Underground Construction - August 2017 - 16

Two Ways Utility Contractors Can

Transfer Risk

Utility contractors face enormous
risks in performing their work.
These can include third-party
liability, environmental, mobile
equipment, cyber, workers' compensation, third-party over-action, commercial auto liability,
management liability - and more
frequently - first-party property
damage/builders' risk. Yes, it is a
mouthful.
However, most utilities in the
United States have incorporated
almost unlimited risk transfer language in their contracts, subject to
the parameters of a state's statute.
On top of that, utilities are inflexible when it comes to negotiating
risk transfer and insurance requirements in contracts with contractors. This stringent contractual
language requires prime contractors to include the same requirements in their Master Subcontract
Agreements with their subcontractors - irrespective, in many cases,
of the type of work the subcontractor may be performing.
So how do you better protect
your company? The two most common risk transfer methods for a
utility contractor are contractual
and insurance coverage.

Contractual risk transfer
This method of risk transfer is very
important and should be included
in all subcontract agreements.
Most importantly, it dovetails with
the second method - insurance.
There are three types of indemnification agreements that can be
considered for contractual risk
transfer:
Broad Form indemnity is the
most favorable for the prime contractor, as it allows the transfer of
all liabilities arising out of the contract with the subcontractor, including sole negligence. The problem with this type of indemnity is
that many states have anti-indemnification statutes in construction
agreements that prohibit its use.

ucononline.com

Intermediate indemnity is the
form of transfer that is permissible
in most states, strikes a fair balance for both the prime contractor
and subcontractor, and is looked
upon favorably by the subcontractors' general liability insurer when
providing additional insured status
for the prime.
Limited indemnity is the least
favorable for the prime contractor
and is generally not recommended
by legal counsel.

Insurance risk transfer
This method of risk transfer is
considered the most important for
utility contractors. All utilities require, via the contract, that prime
contractors provide additional
insured coverage on most liability
policies including general, umbrella, environmental and commercial
auto. Additionally, most utilities
require the prime to insure the
subcontractors and provide the
same additional insured coverage for the utility as the prime is
required to provide. The following is a sample of those liability
coverages:
General liability - This is the
most critical insurance risk transfer policy, as it covers most of the
risk exposures a utility contractor
will face. The umbrella liability policy is excess over the primary general liability policy. Utilities have
generally not been very specific on
the form of additional insured coverage the contractor must provide.
In many cases, the contract just
states that additional insured coverage must be provided. However,
it is important the prime contractor be specific on the additional insured form that is required in the
subcontract agreement.
For example, additional insured
forms CG 20 10 and CG 20 37 edition date October 2001 (10 001)
are recommended as the minimum

By Peter Kuntz

requirement. Various insurance
carriers use a proprietary version
of this form, as well. This article is
not intended to discuss in-depth
the entirety of additional insured
coverage on general liability policies. The main point is to always
include this additional insured
requirement in all subcontract
agreements.
Environmental liability - Depending on the scope of work the
utility contractor is performing,
contractors' pollution liability
insurance may be required by the
utility. In almost every case, any
underground work performed by
the contractor may include this
requirement. Overhead transmission or substation work may also
require this coverage.
In some instances, the utility
may obligate the prime contractor
to require the same contractors'
pollution liability be provided by
the subcontractors. This can create
a dilemma for the prime, as the
subcontractor may not engage in
the scope of work that involves
environmental exposure and does
not maintain this type of coverage
for its practice.
There are no standard forms regarding this additional liability, as
it varies by the insurance carrier.
It is recommended to use wording
similar to the CG 20 10/20 37 10
001 noted previously.
Cyber liability - Many utilities
are now requiring cyber liability
insurance from prime contractors.
Utilities are concerned that an employee of the contractor may gain
access to proprietary information
and use it in a nefarious way. This
coverage requirement is more of a
recent development, but the consensus is it will ultimately become
standard in most utility contracts.
A cyber liability policy is the most
effective risk transfer method for
this risk.

Commercial Auto
liability - Most utilities require
the contractor to provide this
liability coverage with additional
insured coverage. In the past, this
requirement presented a problem,
as most insurance carriers took the
position it was unnecessary, since
the utility was covered under the
general liability policy. That is not
the case today; it is readily available for the prime and subcontractor to provide the same coverage.
Property/builders' risk -
First-party property coverage is
increasingly required by utilities
for contractors performing above
ground and below ground electric
transmission work. This requirement has always been included for
contractors performing single-site
project work, engineering procurement construction (EPC) or
construction engineering (CE), but
utilities are frequently requiring
this coverage for work.
Utilities have identified the benefit of this first-party coverage, as
it eliminates the requirement they
prove negligence on the part of the
contractor. The challenge for the
utility contractor is that underwriters do not like the exposure,
so coverage can be limited and
expensive.
We all know the risks for utility contractors are enormous.
Hopefully, these two risk transfer
methods will help minimize your
company's risk.
ABOUT THE
AUTHOR: Peter
Kunz, vice president
at Assurance, specializes in providing
insurance solutions
and best risk-management practices
to the construction and energy industries. He graduated Magna Cum
Laude from Illinois State University
with a bachelor of science degree in
finance.
Underground Construction August 2017

http://www.ucononline.com

Underground Construction - August 2017

Table of Contents for the Digital Edition of Underground Construction - August 2017