Construction Webinar October 16, Stewart Roberts Claims Manager

Transcription

1 Construction Webinar October 16, 2012 Stewart Roberts Claims Manager

2 CURIE Property Policy 4.3 PROPERTY EXCLUDED This policy does not apply to: a) motor vehicles licensed for regular highway use b) New buildings or structures during the course of construction and materials, supplies and labor related thereto. This exclusion shall not apply to existing buildings or structures undergoing renovations, additions or alterations and materials, supplies and labor related thereto on projects having a total project cost of not more than five million dollars ($5,000,000). Nor does this exclusion apply to new buildings that have attained substantial completion status as determined by project architects and/or engineers;

3 CURIE Property Policy 2.2 PERILS EXCLUDED This policy does not insure against: h) Loss or damage to the interior portion of the buildings under construction from rain, sleet or snow, whether driven by wind, when the installation of the roof, walls and windows of such buildings has not been completed.

4 CURIE Property Policy CURIE covers the building/property only CURIE does not cover contractors for Liability. CURIE will sue any contractor who causes a loss (subrogation)

5 CURIE Property Policy CURIE will cover renovations over $5 million, but only if CURIE is notified before construction starts and approves coverage (by Endorsement)

6 CURIE Property Policy Risk Issues How complex is the work? New roofing torched Adding floors on top of existing building Crane work tipping Watch CCDC wordings

7 CONSTRUCTION INSURANCE WEBINAR BROKER PERSPECTIVE OCTOBER 16, 2012

8 What Types of Insurance Should You Purchase for New Building Construction and/or Renovations and How Does It Dovetail with CURIE? In order to answer this question, we need to review the two coverages within the Owner Controlled Construction Insurance Program (OCIP): Course of Construction is also known as COC or Builders All Risk: affords all risk physical damage to first party property while under the course of construction including while in transit, in storage and during testing and commissioning. This policy is required because the CURIE property policy specifically excludes property while under construction, except for renovations with a value less than $5MM. The COC affords coverage for hard costs, soft costs and if required, Delay in Start-up coverage can be purchased. COC insures for full replacement cost. Contractors and subcontractors are also included as insured parties under the COC policy. Termination of the COC coverage can be when the building is complete and occupied for its intended purpose. CURIE uses substantial completion as trigger to add the completed project to their property coverage. CCDC 2 construction contract states "until ten days after the date of substantial performance of the work". In any event, the terms of the construction contract between the owner and the general contractor will prevail. COC: Positives Control costs when owner purchases COC so insurance cost is not passed to owner by contractors. MARSH 17 October

9 The second coverage within the Owner Controlled Construction Insurance Program (OCIP) is Wrap Up Liability. The Wrap Up insures against third party liability arising out of the project: All parties to the project are Insureds under the Wrap Up: owner, contractor, subcontractors, lenders, architects and engineers (excepting their professional liability), project managers, consultants, suppliers and employees. Contractors may not carry large limits themselves. Owner will likely encounter difficulties in negotiating contracts if no Wrap Up protection is to be provided. This may occur when contractors cannot meet the minimum limits of insurance desired by the owner (ie. Limits over $5MM). MARSH 17 October

10 Wrap Up Liability Review Coverage applies for claims arising from third party bodily injury and property damage arising from the project that an Insured becomes legally liable to pay. Damage to the project is excluded. It is not covered by a Wrap Up because it is insured by the Course of Construction policy. The exception is during the completed operations phase after construction is completed. This phase is seen by underwriters as the greatest exposure. Completed operations period can typically be anywhere from 12 to 24 months. Longer completed operations period can be negotiated with the markets. Quite often, completed operations dovetails with the warranty period. In the absence of a Wrap Up policy, a Commercial General Liability policy could cover the liability loss involving construction activity. In addition, a GL policy could respond to a loss arising out of the completed work. However, the owner, contractor and subs may be adversely affecting their own own loss records and future premiums if there is no project specific construction insurance in place. In addition, the GL policy has certain property damage exclusions that would impact recovery for the owner if their own property was damaged. MARSH 17 October

11 Wrap Up Liability: Positives Control costs: Administrative function is less onerous than having individual contractors evidence liability coverage. If there is no Wrap, contractor will purchase similar coverage and pass that cost on to the owner. Contractor will charge the cost of their GL premium to the owner in the absence of a wrap. Contractor may have an entirely different rating structure under their GL for DIC coverage only. It is difficult if not impossible to police what costs the contractor passes on. Wrap Up can be written on a non-adjustable basis; meaning that there are no final costs assessed to the project for that insurance, regardless of the total cost of the project. Control claims: Since all parties to the project are insured parties it eliminates 'cross claims' from one party against another. Single point claims settlement - one insurer. Uniformity of coverage: if relying on each Contractor's and Subcontractor's GL, the policy forms will differ. You are really not sure if one party has an inferior policy form. MARSH 17 October

12 How does OCIP (COC And Wrap Up) for Construction Projects Dovetail with CURIE? CURIE excludes new buildings or structures during the course of construction. This exclusion does not apply to existing buildings or structures involving renovations (additions or alterations) having a total project cost of not more than five million dollars. Nor does exclusion apply to new buildings that have sustained substantial completion status as determined by project architects and/or engineers. CURIE excludes water damage to interiors when the installation of the roofs, walls and windows of such building has not been completed. CURIE does not cover contractors. This is the reason why COC is purchased for building and wrap up for third party losses and existing structures. CURIE will sue any contractor who causes a loss (subrogation). Project specific COC insurance is critical for all new building construction and for all renovation projects in excess of $5,000,000. This property coverage can be either owner controlled or purchased from the general contractor. Project specific liability insurance will allow the university to protect their own CURIE coverage from adverse loss experience due to construction activity. MARSH 17 October

13 How does OCIP (COC and Wrap Up) for all Construction Projects Dovetail with CURIE? (continued) Damage to existing structures coverage on the Wrap Up is very important particularly for construction involving adjacent or nearby structures. Universities often purchase this coverage to protect the contractor and subcontractors both during the construction phase and the completed operations phases. This is critical protection for contractors because CURIE will not waive subrogation. Some insurers will provide this coverage under a wrap up liability for healthy additional premium, even though they are essentially becoming property insurers. MARSH 17 October

14 Wrap Up Liability Limits How Much to Buy There are important considerations for determining Wrap Up Liability limits for new building construction and renovations in existing buildings: Size of project: Wrap Up limit should consider value of construction during the completed operations phase. Complexity of project (high science building) may call for a higher limit. Must include coverage for existing structures when doing renovation work or new construction immediately adjacent to other buildings. Greater exposure in urban centres vs structure built in rural setting. Limit is set for duration of project and cannot be increased midterm. Minimum $25MM Wrap Up limit required by one university client for construction projects. MARSH 17 October

15 What Type of Insurance Should You Require from Contractors? Auto Liability Insurance. Contractors Equipment: waiver usually in favour of the project owner. Professional Liability: depending on scope of services provided by the contractor (ie. Construction Management). Aircraft: if exposure warrants such coverage. Watercraft: if exposure warrants such coverage. The limits you may require can vary by coverage type. This is typically dictated by degree of risk/exposure. MARSH 17 October

16 How Do Different Types of Coverage React in Different Loss Scenarios? Example: Renovation project - loss outside of project space but within the same building If project is less than $5,000,000 and construction insurance for renovations is covered by CURIE, then there is no liability coverage included for contractors. CURIE pays property loss then subrogates against party at fault. Contractors then notify their own liability (GL) insurer of the claim. If OCIP is placed, CURIE will pay property loss and then subrogate against Contractor. Wrap Up policy will defend contractor and pay on behalf to CURIE if contractor is liable. Example: New construction - loss in building attached to new construction As per previous example, CURIE will get the claim for processing first. If contractor is at fault for the loss, CURIE will subrogate. If there is an OCIP program in place, the Wrap Up Liability will include 'damage to existing structures' coverage for both the construction phase and the completed operations phase. Wrap Up insurer will defend contractor and pay on behalf to CURIE if contractor is liable. MARSH 17 October

17 Advantages of an Owner Controlled Construction Program The vast majority of construction projects are moving toward an OCIP. Ease of administration: premium payments, policy handling, and claims activity all funnelled through project owner. Cost savings: taking advantage of a competitive OCIP marketplace for best rates. Higher limits. Dedicated policies and limits for the project: if contractor's GL is relied upon on instead, project owner will share his limit with every other construction project he is working on. Not subject to potential deficiencies in a contractor's insurance program. Elimination of any concerns about a subcontractor not renewing their coverage. Efficient claims handling: no conflicts regarding apportionment of responsibility. Contractor can continue work. Guaranteed dovetail with the property policies. It is your project and your insurance program. Disadvantages of an Owner Controlled Construction Program More administrative burden on project owner. MARSH 17 October

18 Summary Be mindful of all stakeholders: lenders, contractors, design consultants. Ensure your contract supports your risk strategy and chosen insurance program. Insurance is not necessarily the most efficient method to transfer risk. Ensure your insurance program supports your risk strategy. Ensure your insurance program is viable. Respect the insurance program - cost is only a small fraction of the project cost but it's value is the same as the project cost. MARSH 17 October

19 Marsh is one of the Marsh & McLennan Companies, together with Guy Carpenter, Mercer, and Oliver Wyman. Copyright 2012 Marsh Canada Limited and its licensors. All rights reserved. This document and any recommendations, analysis, or advice provided by Marsh (collectively, the Marsh Analysis ) are intended solely for the entity identified as the recipient herein ( you ). This document contains proprietary, confidential information of Marsh and may not be shared with any third party, including other insurance producers, without Marsh s prior written consent. Any statements concerning actuarial, tax, accounting, or legal matters are based solely on our experience as insurance brokers and risk consultants and are not to be relied upon as actuarial, accounting, tax, or legal advice, for which you should consult your own professional advisors. Any modeling, analytics, or projections are subject to inherent uncertainty, and the Marsh Analysis could be materially affected if any underlying assumptions, conditions, information, or factors are inaccurate or incomplete or should change. The information contained herein is based on sources we believe reliable, but we make no representation or warranty as to its accuracy. Except as may be set forth in an agreement between you and Marsh, Marsh shall have no obligation to update the Marsh Analysis and shall have no liability to you or any other party with regard to the Marsh Analysis or to any services provided by a third party to you or Marsh. Marsh makes no representation or warranty concerning the application of policy wordings or the financial condition or solvency of insurers or reinsurers. Marsh makes no assurances regarding the availability, cost, or terms of insurance coverage.

20 Construction - A Risk Manager s Experience Steve Pottle Director, Risk Management Services 1 October 16, 2012

21 Risk Manager s Role Project Start Up Starts early not when project is shovel ready Assess risks in relation to project Project type (Design Build vs. Risk; New Construction vs. Renovation) Site (damage to adjacent property; people) Timelines for completion Funding commitments As risk managers you need access to this information early to properly assess the risk and determine what insurance program to put in place and gaps between existing program (if have one) and need to buy specialty coverages 2

22 To OCIP or Not to OCIP Which is better? Owner Controlled or Contractor Controlled OCIP can allow for dedicated project specific limits; manuscript policies; control of claims; flexibility in coverage, reduced premiums BUT, no right answer. Depends on institutional POV and experience with one or both; type of project; resources available to manage program York uses both types dependent on certain factors 3

23 To OCIP or Not to OCIP OCIP design build; concurrent projects under same funding arrangement; time-sensitive projects; projects where York would be constructor at risk CCIP simple construction projects - expansion of existing structure, minor renovations; low value projects <$20 million 4

24 Risk Manager s Role Application Need as much information as possible to allow underwriter to properly assess the risk Project Description; Cost Estimates; Construction Details (Exterior Walls, # of floors, roof, frame) Sprinklers; Building Area Not easy to get when plans are being drawn up while application process is underway Insurer will be more comfortable with less details if your University has a proven track record of (past projects, good loss history; responsive to questions, etc.) 5

25 Claims Handling If possible, use your property adjuster with construction claims (familiar with CURIE and construction policies) OCIP advantage: owner controls claim not contractor; owner is first payee; contractor can continue work and not be delayed with claims handling OCIP disadvantage: extra work involved and need some understanding of how construction policies work 6

26 Contracts CCDC 2 standard form written in contractor s favour If OCIP, must amend with appropriate insurance terms and conditions (owner s coverage; contractor s coverage; broker can assist) Construction insurance contracts state that coverage terminates at substantial completion ; architects issue substantial performance certificates (allows for release of holdback but the building is not complete); insist on coverage which terminates when the building is ready Can be a challenge when University community wants in ASAP weigh the risk of non-completion vs. occupancy 7

27 Additional Advice Issued an Insurance Manual explains how an OCIP works to YU staff and to contractors Risk Management means being involved in the whole process not insurance procurement function Use the CURIE and broker resources available to you RFP for broker services for construction projects - access to knowledgeable, connected construction professionals invaluable Why insure large renovations under both CURIE and construction policies? 8