Insurance  

An integrated insurance program is critical to any construction project. The project owner, contractor and design professional all have insurance issues to deal with, and these should be clearly spelled out in the agreement.

Builders Risk Insurance  

Builders risk insurance, also known as course of construction insurance, is a first-party property insurance that covers the real property during construction.  Whether this is secured by the owner or the contractor, several elements should not be overlooked: 1) Coverage should be written on a “special peril” basis; 2) hard costs and soft costs should be carefully evaluated to make sure the limits are appropriate; and 3) all stakeholders should be named insureds on the policy.

The Contractors Insurance

Insuring a design-build project from a general liability, automobile and workers compensation standpoint is not much different from a design-bid-build project.  The challenge is the professional liability exposure that the contractor assumed when taking on responsibility for the design. Certainly, the contractor should ask the design professionals to indemnify it from the design professionals’ negligence.  Most, if not all, design professionals will be agreeable to this.

Dispute Resolution  

Identifying potential problems and resolving disputes in a timely matter is critical to the success of a project. Stakeholders should be encouraged to discuss concerns before they become claims. Ideally, these issues are worked out among team members. If, however, this is unsuccessful, the next step should be mediation. If mediation is unsuccessful, you have to consider arbitration or litigation.  

On smaller dollar items, arbitration may be appropriate. On larger issues, however, unless both parties agree to arbitration, the default should be litigation. Regardless of whether you have to resort to arbitration or litigation, whenever you use a form of adversarial dispute resolution, it gets very expensive and it destroys relationships. This is why, if it is at all possible, the dispute should be settled by the parties to the dispute.
There are pros and cons to the design-build delivery system. The pros, however, seem to be winning out as design-build becomes more popular. Effectively managing risk on a design-build project requires identifying exposures to loss, figuring out ways to reduce the frequency and severity of those exposures and then arranging appropriate insurance.

Jeff Cavignac is president and principal of Cavignac & Associates, a leading commercial insurance brokerage firm providing a broad range of insurance and expertise to design and construction firms, law firms, real estate-related entities, manufacturing companies and the general business community. The firm employs a staff of 40 at its office headquarters in San Diego. More information about the company can be found at www.cavignac.com.