Builder’s Risk - Claim Adjustment Challenges

Dave Passman, Senior V.P. – National DirectorNational Property Claims – Willis Group

Tom Vickers, ShareholderVanek, Vickers & Masini, P.C.

17th Annual Willis Construction17th Annual Willis Construction Risk Management Conference Risk Management Conference

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AGENDA

• Builder’s Risk Insurance

• What it is, and what it is not.

• Pre-Loss Strategies

• Have a plan.

• Post-Loss Strategies

• Actively manage the process.

• Dealing with coverage issues.

• Dealing with quantum issues.

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SCOPE OF COVERAGE

Property insurance coverage for physical loss or damage to buildings and structures during the course of construction, renovation or repair, unless excluded by the policy language..

•All-risk v. named-peril.

•Physical loss or damage to covered property during policy period.

•This is property insurance, not liability or warranty.

•Hard costs v. soft costs.

“Covered Property” defined as:

“buildings or structures … while in the course of construction, installation, reconstruction, or repair.”

“Property Not Covered” defined as:

“existing buildings or structures to which improvements, alterations, repairs, or additions are being made.”

Conflicting policy provisions can create ambiguity.

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PRE-LOSS STRATEGIES

Have a plan for what you will do in the event of a loss

- Identify person who will have ownership of the claim.

- Identify your team.

- Internal

- External (broker, forensic accountant, lawyer)

- Identify risks and what you will do to mitigate loss.

- Understand duties under the policy in the event of loss.

- Other.

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POST-LOSS STRATEGIES

- Provide notice.- Calendar key dates.

- proof of loss; statute of limitations- Execute your plan.- Get the project back on track.- Document and Communicate.

- with the adjuster, team members, and management- Be prepared to devote substantial time to the process.

- requests for information and examination under oath

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COVERAGE ISSUES - coverage

Faulty Design, Workmanship, or Material Exclusion

“We will not pay for loss or damage caused by or resulting from: faulty, inadequate or defective design, workmanship, repair, materials …”

1) “… but if loss or damage by a Covered Cause of Loss results, we will pay for the loss or damage caused by the Covered Cause of Loss.”

2) “… however, any ensuing loss or damage is covered.”

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COVERAGE ISSUES – quantum

Advanced Loss of Profits and Loss of Rents Coverage- delay in completion- period of restoration and period of delay- waiting period and deductible

Soft Costs Coverage- delay in completion

Hard Costs Coverage

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HARD COSTS

• Cost to repair/replace damaged property

• Cost to clean-up debris

• Overhead and Profit

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SOFT COSTS

Additional Expenses over and above the projected project cost as the result of:

1. An insured property loss.

2. Which delays the project beyond the projected completion date.

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“BASIC” INSURED SOFT COSTS

• Interest on construction or repair loans• Property taxes or assessments• Advertising and Promotional Expenses• Costs and Commissions for Lease Renegotiation• Expenses to Reduce Loss – to extent successful

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OTHER COMMON INSURABLE SOFT COSTS

• Legal and Accounting Fees• Architect, Engineer, Consulting Fees• Insurance Premiums• Renegotiation of Financing• Closing Costs• License and Permit Extensions• Contractor or Developer Overhead Costs• Letters of Credit• Loss of Tax Credit• General conditions (may be specified)• Increased Cost of Construction from Delay• Access to Project Prohibited by Civil Authority• Other Appropriate to the Project

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GENERALLY EXCLUDED SOFT COSTS

• Penalties/Liquidated Damages

• Loss of Income

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SOFT COST CLAIM ISSUES

• Did an insured property loss occur?

• Did that loss result in a delay in completion?

• Loss Quantum – What insured Soft Costs were incurred?

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THE SOFT COST CLAIM ISSUE

“Did the insured property loss cause a delay in completion?”

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QUESTIONS THE ADJUSTER WILL RAISE

1. What is the contract completion date?

2. What is the actual completion date?

3. What was the loss impact on the completion date?

4. Were there any other issues which impacted the schedule?

5. Is the job on schedule? Really? Prove it!

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BEING PREPARED FOR THE SOFT COST CLAIM

1. Have a good project schedule/critical path.

2. Keep the schedule current, and accurate.

3. Consider the insured property loss repair methodology in context of the project schedule.

4. Document “excluded losses” and how they impacted the schedule.

5. Maintain good records of schedule monitoring.

6. Assume the adjuster will have experts audit the schedule.

7. Calculation of delay - # occurrences and deductible issue.

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QUESTIONS?