Specialty Podcast: Hurricane Preparedness for Contractors

Intro (00:00):
You are listening to the Alliant Specialty Podcast dedicated to insurance and risk management solutions and trends shaping the market today.

Robert DiBiase (00:09):
Hello everybody. This is Robert DiBiase, Vice Chairman of the Alliant Construction Services Group. Today I'd like to welcome Colin Daigle, Managing Director for Imperium Consulting Group, and Chris DeBruin, Senior Vice President and Director of Claims for Alliant Construction Services. We have what we feel is a very appropriate conversation as it pertains to hurricanes and hurricane preparedness. Contractors play an essential role before and after hurricanes, ensuring homes and structures are resilient before the storm and rebuilding after them. We'd like to just have a little conversation today with Chris and Colin to discuss some of the aspects associated with that. I'm going to dive right into this and start with a pretty straightforward question. What should an insured do to assess and secure current projects as a hurricane approaches? I'll open it with you, Chris.

Chris DeBruin (01:00):
Great, Rob. Thank you. Well, there are certainly a lot of items that an insured needs to be prepared for with a CAT storm that is approaching an area where they have a project. There are certain aspects of it, there's a risk management aspect, there's a contract aspect, but there's also very importantly the operational field aspect to it. And I would tell you that most operational personnel that I've worked with are very skilled in understanding what their on-job site hazards are with high windstorm events or storm surge events. But honestly, I think the best thing to do is for them to meet with their subcontractors immediately and go through sort of a standardized checklist on the job site that identifies all of the operations that are on the job site. And what each subcontractor has to do, they have to rely upon their subs to look at their hazards and understand how to protect from those hazards.

At Alliant, we utilize some checklists that we have formulated alongside insurance carriers. And some of that has to do with just simple things like where the trailers are on the job site, whether or not they're going to be subject to some storm surge, securing those trailers, looking at where the stored materials are on the job site and seeing if the stored materials can be moved to a lay laydown site, maybe away, especially if those are high-value materials that have long lead times to them. Most of the subs on job sites are responsible for their tools and equipment and ensuring those tools and equipment, but nonetheless, those tools and equipment, if just left unsecured on the job site, a storm like this can cause further damage to the work. So, possibly moving some of that equipment off of the job site to another area that's more secure or making sure that the tools and equipment are secure on the job site.

There are a lot of other aspects to the sites, looking at whether or not there's a tower crane on the job site and if there is a tower crane on the job site, making sure that the subcontractor responsible for the tower crane has an opportunity possibly to lower the booms to the ground if they can. Sometimes that's not feasible though, so they really need to think about weather veining tower cranes, following manufacturer's directions as to what they do with that tower crane in a high wind event. That's certainly something that's very appropriate. And also, we just recently had some storms where we had some tower crane issues, so it's certainly on everyone's mind. So, I don't want to go into every aspect on the job site, but the point being is, is that under the contract, a lot of times the general contractor is responsible for protecting the work. It is a contract provision in a standard AIA document, so it's not something that can be ignored, and they have to start planning that process early on when they start looking at these weather reports and hearing whether or not a hurricane's going to be headed towards the project's direction.

Robert DiBiase (04:01):
Perfect. Great. Hey Colin, maybe you could enlighten us a little bit about pre-planning as it pertains to documenting a site and things associated with that as we're going through the assessment and securing process of a project site or a job site.

Colin Daigle (04:15):
Sure. So, I tend to think about it from a claim preparation standpoint. And so, for contractors and owners alike or developers, it's at that period with a hurricane or a storm, you tend to know if you're in its path and certainly within a couple of days how significant an impact might be. So, echoing what Chris said, but starting to think about certainly securing the project, certainly securing people, making sure the life safety issues are addressed from a loss measurement standpoint, it's going to be really an analysis of where the project was on cost, on schedule, and on completed scope from right before the storm and then right after. And so, that whole process of quantifying a claim such as a builder's risk claim, I think is really what we'd be talking about here. For an active construction project, you're going to want to make sure prior to the storm that you have plenty of photos that you have an updated schedule, you don't want a progress schedule that hasn't been done in six weeks and you're using that to status the schedule.

Certainly, understanding costs, pay applications tend to be the measurement of that. And then being prepared to be proactive, not reactive, meaning once that storm hits the best practice is to have a loss recovery team, people identified in terms of how are we going to move forward both on the risk management, the insurance side, operationally again the life safety issues, securing the site, protecting from further damage, but ultimately investigating that scope of damage, understanding what it is, beginning to document it, and then having a plan once that investigation is ongoing and understanding that damage, then the repairs and executing the repairs so that lost recovery team, people from the project management and operational side of the project. I think it's always good for a contractor and owner to be very actively talking about this because both are going to potentially have claims the owner different, more on business interruption or impact costs, extended interest, things like that.

But understanding the schedule, working with the broker involved to understand coverage from the contractor's perspective, accounting, people that begin to help document costs, set up charge codes, be able to really track it as a separate project operationally, looking at who will do that work subcontractors on the project, are these typically starting out as time and material costs to help do some of the initial repairs. But moving to lump sum, all of these things need to be thought about from this loss recovery standpoint. And then potentially you bring in outside claims consultants like myself, you might need coverage counsel. So, those things should be thought about prior to the storm hitting so that you're ready to move forward.

Robert DiBiase (06:53):
Perfect. That's really good. Chris, do you have anything you'd like to add?

Chris DeBruin (06:56):
Yeah, Colin brought up a great point about photographs and documenting the current state of the job site. And it reminds me of a claim that I actually had once where a lot of times on the builder's risk policy, there will be a sub limited item for protection of the work, and it'll be a sub limited item specifically to deal with CAT issues. So, if you have a builder's risk policy that has that sub limited item where you can actually be reimbursed sometimes for extra measures that you put in place to protect the work from an incoming storm like that. And the claim that I had, there was a contractor who extensively protected the work and the obligations under the contract expended all kinds of funds to do so. And then we submitted that as part of the claim cost. And unfortunately, because the contractor really didn't document visually exactly what they did from a scope perspective of protecting the work, a lot of those costs that were incurred were rejected by the insurer because they said, well, it's all gone now, it's all destroyed. And we can't confirm that that was actually in place. So, documenting how the site looked prior to the loss is actually a great suggestion for many reasons, but that's just a claim example that I would use where it was really important to have that documentation to establish exactly what was performed in that protection of the work prior to the storm.

Robert DiBiase (08:20):
Excellent. One of the things Colin, you said earlier was preparing on the accounting side with a project number and the like. I think that one of the things that a lot of contractors lose track of is when an accident or when a hurricane hits a catastrophic event like that happens, they don't segregate all those items that they can really clearly delineate that were causes of the loss. So, setting that project number or assigning a new project code to the site for anything associated with that, I think is really good. Maybe we can talk a little bit about business continuity and what these contractors need to be thinking about with regard to business continuity while they're going through this, preparing whether it be backing up data, whether it be getting the paperwork offsite, things like that. Maybe we can touch a little bit about that and then move on to another piece of the pie here.

Colin Daigle (09:06):
Yeah, I think nowadays great invention of the cloud, right? Makes it easy for project personnel to be much more electronic than in the past, whereas in the past, you literally had banker’s boxes and file cabinets of all project documentation sitting at the trailer. And I think that if you're one of those sites though that continues to do that, a lot of that documentation like daily reports, where you were from a production standpoint up to the time of when the hurricane occurred, all of that's really important for establishing and putting together a claim to builder's risk. And if that's physical documentation you have at the job site and it's destroyed and you can't present it and you don't have all that information, then that's going to be a problem. So, with the advent of, like I said, cloud and electronic documentation, it makes it a lot easier.

And the reason why having those centralized areas to have that electronically housed somewhere is much better. And I would say that it's made our jobs a lot easier to access that information after a loss has occurred. And we've had several catastrophic losses where hurricane comes through and completely wipes out the trailers, completely wipes out the job site and nothing is salvageable. So, I think that record keeping electronically is really important and actually doing the record keeping contemporaneously with the job, I think there's a lot of project teams who don't keep up with that record admin part of the job. And it's certainly important to do so. I mean, I really do see contractors using commercially available software that helps them manage everything from potential change orders through change orders and pay applications. So, there is a lot of that done electronically.

It's quite less frequently where I've encountered, I'd say in the last 5 or even 10 years, a contractor that's doing everything by paper. But one of the things that comes to mind is when you have a catastrophic impact, a storm that hits a project, the contractor is still going to be managing the project in the way that it would handle change. And so, that means, and there's different nomenclature, but once there's the potential change event to a project, they may have a way of tracking a change event, a CE, then they have potential change orders, PCOs, and then they become change orders or prime contract change orders and what needs to be thought about and figured out to minimize frankly some of the confusion and maybe even inefficiencies after a storm. Contractors are using that frankly to generate pay applications. It's tied together to be able to build a project and they're looking to have approvals and documentation on it.

With a builder's risk claim, there may be some period of waiting for some feedback from a carrier about what's covered, how coverage applies. So you end up in a situation where a contractor's eager to get back going, an owner wants to understand: Hey, how's my coverage responding? And the project, it can't just sit still. And so, when you think about the prompt here was really using some of these project management and accounting systems or software’s that are out there, but it's understanding how that impact cost, physical, direct cost, even the contractor's general conditions. Always a very important point to think about with builder's risk claims, how those are going to be presented. And quite frankly, they're often presented as potential changes and then both the contractor and the owner look to understand what reimbursement might be there from a coverage standpoint. And the other aspect of that, as those that scope of loss comes together, a lot of it is very much just an estimate, certainly around time impact or schedule impact, because it's very difficult to assess the overall impact to the project schedule when you're still understanding the damage and what happened and what's necessary.

But understanding how a contractor's going to use its normal project controls of tracking potential changes, opening change orders, and having all of that segmented in many cases as a separate project, which quite frankly again facilitates the accounting side of it using that software, those things should be figured out and thought about prior to the storm hitting because otherwise once it happens, there can be some questions about how do we actually document this from a project administration standpoint and how do we actually begin proceeding with the work and billing the work as a contractor and an owner understanding whether it's accepting that work or not.

Robert DiBiase (13:37):
Absolutely. I think that one of the highlights that we at Alliant have done is putting these hurricane preparedness checklists together. When an accident or something arises, everyone's walking around and running around and not thinking about things by preparing and being ahead of it. And this is really why we're doing this podcast is letting these folks know it's better to have a plan than no plan at all, because we want to make sure our clients are ahead of this so that we can assist them in the closeout or the claim process down the road. Going to another question, and I think this is vital for us, what kind of contractual aspects should clients consider as a hurricane approaches? How do they review this? What do they do? How should they go about handling this? And I'll open it with Chris and maybe Colin, you can add some of your value to this piece as well.

Chris DeBruin (14:21):
Sure. So, my experience in the past with approaching storms and being on the contractor side and primarily the legal side, there were a certain type of provisions that I would look for specifically within contracts. And of course, I was always thinking about these provisions when I was negotiating the contract, especially if I was in a CAT zone where I knew that the schedule was going to bring the construction project through multiple hurricane seasons. And the things that I think contractors, developers, subcontractors, all of the above need to be cognizant of, or first here I'll kind of run through my various provisions that I usually talk about weather day delays. So, weather delay days that you're allowed under the contract and understanding how many days are allowed for weather delays is something that's very important. It's usually outlined in the contract.

Certainly, if you're in a hurricane zone and you're going through hurricane season, you have to take that into consideration when you're planning the job. Protection of the work provisions under the contract, who actually is responsible for the protection of the work? Generally speaking, it is the general contractor under most commercial contracts. Where it gets a little interesting is when you're in government contracts like FARs and whatnot, sometimes the FARs contract has some provisions in it that really gives that exposure to the contractor. So, you have to be mindful of it. Even when you're not required to cover builder's risk insurance for those events, you still have that responsibility. Force majeure provisions, those are the Acts of God provisions under the contract. Making sure that you understand what excused delays are allowed under the contract and whether or not the force majeure provision is going to support an extension of time request when you have a weather event like this, despite the weather delay days that you have built into the contract.

And that's really what you have to be cognizant of is whether or not those provisions contradict each other and making sure that the force majeure provision covers CAT events like this and certainly enforce majeure provisions and excuse delay provisions, making sure that those provisions include time and possibly even money in certain situations. Most force majeure provisions only allow the contractor an excuse delay for time, but not money. And in these CAT events we know that the money portion is big and some of it's covered by insurance and some of it's not covered by insurance. So, that contract provision is very important for change order provisions in the contract. Colin mentioned when you have a claims process, right, a lot of the times it being funded through a change order process, even when a builder's risk insurer is in fact funding and involved, you still have to follow the contract processes.

So, I think sometimes contractors aren't mindful of those change order provisions in the notice provisions that are contained within those, and they can miss them. And in strict notice jurisdictions that can be impactful to some parties. There's some other parts and pieces to contracts like, hazardous waste, indemnity provisions, I think that are important. When you have a project where you're not aware of the hazardous waste or substances on the project site, who is actually responsible for that, especially in a storm event like this when it could be migrating to other abutting properties and making sure that the proper indemnities are in the contract and identifying who's responsible for it. And then of course your standard things like if it is not an excuse delay, hopefully it is, hopefully you get a favorable force majeure provision in it, your LD provisions and consequential damage waiver.

So, there's a lot of areas of the contract that I would be reviewing as either a legal professional or a risk manager When a storm is approaching specific projects.

Colin Daigle (18:18)
Well, it's always hard to follow Chris here. That was like an encyclopedia recital of everything. So, the only thing left that I can think of, and again, stepping in to do a claim, thinking of a hurricane hitting a project, so that's going to be wind and flood, right? Those are some of the most common expected causes of loss. I think about the contract and the AAA form has a section about purchasing insurance and who's responsible if it's all risk, typically some definition of what type of insurance should be procured. But then actually looking at the policy, there can be different deductibles for wind and flood, significantly different by hundreds of thousands of dollars as well as for time element. There can be waiting periods, 7 days, 14 days, 25 days. So, understanding what the contract says about purchasing insurance, who's responsible for it, what it's supposed to cover, and then understanding what the insurance actually covers and what deductibles might apply to it, there can be gaps in that. And the reconciliation between really the policy and the contract needs to be considered.

Robert DiBiase (19:20):
Great, really good. I think we've unpacked a lot here today. I think we've gone through some really interesting and insightful pieces, both Colin and Chris, you've been very helpful here for us in really talking about hurricane preparedness from an insurance point of view, and really a builder's risk and claim point of view. I'm going to leave it here. I don't know if you folks have anything else you'd like to add, but I think this was worthwhile for everyone. And as we know, we're always available for our clients’, prospects and anyone that signs on and listens to our podcast, you can reach us at www.alliant.com and really get to either Colin or Chris with regard to your questions.

Colin Daigle (19:58):
Absolutely. Thank you, Rob. And the only thing I would add is that, to the extent that clients ever need, our checklist that we work with insurers on, both for claims prep, and we on the Alliant side of course have an operational type of checklist for field operations. We'd be happy to provide those. Thanks for having us. Chris, Good to do this with you and Rob as well. Thanks for having me.

Robert DiBiase (20:21):
Excellent. Thanks everyone and have a good day.