Tag: Insurance

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“Hardening” Market for Professional Indemnity Insurance
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Pennsylvania Construction Amid COVID-19
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Presentation Available: The Role of Insurance and Cost Reduction in EPC Contracts
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Webinar: Subcontractor Default Insurance: Best Practices for Claim Preparation and Coverage Strategy to Streamline the Claim Process
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Techniques to Maximize SDI Coverage and Streamline the Claim Process
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Insurance Coverage for Construction Risks

“Hardening” Market for Professional Indemnity Insurance

By: Jim Alexander

Compelling evidence of the “hardening” of the professional indemnity insurance (PII) market post-Grenfell has been provided by a recent survey conducted by the Construction Leadership Council (CLC).

Significant cost increases and the introduction of new restrictions on PII are preventing companies from taking on projects and could delay essential work on building safety.

The CLC survey was carried out from mid-February to mid-March and covered 1066 responses from a mixture of consultants, contractors, and specialists. Respondents ranged in size, with half of the respondents being companies with an annual turnover of less than £2m and 10% of respondents having an annual turnover of over £50m.

Key findings of the survey include:

  • Over 60% of total survey respondents have some form of restriction on cover relating to cladding or fire safety.
  • One in three of the survey respondents have a total exclusion in place for cladding claims.
  • One in five respondents have a total exclusion in place for fire claims.
  • Over a quarter of the total survey respondents have lost jobs as a result of inadequate PII.
  • One in three respondents couldn’t do remedial work if they wanted to because of exclusions to their cover.
  • Almost a quarter of the total survey respondents have changed the nature of their work due to inadequate PII.
  • A majority of respondents buy £10m or less cover with very few buying over £20m.
  • Almost half of the respondents had been declined insurance by three insurers or more.
  • Two-thirds of respondents are carrying a claim excess imposed upon them by their insurers.
  • Premiums have increased nearly 4-fold at the last renewal, having doubled the year before; the average rate is 4% of turnover, but one in five who gave figures is paying more than 5% of their PI insurance turnover.

The results pointed to widespread incidence of companies having to change the type of work they do because of restrictions on cover, with a quarter losing jobs because of tough conditions and limitations placed on them by insurance firms. Even though two-thirds of respondents said that less than 5% of what they do is high-rise residential, almost one in three were unable to buy the cover they wanted or needed.

Although not covered directly by the survey, it is also apparent that many insured parties are facing difficulties in securing renewal of “any one claim” cover with “aggregate” cover being offered instead.

An “any one claim” policy provides cover up to the full limit for each individual claim made in the period of insurance, whereas an “aggregate” policy provides cover up to the full limit for all claims made in the period of insurance.

“The survey results confirm that there is a widespread problem for many firms in being unable to obtain essential PI cover, which is having an impact on the ability of the industry to work, and undermining efforts to deliver remedial work to ensure building safety.”

Andy Mitchell CBE, co-chair of the CLC

Samantha Peat, managing director, Wren Managers, and chair of the CLC PI Insurance Group, said that she was extremely worried by the extent of the PII problems and would be actively working with the Government and industry to identify solutions.

“The cost increases, exclusions, and claim excesses that companies are having to bear – even those that do not even work in high-rise residential – could make it unsustainable for them to stay in business.

“The survey results suggest firms will not be able to afford premiums and claim excesses, and they face the choice of refusing some work, or undertaking projects for clients with inadequate insurance cover.”

Samantha Peat

Increased PII premium costs will need to be met by contractors and consultants, but these are likely to be passed on to employers.

Typically, building contracts and consultant appointments contain a clause obliging the contractor and consultant to maintain PII cover at a defined level for a set period (usually 12 years for documents executed as a deed) provided that such cover is available on “commercially reasonable rates and terms.” If the contractually required level of cover is no longer available to the contractor or consultant, then breach of this obligation would (depending on the precise terms of the provision) potentially result. As PII is a “claims made” insurance, the key factor is the scope of insurance available when the claim is made, rather than when the contract is entered into, or the default occurs. This scenario could mean that any claim might not be backed by adequate insurance at the time that the claim is made, leaving a shortfall for the employer to be claimed against the assets of the contractor or consultant.

If the contractually required cover is still available in the market, but at a vastly increased premium cost and with exclusions to cover, then disputes may arise on the interpretation of “commercially reasonable rates and terms.” Often, building contracts and consultant appointments will contain provisions that oblige the contractor or consultant to notify the employer of such circumstances and to enter into dialogue to achieve a mutually agreeable solution.

Employers may wish to review the PII obligations of contractors and consultants on their projects and check that they are complying with the required obligations. Most PII clauses in building contracts and appointments allow employers to request such evidence, usually in the form of a current broker’s certificate.

Pennsylvania Construction Amid COVID-19

Authors: Richard F. Paciaroni, Justin N. Leonelli, and Reymond E. Yammine

COVID-19 has made its way into various industries throughout the world, and Pennsylvania’s construction industry is no exception. All commercial construction activities throughout the Commonwealth, with a few limited exceptions, have been halted indefinitely to assist in mitigating the ongoing spread of the coronavirus. Similarly, construction supply chains in Pennsylvania, the U.S., and abroad have either limited supply or halted material production altogether, which may result in severe construction delays throughout Pennsylvania once construction projects are cleared to continue. Given the current (and likely ongoing) state of flux faced by Pennsylvania’s construction professionals, it is important that contractors familiarize themselves with the state-specific legal concepts currently at play and consider practical efforts to help curtail the economic impact of COVID-19.

CLICK HERE to read the full alert.

Presentation Available: The Role of Insurance and Cost Reduction in EPC Contracts

London partner, Matthew E. Smith spoke on the role of insurance and cost reduction in EPC contracts at the recent Global EPC Contract & Risk Management Conference on October 12-13, 2017 in London.

To view a copy of Matthew’s presentation titled “The Role of Insurance and Cost Reduction in EPC Contracts,” please click here.

Webinar: Subcontractor Default Insurance: Best Practices for Claim Preparation and Coverage Strategy to Streamline the Claim Process

The number one cause of subcontractor default is overextension of financial and operational resources. As the economy grows, subcontractor defaults are on the rise. While SDI provides improved coverage terms with claim payment provisions that are intended to streamline the process, many insured’s have experienced difficulties working through the SDI claim process that includes extensive RFI’s, cost allocation documentation and coverage interpretations that can materially impact the outcome.

Please join us on September 19, 2017 from 10:00 a.m. to 11:00 a.m. for our Subcontractor Default Insurance Webinar which will provide the latest coverage developments and claims handling strategies to improve the outcomes for CM’s, GC’s, Owners and Lenders that are relying on the coverage provided by the SDI policy.

Who would benefit from this seminar? General Counsels, Risk Managers, CEO’s, CFO’s, COO’s and Project Management Professionals working for CM’s or GC’s that have purchased an SDI policy as well as lenders, owners and other professionals serving the construction industry.

Speakers:
Christopher Barbarisi, Partner, K&L Gates LLP (Newark)
Jim Bly, Managing Director, Alliant Construction Services Group
Rick Fultineer, Managing Director, Berkeley Research Group 
Frank Calvaruso, Director, Berkeley Research Group

Click here to RSVP.

CLE credit for this program is currently pending.

Techniques to Maximize SDI Coverage and Streamline the Claim Process

Newark partner Christopher Barbarisi was published by Construction Executive magazine on the topic of “Techniques to Maximize SDI Coverage and Streamline the Claim Process.”

Design-builders, general contractors and “at risk” construction managers are all vulnerable to the risk of a subcontractor default. Aside from contract-related safeguards, such as increased retention, joint checks and letters of credit, subcontractor surety bonds have been the traditional mechanism for third-party risk transfer.

First introduced in the mid-1990s, subcontractor default insurance (SDI) provides a viable “first-party” insurance alternative to traditional surety bonds. To compete with surety bonds, SDI policies are heavily marketed as having a more efficient claim processes. In practice, the SDI claim process is not without its challenges. Effective techniques can be employed to streamline the process and keep the project funded and on track.

To read the full article on Construction Executive, click here.

Insurance Coverage for Construction Risks

By Timothy L. Pierce, K&L Gates, Los Angeles and Jacquelyn S. Celender, K&L Gates, Pittsburgh

There are many different types of insurance available for construction risks. It is important for owners and contractors to think critically at the beginning of any construction project about the risks inherent to the project and the types of insurance available to them to protect against such risks. Additionally, it is imperative that policyholders understand the benefits and limitations of different insurance policies.

This presentation explores (i) the basic forms of insurance coverage available for construction risks, (ii) wrap-up programs — owner controlled insurance programs (OCIP) and contractor controlled insurance programs (CCIP), (iii) common issues policyholders face when seeking coverage for a construction related loss under commercial general liability (CGL) policies, and (iv) practical considerations for the coverage construction lawyer.

To view the presentation, click here.

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