Chapter 4: Risk Management

General Overview

• Risk management chapter considered boring but crucial for test preparation.
• Emphasizes highlighting important content for later review.

Key Insurance Types

Bodily Injury and Property Damage Insurance

• Contractors must carry specific amounts of bodily injury and property damage insurance as per the Department of Professional Regulation.

Property Loss Exposures

• Property insurance policies: Replacement cost or actual cash value.
• Importance of co-insurance provisions: Buyers must purchase insurance reflecting the property's value to avoid sharing in losses.

Types of Property Insurance Forms

• Basic Form: Covers fire, lighting, windstorm, etc.
• Broad Form: Includes basic perils plus additional ones like falling objects.
• Special Form: Broader protection; covers theft.

Additional Insurance Types

• Installation floaters, business automobile insurance, builders risk, flood insurance, crime exposures.
• Fidelity bonds for embezzlement.
• Machinery protection through inland marine insurance.

Financial Loss Exposures

• Business Interruption Insurance: For loss of net income due to decreased revenue/increased expenses.
• Commercial General Liability Policy: Protects against bodily injury/property damage liability.
• Medical Expense Coverage: Covers medical bills for non-employees on premises or due to construction operations.

Contractual Liability Exposures

• Contracts often include hold harmless and indemnification clauses.
• Exculpatory clauses and indemnification require certain liabilities.

Business Automobile and Employee Benefits

• Business automobile policy for losses from owned vehicles.
• Umbrella liability for additional protection from claims.

Premium Computation and Loss Control

• Premiums based on maximum values and vehicle types.
• Importance of regular reviews of employee driving records.

Suretyship and Bonds

• Suretyship: Promise by the surety to cover the principal's debts.
• Principle of Indemnity: Surety reimbursed for contractor's failures.
• Difference between surety bond (three-party agreement) and insurance (two-party agreement).

Key Legislation

• Miller Act: Federal requirement for surety bonds for public works.
• Types of bonds in construction: Bid, performance, payment, conditional payment, maintenance, supply.

Three C's of Underwriting

• Character: Contractor's reputation.
• Capacity: Experience, performance, resources.
• Capital: Financial status—most important.

Ratios and Bond Costs

• Contractors' net worth and net quick calculations.
• Bond costs vary between 1-5% of contract price.

Miscellaneous

• Small business bond assistance program details.
• Importance of reviewing bond tables for rate calculations.

Conclusion

• Emphasis on understanding and reviewing Chapter 4 thoroughly due to its significance on exams.