By Bruce Jervis
The ongoing COVID-19 pandemic has created many challenges for contractors and construction projects, necessitating new health and safety measures, triggering project delays and cancellations, and disrupting supply chains.
Now peak hurricane season is here, and contractors must be prepared to manage potentially catastrophic storm events amid a global public health crisis.
HEIGHTENED EXPOSURE
Forecasters recently increased predictions for the 2020 Atlantic hurricane season, now projecting 25 named storms, as many as eleven of them hurricanes, with three to six packing winds of at least 111 miles per hour. With Laura and Michael, the Gulf of Mexico experienced two hurricanes in the past 3 years with maximum sustained wind speeds of 150 mph or higher; this has occurred fewer than 10 times in the past 100 years.
Hurricanes such as Harvey and Florence underscored the threat storms bring not only from wind, but also from water. According to catastrophe modeling firm RMS, about 90 percent of Harvey’s insured losses resulted from inland flooding.
Flood risk is clearly increasing across the country. In recent years, it has not been uncommon to observe devastating flood impacts outside of FEMA’s designated critical flood zones, and this highlights the need for contractors to look beyond the traditional flood and hurricane “footprints” when considering potential storm exposure.
PREPARING DURING PANDEMIC
In the current climate, preparing to mitigate storm losses is a more complex task. There are new considerations. For example, in a socially distanced world, will it take longer to secure the jobsite as a storm approaches? How and where will workers evacuate? What housing and hotels will be available? In order to address pandemic-related health and safety issues and local regulations, decisions to shut down a site and evacuate workers will likely need to be made earlier than in the past.
Recovery after a major storm may be more complicated as well, with the economy not fully open and supply chains already disrupted by the pandemic. Here again, foresight is fundamental. Contractors should expand their universe of potential suppliers to increase the likelihood of keeping their supply chain viable and having access to essential resources following a storm event.
Contractors should also be prepared to be flexible and creative in sequencing schedules. In many cases, schedules have already been delayed due to the pandemic; pushbacks may have landed certain tasks that were originally scheduled to take place before hurricane season right in its peak. As a basic risk management rule, contractors should try to avoid embarking on tasks they would not ordinarily do during storm season. This time of year, it’s wise to avoid starting any jobsite task that can’t be wrapped up within 72 hours to allow time to lock down the jobsite in the event of a developing storm. Creative scheduling may also be needed after a storm to navigate supply chain and procurement obstacles and get a project back online as soon as possible.
INSURANCE COVERAGE CHECKUP
Contractors should carefully review their builder’s risk insurance coverage with their brokers and carriers to make sure they understand how their policies apply with respect to storm-related losses, including losses arising from water damage.
Importantly, builder’s risk coverage typically distinguishes between damage caused by rising or overflowing water (e.g., flood and storm surge, which are increasing in frequency and severity) and other water damage, such as water entering a building before the walls and/or roof are finished. Definitions of flood vary from one policy to another and should be evaluated and well understood by the insured parties. If there are contractual agreements between the contactor and project owner as to who is responsible for flood or water damage, insured parties should ensure that definitions in the contract align with those in the insurance policy to the extent possible prior to any loss occurrence.
Limits and deductibles also merit close consideration. Typically, deductibles for flood and named windstorm are significantly higher than those for water damage or other non-catastrophe causes of loss. In some policies, it may be expressed as a percentage of the property value. In a builders’ risk insurance policy, it may be based on the value of the project at the time of loss (VARTOL). In this case, the deductible amount will increase as the project moves along and nears completion, as the values exposed are greater than at the beginning of the project.
Notably, some policies include storm surge as part of the flood definition, while others address it in the named windstorm definition of the policy. How these terms are defined may impact limits and/or deductibles. Contractors should work with their brokers to have storm surge clearly defined in their policies as part of either the flood or named windstorm definition and not left open to interpretation.
There’s a lot to consider, and policies have evolved in recent years in response to the increasing frequency of severe weather events. Having a clear understanding about how your specific policy applies in these potential loss situations is critical for all contractors.
CLAIMS CONSIDERATIONS
Many builder’s risk policies cover not only costs to repair physical damage to the project site, but also “soft costs” or loss of income resulting from project delay caused by covered physical damage to insured property (similar to the business interruption coverage in standard property policies).
Contractors and owners should keep their project schedules up to date to assist in the investigation and adjustment of delay claims. An accurate and current construction schedule will enable loss of income or project delay costs to be accurately assessed, which should result in a smoother claims process.
CLOSING THOUGHT
Extreme weather events have demanded greater risk management diligence from contractors for years. The pandemic has increased the complexity of catastrophe preparation and recovery. In this environment, contactors and project owners need to review and adapt their standard plans to ensure the safety of people and equipment while navigating the effects of a global pandemic, and affirm that their insurance is the best fit for their risk and budget in an era of heightened windstorm and flooding exposure.
About the author:
Bruce Jervis is executive vice president, Chubb North America Commercial & Inland Marine. For more, visit www.chubb.com.
Modern Contractor Solutions, September 2020
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