Why the need for a Risk Management and Loss Control Program

You can take the first step of Risk Management by purchasing a form of insurance for your business.  Unfortunately, this is not always enough to protect you and your business from various types of claims or damages.  The insurance industry is one of the largest industries in the world for one reason — ACCIDENTS HAPPEN.

When they do, it is in your best interest to show documented evidence that you have done your very best to prevent the accident.  Most accidents are the result of faulty workmanship or negligence on the part of one or more persons involved in the project.  Proper Risk Management techniques can help minimize all types of claims, reduce your insurance rates and prevent unnecessary exposure to you and your company. 

Five Risk Management Techniques

Avoid Liabilities – This is usually not an option for any business owner.  Liabilities are risks taken at every turn.  Total avoidance is only applicable if you avoid certain risks all together.

Minimize Liabilities – Protective provisions in sales contracts, written third party warranty contracts, prompt settlement of customer complaints, effective and sales training.  Prudent site preparation, effective design and construction practices, careful project supervision, and use of quality materials.  These are all examples of minimized liabilities.

Share Liabilities – Contracts with all parties involved in the construction process (design, subcontractors, vendors) which include indemnification clauses, hold-harmless agreements and mandated insurance requirements.

Transfer Liabilities – In business, liabilities are most often transferred to an insurance carrier.  The company pays a premium for which the insurance carrier then assumes the risk for certain coverages.

Retain Liabilities – Many large companies choose to self-insure in an effort to save on insurance premiums.  This is only a solution for very large companies with excess capital to pay large claims out-of-pocket.

Key Aspects of a Quality Risk Management and Loss Control Program

• Maintain good documentation and records

• Utilize comprehensive contracts with business partners

• Careful selection of Subcontractors

• Utilize an insured Third-Party Warranty

• Site conditions and site preparation

• Job Site Reviews

• Job Site Safety and Security

• Know your Highest Exposures

Maintain Good Documentation

Proper documentation is CRITICAL to mounting a defense against construction defect claims/lawsuits and must include the following: 

• Construction plans and all planning notes

• Description and use of quality materials

• Work in progress inspections including follow-up notes which document that the subcontractors made all recommended corrections

• Copies of videos if used during inspections

• Signed sales contracts and documentation of all conversations with homeowners, subs, developers

• Signed subcontractors agreements

• Certificate of Insurance from all subcontractors

• Signed change orders

• Lists of subcontractors and description of work performed

Comprehensive Contracts

1. Utilize a comprehensive contract with every business partner, including, developers, homeowners, subcontractors

2. Have a local attorney draw up the contract to ensure you are fully protected

3. Make sure the contract has strong waiver and arbitration provisions

4. Any changes to the original contract must be in writing and signed by both you and the business partner – including change orders, amendments and addendums

5. The contract must be maintained in the Project files.

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