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By MARJORIE YOUNG, vice president of E.G. Bowman Company, Inc., and PETER SCALA, a senior loss-control engineer with the New York City-based, full-service, commercial lines insurance brokerage

THE BASICS OF BUILDER'S RISK INSURANCE

How much insurance is needed? Determining the limits for hard construction costs is fairly straightforward. But don't forget the "soft" costs. Permits and architects' and engineers' fees are a significant part of the cost. Buy enough insurance to cover those costs too.

Your general contractor's liability policy should insure your company. Minimize exposure by having someone else's policy cover you. Require your general contractor to provide a protective liability policy that names you as the "insured." This covers liability during construction.

For example, if the contractor drops a beam on a Cadillac and your company is named in a suit for damages, this policy will respond and your exposure on your own general liability policy should be minimal if any. And if the claim is so big that it exceeds the contractor's coverage, then your policies may kick in with additional protection on your behalf.

Some projects are large enough to qualify for a wrap program that considers the project as a single entity. The wrap program covers the developer and contractors as one group, wrapping in workers' compensation, general liability and umbrella liability around the combined entities. This provides ease of administration and cost control.

With most projects, insuring the finished value of the project is simplest. However, an insure-as-you-go plan can sometimes save money. Here, you buy insurance to cover the value of the project to that date. You have to file timely reports on increases in value. Generally, the modest potential cost savings are not worth the extra work and risk involved.

There is one bit of good news. Terrorism insurance may not be needed. Because terrorists typically aim to cause the most death and destruction, they are historically attracted to occupied buildings--not buildings under construction.

DON'T OVERLOOK SIMPLE SAFETY STEPS

Insurance is just one piece of the puzzle. Building sites are challenging, as contractors rush to get the job done. Because safety can fall to the bottom of priorities, it behooves risk managers and safety pros to reach out to construction supervisors and make them their allies.

There are many hazards at construction sites: compressed-gas cylinders; temporary heaters; combustible debris like wood chips, gasoline and other flammable liquids; and blocked exits. And there's always the danger of structures collapsing--as shown by the recent collapse of a crane and subsequent destruction of a building in New York City.

Theft and vandalism are the most frequent causes of loss. Construction sites are an attractive nuisance to kids who love to play in them--and steal tools if they get a chance.

Security guards on duty 24/7 can't hurt but aren't as great a deterrent as most people think. While the guard is snoozing, going to the bathroom or reading the newspaper, vandals can cause havoc. Lighting and a well-maintained fence that's high enough to discourage interlopers do more good. And it's best to take tools off-site every night.

Collapse and fire happen less often but are often catastrophic. Contractors must follow all industry protocols to make that sure neither the building under construction nor the one next to the site will collapse.

A fire can quickly rage out of control and gut the entire building, which is open and doesn't have the fire-control features of finished buildings (firewalls, fireproofing and sprinklers). So fire prevention is paramount.

After welding, a fire watch should be held until everything cools down to ensure that embers don't catch fire. Smoking is rampant on job sites. Post "No Smoking" signs, but be realistic and place sand buckets around so that smokers can extinguish their butts.

You'll hardly ever see fire extinguishers on construction sites. This is inexcusable. A small investment in extinguishers can save a building from becoming a charred ruin.

Job supervisors can be key allies. Their job is to get the project done on time, and safety isn't their top concern. Take a little time to try to win them over. Weekly safety meetings with the general contractor and daily "toolbox talks"--quick morning safety reminders to the work crew--will help keep safety at the forefront.

But even the most conscientious supervisors and workers can become blind to hazards and walk by problems. Supervisors appreciate a pair of trained eyes to look things over. So have a professional loss-control engineer do a monthly inspection of the site. A pro will spot both major and minor problems and help prevent accidents from happening--and that will keep everyone happy.

By strategically buying insurance and implementing top-notch safety, you'll have a true risk management program that will reduce your exposure and give the most insurance bang for the buck in your construction project.

November 1, 2008

Copyright 2008© LRP Publications