Construction Insurance Bulletin

A gas line explosion…A short circuit that fries electric wiring…Even a lightning strike…Any building site under construction or renovation is highly vulnerable.

Builder’s Risk insurance will pay for loss or damage to a structure (and, in some cases, of the materials, fixtures and/or equipment used to build or renovate it) caused by a variety of perils – such as windstorms, hail, theft, and vandalism. The policyholder can also extend coverage to include;

• Property in transit to the job site or stored at a secure offsite location.
• Scaffolding, construction forms, and temporary structures on the site.
• Removing debris from covered property.
• Paying firefighters to save or protect property.
• Replacing blueprints or construction plans.

As a rule, Builders Risk insurance does not cover losses due to mechanical breakdowns, floods, earthquakes, water damage, or rioting.

These policies are often written for a three month, six month, or 12 month coverage term. If the project is not completed by the end of the initial term, it may be extended in many cases, but usually only one time. Coverage ends when the property is ready for use or occupancy.

The amount of coverage, usually based on the project budget, should reflect the total completed value of the structure (including costs of materials and labor), but not the value of the land. Depending on the circumstances, either the building contractor, developer, or owner(s) can buy Builders Risk. If a bank issues a construction loan, it will usually require the borrower to purchase a policy. In many cases, showing proof of insurance might be mandatory under city, county and state building codes

Subrogation occurs when an insurance company pays a claim and then uses the insured’s right to sue the other party for causing the loss as a way to recover their funds. This seems reasonable, so why do business contracts commonly include a “waiver of subrogation” clause?

Business contracts often require that one party or the other be primarily responsible for providing insurance. The purpose of including a waiver clause is to have the party carrying the insurance waive any rights of recovery against the other party for claims covered by the insurance. The intent is to reduce risks significantly by preventing the insurance company from circumventing the contract’s intent of making one party financially responsible for the losses through the purchase of insurance.

However, it’s also possible that overly broad language in the contract might leave the insured agreeing to take on far more responsibility than is reasonable. In such a case, agreeing to a blanket-waiver of subrogation might not be in the best interests of you and your insurance company. The party that transfers all of its responsibilities onto the insurance of others distorts the basic principle of liability, which is that the guilty party should pay.

Whenever you’re presented with a contract that requires you to purchase insurance for the interests of another and includes a waiver of subrogation, be certain to review the provisions with your attorney — and with us.

No matter how dedicated you may be to workplace safety, you will never totally eliminate the possibility of danger. That’s why you have insurance, after all. If you could guarantee a 100% safe and riskless work environment, you wouldn’t need to take out a policy. Unfortunately, life just doesn’t work that way.

A worker with a perfect safety record might their first mistake a tremendous one, a machine might have a defect and catch fire after years of loyal service, a company car could have a blowout, and all of this could happen in spite of top-notch training and regular maintenance. Safety is not so much about eliminating the possibility of danger as it is about embracing the random nature of life and being sure that you’re able to manage risk. A professional poker player’s strategy is not “hope for good cards,” but to bluff and strategize and play the table so that they can handle the bad hands and make the most of the good ones.

The question then is: what can we do to better manage risk?

Like poker, managing risk on the job is a numbers game. A poker player knows how likely it is that they’re going to score a pair if they trade two cards in, a construction site manager should know the risks associated with any given task. Here are some numbers worth knowing:

– According to OSHA, fall protection standards violations were the most common violations found in 2014 during state and federal inspections. Related to this, scaffolding violations come in at number three.

– Second on that list: poor hazard communication. Making sure that people are aware of hazards will allow them to better manage those hazards.

– The construction industry accounts for around one in five workplace deaths, with falls contributing to 302 out of 828 construction site deaths in 2013.

– Other leading factors in the “fatal four” are being struck my an object, at 10.1%, electrocutions at 8.6%, and caught-in/between at 2.5%. It’s estimated that better managing these risks could save nearly 500 lives a year.

Since OSHA was founded in 1971, workplace deaths have been reduced by 67%. There’s no reason we can’t bring that down another 67% with tighter safety standards on the job.

The memory is a fascinating thing. There’s an interesting breakdown of how memories work at www.tbiguide.com/memory.html if you have the time and interest to read it, and if you don’t, we’ll break down the article’s key points:

The Different Types of Memory

The brain is not a tape recorder, it’s more like an oral history. Even in your own mind, stories are passed down through time, changing shape with each retelling. A memory has several stages, listed below:

– Immediate Memory.

Immediate memory is sort of like playing the shell game, and trying to remember which cup initially held the rubber ball. Here, your memories are, if not quite perfect, not embellished, not filtered through guesswork or “I suppose what must have happened next was…” thinking. This is the type of memory that is engaged when you’re right in the middle of something, like fixing your morning coffee for instance, and remembering that you already put in one spoonful of sugar before you put in the second.

– Short Term Memory.

Short term memory could be defined as a thirty-minute span of time wherein a memory a memory is still fresh, but fading.

– Long Term Memory.

We recall long term memories after a day or a few weeks or even a decade. Long term memories involve some detective work. When you look at a brick wall, you’re not seeing every brick, you’re seeing maybe five or six of them, and your brain is telling you “I don’t have time to look at all of these, but we can safely assume that there are hundreds of bricks here, so just take my word for it.” Long term memory works a little like that. Your brain fills in the gaps in order to make sense of the story.

Now here’s what all of this has to do with the subjects of safety and insurance: You’re going to need an accurate report following any accident, but if you wait a day or two before writing anything down, you’re going to wind up with a version of the story that isn’t very precise, because your brain is telling you “Well Jerry tells me that he slipped on the stairs, so someone must have dropped some food, and his ankle got twisted so I suppose he landed on his foot…” Your brain can’t help it, it’s just trying to make sense of what happened, because that’s the nature of the human brain, but you don’t need to tell a story, you only need to record what happened as you experienced it, first hand. So taking notes while your short term memory is still fresh is absolutely vital.

Safety is in the details. Not to say that things like fire drills, on-site medical staff and building maintenance aren’t important, but accidents are frequently caused by minor things creating a domino effect leading to serious injury. Here are five “no big deal” safety concerns that we would be well-advised to treat with a little more caution:

There aren’t that many “top secret” construction projects. Maybe you’ll be asked to build a toolshed for the President someday, or you’ll install toilets in the pentagon, but… probably not. That being said, it is nevertheless of the utmost importance that, with rare exception, only those who are a direct part of a project should be allowed on a job site. Here’s why:

– Your electrician’s brother doesn’t know your safety procedures. He doesn’t know the on-site paramedic’s number, he doesn’t know how to operate a radio, he doesn’t know where you keep your first-aid kit, he might not even know what an OSHA sticker means when he sees it on a container of flammable liquid. He may be a great guy, but that doesn’t mean he has the proper training to manage the hazards inherent to a jobsite.

– Liability. If an outsider is hurt on your site, chances are that it’s going to be a lot more complicated and a lot more expensive than if a worker, who knows the risks of the job, sustains an injury.

– Your reputation. It can be tough to get work in construction once word gets around that some teenager wandered onto your project and lost a toe while playing around with a belt sander.

Construction injuries seem to occur even when the most rigorous safety protocols and policies are developed. One reason is that these policies, while adequately thought out and defined, are not adequately followed or implemented. This results in a worksite environment that can be potentially hazardous to both construction workers and to anyone else who enters it. However, construction supervisors and owners can resolve these safety issues fairly easily by simply making time to conduct more frequent site inspections.

Most Common Construction Hazards

Some of the most common construction safety hazards can easily be identified during a site inspection. Some of these hazards include worn equipment that can fail, tools that are left out of place and pose a tripping hazard and unsafe actions by workers. There are many other hazards that are specific to the industry in which a construction project works, such as chemical storage and usage as well as security measures to prevent unauthorized access to eh construction area.

Conducting an Inspection

Conducting a thorough site safety inspection starts by identifying a regular time and interval to conduct the inspection. Ideally, a site inspection should occur at least once per week if time allows. Inspections are best performed during work hours to identify improper worker actions as well as other safety hazards. However, many construction supervisors may find it beneficial to alternate the times of the inspections so that they can observe different work crews or inspect equipment more thoroughly when it is not in use. Be sure to inspect any storage areas and parking areas as well as the primary construction zone and tools.

Get Employees Engaged in Inspections

Ideally, construction owners should engage their workers in performing their own safety inspections on a daily basis. This includes identifying and reporting any safety issues, deficient equipment or other hazards. Management should make it as easy as possible for workers to report these safety issues. In most cases, direct reporting to a supervisor is effective as is the use of comment boxes that allow workers to drop a note in at any time.

General contractors usually maintain a set of safety rules for all subcontractors and suppliers to follow while on site. As a contractor, establish basic safety standards you require on site. Don’t accept less for your employees than a safe workplace including other trades.

• Sound. Construction sites are noisy workplaces under the best of conditions. Hearing protection is often required. So why do some sites allow radios and music boxes? The added decibels hurt, the distraction unwise, inability to hear back up warnings dangerous, and competing music choices raise the sound level and create animosity on site.

o Ban all radios and music boxes, or any other extraneous noise producer.

o Ban cell phone use, including texting, except for supervisors.

o Turn off unused generators.

o Everyone wears safety eye wear.

o Reflective vests or bright colored uniforms for easy location.

o Ban all smoking from the site.

Although frequently contested as exclusions, defective construction claims are being scrutinized by the courts using various legal theories.

Traditionally, poor workmanship did not fall under the definition of an occurrence. Poor workmanship is a business risk, poor hiring.

The rules have begun to slide towards coverage now if non-defective materials or installations are damaged as a result of faulty workmanship. In other words, a ceiling collapses onto a newly installed sink and tub, chipping the marble. The tub and sink would be covered, but the ceiling would not. This rule is analogous to a frozen pipe. The damage to the pipe is not covered, but the ensuing water damage is.

In 2013, the Connecticut court found that defective workmanship was not intentional, and therefore could constitute an occurrence. In the same ruling, the court stated that the defect itself would not be covered, but ensuing damage would be.

Since 2013, other courts have broadened the definition of occurrence by ruling the “your work” wording excluded the work of subcontractors. So a subcontractors defective work would be covered as property damage under the prime’s CGL.

With the broadening of coverage for customers complaints, the contractors pick up valuable cost savings – legal representation. If defective workmanship is a covered property damage, then the contractor is entitled to defense from the insurance company.

As the courts broaden these definitions, you can expect consumers to try to broaden the definition of “defective”. Is inadequate soundproofing between walls a defect or a design flaw? What are the subjects of potential defects? Actual installation or functionality?

Of course, no contractor wants the reputation for or problems associated with defective workmanship. Where does design meet implementation to arrive at function? As the definition broadens, contractors will be held more liable. Check the wording of your commercial general liability defective workmanship clause. How broadly could it be interpreted? Ask your professional agent for some expertise in this area.