PHOENIX - New-construction plumbing and mechanical subcontractors must band together to reform the increasing amount of risk and liability that is being transferred to construction subcontractors, a risk-transfer expert recently told the Construction Contractors' Alliance.
"We have an impasse here with risk allocation, and we've got to start a revolution," keynote speaker Richard B. Usher of Hill & Usher Insurance & Surety, said at the meeting here.
"It will take everyone to win. If you are waiting for the insurance industry to come riding in on a white horse to solve this, forget it."
Usher advised members of CCA to "just say no" to unfair risk transfer, which includes broad indemnity, additional insured status, and waiving rights of subrogation. He recommended the contractors take protective measures, such as:
- Condition your bid on the use of a protective subcontract form
- Include protective subcontract addendum in contract
- Offer a subcontractor's contract solution: owners' and contractors' protective liability or OCP insurance.
Usher said it took more than 20 years for risk transfer to reach the level it has, and although progress has been made, help from subcontractors is needed to bring more balance and fair allocation of risk.
"You're the ones in control - you have the largest numbers," he said, adding that the ratio of subcontractors to general contractors is 19-to-1. "Why are you paying more than your share? You're allowing it by the documents you sign."
Usher said subcontractors could take these steps now to minimize risk in their individual businesses:
- Put quality and safety first
- Educate other contractors
- Take issue with insurers and agents
- Refuse to give indemnity, additional insured and waiver of subrogation
- Negotiate for owners' and contractors' protective liability insurance, project management protective liability insurance and warranty.
Some legislative relief also may be necessary, he said. Bills have been introduced in Arizona, followed by Tennessee and Montana, and there is sample language available to those who request it.
According to Usher, the risk allocation issue is complicated by the fact that more than 70 percent of carriers willing to write construction risk in 1996 have stopped writing construction entirely. Also, most standard carriers are unwilling to offer coverage for residential construction activities of individual contractors.
The CCA meeting was co-sponsored by the Kohler/PHCC Educational Foundation Seminar Series. The next meeting will be Oct. 22-24 at Ponte Vedra Resort in Jacksonville, Fla.
CCA is a specialized service group of the Plumbing-Heating-Cooling Contractors-National Association. It serves larger plumbing and mechanical new-construction contractors specializing in residential, industrial, commercial and institutional construction.