anatomy of a builders’ risk claim willis construction risk management conference the ritz carlton...
Post on 24-Dec-2015
218 Views
Preview:
TRANSCRIPT
Anatomy of a Builders’ Risk
ClaimWillis Construction Risk Management Conference
The Ritz Carlton – New Orleans, Louisiana
September 11-12, 2013
Proprietary to The Claro Group, LLC. Not for distribution. For internal Client purposes only.
OverviewOverview
2
► Introductions► Introduction to Builders’ Risk Insurance► Builders’ Risk Insurance Coverage – Illustrative Policy
Language● Physical Damage
● Soft Costs
● Business Income
► Claim Submission and Adjustment Process► Real Life Examples – Builders’ Risk Claim Issues
Proprietary to The Claro Group, LLC. Not for distribution. For internal Client purposes only.
IntroductionsIntroductions
3
► Mike Kennedy
► John Cadarette
► Ron Van Epps
Proprietary to The Claro Group, LLC. Not for distribution. For internal Client purposes only.
Who is The Claro Group?Who is The Claro Group?
4
► The Claro Group is a strategic and financial consulting firm focused on providing clear, value-added professional services in the areas of insurance claims and other complex disputes
● Founded by former senior executives of major accounting and consulting firms
● Senior Partners each have over 25 years of experience
● Approximately 150 professionals and growing, including over 40 insurance claim recovery experts
● National presence – offices in Chicago, Houston, Los Angeles and Washington, D.C.
● Members include MBAs, CPAs, JDs and Engineers
● We have worked with many of the largest and most respected corporations in the US and Canada
Proprietary to The Claro Group, LLC. Not for distribution. For internal Client purposes only.
Who is The Claro Group?Who is The Claro Group?
5
► Dedicated team focused on optimizing insurance recovery strategies for clients
● Key members of teams who have recovered over $9.0 billion in transactions negotiated to date
► “Soup to nuts” – we provide coverage analysis, loss quantification, claim strategy, claim presentation, rebuttal and assistance with negotiations
● We work closely with the client during settlement negotiations
● Achieved settlements with all major insurance markets
► Service Offerings
● Coverage analysis and claims preparation for all lines of coverage Asbestos, environmental, toxic torts, E&O, etc. Property damage, business interruption and extra expense claims
● Proprietary allocation and scenario modeling
● Assistance with insurance archeology
► Extensive relationships throughout risk management network
● Risk Managers
● Brokers
● Law firms
Proprietary to The Claro Group, LLC. Not for distribution. For internal Client purposes only.
Introduction to Builders’ Risk Insurance
6
Proprietary to The Claro Group, LLC. Not for distribution. For internal Client purposes only.
Introduction to Builders’ Risk InsuranceIntroduction to Builders’ Risk Insurance
7
► Builders’ Risk insurance provides first-party coverage for structures undergoing construction or major renovation(1) as well as certain types of time element coverages
► Who is responsible for purchasing the policy?● Owner/Developer
● General Contractor
● Subcontractor
► Key considerations in placing Builders’ Risk coverage● Does the policy – including limits, sub-limits, exclusions or other
limitations - correspond to the risks of the project and interested parties?
● Is the policy consistent with the construction contract?
1 – Construction Insurance, A Guide for Attorneys and Other Professionals, published by the American Bar Association
Proprietary to The Claro Group, LLC. Not for distribution. For internal Client purposes only.
Introduction to Builders’ Risk InsuranceIntroduction to Builders’ Risk Insurance
8
► Concepts of Covered Property and Covered Cause of Loss are critical in understanding nature and breadth of Builders’ Risk Insurance – a typical policy addresses the following:
● Covered Property – Permanent, Temporary (should the policy address Pre-existing Structures, Property In-transit or Property Stored offsite?)
● Property Not Covered
● Time Element Business Income, Contractual Penalties and Extra Expense
Civil Authority/Ingress-Egress
Service Interruption
Soft Costs
● Covered Causes of Loss – All Risk v. Named Peril
● Additional Coverages
● Coverage Extensions
● Exclusions (including the “defective design and workmanship exclusion” and “consequential loss exclusion”)
● Limits of Insurance, Deductibles and Sub-limits
Proprietary to The Claro Group, LLC. Not for distribution. For internal Client purposes only.
Introduction to Builders’ Risk InsuranceIntroduction to Builders’ Risk Insurance
9
► Concepts of Covered Property and Covered Cause of Loss are critical in understanding nature and breadth of Builders’ Risk Insurance
● To determine coverage, must start with two-step analysis Is there damage to Covered Property? Was the damage the result of a Covered Cause of Loss?
► If “yes” to both questions, then proceed to review Additional Coverages, Coverage Extensions, exclusions and potentially applicable sublimits
► There are several categories of potential Time Element losses that may be triggered other than by typical property damage
● Civil Authority
● Service Interruption
Proprietary to The Claro Group, LLC. Not for distribution. For internal Client purposes only.
10
Builders’ Risk Insurance Coverage – Illustrative Policy Language
Proprietary to The Claro Group, LLC. Not for distribution. For internal Client purposes only.
Builders’ Risk Insurance Coverage – Illustrative Policy LanguageBuilders’ Risk Insurance Coverage – Illustrative Policy Language
11
A. Coverage
We will pay for the direct physical loss of or damage to Covered Property from any of the Covered Causes of Loss.
1. Covered Property
Covered Property, as used in this Coverage Part, means “Builders’ Risk”.
2. Covered Causes of Loss
Covered Causes of Loss means RISKS OF DIRECT PHYSICAL LOSS OR DAMAGE except those causes of loss listed in the Exclusions or for which “No Coverage” is shown as the applicable Limit of Insurance in the Declarations.
3. “Soft Costs” and Special Time Element
Proprietary to The Claro Group, LLC. Not for distribution. For internal Client purposes only.
Builders’ Risk Insurance Coverage – Illustrative Policy LanguageBuilders’ Risk Insurance Coverage – Illustrative Policy Language
12
► “Builders’ Risk” means property described in the Declarations that is:
a. Owned by you or for which you are legally liable; and
b. Included in the “completed value” for the applicable “job site”;
Consisting of:
a. Buildings or structures, including roads, parking lots, sidewalks, containment ponds, and other permanent or temporary structures while being:
1. Constructed, installed, erected or fabricated at the “job site”; or
2. Renovated, repaired, rebuilt or refurbished at the “job site”, but only if coverage for an existing building or structure is
shown in the Declarations; and
b. Property that will become a permanent part of the buildings or structures at the “job site”:
1. While in transit to the “job site” or a temporary storage location;
2. While at the “job site” or at a temporary storage location
Proprietary to The Claro Group, LLC. Not for distribution. For internal Client purposes only.
Builders’ Risk Insurance Coverage – Illustrative Policy LanguageBuilders’ Risk Insurance Coverage – Illustrative Policy Language
13
► “Soft Costs”
We will pay your “soft costs” during the “period of delay in completion”. Such “soft costs” must result from loss of or damage to Covered Property from any of the Covered Causes of Loss which delays the completion of the “project” beyond the “planned completion date”.
► “Soft costs” means your actual and necessary costs in excess of your budgeted amount for the “project” consisting only of the type shown in the Declarations.
Proprietary to The Claro Group, LLC. Not for distribution. For internal Client purposes only.
Builders’ Risk Insurance Coverage – Illustrative Policy LanguageBuilders’ Risk Insurance Coverage – Illustrative Policy Language
14
► “Business Income”
We will pay the amount by which your “business income” is actually reduced during the “period of delay in completion”. Such reduction in “business income” must result from loss of or damage to Covered Property from any of the Covered Causes of Loss which delays the completion of the “project” beyond the “planned completion date”.
If the building or structure was occupied for its intended purpose at the time of loss or damage, we will pay the amount by which your “business income” is actually reduced during the “post loss period of construction”.
Proprietary to The Claro Group, LLC. Not for distribution. For internal Client purposes only.
Builders’ Risk Insurance Coverage – Illustrative Policy LanguageBuilders’ Risk Insurance Coverage – Illustrative Policy Language
15
► “Period of delay in completion” means the period of time that:
(a) Begins with the “planned completion date”; and
(b) Ends on the date when the “project” should be completed using reasonable speed and similar materials and workmanship and accounting for the time necessary to achieve the budgeted level of “green” certification, if the time for such certification was included in the pre-loss “planned completion date”
► “Planned completion date” means the date the “project” would be put into operation or use in the normal course of construction if loss of or damage to Covered Property from any of the Covered Causes of Loss had not occurred.
► “Post loss period of construction” means the period of time that:
(a) Begins with the date of the loss of or damage to Covered Property from any Covered Cause of Loss; and
(b) Ends on the date the “project” should be completed using reasonable speed and similar materials and workmanship.
► “Project” means the total construction of all Covered Property.
Proprietary to The Claro Group, LLC. Not for distribution. For internal Client purposes only.
Builders’ Risk Insurance Coverage – Illustrative Policy LanguageBuilders’ Risk Insurance Coverage – Illustrative Policy Language
16
► “Business Income” means the sum of:
a. The net profit or loss (before income taxes) from the operation or use of the “project”; this includes the operation of “alternative power generating equipment” that feeds surplus power into a public utility power grid and for which that public utility credits, reimburses or provides utility credits, reimburses or provides rebates to you for that power; and
b. The continuing normal operating expenses, including payroll, of the operation or use of the “project”. This includes the expenses you incur to purchase replacement power or water from a public utility until such time as your “alternative power generating equipment” or “alternative water system” is repaired or replaced and is fully operational to manufacturer’s specifications.
Proprietary to The Claro Group, LLC. Not for distribution. For internal Client purposes only.
Builders Risk Insurance Claims and IssuesBuilders Risk Insurance Claims and Issues
17
Claim Submission and Adjustment Process
Proprietary to The Claro Group, LLC. Not for distribution. For internal Client purposes only.
So You Have a Claim, Now What? Critical Steps for Successful Claim ResolutionSo You Have a Claim, Now What? Critical Steps for Successful Claim Resolution
18
► Timely and Strategic Communication
● Internal – key to have main point of contact to maintain control
May want to direct through in-house counsel to establish privileges
● External – should coordinate with corporate communications department
Sometimes internal/external messages are at “odds” with each other
Caution: Every analysis, email, memo and press release eventually may be viewed in a litigation context so be accurate, don’t speculate and think “would I enjoy being cross examined about this” before hitting “send” on any email!
► Realistic Claim Philosophy
● Establish early on that you are carefully and fully preparing a fair, credible claim for all losses to which you may be entitled under relevant policies
Do not be shy about including potentially covered aspects of claim
Similarly, do not include obviously non-covered claims as it will impair credibility
Proprietary to The Claro Group, LLC. Not for distribution. For internal Client purposes only.
So You Have a Claim, Now What? Critical Steps for Successful Claim ResolutionSo You Have a Claim, Now What? Critical Steps for Successful Claim Resolution
19
► Establish Core Team as Soon As Possible
● Risk Management, Legal, Business Unit Reps of affected operations, Accounting
Clarify roles to avoid overlap and turf fights
● Outside consultants: Claim Preparation Experts, Brokers, Attorneys, Technical Experts
May need some, none, all or some at different times in the claims process
Proprietary to The Claro Group, LLC. Not for distribution. For internal Client purposes only.
Initial Claim Preparation Initial Claim Preparation
20
► Designate single person in charge of the claim
► Review all available coverages
● Obtain all forms and correspondence from brokers “As issued” policies may differ from binders
● Consider outside assistance for coverage interpretation
► Promptly provide notice to all potentially affected carriers
● Brokers will be critical to providing initial notice and updating carriers on a regular basis
● Review drafts before sending – precise wording is important
● Calendar deadline for filing proof of loss
► Establish internal cost code to track all time and expenses
● Many policies have “claim preparation” or “loss adjustment expense” coverage
Proprietary to The Claro Group, LLC. Not for distribution. For internal Client purposes only.
Initial Claim Preparation Initial Claim Preparation
21
► Undertake (and document) all reasonable mitigation measures
● Important from operations perspective
● Critical from coverage perspective
► Involve in-house counsel early in process
● May provide valuable advice and access to outside counsel if needed
● Certain communications may be privileged from later discovery
► If material to company, work with PR team on external message
● Assume your carriers (or their counsel) will be reading releases
► Establish project calendar for key dates to keep process moving
► Develop early and continuous flow of information to carriers’ adjusters and experts
● Surprises in the claim process are never welcome
● Speeds overall resolution when carriers are regularly informed
Proprietary to The Claro Group, LLC. Not for distribution. For internal Client purposes only.
22
Real Life Examples – Builders Risk Claim Issues
Proprietary to The Claro Group, LLC. Not for distribution. For internal Client purposes only.
Real Life Examples - Builders Risk Claim IssuesReal Life Examples - Builders Risk Claim Issues
23
► Owner didn’t purchase Business Income or Delay in Start-up Coverage ● Policyholder’s claim included direct labor, benefits, indirect
project costs such as scaffolding, trailer rental, project management salaries and other “indirect” costs
● Insurer initially argued that only “direct costs” such as labor and materials used in repair were insured and “general conditions” – i.e., project management and infrastructure (e.g., scaffolding, etc.) – were “time element” costs and not compensable because the Owner didn’t purchase time element coverage
● Insurer also argued that such “ costs were “consequential” losses and specifically excluded
Proprietary to The Claro Group, LLC. Not for distribution. For internal Client purposes only.
Real Life Examples - Builders Risk Claim IssuesReal Life Examples - Builders Risk Claim Issues
24
► Measurement of business interruption loss● Length of Compensable Interruption
● Projection of “But For” Revenues
● Difference in “ramp up” subsequent to commissioning as initially planned and post-event?
● Measured at “capacity” or at reduced levels experienced during “extended ramp up” and “extended commissioning”?
Proprietary to The Claro Group, LLC. Not for distribution. For internal Client purposes only.
Real Life Examples - Builders Risk Claim IssuesReal Life Examples - Builders Risk Claim Issues
25
► Covered loss under “standard” policy language:● “Period of delay in completion”
Begins with the “planned completion date”; and Ends on the date when the “project” should be completed using reasonable
speed and similar materials and workmanship
● “Post-loss period of construction” Begins with the date of the loss of or damage to Covered Property from any
Covered Cause of Loss; and Ends on the date the “project” should be completed using the reasonable
speed and similar materials and workmanship
● “Amount of Loss” Your likely “business income” during the “period of delay in completion” had
loss of or damage to Covered Property from any of the Covered Causes of Loss not occurred
► Based on “standard” policy language, the policy factors in two ramp up periods and does not cover the lost days the facility would have been fully operational
Proprietary to The Claro Group, LLC. Not for distribution. For internal Client purposes only.
26
Real Life Examples - Builders Risk Claim IssuesReal Life Examples - Builders Risk Claim Issues
Proforma Results "Amount of Loss"/Covered LossActual Results Actual Loss
Full Operations
"Period of delay in completion"
"Post-loss period of construction"
Time
Rev
enu
es
0.00Insured Event
Planned Completion Date
Reasonable Completion
Proprietary to The Claro Group, LLC. Not for distribution. For internal Client purposes only.
Real Life Examples - Builders Risk Claim IssuesReal Life Examples - Builders Risk Claim Issues
27
► The actual economic loss sustained is equal to the lost days of full operations plus or minus the difference in the results during the pro-forma and actual “ramp up” periods.
[A] [B] [C]=[B]-[A]
Pro-forma Actual Difference
Ramp Up Days 50 90 40 Operated "Full" Days 100 - (100)
Economic LossRamp Up Period 10,000$ 16,000$ 6,000$ Operated "Full" Period 90,000 - (90,000)
Total Economic Loss 100,000$ 16,000$ (84,000)$
"Actual Loss"/Covered LossRamp Up Period 10,000$ -$ (10,000)$ Operated "Full" Period 10,000 - (10,000)
Total "Actual Loss" 20,000$ -$ (20,000)$
► Consideration during negotiation of the policy is required to protect against unintended consequences post-loss.
Proprietary to The Claro Group, LLC. Not for distribution. For internal Client purposes only.
Real Life Examples - Builders Risk Claim IssuesReal Life Examples - Builders Risk Claim Issues
28
► Soft Costs ● Have “soft costs” been adequately defined?
● Do the “Declared Values” include interest costs, profit, real estate taxes, insurance and other similar costs?
● Are allocations of corporate overhead “soft costs”?
Proprietary to The Claro Group, LLC. Not for distribution. For internal Client purposes only.
Real Life Examples - Builders Risk Claim IssuesReal Life Examples - Builders Risk Claim Issues
29
► Soft Costs Exposures to be Considered● Real Estate Taxes
● Interest
● Consulting Fees
● Legal & Accounting
● Equipment Rental
● Overhead/Extended General Conditions Often Claimed as a Hard Cost General Contractor vs. Developer
● Insurance
● Refinance Charges
● Architectural & Engineering
Proprietary to The Claro Group, LLC. Not for distribution. For internal Client purposes only.
Real Life Examples - Builders Risk Claim IssuesReal Life Examples - Builders Risk Claim Issues
30
► Soft Costs Exposures to be Considered, continued● Historic Tax Credits
● Direct Costs – Non-Operational
● Developer Overhead / Extended General Conditions
● Leasing Fees/Re-Negotiation
● Refinance Charges Letter of Credit Remarketing of Bonds
● Advertising & Promotional
● Holdover Indemnity
● Others as Accepted by the Company
Proprietary to The Claro Group, LLC. Not for distribution. For internal Client purposes only.
Real Life Examples - Builders Risk Claim IssuesReal Life Examples - Builders Risk Claim Issues
31
► Liquidated Damages ● Interaction between liquidated damages, time element losses
and deductibles
► Are claimed costs repair costs or costs to “make good” a faulty plan or faulty workmanship?
Proprietary to The Claro Group, LLC. Not for distribution. For internal Client purposes only.
Builders’ Risk Insurance ClaimsBuilders’ Risk Insurance Claims
32
Appendix to Presentation
Proprietary to The Claro Group, LLC. Not for distribution. For internal Client purposes only.
Claim Preparation ChecklistClaim Preparation Checklist
33
Do you have an overall game plan for managing the situation?
Do the crisis management team members have defined roles (including a control person or persons in charge of the management exercise, and a designated spokesperson) and chains of command?
Have you analyzed your potential legal exposures relating to the loss?
Have you obtained all your polices and analyzed potentially applicable coverages?
Have you given prompt notice to your carriers?
Proprietary to The Claro Group, LLC. Not for distribution. For internal Client purposes only.
Claim Preparation Checklist Claim Preparation Checklist
34
Do you have a handle on your public message?
Are there protocols in place to make sure that the legal, risk management and crisis management teams work in a strategic, coordinated fashion?
Have you set up an internal cost code to track all time and expenditures incurred in relation to the insured event?
Have you considered what outside expert services you may need?
Proprietary to The Claro Group, LLC. Not for distribution. For internal Client purposes only.
A Thoughtful and Proven ApproachA Thoughtful and Proven Approach
35
Review Internal System for Capturing Costs• Creates baseline for claim values
Initial Review of Policy and Underwriting File• Consider legal review to understand how courts have interpreted
Initial Assessment of Damages and Cause• Make sure to keep any “cause” communications privileged
Understanding of Operational Impact• Financial statement disclosure issues?
• When are operations expected to be resumed?
Phase I – Initial AssessmentPhase I – Initial Assessment
Proprietary to The Claro Group, LLC. Not for distribution. For internal Client purposes only.
A Thoughtful and Proven Approach, continued A Thoughtful and Proven Approach, continued
36
Review Business Interruption Issues• Deductible; trigger; likely duration; extra expenses
Property Damage issues• Multiple causes – which covered?
Identify Key Strategic Issues• Interplay of business, risk management and legal concerns
Establish Open, but Careful Dialog with Carrier• Consider non-prejudice agreement
If Justified, Prepare and Present Request for Advance
Phase I – Initial AssessmentPhase I – Initial Assessment
Proprietary to The Claro Group, LLC. Not for distribution. For internal Client purposes only.
A Thoughtful and Proven Approach, continued A Thoughtful and Proven Approach, continued
37
Property Damage
• Prepare support – obtain estimates• Reconcile to accounting records• Review testing results
Contractual Penalties and Extra Expense
• Prepare supporting rationale and business case • Summarize invoices• Look at salvage value• Prepare estimate of ongoing costs• Analyze saved expenses
Business Interruption
• Analyze extent of business operations impacted• Submit information requests to impacted business units• Prepare baseline data• Meet with representatives from business units to obtain buy-in• Develop actual and projected future loss projections
Phase II – Claim DevelopmentPhase II – Claim Development
Proprietary to The Claro Group, LLC. Not for distribution. For internal Client purposes only.
A Thoughtful and Proven Approach, continued A Thoughtful and Proven Approach, continued
38
Present Proof of Loss• May be done in phases with “interim proofs”
Provide Detailed Supporting Documentation• Anticipate carriers’ needs – what would you want to see to prove up this
claim if in carriers’ shoes?
Fully and Fairly Respond to Carrier Requests• Cat and mouse games lead to delay, bickering and loss of credibility• However, at some point don’t be afraid to say “Enough!”
Request Payment for Undisputed Elements of the Claim• Many policies have express provisions requiring such payment• Some states also have statutes that require interim payments
Phase III – NegotiationsPhase III – Negotiations
Proprietary to The Claro Group, LLC. Not for distribution. For internal Client purposes only.
A Thoughtful and Proven Approach, continuedA Thoughtful and Proven Approach, continued
39
► Develop Internal Analysis of Claim Value and Settlement Target Range
● One of most common mistakes in negotiations is to go into settlement discussions only with hope to get “as much as we can!”
● Need to take into consideration all relevant factors, not just coverage, legal, technical, but also relationships, market factors, renewal, etc.
► Conduct Negotiations on Principal-to-Principal Basis With True “Decision Makers” present from all Parties
● Cuts through the usual “filtering” done by both sides’ advocates● Important that claim is mature enough before such meeting takes place
► Be Flexible – Expect the Unexpected● In any complex claim, there are inevitably new, unexpected issues that arise or
your perspective on things changes as more information about claim is developed
● Be prepared to walk away and come back to table at later time
Phase III – NegotiationsPhase III – Negotiations
Proprietary to The Claro Group, LLC. Not for distribution. For internal Client purposes only.
Parallel Recovery ProcessesParallel Recovery Processes
40
Operational RecoveryOperational Recovery
Insurance RecoveryInsurance Recovery
Loss Mitigation and InvestigationLoss Mitigation
and InvestigationRebuild PlanningRebuild Planning RebuildRebuild RestartRestart
Full Recovery
Full Recovery
Early Communi-
cation with
Insurers/ Protocol
with Adjuster
Early Communi-
cation with
Insurers/ Protocol
with Adjuster
Accumulate and
Document Hard
Costs for PD claim
Accumulate and
Document Hard
Costs for PD claim
Analyze BI and EE Losses/
Coordinate with PD Adjustmen
t
Analyze BI and EE Losses/
Coordinate with PD Adjustmen
t
Diligent Updates
to Adjuster/ Foundatio
n for Prompt
Resolution
Diligent Updates
to Adjuster/ Foundatio
n for Prompt
Resolution
Prepare Detailed Proof of Loss and Supportin
g Materials
Prepare Detailed Proof of Loss and Supportin
g Materials
Negotiate and
Respond to Additional
Request for Information
Negotiate and
Respond to Additional
Request for Information
Settle or Arbitrate/ Litigate
Settle or Arbitrate/ Litigate
Interim Payment?Interim Payment?Early
Settlement of PD and EE
Claims?
Early Settlement of
PD and EE Claims?
top related