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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