Utility Contractor

MAY-JUN 2018

As the official magazine of NUCA, Utility Contractor presents the latest information affecting every aspect of the utility construction industry, including technological advancements, safety issues, legislative developments and instructional advice.

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Page 40 of 51

ADDRESSING INSURANCE During the Contract Development Stage D uring a recent presentation at a conference of underground construction professionals, I started by asking the following two questions: (i) "How many of you are in- volved in claims resolution either with insurance companies or with contrac- tors when something goes wrong dur- ing or after construction?" (ii) "How many of you are involved in the con- struction contract formation phase and have input into issues of insurance and allocation of liability before the deal is signed?" You already have guessed the an- swers that I received. Almost all of the attendees dealt with the problems after the fact; almost none dealt with the contracts and insurance before the fact. Therein lies the problem. Let's review some of the reasons why the above situation is so perilous: Insurance structure decisions. The first, and most important, issue regard- ing insurance coverage for any con- struction project is how to structure the insurance. Put most simply, are all the parties – owner, contractor, subcontrac- tor, architect, engineer, etc. – going to be responsible for their own insurance, or is the project going to be covered uni- versally for all through an owner-con- trolled ("OCIP") or contractor controlled ("CCIP") insurance program. The deci- sion whether to go to a project-based in- surance program is a complex one that raises issues of cost, administration and historical comfort. Project-based pro- grams offer several advantages, such as (i) reduced disputes among insurance companies over allocation issues, (ii) reduced disputes over responsibility for and cause of loss, and (iii) close relation- ship between scope of project and scope of coverage. However, parties may not feel comfortable losing total control over the administration of the insurance, and these policies potentially add cost to the project. It is a decision that should be discussed among the dealmakers and those responsible for implementing the deal before the deal is signed. Lack of conformity between insur- ance and construction contract. Insur- ance can only be beneficial if it corre- sponds with the risks that the parties assess need to have addressed. Thus, the scope of insurance must match the scope of the project, the limits of insurance must bear reasonable rela- tion to the value of potential loss, and the types of insurance purchased must match the areas of potential exposure. Equally important, the technical as- pects of the insurance contracts must match the construction contracts re- garding such things as (i) who specifi- cally are the insured parties, (ii) how are risks allocated among parties to the contracts, (iii) how are different sourc- es of insurance ranked for purposes of responding to claims (e.g., primary vs. additional insurance). Types of coverage to be purchased. No one likes surprises. For this reason, it is crucial to consider all potentials areas of loss at the deal-making stage and determine what coverage should be purchased. Ordinary general liabil- ity, builder's risk and first-party prop- erty coverages, for example, typically do not cover environmental damage, cyber-related loss, and professional li- ability, and there may be restrictions on loss resulting from flood, mold, defects, or workmanship, among others. There- fore, it is important to review policies and coverage at the deal-formation stage to assure that all appropriate in- surance has been considered. One im- portant issue is the decision whether to purchase coverage for "business inter- ruption," an increasingly costly result of property damage at a project. Taking care of potential claim prob- lems before they arise. Those of you who have been through construction dispute resolution that involves insur- ance understand the complex, burden- some and time-consuming process that often needs to be undertaken. Tasks that appear to be simple often turn into frustratingly challenging problems. Take, for example, the simple process of placing an insurance carrier on no- tice of a loss. Seems simple, right? Well, answer these questions: (i) Do you have up-to-date copies of all insurance policies with respect to which your company is a named insured; and (ii) Are you aware of all insurance policies of contractors upon which your com- pany is an additional insured, and do you have copies of those policies. If the answer to these questions is not an em- phatic "Yes," providing notice may be difficult, and as we all know, providing late notice may be fatal to your claim. This issue is easy to resolve in the contract-formation stage through a requirement that applicable insurance policies be produced by the parties. In an age of easy access to information, there is little reason to risk having in- surance claim notification difficulties because of a lack of knowledge of the insurance requirements. These are but a few of the issues that should be considered before construc- tion contracts are finalized and before insurance considerations are deemed closed. They are issues that require the combined input and experience of both dealmakers/contract writers and those responsible for implementing the deal and handling any resulting claims. In the case of insurance, an ounce of prevention – in this case prior review and attention – is worth well more than a pound of cure. Barry Fleishman is a partner at the firm Shapiro, Lifschitz & Schram based in Washington, D.C. May/June 2018 | Utility Contractor 41 By Barry Fleishman

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