Hello and welcome to today's webinar titled Large Contractor's Equipment, Valuation, BI, Contingent BI and more. I'm Lillian Coulson and I'm pleased to introduce today's webinar. Please be aware of the IMUA statement. We are pleased to have four fantastic presenters today with diversified knowledge and experience in large contractor's equipment. In the order of the presentation, we have Rick Colbert, who is the Construction and Property Practice Lead for Inland Marine for the South Zone at Allianz Global and Corporate Specialty. Rick is in Allianz's Atlanta region. He is currently leading a team of eight underwriters specializing in construction and property coverages in addition to traditional Inland Marine lines. His territory covers from Texas to Washington, D.C. and Miami up to Nashville. A graduate of Southern Illinois University, Carbondale, Rick is an avid Chicago Cubs fan. Michael Castillo is a partner at Meaden & Moore LLP in New York, a graduate of Pace University with a Bachelor of Business Administration and Accounting. At CPA, Mike has specialized in providing investigative accounting services to insurance carriers and attorneys. He has also provided audit and assurance services to many multinational and national entities. Mike takes a very detailed approach to investigating financial data as well as an entity's operations to support his conclusions. Rocco Bianchi is Executive General Adjuster at McLaren and has nearly 40 years of experience in domestic and global property damage and time element loss adjustments involving commercial risk. His catastrophe experience includes fire, hurricane, tornado, earthquake and flood, DIC and manuscript coverage, Inland Marine and builder's risk. In recent years, his experience has included Superstorm Sandy and adjustment of unique contractor's equipment issues. And Douglas DePhillips is the Chief Strategy Officer at J.S. Held LLC. He is an accomplished construction executive and consulted with more than 30 years of experience. Doug specializes in damage assessments to commercial property, construction estimating, and cost overrun evaluations, troubled project turnaround, change order, change of scope analysis and construction defect claims. Prior to joining J.S. Held, Doug was President of Promo Building Corporation and worked as an operations manager for large-scale construction projects at Turner Construction. Gentlemen, the floor is all yours. Good afternoon, this is Rick Colbert with Allianz Global Corporate and Specialty. I'm going to be speaking about the equipment piece of this and I'm not going to take too much time, but we are going to just do an overview of large equipment and then we're going to pass it on to Rocco and Michael and these guys are going to do a deep dive into valuation for business income. All right, so I just want to say welcome again. As we go through these slides, please keep in mind how large business income losses can develop and keep a perspective from if damage were to render this equipment inoperable, what would we do and how would we replace it and how rare large equipment is, how difficult it is to replace it, and it has a pipeline of projects slated for the future which can add to your business income loss. And with that in mind, I'd just like to take a quick deep dive into some of the prominent equipment manufacturers that we find the large equipment from and Caterpillar, we all know Caterpillar serves customers in more than 180 different countries and 500 different dealers worldwide. Caterpillar is everywhere you can find any kind of equipment in any country. They started making tractors back in the early 1800s, they helped make the Golden Gate Bridge, Hoover Dam, and supplied equipment to World War I and II. So it's a big company, 46 billion in revenue, Caterpillar is the biggest equipment manufacturer. So if you see Caterpillar equipment on a schedule of values, you know you're getting a solid company and if you have issues, more than likely you're going to be able to find a dealer nearby. Liebherr provides a lot of large cranes. They started in 1949, Hans Liebherr, and today they've got over 150 different countries, they're in 50 different countries on every continent. They're a privately owned company in their third generation, family generation, and they've got 46 different countries. So if you have a large piece of equipment from Liebherr, more than likely you're going to be able to find a replacement piece of equipment and it's probably wise to take a look on their website to see which countries they're in. Terex is another large company, 4 billion in revenue, a company that was bought by GM back in 1953. They put the words Tera and Rex together, which meant Earth King, to become Terex. They are in Europe and China and across the United States, so once again, a very big company that you can rely upon. Ditch Witch, I just want to mention, I didn't put their name up there, but when doing utility, the Ditch Witch has become very common, probably the most common piece of machinery to dig trenches with. And they've got 175 dealers in 100 countries on 6 different continents. So it's important that we consider how quickly a response can be generated to deal with equipment issues and how time is money when it comes to business income coverage. So if we look at the four different, probably the most common uses that we will see in the in the marine space, earth moving equipment, deep foundation equipment, tower cranes, and concrete types of equipment. Just go into each one to highlight 30,000 foot highlight. Earth moving equipment, large excavators, loaders, some of the largest loaders can carry up to 500 tons. One loader that I saw recently had tires that were 13 feet high, 5 feet wide. So these can be really big and very expensive. Type layers, crawler cranes. Deep foundation equipment, this includes drilling and pile driving, drilling rigs, large crawler cranes, all complex equipment. Tower cranes, our favorite tower cranes. I encourage you to go see the IMUA crane webinar from June 9, 2016 for a deep dive into cranes. It explains the service life, average hours of use, however for today's purpose I just want to highlight them and I'm going to include them in our presentation because we have to. Concrete mixing plants, usually covered under CE forms, contracts equipment forms. Some are portable, most of them are not, but some are. Sometimes be the tallest structure in a given area, so they're susceptible to lightning strikes which can disable them, so we have to watch out for that. I wanted to highlight mining excavators, particularly the Liebherr 9800 because it's such a large machine and it has such a specific use that they can be humongous. It wouldn't hurt to take a quick look at the Liebherr website, just again see if you have one of these on your schedule or if it's slated for use on a project that you're insuring, you might want to make sure that Liebherr is in that country wherever you're going to be insuring them at. So this is two of the largest ones that they have, the 9800 and the 996B. The 9800, there's a YouTube video, it's a ship-to-site video that I encourage all to go take a look if you have a couple of minutes. On this picture I just wanted to highlight how large this piece of equipment is. You can see the trailers that are in the background and how large this piece of equipment is. It can take literally months to install this equipment. It's complex, difficult to assemble, difficult to disassemble, difficult to ship. So if you have one that goes down from a business income standpoint, it can take a while. So underwriting large contractors' equipment, I just want to highlight some things that are probably obvious to most of us, but they are key issues to be concerned with and to look at. Experience. The more the better from the operator, the construction company, all involved. If work is being done in a remote area or in a hilly topography, experience becomes even more important. Formal safety program must be in place, implemented. It will reward employees for doing good things and keeping a safe environment, and it will punish or provide penalties to employees who do not follow safe practices. Operator training and certification, especially this is very important to most of us for cranes. All crane operators should be certified and should have multiple years of experience. The bigger the crane and the more difficult the task, the more experience they should have. Intended use and site. I just want to mention some of the intended uses of large equipment that you'll find them at. In the maritime industry, of course, you'll see large ship-to-shore cranes, gantry cranes in mining, large excavators in mining, utility, the large ditch trenchers, site work. When you see site work, you never know what equipment's going to be there, but you can certainly, the bigger the project, the bigger the equipment. The agricultural industry, the forestry industry, the recycling industry, and finally, highway and road work. You can see some large pieces of equipment in all those industries, and you should look out for it. Transport. Most large pieces of equipment are assembled on site, so transporting large, heavy pieces of equipment can be a challenge depending upon the topography. Being so heavy, it's often a challenge for trucks to go over remote bridges and to go through small towns with small roads that aren't prepared for the type of weight that large pieces of equipment can bring. Drag lines, they work near remote mining areas that are being blasted, so soil conditions can sometimes become compromised, and weight overloading is often a common issue when we see losses from drag lines. Certifications. Just want to throw that in there because, especially, again, going back to cranes, certifications are needed and inspections are needed, especially with a tower crane, from every part of the installation. The base, the site, the mass has to be checked, how straight it is, has to get final approval depending upon what city it's in, multiple certifications, multiple inspections. Large tower cranes are very dangerous, depending upon conditions of the weather, if it's very windy, that can provide an issue as well from a loss standpoint and should be considered. Age and hours and maintenance, again, work with loss control on this, if I were you, to verify formal scheduled maintenance programs are in place. All equipment has a service life, and good maintenance programs keep machines working as they should. I just want to highlight valuation, this is something that the guys following me are going to go much, much deeper into, but I just wanted to highlight valuation. The age, the hours, the maintenance, make and model. The crane seminar, the IMEA crane seminar from June of 2016 gave an example of a piece of, there was a crane that was insured for $230,000, but it was actually worth $3,000 salvage value at best due to various reasons, and I won't go into that, but we have to be careful about the valuation. Rate and deductibles, rate is extremely important for cranes because they are so difficult, and large equipment is often, as we've talked about, in remote areas, and with all the things above that we've talked about, the safety programs, intended use, the transport, the hours, the maintenance, all that should be considered when we price adequate deductibles. Larger percentage deductibles should be put on larger equipment and tougher equipment, so a tower crane in Miami or a tower crane in New York City or in California subject to earthquake, these types of areas, tower cranes and large equipment should have a rate and deductible commensurate with the exposure. And finally, I ask that you probably should engage loss control whenever you're working with large equipment, just for their help and assistance, loss control can be very, very valuable. So I'm not going to go into each particular kind of equipment, you know, I don't want to deep dive, just stay at the 30,000-foot level for those, but I am going to just give a couple of examples here. A bulldozer, which you wouldn't think would be very expensive, but this was one recently that sold for $388,000. Here are two cranes that were sold recently, 2018, one mobile crane for 942 grand, the other is 3.35 million. You know, I've personally looked at the Port of Miami cranes, I think they've got six to eight cranes, ship-to-shore cranes, and their value from $6 million up to $8 million, maybe even up to $12 million each, so they can get very expensive. So I have included this because I encourage you to go to the National Equipment Register website. They've got theft statistics for equipment losses and should definitely be visited in your leisure when you have the time, you can actually deep dive as much as you want, they've got quite a bit of information, so I just wanted to mention them. So, okay, we'll take a poll now. Thank you very much for bringing that up. So let's take a look at the poll. What are our top underwriting concerns for insuring cranes? Number one is experienced operator, certified operator, location. Operator has an active profile on Facebook and the formal safety program should be in place. Let's give it a few minutes or a few seconds here and let it finalize. All right, looks like we're almost done here. Okay, let's end the poll. All right. It looks like certified operator is number one, which is great. 47% of folks voted for that. 30% said experience operator. 9% said location, and 14% said a formal safety program. And no one thought that the active profile on Facebook was worthy. So that's good to know, although I know some of us live and die by Facebook. It's not that important for us who are insuring cranes. So thank you for participating on the poll. That's good. And the answer, there's really not one answer. They're all correct except for Facebook. The certified is certainly the most important. Okay. So I've included this video on this slide. If you go search on YouTube under ultimate crane fails, it's a very interesting video to look at. You can see what could go wrong with tandem lifts. I've included tandem lifts because they typically use large, very large cranes, and it's probably the most hazardous or one of the most hazardous ways to lift objects. It has to be done so carefully. Lots of experience with the operators. The timing must be absolutely correct. So I wanted to include this and encourage you in your own time. It's a short video. It actually starts with this large tandem lift right off the bat. You don't have to go too far into it to see this one, and it's pretty funny. Also, there's another video on YouTube on how not to lift a boat. That's very funny as well and certainly worthy of taking a quick look if you like. But I wanted to encourage you to go to YouTube. YouTube is actually a baggie of information on YouTube for the construction industry. And I encourage you to take a look for sourcing purposes. There are various channels that are very good. I have lots of good videos. The B1M channel is fantastic. They're done in high def and talk a lot about unique projects, future projects. Latest Technology 268, Tech Zone, Machinery Channel, Top Ten Information, all very good channels, and there are lots more. But those are the ones that I tend to go back to. And you might want to search construction equipment fails. I think that's a very good search, and if you take a look at some of those videos, you'll have a real appreciation for what can go wrong. And a lot of them show machinery and different types of topography, and it's usually operator error, but certainly fun to watch. Again, if you're going to underwrite it, you want to take a couple of visuals and take a look at it. So location matters with large equipment, especially with cranes, and I just wanted to throw in a couple of slides here. This is a large ship shore crane from Hurricane Maria, and getting that back upright and into use I'm sure was not an easy project. But a crane this large can be in the multi-millions. This is one of the ones that's similar to what I see in Miami with the cranes there that are $6 million to $8 million. This was from Hurricane Irma where wind loss knocked over the cab. Surely this had to be disassembled and put back up. And if you can think about the time it takes. Excuse me, that shouldn't have happened. Let's go back. Okay. So if you can think about the time that it takes, all the certifications, and to rebuild another tower crane, this probably took another three to six months to get back up and running. So that's going to get in from a construction standpoint and get into your soft costs for sure. It's going to drive up that soft cost. I'm serious. Okay. Next video, hopefully most of us remember this one. This is from New York City. And this was a crane that toppled from the top due to high winds. It was a very nasty loss, I'm sure. And then finally, I just want to end with the future of construction and where large equipment might go that we might not be thinking of. And we've got to be comfortable as an industry because it's coming. So I figured I'd throw in the Hyperloop, which is a conceptual high-speed transportation system that Elon Musk thought about some years ago. And the Hyperloop is going to be very important. It's going to be able to minimize our times to go from Washington, D.C. to New York in like 15 to 20 minutes. And the beauty of the Hyperloop is the fact that there's no wind and there's no friction. So once built, these might be a serious replacement for airplanes in a lot of places. And they're going to be built above ground, but in mostly remote areas coming into cities. This is another large project that's coming. I found this on the D1N channel on YouTube. This is the Norway project. They're going to spend $47 billion to build a long coastal highway that's going to be underground, in water, above ground. And we've got to have equipment that will build these and install this large project. It's going to be a massive undertaking, but this will be interesting to see as it develops. And then I just want to finally mention that from a future construction standpoint, there's a lot of underground cities that are being built. In Moscow, they've got a four-story mall that's underground. In Chicago, they're looking at going eight to nine stories underneath the loop area. In Mexico City, they're looking to build an underground city. And so we're going to need more mining equipment and large equipment that's going to be going underground. So finally, I'll finish with that, and I'm going to turn it over to Rocco and Doug for Module 2. Hi, everybody. This is Rocco Bianchi from Clarence. My subject is going to be valuation from an actual cash value repair and replacement basis. The subject equipment that I decided to use for this discussion is a 350-ton all-terrain hydraulic crane. The example you're seeing is this unit happened to catch fire while in transit to a hydroelectric plant. As you can see, it was basically a constructive total loss from a fire standpoint. The forensic fire and failure analysis determined it was a hydraulic line that had either burst or failed or came loose, and the heat from the engine ignited the hydraulic fluids, thus causing the resulting fire. You can see the staff that was transporting the unit, once they used their fire extinguishers, they ended up using snow to final extinguish the fire. It was a remote location, so there were no fires responding to this. The machine was ultimately returned back to the insured's maintenance facility, so there was transportation costs involved. This is just a couple photos of the typical facility that you'll see. From a valuation standpoint, what you typically will do at this point is try and establish valuations from a repair basis initially. Being that this was a total loss, sometimes an insurance company may treat that as an exercise in futility. Other companies want to see a damage appraisal performed. In this particular case, an appraisal was done. The valuation was determined to be approximately $1,350,000. The costs associated with the damage appraisal include the initial recovery operations, extensive demolition and dismantling of the unit to try and determine any hidden or foreseen damage beyond what's visible. From that point, you work normally with the manufacturer. You give them a list of your scope of damages, and you work with the manufacturer to try and develop a parts loss inventory. Once that parts loss inventory is determined, you start assigning repair cost determinations, utilizing perhaps the insurance mechanics, the expertise of the appraiser, and perhaps some involvement from the manufacturer's representative. Certain items are too qualifying for repairs. Other items have to be replaced. You essentially develop the labor burdens for both of those topics, and then in addition to that, you also have to oftentimes sublet work out to third parties. Once all that is accomplished, you also have to calculate loan testing, calibrations, recertifications, if there's any manufacturer warranty costs that would come into play, and that ultimately transcends into this $1,350,000 repair cost appraisal, which is, in effect, the replacement value, and in this particular matter, it also qualifies as an ACV value. The next category that an adjuster is asked to determine is what was the replacement value of this unit, less any deducts to determine an ACV. In this particular matter, you're looking at about a $2.5 million replacement value. At that point, you have to decide or determine with the owner of the property, which is usually the name in short, are there any betterment upgrade or credit adjustments warranted against the replacement value? You apply those credits. Then you also take into consideration age, wear, tear, deterioration. You'll request maintenance records from the insurer to see what type of records they have available and how long they've owned the equipment, what they've done to the equipment. That'll end up allowing you to drill down the $2.5 million to a like kind and quality adjusted actual cash value, which in this case ended up being about $1,250,000 or 50% depreciation. The third step for an adjuster in the valuation process is to try and establish market values. You can do research in various trade categories, websites, things of that nature. What you'll oftentimes do is you try and find equipment that's close in age, but sometimes you can't do that. In this particular case, we found values from 2000 up to 2006. What you do is you apply age factors depending on the age of the equipment versus the equipment involved in the loss. You can see from this chart that oftentimes the age factors were pretty consistent on a per machine basis. You also take deductions for excessive hours or less hours. You end up with a value per equipment. Oftentimes you may not take this many pieces of equipment. Sometimes it might be four or five. In this case, there were nine selected. You will notice that item nine, a 2006 model, had quite a significant value increase versus some of the other models, which kind of skews the ACV number, but it does add some credence to the overall valuation by the adjuster. In this particular case, if you combine all these values, it ends up being an average ACV of $1,401,917. I'm sorry. On the valuation standpoint, at that point you'll take the praise value, you take the market value, and you take your depreciated value, and you basically present those figures to the insurance company and the broker and perhaps the insurer as negotiations commence. From my experience, weighted averages come into play. In this particular matter, you end up in a settlement range of, I think it was 1.325 was the adjusted number, which is a fair and reasonable approach for an ACV market valuation. That's it on this topic. I guess the next speaker will be Mike Castillo. Good afternoon, everyone. This is Mike from Median & Moore. It's a pleasure to be here with you this afternoon and share my experiences as it pertains to inland marine losses over the years and today contractors' equipment. As you can imagine, the values pertaining to this equipment can be rather high. The equipment, as Rocco and Rick noted, is very expensive, so renting this equipment to a contractor is going to be expensive, and what that contractor is charging for a project is also very high in value. For that purpose, obviously there's an economic risk here when you have damages, and therefore you want to insure that risk. And one way of insuring that risk is through your business income and your earnings loss coverage. Here I'm sharing with you an excerpt from the AAIS form, and I won't read the whole paragraph, but the key words and the key concepts is that you're insuring the actual loss of net income and the continuing operating expenses plus payroll, and these are all big-ticket items. Payroll is always important. It's always one of the largest expenses that a business has, employing all the different types of people in all aspects of operating their business. We also insure extra expense, and the extra expenses are usually during the period of restoration, and the period of restoration, quite simply, is the period it takes to rebuild, repair, or restore the damaged equipment or other damaged property. That becomes the timeframe for which we're measuring the business interruption. These losses have a finite time period that becomes a big part of how they're calculated and the values that are being insured. Typically, in my experience, the underwriters will look for a 12-month value so they know in a worst-case scenario the value or their exposure could be for 12 months. When we look at other components of extra expense, we're looking at the time period if they move to a temporary location or replacement location or another covered location. In this case, they're using the word location, but it could be equipment. You bring in replacement equipment. You bring in temporary equipment. It's interchangeable, but the concept is you want to mitigate the economic value of that loss, and therefore you'll incur extra costs for that ultimate mitigation of business interruption, which at the end of the day is very, very expensive. I was also asked to talk about dependent locations or contingent BI. We don't see this too often in contractors' equipment losses, but contingent BI and dependent locations is basically for locations that are damaged, that are not owned or operated by the insured. So your insured may not sustain physical loss. However, their supplier or their customer may have sustained physical damage, and therefore their operations are affected because they're dependent upon that supplier or customer for them to move their business along. So my next slide is sharing with you an actual assignment I had a number of years ago where we had a business income loss for a Lieber crane. This crane was state-of-the-art crane. It was relatively new, had only been in operation one or two months, and it sustained a fire to its electronic boards. Because this equipment was manufactured in Germany and it was relatively new state-of-the-art equipment, technicians from Germany had to come into the States to repair the equipment, and also the parts had to be recreated for the electronic components to be replaced. So this repair took six months. A temporary piece of equipment was not available because this, again, was unique, state-of-the-art. At the time, I think there were only two or three in the United States. There were none in the Northeast. This machine was in the Northeast. So you can see how you can develop significant economic exposure because of the time period to repair. Now, back then this was a unique piece of equipment. Today you don't need so much a unique piece of equipment because during this current construction boom we have, these cranes and other heavy construction equipment are all booked so far in advance. They're just going from project to project to project that if there's an interruption and that equipment is not available to its owner for rental, you're going to have an economic value of business interruption claim. So here it took us the period of restoration was six months to repair this piece of equipment. And part of the accounting exercise of evaluating and assessing economic damages is we looked at the revenue this unit would have generated over the six months that it was damaged. In this case, they kept track of booking reports or a reservation system, if you will, and we looked at the reservations for the nine months from the lost period and we saw how strong the bookings were for this machine because it was such high demand. So the six months that it was out, there was a value we were able to determine what they would have rented over a time period. So that was our starting point in coming up with the estimate of value. Then we looked at the profit and loss statements and we reviewed the expenses that take to run a type of equipment like this and we also looked at the payroll registers and to see what payroll would look like. Some of the expenses that we identified that were significant and were saved is maintenance. As you can imagine, the maintenance for these pieces of equipment are very, very high. The payroll to operate this equipment is very high. Some of these we noticed that on the short-term rentals, the equipment company would rent the equipment to the contractor with a crane operator. So therefore, we had to consider that value for the short-term rentals. For the long-term rentals, the general contractors had their own people operating the equipment and therefore we did not have to consider payroll in those scenarios. However, mobilization and demobilizing the equipment, very, very expensive. If you can imagine seeing a piece of equipment being transferred in traffic, you have a lead vehicle, you have a concluding vehicle at the end, sometimes you have police. I mean, to mobilize very, very large, very expensive equipment to be moving around and to mobilize and demobilize. So those are the top-sided components to calculating the business income loss to some of the things that we look at for this type of equipment. We move on to extra expense. And a number of years ago, I had a loss at a recycling center, and this recycling center had damage to a mobile shredder and a baler. These two pieces of equipment are absolutely key in running a recycling center. This recycler in particular had a contract with a neighboring municipality. So one thing that we do is we generate garbage and recyclables every day. There's no stopping in that. So this municipality had to deliver what it collected to the recycling facility. Luckily, they had enough room, or sometimes they have to rent an adjacent lot to store this material while the equipment is being repaired. In this scenario, the equipment only took three weeks to repair. They had all the recyclables stocked in a corner someplace. So the expense incurred on an extra expense basis was the labor to increase production four hours a day until they chipped away at the pile. So it took them three weeks, four weeks, five weeks to cycle through that, and they were able to mitigate a business interruption loss by incurring the extra expense over a four-hour period. And quite frankly, the business interruption wasn't a fact because they had to accept the waste from the municipality. Therefore, they had to do something with it and they had to work with it. They weren't able to claim force majeure or one of those other items that contractually would be bad for business. And lastly, I'll share with you a contingent business interruption scenario. During here in the New York area for Superstorm Sandy, we had some diagnostic centers with mobile MRI trailers. The trailers were undamaged. The insured property was unaffected. However, the customers, the patients, and the employees didn't show up to administer the tests nor take the tests for a number of reasons. The subways were out, their homes may have been flooded, the kids were home from school, traffic was treacherous. All reasons that under this clause in the policy, the carrier took the position, there was no damage to a supplier or a contractor, was denied by the insurers. Had this been dependent on a hospital and the customers or the patients were coming from a hospital and the hospital sustained physical damage, and that then perhaps would have been an insurable loss for a contingent business interruption scenario. So that's a purview of business interruption, the economic damages, the exposure, some of the underwriting issues. Feel free to ask questions at the end when we're done, or my email was given at the beginning of the presentation. Happy, delighted to answer any questions you may have on this great topic. So at this point, we kick it back to Rocco. Thanks, Mike. What I'm gonna be highlighting briefly is the AAIS contractors equipment coverage, but I wanted to qualify that there are traditional parts of contractors coverage under the ISO form also. Both forms have definitions, perils covered, perils excluded, valuation clauses that are somewhat similar. So we're focusing on the AAIS contractors equipment form. Rick, I'm not sure if you have any comments on the variations between the forms or not. I was asked to ask you that during this presentation. I do not at the moment. Okay. So basically, as an adjuster, what I rely upon is whenever I receive a loss assignment, I try to obtain the policy as quickly as possible and review it just so I can ask pertinent questions and make any field determinations that are warranted. So I try and focus on these categories under the policy coverage definitions, property covered, not covered, supplemental coverages, rental reimbursement, perils covered, key perils excluded, if there's any civil authority wording, exclusions such as contamination, deterioration, mechanical breakdown, and then I look into the valuation clauses of the policy. Briefly, under definitions, the key that everybody should be mindful of is contractor's equipment means machinery equipment and tools. They have to be of a mobile nature and used in the insurance contracting, installation, erection, repair, or any moving operations. The property covered section of the policy, the key is the equipment needs to be owned by the contractor or the property of others in the insurance, care, custody, and control. Property not covered that you need to be mindful of is owned contractor's equipment leased or loaned or rented out to others. If a loss occurs under that scenario, coverage would not exist. As far as perils excluded, there's only a couple that I just want to bring to everybody's attention. I'm sure many of you are familiar with the wording. Civil authority, briefly, the policy excludes losses caused by the order of any civil authority, including seizures, compensation, disruption, or quarantine of property. In one of our brief case studies, I'll be bringing up this topic, which comes into play on some losses occasionally. Another exclusion worth reviewing or at least evaluating is the contamination deterioration exclusion. That exclusion includes corrosion, decay, rot, rust, faulty workmanship, weakness in the covered property that may cause damage of the equipment to destroy itself. The final exclusion that is worth mentioning in this study is the mechanical breakdown, which includes any mechanical electrical breakdown or malfunction. Those are typical exclusions that you find on losses. Those losses are typical besides hurricanes, wind, fire, vehicle. Oftentimes, especially with cranes and hoist equipment, things of that nature, you won't notice that these perils could come into play. From a valuation standpoint, I had an interesting loss situation. We had a fairly new piece of equipment that was experiencing considerable warranty problems and the manufacturer distributor was trying to attend to these warranty issues for several months. In the course of that process, the owner of the, it was a crane, by the way. The owner of the crane was, he needed another piece of equipment. So the insured loaned them a replacement piece of equipment and they took possession of the crane that needed the warranty work. And several months went by and the crane was having a retracting problem of the bone. The manufacturer got involved and the issue was corrected and by the manufacturer, they did their final sign-off. Ironically, the next day, the insured was doing some final testing of their own and they couldn't get the boom to retract. And while they were trying to get that boom to retract, a large gust of wind came off of a lake. It was almost like a nor'easter and the crane toppled over and the boom was damaged. There was about $600,000 of damage. The insured claimed about $800,000 in repair. The crane's value was $2.2 million. The owner of the crane made a decision that he did not want the crane. He felt that the crane could not be used on projects in New York City with this record of having an accident. So he basically said, you can repair the crane if you want, but I'm not taking it back. So that's when the adjuster's hands sort of get tied and you circle back with the insurance company, the broker, the insured, and say, what are we gonna do? In this particular case, a Leslie negotiation was accomplished. The insured ended up contributing quite a bit of money to satisfy the owner. They basically bought the machine back and they sold the replacement machine to the owner and basically the claim resolved itself. Then the issue became, what about salvage? As part of the agreement, the insured was able to retain the salvage of the equipment. So sometimes the replacement costs and the actual cash value provisions of the policy get circumvented by real world law situations that require some considerable negotiations and sort of diplomatic discussions between all parties concerned. If there's any other questions on the contractor's equipment coverage, we can discuss it at the Q&A session. The next discussion is going to be a case study. We've selected hoist equipment as our discussion and Dr. Phillips from JSL shall be taking over the discussion shortly. The presentation team had a lot of discussions regarding this topic. From my perspective, we have a loss. This loss involved a hospital where a hoist was being installed. There were no design issues whatsoever. This particular case, there was a workmanship issue. In the erection of the hoist, there were some bolts that were not installed, which caused, as the hoist went up, the weight factor contributed to a failure of the hoist. What's interesting, the reason I'm bringing this topic up is OSHA got involved because there was a fatality and OSHA basically seized control of this hoist, which severely delayed the project, actually to the point where there was about a six-week delay in the OSHA investigation and then the engineering damage analysis. Ultimately, the hoist was declared to be a total loss and in concert with that, there were issues that came up as far as relocating the hoist to another section of the building. You have to evaluate the site. Can the site access allow for a hoist to be put on the opposite side of the building or somewhat adjacent to the existing condition of the hoist? The last factor was utilities that were needed for this hoist, so construction material delivery access. So there are lots of issues that come into play beyond the actual damage to the hoist and that's what triggers possible delays and business income losses as well. Doug, the case study that Doug is gonna be presenting is a similar hoist situation. It's not so much a design, a faulty workmanship issue. I think it's more of a design issue and we'll let Doug elaborate on that. Go ahead, Doug. Thank you, Rocco, and good afternoon, everybody. And I do wanna talk about our case study but in much more general terms than just specifically these two losses that Rocco had mentioned. I think the most important thing that we can talk about is exactly how integral to a project the hoist is and you see more and more of it. One of our offices is located near Norwalk, Connecticut. I look at how many high-rise buildings have been built here. I came from Miami this morning. It's absolutely phenomenal how many high-rise buildings they've put up in Miami in the last 10 years. I worked in Miami for three years for Turner in one of my past projects, one of my past jobs, rather, and back then we thought it was a tremendous boon but now it's like nothing anyone has ever seen before. So really you go in every city across America and really the world and you're seeing high-rise buildings going up, even in small cities where you never really would have expected it. So the hoist has become a much more prominent part of the construction project now. Just to go over some design issues with the hoist, pre-loss conditions, with a hoist tower design you can decide to put one car or two off of a tower. You could use the two cars for personnel. You could use one car for material, one car for personnel. You could use a hoist tower that only has one car and then you could use a crane with a materials bucket to put all your materials up into the project. The other considerations are the utilities required, how much power you need to run the hoist. It takes quite a bit of juice to run those motors, particularly the higher you get, the bigger the motor is. The configuration considerations, the implementation, the design, the consulting professional engineer. A hoist doesn't happen overnight. You don't just call a hoist vendor and say, hey, I need a hoist over here tomorrow. It takes months of planning and months of design. And one of the most important parts is, and I'm gonna jump ahead a little bit to this here that I'm pointing to, for those of you who can see the webinar, is the building-tie connector points. When you plan the hoist out, the first thing you do is you plan a foundation and depending on how big that hoist is, it's gonna be the same idea as for putting up a tower crane. You put foundations in the ground and you put a hoist pad and you set the base of the hoist tower on this foundation. Now, everything that goes into consideration for that are the load factors, which is how big are the cars? How many people can it hold? Or how much material are we planning to put in each car at any given time? How high the hoist is going to be, that'll also determine how heavy it will be and what type of forces will be acting upon it. I'm not sure what happened here. Let me go back to. This one here. Building-tie connector points is what I was talking about before, which is really important, particularly in a reinforced concrete building, which is what you generally see in the subtropical areas. They generally don't use steel construction like they would in New York City. So you see a lot of reinforced concrete buildings or post-tension cable concrete buildings. You have to be sure that you put the inserts for the hoist into the pore. You can't come back and drill them in later like you might be able to do in any other sort of concrete building. And the reason you need to do that is because you can't damage or disturb any of the rebar and particularly any of the post-tensioning cables that may go in the area near the hoist. So you set those right into the forms and you create a tie-back location for the hoist. All of that's got to be planned ahead. The setbacks are important here. I'm highlighting the first-floor level setbacks. As most high-rises go up, as many of them go up, they have a setback, which means that they get thinner as they go up. Part of it is for architectural reasons. Part of it is for airspace reasons. So there's many times that you have to now also add scaffold-type platforms to unload the hoist, too. One of the, like Rocco mentioned, one of the losses that I'll discuss a little bit in just a moment here is a loss where the tower, the way they had built the hoist, it was such a large complex that they built the hoist in the L. There was a, right in the elbow of the building was an L-shaped building. And they had to build a scaffold tower that was as high as the building just so that they could unload all the people and all the materials in a timely fashion every day to keep the efficiency of the work going along. And what happened was there was a design error in the weight of the tower, and they had miscalculated the size of the columns in the lower floors, and the tower started to collapse. And as the tower started to collapse, it started to collapse the hoist tower with it, which really was a separate part of it. But the two of them do work together. And I say all these things just to bring to light how complex it is to put together. It's not just a piece of machinery. It's everything that goes along with this particular piece of machinery to keep it operational. I'll switch to the next one now. For the equipment installation, the contractor and operator determinations, generally the operator is an employee of the general contractor. If it's a union project like say New York City or in Chicago or Los Angeles, then you would have a union operator on the general contractor's payroll. For example, in New York, you'd have a local 14 operator who only takes materials up, and you'd have a local one operator who only takes people up to the job site. In many of the non-union jurisdictions, you have just one of the contractor's personnel operating this hoist. The thing that could be scary about that is that the day before they were doing something else, generally it's what we call laborers on a project site. So these were folks who were maintaining the project site, and then the next day, all of a sudden, they're trained for a couple of hours to be a hoist operator, which is fine and dandy. I mean, the hoist itself is, you press a button, it goes up, it goes down. But at least if you have operators, like the example I made before of the union operators, they've done it many, many times, and they understand the nuances of the hoist, and they also know the different sounds and feels of the hoist also. So, when you have people who are not as familiar, it's definitely a factor that needs to be thought about, the difference between a union and a non-union operation. So, and then we move on to inspections and load testing on the hoist. So, in many jurisdictions, there'll be inspections of the connection points. There'll be inspections of the hoist as it's erected. And in other areas, though, the inspections are really, they're just looking to see that you tied the hoist into the building so it doesn't fall over. It's not like the inspectors will actually get out onto the cars and look at the connections being made on the tower. I mean, that's the responsibility of the contractor who's putting this equipment together. I mean, this equipment is not the same as bringing, say, a mobile crane onsite, you know, a rubber-tired mobile crane. That comes onsite, they drop the outriggers out, they stand the mast up in the air, the boom up in the air, and they start going to work. It's a piece of equipment. With a hoist, it's a whole different thing. All this equipment arrives on a project site in pieces and must be installed onsite every time they use it. So there is definitely the thought of the human error in there. And like I said, one of the things we need to be careful of is which jurisdiction requires more inspection as they're putting it together. Moving on to the next page, in this failure event here, the case study that Rocco had brought up was a windstorm failure event. Now, the reality is, in general, a windstorm is not going to knock the hoist over, even a hurricane. I can tell you, folks, I worked for Turner Construction Company and I was assigned to Miami in 2005. And we certainly had our fair share of hurricanes in 2005. We had two hurricanes and one came through Key West, which was Rita, and we also had two other tropical storms. A wind event, even to the extent of a hurricane, is not necessarily going to knock the hoist over. However, combined with a faulty workmanship or a poor job in engineering the hoist or a design defect, combine those together with a wind event and you certainly could get a major collapse like the one at the hospital that started out the photo deck on this particular case study. So, those are usually the two biggest reasons that a hoist or a hoist tower or even its corresponding landing tower is going to fail. And you almost always, the result is almost always a collapse event. Almost, whether it's a collapse or a partial collapse, it's still a collapse event, which requires the complete disassembly of the system and then the installation of a new system. So, if you think about the disassembly of a system while trying not to injure any personnel or damage any property as it comes down, the re-engineering of the system, the investigation time, and the reconstruction of a hoist, and the hoist being essentially the heart and soul of the project. Because without the hoist, you can't operate the project. I mean, there's almost no building department that I know of that would allow a project to continue more than five floors without a hoist. And the reason is in case somebody is injured, you need a way to get them down off the building. So, it's not like you can say, you know what, fellas, walk up. You know, I mean, you're construction workers. You're tough. It's not gonna be allowed by any of the AHJs, the authorities having jurisdiction in that particular region. So, you can imagine the delays to the project are extensive and probably the most extensive delay you can get to a project is a hoist collapse failure. So, it's something to keep in mind as we look at insuring these pieces of equipment. The OSHA investigation. Now, if there's a fatality or a serious injury, OSHA will always be on site. You must contact them. It's a crime not to contact them. So, they will come on site. So, and I just talked about how long it could take just to recover from a hoist collapse to begin with. Once OSHA's on site, and particularly if there's a fatality, it will easily add many weeks, if not months, to the project because they'll want investigation and they'll also wanna know what you're going to do in the future to protect the safety of the workers that are on site, either disassembling it or putting up a new hoist or just working on that project as it moves forward. So, OSHA can add tremendous amounts of time to the delay to a project due to a hoist collapse. And I've already spoken about the importance of the site safety as you're demolishing that particular hoist. Mitigation. Mitigation. What can we do? You know, if you have a bad hoist collapse and it's under investigation and needs to be re-engineered and OSHA has you shut down, the other option would be to think about a new place to put the hoist and start engineering it, designing it, and getting it ready and ready and rented and have it set up for another area of the building, which is very difficult because the building is constructed with a logistics plan that takes into account where the hoist will be loading and unloading into the building. The other thing you have to keep in mind is when you've created your initial logistics plan, you've thought out exactly how you're going to access the project. There's usually a loading dock because the tractor-trailers, they don't come in at the ground level, right? So, you've got to have a loading dock to be able to take the materials off to bring it into the hoist. Off the loading dock, obviously, would be sort of an access road that would take you out into the most logical place onto the public street to get in and out of the project site. So, if you are going to use an alternate relocation, now you've got the added extra expense of reconfiguring the entire logistic plan for the project while, you know, that you're going to use in this new hoist location. And that takes time and also a considerable amount of money. You'll also have to take into effect where is the crane on the project, too. I mean, that's also very important because the crane, you may not be able to get around the project where a lot of times the projects today use a tower crane that's set up off the side of a building rather than the one that goes up to the middle of a building. So, your site access might be limited on that. So, there's so many factors that need to be considered for you to mitigate that loss, expedite it possibly, and come up with the proper recovery period. And that is obviously the end of this case study here. I don't know if Rocco wanted to say a couple of words about where we were on this or if there's any questions, obviously. I think the next module is the question. Thank you, everyone. Now we'll take questions. Thank you for that informative presentation. For our attendees, in order to ask a question, we have the Q&A pod up right now and you'll just type your question in the Q&A pod and then click Submit. And we'll wait a few moments for questions to come in. Lillian? Yes? While we wait for questions to come in, can I just make another underwriting comment? Oh, absolutely. I just wanted to add that I think it was fantastic at the end that Doug mentioned that there was a lot of work that went into this that Doug mentioned the design, possible design issues and faulty workmanship issues. As leg three and D5 have become very requested a lot for builder's risk, we're seeing it go out quite a bit and requested quite a bit. It's just interesting to see real world applications. It's the way that they describe it here and what can happen and how long it can take to get back up and running once an event happens with either a hoist or a tower crane, especially considering if we consider all the sort of statements and inspections and it's such a, it's a tedious task to get it up and going. I just wanted to mention it's nice to see that, see this included in the presentation. We have our first question and that's what are the different types of crane operator certifications? For example, the NCCO and is one better than another? I'm gonna defer that to Doug or one of the guys that have worked for Turner. And as soon as I can find my unmute button, I would answer that. So NCCO stands for the National Commission for the Certification of Crane Operators and it's a national organization and it's intended to be used much like the National Building Code is used. So we have the IBC, the International Building Code, they call it and jurisdictions around North America use the International Building Code and what they do is they adopt it. Some towns just adopt the International Building Code as is, other towns add riders to the code so that they make it either more stringent or less stringent the way they wanna use it. So the NCCO is similar in that it's an organization created to assist the different jurisdictions around the country to have a sort of standard for people to learn how to be a crane operator. There are definitely more stringent jurisdictions around there. The most stringent one I know of is actually in New York City that requires a New York City crane operator's license. And again, I mentioned before, it's you're either a union or a non-union crane operator but you do need the same license around. So one is not really much better than other, it's more situational. I mean, in New York, it's very, very tight wherever you're operating with a crane. You know, in Miami, you're usually on a project site that's very wide and the crane itself could collapse and never leave the job site whereas if you looked at that one picture that Rick had posted up there, that crane fell down through a block and a half of a New York City street in downtown Manhattan. Thank you. The next question, what segments are you seeing more losses in for the larger equipment? Excavation, grading, logging, or land clearing? Who's that question for? Probably for Allions. For me? Rick, it probably be for Allions so you're seeing, this is Rocco, are you seeing more, any prevalence? No, I just, no, I think all the above. I wouldn't know, that's such a big question because there's big equipment in each one of those industries. So as needed. This is Rocco, I can speak to that. I can speak about logging equipment. Back in the 90s, I was asked to handle a logging machinery equipment program and I was amazed how the losses started out in the 25, 50, $100,000 range and within a year, the losses started coming in close to two million plus. Obviously, this logging equipment is out in the middle of the woods in the Adirondacks or out in California, Washington, Oregon, and basically, sometimes it depends on the political persuasion of the country. Back then, there were several possible targets of causation. There was issues with environmentalists going out to the woods and burning down equipment. There were competitors. There were the owners of equipment running these machines into the ground or running 14 hours a day. Hydraulic lines would burst and the machines would catch fire in the middle of the woods and we also had situations where we had arson for profit. I was amazed at how the losses, once they realized the level of investigation by the insurers, the losses escalated dramatically and then, at the time, the program was being administered by some London syndicates and they basically dropped out of the program and then it must have moved on to some domestic carriers but it can almost be cyclical, I think. But I haven't seen any stress in any certain types of equipment such as excavating or things of that nature. Yeah, I think from an underwriting standpoint, we just have to be considerate of the locations and the growth is all over the globe right now. So the mining equipment, the large earth-moving equipment, very common out in the rural areas, so it just depends and then you see more of the towers and cranes in the cities. It just depends. Rick, this is Robert with the large contractors earth-moving equipment. I see that more from a theft exposure than an actual damage exposure. We had a large loss in the Dominican Republic where the machine disappeared. How large of a damage? It was about a million seven of value. Wow. Do you remember the situation of how it was stolen? Because when I think of a lever at 9,800, something like that, there's only so many people who can operate that machine and it's so big, it can't be just stolen overnight. So we have to be considerate of that. It can't be just stolen overnight. Brock, do you want to talk about what the situation was? Yeah, it was a piece of equipment that was, it was on loan, you gotta keep in mind where you are. You're out in the Dominican Republic and things were done pretty loosely out there. The piece of equipment was allegedly on loan to another party and over the weekend, it basically disappeared and for the life of me, we couldn't understand how machinery could disappear and be hidden. We had federal authorities involved, local agencies and it was never recovered. It was taken directly to a ship somewhere, probably. Yeah, it was removed from a job site and was never seen again. We had FBI tracing it for a couple years and it just never serviced. I'll say this, a lot of larger contractors right now are starting to add tracking devices, not just LOJAC, but literally tracking devices and installing them in the electronics of large equipment and the GPS is added with those tracking devices as well as to monitor the maintenance and things like that but certainly the GPS is there. So I would hope that the larger contractors who are already starting to implement those, you won't see those kinds of theft losses. Do underwriters request that? Can they make that a prerequisite? It's too new. No. I think it's too new. That's cutting edge. Okay, we have another question. Are hoist inspection certifications performed by building engineers, a hoist contractor, consulting engineer and or city inspectors? The answer to that is all of them, all of the above. It just depends where you are but you would generally have a threshold inspector which is a third party engineer who would be hired to do all of the inspections of the hoist and the crane as it's being erected and put together. You would ultimately have the building department who would do either a scheduled inspection or a random inspection on a project and then of course you've got the internal quality control for the hoist inspectors. And like I'd mentioned before, nobody really gets out to inspect that the hoist installers have put every bolt into the tower. It is their responsibility to ensure that they've built that tower properly. And I'll add onto that from an underwriting standpoint that we just remember that with hoist or with tower cranes, the site, the base, when it's built, the mass, all parts are inspected and have to be certified. The straightness of it, and then there's always a weight test as well before it can be signed off on and there's multiple people who have to sign off on each one and it depends on the city. I'm sure Doug can attest to that. It depends on where it's at, how many people have to sign off but each piece has to be signed off and certified and inspected by multiple folks. All right, thank you. That's our time. But I would like to also reference the reference section that the presenters put together. And after the webinar, when you have an opportunity, please take a look at them. It includes some videos and additional information to supplement this webinar and what was discussed during it. Thank you to our presenters for an excellent presentation. And thank you also to our attendees for your participation and your interesting questions. All attendees will receive an email with a link to an electronic survey. Please take a moment to respond to the survey and provide feedback to IMUA. This ends today's webinar. Have a great rest of the day.

Large Contractor's Equipment

Valuation

Business Interruption

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Rick Colbert

Michael Castillo

Rocco Bianchi

Douglas DePhillips

Caterpillar

Liebherr

Terex

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