Posted by Robert Phelan on Thu, Apr 29, 2010 @ 01:54 PM
As I skimmed Saturday's Wall Street Journal, I saw a handsome couple featured in an ad for fractional jet ownership. The caption read, "Avantair allows us to be more productive and efficient as a law firm". My immediate thought was, "What kind of law firm uses a private jet?" I found the answer at their website.
They listed twelve settlements on their home page ranging from $350 million (United States record) all the way down to a measly $12 million. I guess that explains the jet as does the sub-header under their name, "Over $800 million in Verdicts and Recoveries". I believe that plaintiff's attorneys get 30-40% for their fee so on the conservative side that's $240 million. Not bad for a two person, husband and wife law firm!
You might think that your Connecticut construction company could never be exposed to the type of liability that would attract a law firm like this. Think again. Any business owner could go bankrupt tomorrow if they get on the wrong end of a lawsuit and lack the proper insurance coverage.
Here's a quick sampling of their settlements:
• $23.4 million against a drunk driver who killed three people. $13.5 million of the verdict was for punitive damages, uncovered by insurance. How certain are you that no one is ever drunk behind the wheel of one of your company vehicles?
• $25 million verdict for a man who fell while inspecting a building. Do you own any property? Could someone fall from a height of 12 feet? That's what happened here. (The verdict was in 1998. What would it be worth in 2010? $50 million?)
• $12 million for amputations due to electric shock
• In Miami-Dade County, Florida a jury awarded a 78-year-old woman and her husband $20.98 million for the injuries that she suffered in a car crash that left her on a ventilator for live. The plaintiff sued the driver and the driver's employer. The woman's attorneys successfully argued that the defendant driver was so distracted that he made no attempt to stop and slammed into the rear of the woman's car. After subpoenaing the employee driver's cell phone records they proved that he had been on the cell phone talking at the time. The case settled for $16.1 million five days after the verdict.
Connecticut construction company owners can't think they are immune from the liability described in the suits above. If you own property and you have employees and you own vehicles and equipment, you have the potential for a devastating lawsuit.
You need to change your buying criteria for insurance today. Contractors tend to go for the "fools gold" of cheap insurance. Don't you do that! You've worked hard to build your construction company. Get a good advisor and protect it with the right insurance coverage.
Posted by Robert Phelan on Fri, Dec 11, 2009 @ 08:33 AM
Continued from Yesterday...
Your back is against the wall. As The GC, you are clearly responsible for this school being shut down and now there is $6 to $10 million of damage and expense that you've got to pay. But wait. It was the sub who installed the windows who really caused the problem. You're off the hook after all. You get your contract administration people to bring you the sub's contract along with their Certificate of Insurance (COI). Relief is in sight.
You review the documents and you see that the COI shows that the sub carried pollution coverage. Whew! They also agreed to hold you harmless. There's light at the end of the tunnel. You pump up your chest and feel good that you're so smart to have the right procedures in place to transfer liability to others.
You ask your attorney to send a letter to the sub asking them to report the claim to their carrier and telling them you expect full indemnification just as they agreed to in the contract. You sub sends a letter back that provides these distressing facts:
• The COI being referenced reflected the sub's coverage at the time they completed their work. That was two years ago.
• They didn't know they had to maintain the pollution coverage. No other job required it so they non-renewed and saved $22,000 per year.
• This tough economy has hit them hard. The 40 man crew they carried on the school project is down to 5 and if they don't get a job soon, they'll be shutting down. They have no money and can't indemnify you the GC.
Certificates of Insurance can be your friend when managed properly. When managed sloppily, your company can sink as quickly as the Titanic.
If you had notified the sub at the end of the job that they had to maintain the pollution coverage for three years and then monitored them by getting a new COI each year, you might have had a chance at survival. Since they have no coverage, you have no coverage and you would come up a little short paying $6 to $10 million form your checkbook, you're out of business. Fifty years of hard work gone because you lacked a simple administrative procedure. A good Risk Advisor would have helped you fix this blind side before your company was forced out of business.
Posted by Robert Phelan on Wed, Dec 09, 2009 @ 10:10 AM
One mistake many contractors make is projecting past experience into the future. They think because it has never happened to them before it won't happen at all. They think all contracts are created equal and it would be too time-consuming to negotiate insurance requirements on every one.
If you adopt this attitude, sooner or later, a serious claim is going to bite you on the ass. Remember the Titanic? It wasn't supposed to sink. Trillions of dollars of global wealth wasn't supposed to evaporate in October '08. The federal government wasn't supposed to take over GM. These are called "black swan" events in a book by the same name written in 2007. No matter how many times you've only seen white swans in the past doesn't mean you won't see a black swan in the future.
(Top Ten List from Black Swan)
Real Life Examples:
Contractor's employee was killed on a job and contractor held owner harmless. Employee's estate sued owner and contractor had to pay claim (third party over action), even though it was sole fault of the owner, because federal court overruled state court.
Contractor neglected to buy builder's risk on large project because owner didn't ask for evidence (certificate of insurance). Building burned with serious uninsured damage.
GC hired roofing contractor. Roofing contractor's employee fell off roof suffering severe injuries and becoming a quadriplegic. Injured employee sued GC for failure to maintain safe worksite. Because of a weak hold harmless between GC and roofer, GC gets stuck with the claim.
These contractors had never experienced claims of this type in the past. One of these claims is seven figures and two are eight figures(That's 10 MILLION+ !).
Could your company absorb an eight figure claim?
What would happen to your bonding capacity if you had to pay several million on an uninsured claim?
Would you lose lots of good work after that?
Would your reputation be hurt?
Would your surety even want to keep you as a client?
Answer these questions before you discount the importance of this topic. Without a good left tackle in the form of a Risk Advisor, your black swan is waiting around the next corner.
Posted by Robert Phelan on Fri, Dec 04, 2009 @ 07:58 AM
Whenever we watch modern-day spy and war movies, it seems that C4 is the explosive of choice on most missions. It's a plastic explosive which means it can be molded into different shapes depending on its intended use, and it's extremely powerful, 1.34 times the explosive power of TNT. When it is detonated, gases are released at 26,400 feet per second. Everything nearby disappears.
What does this have to do with how contractors manage risk? As I've said earlier, I want to make this insurance and risk stuff easy to remember. C4 the explosive destroys everything. C4TM, the contract compliance process, is what you need so your business isn't destroyed. I know that is a reverse analogy, one C4 destroys and the other protects but I just want you to remember my C4TM and here's what it is:
1. Contract
2. Compliance
3. Certificate of Insurance
4. Check
There it is. Four simple steps. Not too complex. Easy to remember. No insurance mumbo jumbo. Just four easy words to remember.
Not so fast. There is a lot of process embedded in those words. Each one is a critical element. Leave out any one of them and the whole thing falls apart. If that happens, you're the one left with all the risk.
In the next four posts I'll dig deeper into each one of these elements. Then you'll know how to work with your Risk Advisor to build your own process. This blind side will be protected and you can move on to others where your Left Tackle may be missing.
This video shows just how little C4 can cause a huge damage to a structure, and begs the question of how much C4 are you ignoring when you sign construction contracts?
Posted by Robert Phelan on Thu, Dec 03, 2009 @ 09:40 AM
In an earlier post I talked about Lawrence Taylor's impact on football strategy. LT's aggressive attacks on the quarterback dramatically increased the importance of the Left Tackle position. Since the quarterback is the most valuable asset on the team, the Left Tackle became equally valuable as the position protecting the QB's blind side.
Contractors have literally hundreds of blind sides. Over the course of the next few months I'll be detailing them here. I want to start today with what I think is one of the most important yet overlooked blind sides to most contractors. Contractors are called contractors for a reason. They sign contracts to build things. Risk is transferred in those contracts and that's when it can get ugly.
One of my goals in this blog is to simplify some of the concepts related to risk so that contractors are more conscious of them. Here's a formula I want you to memorize:
RT = LT
Translated, that means Effective Risk Transfer = Your Most Important Left Tackle
When you sign a contract, you have upstream obligations and most of you hire some subs and create downstream obligations. The complexity of contracts today and their insurance requirements turn this into a minefield. Once risk starts to get transferred, it's anybody's guess who will get left holding the bag in this high risk game of musical chairs.
When it comes to contracts, an experience and well-trained Risk Advisor is the Left Tackle you need to have on your team. You need a specialist who is reading construction contracts every day. Someone who understands the legal as well as insurance aspects of construction agreements. Over the next several posts I will discuss a process that your company needs to follow on every contract.
Posted by Robert Phelan on Mon, Nov 30, 2009 @ 08:05 AM
What contractors can learn about risk from Lawrence Taylor
Last week the hit movie "Blind Side" opened. It chronicles the life of a disadvantaged young man from homelessness to college football stardom. Based on the book by Michael Lewis, it explains how the modern football offense evolved. One man caused this evolution. His name was Lawrence Taylor. If Lawrence Taylor hadn't set out to destroy quarterbacks, the left tackle on the offensive line would never have become the star character in a movie.lawrence taylor tackle
When Lawrence Taylor played linebacker for the New York Giants in the 1980's, he quickly became the most feared player on the field. Since most quarterbacks were right-handed, Taylor's coach Bill Parcells had him attack from the quarterback's left side or "blind side" as it became known. In Taylor's words, "It wasn't really called the blind side when I came into the league. It was called the right side. It became the blind side after I started knocking people's heads off."
Why am I writing a football story on a blog focused on business risk? Simple. Every business has a blind side, particularly construction companies. The blind side of a construction company is the place where all the unknown or unanticipated risks lie. Here are some examples:
• Construction companies sign contracts where risk is transferred upstream and downstream, from one party to another. The complexity of modern-day insurance language makes compliance a challenge even for the most diligent companies. What if your coverage doesn't respond as it should? That's your blind side.
• You've chosen an insurance company to protect your business. You think they're financially stable. You have a multimillion dollar claim. They file for bankruptcy shortly after you file your claim. That's your blind side.
• You think the $5 million umbrella you've always carried is plenty of coverage. Then a subcontractor's employee falls off a roof and becomes a quadriplegic. You're sued for $10 million because you didn't provide the proper safety on the jobsite. That's your blind side.
• In the clinic where your injured workers go for treatment, the doctor doesn't understand Return to Work. You have three claims in one year that end up costing much more than they should. As a result, your experience mod goes to 1.25. You then lose a $10 million dollar job that you couldn't bid because your mod was too high. That's your blind side.
The modern football offense evolved to where the left tackle became a critical position protecting the quarterback, the team's most valuable asset. Your business needs someone to protect its blind side as well. Have you chosen an insurance agent whose focus is solely on insurance or a Risk Advisor who can protect your blind side? Discover the difference by visiting www.constructionriskadvisors.com.