Construction and Maintenance

November 25, 2013

Construction records key to defending defect claims

Source: http://www.businessinsurance.com, November 20, 2013
By: Matt Dunning

Although most contractors acknowledge that maintaining thorough contractual and operation records can greatly reduce the severity of construction defect claims, insurance experts said Wednesday that lack of documentation among their clients remains a pervasive issue.

In 2012, in four out of five construction defect disputes involving Hartford, Conn.-based Travelers Cos. Inc.’s construction clients nationwide, vital documents and photos detailing change orders, inspections and approvals of onsite work were unavailable, said Robert Kreuzer, Travelers’ second vice president of construction risk control, during a presentation at the International Risk Management Institute Inc.’s 33rd annual Construction Risk Conference in San Diego.

“Whenever we have an allegation of construction defect on a project that was completed some time ago, we typically struggle to find the documents that we need to understand what exactly happened and why it happened,” Mr. Kreuzer said. “Eighty percent of the time, the documents are either not there, or they’re inaccurate, or we can’t find them. Sometimes it’s as simple as one piece of paper, but it comes down to one piece of paper filed somewhere in one of dozens of boxes, so it becomes quite a daunting task.”

On average, Travelers’ experts said construction defect claims — claims made against a general or specialty contractor alleging the failure of a building component or system based on defective design specifications or building materials, faulty installation or improper maintenance of a project post-completion — take an average of seven years from the initial allegation for contractors to notify their insurers of a defect claim, and many more to litigate in cases where documentation is either incomplete or missing.

“Lack of documentation is a common theme in the litigation process as well,” said Michael Koppang, Hartford-based director of construction claims at Travelers. “When you wait to collect evidence of a possible defect, and then someone on-site goes and tries to fix it, you lose the opportunity to document the as-built conditions.”

“If you can do those things ahead of time, you have a better chance of getting yourself out of the dispute, and avoiding that 11-year headache,” he added. In order to improve the quality and maintenance of their construction records, Mr. Kreuzer said many contractors have begun assembling in-house or third-party assessment teams to review and organize their contracts, project designs and material orders.

“We’ve also heard about lot of contractors doing things during construction operations, like conducting jobsite walkthroughs, change order and RFI reviews, and going back over their project diaries to look at any onsite issues or problems that came up on a given day and how those issues were resolved,” Mr. Kreuzer said.

September 10, 2013

Dental School Facility Construction

Single prime design delivery system for construction of a new dental school facility associated with a University. University made claim against the architect alleging design errors relating to structural steel; Life Safety Code violations; non-insulated pipe failures;  failure to properly staff project; failure to perform contract administration duties; lost value engineering opportunities; and project delay. Total asserted value of the claim exceeded available design professional insurance.

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September 10, 2013

Medical Diagnostic and Treatment Center Project

Design-Build delivery system for new state-of-the-art medical diagnostic and treatment center project. Project experienced significant cost overruns and delay due to design errors in the HVAC, MEP and structural steel plans and failure to coordinate design with original owner-specified equipment. Claim amount exceeded the available design professional insurance.

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September 10, 2013

Hospital Renovation and Expansion

Single prime delivery system for a public hospital renovation and expansion project. MEP engineer failed to specify correct type of piping to carry “clean steam” through the hospital, resulting in system-wide pipe failure and risk of pressure combustion. Remedial plan consisted of complete removal and replacement of piping. Owner claim against the design team for repair costs exceeded the available primary design professional insurance.

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September 4, 2013

Dental School Facility Construction

Single prime design delivery system for construction of a new dental school facility associated with a University. University made claim against the architect alleging design errors relating to structural steel; Life Safety Code violations; non-insulated pipe failures;  failure to properly staff project; failure to perform contract administration duties; lost value engineering opportunities; and project delay. Total asserted value of the claim exceeded available design professional insurance.

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September 4, 2013

Construction of School Gymnasium

Single prime design delivery system for the construction of a new school gymnasium facility and a classroom building at an existing elementary school. Due to an elevation error in the civil engineering plans, the new buildings were constructed 2 feet below the existing FEMA flood plain. Error was not discovered until after construction was completed. Remedial options included raising the buildings 2 feet or constructing a wall around the existing buildings to divert flood waters. The cost for either remedial plan exceeded available design professional insurance.

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September 4, 2013

Elementary School Construction Project

Multiple prime delivery system plus construction manager at agency (no subcontracts) on a new elementary school construction project. School District alleged design and construction defects on project related to masonry walls and roof structure which led to water infiltration and mold. Alleged claim value exceeded available design professional insurance.

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July 9, 2013

Second Circuit affirms application of policy exclusion in crane collapse coverage case

Source: http://www.lexology.com, June 28, 2013
By: James T. Killelea

The Second Circuit recently affirmed a lower court decision holding that an insurance policy exclusion barred coverage for claims against a construction company relating to a March 2008 crane collapse in Manhattan. A copy of the decision can be found here.

According to the lower court decision, the construction company, RCG Group, sought coverage from RSUI Indemnity for dozens of lawsuits over the crane collapse at 303 E. 51 St., a high-rise apartment that was then under construction. The incident was allegedly caused by the failure of slings and collars used to hold the crane to the building, which, as explained by the lower court, resulted in the death of seven people.

RSUI Indemnity filed its coverage suit against RCG Group in 2008, seeking a declaration that it did not have to indemnify the construction group based on a policy exclusion that precluded coverage for work relating to residential projects and mixed use buildings. U.S. District Judge Paul Engelmayer ruled in the insurer’s favor in August 2012.

On appeal, RCG Group argued that the exclusion did not unambiguously exclude coverage because the building where the accident occurred was intended to include community space. RCG Group asserted that because there was planned community space, the project did not fall under the policy’s definition for mixed-use buildings, which the policy specified as structures that “contain” both residential units and commercial space.

The Second Circuit, however, determined that regardless of whether the building project contemplated the inclusion of community space, the projected contained both residential uses and commercial space and therefore should be deemed mixed-use and no ambiguity as to that issue was demonstrated. The Court thus found that the lower court properly determined that the policy exclusion applied and coverage was barred for the claims against RCG Group relating to the crane collapse.

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June 13, 2013

Constructing Professional Liability Insurance Requirements for Design-Build Projects

Source: http://www.irmi.com, Jume 2013
By: Jeff Slivka

As a project owner, it is extremely imperative to require evidence of professional liability (PL) insurance from the construction firm you hire to design and build your project. However, when you do this, what are you trying to accomplish?

Over the past year, I have seen an increasing request for contractors to evidence PL insurance. That is a good thing. In addition, many of those requirements required a dedicated PL program/limit of liability for the project. That makes a lot of sense. However, before you require any entity to provide evidence of PL insurance, you have to ask yourself, what do I want to insure against? This is a basic question, I know, but I think one that is often overlooked.

As an example, I have seen PL insurance specifications written for a design-builder to purchase PL insurance for the design team (not part of the design-build entity) and the design team subs/members. In this case, it would appear that the owner wants to insure only against design errors arising from the design services provided by the design team. Or does he? It’s clear to me that this owner doesn’t want to insure the project against PL risk, just design liability.

I have seen other instances where an owner has accepted a certificate of PL insurance from the engineering firm under contract with the construction firm, not even under direct contract with the owner. So, there is no contractual relationship between the owner and the engineering firm. Is this supposed to help owners sleep at night and protect against costly PL claims?…

May 31, 2013

Hidden Mold

Source: Great American Environmental Division, May 2013

An apartment management company was notified of a water leak in the ceiling of one of their units during a heavy rainstorm. After the storm, the property management company sent out their repair contractor to inspect the damage and to provide a cost estimate for the repairs. During the investigation, it was determined that the roof had been leaking for a long period of time but not in large enough quantities to escape the insulation above the ceiling. The absorbent nature of the insulation made things worse by promoting higher humidity at relatively warmer temperatures, both factors helped support active mold growth.

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