LinkedIn Discussion of The Week: Practice Tip for Construction: Insuring the Non-Conforming Materials, Equipment and Work

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Continuing our LinkedIn discussion of the week trend, this week’s chosen discussion was from the International Risk Management Institute (IRMI) group. The discussion is Practice Tip for Construction: Insuring the Non-Conforming Materials, Equipment, and Work started by Kevin Connolly.

Practice Tip for Construction

Mistakes happen. Construction projects, thanks to their complexity, offer many occasions for mistakes. These mistakes sometimes have unintended consequences. Consider this thought experiment:

A project is drawing toward substantial completion when the parties realize an oversight was made with respect to certain exotic materials, say, Botticino marble, and the quarry has instead shipped Crema de Marfil limestone instead. It’s the wrong stuff. Cosmetically similar, the limestone is certainly non-conforming to the construction contract, and the risk of loss does not shift to the Owner, whose insurable interest is accordingly attenuated.

(Owner still has the “special property” conferred under the Uniform Commercial Code for any “goods identified to the contract.”) In other words, if the limestone is destroyed on the quay while being inspected by the architect/owner/contractor, there may be a question about whether the builders risk policy covers the loss, because it never became “Your” property.

As a practical matter, of course, you’re going to install the limestone. Botticino marble has an 18-month-plus lead time and the pavers are obviously on the critical path to the hard opening next month.

Maybe, just maybe, the construction contract should provide that the purchaser/owner/contractor will insure non-conforming goods pending a decision whether to use the material or equipment in spite of its nonconformity. That way you can perhaps prevent a coverage dispute over the substantially-but-not-perfectly-done situations we see so often in construction.

Join us to discuss over on LinkedIn and share with us your comments and favorite discussion for the week!