Presented By: John D. Miller 9-27-2007 Subguard Update Presented By: John D. Miller 9-27-2007

Subguard® Update: Program Changes Subcontracts over $40M excluded 4-1-07 going forward subject to approval by Zurich Zurich must approve all projects with duration over 36 months Notification on all subcontracts over $20M must be provided by Insured $150M aggregate exposure on any one Insured per year Pricing levels increasing 15–30% Retention levels increasing 15–30 % Notice to proceed triggers coverage

Subguard® Update: The Surety Audit *One major surety is conducting audits on their clients implementation of Subguard® “Yes or No” answers and comments are documented by the surety in the following audit areas: -Account management / documentation -Financial and banking documentation -Work Program Documentation -Risk factors pertaining to the subcontractor

The Product: Target Customer Rolling Programs General Contractors and/or CM’s at risk Annual subcontract values of $150M or greater Contractor or CM Has an appetite for risk Exhibits strong subcontractor control Is financially strong Contractor Controlled Programs: CCIP fits well

Why was Subguard® Created? Provides consistent and efficient coverage Puts control of subcontractor default risk in the hands of the Insured Acts as a cost effective solution to mitigate subcontractor default risk Moves the claims process forward at the control of the Insured and their insurer

Coverage: Simple Structure One Set of Limits Up to $50 million per occurrence Up to $150 million total Deductible Co-payment Retention Aggregates Annual Multi-year

The Product: Insuring Agreement Covers loss due to “Default of performance by (your) Subcontractor / Supplier as respects any covered Subcontractor or Purchase Order Agreement” Subject to limits of insurance After application of the deductible and co-payment

The Product: Definitions Covered Subcontractor / Supplier Enrolled during policy period Premium paid Coverage in excess of “other” insurance Does not apply to bonded subcontractor / suppliers Covered Subcontract or Purchase Order Agreement Executed during policy period Default of Performance Failure of Subcontractor / Supplier to fulfill terms of covered subcontract or purchase order agreement

The Product: Definitions (cont’d) Covered loss means the costs and expenses paid by (you) to the extent caused by a default of performance of a covered Subcontractor / Supplier – less the unpaid balance of the Subcontract / Purchase Order including retention or recovery Direct Costs Completion of Subcontractor / Supplier’s obligation under the Subcontract / Purchase Order Payment of amounts due to third parties under Subcontract / Purchase Order Cost of correcting defective or non-conforming work Legal and other professional fees Costs, charges and expenses paid to investigate, adjust and defend disputes of loss Multiple defaults by the same Subcontractor on one or more subcontracts are considered a single loss

The Product: Definitions (cont’d) Indirect Costs – Not limited to: Liquidated damages Job acceleration Extended overhead Proof of Loss Written description Copy of Subcontract / Purchase Order Default notice Any other supporting evidence Terrorism Covered via “TRIA” (Terrorism Risk Ins. Act) Otherwise Excluded

The Product: Exclusions Bonded Subcontractor / Supplier Pre-existing defaulted Subcontractor / Supplier Insured’s dishonesty, fraud, omission or intentional misrepresentation Transferred Subcontract / Purchase Order – unless agreed by carrier Breach of warranty of covenant (not absolute) 3rd Part Bodily Injury Nuclear events War Insured’s professional services (not an E&O policy) $40 million, or greater, subcontract or purchase orders

The Product: Deductible and Co-Payments Amount of each loss borne by the insured Co-Payment Applies after application of the deductible Average annual retention aggregate: $1.6 million Average 3 year retention aggregate: $2.7 million

The Product: Claims History 350 claims are outstanding Average claim size $1,034,000 Average indemnity from Zurich $888,000 Subcontractor prequalification is a question on over 50% of Subguard claims Cost to perform replacement work is almost 2 times the original value of the subcontract The largest claims have a significant rework component

Subguard: Claims Process Subcontractor default occurs Insured Incurs loss Payment / Doc. Preparation Proof of Loss Submitted Zurich Reimburses Subcontractor defaults according to terms of contract with insured Written notification submitted to Zurich “as soon as practicable” Insured works to mitigate risk and prevent loss

Subguard: Claims Process Subcontractor default occurs Insured Incurs loss Payment / Doc. Preparation Proof of Loss Submitted Zurich Reimburses Due to contract default, Insured incurs direct and indirect costs Insured expends monies to maintain schedule and complete / correct Subs work

Subguard: Claims Process Subcontractor default occurs Insured Incurs loss Payment / Doc. Preparation Proof of Loss Submitted Zurich Reimburses Insured prepares written documentation to support loss incurred as a direct result of Subcontractor’s default Zurich Construction Consultants available to consult on required documentation.

Subguard: Claims Process Subcontractor default occurs Insured Incurs loss Payment / Doc. Preparation Proof of Loss Submitted Zurich Reimburses No pre-approval required by Zurich on replacement subcontractor Insured maintains control and flexibility to manage project effectively Can be submitted as costs are incurred and paid Up to 10 years after substantial completion of the covered subcontract / purchase order

Subguard: Claims Process Subcontractor default occurs Insured Incurs loss Payment / Doc. Preparation Proof of Loss Submitted Zurich Reimburses Zurich RE reviews proof of loss, requests additional information as necessary Zurich RE provides Subguard® Claims Dept. with report based on review of Insureds proof of loss Zurich reimburses within 30 days of acceptable proof of loss Process could include multiple payments up to 95% until net amount of loss is ascertained Zurich assumes subrogation

Subguard®: Customer Service Plan Enrollment Process Zurich Service Team Rollout Presentations Site Visits Actual Service Plan Presentation / Lessons Learned / Loss Reduction Premium Reconciliation Claims Reporting and Handling Documenting the claim Electronic Claims Notification Claim Reconciliation

Risk Management First, Risk Transfer Second Standard form of subcontract agreement Limit scope to “agreed” prior to award Schedules of value Partial and final lien waivers Check status of work prior to payment Obtain inventories and bills of sale for stored material Check subcontractors’ progress against schedule weekly Monitor second and third tier subs for payment Issue joint checks where needed Conduct post project subcontractor evaluations