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Construction Engineering 221

Construction Insurance

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RPQ1. Insurance does not eliminate the risks involved

in construction contracting.

A. True B. False

2. Negligence on the part of the contractor will invalidate the insurance contract.

A. True B. False

3. A good safety record will lower the manual rate for a construction company.

A. True B. False

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RPQ 1

1.Insurance does not eliminate the risks involved in construction contracting.

The correct answer is A. True

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RPQ 2

2. Negligence on the part of the contractor will invalidate the insurance contract.

The correct answer is B. False

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RPQ 3

3. A good safety record will lower the manual rate for a construction company.

The correct answer is A. True

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Risk Management

Risk Management – a comprehensive approach to handling exposures to loss (an peril that can cause financial impairment)

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Apply Risk Management

Recognize the varied risks Measure the degree of exposure Decide how to protect against those risks Conduct program of loss control and

prevention Monitor the results

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Risk Management

Insurance does not eliminate the risks involved in construction contracting, but it does shift most of the potential financial burden to a professional risk-bearer

Insurance companies not only pay for losses but also work along side construction companies to help them with risk management

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Risk Management Services

Insurance companies offer valuable services in helping companies manage risk. What are some of these services?

Safety appraisals Loss prevention Education and training programs Site inspections

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Construction Risks

Construction work by nature is hazardous, accidents are frequent and often severe.

Construction Contracts require: Contractor assumes Owner’s and AE’s legal

liability of construction accidents Provide insurance for Owner’s protection

Contractor insurance covers parties other than itself and protect against liabilities not legally its own

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Insurance Policy

Contract whereby the insurer promises, for a consideration, to assume financial responsibility for a specific loss or liability

Insurer has duty to: Defend the contractor in an action brought

against it (complaint alleges facts included in coverage of policy)

Indemnify the contractor from loss covered by the policy

Insurance controlled and regulated by federal and state statues

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Insurance Policy

Are losses suffered by contractor’s own deliberate actions recoverable?

NO Are negligence or oversight covered by

the insurance contract?YES – these are not deliberate

acts Can a contractor recover more than its

losses? NO – cannot profit from losses

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Insurance Costs - Premiums

Can the standard premium charge for insurance be adjusted? (Manual Rate)

YES Safe work = less losses = lower insurance rates

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Contract Insurance Requirements

Contract requires the contractor to have: Workman’s compensation insurance Employer’s liability insurance Comprehensive general liability insurance

Contracts normally require either the Owner or the Contractor to furnish: Property insurance to protect the project Liability insurance to protect the owner

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Important Question

Why is it important for a contractor to submit a copy of the contract documents to its insurance company prior to submitting their Bid?

Insurer is the expert at evaluating the RISKS Special insurance coverage may be

required Type of construction presents special risks

Cost of insurance required should be included in the contractor’s bid

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Which kinds of insurance are required by law?

Worker’s compensation

Automobile

Unemployment

Social security (benefit not just at retirement)

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What about Subcontractors?

Prime contractor has a contingent liability for the actions of its subcontractors.

Several different categories of liability insurance need to protect itself from liability for damages caused by its

own acts of omission or commission as well as from damages caused by subs

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Analysis What and how much to purchase?

Careful study and consideration Cost of premium balanced against the

possible loss and the probability of its occurrence

What is another way to take care of a risk other than adding more insurance?

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Construction Insurance

Property Insurance on project during construction – Builders Risk Insurance

Property Insurance on Contractor’s Own Property

Liability Insurance Employee Insurance Automobile Insurance Business, Accident and Life Insurance

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Project Property Insurance

General contractor responsible for the project during construction

Which of the following have the least risk associated with property damage?

A. Building constructionB. Marine constructionC. Engineered construction (highways,

dams)Answer is C. Engineered construction

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Builder’s Risk Insurance

Most widely used Project Property Insurance Not use by engineering contractors – why? Provides property coverage only Does not include liability coverage in any

form Deduct cost of land prep and foundation –

why? Premium mainly dependent on:

Type of construction Availability of fire-fighting facilities

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Builder’s Risk Insurance Who actually buys the Builder’s Risk

Insurance Policy? Owners may purchase – most require

contractor to provide All general contractors can provide this

type of insurance – usually at a higher cost than if the owner buys the insurance direct