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Insuring Construction Related Risks

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  • 1. Canadian Bar Association National Construction Law Conference April 10 and 11, 2008 - Banff Insuring Construction Related Risks: Steps Policyholders Need to Take
  • 2. Be Organized
      • Appoint one person to be responsible for insurance coverage for the project
        • Their job is to:
          • Identify the potential risks of a project
          • Calculate the maximum foreseeable loss
          • Identify the possible coverage available
          • Ensure covenants to insure are complied with
          • Place and maintain appropriate coverage
          • Understand the coverage – read and keep the policies
          • Deal with losses and claims – report, co-ordinate and comply with duties
  • 3. Be Organized
      • Give that person access to professional advice
        • Lawyers for coverage issues that may arise, gaps in coverage and denials of coverage
        • Brokers for the products that are available and relevant to the risks of the project
        • Cost consultants for calculating potential and actual losses
        • Need to understand what is available and the limitations of what you are buying
  • 4. Identify the Risks – Allocate or Insure
    • Whose interests will be insured – who are insureds
    • What property and liabilities will be insured
    • What perils are covered or excluded
    • What damage/loss is covered or excluded
    • Who purchases the coverage
    • Limit and deductible amounts
    • Time period of coverage (place before project starts and renew/extend until it is complete)
    • Project specific liability or not
  • 5. Identify the Risks and Potential Loss
    • Property
      • Hard costs
      • Soft costs (all of them)
      • Delayed start-up/opening
        • Loss of rent, investment, revenue
      • Business interruption/contingency costs
      • Expediting expenses
      • Extra costs associated with delay in construction
  • 6. Identify the Risks and Potential Loss
    • Liability
      • During and after completion
      • “ physical injury to tangible property” or loss of use
      • “ legally obligated to pay”
      • Property – part of project or not
      • Contractual liability
      • Professional errors and omissions
  • 7. Obtain Insurance Policies
    • Liability
      • Commercial General Liability (occurrence)
        • Long tail and multiple trigger but changing
        • Your work and product exclusions
        • Owner and general contractor where damage only to project itself
      • Wrap-up (occurrence)
        • Usually project specific
        • Streamlined claims process
        • Covers all parties to project (not for E&O)
  • 8. Obtain Insurance Coverage
    • Liability continued
      • Professional liability (claims made)
        • Will there be coverage when you need it?
        • Excludes late design, cost estimates, contract liability, mould, water ingress
        • Eroding limits for defense costs
        • Consider project specific policy (third party) or owners protective professional indemnity (first party)
        • Stand alone and longer term
  • 9. Obtain Insurance Coverage
    • Property
      • Builder’s Risk/Course of Construction
        • Faulty design and workmanship usually excluded
        • Resultant damage covered – “integral part”
        • Costs to correct before damage often excluded
        • Sue and labour/salvage
        • Deal with partial occupancy/staged completion
        • Soft costs, delayed start-up/opening, expediting, delay costs, business interruption
  • 10. Deal with Covenants to Insure
    • Draft properly – is standard clause appropriate
    • Avoid CCDC2 pitfalls
    • Ensure compliance with covenants- avoid gaps
    • Expiring policies (one year)
    • Waivers of subrogation
    • Additional insureds
    • Who bears uninsured loss
    • Waiver of claims for risks agreed to be insured
  • 11. Be Diligent
      • Keep all policies and those other parties are contractually obliged to place ( don't throw old policies or evidence of insurance away)
      • Don’t settle, defend, respond to a claim, put in proof of loss or meet with the adjuster until you have a good understanding of what the potential coverage issues may be
      • Deal with denials of coverage or reservation of rights letters
      • Don’t agree (except in very rare cases) to an allocation of defence costs up front
  • 12. Comply with Duties of Insured
      • Report claims (potential) or losses immediately
        • Critical in claims made policies where not reporting in time can result in no coverage
        • Avoid giving insurer reason to deny
      • Co-operate with the insurer
      • Don’t admit liability
      • Protect insurers subrogation rights
      • Don’t make voluntary or any payments without the insurer’s consent
  • 13. Put Best Foot Forward (Property Losses)
    • Consider retaining experts to assist in putting claim together
    • Costs are often covered by policy
    • Sue and labour – be aware of duty to take reasonable steps to prevent imminent or further loss or damage to insured property
    • Track separate heads of costs – soft, BI, delayed start-up/opening
    • Be creative – loss may be claimable under more than one or one type of policy
  • 14. Summary
        • It all comes down to understanding what is covered and what is not prior to any claim or loss
        • Avoid surprises and make informed decisions about coverage
        • If you don’t understand your coverage you will be surprised and you will not be doing the things you need to do to maximize recovery under the policy if losses and claims arise
  • 15.
    • Questions?
    • Ariel DeJong
    • Partner
    • Litigation Department
    • Insurance Group
    • Tel: 604-643-7107
    • [email_address]