1. Insight on Construction Contracts – Five Key Issues You Need To Know
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11. Disclaimer
Insurance forms and endorsements vary based on insurance company; changes in edition dates; regulations; court decisions; and state jurisdiction. This instructional materials provided by Insight is intended as a general guideline and any interpretations provided by the instructor or the creator(s) of this material do not modify or revise insurance policy language. In providing these materials, the authors assume neither liability nor responsibility to any person or business with respect to any loss that is alleged to be caused directly or indirectly as a result of the instructional materials provided. Copyright 2014 All Rights Reserved

12. Disclaimer:
All of the following material is for educational purposes only.
The Contractual Risk Management area of liability and coverage is in a constant state of change. What is current today can be outdated tomorrow.
This information is to be understood from a risk management perspective only. It is not intended as a
substitute for competent legal advice. You should check with your legal adviser to determine suitability, if any, to your specific circumstances.

13. Your Instructor Today Robert J. Marshburn, CRM, CIC, ARM, CRIS, CISC
Founder and Principal
R. J. Marshburn & Associates
Senior Educational Consultant to
Insurance Community Center/University

14. Objectives Who provides Builder’s Risk coverage
Insured(s)
Claim proceeds recipient
Exculpatory clauses and insurance coverage solutions
Indemnity provisions and restrictions of liability coverage
Liability coverages required and deductibles, retentions, RRG and RPG restrictions
Additional Insured requirements

15. Understanding Contracts

16. Definition Of A Contract:
A legally binding exchange of promises or agreement between parties enforceable by law
One party makes an offer for a bargain that another accepts.
This can be called a 'concurrence of wills' or a 'meeting of the minds' of two or more parties.

17. Definition Of A Contract:
A written contract that provides clear language stating the actions that must be undertaken by both parties is the best way to memorialize a contract’s purpose

18. Elements Required Competent parties
Adults of sound mind or business entities
Mutual agreement to provide each other some benefit
Legal purpose
Consideration
Under common law – only requires an exchange of promises

19. Enforceability of Contracts
Primary consideration is intent of the parties
Contract wording
Courts may look to external standards, either express or implied, in common practice

20. Enforceability of Contracts
Courts may enforce the contract as a whole
Voiding only those affected clauses
Test: Would a reasonable person see the contract as a whole, even without those clauses
Courts may find a breach of contract exists and allow the injured party to recover damages

21. Examples Of Contracts Construction Agreements Owners / Developers
Architects & Engineers
General Contractor
Subs / Sub-Subs
Suppliers
Leases
Real Estate
Equipment / Machinery

22. Construction Agreements and Risk Management
Contracts are critical component in construction
Contracts often not reviewed before signing (just a standard contract)
Some Contractors believe
No bargaining power
No knowledge
No ability to negotiate changes

23. Construction Agreements and Risk Management
Appropriate language for insurance / risk not always used
Many insurance agents/brokers are reluctant to review contracts
Insurance agents/brokers are NOT attorneys
Never cross the line from insurance and/or risk review into practicing law without a license

24. Sections to Review Insurance Project insurance
Insured parties
How much
Perils / Deductibles
Consequential coverage
Tools, equipment, materials, supplies
General Liability
Limits and type

25. Builder’s Risk Coverage

26. Builder’s Risk Purpose
Builder’s Risk coverage insures the materials, supplies and equipment used to build the project
Should provide coverage from exposure to loss, during the construction, and continue until the project is completed
The requirements to provide this coverage will be found in the construction agreement

27. Polling Question

28. Coverage Requirements
A review of the construction agreement will reveal the party required to purchase project insurance
Project Owner (this is the most common party)
General Contractor (the construction contract can be amended to require the GC to purchase the coverage)

29. Contract Example
“Property insurance shall be on an “all risk” or equivalent policy form and shall include, without limitation, insurance against the perils of fire (with extended coverage) and physical loss or damage including, without duplication of coverage, theft, vandalism, malicious mischief, collapse, earthquake, flood, windstorm, falsework, testing and startup, temporary buildings and debris removal, including demolition occasioned by enforcement of any applicable legal requirements, and shall cover reasonable compensation for Architect’s and Contractor’s services and expenses required as a result of such insured loss.”

30. Second Example

31. Contract Example
The Property insurance must cover portions of the work stored off the site and also portions of the work in transit.

32. Contract Example
A loss insured under the Owner’s property insurance policy shall be adjusted by the Owner and made payable to the Owner as fiduciary for the insureds as their interests may appear, subject to requirements of any applicable mortgagee clause. The Contractor shall pay Subcontractors their just shares of insurance proceeds received by the Contractor.

33. Structure the Policy Correctly
Determine purchaser
Insureds
Owner (possibly Named Insured)
General Contractor (possibly Named Insured)
Subcontractors / Sub-subcontractors

34. Structure the Policy Correctly
“All Risk”
Ordinance or law
Equipment Breakdown
Earthquake
Flood
Wind

35. Polling Question

36. Structure the Policy Correctly
Appropriate limit of insurance
Contract price
Scaffolding
Temporary structures
Debris removal
Ordinance compliance
Change orders
Verify waiver of subrogation allowed in policy

37. Soft Costs Coverage Consequential loss to Owner and/or GC
Loss of income
Additional costs such as architect fees, building permit fees, insurance costs, etc.
Adding coverage for Owner
Endorsement to Builder’s Risk
Add as covered premises to CP BI/EE coverage
Adding coverage for GC
Contract requirements

38. Sections to Review Commercial General Liability Additional insured
Limits required
Length of requirement
Deductibles / retentions
Additional insured
Primary, non-contributory

39. Commercial General Liability Insurance Requirements Example

40. Sections to Review Business Auto
Limits and Symbols
Workers’ Compensation – contract / project
Same state – different state
Monopolistic – Stop Gap
LHWCA
Foreign
Umbrella limits

41. Sections to Review Pollution
Remediation
Third party
Deductibles / SIR / Self-Insurance / Captives / RRG / RPG
Some contracts may address any or all of these issues

42. Pollution Liability and Insurance Example

43. Polling Question

44. Sections to Review Pass Through Clauses
Language contained in the contract between Owner and GC that affect Subs
Exculpatory clauses
Owner often releases any responsibility to pay damages to existing adjacent or adjoining property

45. Pass Through Clause Example

46. Exculpatory Clause Example
If the Owner has other adjacent properties near the site, the Owner waives all rights against others.
Owner and Contractor waive all rights against each other and any of the subcontractors, sub-subcontractors, agents and employees, as well as the Architect, Architect’s consultants, separate contractors described in Article 6, and all of their subcontractors, sub-subcontractors, agents and employees. All the parties must sign mutual waivers. The policies must provide such waivers of subrogation.

47. Sections to Review Waiver of subrogation clauses Which policies CGL
BAP WC
Umbrella

48. Sections to Review
Indemnification requirements
Damages
Defense
Both

49. Sections to Review Additional Insured requirements
Edition date
Language required
Length of time
Certificates of Liability Insurance
Too much language
Unsupported language

50. Polling Question

51. Indemnification and Risk Transfer
One party agrees to assume another’s liability for injury / damage to a third party
Premises
Operations
Construction Defect
Vicarious Liability
Job site management of Subs
Job site safety

52. Contractual Liability Sample

53. Indemnity Example
Contractor agrees to release, protect, defend, indemnify and hold harmless Owner, from and against any claim, demand, cause of action, loss, expense, award, judgment, obligation to indemnify others, or liability on account of illness, injury or death to the employees, personnel or invitees of Contractor and regardless of

54. Indemnity Example Continued
whether caused or brought about by the acts, omissions or negligence (including active, passive, gross, sole, joint or concurrent negligence) of any member of the Owner’s group, breach of contract, fault or strict liability, and regardless of whether such illness, injury, death, loss or damage preexists the execution of this agreement

55. What is Your Job? Note that there is an indemnification agreement
It specifically refers to defense which is important for insurance to trigger correct
Your job is NOT to discuss the legality of this language or comment on enforceability

56. Additional Insured Issues
Who is covered
Scope of coverage
When coverage ends
Edition date available from insurer
Indemnity can start where AI language stops coverage
Both are limited to the coverage, exclusions, conditions and limitations in the policy

57. Certificate Workflow
Trigger points –when to review insurance provisions >>> when you receive request for:
Additional insured status
Primary/non-contributory status; or
Waiver of subrogation

58. Certificate Workflow After having reviewed the insurance provisions
Provide disclaimer letter which informs insured of what provisions you have reviewed so the insured is aware of what you have not reviewed

59. Certificate Workflow
Do not alter ACORD certificate form without consent from carrier
Adding or deleting verbiage which does not reconcile with insurance policy may result of loss of your license
Holder lists should be reviewed at renewal; send “Verification of AI Removal” letter to insured

60. Certificate Workflow Notice of Cancellation – Carrier Response
Carriers might be able to provide notice of cancellation endorsements for additional insured
May charge a premium
May delegate duty of notice to producer, so read all such endorsements carefully to determine notification process

61. Summary
Use your construction checklists to identify specific areas of risk and insurance that you will need to understand when viewing and discussing these concerns with your insured
Needs will differ if the insured is a developer, General Contractor, Sub-contractor or Sub-sub

62. Summary Describe the various types of language that can be encountered
Production/Service teams should devise discussion strategy that will be used
Create coverage solutions
Identify coverage differences among your various insurance companies
Stay on the straight and narrow – do not verge into legal advice

63. Upcoming Classes 4/22 Insight on Insurance Proposals and Submissions
4/24
Insight on Crime Insurance
4/29
Property Valuation
5/1
Personal Toys & Unusual Exposures - Know Your Client - Know the Market
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