Office of Risk Management

GUIDELINES & POLICIES

POLICIES RELATED TO FACILITIES:
CONSTRUCTION PROJECTS

Risk Management / Insurance Procedures for Construction Losses

Purpose: to inform all parties of correct procedures to follow when an insurable loss occurs on a construction project.

1. When an incident involving insurable loss occurs, three parties have primary responsibilities for early action and must be notified as quickly as possible. They are:
   
   
   • the University Architect’s Office (UAO)
   • the affected contractor(s)
   • the Office of Risk Management (ORM)
   
   
2. The person or party discovering the loss should, if capable, take reasonable and immediate action to limit continuing or imminent danger of damage (see 3.1. below for definition) and then report the incident to the others or to the local campus police, who are trained to report the incident appropriately.



3. Upon notification of the incident, the three parties identified in 1. above shall inspect the site in a timely fashion to determine:
   
   
   • Time and date of loss
   • Severity of loss and determination of need for corrective action
   • Other relevant circumstances of loss (cause, imminent danger, etc.)
   • Need to notify insurance agency (ORM)
   • Need to involve other agencies (e.g., police or fire investigators, Environmental Health and Safety, etc.)
   
   


4. Time is the key factor distinguishing among the three types of damage that must be addressed outside of normal procedures.
   
   3.1. Continuing or imminent danger of damage. Continuing or imminent danger of damage describes a situation in which immediate action is needed to prevent additional losses. It is exemplified by water gushing from a broken pipe. Reasonable steps to limit damage would be to turn off the water source. Such reasonable steps may be taken by the contractor(s) without approval of the other parties. The contractor(s) must provide reasonable documentation of costs for this work (e.g.., actual material cost invoices, labor hourly slips, etc.) after the fact.
   
   3.2. Damage requiring emergency steps. An emergency describes a situation which should be addressed quickly, but will not cause further significant damage within the time it takes to notify the UAO and Risk Management for appropriate approvals. Emergency steps are not permanent repairs. Emergency steps must be agreed upon by the three parties 1 and are paid for on a time and materials basis. Reasonable documentation of time and materials must be provided. Emergency steps typically are taken without notification of the insurance company.
   
   3.3. Damage requiring urgent steps. An urgent situation is one which must be addressed more quickly than normal construction procedures would allow, but requires consultation between the ORM and the insurance company (if one is involved). This work typically will be completed on a time and materials basis, but the contractor must provide an estimate of cost prior to beginning work and reasonable documentation of costs upon completion. Allowances are made for reasonable variances.



5. While steps are being taken to prevent damage under 3.1. and 3.2. above, the contractor(s) will take reasonable steps to
   
   
   • preserve any evidence that indicates cause of the loss (e.g., the piece of broken pipe);
   • preserve damaged property for inspection; and
   • preserve any salvageable property.



6. When the loss site is stabilized, the three parties and the insurance adjuster (if an insurance company is involved) will inspect the loss and agree on a written scope of damage prepared by the parties. The scope document must include a statement that hidden damages are a possibility.



7. Based on the scope of damage and following standard procedures of the UAO, the contractor(s) will prepare itemized estimates of repair and submit them to the UAO for a change order. Itemized estimates include a breakdown of all labor and material, and include itemized sub-contractor estimates if sub-contractors are used.



8. The UAO will forward copies of the estimates by the most expeditious method to ORM. ORM will contact the insurance company, if one is involved. All parties will review the estimates and work cooperatively with the contractor(s) to reach an agreed repair cost. A change order covering this portion of the repairs will be issued. Based on the change order, a contractual obligation now exists to pay the contractor(s) the sums involved, subject to IU’s normal contract provisions.



9. Typically the on-site contractor is asked to make these repairs, but Indiana University reserves the right to employ a different contractor when the situation warrants.



10. Typically, repairs will not be competitively bid. Because of this, and because of normal insurance adjusting procedures, lump sum bids are not acceptable. Itemized repair estimates are required.

Discussion

Past losses have demonstrated the need for a structured approach when a loss occurs. It should now be clear what responsibilities each party has.

Problems arose when our insurance company sought to adjust the loss after the work was done and when the contractor(s) were submitting documentation, e.g., a decision (ultimately reversed) to not allow overhead and profit on a builder’s risk loss where the contractor was doing repairs to its own project.

We (the University) have reached agreement with our insurer on this document. It’s very important to note item 7 above: the University contracts with the contractor to do the repairs. At that point all normal adjustments must be completed.

This does not

• relieve the contractor of the responsibility to submit any documentation required by the agreement
• eliminate the possibility of changes because of hidden damage or unforeseen events
• eliminate the possibility of time and material repairs
• eliminate the possibility of further adjustment of open items,

however, all such "possibilities" should be noted in the adjustment document – university/contractor agreement.

Examples for item 3 of the policy:

3.1 water running from a broken pipe, immediate and imminent danger of a cave-in, a broken gas main

3.2 a flooded basement, debris blocking a roadway, a break in a major steam line during winter (assuming the steam is now shut off, otherwise it would be in 3.1), wet carpeting, emergency roof repairs

3.3 a water-damaged computer system, permanent repairs to a major roof breach (implying structural damage that makes temporary repairs unstable)

Implied is the necessity for prompt contact of the parties involved.

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Office of Risk Management
400 E. 7^th Street Room 705, Bloomington, IN 47405
812-855-9758 FAX 812-855-9320
A division of the Office of the Vice President for Administration, Chief Administrative Officer

Last updated: 20-Mar-2003
Comments: Webmaster
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