President's Blog

Tuesday, December 20, 2011

Tarion Warranty Corporation Bonds and Excess Condominium Deposit Insurance

A Simon Says Blog Posting For Developers

Fenn & Fenn Insurance Practice Inc. is pleased to announce the availability of Tarion Warranty Corporation Bonds and Excess Condominium Deposit Insurance (ECDI) through our insurance and surety partners. Another specialty service that Fenn & Fenn Insurance Practice’s Construction Keystone service provides to its Construction and Development Industry clientele. Use us as your representative to negotiate your Tarion Bonds and ECDI. Don’t tie up your cash in Letters of Credit, consider Tarion bonds and ECDI as an alternative, after all, they are acceptable to Tarion Warranty Corporation. For more information see Tarion Builder Bulletin 28: http://www.tarion.com/New-Home-Builders/Registering-and-Renewing/Pages/Security-Requirements.aspx

We’d be pleased to receive your inquiries at - 1 866 269 8799 or . 

Tarion Warranty Corporation Bonds

A Tarion Warranty Corporation Bond is a form of security accepted by the Tarion Warranty Corporation for condominium Developers in lieu of cash or letters of credit. The amount of security required by Tarion Warranty Corporation is $20,000 per unit. The bond provides protection to Tarion from any deposit losses or risk up to $20,000 per unit, and after title transfer, the subsequent one-year and two-year warranty coverage provided by Tarion to purchasers.

Excess Condominium Deposit Insurance

Under the Condominium Act, 1998 all purchaser deposits must be held in trust until transfer of title to the purchaser. This constraint restricts the builder from accessing these deposits during the construction phase of the project. The Condominium Act, 1998 does however permit builders to withdraw these monies from trust as long as the developer provides an Excess Condominium Deposit Insurance policy for the project. This policy provides protection to the purchasers of new condominium units in excess of the initial $20,000 that is covered by Tarion.

These products are available to developers meeting the following criteria:

- Low-rise and High-rise Condominium Experienced Developers.
- A proven track record of successful completion of previous condominium projects - evidence required;
- A strong financial position, both corporately and personally - financial information will be required;
- A knowledgeable, seasoned and competent development team - team credentials may be requested;
- Strong demonstrated construction capabilities - a capability statement, CCA Form 11 or other evidence may be required.

Underwriters vary in risk appetite and information requirements. Fenn & Fenn acting as your broker will co-ordinate placement to help you determine the optimum Surety/Insurer for your project. 

Monday, December 19, 2011

An Ounce of Prevention ….during Holidays….is worth a pound of cure.

Another Simon Says Blog Post
December 19, 2011 Holiday Edition

Hello Everyone

During the Holiday Season it’s important to remember to take precautions when leaving your home for an extended period of time. This Blog Post discusses a few precautions you may wish to consider. 

Holidays are always fun, the problem is they can also be lots of fun for others that would gain from theft of your property. During this Holiday Season, especially with a stressed economy, please be aware that even a brief absence from home can result in burglary. You may be signaling that you are away. Today probably the most important issue for many of us is maintaining our standard of living. When something goes wrong, our standard of living can be quickly threatened. A break in can affect your standard of living.

The burglar casing your home may look for the following:

- Visible wealth - neighbourhood, size of home, number of vehicles in the driveway and toys (boats, seadoos, skidoos).
- Expensive items such as chandeliers, original paintings, grand pianos, widescreen TV visible through a large front window.
- Habitual commute patterns will broadcast to criminals when you have gone to work.
- The babysitter/nanny that arrives every morning.
- Snow in the driveways when you’re away enjoying a beach or away for a weekend maybe attending a child’s sports meet.
- Forgetting to cancel your newspaper delivery when you’re away, piles of newspapers on the porch are a direct invitation.
- Many contractors habituate communities; they may be trustworthy but they often employ labourers that they may not even know very well. These people get to watch everything going on inside and outside your home.
- A dark house, no lights from dusk until dawn.

Remember the idiom: “An Ounce of Prevention is worth a pound of cure” by Benjamin Franklin? Well there are obviously measures you can take such as security systems, timer lights, advising neighbours, cancelling papers, arranging snow clearing etc., to try to make your home look normal during your absence. Sometimes just thinking about how obvious your habits are will encourage you to change them.

I hope this posting helps you at least to an extent. Of course if all efforts fail, we do have insurance, but who really wants the stress associated with an invasion of your personal home and then having to prove what you have lost to an insurance company?

Try to prevent burglaries by taking the right precautions. You’ll feel more comfortable next time you leave home.

Have a Happy and Safe Holiday Season.

Simon J. Fenn, CIP
President
Fenn & Fenn Insurance Practice Inc.
905 836 6066

Friday, December 16, 2011

Revisiting General Liability Insurance for Canadian Contractors

Another Simon Says Blog Post

A number of months ago I posted the attached construction focused paper entitled How Much General Liability Insurance is Enough.  It received favourable feedback but I felt it necessary to do a re-release as I continue to meet contractors that buy the minimum amount of liability insurance mentioned in standard construction contracts, despite words like “not less than” that potentially increase contractors’ exposure to risk.

Liability exposure cannot be easily quantified as there are no real measurable criteria to determine exposure to liability claims, except the depth to which a contractor is willing to conduct a project risk assessment and the contractor’s expertise. So, although a contract insurance specification may say for example “not less than $5,000,000 per occurrence” even on a very small project the actual exposure could be multiples of this amount. Failing to recognize that risk exists in contract and physically and to quantify as best as possible those risks, could be perilous.

This paper is general in nature and cannot and should not be depended upon for specific projects or situations. It is also Canadian and intended for reference within Canada only. 

HOW_MUCH_GENERAL_LIABILITY_INSURANCE_IS_ENOUGH_general.docx

Thursday, December 15, 2011

Executive Personal Home Insurance

At Fenn & Fenn Insurance Practice Inc., we strive to provide the highest quality combination of insurance coverage and service, along with a competitive price.  Our Executive Personal Home Insurance service provides a consultative approach to ensuring your assets are properly insured following a catastrophic loss event.  Additionally, we want to ensure that you sustain minimal inconvenience so we offer insurers that have a Client first mentality rather than a claims avoidance mentality. This article highlights some features of our Executive Home Insurance coverage. Feel free to contact me personally, if you’re interested in assistance.  Seasons Greetings. 

Executive_Home_Services.doc

SEASONS GREETINGS EVERYONE

Seasons_Greetings.docx

Thursday, December 08, 2011

Simon Says: Fashion Eyeglass Frames May Represent a Driving Risk

I just bought new glasses and the arms are so thick I have to be extra careful checking my blindspot whilst driving. 

Hello everyone -

This is a far less technical blog than what you may be used to from me. According to WikiAnswers.com 64.2% of Canadians wear eyeglasses. It looks like I’m in great company. We should hold a convention, it’d be a spectacle!

Recently I noticed that I was tilting my head at various angles so I could see around the scratches on my glasses. Being in a sales and marketing role and inherently self conscious about my appearance, I decided to embark on purchasing new eyeglasses.

Well to cut a long story short I purchased two pairs. Unlike my battered and worn steel frames, I purchased more solid plastic “fashionable” executive frames. I was very happy indeed as I looked very important all of a sudden....in my own mind.

As many of you have probably experienced, frames today come in a wide variety of shapes and sizes and the frames are of varying thicknesses with almost thin wire “arms” or to be correct ”eyeglass frame temples”, to sometimes over one inch eyeglass frame temples.
Many of us among the 64.2% like the up to date look, so we have purchased the wider eyeglass frame temples.

I was driving my son to his daily swim this morning and almost hit a car as I changed to the right hand lane. I had completed a shoulder check but my very fashionable executive eyeglass frame temples totally blocked my view of the blind spot, an ironic name considering the circumstances and the cause of my error. Thankfully I noticed my error and was clearly reminded by the blaring horn of the passing vehicle, an unpleasant experience especially at 5:00AM.

So, recognizing Benjamin Franklin’s oft quoted ”an ounce of prevention is worth a pound of cure”, and being in the business of risk management, I thought I’d share this with you my bespectacled fellow Canadians in the hope that in the future when driving, crossing the road or in any situation where you have to look left, right or over your shoulders for the all clear, just remember to tilt your head slightly so you look UNDER or OVER your own eyeglass frame temples. This odd birdlike motion may look strange and will certainly attract attention to you, but may in fact prevent a day in hospital, or an even worse fate.

Have a safe day!

Tuesday, November 15, 2011

Simon Says: Don’t place your Construction Insurance in the wrong hands

Simon Fenn,CIP
President
Fenn & Fenn Insurance Practice Inc. 

This Simon Says Blog is about picking the right broker for the job.  In this case Fenn & Fenn was introduced by one of our friends in the legal industry.  The customer involved, a mid sized engineering & construction company had two brokers, one working on its errors and omissions insurance and one on the balance, including some project specific insurance. 

Our analysis revealed numerous errors that exposed the customer to serious gaps in coverage as well as potential breach of contract. Fenn & Fenn was appointed as broker on the strength of our findings, we rectified the issues and now have a client that recently said to us:

“I don’t know where we’d be without your help over the past several months.”

One of our legal industry allies recently referred us to an engineering/construction company (EPCM) that was concerned its insurance coverage was not being handled correctly. The EPCM had evolved from a design engineering company to a full engineering, procurement, construction management company, accepting the risk of construction works. For more than a year the EPCM had declared it was now performing construction works in renewal application forms for its errors and omissions/professional liability insurance it submitted to its broker. There was absolutely no information withheld by the EPCM. We were assigned to review the EPCM’s insurance portfolio which included insurance coverage arranged on a project specific basis for one of its larger industrial clients.  Here is what we unearthed from our review:

1) Project specific general liability insurance had been arranged on the project which was grossly non compliant with the contract insurance specifications. It only ran until substantial performance when it was required to run for 18 months past this date.  It was also required to cover the Owner as Additional Insured with a specified cancellation notice, neither was included. The coverage was also placed long after commencement of construction.  Exposure: Significant coverage gaps and inconsistencies with contract requirement placed our client in jeopardy of having coverage denied or even worse, in breach of contract with its customer.

2) The annual “office” insurance included general liability insurance with an insurer that was generally not involved in our client’s business type.  It was unclear if the insurer clearly understood the business in which our client was involved. Exposure: Uncertainty if insurer would respond to a claim or argue that the operations were never fully explained to the insurer. 

3) The annual errors and omissions insurance covered the design engineering but contained a specific exclusion for design engineering errors and omissions where the EPCM assumes risk of construction. Exposure: At the time of the review approximately 80% of the EPCM’s work included construction. An errors and omissions claim arising from such work would have been denied.  As the construction contract also required the EPCM to carry e&o insurance, it was now also in breach of contract with its client.

4) One of the brokers had also arranged builders risk direct damage insurance on the project, which was not a contract requirement at all, as it was clear in the contract insurance specifications that the Owner had arranged this coverage.  The contract was also very clear that the EPCM could not arrange duplicate coverage.  Exposure:  Potential breach of contract by arranging duplicate insurance. 

Thankfully within weeks our client managers at Fenn & Fenn replaced the office and general liability insurance with a more suitable insurer.  We also renegotiated the errors and omissions coverage to also include errors & omissions where construction works were at the EPCM’s risk and added essential environmental impairment liability (pollution) insurance.  We also managed to convince the e&o insurer to cover past design and construct projects retroactively, eliminating any past coverage gap: this in particular was a huge coup which is rarely accomplished. We also discontinued the redundant builder’s risk policy and secured whatever return premium we could for the client, although most had been lost into the coffers of the insurer as earned premium. 

If you think your insurance is being handled correctly, maybe its time to let another pair of eyes take a look, buyer beware.

Monday, November 14, 2011

Making A Case for Legal Expense Insurance

This is a Simon Says article on Legal Expense Insurance in a more “public” context than my last “contractor” focused article. If you are faced with legal disputes or overwhelmed by regulatory bodies imposing new rules and regulations on your business, you may wish to consider this protection. Enjoy the read. 

Making_a_Case_for_Legal_Expense_Insurance_Blog.docx

Wednesday, November 02, 2011

Why Take The Law Into Your Own Hands (Making a case for legal expense insurance)

Legal Expense Insurance has arrived in Canada after being offered in many other countries for over 80 years. It provides affordable access to justice for small to medium sized businesses.

Based on a survey completed by DAS Canada (http://www.das.ca/), 2 days in Civil Court costs on average C$26,000 and the cost of legal services on average C$360/hour. Let’s face it: a small business has potential to be ruined when faced with legal action.

When encountering a dispute, many businesses unwisely choose to shortcut the process by taking matters into their own hands and possibly running into deeper problems. Legal Expense Insurance provides you with access to leading legal experts at a fraction of the potential cost. It also will defend you in the event of specific Statutory and Criminal action against you.  To top it off, with reasonable prospects of success, it will also prosecute on your behalf. 

The coverage is inexpensive and one product actually includes unlimited access to telephone legal advice for almost any reason in connection with operating the business. 

Fenn & Fenn Insurance Practice now offers Legal Expense Insurance. This Blog entry provides more detail on the product with a Construction focus; however, no matter what your business is, you have access to this coverage through Fenn & Fenn. Inquiries welcome.

We are pleased to offer this new product in Canada to all businesses that take interest.

Feel free to contact us for a quotation. 
Making_a_Case_for_Legal_Expense_Insurance.pdf

Wednesday, October 12, 2011

Tarion Warranty Corporation Bonds and Excess Condominium Deposit Insurance for Purchasers

Fenn & Fenn is pleased to announce the availability of Tarion Warranty Corporation Bonds or Developer Marketing Bonds as well as Excess Condominium Deposit Insurance for Purchasers. Further details on information requirements available through our office at 1 866 269 8799 or 905 836 6066, ask for Simon or Danielle Fenn.
Watch out for more details on these products.
Have a Great Day. 

Thursday, November 18, 2010

Risk Management - Directors & Officers

The following link takes you to the Insurance Bureau of Canada website. It contains various useful reference information. One that is particularly useful for any corporation is the Risk Management guide on Directors & Officers.  Here is the link: http://www.ibc.ca/en/Business_Insurance/Risk_Management/Directors_and_Officers_Liability.asp

Friday, November 12, 2010

INTRODUCING “THE FROM RISK TO PROFIT GUIDE” TM

In the spirit of our Client First approach to doing business I am proud to announce The From Risk to Profit Guide TM. Our disciplined approach to helping you identify and mitigate threats to your business’ assets and your profits.

FROM_RISK_TO_PROFIT_GUIDE_FF.pdf

Contact us at 1 866 269 8799 or to arrange a cost free consultation. 

DEFECTIVE WORKMANSHIP - SUPREME COURT OF CANADA DECISION

IN A RECENT SUPREME COURT OF CANADA DECISION IT WAS DETERMINED THAT IN SPECIFIC SITUATIONS DEFECTIVE WORKMANSHIP CAN INDEED BE CONSIDERED AN ACCIDENT - TRIGGERING DUTY TO DEFEND IN A GENERAL LIABILITY POLICY. 

This Supreme Court of Canada decision issued on September 23, 2010 can be read in full by following the link at the end of this summary.  This is a decision that is demonstrative of why it is important to report any situation you feel may give rise to a claim against you, even if on reading your policy it may appear that coverage is excluded. Like all contracts, insurance policies are open to interpretation and this case shows how even in Canada’s very highest court, one Judge can rule quite differently from another. As this is a Supreme Court of Canada decision all future decisions in determining what constitutes Property Damage and Duty to Defend will be guided by this decision. 

“Progressive Homes was hired as a general contractor to build several housing complexes. After completion, four actions were initiated against Progressive claiming breach of contract and negligence. It was alleged that significant water damage caused rot, infestation and deterioration to all four buildings.” More details of the damages are included very clearly in the actual Supreme Court decision.

Under General Liability Insurance an Insurer is required to defend and indemnify an Insured because of property damage caused by an occurrence or accident unless coverage is specifically excluded.

“Lombard claimed it did not have a duty to defend because the claims were not covered under the insurance policies.” This was due to specific exclusionary language it was depending upon in respect to defective workmanship which has traditionally been upheld.

“The applications judge found that the claims did not fall within the initial grant of coverage…..and therefore Lombard did not owe a duty to defend.” It therefore agreed with Lombard.

It only takes a possibility that a claim falls within the insurance policy to trigger a duty to defend. Policy interpretation typically follows the logical flow of “coverage – exclusions – exceptions (to exclusions)”. Exclusions did exist in respect to defective workmanship but there were some ambiguities.

The Supreme Court of British Columbia, 2007 Justice Cohen had concluded the claim did not fall within the grant of coverage and Lombard did not owe a duty to defend.  The Court of Appeal of British Columbia, 2009 Justice of Appeal Ryan for herself and Justice of Appeal Kirkpatrick “accepted that the plain meaning of the insuring provisions could support the conclusion that the claims against Progressive fell within the insurance coverage.” However, she concluded that “such an interpretation flies in the face of the underlying assumption that insurance is designed to provide for fortuitous contingent risk”.  On the contrary Justice Huddart concluded that Lombard owed a duty to defend.

Let’s be clear that the primary focus of the Supreme Court was not a decision as to whether coverage applied but a decision as to whether Lombard had a duty to defend Progressive.  It appears the Supreme Court’s view of what constitutes an accident now goes against what the insurance industry’s real intention is and could indeed include defective workmanship depending on the specific circumstances in each case; also, that Property Damage as defined within the specific General Liability policies reviewed in this case, was not restricted to third party property damage.  As the Lombard wordings are similar to other insurers’ wordings and those suggested by the Insurance Bureau of Canada: this could apply in many future cases.

Having determined that Lombard indeed has a duty to defend Progressive Homes, this case will return to trial to determine what is actually covered or excluded in respect to damages. Coverage itself may or may not apply; the key point to this article is that now there is an opening for defective workmanship to trigger a defense under general liability insurance, where it has not done so before.

It was never really the intent of the insurance industry that defective work would ever be considered an “accident” or “accidental” and it was also never intended that defective work would trigger a duty to defend under a general liability policy. The insurance industry has also traditionally intended that the definition of Property Damage was meant to include Third Party property damage only, not the insured’s own property.  Now there is an opening depending on the outcome in trial court, that coverage for the insured’s own defective work, might also be covered by general liability insurance depending on the circumstances.

I assume that those in the Canadian insurance industry that draft insurance policy language are now busily reviewing this case and will eventually issue policy language that attempts to clarify the intention of the insurance industry once again.  The specific article can be located for review at:
http://scc.lexum.umontreal.ca/en/2010/2010scc33/2010scc33.html

Resources:
Blaney McMurtry LLP
Lloyd Burns LLP
Supreme Court of Canada

Simon Fenn, CIP
President
Fenn & Fenn Insurance Practice Inc.
http://www.fenninsurance.com

The Fenn & Fenn “From Risk to Profit Guide TM” is a disciplined efficient process that will help you protect your assets and your profits.  For more information contact us at 1 866 269 8799. 

Tuesday, April 27, 2010

Bill 168 - Workplace Violence - Protecting Your Company

Bill 168 Workplace Violence becomes effective June 15, 2010 in Ontario. Companies with 5+ employees in Ontario need to pay attention to compliance requirements associated with this Bill. Fenn & Fenn Insurance Practice Inc is pleased to supply summary information on Bill 168. Directors & Officers Liability and Employment Practices Liability Insurance may provide you wish a defence against allegations in connection with this Bill. Click on this link to review our overview and obtain useful links to resources: BILL_168.doc

Wednesday, July 15, 2009

Set-Off : a Cost of Risk?

This risk management paper is focused principally on the constructor.  It uses a popular definition of Cost of Risk and proposes that set - off or financial hold back due to an incident of some sort is a predictable event. As a predictable event it further proposes that the constructor should include an allowance for set-off within its annual cost of risk calculations and ultimately into its overhead. This allows the constructor to spread its risk of set-off among its annual work.

I hope you enjoy the paper.  Should you have any questions, please contact me.

Have a great day.

Simon Fenn

Owner/ General Contractor Payment Set-Offs:  A Predictable Cost of Risk?

One of the most frustrating things for me as a construction insurance broker is being unable to address the fact that in so many cases when something goes wrong on a construction project, the Owner or General Contractor holds back payment to the contractor/subcontractor (hereafter subcontractor) for its progress payment or completed work, irrespective of insurance being involved to cover the incident. I suggest it may be time for the subcontractor to anticipate such situations within an annual cost of risk calculation to become part of your overhead. 

Many times my clients look to me as if I can sort out the holdback situation if it is connected to an insurable incident. Helplessly, I shrug my shoulders, part my hands with palms up and say:

“The insurance claim is in the realm of the insurance industry; whereas, the holdback is a contractual dispute”.

This of course does not help my client who, because of an incident that might not even be its fault, can wait for months or years before receiving payment from its client. Such situations add stress, not only on cash flow but, depending on the size and financial strength of the firm: its very existence. I have looked at potential insurance solutions but have come to the conclusion it is a risk management issue, not an insurance issue.

In one recent case, my client’s claim occurred in November 2008 and repairs did not conclude until June 2009. For this entire period of time the payment for the work has been withheld by the Owner who has refused to pay the contractor until such time as the authorities had given the repairs a clean bill of health. Sadly, I have seen much longer examples.

Is this right? Should General Contractors and Owners be allowed to hold back payment when there is an incident on a jobsite? I decided to explore this. 

As you might expect when serving a large number of contractors and consequently insuring a large volume of their work, I get to see how the sector is affected by such payment hold back activity.  Almost every single third party liability property damage claim against one of my clients includes a payment hold back situation. From what I can tell the frequency of such situations seems very high.

The term hold back is really an incorrect term to use in these cases as it in itself is usually more strictly defined within and relates to the Construction Lien Act (Ontario).  To avoid confusion henceforth we change the term of reference to the Common Law right of Set- Off.  The version of Set-Off we are dealing with here is considered “Equitable Set Off”.

According to a December 11, 2006 article written by Christopher Hurst & Norman Streu of Alexander Holburn Beaudin & Lang LLP (full copy of article http://joconl.com/article/20061211500):

“The right to an equitable set-off arises when a defendant’s cross-claim is so clearly connected with a plaintiff’s demand that it would be unjust to allow the plaintiff to enforce his demand without taking into account the defendant’s cross-claim. In the construction industry, this often arises when a contractor (or subcontractor) seeks to enforce a demand for payment, and the owner (or contractor) sets - off against that demand its own claim, generally for delay or for construction deficiencies.”

Here is a good example of Equitable set - off from the same article:

Swagger Construction Ltd v. University of British Columbia:

“UBC hired Swagger Construction to build the Forest Sciences Centre. At substantial completion, Swagger brought an action for payment with respect to the 33rd Progress Certificate. The Court allowed UBC to set off against this payment its own claim in damages against Swagger, for delay and for the cost of correcting deficiencies and completing the work.
In reaching its decision, the Court ruled that one party to a construction contract has the right to defend, by way of equitable set-off, against the claims of the other party. The Court further noted that this would generally constitute a claim for contract monies on the one hand, and a claim for damages for poor workmanship or delay, on the other.”

The article further states that:

“The right of equitable set-off exists as part of a construction contract unless it is specifically excluded by the parties.”

Furthermore, the CCDC 2 (1994 & 2008) standard contract makes references to set – off, it sometimes includes the right and in one case excludes the right. Equitable set-off is often not addressed and so may be interpreted as not excluded. 

The same article refers to an Ontario case that does at least seem to put some limitation on right to set-off involving third parties:

“The court found that it would not be fair or reasonable to allow a third party ……..to determine arbitrarily what amounts could be held back from a subcontractor.”

and that…

“….the claim for damages was made by a third party, and was not a claim for construction deficiencies or damages for delay involving the two parties to the contract, Axor (contractor) and Armenia (Owner).”

In discussing this recently one lawyer said to me that this is just a case of Common Law rights. The lawyer said it’s a case of “I owe you, you owe me, but the party withholding had better be sure it has a right to set-off or it could end up paying the other’s interest and costs.”

The clear message in this statement – if money is being set – off, have your lawyer (preferably a construction lawyer) review the situation to ensure that whoever is setting – off is within its legal right to do so. 

From an insurance professional’s perspective we can only offer some risk management suggestions. Firstly it is unlikely that you will succeed in avoiding such situations through amendment of contractual language. You could try but someone else will likely not be so concerned and will win the contract. Secondly you could risk manage by verifying the payment reputation of the Owner/ General Contractor before you submit your bid, especially if you have never worked for them before. If you don’t get a good sense of their payment reputation or what they are like to work for, you may wish to cushion your bid to include a contingency if you bid at all. Again this could work against your bid success as someone else may not be as concerned and will bid below you.  Thirdly, you could make an allowance within your annual cost of risk against such situations.

IRMI (International Risk Management Institute) defines Cost of Risk as:

“The cost of managing risks and incurring losses. Total cost of risk is the sum of all aspects of an organization’s operations that relate to risk, including retained (uninsured) losses and related loss adjustment expenses, risk control costs, transfer costs, and administrative costs.”

It is conclusive from my experience that the frequency of an individual subcontractor’s work related incidents is fairly low but with each such incident, the likelihood of a set-off situation being triggered by an Owner or a General Contractor is high. 

You may not yet as an organization be calculating your annual cost of risk within your operating costs. Right now you probably just look at the insurance premium and deductible and include this in your overhead. You’re almost there. As described above, you should include in your annual cost of risk estimate uninsured losses, administration time on your part, the premium you pay and an allowance for the deductibles you “may” pay, let alone the many issues you face yearly that are not within the realm of insurance, but still represent risk that your organization will sustain (including write offs/ bad debts etc.). This is not dis-similar to insurance itself, you are spreading the risk.

As contractors whether subcontractors or general contractors, you have all had incidents where it has cost you something to negotiate away a potential claim against you. This negotiated settlement is a perfect example of what constitutes cost of risk.

Controlling your cost of risk is possibly more important than the cost of your insurance. The insurance premium could pale by comparison to the overall cost of risk calculation. Please try and anticipate that you may have a payment set-off situation arise and consider putting an allowance for this into you cost of risk estimate and then putting your cost of risk estimate into your overhead costs. 

Fenn & Fenn Insurance Practice Inc. is a commercial and construction insurance practice in Newmarket, Ontario, Canada.  Simon Fenn, CIP is President of Fenn & Fenn Insurance Practice Inc. This document is prepared as general information only and is not to be interpreted to apply as advice to any specific situation. Fenn & Fenn Insurance Practice Inc. will not be accept liability for the losses arising from the use of this information for any specific application. If you require advice or assistance in calculating cost of risk, please contact your insurance professional.