Builder s Risk Structuring the Right Coverage, Avoiding and Resolving Disputes

Transcription

1 Builder s Risk Structuring the Right Coverage, Avoiding and Resolving Disputes American Bar Association (ABA) Section of Litigation Insurance Coverage Tucson, Arizona March 6, 2015

2 Builder s Risk Speakers Jim Murray Joseph Castellano Joyce Wang Christopher Brophy

3 Builder s Risk Agenda I. What does Builder s Risk Insurance cover? II. How do we measure the construction delay? III. What are the common areas of dispute?

4 I. What does Builder s Risk Insurance cover? Example of Policy Wording recovery in the event of loss hereunder shall be the actual loss sustained by the Insured resulting directly from necessary untenability of insured premises, resulting directly from an insured loss, but not exceeding the reduction in rental value less charges and expenses which do not necessarily continue during the period of untenability for only such length of time as would be required, with the exercise of due diligence and dispatch to rebuild, repair or replace such part of the property insured herein as has been damaged or destroyed, commencing with the date of such damage or destruction.

5 I. What does Builder s Risk Insurance cover? A. Hard Costs B. Soft Costs C. Delay in Opening

6 I. What does Builder s Risk Insurance cover? Hard Costs Covered Property, as used in this Coverage Part, means the following types of property. This property may be your property or the property of others. a. Property which will or has become a permanent part of the project described in the Declarations, while such property is at the job site described in the Declarations; b. Temporary structures, meaning scaffolding, construction forms, falsework, cribbing and other temporary structures at the job site described in the Declarations, when a Value of Temporary Structures is shown in the Declarations.

7 I. What does Builder s Risk Insurance cover? Soft Costs means any of the following additional expenses that are over and above the expenses you would otherwise incur in the completion of the project: (1) Interest (2) Taxes (3) Advertising Expense (4) Renegotiation Expense (5) Architect Expense (6) Insurance Expense (7) Legal and Accounting Expense

8 I. What does Builder s Risk Insurance cover? Delay in Opening Lost Gross Earnings BUSINESS INCOME, CONTRACTUAL PENALTIES AND EXTRA EXPENSE a. As used in this Coverage Part: (1) Business Income means: (a) Net income (net profit or loss before income taxes) that would have been earned or incurred; and (b) Continuing normal operating expenses incurred. But Business Income does not include any incentive bonus which would have been received if the project had been completed ahead of schedule. (2) Contractual Penalties means amounts which, under the terms of your written project contract with the project owner, you are required to pay to the project owner due to a delay in the completion of the project in accordance with the contract specifications for the project. (3) Extra Expense means necessary and reasonable additional expenses you incur to avoid or minimize a delay in the completion of the project described in the Declarations. This includes additional expenses incurred to make temporary repairs to, and expedite the permanent repair or replacement of, Covered Property that is damaged by a Covered Cause of Loss, such as overtime and the additional cost of express or other means of rapid transportation.

9 I. What does Builder s Risk Insurance cover? 9

10 II. How do we measure the construction delay? When was project expected to be complete before the incident? When was the project completed? Were there any other reasons that the project would have been delayed? Often a significant area of dispute. May require Construction Experts to assess the delay through detailed critical path analysis.

11 II. How do we measure the construction delay? Insurance Claims Requiring Schedule/Delay Analysis Builder s Risk business interruption or losses of rent resulting from the delay in construction completion, which is referred to the Period of Indemnity or Period of Restoration. Business Interruption business interruption as a result of an event requiring a Period of Restoration or a period of time that it will take to restore the property to a point where operations should be up and running.

12 II. How do we measure the construction delay? Insurance Claims Requiring Schedule/Delay Analysis (continued) Contractor Default: Surety claim invariably a default delays completion of the project and increases the cost Subcontractor Default protect prime contractor against the financial impacts of a subcontractor default schedule delays, disruption and claims from other trades are common impacts caused by a default

13 II. How do we measure the construction delay? Insurance Claims Requiring Schedule/Delay Analysis (continued) Errors and Omissions design errors or omissions cause additional project costs and delays, resulting in various overruns due to constant modifications of the designs and failure of engineering firm Construction Defects Often result in resulted in idle periods, change orders, delayed start-up, an inability to complete the work and increased material, equipment, labor and overhead costs.

14 II. How do we measure the construction delay? Common Schedule Analysis Methodologies As Built Analysis Impacted As Planned Collapsed As Built Time Impact Analysis Windows Analysis Dependent on Documentation Available: Was the CPM Schedule Maintained? Are there monthly updates? Do the updates accurately reflect what occurred on the project? Is an As-Built Record Available? May be specified by contract

15 II. How do we measure the construction delay? Period of Indemnity Determining the Period of Indemnity may require a delay analysis of the pre-loss and post-loss construction schedules to determine the actual impact of the delay Due Diligence and Dispatch assumption that repairs will be made using due diligence and dispatch. (reasonable duration)

16 II. How do we measure the construction delay? Evaluation of Delays in the Time Frames they Occur Actual Delays are Evaluated in the Time Frames that they Occur Schedule Projections to Complete are Evaluated and May Not Equate to the Actual Days of Delay that Occurred Logic Changes Calendar Changes Projected Duration Changes

17 II. How do we measure the construction delay? Schedule Projections to Complete are Evaluated and May Not Equate to the Actual Days of Delay that Occurred: projected compression of schedule between time of fire 4/3/03 and 6/30/03 Schedule analyst contemporaneously noted logic and duration manipulations in its review of contractor schedules: = to actual delay calculated Actual Delays are Evaluated in the Time Frames that they Occur: Pre-Fire actual delay AP v AB between start of project and time of fire = new Pre-Fire projection Period of Indemnity Post fire performance analysis (due diligence & dispatch)= new post fire projection

18 III. What are the common areas of dispute? Limits Defective Design and Workmanship Ensuing Loss Duration of Delay