As an insurance broker for those in the construction business, you know how serious the concerns are for contractors, subcontractors, lenders and owners. Their success often largely hinges on their ability to properly manage risk. Without good risk management planning, things can quickly go awry.
Applying sound business and construction practices, which includes proper preconstruction planning, use of experienced personnel, and stringent safety programs, are all very important aspects of this often hazardous work, but the most important project risk allocation tools are the contracts governing the various parties’ rights and obligations.
Within those contracts, risk is primarily allocated through indemnity and insurance requirement provisions. Proper risk management practices, however, are not merely limited to construction management liability risk allocations. Equally important is careful contract preparation and review. Before entering into your next construction contract, you may want to consider these important risk management concepts.
Some vital risk management planning
Having additional insured status adds a layer of protection to your client’s indemnity requirements. A key advantage, of course, is that the insurer has an up-front duty to defend claims made against additional insureds, whereas most indemnity provisions require only that the indemnitee provide reimbursement of any defense costs.
As a broker, you should review the entire insurance program to prevent gaps in coverage. You may need to amend one or more of your client’s policies through endorsements, or have them purchase additional coverage, to close these gaps.
While is it advisable to clearly address all anticipated risks in the contract, it serves no useful purpose to force an onerous, one-sided contract on subcontractors. It is probably best to have your client foster a collaborative project environment and avoid a more adversarial relationship between the contracting parties.
Basically speaking, risks should be transferred to those in the best position to control them. Owners and contractors should anticipate potential project risks and determine whether it is more advantageous to retain or transfer them.
Owners, especially those not familiar with the nuances of the construction industry, should strive to limit the number of parties with whom they contract. They should engage a project architect, and then place responsibility for engagement and oversight of all other design professionals on the architect, who must be capable enough to oversee these consultants’ services.
Brokers that understand construction management liability are better equipped to provide solutions and risk aversion techniques that will best serve those that they provide their services to.