ARE YOU SURE YOU’VE GOT THAT COVERED?

Identifying insurance risks for home builders

BY TED McINTYRE, WITH MAURO DI TULLIO, FEDERATED INSURANCE

I FIRST MET Mauro Di Tullio during a January roundtable at the OHBA/BILD offices. The topic was the underground economy, and Di Tullio, representing Federated Insurance, was keen to raise awareness of what the absence of adequate fire insurance among spurious contractors could mean to consumers and surrounding property.

Federated, a 100% Canadian-owned commercial insurance specialist, has been providing customized insurance solutions to CHBA members for more than 20 years, and Di Tullio was eager to weigh in on more builder-specific concerns, from liability and disability insurance to Builder’s Risk policies (coverage for property in the course of construction that will form part of the completed construction project).

Builders’ claims typically arise out of the construction operation, such as someone tripping over a board or falling into a hole dug as part of the projectI. If the builder somehow causes the house next door to go up in flames, that falls under the builder’s policy. On the other hand, if a homeowner visiting his site tosses a cigarette onto his neighbour’s property and that causes the fire, then that’s the homeowner’s responsibility.

Sometimes it’s hard to keep track of where all the potential dangers may lie and what you’re covered for. But Di Tullio offers builders some tips on how to minimize those risks.

OHB: Are there any recent trends with your home builder customers that you feel require greater awareness within the industry?

MAURO DI TULLIO: We’re always seeing new risks that are unique to the industry. Recently, we’ve seen a number of claims that stem from issues with improperly prepared soil, especially on ravine-adjacent land that requires engineered fill for levelling. These types of claims can be large because building a house on improperly prepared soil can result in significant movement of the foundation, which damages the structure. The soil is improperly prepared by the developer and the house settles due to the improperly compacted soil underneath it. Unfortunately, the home builder can be left with the cost of repairing the foundation and the house.

OHB: Why isn’t the developer responsible if they developed the lot?

MD: Builders usually assume that the developer is ultimately responsible for the improperly prepared soil, especially since they developed the lot and the builder purchased it after the fact. But in these cases, the sales contract included a Hold Harmless Agreement. With this type of agreement, one party typically agrees that the other party is free from responsibility for any liability or damage that might arise out of the sale of land. This can prohibit the builder from being able to pursue the developer for the costs of repairing the house.

OHB: How common are Hold Harmless Agreements?

MD: The use of them varies by province, and it depends on the demand for building lots and the economic conditions of that specific region. A highdemand region will usually include more Hold Harmless Agreements since builders are dealing with a low supply of lots and some are willing to take on the risk. For example, Alberta has had a high demand for lots over the previous years, so many developers include that agreement as part of their contract.

OHB: Do you have any advice on how builders can minimize these types of risk?

MD: Here are a couple tips: First, research the development company you’re considering purchasing from and make sure that it has a solid track record of developing quality lots. Second, obtain the applicable reports from the developer before signing any agreements. These could include geotechnical evaluation reports, deep-fill reports, slope stability reports or material testing reports. If your geotechnical engineer identifies any potential problems based on the reports, or if there are no reports available, you may consider not purchasing the lot.

OHB: What other issues do you see when it comes to liability risk?

MD: Unfortunately, it often isn’t until after an issue or problem arises that the builder looks into who will have to pay for the damages. We’ve seen situations where subcontracting companies have done low-quality work or caused damage to a building, which resulted in a lawsuit from the purchaser. Situations like this can ultimately damage your brand and your ability to attract new customers, since the bad word-ofmouth and social media publicity that follows typically isn’t very good.

OHB: So what should you do before engaging with a new subcontracting company?

MD: You should think of the them as an extension of your business. After all, the customer only cares about the finished product and doesn’t make a distinction between the subcontractor’s work and your own. Choose a contractor with a great reputation, recent references and financial stability. Make sure they have liability insurance and ask them to provide a recent Certificate of Insurance. Ensure that the amount of insurance is appropriate for the cost of the project you’re working on.

OHB: Is there anything OHBA members should be aware of from a risk management perspective?

MD: We work closely with our customers to help them develop effective risk management programs. One of the trends we’ve seen grow over the years is construction site theft. Criminals know that construction tools, equipment and materials can be extremely expensive and difficult to identify or recover, making them the perfect target for theft. As criminal enterprises become more sophisticated, they’re able to identify which tools, equipment and materials are valuable and easy to move. Investigations often find that tools are quickly shipped out of province or even out of the country within hours of being stolen.

OHB: There’s a bit of a domino effect to that kind of theft, isn’t there?

MD: Absolutely. It can have a cascading effect that may cause additional problems. The time and cost of replacing the tools and equipment or ordering more materials affects projects and can be a nuisance. But if it causes delays in completion, there could also be late penalties involved. Last, if the stolen equipment causes (financial) damage to a person or property, you may be held liable.

OHB: What sort of protocols can help reduce theft on construction sites?

MD: We recommend having an established company protocol that all employees are engaged in.

Some best practices to consider include:

• Conducting employee background reviews with your human resources department to help make sure your staff works with integrity and honesty.

• Keeping detailed records of all your tools and equipment. Make sure you record information that will make them easier to recover if they’re stolen, such as serial numbers, make, model number, year built and year purchased. Consider also placing your own unique identifying marks on your tools and equipment.

• Making sure your construction site is secure with temporary fencing, lighting, commercial grade locks on all storage containers and a surveillance service.

• Ensuring you purchase your tools, materials and equipment from a trusted source. If you’re buying from someone you don’t know and the price is too good to be true, you may be purchasing stolen goods and feeding into the cycle of theft within the industry!

All these elements contribute to a great risk management program that can help keep your tools, equipment and materials out of the hands of thieves.