Aon sued over $230 million Las Vegas arena project

Aon sued over $230 million Las Vegas arena project

Aon sued over $230 million Las Vegas arena project A joint venture between two US construction firms has accused international brokerage Aon of professional negligence in its placement of a wrap-up insurance policy for a Las Vegas stadium.
 
Hunt Construction and Penta Building, the contractors of the T-Mobile Arena, have filed a complaint against Aon Risk Services South, which they asked to advise regarding the wrap-up insurance program for the project.
 
The contractors alleged that Aon claimed to be "a leader in construction project wrap-ups” and that it was experienced and skilled in providing professional services related to the insurance program.
 
“However, Aon did not perform the contract as it warranted. Instead, Aon breached its obligations to Hunt/Penta by rendering its professional services negligently, and as a result, Hunt/Penta has suffered substantial damages,” the firms said in their complaint.
 
In June 2014, Aon agreed to provide insurance and financial risk management support services related to the wrap-insurance policy for the 20,000-seat arena.
 
If designed and administered properly by Aon, the wrap-up insurance program would have resulted in decreased project costs and increased profits to the contractors and savings to the project owner.
 
The contractors said the building price of the T-Mobile Arena was supposed to be about US$230m (approximately £176 million), but the final construction costs exceeded that amount.
 
According to the complaint, Aon initially told the firms that the subcontractor deducts for the project would be $4.5m, based on the broker’s actual experience in Nevada.
 
However, Aon later confessed that it had no actual experience in the state, the contractors alleged.
 
More than a year later, Aon claimed that as of November 2015, the subcontractor deducts would be approximately US$1.3 million less than it initially represented.
 
“Defendants were negligent in performing their calculations of the Subcontractor Deducts. Defendants' negligence is self-evident from the fact that their calculations differ from the Subcontractor Deducts actually recognized on the T-Mobile Arena Project by some $1.3 million,” the contractors said in their complaint.

They said the broker “significantly misrepresented” and “vastly overstated” the subcontractor deducts.
 
The firms said Aon should have followed the same procedure an insurer writing a worker's compensation insurance policy in Nevada would have taken to determine the premium for the policy.
 
Aon allegedly breached “fiduciary-like” obligations when it failed to disclose its lack of experience in the Nevada insurance market and its mistakes in providing services, the contractors claimed.
 
“Furthermore, Aon breached the duty of good faith and fair dealing inherent in every contract when it failed to disclose its lack of experience in the Nevada insurance market and failed to disclose its mistakes in providing its services to Hunt/Penta,” they said.
 

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6 Comments
  • Merwyn 7/12/2016 2:18:24 PM
    For years national brokers have used templates for these kinds of proposals that claim they are experts in all things construction related. Finally someone has called them out!
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  • Dave 7/12/2016 3:58:31 PM
    Sounds like Aon "broker quoted" the account? Oh well.
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  • Someone Aon Should Hire 7/13/2016 6:13:54 AM
    Wait, hold up. Aon claimed they could save the GC Joint Venture $4.5m in subcontractor deducts as a way to sell their wrap administration services. In reality they had no proper benchmarking data to arrive at this number and thus discovered they vastly overestimated the actual savings. Definitely an amateur move but where does this warrant a $233m lawsuit? How was the JV damaged beyond the actual deduct number and what was promised by Aon Wrap?

    "The firms said Aon should have followed the same procedure an insurer writing a worker's compensation insurance policy in Nevada would have taken to determine the premium for the policy." - Doesn't make any sense. The issue is not the premium for the policy (that is set by the underwriters), its what the wrap administration team foolishly claimed the JV would SAVE by purchasing the wrap/wrap services rather than having each subcontractor provide his own GL insurance. They overestimated the savings.

    What the author meant to say was "Aon should have followed the same procedure an insurer writing a worker's compensation insurance policy in Nevada to more accurately estimate the savings from the deducts" - Unfortunately this is impossible: Worker's comp rates are set rates. You know what they are going to be so as long as you have a payroll breakout, you can get pretty clear idea of what the savings will be. GL rates, on the other hand, are all over the place. They vary on the size of the trade's firm, how much work they are doing, whether that sub does a lot of residential work (which drives up the rate of his overall policy), etc. The only way you can get semi-accurate is to look at the pattern of deducts in the past and try to benchmark it. Unfortunately Aon didn't have this data because more often than not, Aon wrap-ups were placed through wholesalers on a GL only basis because there is usually a hotel/condo/apartment element to them or they are not large enough for a GL/WC direct program.

    Aon's mistake here was overselling. It happens too often, but it still doesn't explain a $200m lawsuit.
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