A Start-To-Finish Overview of Risks in Building Master Planned Communities

By Deborah Grooms and Ray Szczucki

Business Descriptor These exposures run a wide spectrum, First Things First Building a including property damage and destruction, construction material loss, The initial phase of a planned master planned equipment and vehicle damage and community generally begins with destruction, and various other perils, infrastructure development, including community including weather-related incidents, fre, sitework, grading and drainage, and the vandalism and theft. installation of underground utilities. Once the initial sitework is completed, of new homes Managing the development of raw land further development includes: into an expansive community of homes is a massive is an intensive process. A variety of • Building streets, sidewalks, curbs and diferent subcontractors are usually gutters undertaking called upon to perform an array of • Building entry gates and other paved, diferent tasks, and project developers landscaped surfaces and includes many and homebuilders must monitor and • Installing utility poles and street lights manage the infow and outfow of • Constructing storage areas for risks that can result construction trades to ensure proper equipment, supplies and fll/backfll sequencing of the construction activity. materials in the project Materials and equipment need to be properly secured, while debris and trash A crucial consideration in the project costing more than require regularly scheduled disposal development phase is the need to in designated locations. Construction- anticipate and mitigate the impact of budgeted related risk exposures must be severe weather in certain regions of continually assessed and communicated the country. It is not uncommon for an and taking longer to workers, inspectors, homeowners, extreme weather event to cause damage prospective homeowners and real estate during the land improvement phase. time to complete agents. For example, if an unexpected and prolonged rainstorm occurs while the than planned. Lack of attention to these exposures infrastructure is partially completed and can be costly to developers and in a vulnerable state, resulting rainwater homebuilders, impacting anticipated and runof may produce substantial proft margins. But there are steps that physical damage losses and delays in the can be taken to mitigate the breadth of project’s completion. risks inherent in developing a master planned community, from initial The larger the planned community, the construction through fnal completion. greater the risks, given the greater land area that may be susceptible to the impact of an adverse weather event. This highly exposed aspect of the early development process focusing on initial sitework often does not receive the same level of loss prevention attention as later phases.

Once the infrastructure development has been completed, model homes and sales centers are typically built for marketing purposes. These structures generally feature high-quality fnishes, furnishings and landscaping. Once these structures are in place, the building of homes commences.

2 Fires, Theft and Vandalism

Although weather risks remain a prime consideration, other loss exposures include fre, vandalism and theft.

With regard to theft, a wide range of high value items are on premises at the construction site throughout the community development. The theft of equipment and materials from construction sites in 2016 accounts for between $300 million and $1 billion in annual losses and other costs for homebuilders.1 It is not uncommon for thieves to drive a large truck onto the worksite during non-working hours to dollar losses. Some materials used in Every homebuilding project produces steal high value appliances, lumber, construction such as paints, varnishes a wide range of debris and other refuse tools and other expensive equipment and composite panels are highly requiring expedited removal; otherwise and materials. fammable, potentially increasing the there is a heightened risk of fre and Vandalism, such as tagging newly built intensity and duration of a fre. worker injury. Trash containers should be homes with grafti and setting fres situated throughout the construction area. Fires can ignite from diferent causes. A for amusement, is another risk that These locations should be far enough contractor doing so-called hot work like increases after substantial construction away from structures under construction welding, for instance, can inadvertently has been completed, exacerbating the to provide ample ingress and egress for create a source of ignition. The use of potential for property damage. Even construction workers and equipment. temporary heating devices situated during work hours, home development close to fammable materials can set Certain types of materials should be sites are at risk of vandalism, theft and these items on fre. Careless smoking by disposed in designated containers for fre, as these are typically open access construction personnel and visitors to recycling and inspection purposes. environments often in close proximity to the site is an additional risk. Some debris may be highly fammable, surrounding neighborhoods. requiring storage in freproof containers The biggest risk confronting at a farther distance from completed Storage and Debris Removal homebuilders is fre. According to the homes and those under construction. At April 2017 report from the National the end of each workday, all containers Other homebuilder considerations Fire Protection Association (NFPA), fre should be emptied into dumpsters along include the need to identify a safe and departments respond to an estimated the perimeter of the construction site for secure location for subcontractors to average 3,750 fres in structures under easy pickup and removal. store equipment and materials. A large construction in the United States each planned community of homes generally Lastly, it is incumbent upon contractors to year. Such fres resulted in $172 million provides ample space to accommodate ensure that all debris, scrap materials and in direct property damage per year from the storage needs of all contractors. trash are consistently and safely removed 2010-2014, NFPA estimated.2 With smaller developments, on a coordinated and scheduled basis. Model homes, clubhouses and homes homebuilders may need to designate Homebuilders should train contractors under construction can be partially specifc areas where each contractor is with regard to their expectations on debris damaged or destroyed entirely by provided an allotment of space. In all removal and hold them accountable for a fre. Contractors’ equipment and cases, storage sites should be situated in noncompliance. In cases of consistent construction materials face similar low-hazard areas with adequate security infractions, assessments for clean-up costs risks, resulting in potentially high and weather protection. should be considered.

3 To limit the risks heightened by use of inexperienced tradespeople, major developers and homebuilders should cultivate longstanding close relationships with a wide range of subcontractors. Quality Control To limit the risks heightened by use of inexperienced tradespeople, High quality construction depends major developers and homebuilders on high quality contractors and should cultivate longstanding close tradespeople. One of the more pressing relationships with a wide range of challenges in the homebuilding industry subcontractors. In cases where a is the shortage of experienced and relied-upon subcontractor is unavailable professional subcontractors. According for an upcoming project, project to the Bureau of Labor Statistics, superintendents should reach out to employers through the frst quarter of their peers for references. In such cases, 2018 were looking to fll an average of the superintendent should request nearly 225,000 construction jobs per documentation on the background and month.3 training levels of new subcontractors. It is highly advisable to observe these This labor shortage is so acute that 91 personnel at work on a current project percent of more than 2,700 contractors, before hiring. construction managers, builders and trade contractors report having a Once retained, new subcontractors difcult or moderately difcult time should be required to sign of on the fnding skilled workers. A major reason homebuilder’s site-specifc safety for such difculties is the impact of requirements. The objective is for the 2007-08 housing collapse on the the subcontractors to either meet or homebuilding industry. Out of work, exceed specifcations of the developer’s many skilled tradespeople found safety program. In some situations, employment elsewhere and continue training may be needed. Homebuilders to be employed in these jobs.4 The should provide this training prior to the good news is that employment levels commencement of work. are gradually returning to pre-fnancial crisis levels.

4 Close supervision of contractors is often adversely afecting the work of another These orderly approaches are crucial required to ensure they are not cutting contractor is minimized, decreasing to managing project housekeeping corners to conclude their tasks on time. the potential for damage to previously and construction waste. Prospective Inferior workmanship is a key risk that installed work. homebuyers and current homeowners often does not present itself until after will likely be visiting or occupying the the homeowner takes occupancy of the For example, if a drywall contractor planned community while homes are house. If the work is substandard and completes installation before the under construction. Untidy homesites involves multiple instances of repair, it window installers or roofers conclude increase the opportunity for injury to will result in additional cost and could their tasks, water during a rainstorm those onsite and may leave prospective even result in a potential buyback of may penetrate the unfnished exterior homebuyers with a poor impression of the home depending on the severity of walls or roof, damaging the drywall and construction quality. repairs and contractual requirements. other fnishes.

Lastly, homebuilders must ensure that Sequencing work tasks is efective in Risk Management Checklist each subcontractor is in compliance reducing the potential for other types with applicable state, city and of damage as well. For example, if water There are some additional steps municipal design and building codes systems in a building in a cold climate developers and homebuilders can take and specifcations. In this regard, a are charged before the heating system is to further reduce risks at homebuilding prudent approach might be to retain functioning and the building envelope sites. With regard to fre hazards, an independent consultant who can is complete, the pipes could freeze subcontractors performing hot work oversee and verify compliance. and rupture, resulting in substantial should be trained to conduct such tasks water damage. In addition to reducing in areas that are not close to fammable property damage exposures, managing materials, and/or follow an established Task Sequencing construction task sequencing and Hot Work Program. More than two- scheduling also limits the risk of costly thirds (67 percent) of Hot Work-related Pre-planned sequencing and scheduling construction delays. losses over the past 15 years were caused of subcontractor work assignments is by contractors.5 considered a key factor in limiting the Every homebuilder creates what it potential for property damage losses considers optimal sequencing and A good practice is to require contractors throughout all stages of building a scheduling of contractor tasks. The to apply for a Hot Work permit from master planned community. challenge is adhering to this program the homebuilder, and ensure they are and having backup plans in place familiar with local fre safety regulations For example, during the infrastructure if challenging weather and other and emergency procedures in the development phase, an incremental circumstances were to afect the event of a fre before authorizing the approach to installing the utilities limits workfow. permit. Lastly, homebuilders should the risk of loss to the exposed values. obtain certifcates of insurance from This practical approach further reduces The sequencing of tasks can also be all contractors, including those the exposed values in developing site of value in managing the storage of undertaking Hot Work operations, and grading for roadways, building pads, materials. Sequencing reduces the ensure the insurance certifcate includes sidewalks and parking lots. possibility that the materials of multiple limits of liability consistent with this subcontractors are concentrated in one work and associated hazards. Following the infrastructure area at the same time. This approach development, other subcontractor limits the possibility of a single major Homebuilders should post emergency activities should be progressively property loss occurring from the information throughout the worksite sequenced and scheduled. The goal damage or theft of materials. Managing with response protocol for the fre in all cases is to ensure the scheduling the scheduling process also reduces the department and other emergency of progressive contractor deadlines, possibility that materials like structural services. These notices should also which each construction trade agrees lumber are left out in the elements for instruct the nearest location of fre to comply with on a timely basis. By extended periods of time, increasing the protection and frst aid equipment. managing this process, the possibility potential for mold contamination. Training on the use of these devices of one contractor interrupting and

5 and their routine maintenance and To further reduce theft risks, locking There is value in inspection are also recommended. doors and windows should be installed prior to installing appliances and homebuilders While perimeter fencing reduces the fxtures and constructing expensive risks of theft and vandalism, it is often interior fnishes. Access to model recruiting considered overly expensive and homes and completed houses should be impractical at large construction sites. provided on a formal basis, requiring homeowners, In such cases, electronic monitoring and documentation and sign in. The project surveillance cameras can be efective superintendent should appoint someone neighbors and in reducing security threats. The use to inspect model homes and fnished of gates and barricades can further buildings at the end of each workday to others who visit limit the unauthorized access of people make sure the doors and windows are and vehicles onto the jobsite. Another securely locked and the alarm systems, proactive approach is to store high-value if functioning, have been activated. the worksite equipment and materials inside locked containers or buildings that are not close as temporary to roads, making it difcult for thieves to Conclusion locate, access, and transport the goods. lookouts. To manage the wide range of project There is value in homebuilders risks confronting the development of recruiting homeowners, neighbors a master planned community, home and others who visit the worksite as builders should consider a systematic temporary lookouts. Another suggestion approach in which these varied is to organize a homeowners’ association exposures are identifed, assessed, early in the development process, even mitigated and insured—from the if this group is composed of just a few planning stages of construction through people in the neighborhood. Members the sale of homes. Left unattended or can be trained on how to spot potential given insufcient consideration, these acts of vandalism, arson and theft, and risks can result in unanticipated costs be informed of whom to contact in the afecting the proftability of the venture. event of suspicious activities. To minimize this possibility, a specialist insurance company with extensive Coordination with local law enforcement experience in managing and insuring the early in the development process and risks of home building projects can be a regular communication throughout valuable partner, pinpointing potential the project cycle is equally important. trouble spots before they rear. Later in the development process, a more formalized neighborhood watch patrol can be organized to provide an additional layer of surveillance and security. About Chubb Endnotes

It is important for master planned 1 2016 Equipment Theft Report. National community developers and Equipment Register. homebuilders to partner with a specialized insurance carrier serving 2 National Fire Protections Association, all segments of the construction sector. “Fires in Structured Under Chubb has decades of builder’s risk Construction, Undergoing Major knowledge and expertise and provides Renovation, or Being Demolished.” April a comprehensive range of related 2017. insurance coverages. Chubb has 3 developed a team of highly experienced Current Employment Statistics construction underwriters and risk Summary. Highlights September 2018. engineers with a service-oriented US Bureau of Labor Statistics. approach to coordinating and handling 4 Commercial Construction Index. Q2 clients’ risks. They are ready and able 2018. US Chamber of Commerce. to assist homebuilders by conducting site inspections to assess fre, theft, 5 Chubb, “To The Point: Hot Work.” vandalism and weather-related risks, December 2016. as well as to suggest needed risk management controls.

7 About the Author

Deborah Grooms, CPCU, AMIM is a Senior Vice President, Major Accounts, Inland Marine. She is based in Atlanta and is the Chubb product line leader for Homebuilders.

Ray Szczucki, P.E., ARM is Account Engineer, Inland Marine. Based in Pennsylvania, Mr. Szczucki is responsible for engineering evaluations and construction risk management services for Builder’s risk and engineered risk accounts. He has extensive experience in this feld, having previously held a variety of engineering positions for both risk management companies and engineering frms. Mr. Szczucki earned a BS degree in Civil Engineering from Drexel University in Philadelphia, Pennsylvania and a MBA from Wilkes University in Wilkes-Barre, Pennsylvania.

Chubb is the world’ s largest publicly traded property and casualty insurance group. With operations in 54 countries, Chubb provides commercial and personal property and casualty insurance, personal accident and supplemental health insurance, reinsurance and life insurance to a diverse group of clients. Chubb Limited, the parent company of Chubb, is listed on the New York Stock Exchange (NYSE: CB) and is a component of the S&P 500 index. Chubb is the marketing name used to refer to subsidiaries of Chubb Limited providing insurance and related services. For a list of these subsidiaries, please visit our website at new.chubb.com. Insurance provided by ACE American Insurance Company and its U.S. based Chubb underwriting company afliates. The opinions and positions expressed in this report are the authors’ own and not those of Chubb. The information and/ or data provided herein is for informational purposes only and is not intended to provide legal or other expert advice. Operators and insureds are responsible for safety and risk control. Chubb is not responsible for ensuring the safety or risk control of any operation, and is not required to make any inspections of any operations, although it may exercise its right to do so from time to time under the terms and conditions of its insurance policies. Chubb hereby disclaims any obligation to oversee or monitor any facility ’s or insured’ s adherence to any guidance or practices set out in this document, or to any other required or otherwise reasonable safety and risk control practices. This document is advisory in nature and is ofered as a resource to be used together with your professional insurance advisors in maintaining a loss prevention program. It is an overview only, and is not intended as a substitute for consultation with your insurance broker, or for legal, engineering or other professional advice. ©Chubb 2019 All rights reserved. Form 04-01-0129 (Ed. 03/2019)