Construction Insurance, Contracts, Mitigating Risk & Related Issues - Workshop

1. Construction Insurance, Contracts, Mitigating Risk & Related Issues - Workshop Capital Planning, Design and Construction November 4, 2008

2. Introduction and Agenda • Panelists • What is Construction Risk Management • Key Components • Contract Relationships • Property Preservation • Insurance • Information Sources • Questions / Open Discussion

3. Panelists • Jim Castle, President, Driver Commercial Group, Alliant Insurance Services • Girard Fisher, Esq., (of Counsel) Pollack, Vida & Fisher • Robert E. Powers, ARM, Vice President – Liability, Gregory B. Bragg & Associates • Joseph C. Risser, CPCU, ARM-P, California Polytechnic State University • Craig Schweikhard, ARM, Liability Claims Manager, Gregory B. Bragg & Associates • Raymond Szczucki, P.E., ARM, ACE USA Global Property & Specialty Lines

4. Jim Castle • President • Driver Commercial Group • National Construction Practice Group Leader • Surety and Insurance Services to Construction Industry • Contractor Practice Policies • Controlled Insurance Programs

5. Girard Fisher, Esq. • Pollak, Vida & Fisher • Member of California Bar • California U.S. District Courts • U.S. Court of Appeals, Ninth District & Supreme Court • 45 jury trials, 40 appeals • exposures in 7 figures, published opinions • Author and Speaker • Government, public entity liability • Design Immunity, Tort Claims, Negligence

6. Robert Powers, ARM • Vice President – Liability • Gregory B. Bragg & Associates, Inc. • Carl Warren & Company • Public Entity and Nationwide Multi Jurisdiction Claims Administration • Licensed Independent Adjuster • Presenter: • Public Agency Risk Management Association • Risk & Insurance management Society

7. Craig Schweikhard, ARM • Ventura Liability Claims Manager • Gregory B. Bragg & Associates, Inc. • Carl Warren & Company • Critical Public Entity Account Manager • Public Entity Liability and Administration • Presenter: • Public Agency Risk Management Association

8. Raymond Szczucki, P.E. ARM • Account Engineer, Inland Marine • ACE Global Underwriting Group • Design Engineer – public & private projects • Engineering Evaluation • Construction Risk Management Services • National and Local Professional Engineering • International Bridge, Tunnel & Turnpike • American Society of Civil Engineers

9. Joe Risser, CPCU, ARM-P • Risk Manager • California Polytechnic State University • University’s Insurance Programs - CSURMA • Construction Contract Insurance Compliance • Facilities Planning & Facility Services • Contracts, Procurement & Risk Management • Presenter: • Public Risk Management Association • University Risk Management & Insurance Association • Public Agency Risk Management Association

10. What is Risk Management • Technical Component • Identify, Analyze, Address Risk • Practical • Prevention & Response • Contractual Transfer • Purchase Insurance

11. What is Insurance? • Insurance is CASH!!! • CASH for: • Replacing / repairing your property • Replacing / repairing others property • Medical Costs / Lost wages • Defending you from others

12. BR BR BR BR GL GL GL GL BR WC WC WC WC GL BR WC WC GL Traditional Project Structure • Multiple Parties • Multiple Contract Types • Various Skill Levels • Gaps • Hope

13. Key Components • Pre-Construction • Construction Duration • Post Construction

14. Pre Construction • Project Evaluation • The Contract • Insurance • Project Safety Requirements • Project Claim Procedures

15. Project Evaluation • Who is the Project Owner / Team • What are they Building • When are they Building • Where are they in the Process • Why are they Building • How???

16. The Contract • Most Important Construction Document • Scope & Timeline • Responsibilities • Indemnification Language • Insurance Requirements • Project Safety Requirements • Administration Requirements

17. Risk Management of Construction Projects and Managing Insurance Relationships • Robert Powers – Bragg & Associates • Craig Schweikhard - Bragg & Associates • Girard Fisher – Pollak, Vida and Fisher

18. The Need for a Clear Picture • Large Scale Projects are Very Complex • They are “Generally” outside the Area of Expertise of Education Officials • Contractor know how to manipulate the process to squeeze more money out of the State

19. The Modelby Jim Wiederschall

20. Two Phases of Project • Design Phase • Architect is primary contractor • Numerous sub-contractors • Construction Phase • Main Contractor • Numerous sub-contractors • Other Contracts • Construction Manager • Inspectors • Consultants

21. Design Phase • Contract Provisions with your Architect • Contractual Indemnity • Additional Insured on GL Coverage • Certificate of Insurance for all coverage • E&O Insurance Certificate

22. Subcontractors in Design Phase • Engineers • Mechanical Engineers • Soil Engineers • Structural Engineers • Subcontractor Engineers • Usually no contractual or insurance relationship with these contractors

23. Remedies v. Architect • Breach of Contract • Contractual Indemnity • Claim on GL as additional Insured • Early Notice to carrier is essential. • Defense costs are only reimbursed as of tender • E&O • Timely notice is essential

24. Construction Phase • Primary Contractor will retain numerous Subcontractors. • Subcontractors may have subcontractors • Contractual Relationship between primary and subcontractors that may require indemnity to P.E. • Entity may or may not have a contractual relationship with subs and their insurance

25. Contract Provisions • Contractual Indemnity • Additional Insured on GL Coverage • Certificate of Insurance for all Coverage • Bonds • Performance • Payment Bonds

26. Remedies v. Contractors • Breach of Contracts • Claim of Performance Bonds • Claims on insurance coverage • Contractual Indemnity

27. Contractor’s Remedy Against You • Contractor’s thrown off of projects sue for constitutional taking. • Conversion • Coverage??? • Contract Payment Claims

28. Claims Filing RequirementsPublic Contracts Code Section 20104.2 • Contractual Payments Due • Breach of Contracts do require claims • Claim must be in writing before final payment • Public Entity has 45 or 60 days to respond • Additional info requested within 30 days • If contractor disagrees with finding a meet and confer will be scheduled within 30 days • Claim statute is tolled from the time the written claim is filed until the meet and confer process is completed.

29. Other Contractors • Same contract provisions as Design Phase • Same Remedies as Design Phase • Need for Close Supervision of these functions.

30. Bonds • Not Insurance but standing on their own • Performance Bonds • Guarantee the specific performance of the contract or completion of the contract • Payment Bonds • Guarantees the payment of subcontractors on the project.

31. Performance Bonds • For use when the project is not completed as contracted. • Bonds are not insurance and Bond holders will go after contractor for non-performance • Goals of the Bond Holder may be Different than Yours • Step in and defend • Do not release bond too early

32. Payment Bonds and Stop Notices • No mechanics liens on public projects • Stop notices • Must hold payments to cover stop notice until dispute is resolved • Use “Stop Notice” Bonds to release payments

33. Leverage • Unfair Claims Practices act • First Party “Bad Faith” • Bonding Capacity

34. Insurance • Insurer Requirements • Coverage Requirements • Limit Requirements • Premium / Deductible Responsibilities • Documentation Requirements

35. BR BR BR BR GL GL GL GL BR WC WC WC GL GL WC WC WC BR Traditional Project Insurance • Duplication of Cost • Stack Markups • Cross Litigation • Gaps in Coverage • Inadequate Limits • Uninsured Contractors

36. One Program Control Consistent Coverage Dedicated Limits No Cross Litigation Consistent Services Decreased Markups BR GL WC The OCIP Alternative

37. Builders Risk Workers’ Compensation General Liability Excess Liability Auto Liability Design Professionals Errors & Omissions Pollution Liability Surety / Subguard Available Coverage

38. OCIP Key Components • Program Design • Documents / Manuals / Forms • Insurance Placement • Enrollment Process • Claim Management

39. Pending Legislation • California SB 195 - Calderon • OCIP Disclosure Requirements • Coverage Terms / Exclusions • Exposure Basis of Policy • Contractor Participation • Deductible Application • Design Professional Limitation of Liability • Insurance Deductive Change • Allows Contractor to Void Contract

40. Insurance Summary • Commercial General Liability • Bodily Injury, Property Damage • Ongoing and Completed Operations & Products • Business Automobile Liability • Bodily Injury, Property Damage • Workers’ Compensation and Employer’s Liability • Bodily Injury and Illness of employees, work related • Professional Liability (Architects, engineers, construction managers, etc.) • Injury or Damages due to errors & omissions • Builder’s Risk (Property) • Damages or Losses to Property under construction

41. Insurance Placement • Property / Inland Marine • Pays for damage to your “stuff” • Building & Contents at Main Office • Builders Risk Coverage • Tools & Equipment • Scheduled Equipment • Miscellaneous Tools • Leased and Rented Equipment

42. CSU Construction ProjectCoverage Program • “All Risk” Builder’s Risk Insurance • Property Damage • Materials in Transit • Off site storage • Direct physical loss to Insured Project(s) • Construction • Reconstruction • Renovation

43. The Building Construction Process and Property Loss Exposures Raymond Szczucki ACE USA Inland Marine

44. Disclaimer Any information or discussion arising from this presentation shall not prejudice, waive or otherwise forestall any legal right of ACE USA Inland Marine, ACE USA or any of The ACE Group of Companies concerning the terms, conditions, exclusions or provisions contained in an issued policy of insurance. The information or materials provided herein shall not amend or alter in any way the terms, conditions, exclusions and limitations of any policy delivered. Please consult the policy for exact terms and conditions. The materials and information contained herein are not intended to offer or provide any legal advice concerning the topics covered.

45. Topics of Discussion • Building Construction Process • Property Loss Exposures • Project Management Issues • Project Constraints • Property Preservation Management & Planning • Property Preservation Assessments • Construction Dynamics • Economics

46. Building Construction Process • Construction management demands have increased in past 20 years; major shift in last 10 years • “Techno-time” vs. “steel and concrete time” • Dynamic environment of construction • Economic vs. exposure-based scheduling

47. Property Loss Exposures • Water is a Primary Cause of Loss $$ • Flooding from surface water • Water penetration through incomplete building envelope or temporary openings • Condensation/moisture • Wind • Rigging & Lifting • Collapse • Equipment Damage • Fire

48. Project Management • Project management team that is proactive in management of subcontracts and property preservation. (Values the process.) • Pre-construction planning to “eliminate” property loss exposures. (Schedule project to avoid loss exposures.) • Implement plan to “control” property loss exposures during construction. (Mitigation of exposures that cannot be eliminated.)

49. Project Constraints • Maintenance of schedule is a priority • CP activities control schedule (“criticality” ) • Time is more valuable than money • Changes in schedule/scope of work create changes in property loss exposures • Increasing complexity of construction • Wide range of project stakeholders

50. Project Constraints