Construction is a high-risk industry. As a result, it can be expensive to obtain insurance and liability coverage to protect your company’s interests in the event of a safety incident, bodily injury, property damage, third-party incident, or dispute with an owner.
When your company applies for new coverage or renews current coverage, insurance companies will want to look at past, present, and potential future claims against your company. This will help them assess the risk of insuring your company, determine how much coverage to provide, and then calculate your insurance premiums.
But, this often creates difficult questions for construction managers and contractors about how much information to disclose about each claim:
- Should we disclose all claims or only formal claims?
- Should we disclose everything about each claim or only key details?
- What is the appropriate ethical practice?
Construction managers are often in the middle of these internal discussions because you have intimate knowledge of activity at the construction site that led to claims being filed against your company. Let’s review an example of how this might play out dealing with insurance and liability for construction managers.
Example of Insurance and Liability for Construction Managers
– Ethics in Construction Situation: Let’s say that the executive board of your company recently met to discuss your company’s insurance and liability coverage. The coverage is coming due in a few weeks and your company wants to determine future coverages and liability amounts.
One section of the application asks your company to identify potential claims that may arise before the end of the current policy period as well as during the next policy period. Knowing that this list of potential claims can affect the cost of the coverage, your boss tells the board to only list items where a formal notice of a potential claim has been received.
The list includes only 4 formal claims. However, you know that your company has received 24 notices from owners about problems on projects that need to be addressed. You also know that each one of those notices could become a claim. Shouldn’t the insurance company know about those situations, not just the four where formal action has been taken against your company? Is this an unethical approach?
– Ethics in Construction Answer: It’s a challenging scenario. The non-reporting of project issues that may or may not become formal claims is likely not an unethical practice – unless this is a deviation from prior conduct and reporting to the insurance company.
If your company has previously not reported non-formal claims, then there is not an obvious problem with not doing it now. Why? Notices of issues and requests to correct deficiencies do not always rise to a claim. Most are taken care of between the parties without elevating to a formal dispute stage.
Also, if your boss’ direction does not include excluding notices of problems that will knowingly become a formal claim, then your company should be safe. The key in your role as a construction manager is to provide as much insight as possible to your boss about your knowledge of each claim. Then, your boss can relay the appropriate information to the board, which will help them make an informed decision about what to disclose to the insurance company.
Find Support for Challenging Ethical Issues in Construction
The exchange of information between your company and the insurance company can create ethical issues if your company is not forthcoming and honest about claims in order to obtain a more favorable rate.
Ultimately, it’s important for your company to be consistent in what you disclose. The same standard used in Year 1 should be the same as in Year 2. If there is a deviation, then your company needs to explain why.
However, if your company follows acceptable practices from year to year, then you should be confident that your company is acting in an ethical manner, even if your company does not disclose all claims or every detail about each claim.
– To learn more about ethical issues that affect construction managers, we encourage you to become an AIC member. You can learn from professionals that have been in your same shoes dealing with liability issues for construction managers. Take advantage of our resources to add value to your company.
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