yes sir looks like you are back for more fun let's get into a chapter 4 risk management um what can I say about this chapter that hasn't been said before it absolutely sucks um it's not a huge chapter but it is boring as hell um really nothing positive to say it just we just got to get those it's just one of those chapters where uh the content is at least in my opinion insanely boring uh it's the stuff that nightmares are made out of but you know this is what we need to cover for the test so let's do it risk management as always remember what we're doing today is that we're highlighting what is important we're not highlighting everything just the stuff that's really important I highlighted today you highlight it with me and at another time time when you're doing review you go back and you take a look at everything it is important to focus on the areas around the highlighting because there's going to be a lot of information that needs to be covered I'm not going to read everything that would be pointless because you could read on your own but focus on the highlights and read read spend some time reviewing this at another time all right everybody's favored Insurance bodily injury and property damage Insurance okay um remember how in chapter 1 they talked about how uh contractors need to carry a certain amount of coverage well this is going to get into it a little bit the Department of Professional Regulation through uh statute Law requires that the contractor carry specific amounts of bodily injury and property damage Insurance chapter 1 if you remember there was a table there they talked about how much Insurance a general contractor carries and how how much other kinds of contractors need to carry so this is starting to tie things in we're going to move along we're on page 46 property loss exposures property insurance policies can be purchased on a replacement cost new for old or an actual cash value depreciated value basis so right here this whole section very very important lots of highlighting here you really need to come back at some point or pause the video right now and read this paragraph review it you really want to understand what they're talking about here okay property insurance policies can be purchased okay property insurance P may also contain a coin Co Insurance provision uh co- Insurance Provisions require that the buyer purchase an amount of insurance that reasonably reflects the value of the property insured if the insured purchase uh if the insured purchases less than the amount required under under the insurance contract the insured will be required to share in the loss there is an example of this kind of scenario there will you know where somebody under buys an insurance policy that they need and they are um they are penalized a certain amount of dollars I had this on my test they gave me an example just like this one where I had to figure out how short the insurance policy was basically uh a dollar amount here it was 2500 I highly recommend you come back here at some point and take a look at the example here uh this is I think this is something that's very very important moving along property insurance may be purchased under one of the three causes of loss forms basic broad form and special perils the basic form only covers fire lightning Windstorm and hail Riot or civil commotion smoke aircraft or vehicle damage explosion vandalism sprinkler leakage single collapse and Volcanic action a broad form policy covers the basic perils as well as falling object weight of snow ice or sleep and water damage okay the causes of loss listed are the only causes covered under the basic or broad form policies the special form is preferable due to its broader protection that makes sense one of the main advantage of the special form is that coverage for theft is provided you may be asked this question okay because they're talking about coverage for theft moving on to next page typical perils excluded from under special form policy are losses due to earthquake flood virus and wear and hair virus interesting let's move along there's other U things that need to be discussed let me see L as follows I have number five highlighted installation floaters covering subcontractor materials are new construction job sites while in transit or while stored at temporary locations okay business on automobile insurance Builders risk would normally P which is normally purchased by the owner or general contractor flood insurance make them up crime exposures blanket crime policy comprehensive comprehensive dishonesty destruction and disappearance policy okay this is other coverages provide insurance against laws due to dishonesty of employees I actually had that I had that on my exam specifically dishonesty of employees next we have on 48 Fidelity bonds uh dealing with embezzlement and uh let me see machinery and equipment used in a job can be best protected by inland marine Insurance that's uh might as well have that covered equipment breakdown insurance covers losses to certain times of equipment for sudden and accidental mechanical breakdowns Financial loss exposures all right next section the secondary exposure that can cause Financial loss to the organization involves loss of net income any loss incurred by the organization which causes a decrease in revenues or increase in expenses is considered a net business income loss income business insurance often referred to as business Interruption Insurance remember business Interruption Insurance because the business is not able to make money next business liability exposures construction activities create many situations we may give rise to the possibility of they're going to ation suffering a legal liability loss the organization would suffer financially if it is required to pay another party for bodily injury property damage or other injury caused by actions of employees or subcontractors important the commercial general liability policy provides protection to the organization for bodily injury and property damage liability arises uh losses arising out of property it owns or leases construction activities after Construction exposures personal injury and fire damage liability so the limits of uh liability under this policy are broken down super important super super important right here the limits of liability you want to make sure that you know what all of these are I have all of them highlighted here the general aggregate limit is the most the insurance company will pay in one year regardless of the number of occurrences while construction is ongoing that's just a definition that makes come up something that's good to know though let me see next products completed oper products completed operations refer refers to occurrences that cause bodily injury or property damage after all work has been completed and put to its intended use okay the completed operations coverage applies when the injury occurs after the contractor has completed their work next medical expense coverage provides for payments for medical bills for insured persons other than employees on your premises or because of construction operations the limit is usually 5,000 or 10,000 and the coverage will pay regardless of fault the key number here the key numbers are 5 and 10,000 remember that contractual liability exposure most construction contracts include hold harmless and indemnification Clauses okay next there are numerous types of exp exculpatory Clauses used in in and attempt to absolve relieve or excuse one or more Contracting parties from the defense and or Consequences of an alleged fault as indemnification Clause typically requires the indemn contractor to compensate pay the indemnity owner architect engineer and their employees for loss caused by liability imposed on the indemnity for damages because of injury or property damage arising out of uh arising out of the construction activity wow that is a mouthful I got to tell you I don't even know if I'm saying that right a hold harmless provision okay that's a definition The Standard Insurance Services office commercial general liability policy form excludes contractual liability assumed except for contracts described in items 1 and two listed below contractual liability exclusion bodily injury or property damage all right so I think you're kind of getting um the gist here which is I mean it's actually kind of I think it's impossible to get the gist unless this is something that you do every day but what I'm trying to get at is that we've only covered a couple of pages of this chapter and as you can see there is a lot a lot of highlighting that should tell you something okay and what that should tell you is that you're going to you you should have a healthy respect for this chapter there's a lot of information and I can tell you from my experience is that there will be ample questions from this chapter so please make sure that you do yourself a favor and sit down and really really focus on this chapter and cover this chapter don't skip through it this is there's a lot of information here that um you will probably see on your exam okay so 410 insured contract means we're not going to read everything but that's what an insured contract means a whole lot of bullet points take a look at those business automobile policy okay coverage protects the organization from losses arising out of the operation of owned licensed Motor Vehicles coverage can be expanded to include protection to the contractor for liability out of use uh out of the use of hired and non-owned Autos okay next we're on page 411 employee benefits liability this section not that much there umbrella liability okay often a contractor will be required by contract or desire additional protection from liability claims beyond the policy limits available under commercial general liability and business automobile policy usually an umbrella liability policy can be purchased in increments per million dollar per million dollar okay I'm sure that this is something that you may have seen in your personal life I mean if you drive a car and you have insurance this is this should sound fairly familiar okay organizations can also suffer Financial loss due to death or disability of key Personnel Key Personnel can include major St stakeholders or persons having unique talents that may cause a decrease in revenues or an increase in cost to replace an employee who becomes disabled or dies all right computation of Premium rates premiums for property damage including Builder risk contractor's equipment and other inland marine exposures are generally computed using the value in insured all right all right let's see um for four we're on page 412 for reporting forms of Builder risk an annual premium is established based on the maximum values at risk at any point in time actual values under the construction are reported monthly automobile rates vary by size of vehicles based on the gross vehicle weight distance of travel um and the various uses of the vehicle next the contractor should regularly every 6 months or at least annually review the driving records of his employees by ordering motor vehicle reports well these are just suggestions not regulation but you know it may come up it may come up most insurance companies have lost control Personnel contractors should utilize the service to prevent losses wherever possible larger firms frequently hire their own loss control Personnel shity ship okay is a promise by the shity guarantor to be answerable to the oblig owner for the debt of the principal contractor the liability of the shity is second to the principal important line I really should have had that highlighted but I'm going to say it again the liability of the shy is second to the principal principle is primary that's what they're trying to say principle of Indemnity Indemnity is a legal principle by which the party offering the guarantee which is a shity will be indemnified reimbursed by the contractor for losses damages and occurred the contractor agrees with the shity that in the event of his failure to perform the terms and conditions of the contract he will reimburse the shity company for any loss or expense caused by this failure to perform this is an important topic had this on my test please understand what this principle is okay shity shity ship is is is going to be on your test I mean I think it's I think it's probably on everybody's test I had quite a few questions um dealing with uh with this particular topic once again we're going to move on to 413 charity Bond versus insurance this is actually pretty important and this may come up so I'll read this whole section insurance is a two-party agreement in which the insurer assumes the liability of the insured for loss arising out of an unforeseen fortuitous continency such as fire accident or death insurers expect losses and spread the risk over many insured a shity bond is a three-party agreement whereby one part the shity is bound with the person's bonded called a principal to a third party called obligate the premium is charged as a fee for credit investigation and pre-qualification the shity does not contemplate a loss if the principal is unable to perform as required the shity suffers a loss the shity will look to the principal to indemnify it for all losses costs damages and fees so this is what they're once again they're talking about shity versus Insurance police please understand the difference between these uh two systems I think that the easiest way to remember is that remember that insurance is a two-party agreement and a shity bond is a three-party agreement anytime they're going to be talking about things such as principal ins Charities you know we're dealing with a shity bond okay versus Insurance where it's more direct individual and corporate shity okay uh this may come up this may come up I did not have this on my exam but I've heard people say that this came up on theirs in 1984 Congress passed the herd act in response to concerns about large number of contractors working on public projects that became insolvent and in response to complaints from unpaid subcontractors the herd Act was supplanted by the Miller act in 1935 since then the federal government has required that contractors obtain shity bonds for public works and virtually all states have followed with their own statutes called little Miller acts okay so if you're going to see key terms and they're going to talking about bonds that and they're going to be talking about public bonds that this is you should these this is what you should keep in mind the Miller Act and the her act uh moving along types of bonds all right below the six types of bonds used in the construction industry B Bond performance bond payment Bond conditional payment Bond maintenance Bond and Supply Bond all right um definitely understand what all of these bonds are I'm not going to read everything but I'll just kind of work work on what I think is important the bid bond is a guarantee that if the contractor is awarded a bid he will enter into a contract at the price stipulated in the bid proposal and will provide the required performance and payment there are two types of bid bonds one is a forfeiture obligation okay and the second is a difference in bid guarantee performance bond guarantees the contractor will perform the work according to the contract terms the payment Bond guarantees the contractor will pay all subcontractors labor material suppliers who have provided labor and material on the project um let me see the conditional payment Bond would guarantee the developer a lean free project so if we're talking about being something being Lean free payment Bond conditional okay so definitely take a look at all of these bonds let me see here we're in page 4:15 what else do I have highlight okay the bond limit is 10% % of their capital and surplus as okay yeah so the D the most important thing to focus in is the bond limit is 10% of their Capital three C's of underwriting this was on my test might be on yours pay attention character relates to the contractor's reputation in Industry capacity relates to the contractor's experience past performance equipment and Personnel Capital refers to the contractor's financial status and bill paying ability the third C of ship is Capital by far the most important of the three so if they ask you what's the most important C in out of the three C's of underwriting then you know Capital let me see here types of information requested by the shity the last 3 years the the last threeyear end financial statements provided by CPA interesting yes very interesting financial statements uh okay financial statements can be prepared the three methods audit review or compilation the audit is the most expensive and extensive of the three audit okay remember audit that's that that requires a CPA the review is less comprehensive in scope and compilation is very limited in scope most likely they do ask you about this they're going to ask you what uh who can perform and audit and that would be a CPA all right income recognition let me see here uh kind of we this was something that was briefly talked about before but I have it highlighted here so completed contract as as above is for deferring taxes as it acrs expenses but no income is reflected until the project is complete that should sound familiar pure acral can increase taxes but because it acrs all billing and all expenses but it does not reflect under or over Billings okay ratios Underwriters use various ratios in determining the liquidity of the contractor the rule of thumb is used to bull pork an allowable Bond program contractor's net worth uh contractor's Net Quick times a factor of 10 will approximate the program allowable by The shity Net Quick is Cash accounts receivable Plus cost in Access of Billings and estimated earnings minus all current liabilities okay definitely pay attention to that that information you could also find in the account book uh but once again they're mentioning it here so wherever you find it it doesn't really matter if they start asking you about the Net Quick either here or there uh the information is for is there for you there's an example um there here there if you want to take a look you can take a look of of an example of of a contractor's Net Quick you could also find uh other examples in the in the counting book all right what does a bond cost this was in my exam all but very very easy um rates charged by individual shies may vary from 1 to 5% of the contract price I had that exact question on my exam all right so the standard shy Association rate for a class B contract is as follows all right so there's a table here make sure you are familiar with this table okay also I want you to pay attention to something so uh when you look at the numbers here make sure that you realize that this is the rate per thousand so if they give you a question where you have to calculate uh the amount for a bond you are real you are doing it properly and you're multiplying by the proper number because this is per thousand all right so let's see small business Bond assistance let me see uh blah blah blah as government program maximum single bond amount is uh 6.5 million that may come up who know all right lots of really interesting super fun forms please feel free to peruse at your leisure really riveting stuff here okay me see anything else hit Bon examples of bid bomb forms other forms yikes so many forms more forms more forms more forms AIA documents let me see here anything else do we have anything in here all right I think that's it for chapter 4 like I said super fun stuff I know you had a blast of following me um as we went through this and highlighted it as always go back to this if you need to uh check the chapter out on your own if you need to pay pay a lot of attention to this chapter I'm I'm telling you I had a lot of questions from chapter 4 um about insurance and charity bonds you probably will too it's not really difficult and the good thing about chapter 4 is that it doesn't cover a lot of pages so if you do um if you do need to find information it's it's pretty compact you really shouldn't have much of an issue locating the the proper information to answer whatever questions that you need in any case once again I want to thank you for joining me on another video um thank you very much if you have any questions please feel free to ask or if you want to comment please feel free to do so as well I welcome all of that um yeah thank you for joining me and I'll I'll see you in the next video