1 Construction Engineering 221 Construction Insurance

22 RPQ 1. Insurance does not eliminate the risks involved in construction contracting. A. TrueB. False 2. Negligence on the part of the contractor will invalidate the insurance contract. A. TrueB. False 3. A good safety record will lower the manual rate for a construction company. A. TrueB. False

33 RPQ 1 1.Insurance does not eliminate the risks involved in construction contracting. The correct answer is A. True

44 RPQ 2 2. Negligence on the part of the contractor will invalidate the insurance contract. The correct answer is B. False

55 RPQ 3 3. A good safety record will lower the manual rate for a construction company. The correct answer is A. True

66 Risk Management Risk Management – a comprehensive approach to handling exposures to loss (an peril that can cause financial impairment)

77 Apply Risk Management  Recognize the varied risks  Measure the degree of exposure  Decide how to protect against those risks  Conduct program of loss control and prevention  Monitor the results

88 Risk Management Insurance does not eliminate the risks involved in construction contracting, but it does shift most of the potential financial burden to a professional risk-bearer Insurance companies not only pay for losses but also work along side construction companies to help them with risk management

99 Risk Management Services Insurance companies offer valuable services in helping companies manage risk. What are some of these services? Safety appraisals Loss prevention Education and training programs Site inspections

10 Construction Risks Construction work by nature is hazardous, accidents are frequent and often severe. Construction Contracts require: Contractor assumes Owner’s and AE’s legal liability of construction accidents Provide insurance for Owner’s protection Contractor insurance covers parties other than itself and protect against liabilities not legally its own

11 Insurance Policy Contract whereby the insurer promises, for a consideration, to assume financial responsibility for a specific loss or liability Insurer has duty to: Defend the contractor in an action brought against it (complaint alleges facts included in coverage of policy) Indemnify the contractor from loss covered by the policy Insurance controlled and regulated by federal and state statues

12 Insurance Policy Are losses suffered by contractor’s own deliberate actions recoverable? NO Are negligence or oversight covered by the insurance contract? YES – these are not deliberate acts Can a contractor recover more than its losses? NO – cannot profit from losses

13 Insurance Costs - Premiums Can the standard premium charge for insurance be adjusted? (Manual Rate) YES  Safe work = less losses = lower insurance rates

14 Contract Insurance Requirements Contract requires the contractor to have: Workman’s compensation insurance Employer’s liability insurance Comprehensive general liability insurance Contracts normally require either the Owner or the Contractor to furnish: Property insurance to protect the project Liability insurance to protect the owner

15 Important Question Why is it important for a contractor to submit a copy of the contract documents to its insurance company prior to submitting their Bid? Insurer is the expert at evaluating the RISKS Special insurance coverage may be required Type of construction presents special risks Cost of insurance required should be included in the contractor’s bid

16 Which kinds of insurance are required by law? Worker’s compensation Automobile Unemployment Social security (benefit not just at retirement)

17 What about Subcontractors? Prime contractor has a contingent liability for the actions of its subcontractors. Several different categories of liability insurance need to protect itself from liability for damages caused by its own acts of omission or commission as well as from damages caused by subs

18 Analysis What and how much to purchase? Careful study and consideration Cost of premium balanced against the possible loss and the probability of its occurrence What is another way to take care of a risk other than adding more insurance?

19 Construction Insurance Property Insurance on project during construction – Builders Risk Insurance Property Insurance on Contractor’s Own Property Liability Insurance Employee Insurance Automobile Insurance Business, Accident and Life Insurance

20 Project Property Insurance General contractor responsible for the project during construction Which of the following have the least risk associated with property damage? A.Building construction B.Marine construction C.Engineered construction (highways, dams) Answer is C. Engineered construction

21 Builder’s Risk Insurance Most widely used Project Property Insurance Not use by engineering contractors – why? Provides property coverage only Does not include liability coverage in any form Deduct cost of land prep and foundation – why? Premium mainly dependent on: Type of construction Availability of fire-fighting facilities

22 Builder’s Risk Insurance Who actually buys the Builder’s Risk Insurance Policy? Owners may purchase – most require contractor to provide All general contractors can provide this type of insurance – usually at a higher cost than if the owner buys the insurance direct