Integrated Project Delivery:

1. Integrated Project Delivery: Developments in Design Liability Insurance and Risk Management Presented by: Gene Todaro and Frank Musica Victor O. Schinnerer & Company, Inc. FEBRUARY 8, 2011

2. PRESENTER BIBLIOGRAPHIES Gene Todaro has been with Victor O. Schinnerer and Company, Inc. in the Construction Industry Group for thirty years. His primary focus is underwriting, servicing and marketing of accounts in the Contractor's Professional and Pollution Liability Program. Previously, he was involved in Project Liability Insurance, Architect/Engineers, National Accounts and as the Underwriting Manager for the Construction Industry Group.  He is frequently asked to speak at industry group sessions concerning architects, engineers and contractors professional and pollution insurance issues. Frank Musica is senior risk management attorney for Victor O. Schinnerer & Company, Inc. which he joined in 1991 to assist the program in identifying the transformations in construction-related professional services, the liability exposures created by contractual language, legislation, regulations and court rulings, and management processes and procedures to reduce the risk profiles of firms. FEBRUARY 8, 2011

3. The Changing Systems of Design and Construction • Integration of design and construction • Efficient delivery of construction project • Client demands for savings – time, cost, hassle – and results • Client demands for accountability • Control of design process • Multiple design sources • Delegated design responsibilities FEBRUARY 8, 2011

4. High-Risk Issues That Could Impact Sureties Blurring of the “bright line” legal treatment of design and construction Replacement of design negligence standard with contractual obligations of design-build and integrated project delivery Increase in design services provided by contractors, subcontractors and others Replacement of professional liability coverage with financial assets of contractors FEBRUARY 8, 2011

5. Integrated Project Delivery and the Use of BIM • Legal Treatment • Statutes and registration laws • Case law on negligence versus contractual obligations • Insurance Coverage • Issue of contractual exposures, shared risk and waivers • Problems covering speculative risks and moral hazards • Financial System • Lenders’ reliance on deep pockets • Bonding difficulty FEBRUARY 8, 2011

6. Integration for Green Construction Project Performance Shared liability for direct and consequential damages: Delayed third-party certification Failure to meet design or construction integrity requirements for specific certification level Deficiency in meeting high-performance standards or contractual obligations for initial and life-cycle costs Fraud, material misrepresentation and deceptive practices claims related to performance or cost FEBRUARY 8, 2011

7. Design Exposures and Coverage for Contractors Coverage is available for: • Direct liability for in-house design by a licensed professional • Vicarious liability for subcontracted design to a licensed professional • Joint Venture or shared design responsibility • Integrated Project Delivery cooperative design • “Design Assist” or delegated design responsibility FEBRUARY 8, 2011

8. Design Exposures and Coverage for Contractors Coverage is available for: • Construction Management/Project Leader • CM At-Risk design coordination obligations • CM Agency design coordination obligations • Program/Project Management contractual duties • Selection of design team • Self-performed design services • Subcontract design services • Coverage depended on scope of contractual duties FEBRUARY 8, 2011

9. Design Exposures and Coverage for Contractors Design Liability Coverage differs from CGL • Endorsed CGL policy usually only covers Bodily Injury and Property Damage caused by negligently performed design services • No coverage through CGL endorsement for: • The cost of remedial design or reconstruction • Economic damages resulting from design liability FEBRUARY 8, 2011

10. Various Coverage Forms for Contractors Three Contractor options: • Contractor Professional Liability • Contractor Pollution Liability • Contractor Professional and Pollution Liability • All the protection and coverage of the professional and pollution liability policies combined FEBRUARY 8, 2011

11. Developments in Contractor Coverages Contractor Professional Liability • Coverage available for: • In-house and subcontracted services • Joint ventures with design firms • CM Agency and At-Risk Services • Coverage includes: • Failure to detect faulty workmanship of subs when responsible for design and construction • Rectification of design problems in construction • Mold, silica and respirable dust FEBRUARY 8, 2011

12. Developments in Contractor Coverages Rectification Coverage Enhancement “Rectification” means reasonable and necessary fees, costs and expenses incurred to rectify a design defect caused by a professional service in any part of the construction or engineering work as long as the insured is responsible for design and construction. FEBRUARY 8, 2011

13. Developments in Contractor Coverages Contractor Pollution Liability Coverage for pollution claims, including costs for government-mandated clean-up Coverage for tort liability of client arising from insured direct or subcontracted activities if contractually assumed Coverage for transportation of pollutants No exclusion for asbestos, respirable dust or silica FEBRUARY 8, 2011

14. New Integrated Project Delivery Insurance Lead designers, general contractors, subconsultants and subcontractors can be covered under a project specific policy. Includes professional liability, pollution incident liability, and contractors design liability coverages. Dedicated policy covers the design exposure on design-bid-build, design-build and firms entering into integrated project delivery (IPD) projects FEBRUARY 8, 2011

15. New Integrated Project Delivery Insurance Extended Reporting Period up to five years is available depending on the duration of the project Coverage can be offered for projects with construction values between $10 million and $300 million Non-cancellable except for nonpayment of premium Also available for AIA Single Purpose Entity project delivery system FEBRUARY 8, 2011

16. Key Exclusions in Contractor Coverages Professional liability exclusions: Express warranties/guarantees Means, methods, techniques, sequences and procedures of construction Faulty workmanship of insured contractor (but no exclusion of negligent oversight of subcontractors) Cost estimates or bid inaccuracy FEBRUARY 8, 2011

17. Key Exclusions in Contractor Coverages Professional liability exclusions: Delays not caused by design negligence or agency CM services Job-site safety Pollution incidents not triggered by negligent design services (unless contractor has stand-alone or combined professional/pollution policy) FEBRUARY 8, 2011

18. Claim Trends and ExamplesFrequency of Claims per 100 Firms FEBRUARY 8, 2011

19. Claim Trends and ExamplesSeverity of Paid Claims FEBRUARY 8, 2011

20. Integrated Project Delivery: Developments inDesign Liability Insurance and Risk Management YOUR QUESTIONS? If you do not have the opportunity to have your question addressed during the Seminar, you may contact the presenter directly: Gene Todaro Construction Underwriting Specialist Victor O. Schinnerer & Company, Inc. Gene.A.Todaro@Schinnerer.com 301-961-9828 FEBRUARY 8, 2011