Navigating unique coverage clauses for civil contractors

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Communication is key in a sector dealing with complex contractual insurance requirements, says Portia Myrvang of Sovereign Insurance

CIVIL CONTRACTORS play a critical role in the Canadian economy. They build and maintain environments such as roads, railways, water reservoirs, bridges, sewer systems, tunnels, and dams – with strong socioeconomic outcomes for people across Canada.

Sovereign Insurance empowers Canadian businesses to succeed by developing and distributing risk solutions they trust and value. Sovereign is passionate about protecting Canadian businesses and the communities they serve, and is driven by the belief that whether you’re a partner, client, or employee, your experience matters. Canadian-owned and -operated since 1953, Sovereign is a wholly owned subsidiary of The Co-operators General Insurance Company, a leading Canadian provider of multi-line insurance products with assets of over $9 billion. Sovereign operates in six offices across Canada and is proud to carry an AM Best A (Excellent) rating. To learn more, visit www.sovereigninsurance.ca.

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“The contracts have become more onerous and complicated. Insureds [and their brokers] have to carefully review each contract”

Portia Myrvang, Sovereign Insurance

In 2016, the government of Canada announced the Investing in Canada Plan, in which it committed over $180 billion over 12 years for infrastructure that benefits Canadians – from public transit to trading ports, broadband networks to energy systems, community services to natural spaces. By September 2022, the plan had invested over $126 billion in over 84,000 projects, 95 percent of them completed or underway. “Much of the current infrastructure in Canada was built in the 1950s or 60s,” said Portia Myrvang (pictured), regional underwriting manager – commercial solutions, Sovereign Insurance, based in Vancouver. “After the federal government introduced the long-term infrastructure plan, we saw a flurry of insurance requests from civil contractors – both in terms of their annual insurance plans for contractors’ equipment and fleets [commercial auto] and through project-specific requests for builders’ risk and wrap-up liability policies.”

While the sector did slow slightly during the COVID-19 pandemic, civil construction projects continued through the government-mandated lockdowns, and with post-pandemic economic stimulus, the industry remains healthy today. It does, however, face challenges around supply-chain disruptions and inflationary pressures, which have resulted in increased costs. Other macro challenges include extreme weather and a general labour shortage. Focusing on the insurance-specific challenges, civil contractors often face varying contractual requirements, depending on the nature, size, and funding of their projects. Every ministry and municipality has different insurance requirements that insureds must follow – and these requirements change often.

“The contracts have become more onerous and complicated. Insureds [and their brokers] have to carefully review each contract,” said Myrvang. “For example, if you’re building a road that’s next to a river or a bridge that spans water, it’s not uncommon for insurance carriers to require flood coverage with a deductible of $100,000 or $250,000, but certain contracts may only allow for a maximum deductible of $50,000. There are contractual nuances that are sometimes tough to iron out. “Every municipality has a different risk manager who sets their requirements. That's a challenge because the contractors we insure generally don't just work for one municipality; they either work across Canada or just in BC, or even just in greater Vancouver alone, where they can work with five different municipalities. It’s the same story in Ontario, and Toronto. There's a lot of differing insurance specs [to navigate].” Unique coverage clauses for civil contractors Beyond the key insurance coverages that almost all contractors hold – contractors’ equipment, builders’ risk, wrap-up liability, equipment breakdown, and commercial auto, to name a few – there are some coverages and policy wordings that are more generally limited to civil contractors. Civil infrastructure projects are subject to extreme weather conditions, especially in the winter months. When temperatures plummet, civil contractors may have to put their jobs on hold for a few weeks or months, which could affect their insurance coverage.

Most civil contractors’ policies include a cessation of works clause, which will nullify the policy after a certain period – usually 30 to 60 days – during which no work has occurred. Myrvang said it is important for brokers to help their clients understand the unique wording of their insurance contracts, as the cessation of works time frame can vary from policy to policy. For civil contractors in the western provinces, insurance coverage for forest firefighting expenses has become a common contractual requirement from ministries and municipalities. Often attached to liability coverage as a sub-limit, this covers the expense to extinguish a forest fire caused by the insured’s negligence. With the rise in frequency and severity of forest fires in recent years, Myrvang has seen “a lot more scrutiny” of this coverage.

“Brokers must emphasize the importance of risk mitigation, and they need to communicate with clients so that they understand the full scope of their operations”

Portia Myrvang, Sovereign Insurance

“Contingent wrap-up liability, including difference in conditions and difference in deductible, is another coverage that you'd often see on a contractor's policy,” Myrvang added. “Sometimes insureds need extra protection.” This coverage protects against any gaps in coverage between a contractor’s liability policy and the wrap-up liability policy if coverage under the wrap-up policy is more restrictive. It also pays the difference when the deductible under the wrap-up policy is higher than the deductible on a contractor’s own liability policy.

“A large road or bridge construction project might carry a really high deductible of $1 million, for example, but with a difference in deductible endorsement, an insured can bring that down,” explained Myrvang. “That’s a unique coverage for civil contractors.” Finally, depending on the nature of their project, civil contractors may require pollution liability coverage. Often, they can purchase limited coverage under a commercial liability policy. Myrvang stressed that it is important for insureds and brokers to consider whether there are any specific contractual requirements to cover this risk. “An insured may be contractually required to carry a limit of between $250,000 to $5 million, and as such, it's common to see civil contractors take out a separate contractors’ pollution liability policy,” she told Insurance Business. “For clients who are involved in environmental remediation, they may require a separate environmental impairment liability policy. Those are some unique but common requests that you see on the insurance specifications from the ministries and municipalities.” In a sector so convoluted with contractual insurance requirements, Myrvang emphasized the importance of communication, transparency, and partnership among civil contractors, brokers, and insurers. “Brokers must emphasize the importance of risk mitigation, and they need to communicate with clients so that they understand the full scope of their operations,” she said. “They should be up-front with their insurance carriers, partner with them, and involve all parties in the renewal meetings. Insurers might be able to add value; for example, most of them have a risk services or risk engineering department that can help make suggestions around loss prevention. “Finally, it is important for brokers to communicate with the insurance carriers ahead of time [before renewals]. If the client is taking on a job that may fall outside the scope of what they normally do, notify the insurer to ensure the coverage is appropriate, and once again, check that all the contractual insurance requirements are met.”

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help communities reduce air and water pollution, provide clean water, increase resilience to climate change, and create a clean-growth economy;

The Investing in Canada Plan

Under the program, over $33 billion in funding is being delivered through bilateral agreements between Infrastructure Canada and each of the provinces and territories to

build strong, dynamic, and inclusive communities; and

ensure Canadian families have access to modern, reliable services that improve their quality of life

Source: Government of Canada

Key coverages for the construction industry

contractors’ equipment rented leased equipment rental reimbursement ice and muskeg installation floater builders' risk equipment breakdown (course of construction)

soft costs delayed start up removal and replacement of defective products contractors' specification expense wrap-up liability contingent wrap-up liability including difference in conditions and difference in deductible