2011 IRMI Construction Risk Conference insights provide risk management best practices.
Navigating all the issues that can put you and your company at risk is no doubt the most complicated challenge contractors face. Many subcontractors and smaller GCs experienced losses in 2011 that put them out of business. Fortunately, once a year, the International Risk Management Institute (IRMI), brings together contractors, brokers, agents, risk managers and attorneys to examine the most pressing insurance and surety-related issues contractors face. CBO attended IRMI to report on what the industry is buzzing about.
In addition to shedding light on emerging issues, the IRMI conference helps contractors learn how to make better decisions on commonplace questions they encounter every day. For instance, the Building a Better Builder’s Risk Program explored who should obtain builder’s risk insurance—the owner or contractor. Arguments were made for both sides, but consider this: Many owners argue they should procure this policy because it will be the only way to acquire delay in start-up insurance (DSU), but this is actually a myth. Contractors should seriously consider controlling their builder’s risk insurance. After all, they bear the financial consequences for loss or damage. As Susan Staff, director of risk management for Zachry Holdings, Inc., put it, “If you are jumping out of an airplane, you want to pack your own parachute.” She also points out that the contractor has more information to provide underwriters, often leading to reduced premiums.
When you allow the owner to purchase the insurance—due to commercial pressure, insistence from lenders, level of risk management expertise or other factors—be sure that both parties agree to a deductible or retained amount for the risk of loss. Also, the language should include a “waiver of subrogation” on the policy, and a change order provision should be included for the contractor’s cost to rectify damage, among other concerns.
Emerging Issues
One of the biggest benefits of the IRMI conference was having a front row seat as experts discussed new problems the industry will face in 2012. Much of the discussion focused on the recent legal quibbling over the scope of coverage provided by general liability insurance in state courts. The debate centers around whether a construction defect claim actually qualifies as “an occurrence” under a general liability policy (To gain a better understanding about this issue, read this month’s “Insurance Matters” column on page 16). “2011 was marked by a continuation of insurers’ defensive measures to deal with legislative, legal and economic conditions,” says Michael Anderson, U.S. construction practice leader for Marsh, Inc. He says that some of these measures include increasing attachment points for excess carriers in response to third-party-over claims enabled by the New York labor law and continued wrap-up exclusions, among others.
Measuring risk is not a novel problem, but it has become a growing concern. “Quantifying risk, particularly on long-term projects, has always been a challenge, but today’s insurance market has certainly ‘moved the contractor’s cheese.’ Additional insured endorsements, case law on construction defect, underwriting restrictions in certain states and collateral requirements will test the construction industry’s ability to quantify and manage risk,” says Steven Davis, senior vice president and director of construction risk services for McGriff, Seibels & Williams, Inc.
Another topic of discussion at IRMI was the challenge that integrated project delivery (IPD) presents for the legal and insurance community. According to Stephen A. Hilger, CEO of Hilger Hammond, PC, “IPD is an attempt at solving the age-old problem of picking the right players who can function as a team to deliver a quality construction project.” He acknowledges that while increased use of BIM (building information modeling) has served as a catalyst for IPD, it currently does not have a foothold in the marketplace the way the design-build approach does. However, this delivery method seems to be gaining momentum. While different levels of IPD exist, the purest form involves shared risk and
