State Construction – Builders Risk Moderator: Texas State Office of Risk Management Todd Holt, Deputy Executive Director, Speakers: Arthur J. Gallagher & Co. Michael, Gillon, ARM, Area President Chris Connelly, ARM-P, ARe, Area Senior Vice President Nick Terlecki, Producer Associate
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State Construction – Builders Risk Builders... · What is Builders Risk Insurance? • Builders Risk is coverage designed to cover physical damage to property in the course ...
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State Construction – Builders Risk Moderator: Texas State Office of Risk Management
Todd Holt, Deputy Executive Director,
Speakers: Arthur J. Gallagher & Co. Michael, Gillon, ARM, Area President
Chris Connelly, ARM-P, ARe, Area Senior Vice President Nick Terlecki, Producer Associate
1. Builder’s Risk – What is Builder’s Risk? – Types of Builder’s Risk Programs – Project & Contractual Concerns – Advantages & Objections to Owner Programs – Texas SORM Case Study
2. OPPI (Owners Protective Professional Liability) – Types of Professional Liability in Projects – OPPI Overview – Advantages of OPPI – OPPI Case Study
• Builders Risk is coverage designed to cover physical damage to property in the course of construction – Physical damage resulting
from covered perils (i.e. fire, water damage, wind, earthquake, etc.)
• Typically applies to the work, regardless of location (at construction site, off-site storage, in-transit)
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• Coverages Can Include:
– “Soft costs” to cover additional expenses caused as a result of covered loss, such as architect fees, interest expenses, real estate taxes, etc.
– Extra Expense: the additional amount by which the cost of completing the project exceeds the cost had damage not occurred
– Delay in Start Up: insures against income loss or specified additional expenses, that result from a delay in the completion of a construction project beyond the expected completion date as a result of covered property damage
– Damage to Existing Structure: extends coverage to remaining structure which is not part of construction project
• Construction projects are exposed to risks that result from the negligence design professional, such as architects and engineers – Ex: collapse as a result of negligent design of structure
components of structure • Common ways to transfer these risks
1. Professional Liability Insurance required by contract 2. Project-Specific Professional Liability Insurance 3. OPPI (Owners Protective Professional Indemnity)
• Lowest Cost Option • Low policy limits – Many firms only carry $1,000,000 in total limits • Shared Limits – Traditional policy limits cover all projects undertaken by the firm
and can be eroded by other claims and defense costs • Annual policies provided on a claims made basis that must be renewed to maintain
coverage • Inconsistent terms, no guarantee of the quality of the coverage provided since each
policy will have its own unique coverage terms and conditions • In the event of claims, several policies may be triggered, and their limits may be
used to resolve disputes related to who caused a loss rather than to indemnify the owner for economic losses
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#1 Professional Liability Professional Liability Coverage – Provided by Individual Design Firms
• Policy providing primary coverage for damages arising out of the professional negligence of all design professionals on the project. – Design professionals can include architects, engineers,
construction managers, landscape architects, land surveyors/planners and interior designers/space planners.
• OPPI is an excess insurance policy that indemnifies a project owner for damages arising out of the professional negligence of their contracted design professionals. – The policy also provides the insured with coverage for claims and claims
expenses that result from demands made directly against the insured by a third party.
• OPPI applies on an excess basis and only protects the owner against damages that exceed the design professionals individual policy limits. OPPI also applies on a difference in conditions (DIC) basis.
• The policy supplements the available professional liability coverage provided by the design firms
• It provides a cost effective alternative to increasing individual project insurance. The cost of OPPI is on average 40-60% less expensive than project specific professional liability coverage
• Increased financial security through ultimate control of the program • Reduces potential adversarial relations with the design team • One policy covers the entire project duration, multiple projects can be scheduled into a single
program • OPPI includes “difference in conditions” (DIC) coverage extending protection to the owner in
the event that an underlying policy is deficient in coverage • Retroactive coverage may be afforded for those projects already in the construction phase,
• Limits available up to $50,000,000 • Coverage available for the length of the project term with an extended reporting
period (tail coverage) of 5-10 years • Self Insured Retentions start at $100,000 • Minimum liability limits required from design professionals will be negotiated to
match Insured’s contractual minimum requirements • Full retroactive coverage can be provided to projects that have already begun if a
No Known Loss Letter is issued • Coverage can be extended to provide excess contractors pollution liability,
including coverage for asbestos and mold/fungi/microbial matter • Expanded definition of consultant in policy form addresses the independent
consultants who are not part of the prime design team and are contracting directly with Insured
• Premiums are initially developed using a rate per $1,000 in total estimated construction costs and are also auditable based on the actual construction costs at the time of completion
• The policy will have a composite rate that considers all construction within the capital improvement program. The cost of insuring renovations to existing buildings will be less than the cost of insuring new construction
• Generally we are able to include a swing clause of at least 5% so that if the actual project costs are not more than 5% of the estimated costs, there will be no additional audit premium charged
• CPPI policies are also available and typically have higher premiums than OPPI
policies. The OPPI policy reduces the likelihood that defense costs will erode the limit of insurance and gives the Insured complete control of the coverage and direct access to the policy. The OPPI has a low financial risk and minimal administration requirements from the Insured