Wind Turbines Slow Down Hurricane Winds
Off the New York coastline would be a perfect place for an array of wind turbines, according to a Stanford professor. It would not only offer clean energy to the Big Apple but it would protect it the next time a Superstorm Sandy comes calling.
“If you have a large enough array of wind turbines, you can prevent the wind speeds [of a hurricane] from ever getting up to the destructive wind speeds,” said Mark Jacobson, a professor of civil and environmental engineering at Stanford University.
Computer models demonstrated that offshore wind turbines reduce peak wind speeds in hurricanes by up to 92 mph and decrease storm surge by up to 79 percent, said Jacobson, who worked on the study with University of Delaware researchers Cristina Archer and Willett Kempton.
“The additional benefits are there is zero cost unlike seawalls, which would cost about $30 billion,” he said, noting that the wind turbines “generate electricity so they pay for themselves.”
The researchers studied three hurricanes, Sandy and Isaac, which struck New York and New Orleans, respectively, in 2012; and Katrina, which slammed into New Orleans in 2005. Generally, 70 percent of damage is caused by storm surge, with wind causing the remaining 30 percent, he said.
That’s why onshore wind farms would not be as effective, he said. While they would reduce the wind speed, they wouldn’t impact storm surge.
In 2013, one of the “most inactive” Atlantic hurricane seasons on record, insured losses totaled $920 million, according to Guy Carpenter, which relied on information from the Mexican Association of Insurance Institutions. The most noteworthy events were Hurricane Ingrid in the Atlantic and Tropical Storm Manuel in the Pacific, which displaced thousands as they caused excessive rainfall, flooding and mudslides.
According to the Insurance Information Institute, Katrina was the costliest hurricane in insurance history, at $48.7 billion, followed by Andrew in 1992 at $25.6 billion and Sandy at $18.8 billion. Economic losses, of course, were much higher.
Wind turbines, which can withstand speeds of up to 112 mph, dissipate the hurricane winds from the outside-in, according to Jacobson’s study. First, they slow down the outer rotation winds, which feeds back to decrease wave height. That reduces the movement of air toward the center of the hurricane, and increases the central pressure, which in turn slows the winds of the entire hurricane and dissipates it faster.
The benefit would occur whether the turbines were immediately upstream of a city, or along an expanse of coastline. It could take anywhere from tens of thousands to hundreds of thousands of wind turbines off the coast to offer sufficient hurricane protection.
At present, there are no wind farms off the U.S. coastline, although 18 have been proposed for off the East Coast. Proposals have also been made for off the West Coast and the Great Lakes. There are 25 operational wind farms off the coast of Europe.
“Overall,” Jacobson and his colleagues concluded in the study, “we find here that large arrays of electricity-generating offshore wind turbines may diminish hurricane risk cost-effectively while reducing air pollution and global warming, and providing local or regionally sourced energy supply.”
Legal Spotlight: November 2014
Court Upholds Reservation of Rights
Wellons Inc. created two thermal oxidation energy systems in 2002 for Langboard Industries in Quitman, Ga., that were designed to generate electricity to be sold to Georgia Power.
During the construction phase in 2004, a “tube bundle” collapsed, causing extensive property damage, but the system was ultimately placed in service by June 2005, at which time leaks were discovered in the “superheater” portion of the system, according to court documents.
To fix the leaks and seal weld the joints, Wellons hired Hunt Construction, which completed the work in March 2006. The superheater was put back into service even though leaks still occurred. Two weeks later, one of the superheater tubes “completely severed.” Wellons claimed Hunt’s faulty repair work was responsible.
Langboard requested a new superheater, at a cost of $850,000, to be designed and installed as the current system was “not conducive to long term operation.” Wellons agreed, but did not immediately notify Lexington Insurance Co., which had issued a commercial general liability policy, with a per occurrence limit of $1 million. Lexington also had issued an umbrella policy, with a per occurrence limit of liability of $10 million.
Two months later, Hunt filed suit against Wellons for monies owed for its work. Lexington was notified through its agent, referencing the CGL policy and not the umbrella policy. Lexington issued a reservation of rights letter, notifying the company it was “investigating this matter.”
Langboard eventually filed suit against Wellons in 2007. Lexington sent another, similar reservation of rights letter.
After a jury trial in 2010, Langboard was awarded $8.4 million for breach of the purchase and construction agreements. A month later, Lexington advised Wellons it had “no obligation” to defend or indemnify it.
Wellons filed suit seeking a court declaration that the verdict was a covered loss under its CGL or umbrella policy. Both it and Lexington sought summary judgments.
The U.S. District Court for the Northern District of Georgia ruled in Lexington’s favor. On appeal to the U.S. 11th Circuit Court of Appeals, Wellons argued the reservation of rights notification needed to be more specific to comply with Georgia law.
The appeals court disagreed in May, saying that Lexington’s “defenses of noncoverage were not known … until it concluded its investigation… .” The court also found that Wellons had never notified the company of a claim under the umbrella policy.
Scorecard: Lexington Insurance did not have to cover an $8 million jury verdict resulting from faulty construction of an energy system.
Takeaway: Insurers “must” give insureds notification of a reservation of rights, but Georgia law only recommends that specific policy terms be part of that notification.
Imitation is Not Disparagement
In 2010, Gary-Michael Dahl, manufacturer of the Multi-Cart, filed a lawsuit against Ultimate Support Systems claiming that Ultimate’s Ulti-Cart infringed on Dahl’s patent and trademark, and damaged its business and reputation, among other issues.
Both the Multi-Cart and Ulti-Cart are collapsible carts designed for the musical industry to transport music, sound and video equipment.
Ultimate sought defense under its commercial liability policy issued by Hartford Casualty Insurance Co., which denied coverage, claiming that “disparagement” was not covered by the personal and advertising injury policy terms.
The insurance company also said the policy did not cover violations of intellectual property rights.
After Ultimate sued for coverage, the California Superior Court dismissed the lawsuit. That decision was affirmed by the Court of Appeal, and on further appeal to the California Supreme Court, Ultimate lost once again.
The state’s high court ruled in June there was no disparagement, either explicit or inferred.
The possible confusion between the two products does not imply inferiority of the Multi-Cart, the court ruled. In addition, Dahl’s claim that Ulti-Cart was a “knock-off” of the Multi-Cart, and thus derogatory of the Multi-Cart, was disputed by Dahl’s own claim that the two products were “nearly identical.”
Scorecard: Hartford did not have to provide a defense to Ultimate Support Systems in a trademark infringement lawsuit.
Takeaway: The ruling limits the scope of an insurer’s duty to defend a policyholder when the allegations involve disparagement.
Court Rules on Additional Insureds
On Sept. 13, 2010, workers of Fast Trek Steel were tightening safety cables on steel beams at Yale University’s Science Area Chilled Water Plant Shell when the unsecured beams dislodged and collapsed. One ironworker, Robert Adrian, fell to his death. Three others were injured by the falling beams.
Adrian’s estate and the injured men filed suit alleging negligence against, among others, Shawmut Woodworking & Supply Inc., general contractor of the construction project, and Shepard Steel Co., a steel fabrication subcontractor.
Because of workers’ compensation laws, there were no lawsuits filed against Fast Trek, which, as required by its contract with Shepard, had obtained a general liability policy from First Mercury Insurance Co. with a $1 million per occurrence coverage limitation, and an excess liability policy from National Union Fire Insurance Co., with up to $10 million of coverage.
Both Shepard and Shawmut sought defense and indemnification from First Mercury as “additional insureds” of that Fast Trek policy. Liberty Mutual — which had issued a liability policy to Shepard and is currently providing a defense to Shepard and Shawmut under a reservation of rights — also demanded that First Mercury assume that defense.
First Mercury demurred, contending, among other reasons, that Shawmut was not included in the definition of additional insured, and that even if Shawmut and Shepard were included, there was no coverage because Fast Trek was not named in the underlying lawsuits.
The U.S. District Court for the District of Connecticut disagreed.
It ruled that when Shepard hired Fast Trek as its subcontractor — and as Shawmut’s sub-subcontractor — the agreement expressly incorporated the Shawmut-Shepard contract, and that it was “immaterial” that there was not a “direct contractual relationship” between Shawmut and Fast Trek.
In addition, it ruled that the accident was arguably caused by Fast Trek and that the reason Fast Trek was not named in the underlying lawsuits was due to the exclusive remedy rule of workers’ compensation law.
Scorecard: First Mercury must defend and indemnify the general contractor and subcontractor in the workplace death and injury lawsuit.
Takeaway: A sub-subcontractor need not be explicitly included in a contract for coverage to be extended.
Construction’s New World
Get off a plane at Logan Airport and cross the harbor toward Boston and you will see construction cranes, a lot of them.
Grab an Amtrak train from Philadelphia into New York and pulling into Penn Station, you will see more construction cranes, many more of them. The same scene repeats in Denver, Los Angeles, San Francisco and Chicago.
All that steel and cable in the skyline signifies a construction industry that is growing again, after having the rug pulled out from under it in the Great Recession of 2008-2010.
The cranes these days look the same as cranes looked in 2008, but the risk management and insurance environment in construction is anything but the same now.
A variety of factors are now in play that have drastically changed construction risk underwriting, according to Doug Cauti, a senior vice president and chief underwriting officer with Boston-based Liberty Mutual’s construction practice.
Doug Cauti characterizes the current construction market.
Talent and Margins
For one thing, according to Cauti, the available talent pool in construction is nowhere near what it was pre-recession.
“When the economy went into its downturn, a lot of talent left the business and hasn’t returned,” Cauti said.
Cauti said recent conversations with large contractors in Ohio and Pennsylvania confirmed once again that contractors are facing a workforce that is either aging or very inexperienced. That leads to safety management and project quality concerns at just the moment in time that construction is rebounding.
Doug identifies one of the top risk management issues facing construction firms today.
Workers compensation risks in construction, already a problematic area, are seeing an impact from that dynamic.
Contractors are also facing much more competition. In the past, contractors might have bid on 10 jobs to get one, now they have to bid on 50 or 60 jobs to get one. That’s putting pressure on margins.
“There are a lot of contractors out there competing for business,” Cauti said.
“Margins are going up but not at the same rate as the industry’s recovery,” he added.
Financing and Risk Transfer
Another factor impacting the way construction risk is being underwritten is the size of projects and the way they are being financed. Construction’s recovery from the recession might be slow and steady, but the size of projects requiring risk management and insurance has increased substantially.
In 2010, there were 85 projects under contract nationally that were worth $1 billion or more, according to Cauti. One year later, the percentage of projects of that value or higher had grown by 30 percent, and the trend continues.
A lot of those projects are design-build, a relatively new approach to construction that Liberty Mutual has grown comfortable underwriting over the years. But design-build is still an additional complication, blurring the traditional lines of responsibility.
“We did it when the growth in contractor-controlled insurance programs happened, we did it with the evolution in design-build and we’re laying the groundwork to be a thought leader in public-private partnerships and integrated project delivery.”
– Doug Cauti, Chief Underwriting Officer, Liberty Mutual National Insurance Specialty Construction
Given the funding demands of these much larger and more valuable projects — many of them badly needed public sector infrastructure improvements — public-private partnerships, otherwise known as P3s, are now coming into vogue as a financing option.
But deciding how risk should be allocated, underwritten and transferred in this new arrangement between contractors, the state, and private partners is a relatively new and untested science.
As a thought leader in the underwriting of the design-build approach – and the more traditional design-bid-build – Cauti said construction experts within Liberty Mutual are growing their knowledge to stay in step.
“We did it when the growth in contractor-controlled insurance programs happened, we did it with the evolution in design-build and we’re laying the groundwork to be a thought leader in public-private partnerships and integrated project delivery,” he said.
That means attending relevant industry conferences like the annual IRMI Construction Risk Conference where Liberty Mutual has maintained a significant presence, and engaging in dialogues with contractors and government officials, and maintaining clear and active lines of communications with brokers.
Doug discusses emerging approaches to construction.
Legal and Regulatory
Another change that is creating challenges for construction risk underwriting, according to Cauti, stems from what’s happening in United States courtrooms.
Across the country, how a court interprets coverage can vary widely, especially in the area of construction defect.
“In the past, many jurisdictions viewed construction defect simply as shoddy workmanship and they had to go back and redo it,” Cauti said.
But now, on a state by state basis, courts are ruling that a construction defect is an accident under certain circumstances that may be covered by a contractor’s general liability policy.
In 2014 alone, according to Cauti, Supreme Courts in West Virginia, Connecticut and North Dakota ruled that construction defects can sometimes be considered accidents.
Cauti said doing business with a carrier that pursues contract clarity whenever possible – and that possesses an experienced claims team that can navigate the wide variety of state interpretations – is absolutely essential to the buyer.
Having claim teams not only dedicated to construction but also to construction defect, adds a lot of value to a carrier’s offering.
Doug outlines another top risk management issue facing construction firms in today’s booming market.
Now, as never before, contractors are relying on experienced construction insurance teams to help them address these complexities.
Insurers need to have the engineering expertise to analyze a project, to make sure the right contracting team is in place and to insure that risk exposures are being properly assessed. Another key in a construction insurance team, according to Cauti, is the claims department.
A Strategic Approach
The legal and financing changes that are taking place in the construction market, from a risk transfer standpoint, aren’t going to get ironed out overnight.
Cauti said it could be 10 years until the construction and insurance industries fully understand the complications of public-private partnerships and integrated project delivery, these approaches gain traction, and the state-by-state legal decisions that are causing so much uncertainty can be digested.
In the meantime, an engaged, collaborative approach between carriers, brokers, contractors, and their financing partners will be necessary.
Doug discusses how his area can provide value to project owners and contractors.
For more information on how Liberty Mutual Insurance can help assess your construction risk exposure, contact your broker or Doug Cauti at firstname.lastname@example.org.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Liberty Mutual Insurance. The editorial staff of Risk & Insurance had no role in its preparation.