Storm damage to contract 
works

In-depth root cause analysis of a critical Storm damage to contract works to support insurer liability decisions.

Background

Aavir LLC received email notification of this incident from the Insurers wherein storm damage had been occasioned at a “Reinstatement & Rehabilitation of Infrastructure Works” Project site.

Attached to this email was a copy of the policy detailing the cover as follows:

CategoryCoverage
Contract WorksGBP 50 million
Contract MaterialsNot covered
Principal’s Existing and Surrounding PropertyNot covered
Temporary FacilitiesNot covered
Construction Plant & EquipmentNot covered


The cover provided was on an “All Risks” basis and the core wordings were in line with Munich- Re.

The storm accompanied by torrential rainfall had caused inundation of unfinished road works  (contract works) as can be realised

The Challenge

The challenge was to determine the extent of damage occasioned to unfinished road works as it was spread across various locations with different layer(s) under construction affected at each location. Furthermore, this had to be achieved while maintaining a healthy relationship with all the parties especially the principal who was the ruler of the State.

AVAILABLE OPTIONS

Option One

  • The first option was easy which was to rely on the claim submitted by the main contractor based on the recommendations of the project consultant suggesting reinstatement of all construction layers at each location which was in the best interest of all insured parties.
  • Although this option would have resulted in speedy settlement of the loss and would have also kept the Insured parties’ content, the option was dismissed as it meant that the extent of damage was being considered at a superficial level i.e., validation of loss was not being done appropriately in the given circumstances and the Insured would most likely end up in a better position than they were before the incident.

Enquiries

  • The second option was to validate the loss at a granular level by establishing the topmost layer under construction at each location at the time of the subject incident and additional layer(s) underneath which could have been affected in addition to this topmost layer, while maintaining healthy relationships.
  • This option was chosen by the Engineers at Aavir LLC as it suited to the principal of indemnity wherein a joint meeting with representatives of all the parties was held and the principal of indemnity and its implications were explained in detail.
  • Following the meeting, a detailed list including the undernoted documentation/information were then requested for further consideration:
  • Scope of works – to establish which party was responsible for what works.
  • List of all construction layers in order starting from the lowest (base layer) up to the topmost (asphalt layer) and their thicknesses – to understand the construction design.
  • Request for inspections (RFIs) issued to the consultant – to establish last layer inspected and approved by the consultant at each location.
  • Records of plant and labour being used at each location – to verify which layer was being worked upon at that time.
  • In addition, the undernoted steps were also undertaken:
  • Research – In material science to understand the characteristics of material(s) the layer(s) underneath comprised of to establish if they could have been affected by the rainwater.
  • Reading – Road construction related technical bulletins from the Institute of Mechanical Engineers (IMechE) UK to understand how long it takes for a particular layer to be laid and cured.
  • Random vertical bore holes were made at various locations and the samples sent for analysis.

Conclusion

This approach resulted in maintaining expectations of all the Insured parties from a very early stage. It also led to confirmation of the topmost layer that was exposed to rainwater at each location and the layer(s) underneath which were also affected whereby the claimed amount at each location which was initially based on reinstatement of all the layers was subsequently reduced to reflect only the layer(s) that were actually affected.

The claim was in the region of GBP 6 million and was ultimately settled at approximately GBP 900,000.