By Samantha Wright
The construction insurance industry endured some spectacular losses last year, which have helped the E&S market maintain rate.
Specifically, three large apartment complexes nearing completion in San Francisco, Houston and Boston burned completely to the ground, resulting in losses in the $100 million-plus range.
“That actually has kept the frame construction market in E&S because those huge losses are scaring the retail space and the standard markets,” said Bryant Steele, a broker focusing on the excess and surplus insurance market in Burns & Wilcox’s construction practice.
As it turns out, fire is the number one loss exposure for a frame construction project. Often, these fires are the inadvertent aftermath of welders who leave the job site before their project has cooled down.
Carriers are responding by putting in place hot works programs – insisting that whenever someone finishes a welding project, they remain on site with a fire extinguisher for 30 minutes or longer until the hot metal has cool off.
“The industry has been more proactive in the last six months in really mandating these hot works programs,” Steele said.
Construction defects legislation also continues to be a driving factor in the construction insurance marketplace as plaintiff groups challenge both courts and legislatures on a state by state basis to broaden the interpretation of CGL policies to provide coverage for defective construction.
Interpretation of a construction defect varies from jurisdiction to jurisdiction. New Jersey, Connecticut and South Carolina have all recently seen legislative actions driven by pro-plaintiff groups.
“That’s definitely something from an insurance carrier perspective that is a challenge for us as we look out across the country,” said Ben Beauvais, Executive Vice President of Casualty & Construction at
Ironshore. “In particular, the fact that we could face changing legal assumptions on multi-year project policies requires careful consideration when underwriting project risk.”
The tide could be turning. Over the past year,
Law 360 reports, a wave of construction defect law reform efforts has swept several states including Colorado, Nevada, Arizona, Florida and Washington, attempting to make it harder for homeowners to sue under existing construction defect laws.
Another notorious pitfall of the construction sector can be found in New York City and New York State, where action over claims have caused many carriers to exit the state. The problem stems from sections of the New York Labor Law, establishing that a building owner and general contractor can be held fully responsible for an injured worker’s accident and the injuries sustained in that accident, even though their actions did not directly cause the accident.
While intended to provide added protections for injured workers, the laws are burdensome for project owners and general contractors and anathema to many carriers.
