Hiring a Risk Manager to Administer Your Insurance During Construction

04/01/2012 | Spring 2012 Newsletter

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An owner on a construction project must ensure that the contractor and subcontractors buy and maintain required insurance, and that insurers are notified of incidents. To accomplish this, the owner may need to assign an employee to the dedicated task of administering insurance, sometimes referred to as a risk manager.

The person assigned to the task of administering insurance can ensure that proper insurance is obtained and maintained throughout the construction process, and that proper notice is given to insurers of incidents. The failure to properly administer insurance can sometimes lead to adverse results.

An experienced owner should require its contractor and subcontractors to furnish copies of policies with endorsements that provide that the owner will be notified in advance if the policy is terminated early. If these policies are filed away and not studied for coverages, the protection bought in a construction contract is diminished.

Contractors typically demonstrate their insurance with a form certificate of insurance. The form contains cursory listings of coverages with an X in a box and a few words. The form states on its face that it is for information only, does not create a contractual relationship, and does not alter the terms of insurance policies. The form does not explain the nuances of an exclusion or coverage. A form stating the owner is an additional insured does not explain whether coverage is broad or narrow. In rare circumstances, the form issued by the insurer’s agent (not a broker) may be relied upon against an insurer.

The form is at most a photograph of insurance at one moment in time. It does not speak to the future. An insurer may terminate a policy early for nonpayment of premiums, or for certain other limited reasons.

When an incident happens, the risk manager can ensure that proper notice is given to all applicable insurers including an insurer providing coverage to an additional insured. Failing to do so can have monetary consequences. For example, on a New York City public works contract, if the City fails to notify an insurer providing it additional insured coverage and the insurer declines coverage because it did not receive proper notice, then the City may withhold from the contractor’s earned requisitions monies to pay for a threatened claim arising out of the incident. Sometimes it is in the contractor’s best interest to notify an insurer on behalf of a sleeping owner.

To keep track of all these insurance issues when planning for a construction project, an owner should consider assigning an employee to the dedicated task of administering insurance during construction. The need for a full-time risk manager will vary, of course, depending on the size of the construction project. While painting the laundry room may not merit a full time risk manager, building a 45 story hotel may.