lecture 16

Question 1

is one of several things a contractor can do under a more general heading of Risk Management.

Answer 1

Insurance

Question 2

is a potential inadequacy or loss

Answer 2

Risk

Question 3

applies to risks that cause financial loss.

Answer 3

Insurance

Question 4

an unforeseen interruption to an orderly process.

Answer 4

Accident

Question 5

1. An insurance policy is a 2 party contract, where:
2. Insurer assumes financial responsibility for a potential loss–real or implied.
3. Premium is consideration.
4. The policy does not cover holder’s deliberate actions.
5. Usually requires premium paid in advance of protection.
6. Insurance law is the same as the law of contracts.

Answer 5

Insurance contracts policies

Question 6

Insurance field is controlled and regulated by __________.

Answer 6

federal and state statutes

Question 7

Insurance companies are either:

Answer 7

1. Stock companies (Like banks)

2. Mutual companies (Where policy holders are part of the company)

Question 8

___________ may be stock companies– some large ones are mutual companies.

Answer 8

Property and casualty companies

Question 9

_____________ are generally mutual companies.

Answer 9

Life insurance companies

Question 10

Why purchase insurance?

Answer 10

1. To cover risk that could cause serious monetary damage to contractor.
2. Much of it is required by law–workmen’s compensation, social security, unemployment, vehicle liability.
3. Owners require it–certificates of insurance before starting work.
4. To have insurance company’s attorneys defend one in court.

Question 11

1. Property insurance for project
2. Property insurance for contractor’s own property
3. Liability insurance
4. Employee insurance
5. Automobile insurance
6. Business accident and life insurance

Answer 11

Types of Construction Insurance

Question 12

1. Basic policy for project property insurance.
2. Usually excludes low hazard work
3. Does not include loss of specifications, records, plans etc.
4. Premiums vary depending on type of construction and availability of fire-fighting equipment.

Answer 12

Builder’s risk insurance

Question 13

Two types of Builder’s Risk

Answer 13

1. All-Risk–common

2. Named peril–seldom used.

Question 14

1. Widely used in building construction.
2. Covers project plus temporary structures, materials and supplies in storage and in transit.
3. May cover contractor’s tools and equipment while on site (if not otherwise covered).
4. Covers all direct physical loss–from any external cause–except for stated exclusions, such as freezing, settlement, rain and snow, earthquakes, floods, etc. 5. Does not cover the costs of corrections due to error, omission, etc., of construction or design.

Answer 14

All-Risk Builder’s Insurance

Question 15

have deductible amounts for various categories of coverage–very easy to customize

Answer 15

All–Risk policies

Question 16

All risk policies can be obtained in one of two forms:

Answer 16

Completed Value form, and Reporting form

Question 17

a. Single policy covers all the contractors jobs.
b. Total insurable value must be reported monthly.
c. Premiums paid monthly based on last month’s report.
d. Premiums start low and increase with time

Answer 17

Reporting form

Question 18

a. Separate policy for each project.
b. Total insurable value used.
c. Premium paid in lump sum at beginning
d. Premium is 55% of full term rate (essentially linearly proportioned)
e. Cheaper for short-term jobs, no reporting.

Answer 18

Completed value form

Question 19

is better if there’s a lot of earthwork, foundation, etc., early in project.

Answer 19

Reporting form

Question 20

Choice between reporting form and completed form is based on least probable premium cost–which is a ______.

Answer 20

function of value vs. time.

Question 21

An arrangement by which a firm acts as its own insurance company. Specific criteria must be met for a company to qualify for self-insurance.

Answer 21

Self Insurance

Question 22

When an insurance company pays for a particular loss to the injured party, it reserves its right to sue the third party that caused the injury. This right is transferred from the injured to his insurance provider.

Answer 22

Subrogation

Question 23

1. Seldom used
2. Covers only named losses (perils)–usually fire and lightning.
3. Coverage generally the same as in All-Risk.
4. Additional risk endorsements can be purchased.
5. Extended coverage–windstorm, hail, explosion, riot, strike, civil commotion, aircraft, vehicles, smoke. 6. Vandalism and malicious mischief.
6. Additional premiums paid for each endorsement (like private auto insurance).

Answer 23

Named Peril Insurance