Key Considerations & FAQs of Offsite Construction Insurance w/ Maslon LLP

Jevon Bindman, partner at Minneapolis-based law firm Maslon LLP, answers questions and offers advice about choosing and crafting insurance policies for offsite construction projects. As a litigator, Jevon works with clients in a range of industries, with a focus on assisting policyholders in insurance coverage disputes and representing stakeholders in construction and real estate matters, as well as general business litigation. 

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John McMullen: 0:00

Hello and welcome to Inside modular, the podcast of commercial modular construction, brought to you by the modular building Institute. Welcome everyone. My name is John McMullen. I'm the Marketing Director here at NBI. Today I'm talking with Jevon Benjamin partner in Minneapolis based Maslin LLP. Jevon is here to talk about the ins and outs of properly insuring off site construction projects. Jevon, thanks for being here.

Jevon Bindman: 0:26

Thank you for having me, John.

John McMullen: 0:28

It's my pleasure. Tell me about yourself. Jevin. What's your background and what got you interested in the offsite construction industry. So

Jevon Bindman: 0:35

I've been an attorney at the Maslin law firm in Minneapolis for about 10 years, and I have a general litigation practice helping businesses with their disputes, and lawsuits. And as part of that practice, I focused on construction and in particular, insurance coverage issues. So so our firm helps clients to file claims for insurance coverage, and then file lawsuits against insurance companies if necessary. You know, in the construction industry, insurance is such an essential component, because there's so many different moving parts. So unlike insuring a painting on your wall, which just sits there, you have all sorts of activities going on in the construction site. And modular and offsite construction, adds another wave of complexity, because a lot of the work is done outside of the project site in areas that may or may not have insurance coverage. So, you know, we've been seeing the numbers and the extent to which modular construction is becoming a bigger and bigger part of the overall construction scene. Insurance is still catching up to that and trying to figure out what products makes sense. So it's a really exciting and new area for insurance coverage litigators, like myself,

John McMullen: 1:47

before we get any deeper into this, I was hoping you could give me a quick primer on a couple of terms I've been reading the materials you gave me before the show, which we can link to, of course, later on on NBS website. But for those who haven't read that, or anything else pertaining really to insurance, and for people who struggled with insurance terms like myself, I was wondering, we could go through a couple of things. And you could tell me what they mean, specifically, when it comes to off site construction. Sure, awesome. So covered property, how was I was covered property and offsite construction different than traditional construction projects.

Jevon Bindman: 2:25

So in your, in your typical insurance policy for construction projects, you're going to have a definition of the covered property. And that's essentially the the property that applies to the to the insurance policy. So if the loss occurs at the covered property, then the loss will be covered, assuming that it meets the other requirements. Typically, that's going to be the project site, and maybe some surrounding areas, you might have a laydown yard or some other ancillary spots. The difficulty that comes with off site construction, is that you have entire units that are being constructed potentially hundreds of miles away, maybe in a different state, even absent some manuscript edits to the policy, those are not going to be covered by your traditional insurance policies, such as a builder's risk policy or a general liability policy, until those products arrive at the site. And that creates because of the expense, that those products are the cost of those products before they arrive at the site. It creates a significant risk for the owner and the general contractor that they would have a loss before those items arrive on site and are covered by their insurance.

John McMullen: 3:41

Okay, so I got another one for you, goods and services. There seems to be some confusion about these given the nature of offsite construction and project delivery. How do you typically explain this?

Jevon Bindman: 3:52

Essentially, goods are something that a person makes in services or something that a person does. So in terms of construction goods might be two by fours and drywall and services are the framing contractor building a wall? off site construction blurs the lines between goods and services? Because what is ultimately delivered is an entire unit. So for example, for building an apartment complex, you might deliver an entire apartment that is ready to be hooked up to gas, water, electricity, etc. Is that a good or a service? Well, certainly it's a product that was made by a company, but a lot of services went into that as well. And it can be unclear as to whether it's a good or service and that can make a big impact on how insurance covers the good or the service because there are policy exclusions that can apply for example, there are often policy exclusions that exclude the work performed by a contractor. So if if the product or if if offsite Construction is considered a service that could, in some cases preclude coverage, even though there are a lot of goods that are a part of that of that unit. Okay. And I'll just I'll just say, I'll add one more thing is that it's important, it's important to try to define those terms and make sure that it's clear in the policy as to whether these are considered goods and services, and important to have that discussion ahead of time.

John McMullen: 5:26

Are there are there any other terms or aspects to ensuring an off site construction project that that tend to confuse people? I know I just named two, but I'm sure there's a lot.

Jevon Bindman: 5:34

Yeah, one that comes up pretty often is the difference between design work and installation work. And again, on an off site construction project, you're going to have design components, designing the units, and you're going to have installation components, putting it together off site, and then also installing it when once you get on site. The the insurance products that respond to issues of installation versus design are two different policies. So you have a general liability policy, or maybe a property policy that would deal with installation issues, but then you have a professional liability policy that applies to design issues. So again, being very clear about which aspects of the project apply to which activities is very important, so that you don't end up at a situation where this the general liability and professional insurers are pointing fingers at each other, and you're the one who's left holding the bag. The other term that I wouldn't mention is additional insured. And an additional insured is is an entity that is added to somebody else's insurance policy. Typically, you'll see this where an owner or general contractor is added to a subcontractors insurance policy as an additional insured, we always highly recommend that owners and contractors get added to the to their lower tier contractors, insurance policies. But when you're dealing with an off site insurer, who's building their products off site, it can become a little bit murkier as to whether that type of coverage is available. When

John McMullen: 7:17

it comes to insuring an off site construction project what what tends to be the biggest sticking point for insurance companies? You mentioned that offsite construction blurs the line which it certainly does. How can manufacturers and stakeholders help alleviate some of these some of that confusion on the front end?

Jevon Bindman: 7:33

Well, the first thing I'll mention is that offsite construction is a benefit to insurance companies. And a lot of ways because you have a climate controlled site where the construction is occurring, you tend to have highly skilled workers who are working in a safer environment, there's no weather delays, there's no safety issues associated with weather, insurance companies should love all of that, because it's making the job less risky. That being said, there are a few risks that are that tend to be greater. On a on an off site construction project. The first one is obviously transportation. So rather than transporting goods, like two by fours to the construction site, or maybe even some some prefabricated components, here, you have entire units that are being loaded onto a train or a truck and shipped, sometimes several 100 miles to the construction site, the risk of loss of those items is going to be much greater than losing, you know, a shipment of two by fours. So that's an important consideration. The other additional risk that we see is the increased use of cranes on the job site once the units have been delivered. Oftentimes, these projects require more crane work or cranes that can lift heavier loads. And that is another aspect that you'd want to have a discussion with the insurance company to make sure that they are aware of the differing nature of this type of project. What

John McMullen: 9:06

are some best practices for off site manufacturers and project stakeholders when it comes to arranging for Project insurance or perhaps modifying the plans that they have?

Jevon Bindman: 9:16

So the first one and most important I think, is to make sure you engage your brokers and insurers early in the process, explain the the differences between a traditional project and this one. And this is particularly important for a general contractor who does some modular or off site work, but it's not their entire practice. They might have a general liability policy that covers for all sorts of different projects and they want to make you want to make sure that you're not going to get caught up in one of those exclusions that may or may not apply because of the unique nature of offsite construction. My next recommendation is to extend coverage to the manufacturing facility if that's possible. Sometimes for very large projects, you'll have an insurance policy that is specific to that project site, it's often called the owner controlled insurance product, it would be worth a discussion to see if if that policy can be extended to include loss or damage that occurs at the manufacturing facility as well. third recommendation is, if you are the off site manufacturer, it makes sure that you have sufficient insurance not only for building the product itself, but for transportation and any damage or injury that that those products may cause throughout the lifecycle of the project. And then finally, if you're the general contractor, or owner or developer, make sure that the off site manufacturer has sufficient coverage for those same losses. And that, if possible, that you can be named as an additional insured on their policies.

John McMullen: 10:52

Is there anything else that MBI members might need to consider when looking for projects insurance coverage,

Jevon Bindman: 10:58

I would say to keep abreast of changes in the insurance marketplace. And again, this is why it's important to engage with your broker. There are more and more products that are specific to modular construction that are available every year. So keep up to date as to as to what's available in the marketplace. And then also just have a plan for when things go wrong. If if there is a loss, who are the people that are going to be helping you through that process, putting together a team that is aware of risk analysis and making sure that claims are brought properly and timely.

John McMullen: 11:40

And lastly, you mentioned that there are more products available for modular construction, offsite construction. Is it your opinion that insurance companies are getting a little bit more hip to the off site industry? They're understanding a bit more the the ins and outs of how it works?

Jevon Bindman: 11:58

Yeah, I think so. And you know, it will take time, but and they will only grow as as the off site construction footprint gets larger. The products that are currently available tend to be for smaller projects, such as residential or maybe small multifamily projects. And as we get farther and farther along, I think we'll see more larger projects that are, you know, that have tailored insurance products available for off site construction as well.

John McMullen: 12:30

So any any manufacturer or developer looking at a hotel project, or large multifamily project, definitely should check with their insurance providers first if I if I understand you correctly. Right. And,

Jevon Bindman: 12:43

you know, if products aren't available at this point, you know, maybe in a couple years, something will be available. That makes sense.

John McMullen: 12:51

It does. Very good. Thank you, Jeff. And I really appreciate your time today. If anyone's interested in reaching out with questions. Is that something they were able to do? Yes,

Jevon Bindman: 12:59

definitely. i My email address is jevin.binman@maslin.com. I'm also very active on LinkedIn. I'd love to to connect with you there and I keep up with issues regarding off site construction insurance, as well as just general litigation issues. I'm very active on my account there. Excellent.

John McMullen: 13:22

Well, I will I will reach out and connect after this episode. My name is John McMullen. And this has been another episode of Inside modular the podcast for commercial modular construction. Until next time,