Construction Insurance Bulletin

If you’re planning to buy new construction equipment, do you feel the need to “kick the tires” before you make a decision? Let the Internet help save you time and money. Go to Construction Equipment Guide website to take  a virtual equipment tour that includes illustrations, pricing, and a text description of each item that you can print or download.

However, this site won’t provide informed guidance on buying the insurance you’ll need for your new equipment. Here’s where our agency comes in. Before you make a final decision, we can offer our professional opinion on how the purchase will affect your coverage and pricing options.

For example, if you’re choosing between two pieces of equipment, we can estimate the cost for insuring each (a factor you might consider in making your choice). We can also let you know in advance that it might be hard — or even impossible — to provide the right coverage on a piece of equipment at a cost you can afford.

The higher the value of your planned purchase, the more we can help by getting involved in the decision-making process in advance. Feel free to get in touch with us.

As online and other methods make your business purchasing increasingly easy, don’t let the simplicity of the process lead you to skip the steps needed to make a wise decision.

To be in business means to sign contracts – and every one of those contracts requires that you agree to provide some guarantee. A common question is “will my insurance back me up on those guarantees?”

The answer can be complicated. For one thing, it’s essential to determine if the contract is one of the types that your Liability coverage specifies as an “insured contract.” Although other policy provisions can also apply (such as exclusions and limitations), if a particular contract isn’t considered an “insured contract,” look no further – your policy won’t apply.

Standard Commercial Liability policies usually define “insured contracts” to include:

• Leases.
• Sidetrack agreements (made with a railroad if you have tracks crossing your property).
• Easement or license agreements.
• Obligations required by ordinance to indemnify a municipality.
• Elevator maintenance agreements.

Almost all Liability policies also include a broader provision that covers contracts under which your businesses assume the “tort liability” of another party for bodily injury or property damage. “Tort liability” is defined as liability that would exist in the absence of a contract or agreement. In other words, the liability you’re assuming must arise from the negligence of the other party to the contract. If the injured person can sue this other party without reference to any contract or agreement (“tort liability”), then a contract under which your business agrees to assume this liability will be considered “insured.”

Although it’s important, the definition of “insured contract” is only the starting point for determining if Liability coverage applies. Instead of assuming that your policy covers your contractual agreements, give one of our specialists a call. We can review the specific provisions of your current coverage as they might apply to your proposed contract and advise you about possible gaps.

One of the ongoing dilemmas in Building insurance claims involves determining a valid cost for the replacement or restoration of damaged property. When this insurance is first written, there are a number of approaches for arriving at a reasonable amount of coverage — yet nearly all of the commonly used methods have their weaknesses.
For example, some businesses want coverage equal to what they have paid for the building. However, this ignores the value assigned to the location, which might have increased (or decreased, depending on the location) significantly. Others prefer using real estate appraisals; but this leads back to the sales price, not the construction price. Square footage and building material cost estimators are also common.

However, even if they are fairly accurate in methodology, they depend on the accuracy of the data put into the formulas (garbage in — garbage out). Add the effect of changing zoning or building ordinances, and it’s no wonder that insurance industry experts estimated that the average commercial building might be underinsured by as much as 40%.

As a construction professional, you’re well placed to know the cost of restoring or rebuilding after a loss. What others “guesstimate,” you must do accurately for a living. Ordinances and zoning laws that are Greek to most people form part of your everyday knowledge base.

We can review the valuations of your buildings and recommend any necessary changes to your coverage. From that point, let’s explore opportunities to improve the accuracy of building valuations for your clients and ours. Perhaps together we can make inroads into that 40% gap.

There will always be a risk that something will go awry during construction projects. When something does go wrong, the result is usually costly time delays and mild to devastating additional material, labor, and damage costs.

As far as risk goes, most construction business owners view insurance as their first line of defense. Not that insurance isn’t an appropriate risk prevention tool, but it’s not always economically feasible or efficient to try and cover each and every possible risk with insurance. There are actually many risks that can be dealt with thorough the concepts of risk transfer, risk sharing, risk retention, risk control, risk prevention, and risk avoidance. Let’s look at some key points about each:

• Transfer of Risk.

  There are parties, aside from your own insurance, to which you might transfer the risk. The two most common risk transfers are through being named as an insured person on an alternative insurance contract, and through express indemnification clauses. When you’re named on another party’s insurance, their coverage extends to you.

  If you’re a general contractor, for example, then you might require the electrical contractor to name you on their liability policy. As long as the other party’s insurance covers the loss, your portion of any loss would be paid by the other party’s insurance policy.

  The second common method of transferring risk is through an express indemnification clause in a contract. This is also referred to as a hold harmless clause. There are three varying degrees of risk transfer. The type one indemnity clause, also called a broad form, states that the indemnitor (party that will be responsible for the loss) will hold the indemnitee (party that will be protected) harmless regardless of whether the loss was caused by the indemnitee.

  A type three clause, also called comparative fault, holds the indemnitor responsible for only the loss that they caused. The most common type of indemnification clause is the type two, also called the intermediate form. The indemnitor assumes all the risk unless the sole cause of the loss is fully attributable to the indemnitee. An example of a type two clause would be a general contractor agreeing to hold an owner harmless (regardless of whether the loss was partly caused by the owner) if the loss was caused in part or entirely by the contractor.

• Risk Sharing.

  There are often opportunities to share the risk with the other parties involved with the construction project. The contract should have a clause that stipulates each of the involved parties would be liable for those losses caused by his/her actions or inaction.

• Risk Retention.

  Whether they want to or not, all construction businesses are going to retain some of the more minor risks. It’s simply not monetarily feasible to cover every single risk with insurance. These minor retained risks, such as errors that cause a couple of days of redoing work, are funded from the operating budget. Insurance deductibles are another way that risk is retained. Just be sure that whatever risk is retained has a value and can be funded should a loss actually occur.

• Risk Avoidance.

  Although risks are often tempting, such as a supplier offering a cheaper material, most risks are best avoided. If you suspect that the cheaper material could be defective, then it simply makes better sense for you to put the longevity and reputation of your business first and avoid the risk.

• Risk Prevention.

  Risk prevention is a very broad topic with many elements, but the premise of the concept is taking action to avoid negative events from occurring in the first place. It’s usually very simple carelessness that causes accidents. So, risk prevention may include simple things like keeping passages free of debris and idle tools secure. Risk prevention should be an ongoing training program for employees, supervisors, and managers.

• Risk Control.

  Like risk prevention, risk control is a very broad topic with many elements, but the premise of the concept is reducing the amount of loss incurred during a negative event. A good example would be posting emergency response phone numbers so that immediate help can be called during an accident. Risk control should also be an ongoing training program for employees, supervisors, and managers.

Unfortunately, mishaps on construction sites are all too frequent. The combination of multiple activities with dozens or hundreds of people operating complex and dangerous equipment, often in poor or threatening weather, can easily result in accidental injuries to workers, clients, visitors, and onlookers, leading to litigation that could cost you millions – or even put you out of business.

Construction Liability insurance will pay for legal damages (and legal costs) for worksite accidents that cause; 1) loss, damage or destruction of property, and 2) physical injuries to third parties. Thanks to the explosive growth of lawsuits in the business world, almost all building contractors will need to show that they carry a Construction Liability policy before they’ll be allowed to bid for a job.

Contractors sometimes buy this coverage on a General Liability basis, up to the amount of the policy. However, they often prefer a policy that covers an individual project over a set time at a fixed dollar value, based on such factors as the number of workers or contract employees, and the size and nature of the operation. Some types of construction jobs – such as roofing, foundation work, and high- rise or large scale commercial projects with more workers per site – are more risky than others.

Your Construction Liability policy will probably set maximum amounts both on a “per incident” basis and for “umbrella” coverage. It should also include Personal and Professional liability for acts by company owners and managers, and cover damages from fire and medical-related claims from incidents on the job site that don’t fall under a standard Workers Compensation policy.

We’d be happy to review your firm’s exposure to the construction-related liability risks you face and recommend a comprehensive protection package that can help give you peace of mind on the job.

No discipline breaks down faster on a job site than traffic control and storage space.  The turf wars and project inertia follow.  Democracy is a poor way to run traffic control.  This regulation requires a czar, one person responsible for and with the authority to sheriff this aspect of sites.

Traffic management concerns efficiency and safety.  Done well, the job is enhanced; done poorly, the job crashes to a halt.

Begin by surveying the surrounding roads which service the site.  Are any noteworthy conditions present:

• Steep grades leading into the site: can they be avoided with an alternate route?

• Schools, factories, shopping malls, or any high traffic area or regular high pulse traffic events need to be time mapped and routes or delivery schedules altered, especially large, heavy or wide loads.

• Where are the frequently used pedestrian areas?

• Tolls or gates present?

• What is the speed limit on the site exit roadway?  Do you need traffic control?

• Where do you have entrance options?

• Are there any overly sensitive stakeholder neighbors like environmental protection or historical areas?

• Is any street work scheduled not associated with your site?

These questions will guide a logical approach, entrance, exit and departure strategy.

Review the site plan.  Will heavy or long trucks have the same access to storage as the smaller and lighter trucks?  Are there critical pinch points that need to remain clear?  Some general rules for devising a plan:

• Avoid exiting a site within one hundred feet of a traffic light.  That’s a traffic jam begging to happen.

• Minimize backing up on site.

• Minimize truck traffic through worker foot paths.

• Site speed limit should be 5 mph max.

• Avoid storage and travel in sensitive or tree protection areas.

• Decide on site access for weather events – include forklift use on wet or icy ground conditions.

• Determine the rules for forklift use, what areas, flagmen, what storage access.

• Will truck tire washing be necessary?  If so, is the water and traffic slow down manageable?

Most of site traffic management is logical as long as you mentally walk through the site construction plan.  Start off site and work towards your storage areas and most difficult improvement access stations.  Managing this issue in advance of the job start is essential.  Supporting your traffic czar, critical.

The winter months are the most dangerous for people who work outdoors. Often workers succumb to cold weather illness when working outside. However, employees in other industries have ongoing cold exposure, many of them in warm climates.

These workers include:

• Delivery People
• Postal Workers
• Maritime employees
• Food Processing Workers
• Cold storage industry
• Supermarket worker
• Tow truck operators

Cold is punishing to people and exposure to cold has many negative effects that include dehydration, frostbite, numbness, shivering, hypothermia and immersion foot disease.

What Ongoing Cold Exposure Does

Hypothermia
Continued cold exposure first affects the limbs, toes and fingers and then progresses deeper into the body tissues and the core of the body. If the core temperature of the dips below 95 degrees F, the worker has hypothermia. Hypothermia is a dangerous illness and along with frostbite is one of the two most dangerous dangers of working in a cold environment – inside or out.

Frostbite
When a person’s skin is has a severe reaction to cold frostbite can occur. Frostbite freezes the skin and makes crystals of the body fluids including blood. The chilling effect of frostbite is permanent damage to hands and feet, ears, and the nose. When frostbite is severe, the worker may have to undergo an amputation.

Other Dangerous Illnesses
Frostbite and Hypothermia are two most common, cold environment, illnesses workers get from cold exposure. Other significant cold weather injuries include:

• Cold Immersion
• Chilblains
• Trench Foot

Prevention of Cold Weather Injuries   Keeping feet warm and dry is the best prevention measure against trench foot and frostbite of the foot. Boots that have insulation and are waterproof is one type of the many personal protection equipment available for cold weather injury prevention. Other measures include long johns that have insulation, cold weather outer coats, space heaters where possible and other appropriate cold climate measures.

Preventing cold weather injuries is better than treating them and having your construction company’s worker compensation rates rise. Make sure that you take all reasonable measures to prevent these types of injury.

The experience modification indicates relative claims experience by offering a credit modification, lower premium, for positive claims experience and higher premiums, debit modification, for poor experience.

But does an experience modification help you understand the rate of injuries in your operations rather than the raw cost? Frequency of claims correlates to safety more so than the costs associated with those claims.

According to the Bureau of Labor Statistics (http://www.bls.gov/iag/tgs/iag23.htm), full-time construction professionals suffer four injuries per year for every 100 employees on average. Half of those injuries result in loss of time or light duty assignments.

The average time lost is one and one-half days.

First, four injuries out of 100 employees may not sound like a high average, but that rate makes construction a very hazardous occupation. Personal protective gear and safety awareness over the past few decades has helped reduce jobsite claims, but this rate can be reduced further.

Slips and falls are the most common claims and yet very avoidable using proper techniques for ladder safety and spill clean-up. Tie ladders off or use a buddy to steady it; clean spills immediately and thoroughly.

Back pain from lifting incorrectly or excessively is common in the construction industry. Again, avoidable using a weight limit per lift and a buddy system for heavier loads.

Use your insurance carrier resources to reduce and eliminate injuries through advanced and aggressive loss control techniques. Use government resources like the Occupational Safety and Health Administration (www.OSHA.gov) which can provide safety regulation awareness or instructions in Spanish and other languages.

Workplace safety is an employee benefit. Can you prove your work sites are safer than average? Do you have light duty options for unfortunate injuries? Do you investigate all injuries and find a cause of and prevention for each incident?

Worker safety pays in cash and improved morale.

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