How to Insure Contractor's Equipment to Adequate Value
Actual Cash Value (ACV)
The standard Contractors' Equipment form contains an actual cash value (ACV) clause subject to an 80% coinsurance clause. In the case of Contractor's Equipment, actual cash value and market value are nearly identical unless the item was purchased in the last 5 years. If the item was purchased in the past 5 years you will want it insured at Replacement Cost. Replacement cost does not take into consideration the full depreciation of the equipment since it is still relatively 'new'. A key consideration in determining the value of a piece of equipment is the extent of depreciation.
Depreciation is determined by usage and the condition of equipment (functional depreciation). This is clearly not an exact science, but generally maintenance logs can be utilized to fairly adjust a claim or determine the best insurance to value the equipment is at the time insurance is purchased. Some equipment which is frequently used and not maintained properly can be fully depreciated in a relatively short period of time. If the risk is inspected by the insurance carrier's loss control personnel, the engineer's comments on the condition and maintenance of equipment should be considered when reviewing submitted values. Further investigation is warranted when the condition of equipment is questionable.
The possibility of moral hazard should be considered when equipment is in poor condition and full market value Is requested. This is a red flag that the equipment may be 'stolen' or theft may be something to exclude on the policy. In addition to the question of moral hazard, consider the possibility of not providing coverage on any operation where there is not proper maintenance. Fire with some Contractors Equipment is a very real concern.
Caution must be used not to accept tax depreciated values for insurance purposes as the Internal Revenue Service allows an accelerated rate of depreciation which has no relationship to actual cash value and/or market value.
Coinsurance and Pricing
Despite the use of a standard 80% coinsurance clause pricing should contemplate limits of insurance equivalent to 100% insurance to value. When administered correctly, this allows a cushion against inflation and protects the insured from becoming a co-insurer. In the marketplace, many Companies use a 100% coinsurance clause as opposed to an 80% coinsurance clause to prevent the insured from being a co-insurer.
Sources of Valuation
While determination of actual cash value is to a great degree based on local economic conditions, upkeep of the equipment, and supply and demand for particular items are things to consider when valuing equipment. There are a number of sources available to provide a reliable "ball park" estimate of proper values.
The best local source is an established equipment dealer. When provided with make, model, year of manufacture, serial numbers and optional extras the dealer can provide a reasonable estimate of value. Many dealers are willing to help in the valuation and are frequently consulted in the settlement of claims. Look online for a contact of a local dealership that might be able to help you.
The internet is also a good source, but sometimes dealers are reluctant to put pricing online or the price online is much lower than what the ACV or Market Value is. Be careful when valuing the equipment as the age, make and model to make a difference. The insurance carrier will only pay what the equipment is worth at the time of loss. If the equipment was not insured to the correct value the burden will be on the insured or their broker/agent, not the Carrier at the time of loss. A Carrier will look to indemnify it's insured (make whole) not pay over an above for something that was not fully insured to value.
Crane Attachments and Insurance to Value
Crane Attachments: For economic reasons a contractor must have equipment adaptable to different operating conditions. Equipment that can perform various functions reduces down-time and increases productivity. Many cranes, in addition to varying boom lengths, are designed to accept various attachments including:
1. Shovel fronts - used for mass earth or rock excavation at or slightly below the level on which the chassis rests.
2. Backhoe - used for excavation below the level of the chassis.
3. Clam Shell Bucket - Attachment to boom used for excavating in vertically confined spaces such as trenches or shafts.
4. Drag-line - used for excavation of material some distance away from the crane.
5. Pile Driver Leads - Suspended from the boom used for digging piles into the ground. Pile driving operations are especially tough on cranes due to the constant wear on cables and blocks, and the continual vibration to the boom.
6. Wrecking Ball - Attached to the cable and used in demolition activities. Demolition operations are particularly tough on cranes due to the side casting of the ball. The most severe exposures are upset, overturn, collapse of boom, and being hit with debris.
These attachments must be included in the policy schedule if coverage is to apply.
Cranes - Special Consideration for Insurance to Value (ITV)
Among the largest items of contractors equipment are cranes. Despite their size and weight, they are very sophisticated and highly susceptible to severe loss or damage. It is important to develop specific Information relative to the crane(s), experience of the operator(s), and operations conducted.
Types Of Cranes and Crane Equipment:
Crawler Type: Self-propelled on crawler tracks, commonly used in ''off road'' situations involving rough, unstable terrain in the construction of bridges, dams, and in quarrying operations. Common causes of loss are upset, overturn, landslide, and flood.
Truck Mounted: The crane is mounted on a specialized carrier (chassis) and is generally used for jobs of short duration with better access and soil conditions than crawlers. Outriggers are extended at the job site to provide stability. Given the mobility of this type crane over-the-road exposures such as vehicle collision or striking overpasses are greatly increased and are a frequent cause of loss.
Tower Cranes: Generally used in building construction, and is sometimes referred to as a climbing crane. It consists of a steel tower with the horizontal boom, operating station, and counterweight being connected to the turntable at the top. It usually attaches to the building with "collars".
For the Tower Crane, it is usually raised as construction progresses to at least 2 stories above the highest point of construction. In some cases, the crane could be at full height at the beginning of the project. Once in place a large tower crane can operate at a radius of over 2 city blocks.
Boom damage, fire, collapse of the building, lightning, overload and wind are frequent causes of loss. Daily checks of local weather conditions, proper grounding, and written contingency plans for securing the crane are necessary to reduce the chances of damage due to high winds and lightning.
Overhead Cranes: Generally found at fixed sites such as ports, shipyards, power plants, and heavy manufacturing operations. These travel along fixed overhead rails with the operator stationed in the upper portion.
Booms/Jibs: In addition to the exposures discussed above, all cranes are exposed to loss or damage to booms and jibs.
As taller, more complex structures are designed, the need for cranes with larger lifting capabilities and longer booms has grown. It is not uncommon to see cranes valued over $1,000,000 and booms over 300 feet in length.
Boom lengths on large cranes are changed by varying the number of intermediate sections and/or adding jib booms to the tip of the main crane boom. The ability to adjust the length of the boom gives the contractor greater ability to perform the various functions required for different jobs.
The lifting capacity of a crane is a function of the weight and stability of the base, the angle at which the boom is positioned, and the structural integrity of its components. The margin of error is slim; for instance, lifting capacity at a 45 degree boom angle could be as little as 10% of the maximum rated capacity. In fact, some cranes cannot even raise their boom from Its assembly position on the ground without assistance (usually from smaller cranes).
Underwriting Crane Exposures
Boom Damage: Booms may buckle or collapse for a variety of reasons. The most prevalent occurrence involves operator error. For instance, booms raised at too great an angle may whip backwards and collapse on top of the too great an angle could also cause boom damage of this type. Other frequent causes of boom damage include overloading, weakening structural members resulting from alterations and repairs made by unqualified personnel, repeated shocks from striking other objects, and improper placement of the crane near structures or power lines.
Operator Error: The single most important consideration in the safe operation of a crane is the human factor. The training and experience of the operator is a key underwriting concern which must be addressed. While the job supervisor or foreman has control over the job site, the operator should have the primary responsibility for the crane. Coordination of activities between the contractor, foreman, and operator as to the placement of the crane, maintenance, site communication, transportation and other safety matters help reduce the possibility of loss or damage.
Soil Collapse: The crane should be placed so it can safely reach the work area yet must be located in an area where soil conditions can sufficiently support the crane and be away from inadequately or unshored excavations and power lines.
Weight of Load: A major concern of crane operators is the exact weight of the item being lifted. Often the operator relies on the owner of the property and/or the Bill of Lading. Unfortunately, this information can be inaccurate, causing severe damage. Various types of devices can assist the operator. These include load, boom angle, radius, and for boom length indicating systems. The devices are connected to the crane and provide display read-outs in the cab, however, these systems are not currently standard equipment on most equipment. The various systems are either mechanical, hydraulic, electronic, or computer based and must be properly calibrated to perform accurately. The devices have not gained full acceptance by crane manufacturers and regulatory bodies since over time they can lose their precision due to frequent dismantling of the crane, constant stops and starts of the boom, and incorrect input of data.
Crane Maintenance: Proper maintenance procedures dictate daily inspection of structural members of the boom, proper lubrication of movable parts, monthly inspection of cables, and written logs of maintenance performed.
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