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Solution To IPD Insurance Puzzle Found
March 3, 2011

Architects, engineers, project owners and others wishing to work collaboratively under a delivery method known as Integrated Project Delivery (IPD) may have a found a reason to rejoice.

The Zweig Letter has found a team constructing a hospital in Kentucky that says it has cracked the insurability quandary that prevents many from engaging in the collaborative approach because a lack of standard insurance products or legal precedent makes risk allocation tricky even though the method can increase project quality and reduce costs. Under IPD arrangements, project owners, architects, engineering teams and other participants sign a single contract to share both risk and reward, and protecting against risk has constituted the Achilles’ heel in the process.

The $385 million Owensboro Medical Health Center project in Owensboro, Ky., currently under construction, is utilizing a novel insurance coverage scheme that meets the aspirations of pure IPD that may put some of the fears to rest—a single-project insurance policy that covers the entire team.

“We brought in the experts from Ames & Gough, and they helped us craft the solution,” Patrick Duke, senior vice president with project manager KLMK Group, said in the Feb. 21st issue of The Zweig Letter, ZweigWhite’s weekly management journal. “We brought it to the team, and people were very happy that we were coming to the table with a solution.”

“One set of insurers is insuring all the parties to the project,” said Dan Knise, president and CEO of Ames & Gough, an A/E/P and environmental consulting industry-focused specialty insurance brokerage. In addition to the traditional OCIP (Owner-Controlled Insurance Program) for construction-related risks, the parties to the IPD agreement (the owner, architect, contractor, and the mechanical, electrical, and plumbing engineers), took the concept a step further and purchased a project-specific professional liability policy to help minimize the potential of cross litigation, Knise explained. The premium was considered a project cost by the owner and a project contingency fund buffers the insurance and pays for any deductibles or uncovered losses.

The solution accommodates U.S. insurance rules and doesn’t eliminate negligence standards, Knise said. Thus, the insurance policy will still respond if somebody is eventually negligent.

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