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Contractor Insurance Issues Touched by Laws, Recession

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The recession is killing off many smaller construction firms, and surety losses are growing. But bigger, better-managed companies continue to win jobs. Further, overall, the surety losses will be manageable.

Speaking at the International Risk Management Institute's construction conference in San Diego, Richard Resnick, senior vice president of Aon Construction Services Group, noted that the number of new contractor-controlled wrap-up insurance programs has pulled even with those of new, owner-controlled programs.

Bid credits are the amount saved when a contractor removes the cost of insurance from its bid. "If you look at the number of CCIPs 15 years ago, they might have been 5% to 8%" of the wrap-up total, Resnick said. "Now it's probably closer to 50-50 when it comes from OCIPs vs. CCIPS."

Contractors with rolling CCIP programs and many staffers devoted to risk and insurance may get more attractive rates and "can do a better deal" than an owner, said Anthony Rastall, partner in JLT Specialty Ltd., a London-based broker. Two other reasons why contractor control may be better are that the contractor will do a better job at safety and claims management, and the owner is a legal and contractual step removed from the subcontractors performing the work.

Yet owners may prefer to control the wrap-up program because their lenders prefer that arrangement. Under a wrap-up, the owner also will have control of payments for claims—something that may make a contractor queasy. Some big contractors will insist on controlling the risk and insurance, said Rastall.

Speakers also noted legal wrangling over scope of coverage of construction defects under contractor liability insurance in Hawaii, South Carolina, Colorado and Arkansas, where contractors convinced lawmakers to pass new statutes defining an occurrence or trying to clarify the issue. As a result, a few insurers reportedly are steering clear of writing liability coverage for contractors in those states. Those firms regularly default on work in progress or shut their doors.


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