Contractors in Hurricane Areas Will Seek Deadline Extensions
Contractors seeking extensions of project deadlines because of Harvey and Irma are likely to send out letters to owners over the next few weeks. The contractors’ challenges include getting access to jobsites and reconstituting crews whose homes may be lost and lives turned topsy-turvy.
Months more may be needed to learn the outcome of insurance claims made by the contractors and owners. J.P. Vogel, a partner at the law firm Gray Reed & McGraw, said, “Probably not until the next couple of months are you going to see this tally board on what’s being denied and what’s being granted” for a delay claim that seeks coverage under a builder’s risk policy.
E. Colette Nelson, chief advocacy officer of the American Subcontractors Association, agrees that any unresolved insurance issues may wind up dragging on as haggling with insurers continues.
Meanwhile, contractors and at-risk construction managers are likely to seek project extensions from owners. Vogel represents a company building a new plant in the Baytown area, near Houston, and the contractor has sent to the project owner a “force majeure” letter, invoking a clause in its contract that suspends the timetables and penalties on the project due to an unforeseen natural disaster.
But a contractor always wants to know how long the schedule time extension will be.
“The company’s response is that it expects a reasonable amount of time” for the contractor to finish up work, Vogel noted, adding, “But we [the owners] are not going to allow you [the contractors] to use it as an open-ended completion.” Still, the contractor did the right thing in sending the letter, Vogel said, adding that it is far better to have such discussions up front rather than a year down the line, when the project is months overdue.
Waiting too long to send the letter is risky. Some contractors will try to invoke the force majeure clause but will have no record of having done so earlier in the storm’s aftermath, making it harder to bargain, he said.
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Nor should anyone assume that a claim under a builder’s risk policy is an open-and-shut case. If flooding is the cause of the damage, the policy is likely to be less generous, notes insurer Chubb in a white paper posted to the web last year. In this case, there likely will be a higher deductible, and it may be pegged to a percentage of the property’s value.
By contrast, when the water damage is of the non-flooding type, the coverage is likely to go right up to the policy limit, according to Chubb. Also crucial is whether the damage is caused by a storm surge and whether that storm surge falls under the policy’s definition of a wind-driven event or flooding. How a builder’s risk policy defines flooding and how that definition matches up to the events that caused the damage is crucial, Chubb notes.
