Managing and Insuring the Risks
of Affordable Housing Development
April 16, 2014
OVERVIEW AND SESSION
OBJECTIVES
Understand the development and operational
risk landscape
What are the risks?
Environmental issues
Design and construction defects
Delay in completion
Bodily injury to tenants and others
OVERVIEW AND SESSION
OBJECTIVES
Offer strategies to:
Avoid
Minimize
Shift
Insure
OVERVIEW AND SESSION
OBJECTIVES
How to implement contractual risk management
strategies
Professional services agreements AIA construction contracts
How to employ insurance structures and strategies
Conventional liability insurance structures
LIABILITY ISSUES
Why implement a risk management
program?
Litigation threat
Match insurance coverages to the major risks
Protect brand equity
INVESTOR, LENDER AND AGENCY
INSURANCE REQUIREMENTS
Investors, lenders and agencies typically
impose specific insurance requirements
Cannot assume these minimum
standards must be “good enough”
Developers must proactively address
coverages in advance to meet their
INSURING ENVIRONMENTAL RISKS
Site acquisition
Environmental issues – onsite and offsite
Environmental insurance tools
CPL PLL
Cost cap
Design Professional Risk Issues
PSAs need careful attention whether an OCIP
is in place
Major risk transfer concerns
Standard of care
Indemnity
Insurance
Limitations of liability
Waiver of consequential damages
Design Professional Risk Issues
Consider an owners protective
CONTRACTUAL RISK TRANSFER IN
OWNER-CONTRACTOR AIA FORMS
AIA Construction Contracts
Indemnification
Insurance
Limitation of liability and waivers of special,
consequential and loss of use damages
Concealed conditions
Short time limitations for claims
INTEGRATION OF INSURANCE AND
CONTRACTS
Critical interface of insurance coverages and
contracts
Example: California anti-indemnity statutes
Example: Wrap-up disclosures required by
California law
QUALITY ASSURANCE PROGRAMS
Four main components
Design peer review
Construction observations
Closure of open items
QUALITY ASSURANCE PROGRAMS
What does your CGL insurance require?
Why would you institute a QA program even
DESIGNING AND IMPLEMENTING
EFFECTIVE INSURANCE PROGRAMS
Commercial general liability (CGL)
Excess or umbrella liability
Builder’s risk and permanent property
Soft costs
Loss of rental income
Loss of tax credits
Other coverages to consider
INSURANCE STRUCTURES
Conventional annual renewal liability policies
For the developer
For the contractor
INSURANCE STRUCTURES
Wrap-up insurance programs
What is a wrap-up?
Project specific vs. rolling
OCIP (owner controlled) vs. CCIP (contractor
INSURANCE STRUCTURES
Drivers for wrap-ups
WRAP-UP COVERAGES TO
CONSIDER
CGL and excess liability
Builder’s risk
CPL or PLL
CGL INSURANCE MARKET REPORT
Who is writing residential developers?
THE APPLICATION AND
UNDERWRITING PROCESS
PRACTICAL TIPS FOR SUCCESSFUL
RESIDENTIAL INSURANCE
PLACEMENTS
Practical tips for successful placements
1. Start early
2. Use specialized resources
3. Tell your risk management story
4. Beware non-standard forms and endorsements
5. Recognize different coverage structures
PRACTICAL TIPS FOR SUCCESSFUL
RESIDENTIAL INSURANCE
PLACEMENTS
7. Understand coverage restrictions and their
impact on your operations
8. Revisit lender, investor and agency requirements
9. Enlist design professionals and the contractor
early
PRACTICAL TIPS FOR SUCCESSFUL
RESIDENTIAL INSURANCE
PLACEMENTS
Are you binding what you ordered?
Watch subjectivities and commitments made
SELECTED OCIP COVERAGE ISSUES
Non-standard policy forms revisited
SELECTED OCIP COVERAGE ISSUES
Extended products-completed operations
SELECTED OCIP COVERAGE ISSUES
Coverage for post-completion repair work
How is “repair work” defined?
Duration of the coverage
SELECTED OCIP COVERAGE ISSUES
Cancellation
Property damage to the project during
construction
Makes broad builder’s risk coverage even more
important
Loss of tax credits revisited
SELECTED OCIP COVERAGE ISSUES
Deductibles and SIRs
Per occurrence vs. other structures
How is the deductible or SIR eroded?
Special notice and reporting requirements
CONTRACT ADMINISTRATION
ISSUES
Certificates of insurance
Inherent limitations
Additional insured endorsements
Ongoing and completed operations
Scope of AI coverage; primary wording
THANK YOU
Jeffrey D. Masters John E. Tastor
Partner Area Executive Vice President Chair, Development Risk Management Practice Group Arthur J. Gallagher & Co. Cox, Castle & Nicholson LLP 1255 Battery Street 2049 Century Park East Suite 450
Suite 2800 San Francisco, CA 94111 Los Angeles, CA 90067 P: (415) 536-8408 P: (310) 284-2239 F: (415) 536-6011 F: (310) 284-2200 [email protected] [email protected] Kenneth Williams Partner
Chair, Construction Practice Group Cox, Castle & Nicholson LLP 2049 Century Park East Suite 2800
Los Angeles, CA 90067 P: (310) 284-2209 F: (310) 284-2200
