April 2013

An environmentally-friendly heating system that just doesn’t work…Units certified by the Leadership in Energy and Environment Design (LEED) program that don’t meet certification requirements…Contractors facing lawsuits from building owners because they were denied tax breaks from promised green structures…

As sustainable buildings become increasingly common, more and more contractors are facing potential losses from their green construction activities. In response, insurance companies are tailoring Property policies to meet these needs. However, it can be hard to define what makes a building green – and how to determine green-related damages.

According to the California Department of Resources, Recycling, and Recovery (CalRecycle), “A green building, also known as a sustainable building, is a structure that is designed, built, renovated, operated, or reused in an ecological and resource-efficient manner to protect occupant health, improve employee productivity; use resources more efficiently; and reduce the overall environmental impact.” The Environmental Protection Agency defines a green building process as “the practice of maximizing the efficiency with which buildings and their sites use resources – energy, water and materials – from siting, design, and construction, to operation, renovation, and reuse.”

As a rule of thumb, the definition of “green” should match the needs of the owner and the environmental standards of the region. For example, the determining factor might be low water use in the desert Southwest, and lower heating bills in the Northeast.

So far, most claims filed under “green” Construction policies have come from advanced systems used in sustainable buildings – technologies so new that insurance companies might not understand fully how they work and what their shortcomings might be. In the final analysis, the deciding factor will probably lie in the contractual agreement between the building owner and the construction contractor.

If you are, or plan to be, active in green construction, we can work with your insurance company to help tailor the coverage you’ll need.

A gas line explosion…A short circuit that fries electric wiring…Even a lightning strike…Any building site under construction or renovation is highly vulnerable.

Builder’s Risk insurance will pay for loss or damage to a structure (and, in some cases, of the materials, fixtures and/or equipment used to build or renovate it) caused by a variety of perils – such as windstorms, hail, theft, and vandalism. The policyholder can also extend coverage to include;

• Property in transit to the job site or stored at a secure offsite location.
• Scaffolding, construction forms, and temporary structures on the site.
• Removing debris from covered property.
• Paying firefighters to save or protect property.
• Replacing blueprints or construction plans.

As a rule, Builders Risk insurance does not cover losses due to mechanical breakdowns, floods, earthquakes, water damage, or rioting.

These policies are often written for a three month, six month, or 12 month coverage term. If the project is not completed by the end of the initial term, it may be extended in many cases, but usually only one time. Coverage ends when the property is ready for use or occupancy.

The amount of coverage, usually based on the project budget, should reflect the total completed value of the structure (including costs of materials and labor), but not the value of the land.

Depending on the circumstances, either the building contractor, developer, or owner(s) can buy Builders Risk. If a bank issues a construction loan, it will usually require the borrower to purchase a policy. In many cases, showing proof of insurance might be mandatory under city, county and state building codes

For more information on this valuable coverage, please feel free to get in touch with our Construction Insurance specialists at any time.

Your Liability insurance premiums are based on two fundamental factors: First, the types of operations you perform (carpentry, electrical, etc.); and second, the amount of payroll and/or revenue assigned to, or arising from, those services. Although your business and insurance programs might use other methods and variables, these are the two key factors in nearly all Liability ratings. Therefore, it’s important to calculate your payroll and revenue numbers as accurately as possible.

One possible area of confusion arises from the fact that insurance rating rules don’t calculate these numbers in the same way that your tax advisor or bookkeeper would for general business purposes. This is to your advantage, because most of the insurance rules dictate what you don’t have to count in determining payroll and revenues used to rate Liability premiums. For example, special rating rules minimize the amount of any overtime pay you must include in the total used in calculating premiums.

We can help show your accountant or bookkeeper the rating rules that will help track these numbers to give the most accurate premium. Be sure to advise us of any significant changes in your operations that might require revising the classification of your business for liability rating purposes. Having the right numbers assigned to the correct classifications can make obtaining an accurate premium audit quick, clean, and hassle free.

If it affects your insurance, it affects us. Let’s work together to keep your insurance program a great value for your investment.

Wrap-up or “Wrap” Construction insurance can provide a highly effective tool to reduce costs and avoid headaches in insuring large, complex projects and the workers building them.

Wrap policies usually offer superior coverage, higher policy limits and greater contract certainty than traditional Commercial General Liability, Workers Compensation, and (often) Builders Risk insurance written for individual subcontractors and types of risk. What’s more, Wrap coverage can minimize potential cross-litigation on construction projects.

Although they’ve been available for decades, these policies have become widespread in recent years, due to the skyrocketing costs of raw materials, financing, and litigation. There are two types of Wrap coverage; owner-controlled insurance policies (OCIP), and contractor-controlled insurance policies (CCIP). Either variety allows the owner to spread the risk among different parties, while providing a seamless insurance safety net for every company and individual involved – which can translate into profit, based on loss experienced over the life of the policy.

Because of their extensive coverage, Wrap policies are usually more expensive than other types of Construction insurance for the owner or primary contractor, who will pass on the extra cost among the general contractors and sub-contractors on the project. This is a small price to pay considering the peace of mind that comes from having all coverages and insured parties protected under a single policy.

Because of their complexity, insurance companies often tailor Wrap policies for each project, writing them on a customized (“manuscript”) basis. Our agency’s professionals would be happy to work with you and your insurer in creating coverage that’s comprehensive and cost-effective. That’s what we’re here for.