National Contracts Management Association NCMA - ET

1. Insurance Program & Contracts Management Insurance, Indemnity and Surety Jim Gilley, Senior VP Environmental Risk Practice (865) 583-3754 – dl, 607-5663 - cell James.gilley@willis.com www.willis.com/homepage.aspx www.willis.com/services/environmental/north%20america.aspx W National Contracts Management Association NCMA - ET

3. Willis – Environmental Risk Practice Specialty Unit within Willis – divided into two separate structures Direct Client Service Unit Internal Resource Group Our Group - direct placement of all P&C lines of insurance and contract surety for environmental/construction contractors & WM service companies We work as a consultant to our client’s Risk / Contracts Management and Business Development Teams Contract review and consulting Design and negotiate insurance programs – Professional/CPL, work comp, general/excess liability, equipment, international Project specific placements – Guaranteed Fixed Price Remediation (GFPR), WRAP, Cost Cap, Site Pollution Liability, Liability Buy-Outs Surety – Bid, Performance, Payment & Closure/Post Closure Bonds

4. TIMELINE: What I have been doing

5. II. Decisions Involve Risk!

6. Understand the System Broker Represents the client (fee based or commission) Results are dependent upon skill sets and company capabilities Agent Represents the insurance carrier (commission based) Limited resources; dependant upon carrier services Carriers Risk Appetite (Limited in the Env./WM sector) No uniformity of professional/CPL, project specific forms Underwriters Attitude (insurance - pressure to produce; surety - apathy, no pressure to produce) Motivators - tied to understanding risks, leverage (negotiation skills are critical)

7. Current Status of the Market Insurance Return to soft pricing market Underwriting discipline & engineering reviews (not like the late 90’s) Limited carrier market for Env./WM companies Willingness to modify form provisions (Reasonable) Underwriters desire to write more lines of insurance (leverage) Little impact from Katrina (for env./WM companies) Good time to transfer risk (low cost) Bonding - (Surety Association of America – 2/7/06 stats) $4.3bil market that is not growing Market consolidations – St. Paul Travelers has 33% of market Combined Loss Ratio – 117% (2000 – 2004), strict underwriting, co-ins. provisions, capacity restrictions Env. Surety – Strong balance sheet required Expect a collateral requirement (30 - 70% LOC) Higher rates than construction work Corporate and personal indemnity

8. III. P&C and Environmental Insurance 101 Professional Liability Pays sums that the insured is legally obligated to pay as damages because of an act, error or omission resulting from the rendering of professional services. (Errors and Omissions Insurance - E&O) many endorsements are required Contractors Pollution Liability (CPL) “not PL” Pays for 3rd party bodily injury, property damage and clean-up costs which the insured is legally obligated to pay due to sudden and accidental environmental impairment resulting from work performed by or on behalf of the insured. endorsements required General Liability exclusions negate coverage for most env. ops and projects Contractual liability* Products & Completed Operations* Premises & Operations Personal & Advertising Damage to rented facilities Medical Expenses

9. P&C and Environmental Insurance 101 Workers Compensation Provides statutory limits of insurance for worker injury/disease claims State programs – excluded from the insurance program (OH, WA, WVa, ND, WY) Experience mod (<1.00) Rates vary significantly by state and class code Automobile Liability and Physical Damage Hired & Non-Owned (Liability & PD) Mixed and Haz waste transit Contractors Equipment/Property Insurance for leased and rented equipment, tools Equipment coverage is limited to a per program and item maximum Coverage for business property/EDP

10. P&C and Environmental Insurance 101 Excess Liability - Provides excess liability limits over the following coverages (if properly designed) Professional & Contractors Pollution Liability General Liability Automobile Liability Employers Liability - Workers Compensation Project specific placements Remediation Cost Cap (Not liability Insurance) Guaranteed Fixed Price Remediation (GFPR) Addresses known contamination Pays cost above agreed remediation cost (approved plan or SOW) Applies to individual sites or portfolios Underwritten on a multiple years basis SIR and co-payment provisions

11. P&C and Environmental Insurance 101 Pollution Legal Liability Provides coverage for pollution emanating at or from a facility or site Covers pre-existing unknown pollution Covers new releases of pollution (on and off-site) Covers known contamination in excess of SIR (trigger levels) 3rd party on and off site pollution liabilities (BI, PD, clean-up costs) Legal expenses, business interruption, NODS, NRDA, transit Other Types of Environmental Insurance Liability Buy-Out (Finite Risk) WRAP (Owner/Contractor Controlled Program) RCRA financial assurance Closure/Post-Closure UST, Asbestos, Mold, Marine, Products

12. TIMELINE: Environmental Insurance & Legislation

13. TIMELINE: Environmental Insurance & Legislation

14. TIMELINE: Environmental Insurance & Legislation

15. IV. Contract Bonds Contract Bid, Performance and Payment Bonds Decontamination & Decommissioning Projects Environmental Remediation Projects Construction Projects Closure/Post Closure Financial Assurance (you should never see contract bonds being required for professional services)

16. Quick Course – Bid, Performance & Payments Bonds Proposal or Pre-Qualification Surety reference letter – bonding capability Not an actual guarantee (subject to’s) Bid & Award __% bid security (20%) Form – surety bond, cashiers check, ILOC Failure to enter into contract – bond default Performance/Payment Bond Performance – to SOW as contracted at the awarded dollar amount Payment - obligation to pay subcontractors

17. Surety – Information required for consideration Contractor Questionnaire Corporate financials (2 yr. + interim) Personal financials of major stockholders (over 10% interest) Bank reference on credit line Current work-in-progress report Copies of SOW, bond requirement, bond forms and contract specifications Corporate presentation (narrative – historical, operations, management, future, brochures “support the cause”)

18. V. Contract Key Components Insurance Requirements (Liability lines, WC, Eq/Prop) Indemnity Requirements Bonding Requirements (Bid, Performance, Payment) Penalties Warranties Goal - “Eliminate, Minimize and Transfer Risk” – ********IN AND OUT OF YOUR CONTRACT******

19. Contracts - General Rules of Engagement for Project Insurance Requirements Everything is Negotiable (basic assumption) Always: Modify T&C (insurance & indemnity) Lowest limits of insurance possible (don’t tell!) Penalties - negotiate them out of the contract Warranty period – modify what is covered and for how long Engage broker in contract reviews and negotiations

20. Contracts - General Rules of Engagement for Project Surety Requirements #1 Rule – Negotiate it out of the contract #2 Rule – Reduce the requirement #3 Rule – Timing (...the moment the GO bid decision is made) Options – LOC (= to quarterly revenue), Hold-back (__% of monthly billings), flow down to subcontractor or up to jv partner Remove warranty period (or reduce to 12 month max.) Require subs to bond back Anticipate both corporate and personal indemnity agreements… and collateral requirements (% of project value)

21. Existing Contracts Review for Compliance (liability - maintenance requirements) At mod., rebid or anytime during the contract term… re-negotiate T&C’s Make sure that subcontractor certificates of insurance are correct and current (Tracking system) Any contract expansions (SOW, length of project) use rates to calculate insurance costs to add to project modification pricing

22. Subcontractors Flow-down contract requirements to subs Modify your subcontracts to transfer more risk to the subcontractors Check certificates to ensure that subcontractors are meeting requirements Request sub EMR - past 3 years (safety) Named as an additional insured (on their policies) Minimum Carrier Rating – Best A