The construction industry finally seems to be in a sustained recovery. As more projects become available, payrolls and equipment investments are increasing. That’s great news for contractors across the nation. However, adequate insurance coverage is even more essential than it was before. Consider the following trends identified by industry experts at the Insurance Journal for 2015.
The Controlled Insurance Program (CIP) is Growing
Originally designed for use on megaprojects, CIPs have become increasingly common in residential construction. The project owner usually sponsors the CIP, and it bundles workers’ compensation and general liability for all the participants. Many general contractors have made CIPs part of their marketing plan because they allow them to lock in their insurance costs throughout the construction and completed operations periods while streamlining claims process and reducing the need for negotiations between multiple insurers.
While convenient, CIPs also present challenges. Any contractor or project owner contemplating a CIP should carefully research potential exposure and available coverage with their insurance professional and risk advisor. Areas to address include making sure limits are large enough to cover potential losses, proper coverage of parties, the handling of repair and warranty work, possible coverage exclusions, and the allocation of deductibles.
Additional Insured (AI) Protection is Changing
The latest ISO AI form contained a number of revisions that create uncertainty in the construction risk management process. For example, one states, “AI coverage only applies to the extent permitted by law,” and introduces a number of questions. Is the AI coverage void if the contractual indemnity provision is voided under a state’s anti-indemnity statute? The usefulness of your AI coverage will depend on how a court of law may interpret the ISO AI form. Discuss this risk with your insurance professional and risk advisor before purchasing.
Negligence Indemnity is Shrinking
The MacDonald analysis (MacDonald v. San Jose (1972) 29 Cal.App.3d 413) has governed indemnity interpretation for many years. However, recent legislation is changing this. In 2006, changes were made to prevent residential builders from seeking indemnity for their own negligence regardless of classification. In 2009, California civil code was amended to allow subcontractors to select their own counsel or pay a “fair share” of builder defense fees. And in 2013, new statues were drafted that prevent all public and commercial owners and contractors from seeking Type 1 indemnity (indemnity for everything but sole negligence). While these were all changes to California civil code, you’ll want to discuss possible changes to code in your own state with your insurance professional and risk advisor.