ODOT CONTRACTS - INSURANCE AND BONDING BUSINESS DECISIONS

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ODOT CONTRACTS - INSURANCE AND BONDING BUSINESS
DECISIONS

• Collaborate, Simplify and Clarify

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How Can We Work Together?

• To get the best project protection, as respects
  the insurance and surety market, that is
  available, affordable, and applicable.
• To eliminate unnecessary insurance costs for
  everyone.
• To reduce or eliminate insurance coverage
  requirements when risk is low.
• To get those who are involved in ODOT work to
  have a common understanding about insurance and
  surety issues relevant to ODOT.
• To collaborate, simplify and clarify!

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Alleviating Potential Misunderstandings

• Is the insurance coverage ODOTs contractors
  purchase what is needed to best protect all
  parties?
• Address confusion in contract requirement and
  clarify expectation.
• Modify contract language to better reflect
  insurance requirement.
• Are general contractors purchasing project
  general aggregate endorsements, or project
  specific coverage? The cost difference is huge.
• Appropriate Project General Aggregate endorsement
  is ISO CG 2503 0397 or its equivalent.
• How does the risk based scoring system work and
  impact the insurance requirements for ODOT
  projects?

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Risk Based Scoring for Project Insurance
Requirement

• The risk assessment tool asks questions related
  to the contractors activities on the project.
• The questions are focused on areas of exposure
  that can likely be covered by insurance.
• Each question is scored based on the importance
  of the exposure.
• The Risk Score in each area of exposure
  determines the amount of insurance that will be
  required.
• Of course, when the output doesnt look right or
  questions arise, there is manual review of the
  project.

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Does Everyone Involved Understand What Insurance
Covers?

• What is considered a tort and what is
  considered a contractual dispute?
• A tort is a civil wrong, other then a breach of
  contract, that includes negligent acts or
  omissions.
• Negligence is failure to act with the legally
  required degree of care for others, resulting in
  harm to them.
• General Liability covers unintentional torts
  resulting in bodily injury and/or property damage.

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Does Everyone Involved Understand What Insurance
Covers?(continued)

• General Liability policies contain Contractual
  Liability coverage. However, it is intended to
  address liability incurred by the insured through
  entering into a written or oral contract (the
  policy defines a contract). For there to be
  coverage there still must be unintentional
  negligence and bodily injury and/or property
  damage. An important term to remember is in the
  absence of a contract.
• An Indemnity Agreement is an example of an
  insured contract.

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Does Everyone Involved Understand What Insurance
Covers?

• How does Products and Completed Operations
  coverage apply?
• Where does insurance coverage end and a surety
  bond come into play?
• Where does insurance coverage for general
  liability end and become a professional liability
  exposure?
• When is pollution, professional and etc.
  insurance really needed?
• When is insurance not the answer to the project
  exposures?

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The Difference Between Insurance and Surety

• Insurance is a two party agreement (you and the
  insurer).
• Surety is a three party agreement (you, the
  surety and the owner or obligee).
• Insurance expects losses and pricing reflects
  that.
• Sureties do not expect losses pricing is the
  cost of extending their capital as credit to you.
• In the event of an insurance loss, you arent
  expected to indemnify the insurance company and
  fully reimburse them for the loss.
• In the event of a surety loss, you (or your
  entity) are obligated to indemnify the surety.
• An insurance policy is a contract and
  specifically identifies what it covers and how it
  responds to those obligations.
• A surety bond is not a contract it follows a
  contract and guarantees performance/payment of
  the contractual obligations.

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Premises /Operations vs. Products/ Completed
Operations

• As traditionally defined within the insurance
  industry
• Premises/Operations coverage covers you for
  bodily injury or property damage, to third
  parties, arising from your premises or ongoing
  operations (office, work site, maintenance yard,
  etc.) that you become legally obligated to pay.

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Premises /Operations vs. Products/ Completed
Operations(continued)

• Products/Completed Operations coverage covers you
  for bodily injury or property damage, to third
  parties, arising out of products or work, away
  from your premises, that are completed or put to
  their intended use, for which you become legally
  obligated to pay.

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CGL vs. Contractors Pollution Liability Coverage

• Today's General Liability policies typically
  exclude most pollution hazards (granting limited
  sudden and accidental job site coverage, hostile
  fire and pollutants' you bring to the site such
  as fuels and fluids for mobile equipment). These
  policies also exclude any clean-up costs.

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CGL vs. Contractors Pollution Liability
Coverage(continued)

• Contractors Pollution Liability coverage is
  designed to address the legal liabilities and
  sometimes clean-up cost associated with pollution
  related incidents'. This form is much broader
  then the limited coverage in most GL policies and
  is designed to fill the void left by most common
  GL pollution exclusions. And in some cases they
  can be endorsed to include pollution exposures
  related to the use, loading and unloading and
  maintenance of autos.

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CGL vs. Professional Liability

• Typically general liability policies exclude
  professional liability exposures such as the
  preparation or approval of maps, drawings,
  surveys, construction management activities or
  the rendering (or failure to render) any
  professional service. If by chance your GL is
  endorsed to provide this coverage (CG 2280), it
  still only applies to bodily injury and property
  damage...not economic loss. (Means and Methods
  are usually assumed to be covered by a GL policy,
  CG 2279). In any case, bodily injury and
  property damage are what is covered.

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CGL vs. Professional Liability(continued)

• Contractors Professional Liability coverage is
  designed to address professional liabilities for
  design and/or management of construction projects
  and the legal liability you may become obligated
  to pay. This can include providing expertise in
  the form of recommendations to an owner or design
  professional, project coordination and scheduling
  and the rendering (or failure to render)
  professional advise. These policies are written
  to cover economic loss resulting from the
  incident and can be endorsed to also include
  bodily injury and property damage that arises
  from such an incident. This can be related to an
  A/E EO coverage, but for contractors.

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In Closing

• Questions?
• -----------------
• Who to contact
• Ronda Hollis
• ODOT Procurement Risk Manager
• 503-986-2825