Green construction projects are now a reality for owners, developers, designers, and contractors, as well as those who manage their risks and place their insurance. Green building offers significant opportunities for the construction industry, and much of corporate America seems to embrace the idea. However, as with any emerging trend, it also presents risk. The risks range from traditional risk issues to new exposures that are specific to the sustainable building industry. While some of these risks are covered by traditional insurance policies and specialized products designed to address green building construction are being introduced, management of these risks requires a carefully constructed risk management strategy.

On September 1, we will hold the first of a six-part webinar series to address the growing risks and potential exposures of green construction, strategies for identifying and managing these risks, and emerging insurance coverage considerations and products. Choose the webinars you wish to attend, or sign up for all six at a discount. Attendance will apply toward CRIS reaccreditation. Learn more about the Green Building Webinar Series on IRMI.com.

A half-day workshop at the 29th IRMI Construction Risk Conference in November, "Filling Your 'Green' Toolbox," will also address this important topic. The early-bird registration discount ends August 31, leaving only 7 business days before the $100 fee increase. See the conference agenda and speakers, review the benefits of attending, and register on IRMI.com. If you haven't yet made up your mind about attending, you can lock in the low fee by registering now and cancel for a full refund any time before October 2. I hope to see you in our nation's capital.

Best regards,

Jack

Jack P. Gibson, CPCU, CRIS, ARM
President
International Risk Management Institute, Inc.

Featured Educational Event

Early-Bird Price Ends August 31

The early-bird discount for the IRMI Construction Risk Conference ends August 31. See "What's New" at this year's premier educational and networking symposium. View testimonials to learn why many of your peers make this event a must each year. You can also download a "business case" for seeking approval to attend. If you haven't yet made up your mind about attending, you can lock in the low fee by registering now and cancel for a full refund any time before October 2.

Risk Tip

Consider Employee Lending To Return Employees to Work

Mitigating workers compensation claims cost can be tricky. The best way to control challenging cases is managing an effective return-to-work program. How many times have we heard that? What about, "If you would just return this employee to a job within his restrictions, it would help with your experience modifier rate?" What if you are too small and do not have opportunities within your company?

There are charitable organizations that need volunteers desperately in order to continue the valuable work that they do for their communities. They need people to answer phones, schedule interviews, perform light janitorial tasks, and sell items in their used goods stores. Once an injured employee is released to return to some level of activity, this is an opportunity for an employer to "lend" that employee to a charitable organization. It shows the employer to be a good citizen and offers a much-needed service to the community. The employer pays the employee wages and may be eligible for a tax benefit, plus the workers compensation claim is being managed toward resolution. When the employee has reached full duty or a point in healing that the employer can accommodate, s/he can go back to his/her job or another employer. In most states, this is considered a suitable job offer.

What is the value? The bottom line is that by returning an employee to a job, the healing process is enhanced. Employee lending starts the act of work hardening by getting the employee back to the routine of going to a work environment. The employee becomes productive again, and the reconditioning process is in place.

By: Crystal A. Witham, Sr. Injury Resolution Consultant
CM-Services Inc.
Pittsfield, ME

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What's New in Your IRMI Library

Are You Ready for the Pandemic?

On June 11, 2009, the World Health Organization (WHO) officially declared the outbreak of influenza A (H1N1) virus a pandemic, Phase 6—the highest level—for the first time in 41 years. So far we have been fortunate that this virus is not more deadly, but medical experts are concerned that this could change. We shouldn't grow complacent. It's time to make certain that your plan is ready for this fall's flu season.

A short article in the most recent issue of Risk Management Notes (the newsletter that accompanies supplements to Practical Risk Management) includes links to a number of websites that can help you fine-tune your plans. If you subscribe to Practical Risk Management, review the article and access the links on the platform to which you subscribe:

For summaries of other new and updated information in your IRMI library, go to What's New on IRMI Online or What's New in SilverPlume.

New Expert Commentary

There are over 1,100 risk management and insurance articles on IRMI.com. Below you'll find summaries of some recent additions with links to the articles.

What Satisfies the Self-Insured Retention?—CGL SIR endorsements are applied in a variety of ways, per Steve Rawls, depending on the jurisdiction.
Workers Compensation Return-to-Work Programs: Cost Savers?—Insurance savings can be achieved if done correctly. Glenn Brown explains.
Uninsured/Underinsured Motorist Coverage and Anti-Stacking Provisions—UM/UIM anti-stacking statutes and caselaw vary widely by state. Brent Cooper reviews.
Killer Bond Forms and Contract Provisions—New surety bond forms and contract provisions are discussed by Marilyn Klinger.
Pitfalls in Public-Private Partnerships—Insurer funding of anti-fraud activities raises questions about investigative and prosecutorial efforts. Tim Ryles examines the quandary.

IRMI Featured Publication

White Paper: "Effective Contractual Risk Transfer in Construction"

Get this valuable white paper from IRMI at no charge when you sign up for IRMI Construction Risk Manager—a new, free monthly e-mail newsletter with the same integrity and quality you've come to expect from IRMI Update. If you buy, sell, underwrite, or litigate construction insurance or manage construction risks, this newsletter will become an essential part of your tool belt. Learn more .

Your View

Worst-Case Wrap-ups

IRMI Update 211 asked readers for their wrap-up horror stories for possible inclusion in the panel discussion at "Wrap-up Do's and Don'ts," as part of the IRMI Construction Risk Conference. Below are some of the responses.

Wrap-up worst practices:

1. Sponsor who allows contractors onsite without enrollment and plans to enroll them later with a "no known loss letter."

2. Sponsors imposing subcontractor offsite insurance requirements that the subcontractors can't meet.

3. Sponsors and upper tiered subcontractors who do not pass wrap-up information and offsite insurance requirements to subcontractors in contract language.

4. Prime contractor who sued lower tiered subcontractor for expenses not covered under the wrap-up general liability policy.

5. Lower tiered subcontractors placing a lien on the owner's property based on disputes between lower tiered subcontractors.

6. Sponsors who have complex payroll tracking that require subcontractors to enroll numerous times on the same project.

7. Large projects where enrolled contractors of various tiers subcontract with each other and don't report the payroll.

—Colleen Aegerter, Vice President, CIP Manager,
Lockton Companies LLC, Kansas City, MO
As an independent consultant, I have had clients on both sides of a wrap-up. From the sponsor side (problem for the contractor), the biggest difficulty is dealing with bid credits on the umbrella coverage since such a large percentage of umbrellas are flat rated. Most sponsors I have worked with have had fair coverage and reasonable allocation of deductibles to trades. To make the wrap work, they have to get the bid credits and get credits on flat rated umbrellas, which is always an issue since the contractors get no premium back from their insurers.

The contractor side poses far more issues to the sponsor, in my experience. Claims have to be managed carefully as I have seen contractors try to "slip" claims from other jobs into the sponsor's wrap. The sponsors have also had issues with contractors that have large deductible programs themselves, since that leads to negotiated credits for expected retained losses as the contractor's premium itself reflects the retention of expected claims. This can be a most contentious negotiation. Also, getting contractors and GCs to avidly support safety and loss control can be a great challenge to the sponsor. The wrap is only a good financial decision for the sponsor if losses are minimized. I have found that proper incentives by the sponsor to the GC and trades for proper loss control and safety resulting in low to no losses works very well for both sides.

Lastly, both sides suffer from the lack of availability of the proper completed-operations coverage tail. Most wraps offer 5 or maybe a maximum of 10 years. Many states have statues of repose that exceed the available tail coverage. This exposes both sponsor and contractor to uninsured defect exposure in the latter stages of the period of repose even if the sponsor buys the maximum coverage available. These aren't horrors, just real-life difficulties of wraps. However, on large projects, a wrap is still the best way to go for all. Management, communication, and partnership are the keys!

—Donald McKaba, Owner,
Insurance Consulting Experts, Oradell, NJ
One practice that has given workers comp carriers and their agents some difficulty is when an OCIP requires a waiver of subrogation and a certificate from the individual contractor participants that states specifically that the non-OCIP policy coverage applies to "offsite exposures" of the OCIP job. As a workers comp insurer, we exclude coverage for the OCIP by specific endorsement so that the OCIP payroll will not be picked up and charged on our policies final premium audit, since the OCIP policy should be the one providing coverage for any exposure related to that OCIP job/workplace and the contractor does not want to pay twice for the same coverage. Thus, the request to have a certificate of insurance provided that references coverage that is in fact excluded on the policy itself makes no sense. Since workers comp coverage and policy language are largely similar in each given state, and not manuscript or tailored, then there needs to be uniformity in the drafting of OCIP policies so that they mesh with non-OCIP policies and provide obvious boundaries that define when coverage applies and when it does not.

—Eric England, Senior Underwriter,
Hawaii Employers Mutual Insurance Co., Hawaii
I have two different insureds that are on a CCIP that is for 3 years, and now that they are about 60 percent finished with their work, the GC is canceling program. This is unfair as the work is excluded on their policy, and we are trying to get the company to make an exception on this project. The insureds do not understand that 4 years from now, they could be left bare, without coverage for a claim.

—Sharon R. Myers, Commercial Account Manager,
Frank H. Furman, Inc., Pompano Beach, FL
Inadequate limits and insufficient completed-operations term (not matching the statute of repose) can be troublesome, particularly on smaller residential projects. Compounding this is subcontractors not buying difference in conditions coverage in the event the wrap-up blows the aggregate or the term expires prior to the loss. Why do subs not buy this? Underwriter unwilling to offer? Too expensive? Agent fails to recognize the exposure and recommend appropriate coverage?

—Fred Lapointe, AVP Business Development, ACE USA
I have represented enrolled contractors as well as the owner/developer in over 50 construction personal injury suits arising on wrap-up projects. A couple of points come to mind. One, it is the rare case on a wrap-up where none of the enrolled contractors (other than plaintiff's employer) are potentially liable under the multiemployer worksite analysis. Therefore, personal injury litigation on wrap-up projects in effect are strict liability cases with the only goal of damage control rather than a negligence action requiring the plaintiff to find a liable contractor. Union workers quickly learn of this "financial" situation which requires a strong claims management process (quarterly claims review meetings) in place to minimize damages, and this should be considered during the underwriting process. This concern should also be addressed during the contract drafting stage where the parties are establishing who is responsible for control over means and methods of the work as well as safety on the project, as those are the contractual provisions the courts focus on in assessing liability. Control over these areas should be placed on the employer of the exposing employee to the extent possible.

Two, I have seen cases tried to verdict despite reasonable settlement possibilities because the excess/umbrella carrier was not the same as the primary carrier. This is a problem when the annual primary aggregate is exhausted so the excess carrier is involved in the claim resolution process, yet the primary carrier controls reimbursement of the workers compensation lien. There should be some discussion of how these types of cases will be resolved short of necessitating trials in cases that otherwise should settle. It was a major problem on one wrap-up where the carriers were different, but not a problem at all on a recent project where the primary and excess carriers were the same.

—Joseph Spitzzeri, Tier I Shareholder,
Johnson & Bell, Ltd., Chicago
My worst wrap was an OCIP about 10 years ago where the owner felt that they "hired" others to be responsible for the safety of the site. They took no ownership after they hired others. We had several severe injuries and at least 2 deaths due to a lack of safety from the top management down.

—Patricia L. Wright, Vice President, Chartis, Chicago
In response to your request for wrap horror stories, recently I have had two similar claims involving subcontractors, where the projects were $20 million but the wrap policy was written to provide coverage for all subs with a policy limit of $1 million burning limits defense to be shared by all subs—in one case the GC back-charged each sub the cost (based on a policy limit of $1 million for each sub—not the project). Thus, the wrap was written by underwriters who knew they were selling a $1 million wrap for $20 million projects. Obviously, the wrap is not sufficient, and many subs have endorsements which exclude GL coverage for projects under a wrap.

—Roger D. Link, JD, MS-CNS, Sr. Litigation Claim Specialist,
Farm Bureau Mutual
Low-level liability only CIP programs—Liability only CIP programs providing limits of $1.0 million/$2.0 million or $2.0 million/$4.0 million for the project duration and only a few years beyond completion for products and completed operations should be prohibited. Contractors providing CIP credits often do not recognize their own insurance won’t cover excess or DIC of the CIP. This leaves a contractor or subcontractor with no coverage in the event of a products or completed operations claim after the policy ends. In the event of a catastrophic bodily injury, property damage, personal injury, or advertising injury claim from ongoing operations during the project, the contractor’s or subcontractor’s umbrella or excess program will not provide coverage. You can keep this from happening with an appropriate CIP endorsement, but most policies contain CIP exclusions and coverage can be tough to obtain.

[Another problem is] CIP programs requiring credits equal to manual rates when you have a loss rated large deductible plan. CIP credits are supposed to be cost neutral.

—Dan Sielicki, Risk Manager,
Baker Concrete Construction, Inc., Monroe, OH
We have seen a lot of "carrier issues" on wrap-ups. There are only a few carriers in the wrap-up game, and wrap-ups are so foreign to everyone that carriers are either "taking liberties," messing around with numbers, or just do not exactly know what they are doing.

First [problem] is the audit system; carriers say they do "physical audits," but in reality, they are just calling up the contractors and asking them what they reported. We have seen carriers accept multiple excluded or nonrelevant codes; such as Construction at a Perm Yard, Sales Persons, Clerical (from the home office), Drivers, and more. Also, if you know about New York workers comp, you know about capped and uncapped payroll. Workers comp payroll is capped in New York; it changes, but it is currently $900 a week per employee (based on our data, capped is ~56% of uncapped).

Capped payroll is probably the most annoying thing for contractors and everyone else involved. We have seen carriers take capped when uncapped should be taken, and uncapped when capped should have been used, which could be good for a sponsor of a wrap-up if they take capped when it should be uncapped.

Also, we have seen carriers get very "creative" on program cost estimates, especially with state assessment estimates. State assessments change by the year, so there is some room for error; however, we have seen some things that are likely not just "errors." We have seen carriers place huge payroll estimates on codes with really low rates, bringing down the assessment estimates to almost 80% of what they should have been. This kills the sponsor at the end of a wrap, when their assessments are way higher than expected.

When contractors are enrolled in a wrap-up, their payroll on that job, and any claims they incur, are reported to their states' rating board by the wrap-up insurer. We have seen many times where the payroll was not reported or reported improperly by the carrier. This really messes with contractors' EMR, especially if much of its work is on wrap-up jobs.

—Ben Slocum, Account Manager, CR Solutions, Georgia

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