Workshop M1 Monday, November 10 10:30 a.m. noon BUILDERS RISK CONTRACT INSURANCE REQUIREMENTS Presented by Workshop M1 Scott J. Nissen Managing Director, Construction Services Group Aon Tracy Saxe Partner Saxe Doernberger & Vita, P.C. A construction contract will stipulate which party has responsibility for purchasing builders risk insurance to cover damage to the project during construction. Because builders risk insurance is designed to cover multiple parties, this approach requires some project participants to rely on another party to ensure the policy provides adequate coverage. Standard contract forms include very general stipulations with regard to the scope of builders risk coverage that must be provided, which leaves a lot of room for misunderstandings about the actual scope of coverage. This workshop will discuss potential problems that can arise when relying on standard American Institute of Architects (AIA) A201 contract language to define the scope of builders risk coverage and will offer suggestions for modifying the standard provisions to adequately protect both the contractor and the project owner, thereby reducing coverage and contract disputes. To print on both sides of the page, set your printer for duplex printing. Copyright 2014 International Risk Management Institute, Inc. 1 www.irmi.com
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Scott J. Nissen Managing Director Construction Services Group Aon Mr. Nissen is a managing director and part of Aon s Construction Services Group. He is the practice leader for builders risk and related first-party placements to include delay in start-up, project performance, and contingency risk solutions for complex construction projects. Mr. Nissen and his team have been instrumental in working with the global markets to secure and deploy capacity globally for difficult risks and to provide solutions for market challenged clients and projects. He is also a senior member of Aon Infrastructure Solutions, which provides full risk and operational consulting to include placements for public private partnerships (p3) and private finance initiatives that are growing in the United States and have been utilized in other parts of the world for several decades. Workshop M1 Mr. Nissen has over 25 years of experience in the insurance business with a detailed knowledge of the construction industry and the ability to deliver cutting-edge risk transfer financing solutions for Aon clients. Tracy Saxe J.D. Partner Saxe Doernberger & Vita, P.C. Mr. Saxe is a partner at Saxe Doernberger & Vita, P.C. He is a skilled commercial litigator with more than 25 years of trial experience. Since 1990, he has focused his practice on insurance coverage issues, disputes, litigation, and trials on behalf of policyholders, handling cases involving coverage for comprehensive general liability, directors and officers, professional liability, builders risk, subguard, first-party property damage, additional insured, business interruption claims, and crime bonds. Mr. Saxe has handled cases involving coverage for construction defects, completed operations, product liability, property damage and bodily injury related to mold and asbestos, bodily injury related to construction, sick building syndrome, environmental claims, business interruption, employment disputes, patent infringement, contempt, RICO, unfair practices, breach of fiduciary duty, bad faith, and professional malpractice. Mr. Saxe is well versed in issues relating to late notice, allocation, subrogation, contribution, indemnification, and the duty to defend. Mr. Saxe was a principal at the law firm of Sachs, Berman, Rashba & Shure, P.C., from 1987 to 1994. He joined that firm following 4 years as an associate with Wofsey, Rosen, Kweskin & Kuriansky in Stamford, Connecticut. During that time Mr. Saxe tried numerous civil and criminal trials, including a murder trial in which his client was acquitted based upon self-defense. He left in 1994 to open the Connecticut office of Anderson, Kill, Olick & Oshinsky, a firm specializing in insurance coverage on behalf of policyholders. In 1996, Mr. Saxe founded Saxe Doernberger & Vita, P.C. Mr. Saxe has successfully tried numerous jury and court trials in state and federal courts, has litigated cases before the federal, state trial, and appellate courts in Connecticut, New York, Pennsylvania, Virginia, Maryland, Massachusetts, California, Washington State, Texas, Florida, Delaware, Indiana, and Michigan and has successfully mediated and arbitrated many disputes. Mr. Saxe has been an Adjunct Professor of Law at Quinnipiac University School of Law where he has taught courses in Insurance Law. He is also a frequent lecturer nationally on insurance coverage topics. 3
Mr. Saxe holds a J.D. from Georgetown University Law Center, 1983; a B.A., Policy Studies, magna cum laude, Phi Beta Kappa, Syracuse University, 1980. His admissions include the state courts of Connecticut Bar Association. 4
Construction Contract Insurance Requirements: Builders Risk Workshop M1 Tracy A. Saxe Partner Saxe Doernberger &Vita, P.C. Scott Nissen Managing Director Aon Risk Solutions Risk Transfer 3rd Party Liability Insurance 1st Party Insurance CGL Builders Risk Professional Pollution Additional Insured Coverage Subcontractor Default Insurance Commercial Property Subcontractor Indemnity Contractual Rights 2 5
American Institute of Architects ( AIA ) Forms A201 Incorporated by reference Sets forth rights & responsibilities 3 Notable Provisions in AIA Contract Language & Scope of Builders Risk Coverage Purchasing Builders Risk coverage ( 11.3.1) Insured status ( 11.3.1) Waiver of subrogation ( 11.3.7) Property to be covered ( 11.3.1.1) Coverage elements ( 11.3.1 & 11.3.1.1) 4 6
Builders Risk Insurance First-party Similar to commercial property insurance Course of construction coverage Can protect property of: Owner Contractor Subcontractors Sub-subcontractors Workshop M1 5 Types of Builders Risk Insurance 1) All-risk 2) Specified peril 6 7
Who Obtains Builders Risk Insurance? Specified in Owner/GC Contract AIA Form A201 requires Owner to obtain insurance Can be modified 7 Deductibles Who Pays? Named Insured AI for AI s Claim 10.3.1 8 11.3.1.3 8
Waiver of Subrogation & Issues Incorporation into Insurance Contract Scope of Waiver Existing property Surrounding property Workshop M1 9 11.3.7 Subrogation Issues Insurer stands in the shoes of its insured Objective to avoid subrogation claims Distraction and strife between project members 10 9
Contract Language Waiver should be included in: Insurance contract Owner/GC contract AIA A201 11.3.1: This insurance shall include the Owner, the Contractor, Subcontractors and Sub-subcontractors in the Project [as named insureds on the policy]. 11 No Rights LEX-PBR 2005 11.3 10.3.1 Subrogation & ATIMA As their interests may appear ( ATIMA ) Insurable interest limited to property/work which AI contributes No coverage for liability claims AI s interest concerns first party losses 12 10
Circumventing ATIMA Release of liability Release of Rights of Recovery (when adequate insurance exists) Waiver of subrogation in policies Listing parties as Named Insureds Workshop M1 Removing ATIMA language altogether 13 Surrounding Property 14 11.3.1.4 11
Existing Property LEX-PBR 2005 15 ACE0219 (01/05) Uncovered Losses/Exclusions Coverage is not standardized Excluded losses vary Common and critical exclusions include: A. Faulty Workmanship B. Subsidence Earth Movement C. Design/specifications D. Consequential damages 16 12
Subsidence Earth Movement Coverage Often Absent From Policy: Windstorms (in windstorm costal locations) Floods (in flood prone locations) Earthquakes (in earthquake prone locations) Workshop M1 17 11.3.1.1 Time Element Coverage 11.3.3 18 10.4.1 13
Covered Losses Soft costs: additional interest expense property taxes advertising expense Hard costs: amount to physically repair or replace damaged or destroyed covered property Increased cost of construction 19 Owner as Sole Agent 11.3.8 11.3.9 20 11.3.10 14
Recommendations Coordination Waiver Claim Subrogation Recognition of common perils Workshop M1 New v. existing property 21 Questions 22 15
ConsensusDOCS 10.3.1 23 AIA A201 11.3.1.3 24 16
AIA A201 11.3.7 Workshop M1 25 No Rights We will have no rights of subrogation against any other person or entity, which the Insured has waived its rights of subrogation against in writing before the time of loss. 26 17
LEX-PBR 2005 27 AIA A201 11.3.1 28 18
ConsensusDocs 10.3 Workshop M1 29 AIA A201 11.3.1.4 30 19
LEX-PBR 2005 31 ACE0219 (01/05) 32 20
AIA A201 11.3.1.1 Workshop M1 33 AIA A201 11.3.3 34 21
ConsensusDocs 10.4.1 35 AIA A201 11.3.8 36 22
AIA A201 11.3.9 Workshop M1 37 AIA A201 11.3.10 38 23
Notes 24