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Contractual/Insurance Risk Transfer

Construction clients should consider cyber liability coverage and employment practices coverage, considered, “a new signs of the times”. In addition, proper contract language continues to be critical in agreements between building owners, the general contractor and subs. Moody’s Don Aberbook led a discussion of common issues at the recent Construction Practice Group teleconference.

Here are some of the comments.

  • Many owners rely on the general contractor for insurance rather than purchasing their own general liability insurance. However, the owner will almost always be the entity that is sued and should have insurance covering his interest. Protection for owners is “very cheap but it’s also very limited.”
  • The general contractors and subcontractors sometimes are not named on the builders’ risk policy. This has been a particular issue in custom home building and can leave the general contractors and subs without coverage.

Managing Certificates – My COI

  • MY COI is a valued-added service recommended by several members.
  • My COI is based out of Indiana and has technologically advanced software. It can offer certificate endorsement reviews directly to the client. Agents and subcontractors can upload endorsements and requirements into the system. My COI will automatically send out reminders when something is missing.
  • “Some GCs and subs don’t have the time and training to make sure they are collecting proper information from subs. Our motivation for recommending My COI is to help subs from a risk management standpoint.”

Subcontractor Issues

  • Contracts often say that subs are bound by conditions of the prime contract. Be sure to find out what the conditions are.
  • Some contracts say the sub will be paid only when the owner pays the general contractor. “I always try to see if that can be relaxed. I think it’s pretty onerous and probably not fair.”
  • “We have some subs who sub their own work out because it is hard to get labor. This is where we see ‘flimsy’ certificates with carriers we’ve never heard of. We always tell clients to check the A.M. Best rating. If a lower tier sub causes injuries or construction problems, they may not be protected. We’ve had a couple of clients burned with that.”
  • Check anti-indemnity clauses. “At least a third of the contracts that I review have outdated language. If a contract does not comply with the statue, it won’t be enforceable.”
  • “I periodically have clients ask if they can fire a sub who has caused claims. It’s dangerous to go there in terms of retaliation charges. I always suggest that clients carry employment practices liability coverage.”
  • “With the job market tightening, we’re seeing more employee leasing. It is important to see that the temp agency is providing insurance and is naming the contractor as an additional insured. There should be an alternative employer endorsement for workers comp on the temp agency’s policy.”

Ongoing issues

  • Consider social engineering coverage. The bad guys are always one step ahead. Consider ransom requests and fraudulent wire transfer coverage. “We’ve had a couple of clients who paid when their whole systems were held for ransom.”
  • “Multi-family costs are not yet under control from a litigation standpoint, probably because the plaintiff’s bar is so strong. It is getting better.”

Upcoming conference

  • The Construction Practice Group will meet in Chicago Oct. 4-5. Registration is now open. Guest speakers will include Craig Stanovich of Austin Stanovich Risk Managers, Bill Wilson, founder & CEO of InsuranceCommentary.com and Brian Billhartz. Wrap Up Solutions. Lee Shidlofsky of Shidlofsky Law Firm, PLLC, has been invited.

 

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