Consider the following chain of events:

• An engineer designs the site and grading plan for a construction project.
• After the project’s completion, the developer finds that the parking lot is not draining.
• In March, the developer writes to the engineer, accuses him of failing to follow recommendations in a geotechnical report, and orders him to create a plan to correct the drainage problem.
• The engineer responds by saying that his design was sound but the contractor’s work was defective.
• The engineer and developer hold several meetings to determine what caused the problem. The engineer sticks with his version of events.
• In May, the developer writes again to the engineer, accusing him of committing design errors and shirking responsibility for the problem.
• In August, the engineer notifies his liability insurance company that the developer is making a claim against him.
• Sometime later, the developer sues the engineer, architect and contractor.

Claim Question:

When exactly did the claim occur, and when should the engineer have reported it to the insurance company? In this case, the company said it did not have to provide defense or coverage because the engineer violated the policy conditions by reporting the claim late. In the company’s opinion, the developer’s March letter was a claim that the engineer should have reported. A court said that the case would have to go to trial, as the report’s lateness was unclear. The policy insured against claims occurring during the policy period and made within 60 days after the end. When, however, does a dispute become a claim, triggering the obligation to report it to the company? The answer turns on the policy’s definition of “claim”:

“ … a demand for money or professional services received by the Insured for damages, including but not limited to, the service of a lawsuit or the institution of arbitration proceedings or other alternative dispute resolution proceedings, alleging a wrongful act arising out of the performance of professional services.”

The court applied this definition to the March letter, asking whether a reasonable person would have considered the circumstances known to the engineer as a possible claim. In the court’s opinion, the answer was no. Until the developer’s May letter, the court said, a reasonable person could have concluded that the developer was unsure as to who was responsible for the drainage problem. The letter ordered the engineer to develop a plan to correct the problem. The engineer believed he would be paid for creating this plan, an assumption the court found to be reasonable. Because one reasonable view of the letter was of a request and not a demand for services as compensation for damages, the court said that the case must go to trial to resolve the question of facts.

This case illustrates a dilemma for all sorts of organizations. If they fail to report incidents that eventually turn into lawsuits, their insurance companies might try to deny defense and coverage because of late reporting. Conversely, if they report every incident, no matter how minor, their companies could eventually decide to drop their coverage because of frequent losses, even if most of the reports amount to nothing. To deal with this problem, some policies permit circumstance reporting. The policy that ultimately covers the claim is the one in effect when the insured reports the circumstance to the company, if a claim results from that circumstance.

Check with one of our insurance agents to find out what the reporting requirements are in your professional liability policy. Know what’s in your policy and what it requires you to do so that you don’t jeopardize your coverage.

One of the biggest challenges that a contractor faces on a job site involves the status of independent contractors. Understanding the difference between an “employee” and an “independent contractor” can help you to avoid becoming the legal employer of a contractor’s or a subcontractor’s workers. The best way to deal with this problem is by requiring that all contractors carry Workers Compensation insurance and taking reasonable steps to verify that coverage is in place.

In defining independent contractors you should also:

• Check state law for the definition of independent contractors; if needed, seek legal advice for clarification.
• If the law requires independent contractors to register, check the state’s online portal to verify that the contractor in question is registered.
• Have a written contract with every independent contractor that outlines the relationship and does not restrict the contractor’s freedom to work for others.
• Make sure that the contractor provides their own tools and equipment.
• To avoid the appearance that an independent contractor is drawing a paycheck, provide payment based on completion goals, rather than weekly or bi-monthly — and require invoices for payment.

For more information, please feel free give us a call at any time.

Flimflam artists and the sad stories of their victims are the stuff of local newspapers and police blotters. However, as business headlines attest, all the con artists aren’t working the streets. Some are doing quite well in boardrooms and corporate offices, and insurance scams make the list as well.

Unfortunately, insurance scams are far too common.

Whether it’s a great deal on Construction Bonds, a scheme to lower your Workers Compensation costs, or a “new” concept in Health coverage, an old adage might apply best: There’s no such thing as a free lunch. Beware of insurance scams.

How can you tell the difference between a great deal and a scheme to pick your pocket? Before making any commitments, check out unknown entities with an organization that makes it their business to protect you from the fly-by-nights. These include your local Chambers of Commerce or Better Business Bureau. When it comes to insurance, your state insurance regulator is probably the best source of both valid information and enforcement when fraud is uncovered. To check out an insurance company, use such rating services as Standard & Poor’s and A.M. Best. These can usually be found at your local library or online.

Don’t forget one of the best ways to avoid being taken to the cleaners by a con game: Deal with reputable, professional insurance representatives to begin with. We’re here for the long term, so you can trust us not to be interested in short-term insurance scams at the cost of long-term loss of reputation and livelihood.

Call anytime – we’re here to help.

Natural disasters can do significant damage to construction firms.

Some suffer direct hits, while others endure massive service demands and shortages of help and supplies. Employ crisis planning now to avoid disaster later.

Although you might escape massive destruction and distress, what other events might cause your company to suffer a crisis? IT failure? Burglary or vandalism? Professional liability? Fire? Loss of market?

Whether disaster strikes as a catastrophic or stressful disruption, the best way to prepare for them is to manage them through crisis planning. Now is the time to develop a plan that will allow you and your staff to mobilize the right resources in the right order quickly to get you up and running as smoothly as possible.

How do you develop such a plan? What’s the process? Who should you include? How often should you review and update it?

We can help by providing risk management advice and recommendations, together with materials and resources tailored to your needs and exposures. Although insurance might not solve all your post-crisis problems, it can certainly provide a solid foundation for your crisis planning should the worst happen.

Don’t wait for a crisis to uncover the gaps in your current preparations. Start crisis planning now. Contact us with any questions or concerns you might have.