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Risk engineering surveys – an opportunity to review the coverage?

Article · April 2020

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Richard Radevsky
Charles Taylor Adjusting
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“Risk engineering surveys – an

opportunity to review the coverage?”
Risk engineering surveys for major construction projects are normally about project
progress, risk management quality and recommendations. Richard Radevsky of Charles
Taylor looks at the opportunity they also provide for a technical review coverage.
Risk engineering surveys for major construction projects are an opportunity for progress to be
reviewed, for risk management quality to be evaluated and for recommendations, if any, to be
identified. They are also a chance to review the coverage at times when much more is known about
the project than when it was underwritten. At the time of a survey, the project team, their insurance
manager, the brokers, underwriter and following insurers review the project. An insurance
programme put in place before the project started often requires fine-tuning as the project develops.
It is relatively common for policy periods to be extended if a project is running late or for cover to be
amended if there is a scope change and these changes are handled by the broker during routine
coverage review meetings with the project. Such meetings, however, often do not include as detailed
and far reaching an examination of the project’s immediate future as take place during a risk
engineering survey. Not only that but it is also not always possible for brokers, underwriters and in-
house insurance managers to attend risk engineering surveys particularly where they are in difficult
locations.

Project teams naturally tend to focus their efforts mostly on project progress and solving complex
engineering issues. They may not have sufficient construction insurance expertise to anticipate
coverage problems that can be raised in the regular meetings with their brokers. It is not always easy
for the project team to identify where coverage needs clarifying or where there are gaps. They may
also not realise the consequences of failing to comply with policy conditions or that they can ask for
them to be modified if they are unsuitable. Spotting coverage gaps needs an understanding of how
the policy works, what the underwriter will have considered at the underwriting stage and an up to
date technical knowledge of how a project is running.

The case histories below, from risk engineering surveys of real projects, demonstrate the type of issues
that can arise mid-way through a project.

Clarifying coverage:
• Sections of a recently constructed motorway were brought into use, before handover. Were
these covered under the construction policy, or any other policy, whilst other sections were
still under construction?
• Major new equipment items (gas turbines) installed as part of a power project had been
brought into use but not yet received a signed provisional acceptance certificate. Was there
construction policy coverage or any other coverage?
• For a project with multiple buildings and a phased handover, the handed over/operational
areas relied on the operation of equipment located within areas still under construction.
Where were the boundaries between handed over work (insured under an operational
policy) and work still under construction (insured under a construction policy)?
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• For a project with a phased handover, works were added as a result of variation orders.
Which of two polices applied?
o Either the operational policy (which contained the facility to cover some works)
o or the construction policy (which could, within limits, cover some variations)
• A construction project required some specialist items (for example a tunnel boring machine
and a firefighting barge) Was there any cover for the special items being used during a
project or supplied as part of the project?
• An insurance slip included some apparently inaccurate information (for example statements
about provision of unusual fire protection measures which were not appropriate and had
not been installed). What was the consequence in terms of coverage?
• The contractor for a waterside construction project decided to manoeuvre and lift large
project elements by vessels, barges and a floating crane. Did the construction policy cover
these operations?
• Major project components were stored at a yard outside the project’s boundary. How could
the project be sure the components fell within policy coverage?
• An onshore process plant was being built with construction cover with some automatic
cover for variations to the works. Would the policy extend to cover an offshore pipeline that
was added after construction had commenced?
• After a project had started, asbestos removal works, which were not anticipated at
underwriting stage, had to be undertaken. Could it be assumed that the project policy would
cover these or was additional specialist coverage needed?

Addressing coverage gaps

• An insured project was being constructed adjacent to another which was separately insured.
Works from one relied for support on works from the other. In the event of a loss affecting
both, how were the two policies going to work in relation to each other and were there any
coverage gaps?
• A project held materials in offsite storage. Were the values adequate and did the locations
being used have fire protection measures to comply with policy requirements?
• During a project, a supply contract was awarded to a company with a fabrication yard in
another country. Did the project policy’s geographical limit extend to that country?
• Large project components had to be moved between two insured fabrication yard locations.
Was there any all-risks and DSU cover for road transit of partially completed components
being moved between the fabrication yards?
• A prominent infrastructure project was under construction in a city centre location. Was
there any terrorism cover during the construction period?
• A major item of project equipment was being moved to a site by a supplier. Which of two
sources of coverage was applicable?
o Either the supplier’s transit insurance
o Or the project’s Marine Delay in Start Up (MDSU) coverage with the requirement for
a marine surveyor approved by the MDSU insurer.
• Subcontractors and suppliers were required to install equipment (insured separately from
the construction works). Did they have adequate liability coverage if, during installation of
equipment, they caused damage to the project works and delay?
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Reducing the risk of future claims problems

• Independently from a construction policy, a client purchased and insured specialist
equipment to be installed in a building under construction. Contractors and subcontractors
were involved in moving and installing the equipment. Were they insured under the
project’s construction policy?
• A project used a Building Information Model (BIM) during the construction phase. It was
progressively transferred to the client during a phased handover. It was then being modified
both by the construction project and the client’s operations team. Was the BIM insured and
if so by whom? Would the source of any damage be clear if a claim was made?

If questions like those shown above are not raised, problems may go unnoticed and solutions will not
be found. Difficult situations may then have to be faced after a claim. Far better to tackle these matters
before claims arise, so everyone knows where they stand. Coverage can be extended if necessary,
with additional premium paid. Or a project team can see clearly that they have unprotected risks and
can take appropriate steps to manage them. If coverage issues can be clarified, gaps in coverage
eliminated and future claims problems reduced, then the quality of the insurance which the client
receives will be much enhanced.

Major construction projects are complicated endeavours that take years to complete. It is unrealistic
to believe that insurance coverage arranged before the start will not require some fine tuning during
a project’s life. Risk engineering surveys provide useful opportunities for technical reviews of coverage
to take place, supplementing the routine reviews that brokers undertake. If coverage issues are raised,
it is for the project team, the broker and underwriter, rather than the risk engineer, to arrive at
solutions. Raising such issues does not formally fall within the risk engineer’s brief, but he/she may
well be the person best placed to spot potential problems.

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