Insuring Your Construction Project Glenn McLaughlin, Director of Insurance Marina Sen, Insurance Services Coordinator Harry Geddes, Consultant, HUB International July 20, 2016 P. 1
What Are You Constructing? Utility / Infrastructure Building Park / Land Development Hybrid Asset Other MUNICIPAL INSURANCE ASSOCIATION OF BRITISH COLUMBIA P. 2
What Options Do Local Governments Have? Option A Traditional: The local government draws up the specifications and contractors bid on the job (unit price or fixed price). Option B Design Build: Proponents propose drawings and specifications and the local government chooses the one that meets their needs. Option C Local government supplies materials and contracts out for labour. Option D Cost Plus Option E Construction Management: own employees or third party project manager. MUNICIPAL INSURANCE ASSOCIATION OF BRITISH COLUMBIA P. 3
Types of Construction Contracts Utility Infrastructure MMCD Building Construction Park / Land Development CCDC / CCA Own (Legal) drafted contract Other ALL REQUIRE CONTRACTOR TO PROVIDE PROJECT INSURANCE MUNICIPAL INSURANCE ASSOCIATION OF BRITISH COLUMBIA P. 4
Insurance Language Limits MMCD - CCDC/CCA - Other Owner Comfort level with Base Language Risk Appetite customization to project Supplemental Conditions Insurance Matrix MUNICIPAL INSURANCE ASSOCIATION OF BRITISH COLUMBIA P. 5
Building a Matrix Many local governments will develop a matrix which dictates the type of insurance required for certain categories of projects. Developing a matrix is a good way to ensure that the desired insurance conditions are met. Usually projects of higher value or complexity involve the engagement of an architect or engineer. Many professionals may have their own contract documents or may use the CCDC and/or MMCD forms. Be sure that these insurance conditions are at least as broad as your own matrix requirements. MUNICIPAL INSURANCE ASSOCIATION OF BRITISH COLUMBIA P. 6
Building a Matrix Wrap-Up Liability This provides third party liability coverage for all owners, contractors, sub-contractors and consultants for bodily injury and property damage resulting from the activities of the construction project. These policies are usually very broad and have many extensions of coverage. MUNICIPAL INSURANCE ASSOCIATION OF BRITISH COLUMBIA P. 7
Building a Matrix Wrap-Up Liability Local governments should ensure that these policies include the following extensions: Contractors contingent liability Non-owned automobile Products and completed operations Employees as additional insureds Blanket contractual liability Forest fire fighting expense ($1 million min.) Cross-liability Operation of attached machinery including loading and unloading Elevator and hoist liability Broad form property damage Contingent employers liability Broad form completed operations Personal injury liability Shoring, blasting, excavating, underpinning, demolition, pile driving and caisson, work below ground surface, tunneling and grading MUNICIPAL INSURANCE ASSOCIATION OF BRITISH COLUMBIA P. 8
Building a Matrix Wrap-Up Liability Limits selected for this coverage depend on the severity of the project. This policy should be project specific so the full limits chosen are all available for that project if it is not, it is possible the limits could be exceeded by a claim on an unrelated project! MUNICIPAL INSURANCE ASSOCIATION OF BRITISH COLUMBIA P. 9
Building a Matrix Builder s Risk/Course of Construction This covers the project while it is being built for property damage. The limit of insurance should be the completed value of the project. You may wish to add 10% to the value to be on the safe side. For major renovations, the value of the existing structure needs to be included in the limit of the policy. MUNICIPAL INSURANCE ASSOCIATION OF BRITISH COLUMBIA P.10
Building a Matrix Builder s Risk/Course of Construction Who and what is covered? Owners, contractors, subcontractors and anyone who has put labour and materials into the project. Property in transit/temporary location usually $500,000 or $1,000,000 sublimit. The policy runs from start of the project to substantial completion. In some cases, contractors ask for equipment breakdown coverage, however it is usually provided under a separate policy that is extended to include testing and commissions. MUNICIPAL INSURANCE ASSOCIATION OF BRITISH COLUMBIA P.11
Building a Matrix Automobile Coverage Most projects will involve the use of licensed vehicles. Local governments should have proof from all contractors and subcontractors using vehicles on premises that they have valid automobile insurance. This can be accomplished by requesting that all contractors and subcontractors provide an APV-47 from ICBC. It is recommended that your contractors and subcontractors have at least $5,000,000 in automobile coverage MUNICIPAL INSURANCE ASSOCIATION OF BRITISH COLUMBIA P.12
Building a Matrix Contractor s Equipment All contractor s equipment used on site should be insured for physical damage by the contractor or owner of the equipment. If there is damage to a piece of equipment you will want subrogation under the contractor s policy to be waived against the local government and any other contractor involved in the project. MUNICIPAL INSURANCE ASSOCIATION OF BRITISH COLUMBIA P.13
Building a Matrix Optional Coverage Professional Liability (Errors and Omissions) This should be on a project specific basis and apply to all professionals involved in the design and inspection phase of the project. All professionals must be named. Limits range from $1,000,000 and up. The policy should be extended for 12 24 months after substantial completion. The owners are not added as additional insureds on this policy MUNICIPAL INSURANCE ASSOCIATION OF BRITISH COLUMBIA P.14
Building a Matrix Optional Coverage Pollution Liability for Contractors Project specific Needs to be taken out for a limit appropriate for the exposure Should be maintained for at least 12 months after substantial completion of the project. Should include the owners and subcontractors as insureds as well as contractual liability. MUNICIPAL INSURANCE ASSOCIATION OF BRITISH COLUMBIA P.15
Insurance Matrix Sample LOW MEDIUM HIGH Up to $1M COC Project value plus 10% Wrap Up Liability - $5 million Auto - $5 million Professional Liability - $1 million COC Project value plus 10% Wrap Up Liability - $5 million Auto - $5 million Professional Liability - $1 million COC Project value plus 10% Wrap Up Liability - $10 million (project specific) Auto - $5 million Professional Liability - $2 million (project specific) Pollution Liability - $5 million $1M - $5M COC Project value plus 10% Wrap Up Liability - $5 million (project specific) Auto - $5 million Professional Liability - $1 million COC Project value plus 10% Wrap Up Liability - $5 million Auto - $5 million Professional Liability - $2 million (project specific) Pollution Liability - $5 million COC Project value plus 10% Wrap Up Liability - $10 million (project specific) Auto - $5 million Professional Liability - $2 million (project specific) Pollution Liability - $5 million Over $5M COC Project value plus 10% Wrap Up Liability - - $10 million (project specific) Auto - $10 million Professional Liability - $1 million Pollution - $5M COC Project value plus 10% Wrap Up Liability - $15 million (project specific) Auto - $10 million Professional Liability - $2 million (project specific) Pollution Liability - $10 million COC Project value plus 10% Wrap Up Liability - $20 million (project specific) Auto - $10 million Professional Liability - $10 million (project specific) Pollution Liability - $10 million *plus sudden and accidental pollution if work is being done near water or storm sewer MUNICIPAL INSURANCE ASSOCIATION OF BRITISH COLUMBIA P.16
Owner Controlled Insurance The industry structure has the general contractor carrying liability insurance in the name of the contractor and typically the owner is added as an additional insured. Owner controlled has Owner putting project insurance program in place for contractor(s), etc. This approach should balance effort against value ie: the time putting the program in place against transferring all the risk to a general contractor. MUNICIPAL INSURANCE ASSOCIATION OF BRITISH COLUMBIA P.17
Owner Controlled Insurance The Benefits Cost savings - because the general contractor and sub contractors do not need to bring their own course of construction or wrap-up liability insurance with them their bid should not include administrative costs. Should a claim arise, it removes the finger pointing amongst the various parties involved. Ease of administration the owners do not need to collect insurance certificates from all parties coming to the site. MUNICIPAL INSURANCE ASSOCIATION OF BRITISH COLUMBIA P.18
Owner Controlled Insurance The Drawbacks Time onerous on the owner. The owner will administer claims. The owner must complete the relevant applications and collect data. MUNICIPAL INSURANCE ASSOCIATION OF BRITISH COLUMBIA P.19
Owner Controller Insurance Contract Language The owner should draw up supplemental insurance conditions early. (Use your Insurance Matrix for Limits) Work with the industry to get the program ready to launch at first sign of construction activity on site. The party responsible for a loss should bear the policy deductible. MUNICIPAL INSURANCE ASSOCIATION OF BRITISH COLUMBIA P.20
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