COMMUNICATE & DOCUMENT
PREVENT HIGH-STAKE CLAIMS NOW WITH THESE HELPFUL TIPS
BY MARSHA CANRIGHT
Now is the time to put into action an effective recovery plan with the aim of minimizing, to the best extent possible, out-of-pocket costs related to hurricane damage and subsequent recovery efforts. Jocelyn Knoll and Diana Parkas, partners at the international law firm Dorsey & Whitney LLP, offer the following advice as rebuilding efforts begin.
Communication between owners, contractors, suppliers, etc., is critical to laying the foundation to work together to effectively address any problem. Although you are working in crisis mode with the ultimate goal of getting up and running again as quickly as possible, the fact is that what you say now, in the heat of getting work done and with perhaps with not enough information, matters a lot.
Project participants and other interested parties are listening to what you say now about issues such as what has been damaged, how it was damaged, how much it is going to cost and how long you are going to be delayed. What you say now will set certain expectations at all levels of the project, and those expectations might be difficult to overcome if, down the road, your estimates prove to be low.
Communication is key, but accurate as well as timely and consistent communication is what is going to be most effective in recovery and damage mitigation efforts.
CONTRACTURAL RIGHTS & RESPONSIBLITIES
Review the project contracts, with a particular focus on any “force majeure” clause, to determine potential rights and responsibilities. In assessing the “force majeure” clause, pay particular attention to what type of recovery the clause provides (schedule relief only or schedule and monetary relief) and any notice requirements.
Contractual notice requirements for “force majeure” events are often short, so do not delay — even if you can only provide a basic notice. Also, do not rely upon oral notice. Put it in writing.
DOCUMENT, DOCUMENT, DOCUMENT
Document the costs and schedule delays you incur. For both “force majeure” and insurance claims, this is critical. Good documentation maximizes claim recovery and minimizes costly after-the-fact costs for reconstruction.
Consider creating hurricane-specific cost codes, including cost codes that correlate to any sublimited categories of insurance recovery. For example, most business risk and property policies have categories of costs that, while covered, are subject to sublimits, such as business interruption, debris removal, expediting expenses, off-site storage, pollution cleanup and removal, etc. If you create such cost codes, use them accurately or the effort might do more harm than good.
Review your insurance portfolio. The most likely sources for insurance coverage for construction projects damaged by Harvey and Irma will be builder’s risk insurance, property insurance and marine cargo insurance. Other potential sources of insurance coverage, depending on the circumstances, include professional errors and omissions insurance, commercial general liability insurance and subcontractor default insurance.
Of course, the existence and extent of coverage will depend on the language of the policy, so it is important to gather the policies together and review the terms of each in order to maximize potential recovery. And, in order to effectively use the insurance your company has purchased, it is critical to comply with all notice requirements and to keep the insurers informed throughout the recovery process — especially when it comes to having the opportunity to view damage prior to mitigation or recovery efforts.
INTERIM OR FAST FUNDING
Consider whether there may be the potential to negotiate a funding agreement or interim payment with affected project participants/insurers to provide an immediate source of funds to commence hurricane recovery and avoid, at least in the short term, disputes regarding what damage/delay was caused by the hurricane and the recovery efforts. If you are looking to negotiate such an arrangement with an insurer, you need to keep the deductible in mind (as it is often a big cost, especially on a builders’ risk claim), as well as whether there is any contractual provision as to which party is responsible for the deductible.
Dorsey & Whitney LLP, www.dorsey.com