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- Michael Hammond
What You Need to Know About Builder's Risk Coverage
While most of us are familiar with the requirements
of liability insurance and workers' compensation coverage, far fewer of us
understand builder's risk or course of construction insurance. When
contracting for building construction, this issue must be addressed while
still working with the architect to prepare the contract documents. I will
attempt to provide some guidance on how best to handle builder's risk
coverage.
What is Builder's Risk Coverage?
Builder's Risk Insurance is designed to cover the
property loss exposures associated with construction projects: fire, wind,
flood, collapse, theft, vandalism and other unexpected perils. But,
construction projects often involve unique risks not usually contemplated
by the standard property coverage forms. For instance, structures under
construction are more subject to damage from the elements than are
completed structures; the project property values will change as
construction progresses; the property used in construction may be owned by
different parties during the course of construction (e.g., general
contractor, subcontractors and the owner); and the property may be in
transit, on the job site or at an off-site storage location awaiting
installation. Given these unique coverage issues, the typical contract
between an Owner and Contractor will require that one of the parties
procure builder's risk coverage for the project.
As a general rule, contractors, subcontractors and
suppliers are responsible for their work until they complete performance,
which means they must replace what is damaged or lost. Consequently, they
bear a great risk should damage occur before completion. The owner also
bears a great risk, since he may already have paid for the work that is
damaged. Builder's Risk Insurance, or Course of Construction Insurance, is
a form of property insurance designed to protect everybody against such
losses by shifting the risk to an insurer.
Who does it protect?
Ownership of a construction project is generally more complicated than
ownership of a completed structure. While the City may own the land, the
contactor or sub-contractor may own building materials, equipment and
supplies. At any point in time, the ownership interest of any particular
party may vary. As owners or part-owners of the insured property, both the
city and the contractors or sub-contractors may rightly have a claim to
builder's risk proceeds and therefore, will want to be included as
insureds under the builder's risk policy.
When does the coverage begin and end?
Normally, the general conditions of the contract will require Builder's
Risk coverage from the time construction begins until the project is
completed and occupied. If construction continues beyond the date of the
policy period, it is the responsibility of the party obtaining coverage to
renew the policy. It is a good idea for all named insureds to check the
policy period and make sure the policy is renewed as needed.
Who buys the policy?
This is generally governed by the construction contract documents. Most
American Institute of Architects (AIA) forms provide for the owner to
purchase the policy unless otherwise provided. Alternatively, the
contractor may be required to obtain the policy. In this case, the cost of
the insurance will be added to the overall cost of the project. The most
important priority is to make sure one of the parties has procured the
coverage.
Who is responsible for any deductible?
This should be governed by the construction contract documents. Since
deductibles will vary considerably from policy to policy, it is important
to determine, prior to executing the contract, the amount of the
deductible and who will absorb it. You should be aware the AIA contract
states the "Owner will be responsible to pay costs covered by
deductibles." If you are concerned about deductible exposure, this
provision should be eliminated or modified to shift the risk to the
contractor. Generally, the party that buys the policy would be responsible
for the deductible unless otherwise agreed.
Does MVRMA provide builder's risk coverage?
Our current property insurance coverage with the
Public Entity Property Insurance Program (PEPIP) provides automatic
coverage for property in course of construction up to $25,000,000 subject
to policy conditions. There is no added cost for this coverage. However,
our property program has a $200,000 SIR, and MVRMA is responsible for
paying claims up to this amount before the insurance is applicable. Also,
builder's risk claims will be included in the member's loss history and
will help determine its future premium contributions. As such, MVRMA
members may want to give strong consideration to transferring this risk to
the contractor's insurer. This can be done by requiring the contractor to
obtain the builder's risk coverage. Using this option will protect MVRMA's
loss fund and keep course of construction related property claims out of
the member's loss experience.
Conclusion: When
preparing construction contracts, there are several issues to be resolved
regarding builder's risk coverage. Your legal counsel and MVRMA should be
involved in those discussions. Most importantly, make sure that builder's
risk coverage is appropriately addressed in your construction contract.
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- Dinsmore &
Shohl
Fireman's Rule Does Not Immunize Contractor for
Negligent Work that Caused Injury to Safety Officer
In Torchik v. Boyce, the Supreme Court ruled that an independent
contractor whose negligent work is alleged to have caused injury to a
public safety officer is not covered by the common law "fireman's rule."
The "fireman's rule" is a principle that limits a landowner's duty to
police officers and firefighters in certain circumstances. Specifically,
the rule provides that an owner or occupier of private property may be
liable to a public safety officer who enters the premises and is injured
in the performance of his or her official job duties. The rule only
applies, however, if one of the following circumstances exists: 1) the
injury was caused by the owner's or occupier's willful or wanton
misconduct or affirmative act of negligence; 2) the injury was a result of
a hidden trap on the premises; 3) the injury was caused by the owner's or
occupier's violation of a duty imposed by statute or ordinance enacted for
the benefit of fire fighters or police officers; or 4) the owner or
occupier was aware of the fire fighter's or police officer's presence on
the premises, but failed to warn him of a known, hidden danger thereon. In
the absence of one of these four situations, the land owner or occupier
owes no duty to a public safety officer who is injured while performing
official duties on the owner or occupier's premises. The issue in
Torchik became whether this same rule extended to immunize an
independent contractor in the same manner.
Ricky Torchik had been a deputy sheriff for Ross County for more than
ten years. On February 4, 2003, he was on road patrol and was dispatched
to investigate a sounding home burglary alarm. After finding the front
door locked, Torchik went to the back of the home and climbed the steps of
a wooden deck to check the rear windows and doors. As he descended the
deck steps, the stairway collapsed causing him to sustain injuries to his
legs.
As a result, Torchik filed suit in the Ross County Court of Common
Pleas against the owner of the property, Jeffrey Boyce, and Daniel Heskett,
the contractor who built the house, deck and stairs. Both Boyce and
Heskett filed motions seeking to dismiss Torchik's claims under the
"fireman's rule." In granting these motions, the trial court remarked "it
would be anomalous to apply the fireman's rule only to the owner or
occupier of property and thus, restrict the owner or occupier's liability
while the contractor's liability would be governed by traditional concepts
of negligence. Accordingly, the court opined that the "fireman's rule"
could be applied to the contractor. Torchik appealed this decision to the
Fourth District Court of Appeals, only as to the trial court's decision to
bar the claims he asserted against Heskett. The Fourth District, however,
affirmed the lower court's decision.
Thereafter, Torchik sought and was granted the Supreme Court's review
of the Fourth District's opinion. In doing so, the Supreme Court was asked
to review whether "fireman's rule" should be extended to independent
contractors to bar negligence claims for injuries that firefighters or
police officers sustain while in the scope of their employment. Contrary
to the decisions of the lower courts, the Supreme Court found it should
not.
In its unanimous decision, the Court applied a historical analysis of
the public policy rationale for the "fireman's rule" to contractors. As
such, the Court opined that the general immunity for private property
owners does not apply to an independent contractor like Daniel Heskett. In
1996, the Court's decision in Hall v. Gillespie offered several
policy interests that justify immunizing landowners from injuries
sustained by public safety officers. Such interest included: 1) fire
fighters and police officers can enter the premises of a private property
owner or occupant under authority of law; 2) landowners and occupiers
cannot anticipate the presence of safety officers on the premises, and it
would be too burdensome if they owed them a duty of reasonable care, and
3) firefighters and police officers assume the risk of injury by the very
nature of their chosen profession and are trained to expect the
unexpected. The Supreme Court found these public policy interests did not
support a grant of civil immunity for independent contractors.
Specifically, in Torchik, the Supreme Court commented that "an
independent contractor's duty of care does not depend on whether the
presence of a police officer or firefighter is expected. Once the
independent contractor has completed a project on the property, the
contractor's duty is set with respect to all who may be foreseeably
injured due to the contractor's negligence. ... Firefighters and police do
not assume a special risk of injury from the work of independent
contractors when the risk of being injured by the contractor's work
applies to all equally. It would be illogical to insulate an independent
contractor from a negligence claim simply because the person injured
happens to be a police officer or firefighter acting in the scope of his
or her official duties."
Based on the aforesaid analysis, the Court concluded that an
independent contractor whose negligence is alleged to have caused injury
to police officers or firefighters acting in the scope of their official
duties is not relieved of potential liability under the "fireman's rule."
Thus, an individual similar to Heskett is not relieved of any duty as a
matter of law, and the actions of an independent contractor are analyzed
under ordinary principles of negligence. Ultimately, the matter was
returned to the trial court for further consideration.
The Supreme Court's decision in Torchik serves to further
protect public safety officers when engaged in the performance of their
duties. It provides another avenue for relief for injuries sustained as a
result of another's negligence, as opposed to only being compensated
through the workers' compensation system. In addition, one could hope that
the aforesaid opinion would also act as a deterrent to independent
contractors who have let themselves become accustomed to performing their
profession in a negligent fashion.
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- Craig Blair
MVRMA encourages good claims management as detailed
in our Claim Reporting Policy, Claims Reporting Procedure and Claims
Management Policy. The basics of good claims management include:
1) Timely reporting of claims by our members -
Timely reporting is important so that contact can be made with all parties
within a day or so of the event.
2) Communication from the Claims Manager to members
and claimants - Communication is most effective if made while memories are
still clear. Perceptions change over time due to loss of memory or input
from others as to what "may have" caused the incident.
3) Thorough investigation of all claims by the
Claims Manager - In addition to relying on accident reports, witnesses and
other third-party observations, the Claims Manager's visual inspection of
a scene can prove invaluable when trying to determine how the incident
occurred and if other factors such as weather conditions, surface
conditions, lighting and/or traffic patterns need to be considered. A
physical inspection of damages makes sure they relate to the accident.
Good claims management; as easy as 1, 2, 3.
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-Starr Markworth
Stress - Manage It - Don't Let It
Manage You
Due to the current uncertain economy, stress in the
workplace is on the rise. Since workplace stress has been linked to
physical and emotional problems, it's important to learn how to manage and
reduce that stress.
Early signs of job stress include: sleep
disturbances, stomach problems, trouble concentrating, irritability,
headache and low morale. These signs are simple to distinguish, but
without proper management, they can develop into severe health risks like
cardiovascular disease, musculoskeletal conditions and psychological
disorders.
Excessive stress interferes with your productivity and reduces your
physical and emotional health, so it's important to find ways to to manage
and reduce stress at work.
Develop healthy eating habits. Eating small but frequent meals
throughout the day maintains an even level of blood sugar in your body.
Low blood sugar makes you feel anxious and irritable. On the other hand,
eating too much can make you lethargic.
Get enough sleep. Stress and worry can cause insomnia, but lack of
sleep also leaves you vulnerable to stress. When you're sleep deprived,
your ability to handle stress is compromised. When you're well-rested,
it's much easier to keep your emotional balance, a key factor in coping
with workplace stress.
Get plenty of exercise. Aerobic exercise - perspiring - is an
effective anti-anxiety treatment, lifting mood, increasing energy,
sharpening focus and relaxing mind and body. For maximum stress relief,
try to get at least 30 minutes of heart pounding activity on most days,
but activity can be broken up into two or three shorter segments.
Practice relaxation techniques on and off the job. Loosen your
clothing and get comfortable. Tighten the muscles in your toes. Hold for a
count of ten. Relax and enjoy the sensation of release from tension. Flex
the muscles in your feet. Hold for a count of ten. Relax. Move slowly up
through your body - legs, abdomen, back, neck and face, contracting and
relaxing muscles as you go. Breathe deeply and slowly.
MVRMA recently added a new DVD to its library, "Dealing with Stress:
Stress Management in the Workplace." Contact the MVRMA office if you are
interested in borrowing this DVD.
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MVRMA's Crime Policy
Subrogation is a taking on of the legal rights of
someone whose debts or expenses have been paid. For example, subrogation
occurs when an insurance company, that has paid off its injured or damaged
claimant, takes the legal rights the claimant has against the third party
who caused the injury or damage, and sues that third party. As an insured,
you generally give up your right to pursue recovery against negligent
third parties to the insurance carrier that pays for the damages.
The subrogation concept is generally considered one
of the advantages of insurance. In an automobile accident, it is often
difficult to establish negligence. If your automobile has been damaged,
you can immediately pursue a collision claim under your automobile
physical damage policy, pay your deductible and let the carrier sort out
the lengthy recovery process long after the repairs to your vehicle have
been completed and paid. As an aside to this concept, the carrier is
generally required to reimburse you the proportional share of your
deductible for any recovery it receives from others.
As a matter of your city's insurance requirements,
it is to your advantage to have subrogation waived in the Commercial
General Liability, Business Automobile Liability, Workers' Compensation
and Property policies of the vendors and contractors with whom you do
business. You should already be requiring that your city be named an
additional insured under their Commercial General Liability insurance.
Additional insured status essentially makes your city an insured under the
vendor's or contractor's policy, and carriers are generally precluded from
subrogating against their insureds. The same concept applies under the
Business Automobile Liability policy. For Workers' Compensation insurance,
you would normally require a specific waiver of subrogation endorsement.
However, the Ohio Bureau of Workers' Compensation is precluded by state
statute from offering this coverage extension under its policy. Should
your vendor or contractor be providing a policy from a commercial carrier,
we suggest you request the waiver endorsement. For Property insurance, you
should consider a waiver of subrogation with any major tenant.
In situations where your city is asked by a third
party to waive subrogation under your policies, you should keep the
following in mind:
Under your Ohio Bureau of Workers' Compensation
policy, you should reject any such request.
Under your General Liability, Automobile Liability
and Property policies, it is permissible for
your city to waive subrogation for any third party as long as there is a
written agreement or contract that records the waiver.
Because your ability to waive MVRMA's subrogation
rights against third parties under any written agreement can have
financial consequences to the pool and fellow members, it is suggested
that it be used judiciously. We encourage you to check for waiver of
subrogation requirements as a part of your contract review process.
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