Insurance for Design-Build Projects - Design-Build for Water and Wastewater Projects - page 158

deducted from each contractor's bid is also monitored and tracked throughout the life of
the project to compare to the CIP cost. This information allows calculation of a measure
of profitability. Without this dedicated focus, the benefits of a CIP may not be realized.
Self-Insurance
The two means of self-insurance that are appropriate for this discussion are deductibles
and self-insured retentions (SIR). The difference between deductibles and SIRs is where
the responsibility lies in a claims scenario. Under a deductible, the carrier is responsible
for adjusting and controlling defense of a claim, as well as paying the claim, with reim-
bursement coming from the insured for the deductible amount. Alternatively, the insured
is responsible under an SIR for adjusting and defending claims, as well as paying for
defense and damages, until the full SIR has been paid. Only at that point does the insurer
step in. True deductibles and SIRs are rare; most retentions fall somewhere along the
spectrum. The specific provisions of any given policy subject to a retention should be
carefully considered prior to purchase of the policy. If a firm makes a business decision to
explore one of the many self-insurance options, consultation with a knowledgeable out-
side advisor is highly recommended.
All PL policies require the insured to bear some risk in exchange for the coverage.
This serves as a reminder to the professional services firm that insurance is not a com-
plete risk management solution and assures the carrier that the firm “has some skin in the
game.” Other policies may also be written with deductibles or SIRs when a firm is large
enough to handle the retention and realize some premium savings in exchange for it.
UNINSURABLE RISKS
Despite all of the great products available to DB firms, insurance is not now, nor will it be
in the future, a means to transfer all of the risks that exist. Some circumstances, like war,
strike, riot, and other “acts of God,” are considered uninsurable. Design professionals and
contractors may also face other uninsurable risks more specific to their work, like liqui-
dated damages and equipment warranties or guarantees. Even where insurance is avail-
able, policy terms, conditions, and exclusions dictate when policy applies and when it does
not. Insurance is an excellent tool, but it is not a substitute for good risk management.
INSURANCE BROKER
As illustrated by the discussion in this chapter, the insurance needs of a DB firm are com-
plex. A knowledgeable insurance advisor would be extremely helpful in creating a prop-
erly designed insurance program. Capable brokers will understand both the DB exposure
and the insurance markets capable of meeting the DB firm's needs. Their client base likely
consists solely of design and construction firms. They serve on professional committees,
publish relevant articles, and conduct specialized risk management seminars for the ben-
efit of their clients. The combined knowledge of the insurance, design, and construction
fields makes the skilled broker an advocate in the insurance marketplace and an extension
of the risk management team.