Experts join forces to help with construction risks

In every construction project there is the potential for injuries, mistakes and outright calamities. The project owner and the general contractor do their part to minimize exposures and get proper insurance coverage, but there are also subcontractors involved – and matching up everyone’s coverage is no easy task.

It’s critical to ensure that there are no coverage gaps, but overlap isn’t good, either, because it adds needless costs.

This is where Austin & Stanovich Risk Managers, an independent consultancy with offices in Providence and Douglas, Mass., and Wrap Strategies, a consultancy in Middleboro, Mass., with an expertise in construction risk issues, hope to be able to help.

The two firms are collaborating to help project owners and general contractors ensure they have the right coverage, specifically by using “wrap-up” programs for large projects.

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William K. Austin, a principal at Austin & Stanovich, explained that traditionally, each contractor in a project has its own coverage, and the cost of that insurance is built into the contractor’s bid. As a result, in a single project, there may be multiple policies in force, with different coverage terms and limits.

A wrap-up, which Austin said is usually economically feasible for projects worth more than $100 million, includes workers’ compensation, general liability and umbrella/excess liability for the entire project, managed by the project owner or the general contractor.

Not only does this minimize the risk of coverage gaps, Austin said, but it can also reduce insurance costs, because there are no overlaps and “economies of scale” may result in lower premiums. Coverage limits also may be higher.

But wrap-up programs can also have pitfalls – and this is where the combined expertise of Wrap Strategies and Austin & Stanovich can help, the two firms said. Craig Stanovich, Austin’s partner, noted that wrap-up programs provide coverage that is “quite complex,” with limitations that need to be clearly understood.

For example, because every contractor enrolled is a named insured, and the wrap-up insurance policy often excludes damage to property owned by any named insured, if one contractor damages the property of another, the insurer may deny the claim, Stanovich said – even though in his view, that shouldn’t be the case.

Wrap-ups also cover limited time periods, Stanovich said, typically the course of the project plus an additional three to five years after project completion for injury or damage that results from work the contractor has completed. That means that if there’s an injury or damage after that period, the contractor could be exposed.

For project owners or general contractors, Stanovich noted, those coverage issues can create an exposure as well – if the terms of the coverage are misunderstood and that leads to litigation.

“A myriad of issues can arise if the program documents are not accurate, complete or understood,” said Kathleen Creedon, principal of Wrap Strategies. And because the savings from wrap-ups depend on consolidating coverage, it is essential to ensure that all contractors bid in a uniform manner, consistent with the program design.

“I help people navigate the feasibility of such a program,” Creedon said. “I help them navigate the implementation, and I help them set it up.”

Creedon has done this kind of work since 2001, working with brokers, owners and contractors. Creedon creates documentation, procedural manuals and claims information for each client. She typically helps clients hire and train their own insurance administrators to take her place. If Creedon does her job well, she won’t be needed again, she joked.

There are, however, many risk-management analyses in which she doesn’t have an expertise.

“I prefer to stay on the administrative side of things, so when it comes to coverage analysis, more in-depth risk analyses of the project, that’s where Austin & Stanovich would do their part,” said Creedon in an interview.

The business relationship between the firms stems from Austin and Creedon working together as insurance brokers 20 years ago. In the last five years, they have collaborated on several projects. Now, they can be a “one-stop consulting firm,” said Austin.

“Somebody could come to us – it could be the contractor, the insurance agent or the broker – and they don’t have to worry about who does what. Between the two of us, we can sort out which firm does what,” he said. “And we also have a network of independent firms we can bring in.”

The collaboration won’t be the only outlet for a construction firm looking for a comprehensive insurance analysis and implementation, but it will offer a specialized service, said Austin. A larger firm might offer similar services but still have to outsource to a company like Wrap Strategies.

“It’s a strategic alliance. We’re not partners per se, but what’s interesting is it’s something we’ve been doing all along,” said Creedon. “I’ll be working on a feasibility part and I run into a coverage issue. So I’ll call Bill or Craig.” •

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