurance Inherent limitations Additional insured endorsements Ongoing and completed operations Scope of AI coverage; primary wording Duration of the coverage Beware non-standard endorsements 29

30 THANK YOU Jeffrey D. Masters John E. Tastor Partner Area Executive Vice President Chair, Development Risk Management Practice Group Arthur J. Gallagher & Co. Cox, Castle & Nicholson LLP 1255 Battery Street 2049 Century Park East Suite 450 Suite 2800 San Francisco, CA Los Angeles, CA P: (415) P: (310) F: (415) F: (310) Kenneth Williams Partner Chair, Construction Practice Group Cox, Castle & Nicholson LLP 2049 Century Park East Suite 2800 Los Angeles, CA P: (310) F: (310)