IMIA Working Group Paper WGP 87 (14) IMIA Conference Cannes-Mandelieu, France – 22 September 2014
Access Roads in Project Insurance
Working Group Members Chairman:
Matia Cazzaniga, Zürich Insurance Company
Contributors:
Andrea Belli, Swiss Re International Armin Mayer, Allianz Javier Rodríguez Gómez, AMIS Mexico Karl Christian Hertenberger, HDI-Gerling Mahmood Ahmed, Hamid Mukhtar & Co. Richard Gordon, Infrassure Sven Neumann, HDI-Gerling Wolfram Pazur , Allianz
IMIA EC Sponsor:
Volkan Babür, Mapfre
IMIA – WGP 87 (14)
Table of Contents Table of Contents ..................................................................................................................... 2 Executive Summary ................................................................................................................. 4 1.
2.
3.
Introduction ....................................................................................................................... 5 1.1
Access roads concept .................................................................................................. 6
1.2
Insurance clauses and risk management questionnaire ............................................... 7
Definition of access roads from an insurance perspective ............................................ 8 2.1
What is an access road – private and public routes/facilities ........................................ 8
2.2
From where to where access roads run........................................................................ 9
2.3
Access roads maintenance and responsibility .............................................................. 9
2.4
Insurance boundaries – Liability and Marine............................................................... 10
Access roads – Construction techniques ..................................................................... 11 3.1
Definition and purpose ............................................................................................... 11
3.2
Design and Planning .................................................................................................. 11
3.3 Construction Guidance ............................................................................................... 12 3.3.1 Road Drainage........................................................................................................ 12 3.3.2 Watercourse crossing ............................................................................................. 13 3.3.3 Cuts and embankments .......................................................................................... 15 3.4 4.
Maintenance and inspection ....................................................................................... 16
Risk assessment and risk management fundamentals ................................................ 17 4.1 Access roads exposure .............................................................................................. 17 4.1.1 Inherent causes of exposure ................................................................................... 17 4.1.2 Loss scenario overview........................................................................................... 18
5.
4.2
Risk assessment and underwriting best practice ........................................................ 19
4.3
Basic underwriting check list ...................................................................................... 20
4.4
Site survey recommendations for risk management ................................................... 20
4.5
Check list for onsite risk engineering surveys ............................................................. 20
Access roads coverage in project insurance policies .................................................. 22 5.1 Access roads coverage under CAR/EAR: Property Damage – Section I .................... 22 5.1.1 Access roads .......................................................................................................... 22 5.1.2 Temporary Access Roads (TARs)........................................................................... 23 5.1.3 TARs becoming permanent roads........................................................................... 24 5.1.4 Existing roads ......................................................................................................... 24 5.2
Access roads coverage under CAR/EAR: Removal of Debris (RoD) extension .......... 24
5.3
Contractors All Risks (CAR) versus Civil Engineering Completed Risks (CECR)........ 25 2
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5.4
Delay in Start Up (DSU) and Contingent Business Interruption (CBI) – Section III...... 25
5.5 Insurance Coverage for Temporary Access Roads (TARs) ........................................ 25 5.5.1 General Considerations .......................................................................................... 25 5.5.2 Limited cover of TARs (during construction only) .................................................... 26 5.5.3 Extended cover of TARs (construction and operation) ............................................ 26 5.6 6.
General remarks......................................................................................................... 27
Claims examples ............................................................................................................. 28 6.1
Hydropower project - access road damage (Flood/Landslide) - North Pakistan, 2010 28
6.2
Access roads to a wind farm project – Southern Europe, 2011................................... 29
6.3
Hydropower project - access road - Material Damage and DSU – Chile, 2008 ........... 30
Appendix I – Insurance Clauses ............................................................................................ 33 Appendix II – Risk Management Check List/Questionnaire................................................. 35
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Executive Summary For the purpose of this paper, access roads (both public and private) are temporary or permanent facilities affording access into and through a particular area, where accessibility is impaired or unmanageable using existing infrastructures. An access road is generally required for transporting construction materials and oversize loads to a construction site with no direct access from road networks – where roads either do not exist at all or are not fit for purpose. It can be designed for temporary service or for permanent access to perform ongoing maintenance activities. For the purpose of this paper engineering aspects, risk exposure features and insurance coverage extent, both in respect of guarantee/wording formulation and material damages/ consequential losses scenarios under project insurance in Engineering Lines of business, such as property damage and third party liability losses (PD under CAR and EAR) as well as delay in start-up (DSU) and advance loss of profits (ALoP) have been analysed. The framework has been created to: -
Provide a definition of access roads in project insurance;
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Exemplify access road construction techniques;
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Provide references for risk assessment and risk management;
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Analyse insurance coverage extent for access roads and suggest a specific clause(s) proposition, and
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Present actual claim and lessons-learned cases.
In line with the IMIA vision, the ultimate aim of this paper is to promote understanding and best practice in engineering insurance and raise awareness of technical features related to access roads. In addition it is to provide contractors, brokers and underwriters with a basic guidance on necessary information to be contained in the underwriting submissions, for example, to align all parties’ interests to ensure commonly acceptable solutions.
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1. Introduction Access roads for construction projects are a marginal part of the investment in projects but every growing economy must develop new infrastructure and access new territories to search out necessary resources (e.g. oil or gas fields, potential Hydro power facilities) and build transportation networks which historically has been shown to be one of the essential priorities to support healthy growth. Further to this preamble, which does not pretend to be exhaustive on emerging market dynamics, and considering positive forecasts for increased infrastructure spending in emerging markets over the next years, it is evident that the subject of access roads in project insurance should be carefully considered. Although access roads represent a minor part of the whole project, investment potential frequency issues due, to above-average exposure (resulting from a mix of cost-saving practice for temporary facilities, and inherent natural events, higher exposure in inhabited and nonurbanized areas) can result in serial losses typical of infrastructures designed with very low return period criteria (e.g. 3 to 5 years in respect of rainfalls and flood). Real life claims are detailed in section 6. The paper will also look at the key parameters in the life cycle of an access road, such as design, quality, locations, potential exposure (both natural and technical), life span, and long term requirements. There are many key considerations and queries from an insurance perspective: -
How should access roads be insured as part of a construction project?
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How can insurers identify temporary works necessary to works/project development?
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How can insurers properly assess exposure with limited information?
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Which limitations should be introduced for temporary works where design criteria do not meet normal standards for permanent works?
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Are there quality assurance and risk management measures available to mitigate exposure and/or assist in loss mitigation?
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Which adjustments to pricing models should be considered to counter access roads minor construction costs against above-average exposure?
This paper attempts to address the above questions and provide guidance to better assess the actual exposure of this specific component of construction projects. The paper also includes a clause proposition section with recommendations to provide all parties (insurers, policyholders and brokers) with a range of options to identify coverage extent and the relevant exposure under different policy conditions. Potential DSU exposure arising from access roads can also have huge implications in terms of quantum depending on material damages coverage extent. In this regard, access road information and their risk assessment must not be overlooked and contract certainty becomes central to any insurance consideration. Because of the wide variety of access roads (the paper does not consider other access facilities i.e. cableways, conveyor belts, etc.) and the enormous diversity of local conditions and weather damage vulnerability, the paper does not claim to illustrate all potential scenarios. An in-depth analysis supported by technical literature would be necessary for specific exposures/cases. 5
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1.1 Access roads concept As potential projects become more challenging so do the logistics of accessing the site. When we think of an access road, we have a perception of a simple narrow track. However, this is not always the case. During the development of this paper we came across some differences, for instance a temporary offline road to facilitate a bridge upgrade.
Hayle in Cornwall, UK (CEEQUAL website) Even more interesting is Linthal 2015 which is a unique Hydro Power Plant expansion project currently under construction in the Glarner Mountains (Switzerland), which will increase the existing plant’s power output of 1’000 MW, pumping water back to the mountain reservoir, which is 630 meters higher than the powerhouse outfall.
Linthal 2015 Project, Cable lift system mountain (L) and valley (R) stations (Zürich Insurance)
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As with most of the Hydro Power Plant projects in mountainous areas, accessibility to the construction site has been one of the main challenges for engineers. These access systems are not considered as ordinary “access roads” but in respect of their function they can be compared to an “aerial access road” to deliver goods where they have to be used for construction or to be assembled. This is a clear example of an unusual access facility as a critical part of the project both during its own construction and operation while the expansion project is being carried out. Unique and special solutions like this are not discussed in the access roads in the project insurance paper – and they could hardly be framed in any pricing scheme - but it is worthwhile to mention that an exhaustive analysis of any potential exposure should always be performed when underwriting large complex engineering projects. 1.2 Insurance clauses and risk management questionnaire In addition to specific “Temporary Access Roads” clause propositions (with reference to limited and extended coverage as illustrated in the paragraphs 5.5.2 and 5.5.3) the paper also includes an appendix section to support underwriters with some practical guidance on: -
The most common insurance clauses related to or having potential impacts on Temporary Access Roads coverage (Appendix I – Insurance Clauses), and
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Risk assessment and risk management – check list – for projects including Temporary Access Roads (Appendix II – Risk Management Check List for Site Survey).
These appendix are not meant to be exhaustive for all possible cases but they were thought to provide underwriters with basic insights on Temporary Access Roads risk assessment from both the technical and insurance perspective.
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2. Definition of access roads from an insurance perspective 2.1 What is an access road – private and public routes/facilities Whatever is being built, any type of machinery, construction materials, prefabricated parts and workers will always be transported on the construction site. Wherever it is located. Transportation is not only the first stage of each construction project but much more a key component of any on site activity. Therefore it is necessary to plan, design and build access roads from the nearest location which is accessible by public/existing transportation networks to the construction site as well as within the construction site itself. These access roads will become a critical part of logistic facilities to support daily activities at any construction site. Preparation of access roads is one of the first measures to be undertaken during the establishment of a construction site. Since access roads are temporary facilities with a limited lifespan, fast and economic construction methods are mostly preferred for their construction. Nevertheless they should be planned and executed to ensure safe and efficient movement of oversize/heavy load site traffic and have an adequate degree of reliability over the entire period of use. When access roads are part of large projects spreading over several kilometres, there is always the possibility that they will be used for other purposes at the end of the work, most likely by different stakeholders with no direct interests in the original project. Use of access roads after their end of use in respect of their design function (accessing construction site) may vary within a wide range of public (local/service road, hiking trail, walking path or cycle way) and private (maintenance or emergency routes) functions. This depends entirely on the characteristics of the access road itself and on its location. As a consequence, access roads may turn into public roads once they are not exclusively used for construction purposes. The same applies to access roads which are within the construction site and will later be reused for goods and passenger transportation. Redeployment opportunities for access roads are detailed in Section 5. From an insurance perspective it is important to distinguish between non-public “private roads” and public “open roads”. Generally non-public access roads can be insured for their replacement value (construction costs) or against a sub-limit on first loss basis. If expressly agreed, coverage for any unforeseen and sudden physical loss or damage from any cause covered under the project insurance policy is automatically extended to include access roads as part of the project. Maintenance costs during operations should remain excluded. For access roads which change in use from exclusive construction site traffic/operation to public open traffic roads, the cover should expire at the date when this change becomes effective at the latest. Public roads which are already used as access roads for construction site traffic/operation are usually excluded from construction insurance coverage. Possible damage or loss due to oversize/heavy load site traffic should be treated under liability insurance (both the contractor’s General Liability or the Liability section in a construction policy) or, if unavoidable and foreseeable, included in the construction cost budget for ancillary works and facilities. Other than access roads, construction or engineering facilities are also widely used to ensure that the necessary goods and workers could be safely transported/moved to, or within the construction site. Tunnels, bridges, tracks or cable cars are suitable but expensive solutions in difficult environments and, although the insurance policy can cover these facilities to the same 8
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extent as simple access roads, their inherent exposure must be adequately analysed and taken into consideration in the risk assessment and pricing process. 2.2 From where to where access roads run Access roads running through a construction site area do not need a specific limitation as insurance policy’s territorial restrictions with regard to the construction site already apply and, unless otherwise agreed, they are covered under the policy. For access roads necessary to reach the construction site or service the construction site the situation is different. At one end they are connected to the construction site access while their access is mainly from existing roads with low traffic density. In this case the portion of the access road, which can be insured under the project insurance policy, is the one which runs from the junction with the existing road network to the construction site.
Access road construction in a mountainous area (Zürich Insurance) Nevertheless access roads can reach lengths of up to or even exceeding 100km – e.g. to connect a secluded construction site for a hydroelectric power plant in remote uninhabited locations – becoming almost a separate project within the main project. For the sake of clarity and to avoid any dispute between the Insurer and the Insured in case of loss, it is of utmost importance to initially define in a precise and unequivocal manner the limit(s) between insured access roads and the existing (not insured) road network. 2.3 Access roads maintenance and responsibility As access roads significantly influence construction processes, time planning and organisation on construction sites they have to conform to minimum standards and requirements. In order to maintain minimum standards during the entire construction period or preferably during the actual service time of the access road, regularly programmed maintenance should be part of the risk management program for the project. The responsible party for a material loss to an access road is normally defined in the service contract between the principal/owner and the contractor. If the responsibility stays with the principal/owner, or access roads are part of a separate contract then the principal/owner self-retains any material loss occurring after the access roads 9
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completion (although the main project is still under construction) and this exposure has to be carefully assessed and mitigated with a proper maintenance program to grant full efficiency of each component and prevent, or at least mitigate the effects of natural hazards. Alternatively, access roads responsibility can be transferred or left with the contractor or subcontractors till the completion of the main project. This should be stated in the contractual agreement and disclosed to Insurer(s) to allow an effective risk assessment to deliver the most suitable insurance solution. If all parties involved in the project are covered under a Contractors’ All Risks policy, any consideration on access roads contractual responsibility is negligible. However, in cases where the risk concerning these works is transferred to other parties, then risk assessment – including maintenance – and insurance boundaries becomes critical to Insurer(s) [chapter 3 and 4]. 2.4 Insurance boundaries – Liability and Marine When it is necessary to use public roads to access a construction site and their responsibility is temporarily transferred to the principal or to the contractor, then all potential impacts on liability coverage should be carefully considered. Regardless of the value/sum insured of the roads the risk can be very high, such as when an unpaved gravel road is used for heavy transport. Adequate limitations (exclusion of cracks and settlements or dust damages) and appropriate deductibles should be fixed by the Insurer(s) with regard to material damages and physical losses. An endorsement to standard General Liability policies or Third Party Liability section of the Contractors’ All Risks policy could also be necessary to extend liability coverage to include environmental risks which are otherwise excluded [chapter 4.2.2.b]: -
Pollution from fine grain sediments;
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Pollution of nearby watercourses/groundwater aquifers;
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Dust pollution to surrounding areas and nearby cultivations and crops; and
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Damages to cables and pipes (possibly including consequential financial losses).
Besides liability insurance, there can also be cargo (marine) insurance aspects having some overlaps or influence on Contractors’ All Risks coverage in respect of access roads. Inland transit losses occurring during transportation between the storage areas and the construction site can actually be insured in Engineering Lines policies [Inland Transit]. If this additional coverage is in place, it is necessary to declare the insurance boundaries between cargo insurance (e.g. it expires with the first unloading of cargo on the construction site) and any other operation/movement within the construction site, eventually including transit on access roads.
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3. Access roads – Construction techniques 3.1 Definition and purpose Access roads are designed and built to serve a specific purpose and carry only limited access traffic. Either they are developed along a temporary alignment solely for use during construction or they are permanent facilities. Temporary roads focus the ground disturbance of equipment and vehicles along a certain path, so that erosion and sediment movement should be planned and mitigated for in accordance with all applicable permits and specific requirements. As construction costs are a critical element for temporary access roads and facilities, which will be obsolete and in some cases dismantled when the construction activities are completed, location and design are key factors in early stage planning operations. As well as concentrating the disturbance of the vegetation/surrounding environment, planning road location should consider erosion control issues and active aids to minimize disruption, plus future maintenance activities. Additional erosion control measures such as sloping, rolling dips, water bars, aggregate, level spreaders, water or chemicals for dust control, culverts, in conjunction with temporary roads, may also be appropriate and warranted given local conditions. 3.2 Design and Planning Ideally, temporary or permanent access roads should be located to minimize vegetation disturbance and avoid topographical challenges (which could require special works such as bridges or tunnels) while giving appropriate consideration to the intended purpose of the road and expected traffic load/size of loads. If proposed permanent transport corridors can be followed by an access road this would be the most convenient solution, but where the pathway must deviate from these routes the following issues should be considered. -
Unsealed roads to follow the land contour with gradients not exceeding 5%;
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Unsealed roads to be located away from overland flow paths (e.g. down the centre of a valley) where it could be difficult to control drainage;
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Unsealed roads to follow undulating pathways to allow rain water to leave road surface at regular intervals;
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Paths to avoid sustained grades where rain water cannot be systematically removed from the road and side drains;
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Paths to avoid sustained grades or any location with potential drainage control issues;
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Paths to minimize gullies and stream crossings, and locate any of these at locations with stable banks and beds;
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Paths to run above recurrent flood levels (e.g. on the top of the lowest flood plane bank);
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Paths to avoid crossing riparian zone of streams and flood areas next to streams/rivers;
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Paths to avoid areas with potential mass movement and prone to landslides;
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Paths to avoid crossing long, steep, unstable slopes, especially where the bedrock is heavily watered;
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Paths to avoid areas with poor geological conditions (loose, dispersive and unstable soil). 11
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Design criteria should always consider effective measures to minimize erosion impact but also satisfy requirements in terms of expected traffic load such as: -
Ensure that the entrance and roadway is wide enough for vehicles to pass safely;
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Provide adequate turning radius at all turns/entrances;
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Provide appropriate sealing of earth tracks depending on road section grade, traffic intensity and oversize or heavy loads.
Different types of road finishing by road grade are reported in the table below. These recommendations are a general guide only and appropriate consideration should always be given to actual subsoil conditions and expected loads (e.g. aggregate should be placed at sufficient depth to support heavy equipment and protect pipe culverts from crushing). Road Grade Less than 5%
5 to 10%
10 to 20%
More than 20%
Road Finish Compacted crushed rock Resin-impregnated for added wear Bitumen Hot-rolled bituminous surface over compacted sub-base Resin-impregnated soil Bitumen Asphaltic concrete over compacted sub-base Resin-impregnated soil Bitumen Mesh-reinforced concrete over compacted sub-base
Surface treatment - General Guide (Soil Conservation Service of NSW) 3.3 Construction Guidance Access road construction should incorporate the majority of ordinary road construction practices wherever practicable, although it is a matter of fact that access road standards – in particular for temporary facilities – cannot be at the same level as permanent public roads owing to budget constraints. On the other hand, road drainage facilities, watercourse crossings, cuts/slopes and embankments design and construction should comply with the best engineering practice in relation to local conditions. 3.3.1 Road Drainage Roads cross-fall can be of three main forms: outfall, in-fall or crowned (formed road). Crowned roads drain water from both sides and they are the most suitable solution for pathways running on a ridge or gentler slopes but small roads may not have enough width to make this profile practicable. Outfall drainage is directed away from the hillside and allows rain water to discharge from the road as sheet flow. The edge of the road has to be maintained free of any windrow which develops during construction, operational and maintenance to allow full operability. This solution would not fit roads with down-slope fill batters unconsolidated or exceeding 1,5m in height as well as dust roads subject to rutting which could redirect water down the road rather than across.
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Using in-fall drainage the road surface is the primary drainage path and rain water has to be removed from this surface as soon as practicable. The road cross-fall should be between 4 and 10% and in-fall or outfall cross banks should be constructed next to road shoulders to direct water off the road surface. Cross banks are trafficable sections shaped across the road to collect and divert runoff water and they consist of paved/concreted surface or prefabricated elements placed at certain intervals and forming part of the road surface.
Drainage In-fall road cross-fall
Drainage Out-fall road cross-fall
Finally diversion drains are the constructed drainage channels to collect water from the table drain and direct it to suitable areas. They can be V-shaped or flat bottomed with an adequate cross-sectional excavated area and spacing distance shall decrease with higher road grades. 3.3.2 Watercourse crossing When access road paths must go across a gully or a stream/river, crossings should be constructed at right angles to the stream and in sections where the stream channel is straight with well-defined banks. Non-eroding material (rocks and concrete slabs) or geotextile protections or prefabricated elements should be used to protect approaches to the crossing and stream banks. Crossings can basically consist of fords, culverts, bridges or log dams. Log dams are generally not recommended as they can obstruct stream flows creating turbulence and erosion but also local stream diversions or floods in case of overflow events. Fords and culverts are the most practicable solutions for minor or seasonal watercourses but they always have to be properly designed to have enough flow capacity and suitable shape/dimension to prevent debris blockage and overtopping during heavy rainfalls. As a general rule, the design of temporary culvert crossings should make reference to some basic guidance: -
Culverts elements aligned with downstream channel flow;
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Culverts elements should extend well beyond the fill embankment;
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Ripraps should protect the upstream face of the embankment to prevent fill material being washed away during high flows; 13
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Armour rock should be placed downstream to control erosion by potential overtopping flows;
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Overtopping spillway adjacent to the culvert to improve embankment protection in case of overflow (this would allow controlled overtopping).
(a)
(b)
(a) Fine aggregate to form the embankment can result in severe wash-outs if overtopped (b) Insufficient hydraulic capacity can lead to frequent overtopping and erosion If the stream has a deep channel cross-section, stream flow is continuous and sustained and the river bed is too wide to allow the construction of a culvert, then temporary bridge crossings are the only solution left. Temporary bridges can be basic structures formed by culvert bridging-slabs or steel elements suspended between anchored logs but also fully engineered bridges with concrete abutments and span easily exceeding 20 meters. Modular bridges are the most common solution for access roads as they are: -
Modular, robust and highly versatile;
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Quick, easy and simple to build (a mobile crane can be enough for assembly and skeleton structure placement);
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Easy to transport to site as single components can be delivered for assembly on site,
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Up to 100 meters clear span;
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In single or multiple lanes configuration;
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Quickly dismantled and redeployed after use.
Pontoon systems or floating bridges consisting of a number of spans with intermediate floating support units (they do not require piers) are also largely used as temporary facility to cross rivers or to access construction spots insulated in the river bed (foundation casting and pier construction). Nowadays there are several different types of modular bridges and they cover a wide range of loading conditions and spans. However, it is worth mentioning that they all derive from an innovative design by Donald Bailey which was developed and tested by the British Government during World War II and subsequently named the Bailey Bridge.
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Bailey bridge in Ecuador (http://www.steel-trussbridge.com) 3.3.3 Cuts and embankments Ground level roads are formed by slashing or blading the surface vegetation before laying the appropriate finishing material, but in most cases this is not possible because of local morphology which makes it impossible for the road to follow the land contour. In order to fulfil design requirements regarding maximum grades and minimum radius of curvature, slopes have to be remodelled resulting in large cuts or embankments. Although both cuts and embankments have similar purposes they present different challenges. Cuts may require excavation support systems or temporary earth retaining structures when slopes cannot be shaped with a gradient suitable to counterbalance soil weight downslope (forces causing instability) or the soil is made up of cohesionless sand or gravel. If structural support is not necessary, given soil conditions and the opportunity to slope excavation walls (no space constraints) all potential slope failure mechanisms shall be considered and also surface stabilization (vegetation, shotcrete, etc.) shall be designed to prevent erosion of the slopes. Soldier beams and lagging method is a technology often used for temporary facilities because of its flexibility and rapidity in construction.
Soldier piles or soldier beams are H-piling driven in the soil or set in predrilled holes around the periphery of an excavation.
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Lagging is the timber placed horizontally between the soldier piles to retain the soil behind the excavated area and each element can be installed behind the front flange to retain the soil as excavation proceeds.
Soldier beams and lagging method used for road retaining wall As opposed to cuts, embankments are built by compaction of aggregate layers to support the access road. In addition to structural support and/or slope measures illustrated for cuts it is important that reclaimed soil is properly compacted to reach enough bearing capacity to carry the load of expected traffic. 3.4 Maintenance and inspection Because of the nature of temporary access roads frequent maintenance and inspections are essential to ensure effective erosion control and road stability. A regular maintenance plan should always be in place for access roads and some exceptional precautions must be adopted in the dry season or before any exceptional meteorological event (storm, hurricane, severe winter conditions). The best designed and constructed temporary access road cannot hold up long if poorly maintained. In particular a drainage system which is not regularly inspected can also be more detrimental to the road and nearby properties than no drainage at all.
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4. Risk assessment and risk management fundamentals Subsequent to their construction, access roads are often subject to frequent and heavy duty usage, depending on the different cases, the project plans and the items to be transported. It is easy to understand how the construction and management of access roads can represent a crucial item for a smooth timely and successful completion of a project. This will necessarily have several important implications from the insurance point of view. Despite of this, little information is normally provided to underwriters on this subject. 4.1 Access roads exposure As it is easy to understand, it is often requested that access roads are included in the insurance cover within the CAR policy. The main concern with access roads is their provisional nature. This means less economic investment in the design and construction and commonly a lack of the upper impervious asphalt layers. Additionally the limited cost of construction is typically in contrast with the amount of the losses that this cover may give rise to [refer to chapters 5 and 6]. It should be stressed that construction of access roads normally takes a limited time, and a large part of the period of cover of the policy applies while such works are being completed and utilised. Therefore a further concern originates from the fact that CAR policies are mostly intended for ongoing construction works and not for operational covers. In the matter of insurance this should be dealt with in two stages of 1) underwriting prior to binding cover and 2) risk management while works are ongoing following cover inception. Both aspects are inter-related, in fact the prerequisites for a suitable risk management lie in good underwriting and an appropriate policy wording. Access roads, as previously defined, are typically non-public roads necessary for access to a construction site for the duration of a project [refer to chapter 2]. In some cases, where they do not serve for the life span of the project only, they may become part of the permanent works. 4.1.1 Inherent causes of exposure Exposure when covering access roads is related to several common features. Much of this can be attributed to the reduced investment in the design and construction owing to their temporary nature and that they do not often form part of the permanent works. The causes of potential issues can be summarised in the following categories: a)
Design and materials;
b) c)
Geology related issues; and Natural events.
a)
Design and materials:
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Basic design standards to minimize costs and construction time (early access to the construction site);
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Local technical offices entrusted with access roads design rather than the main works designer (less reliability and lower independent cross checking level); 17
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Lower level of quality control on works’ execution (temporary facilities);
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Simplified cross section of the road without the upper impermeable asphalt layer (missing element of defence against erosion and water damages);
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Basic or incomplete drainage system (potential lack in collecting and diverting runoff water);
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Road paths and alignment straight to the final destination across unsuitable areas (e.g. crossing of steep slopes at mid-height); Low quality materials which are likely to be the ones available locally irrespective of their characteristics.
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b)
Geology related issues:
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Missing or inadequate geologic investigations (anyway less thorough than for main works);
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Soil consolidations and preventative measures adjusted to the expected lifetime of the temporary facility (to avoid permanent heavy civil works).
c)
Natural events:
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Water damages to the road body in relation to design characteristics;
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Flooding due to unfavourable and exposed routes (in or next to river beds being the only flat easy accessible areas in hilly regions);
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Landslides due to excessive watering of slopes (heavy rainfalls or poor drainage) and unfavourable slopes’ cuts;
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Extreme weather conditions (avalanches, frost, thaw, dry climate, etc. as better described in IMIA WGP 078 (12) and 046 (06).
4.1.2 Loss scenario overview Material Damage exposures Design related issues and lack of thorough geologic investigation can be the cause of: -
Slope failures and slope stability problems (roads through mountain and hillsides, in trenches or embankments);
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Subsidence and cracking;
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Problems may deteriorate with rain and heavy equipment usage;
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Flood - this exposure is very much related to the execution of the appropriate drainage system;
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Cross or longitudinal slope insufficient to allow for an appropriate water discharge could also cause flooding;
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Landslides.
Erosion of exposed soil can be triggered following the alteration of the original natural conditions of a slope. Crossing bodies of water: -
Culvert crossings, temporary bridge crossings;
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Possibility of inappropriate choice of the granularity of the filling material around the culvert could determine washout of fine grain material, increasing water level upstream, potential flood;
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Potential cracking and failure of the crossing structure. 18
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Third Party Liability exposures (TPL) The construction of access roads can affect TPL in a significant way. There are multiple possibilities where this can arise. For example, pollution can be produced following the introduction of foreign materials to a site. This could be the case where fine grain sediments used for road construction and which are then washed away by the rain into nearby bodies of water. Dust pollution to surrounding areas and nearby cultivation and crops is also a common problem, particularly considering that access roads often lack the upper impervious bituminous layer. Damage to cables and pipes (possibly including consequential financial loss) are also possible. Finally, flood could be caused following the unintentional blocking of a creek/ river to alter the natural flow of water or because of debris/ detritus accumulating and blocking the drainage [refer also to chapter 3]. For further examples regarding losses to access roads, refer to chapter 6. 4.2 Risk assessment and underwriting best practice At the underwriting stage it is important to identify whether access roads are included in the project and if so, if it is requested to cover them. In this respect initial consideration should be given to the type of project and its location. Projects located in remote areas and projects having a significant linear development (pipeline projects, transmission lines, etc.) are likely to include these types of works. Countries not fully advanced may present a non-modernized/ developed roadway network and therefore projects may require significant construction of access roads and/or refurbishing of existing roads. In cases where it is requested to give cover to access roads, it should be clarified whether these are temporary roads or if they are intended to be part of the permanent works [refer to chapter 2 regarding types of access roads]. It is likely that a combination of the above could be included in the project. It is understood that should access roads be included in the policy, then ensure that the related value is included in the policy sum insured. It should be agreed at this point in the policy whether cover is provided to access roads with a limit on a first loss basis or if the proportional rule would apply. This would raise the awareness of the problem to the insured, enabling further information and details to be released to insurers. Unless other information is provided, it would be wise to assume a conservative approach that access roads are built without a final asphalt layer. Marine Transit covers Marine Transit policies are often associated to CAR policies and are normally provided based upon Feasibility Studies on Route Surveys. Nevertheless at the time of underwriting the Marine Transit policy, which is the beginning of a construction project, access roads may not yet be constructed. Therefore Marine Transit underwriters normally make sure they carry out appropriate route surveys prior to the shipping of critical equipment, in order to manage and mitigate the risk related to the cover they are providing. It could be worthwhile to coordinate with Marine Transit surveyors in order to gather important information regarding the conditions of access roads. 19
IMIA – WGP 87 (14)
4.3 Basic underwriting check list Guidance is set out below regarding the items to be checked at the underwriting stage when requested to cover access roads: -
Assess whether the project may require construction/ refurbishment of access roads;
-
Confirmation of the above is provided by the insured and cover is requested;
-
Confirmation of the extent of the access roads is provided in terms of length and value;
-
Confirmation of the type of access roads included in the scope of the project;
-
Confirmation that the relevant sum insured is included in the overall sum insured;
-
In case DSU cover is provided, it should be carefully checked if access roads are a critical aspect or whether alternate routes are potentially available.
Regarding the specific phase of underwriting, it should be ensured that the project insured (in this case access roads) are covered with the appropriate terms and conditions and insurers are remunerated with the appropriate level of premium in relation to the level of risk. With regard to the appropriate terms and conditions and the optimal insurance clauses, refer to chapter no. 5. 4.4 Site survey recommendations for risk management Summary checklist for risk management and risk engineering: a)
In order to make sure that underwriters or their representatives are allowed onsite for visits and inspections, it is important to have the appropriate clauses in the policy. An example of this could be as follows: - Access and Inspection [refer to Appendix II] - Risk Surveys [refer to Appendix II]
b)
Survey recommendations and risk management depend to a great extent on the type of cover provided.
A well worded policy with reasonable self-insurance elements and limits will provide important leverage to implement a good risk management. This will be made possible by raising the insured's awareness of the risk minimizing to their own economic advantage. 4.5 Check list for onsite risk engineering surveys During the Risk Engineering Survey of a construction project, it will normally be necessary to drive through access roads to reach the different site locations. Therefore it would be worth paying attention to their condition at that stage. It should be checked if access roads are designed with a final asphalt layer and if this is in compliance with the information provided at the time of underwriting the risk. It should also be verified if the asphalt layer is completed prior to the beginning of the bad weather season. This will prevent wash out in the case of heavy rain and reduce damage in case of flood. 20
IMIA – WGP 87 (14)
The same should apply regarding the drainage system. Additional checks may concern: -
The design for drainage carried out on the basis of a rain return period. Whether the drainage has an actual discharge outlet (often during temporary construction phases this may not be completed);
-
The crossing of unstable slopes. The angle of slopes should be checked;
-
Roads have a sufficient transversal and/or longitudinal slope allowing for adequate flow of water.
It is also important to raise the awareness of the insured regarding the policy terms and potential conditions/ warranties. The insured self-awareness of perils and policy limits could trigger virtuous behaviour for risk management and risk minimization. If a sections clause is present and applicable to access roads, the Insured should be notified. Similarly if a rain flood exclusion is present in the policy. With regard to cover to access roads, insurers usually distinguish between cover during construction and the following period of operation. It is common to find access roads in a policy cover granted only during the period of their construction.
21
IMIA – WGP 87 (14)
5. Access roads coverage in project insurance policies One of the most important aspects of insurance is the policy wording and the need for contract certainty. An insurance contract is a legally binding agreement and is the only one that the courts will recognize and enforce. Contract certainty is defined as the following: ‘Contract Certainty is achieved by the complete and final agreement of all the terms between the insured and insurer by the time that they enter into the contract, with contract documentation provided promptly thereafter’. Reference: Chartered Insurance Institute - Insurance Law P05 Study text There is a need for the Insurers and Insureds to be clear on the exact cover being asked for and provided and to ensure that there is no ambiguous wording or erroneous assumptions. For instance not all access roads are temporary ones and not all access roads are covered or excluded under the name of Temporary Access Roads (TARs). The difficulty we face as Underwriters is that often TARs are not considered a key criteria in the initial stages of a risk review. In addition, the information on such items is often not available or not provided by the insured. 5.1 Access roads coverage under CAR/EAR: Property Damage – Section I At the beginning of this paper we raised the following questions: -
Is it possible to insure objects that form part of complex projects if they are defined and named as temporary from the commencement of the project?
-
Does an insurable interest exist?
Naturally, it is important to differentiate between the various classifications and/or types of roads that form part of the insured project: a)
Access roads;
b)
Temporary access roads (TARs);
c)
TARs becoming permanent roads; and
d)
Existing roads / streets and highways.
This classification underlies a fundament of Engineering Lines underwriting for construction projects: different types of access roads or facilities must be consistently rated against their actual exposure and covered under limited or extended guarantees accordingly. 5.1.1 Access roads We define these as new access roads built specifically to construct and facilitate the execution of the project, they would then become part of the operational phase of the project. Once the project is completed and handed over to the principal / operator, this type of access road will be incorporated into the operational insurance cover for the assets owner. These kinds of access roads are insured always as a part of the project under the CAR Section I - Property Damage. 22
IMIA – WGP 87 (14)
This means that for these types of access roads, it should be possible to establish a declared value from the start of a project, through the construction and also into the operational phase, as they then become part of the insured property of the completed project in the operational phase. 5.1.2 Temporary Access Roads (TARs) These roads are really planned and constructed only to fulfil precise necessities in each of the phases of the project construction, but not in the operational phase after construction completion. They would be developed for use by personnel and construction plant to access specific locations of a project site. As the project develops, they will be phased out or removed or landscaped over. Once these temporary access roads are removed, they do not represent any further use for the project/ facility and as such have no value for the project owner and/or facility operator, although to construct them would have had a cost implication. We should keep in mind that a project could have only one possible path for access and this could be very dangerous and a very narrow one, adjacent to a steep slope or very close to a major river and elevated just above the flood level. There could also be known cases where bad ground conditions or geological problems are encountered during the construction of the TARs. This would give rise to increases in construction costs or the possible consideration of alternative options. A common problem with TAR construction is that they are usually not envisaged in the tender stage and do not have a specifically declared cost in the Bill of Quantities of a project. Quality is another issue with TARs. The level of detail afforded to them is usually nominal with respect to the quality of the construction to its cost benefit useful life / time of use. TARs are normally a non-surfaced/sealed road that will be in use only during a time (remember the construction of Hydroelectric Power Plants- or Nuclear Power Plants take years) and thereafter they will be abandoned. If they were to be surfaced, it may give rise to the issue if they are temporary or not. In addition, construction standards vary dramatically depending on the project, the location and the country. These varying potential standards depend on the principal / contractor, their experience and the individual experience of the staff. It’s most likely that if they are temporary, there probably is very little attention to compliance design standards, if they actually exist. Once the TAR is subject to use there may be possible deterioration, this poses the following questions: a)
What if it is not a paved or surfaced one?
b)
What if heavy vehicles transit on it?
c)
Is the road prepared for a rainy season or it is potentially to be used longer than envisaged?
d)
Is the road constructed on a dispersive soil?
e)
If heavy rains occur?
f)
If the project site is in a hurricane prone area?
g)
If the TARs has suffered not only one but more than one hurricane seasons?
h)
If the TARs is also in a region with strong seismic activity?
i)
If the maintenance quality cannot be ascertained and a damage occurs?
Can the insured damage somehow be precisely calculated whilst taking into account the wear and tear, weather deterioration, lack of maintenance, seismic damage or when one or more of these activities take place concurrently? This also needs to be considered for paved roads. 23
IMIA – WGP 87 (14)
Therefore, it is extremely difficult to assess the damage occurred. So the final question is potentially whether TARs are insurable or not. Those who want to insure them should decide how to define and insure them under the policy, i.e. if the TAR will be covered to the full declared value, first risk, limit, sublimit, per event, per year, per policy period. 5.1.3 TARs becoming permanent roads Although TARs are planned and constructed only for temporary use, experience has shown us that some of them become permanent after a period of time. This is fairly typical in countries such as Pakistan or Mexico, where the TARs become ‘public’ roads for the use of communities surrounding the project site. These roads are no longer temporary and no longer used only to get access to the project/ facility, there usually is no responsibility to maintain them. This raises the question as to what the state of them at any moment is and their respective value to declare them for insurance. Under these circumstances, who would have an insurable interest in them and who would inform the insurer of the condition and value of these roads? The problems mentioned in section 5.1.2, will be also present in these roads, but the lack of a declared value and ongoing maintenance will make the situation more difficult to assess the quantum in the case of insured peril causing damage. Consequently, to insure these roads is highly risky and less acceptable for the insurers and most of the claims will have a very strong component of maintenance cost that should be assessed and deducted from the incurred loss. It should be reiterated that no one generally grants cover for costs associated with maintenance and it is normally an exclusion in all engineering lines of business. 5.1.4 Existing roads In countries/regions and/or locations with a very high population density all over the world (such as Europe and big cities) it is very often the case that existing roads and highway/streets are used as access roads for the construction of subway / railways, urban infrastructure (highways, utility schemes, tunnels, airports) or even for industrial projects. These access roads typically can be treated for insurance as existing property and the insurable interest arising out of this property is not of the principal / main contractor and/or subcontractors of the project, except their liability after damage caused by them to the roads / streets due to the project construction activities. It means they are not included in the CAR coverage program, because they are not a part of the insured property. 5.2 Access roads coverage under CAR/EAR: Removal of Debris (RoD) extension Sometimes the problem of TARs does not end after their use, because due to ecological norms, these roads are “recycled” and physically removed to reinstate the existing landscape. There is a cost element associated with this and it should be ascertained if these costs would be covered by the insurance or not. These costs of “cleaning up” temporary roads may be included in the contract cost, but are they identifiable costs? As these cleaning up costs are not caused by an indemnifiable loss or damage event triggering coverage, they will not be indemnified. So cleaning costs of these temporary roads are not recoverable under the RoD extension.
24
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This situation is confirmed by the wording of the clauses covering the RoD and material due to dismantling and demolishing of insured property, because these clauses set forth as a triggering condition the occurrence of the event of a loss or damage covered. 5.3 Contractors All Risks (CAR) versus Civil Engineering Completed Risks (CECR) The access roads defined in 5.1.1 can be covered as usual under CAR during its construction and under CECR once they are finished and in use. The existing roads mentioned in 5.1.4 could have been already covered under CECR before the beginning and during the construction of the project, because they are in use and they normally could not be a part of the insured property under CAR during the construction of the project. As mentioned, the liability for the damages caused due to the construction can be covered under CAR, but not the existing roads. So the discussion for CECR insurance is necessary only for the TARs as defined under 5.1.3 which become definitive without having planned them like that, because those used only temporarily, like those discussed under 5.1.2 would not need to be insured under CECR, but only under CAR. 5.4 Delay in Start Up (DSU) and Contingent Business Interruption (CBI) – Section III Additional to the above mentioned issues is the potential ALoP/DSU exposure due to claims relating to any kind of access road, temporary or not. This is a very important and sensitive issue, because the loss potential in this regard due to a relatively small material damage to an access road, temporary or not, can be very large indeed. Cases are known in which the damage to a TAR did delay the construction of a dam or the transportation of the hydraulic turbines to the powerhouse for months or even years. Section 6 will discuss claims arising from damage to TAR. 5.5 Insurance Coverage for Temporary Access Roads (TARs) 5.5.1 General Considerations From the scenarios discussed in section 5.1 to 5.4 we make the following points: a)
Access roads as discussed under 5.1.1 are fully insurable under CAR Part 1 (Property Damage), because they are part of the project and of the operational property upon termination. This is the primary object of the CAR policy.
b)
TARs as discussed and defined under 5.1.2, irrespective of the characteristics to be fulfilled, if they are to be insured, would have a value and would represent an insurable interest for the principal / main contractor and/or subcontractors only while they are under construction.
c)
If they become a part of the premises in the operational phase or if they become definitive roads, they can be insured as discussed under 5.1.3.
d)
The existing streets / roads that are not a part of the insured project cannot be insured under the CAR policy for the project, except the liability arising out of damage to these existing properties due to the project activities.
25
IMIA – WGP 87 (14)
The review of this issue has shown at least two points of view on cover for TAR: -
One agrees with the cover for loss/damage to TAR only while they are under construction, and
-
The other is in favour of cover all roads/streets being a part of the project (including TAR) during the project duration, without making any differentiation between access and other kinds of roads/streets.
Therefore we propose the following two potential wordings to exclude and/or to cover TAR corresponding to these two points of view. 5.5.2 Limited cover of TARs (during construction only) It appears to be that the insurable interest, if any, of a “Temporary work” has also a short-term nature and it can be covered only while this interest exists without doubt or confusion. For this point of view, cover for TAR would be granted: -
if they are conceived as temporary,
-
while they are under construction,
-
if their construction is detailed and registered in the project log,
-
as long as they are not in use,
-
if they and their value can be identified and quantified in the Bill of Quantities of the insured project and,
-
if their length, path and value have been declared separately to the insurers.
A recommended market wording applicable for covering TARs only up to their completion is: TEMPORARY ACCESS ROADS (Limited cover) It is agreed and understood that otherwise subject to the terms, exclusions and conditions contained in the policy or endorsed thereon that this insurance shall irrespective of the periods of insurance specified in the policy indemnify the insured only for sudden and unforeseen accidental loss or damage to Temporary Access Roads being part of the insured project if they and their cost of construction are included and specified in the contract value declared for the insured project under this policy, but only if such loss or damage occurs prior to such roads being completed or taken into use for their purpose, whichever takes place first. Nevertheless, the maintenance cost of such roads / streets is excluded from the coverage of this policy. Loss and/or damage to private or public roads / streets is excluded. 5.5.3
Extended cover of TARs (construction and operation)
Based on a clause used in some markets to cover roads / streets built as part of the project, the following wording for such a clause may be considered. Nevertheless if this clause is to be used, it is necessary to pay attention to how the Construction / Erection policy wording grants cover for all the parts of the project, and to modify the policy wording as necessary, because most of them cover the parts only while they are under construction/erection and once these parts are completed and/or taken into operation the cover should be taken over under operational policies. It means, these terminated parts are excluded from the CAR/EAR policies if their wordings are not conveniently adjusted to cover the TARs after their completion. TEMPORARY ACCESS ROADS (Extended cover) It is agreed and understood that otherwise subject to the terms, exclusions and conditions contained in the policy or endorsed thereon that this insurance shall irrespective of the periods 26
IMIA – WGP 87 (14)
of insurance specified in the policy, indemnify the insured only for sudden, unforeseen and accidental damages or destruction of the roads / streets built within the project site as part of the project due to the insured perils covered by this policy, if the roads / streets and their value are included and specified in the declarations / values schedule of the policy. Nevertheless, the maintenance cost of such roads / streets is excluded of the coverage of this policy. Loss and/or damage to private or public roads / streets is excluded. 5.6 General remarks For both clauses it is necessary to keep in mind and also clear in the policy wording, the following points which are usually covered in the General Conditions of the policy. In the case of damage to TARs, the indemnity of the insurer for each damaged part of each of these roads will be based on the costs actually incurred to bring these damaged parts to the stage it had immediately prior to the occurrence of the damage, but only up to the sublimit specified for this coverage. If any of the damaged insured TAR was modified and/or constructed differently so that the actual cost to construct is higher than the declared value, then the indemnity will be based on the amount necessary to repair the damaged part of the TAR as if it has been constructed as declared or as it could be constructed with the declared value, subject to the application of deductible and coinsurance (additional insured retention common for NatCat as a percentage of the loss). In summary, the most practical way is to grant cover on a First Risk limit / sublimit per event basis. It is appropriate to use the appropriate deductibles for NatCat risks and also to use additional insured’s retention for these risks via coinsurance (% of the loss). For underwriting purposes the extremely sensitive ALoP/DSU exposure should be a key criteria in the underwriting review. The use of deductibles and coinsurance is also an important consideration in underwriting ALoP/DSU covers.
27
IMIA – WGP 87 (14)
6. Claims examples The majority of temporary access road losses occur in connection with severe bad weather and, in particular heavy rainfall. However a specific cause could be difficult to identify for a single event as many factors, typical of both attritional and large losses, could contribute to the same loss. Contrary to what happens for most construction projects, frequency losses tend to correspond to large loss scenarios for temporary access roads. Because of limited linear construction costs for temporary facilities and their consequently (very) low durability it is a matter of fact that local events (earthquakes, landslides, floods, etc.) can easily affect large parts of these facilities at one time, resulting in considerable monetary loss on a recurrent basis. For example, a poorly constructed temporary access road in an area with seasonal rainfall can suffer serious loss several times during the construction period – or even in the same rain season – in the event of heavy or sustained rainfall which is not necessarily exceptional for the location. Sometimes just minor precautions during construction and regular site inspections can prevent or limit exposure in the interest of both Insureds and Insurers. 6.1 Hydropower project - access road damage (Flood/Landslide) - North Pakistan, 2010 A 130 MW hydro power project is located in the north of Pakistan which has two main construction sites (the weir and the power house). The weir site is located at the Duber River whereas the power house site is located at the Indus River. There is a 12 km access road to the weir site from the main highway in rugged mountainous terrain. This access road during the project phase would continue as part of the operational phase.
WEIR/INTAKE SITE
HEADRACE TUNNEL (tunneling works direction)
POWER HOUSE
Project Layout and Morphology (Hamid Mukhtar & Co.) 28
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During the monsoon season of 2010 a catastrophic flood struck this region due to record breaking rains which caused swelling of the Duber River. As a result the upstream cofferdam was washed away, which played havoc with the ongoing construction work at the weir as well as the power house site. A massive land slide also occurred in this area.
Construction works at weir before (L) and after flood (R) with debris (Hamid Mukhtar & Co.) A significant portion of the access road to the weir site was washed away. The access road was made available after rehabilitation about 18 months after the occurrence due to the exceptionally rugged terrain and also that it was the employer's responsibility and not a part of contract.
Access roads after flood and landslides (Hamid Mukhtar & Co.) The cover was the standard Munich Re CAR insurance. The contractor claimed a sum equivalent to USD 30 million for the whole contract work including the access road. However the assessment of loss did not include the rehabilitation of access road as it was not a part of the contract. The weir site construction was delayed by about 2 years because of the inaccessibility and damage to construction works. There was no cover for Business Interruption which otherwise could have resulted in a high BI involvement. 6.2 Access roads to a wind farm project – Southern Europe, 2011 A wind farm development project in a mountainous area in Southern Europe included assembling operations for wind mills in impervious areas not served by public roads. Because of the wind turbine blades’ dimensions and manufacturing characteristics, oversize loads had been arranged to deliver these elements on site. 29
IMIA – WGP 87 (14)
Some temporary access roads were constructed for the purpose and minor rural roads had to be adapted to allow oversize loads to run through small villages and farming fields. In particular, dry stone walls were demolished during the wind farm construction and immediately restored in the original condition once the turbine blades had been delivered on site (the full cost to demolish and re-build these walls were part of the wind farm project itself).
Access road after rebuilding for new blades delivery (Charles Taylor Adjusting) During the testing phase a blade got irremediably damaged and had to be replaced. The only solution was to arrange another oversize transport load to remove the damaged blade and replace it with a new one. By then all the dry stone walls had already been rebuilt to restore original conditions so that it was necessary to demolish them again. As a consequence the contractor had to restore all temporary access facilities for the replacement of a single blade actually doubling the initial budget for access roads interventions and counting for a relevant part in the overall cost of the blade failure (loss). 6.3 Hydropower project - access road - Material Damage and DSU – Chile, 2008 An interesting claim involving the loss of access roads after a significant rain event on a construction of a hydro power scheme which was located in the remote vicinity of the Tinguiririca and Azufre Rivers, in Chile. 30
IMIA – WGP 87 (14)
The client had taken out a Construction All Risks policy with Delay in Start Up (DSU) cover. The DSU cover was for a substantial amount and included a 90 days deductible for this element. Part of the scope of works was to construct a total of 21km of permanent and construction access roads. Some of these permanent roads involved new bridges and strengthening works on the existing I-45 national road network in order to facilitate access to the new hydro power plant. These permanent roads were still to be used by the general public throughout the project duration, so in effect most of the existing I-45 highway networks were not part of the declared sum insured. It was deemed that the existing road was effectively under the control of the local authority during the construction period. The construction access roads located in the confines of the project were to remain for the sole use of the project and the client. Significant rainfall occurred in May 2008 over a 4 day period and in combination with quite high snow melt on the rivers resulted in a flood event with a return period of 60 to 70 years. Such was the force of the flood event that it resulted in devastation to a significant portion of the existing I-45 road. A picture below shows that the road was totally unusable, preventing the main contractor from accessing the project works and would need significant repairs to return them to their previous condition. The policy conditions included endorsement MRe 110 stipulating a 1 in 20 year return period, and therefore the loss could not be excluded on this basis.
Access road section next to river bed washed away by flood (Infrassure Ltd.) The contractor notified of a claim to some plant and equipment along with a possible 5 month delay to project completion following the event. This was because they were indicating that it could trigger the DSU coverage as the 90 day deductible would be eroded. This was because they possibly would have to wait for the highway authority to repair the existing road and there was no known timescale for this. After the initial loss adjusters report, indications were that the claim could result in a claim of many millions because of the triggering of the DSU policy. From some insurer’s perspective, a point of significant interest was that most of the damage occurred to parts of I-45 road under the control of the highway authorities and in locations away from where the contractor was constructing new bridges or modifications. As such, this damage occurred to property that was not insured and therefore not covered under the policy. A period of significant deliberation ensued on the claim with regards to potential policy coverage. 31
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The claim, although of a sensitive nature, was settled, with the end solution being that the main contractor carried out the repairs to the main highway to mitigate a possible claim against the DSU policy. However, without dwelling on the claim event and associated politics much further, the key lessons to take forward for Underwriters to consider on future policies: -
Consider the location of the project and the exact scope of works when reviewing during the preparation of the underwriting case;
-
Be clear on the property insured/boundaries of the project site and whether it is part of the declared Sum insured. Is it clearly defined in the policy wording?
-
For policies with Delay in Start Up cover, further review the potential consequences of denial of access and the value of the DSU requested;
-
Discuss up front during negotiations with the insured their mitigation plans in the case of such an event.
32
IMIA – WGP 87 (14)
Appendix I – Insurance Clauses Access and inspection (Swiss Re EPI Wording) Representatives of the Insurers shall, at any reasonable time, have the right examine all or any part of the Property Insured or the Construction Site in performance of the Contract. In addition, the representatives shall be provided with such information pertaining to the risks insured by this Policy as may requested.
to inspect and relation to the by the Insured be reasonably
Risk Surveys Insured shall fully cooperate with the Insurers and their appointed surveyors in the development and implementation of a risk survey plan. The Insured shall review the recommendations made by the Insurer or their appointed surveyor and advise on implementation of such recommendations. Time Schedule Clause (MRe Endorsement 005) To be possibly inserted in relation to earthworks, culverts, drainages and asphalt/sailing layer to be carried out/laid prior to rainy season. It is agreed and understood that otherwise subject to the terms, exclusions, provisions and conditions contained in the Policy or endorsed thereon, the following shall apply to this insurance: The construction and/or erection time schedule together with any other statements made in writing by the Insured for the purpose of obtaining cover under the Policy as well as technical information forwarded to the Insurers shall be deemed to be incorporated herein. The Insurers shall not indemnify the Insured in respect of loss or damage caused by or arising out of or aggravated by deviations from the construction and/or erection time schedule exceeding the number of weeks stated below unless the Insurers had agreed in writing to such a deviation before the loss occurred. Cover for insured contract works taken over or put into service (MRe Endorsement 116) It is agreed and understood that otherwise subject to the terms, exclusions, provisions and conditions contained in the Policy or endorsed thereon and subject to the Insured having paid the agreed extra premium, the insurance shall be extended to cover loss of or damage to parts of the insured contract works taken over or put into service if such loss or damage emanates from the construction of the items insured under Section 1 and happens during the period of cover. Temporary Access Roads – I (Cologne Re Endorsement 046) It is agreed and understood that otherwise subject to the terms, exclusions, provisions and conditions contained in the Policy or endorsed thereon that this insurance shall irrespective of the periods of insurance specified in the Policy indemnify the Insured only for unforeseen accidental damage to temporary access roads insured under the Policy if such loss or damage occurs prior to such roads being completed or taken into use for their purpose by the contractors, whichever takes place. Temporary Access Roads – II Irrespective of the periods of insurance specified in the policy, the insurer will indemnify the insured only for loss of or damage to temporary access roads insured under the policy if such 33
IMIA – WGP 87 (14)
loss or damage occurs prior to such roads being completed or taken into use for their purpose by the contractors, whichever takes place first. Removal of debris Manuscript wordings sometimes include tailor-made Removal of Debris clauses with potential implications on losses or preventative actions to protect undamaged insured properties which can also be relevant to Temporary Access Roads or any other sort of temporary facility. a) Removal of Debris In the event of damage insured by this Policy, the insurer will pay the following reasonable costs and expenses necessarily incurred by the Insured as a result of such damage: 1)
Removal and/or disposal of debris, detritus and material foreign to or emanating from the project site or property insured, including liquids, gases or vapours
2)
Dismantling and/or demolishing of property insured including temporary storage of such dismantled or demolished property
3)
Supporting, shoring up, propping, underpinning, protecting and/or otherwise maintaining the property insured whether damaged or not
4)
Repairing or cleaning drains, sewers, service mains and the like and/or dewatering
5)
Provision and maintenance of lights, audible warning, barriers, hoarding, and the like
6)
Regaining access to original working conditions
b) Debris Removal In the event of damage covered by this insurance the Insurers shall also be liable for the following with any limits applying per individual contract and in addition to the Sum insured unless otherwise stated. Costs and expenses incurred by the insured in: a) Removal and disposal of debris and material, b) Dismantling and demolishing of any part of the insured property, c) Shoring up, propping and protecting insured property, d) Clearing or repairing drains or service mains when such is compulsory by law or ordinance or when the Insured deems it necessary for the practicability of operations and for the protection of undamaged insured property, e) Dewatering the works, and f)
Removal of wreck or wreckage when such removal is compulsory by law or ordinance or when the Insured agrees that it is necessary for the practicability of operations, in any circumstances giving rise to a claim under this policy.
In addition, insurers will indemnify the insured in respect of the cost of removing and disposing of debris from the site or access thereto or in transit thereto including cleaning up costs following the action of a cause hereby insured against. The Insurers will not indemnify the Insured in respect of costs incurred for removal of debris in excess of the cost of the original excavation or preparation of the site.
34
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Appendix II – Risk Management Check List/Questionnaire 1. ACCESS ROAD SPECIFIC RISK INFORMATION a)
Name of Risk Insured and geographical location
b)
Name of (sub)contractor and designer for Access Roads (if any)
c)
Project completion date and status on date of inspection
d)
Location exposures to Access Roads (e.g. plain, mountainous, plateau, swamp)
e)
Number/extension [km] of Access Roads part of the main project
f)
Access Roads Sum Insured and % component ref to Project lump Sum Insured
2. PROJECT PLANNING & DESIGN a)
b)
Is the access road being built on/or part of any route of permanent transport corridor OR is temporarily provided for the construction period?
□ Permanent
Type of access road cross sections:
□ Underpasses
□ Temporary □ Ground Level □ Overpasses
c)
Are main civil works necessary for Access Roads construction:
□ Bridges □ Retaining walls □ Tunnels □ Others
d)
Drainage & Erosion protection Are there any drainage control issues envisaged due to: - Centre of valley, long sustained grades may create water removal issues: - Steep gradient which may lead to excessive erosion of the surface:
□ Yes □ No
Is the road sloping towards good drainage?
□ Yes □ No
For the purpose of erosion protection, does the design provide for: - Undulating path way to allow water to leave the road at regular intervals - Minimize water course crossings - Rolling dips, water bars, aggregate, water for dust control, culverts etc.
□ Yes □ No □ Yes □ No
□ Yes □ No
□ Yes □ No 35
IMIA – WGP 87 (14)
e)
Are soil tests/advices obtained before final design? Is the surface treatment (sealing) adequately designed to avoid erosion?
f)
Does the design include return period calculations and is the contractor aware of its implications on policy liability in case limitation/warranties?
□ Yes □ No □ Yes □ No □ Yes □ No
3. RISK MANAGEMENT DURING CONSTRUCTION, MAINTENANCE AND OPERATION a)
Drainage and soil erosion Is there an inspection regime/SOP being followed during use of the temporary road as per contract specifications for the purpose of erosion control?
□ Yes □ No
Are culverts and fill deposited within flood plain areas removed when no longer required?
□ Yes □ No
Is accumulated sediment and other debris removed and disposed of properly?
□ Yes □ No
If rolling dip(s) is used, is a proper structure provided to receive the flow and control erosion at the outlet of the rolling dip?
□ Yes □ No
On the basis of above, rate drainage facilities as:
b)
Operation and maintenance Are loads restricted to designed loads of culverts, berm or temporary support? Are sufficient signs in place? During road construction, are the following practices being incorporated: - Does the construction SOPs include the instruction that, where necessary, swampy or unstable ground should be reinforced with synthetic earth reinforcement mesh to allow construction of the track to progress and to reduce the risk of bogging heavy equipment (becoming stuck)? - Is Grubbing (digging) in fine-grained soil avoided during wet weather as a practice? - What maintenance is planned? Will it be done during silent hours?
c)
□ Satisfactory □ Need review
□ Yes □ No
□ Yes □ No □ Yes □ No □ Yes □ No
Safety measures Is there a proper ERP in place in case of a chemical or hazardous liquid or material spillage for all kinds of hazardous materials to be transported during the construction activity?
□ Yes □ No
Are the embankments on a major crossing protected with suitable abutments e.g. concrete, timber, logs or rocks?
□ Yes □ No 36
IMIA – WGP 87 (14)
Is the temporary access likely to obstruct movement of traffic flow of emergency services ? What plans are in place to minimize this?
□ Yes □ No
Are measures in place to facilitate the movement of emergency vehicles through security check points? (Checkpoints could delay critical actions)
□ Yes □ No
Is there restricted access to users other than project related personnel?
□ Yes □ No
Is there a sprinkling system for dust control if access road is unpaved?
□ Yes □ No
Does the temporary access road maintenance procedure ensure: - Continuously put in place an SOP for keeping the water course clear of debris, loose vegetation etc. to avoid blockages - Use of herbicides wherever practical instead of using graders to maintain road side vegetation (To avoid damaging the natural topography) - Adequately trained grader operators
d)
□ Yes □ No □ Yes □ No □ Yes □ No
Have safety precautions been taken with regard to rainfall, flood and inundation with regard to design return period?
□ Yes □ No
Other risk management issues: There will be a need to check access roads to ensure that bridges, underground pipes/cables are adequate for heavy loads and the bridges over the access road have adequate clearance for high loads passing underneath them. It is often the case that high loads have a vehicle in front of them with a pole attached to measure height. Is this procedure being followed (if required)?
□ Yes □ No
In areas where military conflict has taken place access roads will need to be checked and rechecked for the presence of UXO (unexploded ordnance). Even after checking UXO can migrate over time into roadways. Is this procedure being followed (if required)?
□ Yes □ No
If the access road is put into service, is the cover still available?
□ Yes □ No
Discussion on Munich Re Endorsement 116 at the time of risk survey to see what impact would be on the temporary access road if cover is continued after its being put into service.
4. DISMANTLING AND RESTORATION a)
Does the contract require the temporary road to be dismantled at the end of the project construction?
□ Yes □ No
b)
Is the dismantling procedure properly laid down including restoration of original habitat and the activity cost included in the sum insured?
□ Yes □ No 37
