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BUILDEX: Addressing the need for adequate project insurance

Peter Caulfield
BUILDEX: Addressing the need for adequate project insurance

Prudent construction owners and contractors carry plenty of insurance to protect themselves against the risks that a project faces. However, the construction and insurance industries change over time, and there’s always a chance that the insurance a project carries might be inadequate.

In one of Buildex’s first presentations, three Vancouver experts will discuss recent developments in construction project insurance.

The speakers are  Lauren Kristjanson, an associate lawyer with Borden Ladner Gervais LLP; Nolan Heuchert, a director of Wylie-Crump Ltd. commercial insurers; and David Miachika, a partner with Borden Ladner Gervais LLP.

Kristjanson said there are a number of risks which parties on a construction project need to protect themselves against.

The main ones are: loss or damage to construction works and supporting equipment and materials during construction operations; delay and acceleration costs; third-party liability claims during and after completion of construction; design errors made during and claims made after completion; pollution and other environmental damages and claims; and questions of compliance regarding insurance requirements under the project contract.

To cover these risks, Heuchert said there are four pillars of insurance: builders risk policies; comprehensive general liability policies; environmental insurance; and professional liability policies.

In order to provide broader coverage and narrower exclusions, Miachika said insurance law has been evolving.

As a result, insurers are developing new products providing broader coverage.

"For many years, insurers who issued property policies on construction projects refused to cover any damages caused by defects in design or workmanship," Miachika said.

"However, the construction market expressed concern about the extent of such exclusions, by which a relatively minor defect could result in catastrophic but uncovered losses."

As a result, the construction industry asked for insurance products with broader coverage, as it was prepared to pay to be covered for damages arising from such defects during construction.

"To meet the demand, insurers developed new policy wordings for these exclusions which offered a range of increasing coverages which could be included in a policy," Miachika said.

The seminar will cover issues that are often raised by insurers in denying coverage construction project insurance policies.

Miachika said construction insurance coverage is denied fairly often.

"But, it depends very much on the policy language, the specific facts of the claim, how well the claim is presented and finally on the viewpoint of the insurer or claims representative acting on the insured party’s behalf," he said.

Coverage can be denied for a number of reasons.

"It can be based on the insurer’s interpretation of the policy language, the underlying facts and past practice in adjusting claims," he said.

Miachika said contractors and subcontractors are susceptible to having their coverage denied, especially in property policies.

"In my experience, claims for indemnity under property and pollution policies can be more problematic than defense coverage under liability and professional liability policies," he said.

"That is because the threshold to establish defense coverage is lower than for indemnity coverage."

Miachika said industry players should take steps to minimize the risk of being denied insurance coverage.

"Before signing a contract, work with your insurance broker to review the contract terms and determine if there is enough coverage for likely risks," he said. "And once a claim arises, work closely with your broker and legal counsel. They can greatly assist you in presenting the most forceful claim to the insurer."

Construction Project Insurance – Recent Developments starts at 8 a.m. on  Wednesday, Feb. 25 at Buildex Vancouver.

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