lecture 16 Flashcards
is one of several things a contractor can do under a more general heading of Risk Management.
Insurance
is a potential inadequacy or loss
Risk
applies to risks that cause financial loss.
Insurance
an unforeseen interruption to an orderly process.
Accident
- An insurance policy is a 2 party contract, where:
- Insurer assumes financial responsibility for a potential loss–real or implied.
- Premium is consideration.
- The policy does not cover holder’s deliberate actions.
- Usually requires premium paid in advance of protection.
- Insurance law is the same as the law of contracts.
Insurance contracts policies
Insurance field is controlled and regulated by __________.
federal and state statutes
Insurance companies are either:
- Stock companies (Like banks)
2. Mutual companies (Where policy holders are part of the company)
___________ may be stock companies– some large ones are mutual companies.
Property and casualty companies
_____________ are generally mutual companies.
Life insurance companies
Why purchase insurance?
- To cover risk that could cause serious monetary damage to contractor.
- Much of it is required by law–workmen’s compensation, social security, unemployment, vehicle liability.
- Owners require it–certificates of insurance before starting work.
- To have insurance company’s attorneys defend one in court.
- Property insurance for project
- Property insurance for contractor’s own property
- Liability insurance
- Employee insurance
- Automobile insurance
- Business accident and life insurance
Types of Construction Insurance
- Basic policy for project property insurance.
- Usually excludes low hazard work
- Does not include loss of specifications, records, plans etc.
- Premiums vary depending on type of construction and availability of fire-fighting equipment.
Builder’s risk insurance
Two types of Builder’s Risk
- All-Risk–common
2. Named peril–seldom used.
- Widely used in building construction.
- Covers project plus temporary structures, materials and supplies in storage and in transit.
- May cover contractor’s tools and equipment while on site (if not otherwise covered).
- Covers all direct physical loss–from any external cause–except for stated exclusions, such as freezing, settlement, rain and snow, earthquakes, floods, etc. 5. Does not cover the costs of corrections due to error, omission, etc., of construction or design.
All-Risk Builder’s Insurance
have deductible amounts for various categories of coverage–very easy to customize
All–Risk policies
All risk policies can be obtained in one of two forms:
Completed Value form, and Reporting form
a. Single policy covers all the contractors jobs.
b. Total insurable value must be reported monthly.
c. Premiums paid monthly based on last month’s report.
d. Premiums start low and increase with time
Reporting form
a. Separate policy for each project.
b. Total insurable value used.
c. Premium paid in lump sum at beginning
d. Premium is 55% of full term rate (essentially linearly proportioned)
e. Cheaper for short-term jobs, no reporting.
Completed value form
is better if there’s a lot of earthwork, foundation, etc., early in project.
Reporting form
Choice between reporting form and completed form is based on least probable premium cost–which is a ______.
function of value vs. time.
An arrangement by which a firm acts as its own insurance company. Specific criteria must be met for a company to qualify for self-insurance.
Self Insurance
When an insurance company pays for a particular loss to the injured party, it reserves its right to sue the third party that caused the injury. This right is transferred from the injured to his insurance provider.
Subrogation
- Seldom used
- Covers only named losses (perils)–usually fire and lightning.
- Coverage generally the same as in All-Risk.
- Additional risk endorsements can be purchased.
- Extended coverage–windstorm, hail, explosion, riot, strike, civil commotion, aircraft, vehicles, smoke. 6. Vandalism and malicious mischief.
- Additional premiums paid for each endorsement (like private auto insurance).
Named Peril Insurance
