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Construction Law/Third party insurance

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Question
The Employer has to give the minimum amount of third party insurance in Appendix to Tender. What are the basis of minimum amount of third party insurance? while preparing a tender , how could the Employer/Engineer specify the minimum amount of third party insurance?
Thanks

Answer
Gerry Sverdlin
Gerry Sverdlin  
Dear Ahmed,
Each Employer sets its own limits of the minimally-required 3rd party insurance based on the Employer-specific perception of the risks associated with relevant contractor’s defective performance or non-performance of the job within the time constraints set up within the overall project baseline.  The very nature of what is colloquially known in the Middle East “3rd Party” insurance is to protect the potential insured or claimants for the risks contemplated in the policy and set the limits of coverage for each risk provided therein – a risk and cost-transfer mechanism.  For example, a 3rd party insurance may cover costs of repair adjacent buildings or structure in the event of negligent excavation performed by a contractor on your site.
Of course, the Employer is the one paying for such insurance via bid price.  On the complex projects in the Middle East, many Employers do not run a proper risk analysis on the overall program and thus end up paying for the overlapping coverage supplied by several contractors for certain risks, while the whole gamut of risks remains without any coverage whatsoever.  The science of setting the proper limits for various type of insurance coverage rests with underwriters and actuaries (believe it or not there is actual science behind it, though it is not apparent in the Middle East), who have their own continued professional education system and exams.  Therefore, the Employers would be wise to consult with professionals in the field selling the “project” policies, such as AIG, Zurich, Beazley, Lloyds, Liberty, etc.  
Beware not to be sold insurance policy by charlatans who do not know the difference between construction insurance and car/house insurance.  I have seen the limits of policy specified by dilettantes on many large Employers’ staff who simply specify 100% or 115% or 150%, etc. of the construction estimate for each project or bid, and regard this to be adequate.  Considering that this approach was used on at least one international airport in the Middle East for procurement of the 3rd party insurance policy, you can easily see that the risk of loss of a passenger aircraft may have little or no relationship to the construction costs, used as a basis to set the limits of that policy.  
In setting the limits of the 3rd party insurance you also have to consider the layering, or concept of umbrella insurance (or insurance tower) and flow of coverage from the prime contractor down to the various trade subs.  There is very little benefit to the Employer to have the prime carrying the policy coverage for the risks incurred or anticipated by one of the specialty subs – say, foundation or drill shaft contractor, as compared by the interior finishes sub.  Totally different risk profiles call for different policy limits on each.
As you can see there is more to the policy coverage limits than what meets your seemingly innocuous question.  Without having to write yet another book on the subject, I encourage you to do some more research to gain proper prospective as to how the policy limit may reflect your Employer’s risk exposure.
Best regards,
Gerry Sverdlin, PE, Esq.

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Gerry Sverdlin

Expertise

Questions I can answer or provide assistance to reflect the following subjects: contract terms and conditions, interpretation of ambiguity, construction management and practices, claims for costs and time, variation / change orders, disputes, dispute resolution techniques and organizations, claims for extra work or materials, delay analysis, disruption or interference, defective design and negligent supervision, construction risks and mitigation, warranties and insurance. Questions I can NOT answer: too numerous to list here.

Experience

Mr. Sverdlin provided over 20 years of services in dispute resolution and expert opinion of complex construction claims for extra work, delay & acceleration, defective design & installation, unauthorized deviations, differing site conditions, productivity loss, labor & material shortage, owner’s interferences, force majeure, bonding, warranties and insurance coverage. Mr. Sverdlin participated in dispute resolution proceedings regarding 10 mile sub-aqueous outfall tunnel at Deer Island Treatment Plant – Boston Harbor Project, and claims arising out of construction of the South Boston / South Bay Interchanges for the Central Artery/Tunnel Project in Boston, Massachusetts, USA, and multiple proceedings Middle East. Specialties: Mr. Sverdlin established expertise in construction contract preparation under EJCDC, AIA, FIDIC and agency-specific bespoke contract frameworks: procurement administration, resolving defects in scope of work coverage, specification and estimates, change order processing, project controls & cost recovery. Engineering practice encompasses design & procurement management of highway & rail transportation systems, wastewater treatment and drainage networks, key performance indicator regimen.

Organizations
2011 - CIArb Member Grade 1999 - Attorney at Law – Massachusetts Bar, BBO # 642980 1992 - Registered Professional Engineer - PE: Lic. MA-36839 - Civil Affiliated Memberships: MBA - Massachusetts Bar Association DRBF - Dispute Review Board Foundation TASA - Technical Advisory Service for Attorneys

Education/Credentials
2010 - 2011 - American University in Dubai -Grad. Sch. of Business Administration Construction Contracts, Means & Methods, Claims & Changes, Project Controls March 2009 - Chamber of Commerce, Colombo, Sri Lanka – Construction Management Seminar Changes & Claims, EOT/Delay Damages, Loss of Productivity – Measured Mile 2000- 2007– Boston Architectural Ctr & Wentworth Inst. of Technology - Construction Law 1991- 1993 - Northeastern University, Boston, MA – Land Surveying, Sewage Disposal System Numerous continuing education specialty courses Suffolk University Law School - Juris Doctor, law -1993 – 1997 Northeastern University - MS, Construction / Public Works Management - 1993 Polytechnic University - BS, Civil Engineering 1982 – 1985

Past/Present Clients
Representative Projects Dubai International Airport UAE Muscat & Salalah Int'l Airports Oman South River Dredging Mechanical Scituate, MA Permitting / Boundary Dispute (Title V) Worcester, MA Hazardous Material Site Assessment New Bedford, MA Groundwater Pollution Monitoring Burlington - Woburn, MA Hazardous Material Disposal - Site Clean-up Wrentham, MA Sewer Rehabilitation Project – STEP Abu Dhabi, UAE Dubai Metro - Road & Transportation Authority, Dubai, UAE Boston Harbor Project - Deer Island MWRA - BHP Winthrop, MA 1,200 MGD Waste-Water Treatment Plant Doha North Sewerage Treatment Works Ashghal, Doha, Qatar 254K m3/d STP, 25-km triple force mains, 33-km Interceptor Sewers 10,000 l/s PS Central Artery / Tunnel Project - MHD / MTA Boston, MA 116 lane-miles Old Colony Railroad - Commuter Rail (Boston, MA 70+ mi) Cherry St. Reconstruction Full-Depth Bridgewater, MA 2.1 mi Scenic Roads Reconstruction Town-wide Wayland, MA 8.7 mi Strawberry Hill Rd Reconstruction Full-Depth Concord, MA 1.7 mi Craigsville Beach Rd Reconstruction Full-Depth Hyannis, MA 3.4 mi Water Main Replacement Southborough, MA EMAAR – Gulf III Towers, Dubai, UAE Mixed-Use Hi-Rise Peabody Properties Residential Hi-Rise Lynn, MA Bristol Properties Shopping Mall Attleboro, MA May Institute (children w/special needs) Institutional Randolph, MA Bear Hill Executive Park Commercial Waltham, MA Prospect Hill Executive Park Commercial Waltham, MA Residential Community Subdivision 128 lots Hopkinton,MA Retirement Community Subdivision Residential – 126-lots Warren,MA Independence Mall Retail Kingston, MA Mashnee Village Subdivision Residential – 54-lots Buzzards Bay, MA Hyannis Industrial Park Heavy Commercial

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