New construction risks raise eyebrows at San Diego conference

Written by C.C. Sullivan, Columnist (Architecture)

The weather in San Diego was fair but the insurance crowds at the 31st annual Construction Risk Conference were hunkered down in suites inside the Hilton Bayfront. The carriers, brokers, safety consultants and insured builders were angling for deals and catching up with old friends, followed by Herculean partying every night. Times are lean in the construction world, but aside from a few notable exceptions, underwriters and brokers and construction lawyers are keeping busy. A few companies -- Chartis, the property-and-casualty spinoff of AIG, for example -- had their layoffs or other retrenching last year.

The insurers were all inside the San Diego Hilton.

The conference, which brings together the who's who in underwriting the construction industry, is run by the Dallas-based International Risk Management Institute, or IRMI. Big projects and big deals are part of the fun. Silverstein Properties' vice president and risk manager Shari Natovitz and construction executive Scott Thompson led a keynote session discussing their $20 billion rebuilding of the World Trade Center. Footage from the documentary "America Rebuilds" added color to the talk, as did commentary by their broker, Willis, and Tishman Construction's Michael Goldberg.

But then there are the million-dollar losses, legal battles and contract issues we heard about in the corridors. The war stories make big-league construction seem like even more of a war zone. It's not uncommon to meet an insurance guy at the conference who just got one of those nightmare phone calls.

A still from 'America Rebuilds' at the IRMI Conference.

Even the routine can be hairy in this business. Part of this year's buzz was about a new and apparently improvable crop of standard insurance forms used by contractors. The documents, I was told, have new rules that can sweep the rug out from under unsuspecting builders.

According to Michael Campo, a senior vice president and construction team leader for the huge brokerage Lockton Companies, many new insurance policies lack provisions requiring the insurer to make a good faith effort to notify the contractor that their insurance has been cancelled. The notifications used to be written in the contracts. But now, if there’ an early termination, the contractor may not even be aware. That could leave the GC holding the bag if a subcontractor causes a loss.

Contractors are required by law to have insurance for their companies, but increasingly they want to insure their projects, too. A common type of coverage is called the wrap-up, which protects everything "inside the fence" of a construction site. (Here's a good quick definition of wrap-ups from the lawyers at Klinedinst.) At the IRMI meeting, experts like Wrap Strategies' Kathleen A. Creedon and underwriters like Old Republic and Aon Construction Services Group reported that contractor-controlled insurance policies, better known as CCIPs, are almost as common as the owner-controlled variety, OCIPs.

An example of a construction risk manager

As reported in Engineering News-Record, Susan Staff, a director of risk management at the engineer-constructor Zachry Holdings Inc. and a panelist in a session on wrap-ups, said, "If you are jumping out of an airplane, you want to select and control and pack your own parachute." Contractors agreed, whether they were large (Bovis Lend Lease, Bechtel Corporation, Jacobs Engineering) or medium-sized -- like Centennial, well-known for their government and university work and strong safety record.

Construction program owners are still among the largest consumers of construction insurance policies. IRMI attendance included Archer Daniels Midland Company and Tishman Speyer, among many others. What was foremost on their minds? Ways to save money, keep workers safe -- and keep liability as low as possible.

This post was originally published on Smartplanet.com

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