INSURANCE FOR LARGE CONSTRUCTION EQUIPMENT SUCH AS A CRANE

shutterstock_559826938Many, many projects require the use of a crane.  The skyline is oftentimes filled with the sight of  cranes—one after the other.  Most of the time, the cranes are leased from an equipment supplier. What happens if the crane (or any large, leased equipment) gets damaged?

 

I wrote an article regarding a builder’s risk carrier NOT covering damage to a crane from a storm based on a common exclusion.  Another case, Ajax Bldg. Corp. v. Hartford Fire Ins. Co., 358 F.3d 795 (11th Cir. 2004), had a similar result.

 

In this case, a prime contractor leased a crane from an equipment supplier.  The crane was used by the structural concrete subcontractor. The crane collapsed during the subcontractor’s work.  The supplier sued both the contractor and subcontractor.  The prime contractor was defended under a contractor’s equipment liability policy and the subcontractor was defended under a general liability policy it procured for its work on the project.  Ultimately, a settlement was reached where the subcontractor’s liability insurer paid a bulk of the damage.

 

However, the subcontractor’s insurer, through subrogation rights, pursued a claim against the builder’s risk carrier for the project arguing that the damage to the crane was an insured risk under the builder’s risk policy and its difference-in-conditions (DIC) supplemental endorsement to the builder’s risk policy.  The insurer argued that coverage was excluded per the following exclusion:

 

Coverage

 

a. Structures … fixtures, equipment, machinery and similar property which will become a permanent part of the structure

 

Property NOT Covered [Exclusion]

 

a. Machinery, tools, equipment, or other property which will not become a permanent part of the structure(s) described in the Declarations or Schedule unless the replacement cost of such property is included in the contract price and reported to us;

 

The builder’s risk policy did not cover damage to the crane because the crane was equipment which will NOT become a permanent part of the structure.   The Eleventh Circuit agreed:

 

In addition to insuring the structure itself, these policies also typically include building materials, machinery, and equipment on the premises that are awaiting installation.  This kind of machinery and equipment is clearly different from a contractor’s machinery and equipment that is used in the construction process, such as the damaged craneThe type of machinery and equipment intended to fall under the definition of “covered property” in a builder’s risk policy is that which will become a permanent part of the structure—this includes materials such as elevators, doors, windows, electrical equipment, and water pumps. However, since these materials are generally delivered to the site before they are required in order to avoid delays in construction, ownership of the property may not yet belong to the owner of the building.  It is these materials that the DIC [builder's risk] policy is referring to when it provides coverage for “property of others.” Although Kelley’s [supplier's] damaged crane technically falls within the category “property of others,” it is not the type of property to become a part of the building and covered under a builder’s risk policy; consequently, it is expressly excluded in the DIC policy by the provision requiring covered property to be that which will become a permanent part of the structure.

 Ajax Bldg., 358 F.3d at 799-800 (internal citations omitted).

 

Cranes are expensive so it is important to insure potential damage to cranes (and any equipment used for purposes of construction).   Noteworthy insurance considerations to consult with your insurance broker about include, but are not limited to:

 

  • Contractor’s equipment insurance-  you want to confirm any sublimit for any leased equipment, whether it is based on replacement cost or actual cash value, and whether you need to report such leased equipment to your insurer per the policy in advance of using the equipment
  • Equipment liability coverage-  you want to ensure your liability policy insures equipment you rent or you have an endorsement that provides coverage for equipment rented or leased from others  
  • Builder’s Risk – the exclusion in the builder’s risk policy discussed above for equipment that will not become a permanent part of the structure is a common exclusion, so you want other insurance to cover this risk and/or confirm whether there is an endorsement modifying that exclusion

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

CONTRACTORS: REVISIT YOUR FORCE MAJEURE PROVISIONS TO ACCOUNT FOR HURRICANES

 

shutterstock_43059370We now know and can appreciate the threat of hurricanes.  Not that we did not appreciate the reality of hurricanes–of course we did–but Hurricane Harvey and Hurricane Irma created the type of actual devastation we fear because they hit close to home.  The fear came to life, creating panic, anxiety, and uncertainty.  It is hard to plan for a force majeure event such as a hurricane because of the capriciousness of Mother Nature.   But, we need to do so from this point forward.  No exception!  And, I mean no exception!!

 

A force majeure event is an uncontrollable event that cannot be anticipated with any degree of definitiveness.   The force majeure event will excusably delay or hinder performance obligations under a contract.  One type of force majeure event is a hurricane—an uncontrollable and unforeseen act of Mother Nature.   

 

Standard construction contracts will contain some type of force majeure language.  The language will entitle the contractor to an extension of time to perform since the force majeure event will have excusably delayed the contractor’s performance.  I am not going to rehash that standard language because this language needs to be modified and tailored to address the major risk of a hurricane.  Not only is time impacted, but money is impacted too.  We need to consider the total impact of a hurricane versus considering the impact in isolation or in a vacuum. 

 

Take a look at your present construction contracts.  Revisit the force majeure language.  Does this language adequately address the time and monetary impacts associated with a hurricane?  If it does, great!  If it does not, or can be written much better, now is the time to make this language a MUST-INCLUDED provision in your construction contracts because this risk is real.  It is not illusory and it will be a real risk during hurricane season.   If you do not know or are unsure as to the language, please engage a construction attorney to review your contracts or propose standard language for you catered to your business needs.  Even if you feel comfortable with the language, I would still encourage you to have a construction attorney review the language and provide constructive feedback on the language.  At this point, there is no excuse to neglect this risk or minimize the potential of a devastating time and cost impact.  Regardless of the type of construction work you perform, this risk needs to be addressed. Any owner should appreciate this risk because it is a reasonable risk that needs to be accounted for with certainty in your construction contract. Is this a risk you completely want to assume from a cost standpoint?

 

I have drafted numerous force majeure provisions tailored to the risks of a project and business objectives of a client.  I have drafted specific provisions or negotiated provisions dealing with the risk of a hurricane.   Based on this experience, here are my suggestions when considering the risk of a hurricane and the potential time and monetary impacts associated with the risk:

 

1)   Make sure there is builder’s risk insurance covering property damage during construction.  Builder’s risk insurance policies are specialized property insurance policies for construction projects.  Make sure the policy does not exclude hurricanes.  In other words, you do not want hurricanes to be an excluded peril, particularly if there is the chance your work will take place during the hurricane season and/or you are performing work where storm surge or flooding caused by a hurricane can be an issue.   If there is a sub-limit for hurricane-caused damage, know what that sub-limit is.   You want to know a) what property and materials will be covered for hurricane-caused damage, b) whether costs to protect the property and materials from the hurricane are covered, c) whether the policy covers repair costs, and 3) whether the policy covers delay-type damage caused by the hurricane.   Get a copy of the builder’s risk policy in advance.  This way you know whether or not you need to supplement the policy accordingly or, alternatively, you want specific perils covered before that policy is bound.  In fact, you will likely want to supplement this with a construction equipment / inland marine insurance policy.  Work with an insurance broker that has experience with construction projects to ensure you have the right insurance in place for the project and your business.

2)   Make sure your contract specifically identifies a named storm such as a hurricane as a force majeure event.  Make sure your contract specifically identifies a hurricane as a force majeure event.  Be specific.  A hurricane should be an event that entitles you to additional time to perform since time will be spent protecting the work and tying down equipment and materials, time will be spent dealing with the actual hurricane, and time will be spent assessing the damage, remediating the damage, and ramping back up. 

3)   Make sure your contact entitles you to delay-related compensation associated with a hurricane such as a force majeure event.  A time extension for a hurricane is a given.  But, what about compensation for the impact?  Your project schedule is not going to include the risk of a hurricane, as there is no reasonable way to include that time in a project schedule.  Hence, the time extension.   As we know though, time is money.  You want to include a provision that entitles you to compensation for the time impact.  The provision should entitle you to utilize contingency money for any delay or, perhaps more appropriately, entitle you to a change order for the time-related costs.  (I have even drafted provisions that include a specific force majeure contingency to address associated costs for a force majeure event.)  You can even stipulate to a daily rate for such time-impact costs (which I have also done) caused by a hurricane or force majeure event.  A hurricane will not only prevent you from performing, but it will shift your performance to essential activities (that will not be included in your schedule).  It is reasonable for impact-related costs to be recoverable for such a force majeure issue.  It is unreasonable for the risk to be entirely shifted to the contractor because Mother Nature is certainly a risk that a contractor cannot control.

4)   Make sure your contract entitles you to recover costs associated with preserving and protecting work in-place, materials, and equipment.  As mentioned, a hurricane will divert your performance to progressing the work to preserving and protecting work in-place, materials, and equipment.  All of this needs to be protected from prolonged, heavy wind activity, torrential rain, and potential surge and flooding.  There are costs associated with this and you want to make sure this is performed to minimize the likelihood of any loss.  You also want to make sure you have time to perform this work.  Be safe, rather than sorry, and do not wait to the last minute to see what direction the hurricane ultimately pursues.   Hurricanes, as we know, are unpredictable and take unpredictable paths.  We need to make sure we have time to not only preserve and protect the work, materials, and equipment, but that our employees and subcontractors (and their families) safely make the right decisions to protect their homes and families.  Similar to the above, make sure your contract specifies how you get paid for this type of work – whether through contingency funds or, perhaps more appropriately, a change order.  Notifying the owner in writing in advance of the protective measures being performed is always a good idea.  If the owner elects not to implement such measures because it does not want to bear the cost, then the owner is evidently bearing risk.

5)   Know your contractual notification requirements.  Your contract probably includes notification provisions to address time impacts and costs associated with protecting the work.  Make sure these provisions are reasonable in light of a hurricane or force majeure event.  Your priorities when dealing with a hurricane, in particular, will be shifted.  For this reason, you want to make sure the notification provisions are not unreasonably onerous and are more than reasonable to account for the issues you will be dealing with.  Think these issues through.  Remember, not only will you be dealing with the issues associated with the construction project, but there will be internal issues dealing with the safety of your employees, their families, and any subcontractors you hire.

 

 

Do not panic if your contract currently does not, in your opinion, sufficiently address all of these items.  You can address this moving forward.  You should address this moving forward.  Again, no excuses.  And, again, do not be reluctant to hire a construction attorney that can best protect your rights moving forward to account for this risk that we know is REAL.

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

QUICK NOTE: IMPORTANCE OF EQUIPMENT FLOATER INSURANCE

imagesA recent case out of New York held that damage to a tower crane from a storm during construction is excluded from a builder’s risk policy because a tower crane is a machine that fits within the contractor’s tools exclusion, a common exclusion in builder’s risk policies.  (Check out this article for a discussion on this case.)   This case exemplifies the importance of a contractor that owns or leases equipment, such as a crane, to obtain equipment floater insurance (or inland marine insurance coverage).  But, it is important that the contractor discuss the type of equipment it needs insured for purposes of its operations to ensure there is coverage under the floater insurance.  Such floater insurance is not universally the same so the contractor needs to ensure the insurance covers the risks and types of owned, leased, and loaned equipment utilized.  (For more information on insurance applicable to construction projects, check out this chart.) 

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

BE WATCHFUL FOR THE EXISTING STRUCTURE / BUILDING EXCLUSION IN BUILDER’S RISK POLICY

UnknownI previously discussed the importance of builder’s risk coverage for a construction project.  Builder’s risk insurance is not a one-size-fits-all policy meaning an owner or contractor–party procuring builder’s risk–needs to work with their insurance broker to ensure that their during-construction risks are properly being insured.   Otherwise, a loss may occur during construction only for the owner and contractor to learn that the loss is not covered under the builder’s risk policy.

 

By way of example, in Gerald H. Phipps, Inc. v. Travelers Property Casualty Co. of America, 2016 WL 97756 (D.Co. 2016), a contractor was hired to renovate and expand a public library. The existing library contained asbestos in elevator shafts and stairwells.  The contractor’s intent was to not disturb the asbestos in these locations.  However, during construction, snow melted and water seeped into the stairwells and elevator shafts that consequently mandated the mitigation and remediation of the asbestos in the stairwells and shafts (existing structures).

 

The contractor submitted a builder’s risk claim for the remediation costs.  The contractor’s builder’s risk policy provided that builder’s risk coverage does NOT include: “Buildings or structures that existed at the job site prior to the inception of this policy.”   This existing building / structures exclusion is common in builder’s risk policies.  The builder’s risk insurer denied coverage for the mitigation costs because the policy did not cover damage to existing structures (i.e., the stairwells and shafts).  The contractor filed a coverage lawsuit; however, the court entered summary judgment for the builder’s risk insurer stating:

 

“Because the stairwells and elevator shafts [existing structures] are excluded from the definition of “Builders’ Risk” and GHP [contractor] has not introduced evidence that the water intrusion damaged its own work, GHP has not shown any loss to covered property.”

Gerald H. Phipps, 2016 WL at *5.

 

 Be watchful for the existing structures / buildings exclusion in builder’s risk policies, especially if you are performing renovation work to existing structures. 

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.