Construction insurance, bonding and risk management

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Title:

Personal Author:

Palmer, William J.

Publication Information:

New York : McGraw-Hill, 1996

ISBN:

9780070485945

Subject Term:

Construction industry -- Insurance

Added Author:

Maloney, James M.

Heffron, John L.

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Summary

Publisher's Note: Products purchased from Third Party sellers are not guaranteed by the publisher for quality, authenticity, or access to any online entitlements included with the product.

Protect your business from all types of risks--insure your projects with advice from the experts

Here you'll find the answers to your questions about insurance, bonding, and risk management for all of your construction projects. This much-needed book helps you assess your requirements for insurance coverage, evaluate policies, find the fairest rates, obtain bonding, and manage risks professionally and confidently. Written by the foremsot experts at Ernst & Young LLP and Willis Corroon Construction, this authoritative guide gives you the information and methods you need to simplify and systematize your project insurance bonding, and risk management issues, and protect your business from all types of liabilities: You'll learn how to: establish your requirements for various types of insurance; determine how to get the insurance you need at the best rate; read and evaluate insurance contracts; secure bonds for both contractors and subcontractors; obtain workers compensation coverage; evaluate environmental issues; understand the role of sureties in litigation. Construction contractors and subcontractors, CPAs, law firms, and insurance and bonding agents will all welcome this comprehensive guide and the authoritative help it gives in ensuring successful outcomes for construction projects of every kind.

Contributors	p. xi
Series Introduction	p. xv
Preface	p. xvii
Chapter 1. Construction Insurance, Bonding, and Risk Management	p. 1
1.1 Introduction	p. 1
1.2 Program Design	p. 2
1.3 Information Systems	p. 3
1.4 Brokerage	p. 3
1.5 Risk Financing	p. 4
1.6 Safety Management	p. 4
1.7 Claims Management	p. 5
1.8 Risk Management	p. 5
Chapter 2. Understanding Construction Risks	p. 9
2.1 What Is Risk?	p. 10
2.2 Pitfalls in Construction	p. 10
2.2.1 Failure to Fund	p. 10
2.2.2 Owner-Furnished Materials	p. 11
2.2.3 Major Scope Changes	p. 11
2.2.4 Defective Plans and Specs	p. 12
2.2.5 Slow to Mobilize	p. 12
2.2.6 Failure to Allocate Resources	p. 12
2.2.7 Inadequate Project Management Controls	p. 12
2.2.8 Insufficient Work Definition	p. 13
2.2.9 Unrealistic Schedules and Underestimated Costs	p. 13
2.2.10 Inadequate Cost Control and Accounting Practices	p. 13
2.3 Identifying Construction Risk Areas	p. 13
2.4 Minimizing Risks to Avoid Disputes	p. 16
2.4.1 Selection and Installation of Management Systems	p. 16
2.4.2 Review of the Contract and Subcontracts	p. 19
2.4.3 Records and Filing Systems	p. 20
2.5 Conclusion	p. 21
Chapter 3. Surety Bonds for Construction Costs	p. 23
3.1 Introduction	p. 23
3.2 Why Are Bonds Needed?	p. 24
3.3 Types of Surely Bonds	p. 24
3.3.1 Bid Bonds	p. 24
3.3.2 Performance Bonds	p. 25
3.3.3 Labor and Materials Payment Bonds	p. 25
3.3.4 Combination Performance and Payment Bonds	p. 26
3.3.5 Supply Bonds	p. 26
3.4 Underwriting Requirements for a Contract Surety Bond	p. 26
3.5 The Underwriting Process	p. 26
3.6 Underwriting the Contractor	p. 28
3.6.1 Ownership	p. 28
3.6.2 Organization	p. 29
3.6.3 Background and Construction History	p. 30
3.6.4 Continuity	p. 31
3.6.5 Current Operations	p. 31
3.6.6 Financial Condition	p. 33
3.6.7 References	p. 37
3.7 Specific Job Underwriting	p. 37
3.7.1 Job Description	p. 38
3.7.2 Job Size	p. 38
3.7.3 Work Program	p. 39
3.7.4 Contract Terms	p. 39
3.7.5 Bond Forms	p. 39
3.7.6 Miscellaneous Job Provisions	p. 40
3.7.7 Underwriting Conditions	p. 40
3.8 Reinsurance	p. 41
3.9 Summary	p. 42
Chapter 4. Preparing to Be Bonded--Contractors and Subs	p. 43
4.1 Reputation/Experience	p. 44
4.2 Finances	p. 44
4.3 Game Plan/Vision	p. 46
4.4 Subcontractors and the Bonding Process	p. 47
4.5 Elements of a Contract Surety Bond Submission	p. 49
Chapter 5. Insurance Coverages Checklists for the Construction Industry	p. 67
Chapter 6. General Liability Insurance	p. 95
6.1 Introduction	p. 95
6.2 Commercial General Liability	p. 95
6.3 Coverages	p. 96
6.3.1 Coverage A: Bodily Injury and Properly Damage Liability	p. 97
6.3.2 Coverage B: Personal and Advertising Injury Liability	p. 102
6.3.3 Coverage C: Medical Payments	p. 103
6.4 Additional Contract Provisions	p. 103
6.4.1 Section II: Who Is an Insured?	p. 104
6.4.2 Section III: Limits of Insurance	p. 105
6.4.3 Section IV: Commercial General Liability Conditions	p. 106
6.4.4 Section V: Definitions	p. 107
6.5 Key Coverage Amendments	p. 109
6.6 Limits of Insurance and How They Apply	p. 110
6.6.1 Partnership and Joint Ventures	p. 110
6.6.2 Personal Injury	p. 110
6.6.3 Other Endorsements	p. 110
6.6.4 Excess Umbrella Liability	p. 111
6.7 Summary	p. 111
Chapter 7. Builder's Risk Insurance	p. 113
7.1 Introduction	p. 113
7.2 Document Specifications Requiring Special Negotiations	p. 117
7.2.1 All-Risk Coverage	p. 118
7.2.2 Peril Exclusions	p. 121
7.3 Conclusion	p. 123
Chapter 8. Workers' Compensation	p. 125
8.1 History	p. 125
8.2 The Workers' Compensation Policy	p. 128
8.2.1 Coverage	p. 128
8.2.2 Exclusions	p. 129
8.2.3 Definitions	p. 130
8.2.4 Conditions	p. 130
8.2.5 Endorsements	p. 131
8.2.6 U.S. Longshore and Harbor Worker's Endorsement (USLandH)	p. 131
8.2.7 Jones Act	p. 131
8.2.8 Costs	p. 132
8.3 Risk Financing Plans	p. 134
8.3.1 Guaranteed Cost Plan	p. 134
8.3.2 Incurred Loss Retrospectively Rated Plan	p. 136
8.3.3 Paid Loss Retrospectively Rated Plan	p. 137
8.3.4 Large Deductible Plan	p. 138
8.3.5 Captive Insurance Company	p. 139
8.3.6 Qualified Self-Insurance Program	p. 141
Chapter 9. Workers' Compensation Insurance Cost Control	p. 145
9.1 Introduction to Workers' Compensation Insurance	p. 146
9.1.1 Safety Is the Key to Cost Control	p. 148
9.2 Tips to Reduce Workers' Compensation Costs	p. 148
9.2.1 Review Experience Modification Factor (Mod) for Accuracy	p. 149
9.2.2 Review Rating Classifications	p. 149
9.2.3 Have One Workers' Compensation Policy	p. 150
9.2.4 Check Payroll Limitations and Other Mathematical Calculations	p. 151
9.2.5 Simulate Calculation of the Experience Mod	p. 151
9.2.6 Consider Retrospective-Rated Insurance	p. 151
9.2.7 Evaluate State Funds	p. 152
9.2.8 Undertake Proper Preemployment Screening, Subject to ADA Rules	p. 153
9.2.9 Undertake a Competitive Bid and Compare "Premiums" and Coverage	p. 153
9.2.10 As Allowed by Law--Pay Small Medical Bills	p. 154
9.2.11 Review Loss-Sensitive Programs	p. 154
9.2.12 Confirm That the Insurer Is Assessing Second Injury Funds	p. 154
9.2.13 Buy Insurance from an Insurer with a Successful Managed Care Program	p. 155
9.2.14 Request Surveillance Checks If Fraud Is Suspected	p. 156
9.2.15 Develop Incentive Programs	p. 157
9.2.16 Be Active in Claims Management--Keep Track of the Claims	p. 157
9.2.17 Get Certificates of Insurance for Subcontractors	p. 158
9.2.18 Consider Participation in Wrap-up Insurance Programs	p. 158
9.2.19 Large Contractors Need to Evaluate Self-Insurance	p. 159
9.3 Reevaluate Safety Programs	p. 159
Acknowledgment	p. 159
Chapter 10. Environmental Impairment Liability Insurance for the General Contractor	p. 161
10.1 Introduction	p. 161
10.2 The Risk Management Process	p. 161
10.3 Past Environmental Liability	p. 162
10.4 Present and Future Environmental Liability	p. 163
10.5 Risk Financing	p. 163
10.6 Contractor Pollution Liability Insurance Considerations	p. 164
10.6.1 Commercial General Liability Insurance	p. 165
10.6.2 Pollution Legal Liability Insurance	p. 167
10.6.3 Contractor's Pollution Liability Insurance	p. 167
10.6.4 Architect's and Engineer's Errors and Omissions Insurance	p. 168
10.6.5 Environmental Consultant's EandO Insurance	p. 168
10.6.6 Asbestos Abatement Liability	p. 168
10.6.7 Asbestos Consultant's EandO Insurance	p. 169
10.6.8 Combined Policy Forms	p. 169
10.6.9 Commercial Automobile Liability	p. 170
10.7 Structuring the Program	p. 170
10.7.1 Subsidiary Versus Master Plan Approach	p. 170
10.7.2 Blanket Versus Specific Coverage	p. 171
10.7.3 Wrap-up Plans	p. 171
10.7.4 Determining Coverage Requirements	p. 172
10.8 Adverse Legal Climate for Contractors	p. 172
10.8.1 Scope of Work	p. 173
10.8.2 Standard of Care	p. 174
10.8.3 Warranties, Guarantees, and Representations	p. 174
10.8.4 Site Information Provided by Client	p. 175
10.8.5 Disposal of Contaminated Material	p. 175
10.8.6 Indemnification	p. 176
10.9 Conclusion	p. 177
Chapter 11. Professional Liability Insurance	p. 179
11.1 What Is Professional Liability?	p. 179
11.2 Design-Build Insurance, Surety, and Risk Management Challenges	p. 179
11.2.1 Liabilities and Damages	p. 180
11.2.2 Operational Exposures	p. 180
11.2.3 Traditional Insurance and Surety Applications	p. 181
11.3 Design-Build Insurance Challenges	p. 181
11.3.1 Dedicated Project Insurance	p. 183
11.3.2 Emerging Insurance Products	p. 184
11.3.3 Performance Guarantees and Bonds	p. 184
11.4 Design-Build Surety Challenges	p. 184
11.4.1 Environmental Surety	p. 185
11.4.2 Approach to Surety Underwriters	p. 185
11.5 Design-Build Risk Management Issues	p. 186
11.6 Conclusion	p. 186
Chapter 12. Contractor-Controlled Insurance Programs (CCIPs)	p. 187
12.1 What Is a Contractor-Controlled Insurance Program?	p. 187
12.2 How a CCIP Works	p. 189
Chapter 13. Insurance Administration and Accounting	p. 193
13.1 Insurance Administration	p. 193
13.1.1 Claims	p. 195
13.2 Subcontractors' Insurance Certificates	p. 201
13.3 Accounting for Construction Insurance Costs	p. 202
13.3.1 Direct Costs	p. 203
13.3.2 Indirect Costs	p. 204
13.3.3 Overhead Costs	p. 205
Chapter 14. Property Casualty Insurance and Risk Management	p. 213
14.1 Introduction	p. 213
14.2 Importance of Insurance Agents/Brokers and Insurance Companies	p. 217
14.3 How to Conduct a Competitive Insurance Placement (Broker Bid)	p. 220
14.4 Property/Casualty Outlook for Builders and Contractors	p. 222
Chapter 15. Claims Management	p. 225
15.1 Purpose	p. 225
15.2 Procedures	p. 225
15.3 Workers' Compensation	p. 227
15.4 Casualty	p. 228
15.5 Certificate of Insurance	p. 229
15.6 Control Programs	p. 230
15.7 Builder's Risk	p. 230
15.8 Litigation Management	p. 230
15.9 General Claims Procedures	p. 231
Chapter 16. Managing Safety for Profit	p. 245
16.1 Program Administration	p. 245
16.1.1 Corporate Safety and Health Policy/Mission Statement	p. 245
16.1.2 Yearly Goals and Objectives	p. 245
16.1.3 Commitment by Top Management	p. 245
16.1.4 Supervisory Responsibility and Accountability	p. 246
16.1.5 The Safety Professional	p. 247
16.2 Program Content	p. 247
16.2.1 Developing a Safety Action Plan	p. 247
16.2.2 Accident Investigation Policy	p. 248
16.2.3 Employee Selection and Orientation	p. 249
16.2.4 Ongoing Safety Training Program	p. 250
16.2.5 Modified Return-to-Work Program	p. 250
16.3 Program Assessment	p. 251
16.3.1 Detailed Record Keeping and Performance Measurement	p. 251
16.3.2 Subcontractor Management	p. 252
16.3.3 Work Area Safety Evaluation	p. 257
16.3.4 Annual Report to Management	p. 258
16.4 Program Support	p. 258
16.4.1 MVR Screening	p. 258
16.4.2 Substance Abuse Program	p. 258
16.4.3 Preemployment Workers' Compensation Screening	p. 258
16.5 Employee Commitment or Buy-in	p. 259
Chapter 17. Life Insurance and Succession Planning for Contractors	p. 261
17.1 The Two Succession Plan Components	p. 261
17.2 Integrating Life Insurance into the Succession Plan	p. 264
17.3 Business Insurance Planning Techniques	p. 265
17.3.1 Keyman Insurance	p. 265
17.3.2 Salary Continuation Plan	p. 266
17.3.3 Section 162 Bonus Plan	p. 267
17.3.4 Deferred Compensation Plan	p. 267
17.3.5 Stock Redemption	p. 267
17.3.6 Cross-Purchase	p. 268
17.3.7 Partial Redemption--Section 303	p. 268
17.3.8 Split-Dollar Plan	p. 269
17.3.9 Reverse Split-Dollar	p. 269
17.4 The Life Insurance Selection Process	p. 271
17.4.1 Considerations in the Selection of Insurance Companies and Products	p. 273
17.5 The Acquisition Process	p. 276
17.6 Solving the Contractor's Estate Tax Problem with Survivor Life Insurance	p. 276
17.7 Summary	p. 278
Appendix A. Insurance and Bonding Terminology	p. 279
Appendix B. Examples of Insurance Policies	p. 289
Appendix C. Examples of Bond Forms	p. 353
Appendix D. Financial Statements for Contractors	p. 361
Appendix E. Personal Financial Statements	p. 391
Index	p. 403

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