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September 5, 2013
An engineering firm needed semi-permanent employee housing for a long-term project in a remote part of Alaska, known for extreme weather conditions. They hired a general contractor (GC) to do the job who was familiar with the working environment in rural Alaska.
The GC, a client of Parker Smith & Feek, found a manufacturer in the southeastern United States, which produced reinforced modular structures strong enough to withstand hurricane-force winds. The structures needed to be transported to Alaska.
Due to the large size of the project, the manufacturer needed to use a combination of marine and non-marine (land) transport logistics. The GC was unfamiliar with marine cargo insurance and the importance of a seamless transition of coverage from marine to non-marine cargo transport.
The transport plan involved numerous transfers by several logistic providers. The cargo was to be loaded onto trucks and transferred to a barge. It would then be taken by barge down the Mississippi River to the Gulf of Mexico, loaded onto a ship and taken through the Panama Canal, up the Pacific Coast, and off-loaded to another barge in Seattle. The cargo would then be towed to Alaska and transferred back onto trucks.
The contract had a strict timeline with significant financial penalties for DSU. The timeline was especially challenging because seasonal weather patterns dictated a short window of opportunity for construction. A transportation logistics problem could delay construction by an entire year. The risks of delay put a significant amount of liability on the GC from the moment the materials left the manufacturer’s property.
The client needed an experienced broker with proper knowledge of the coverages to assure the project was covered from the time the materials left the production facility until it reached the final destination. In this case, a Builder’s Risk Policy was negotiated and dovetailed with the Cargo Policy, which included coverage for DSU in one package. Prior to shipping, underwriters required documentation of a timeline, a list of several critical components, several bills of lading, a budget, all policy paperwork, and a copy of the contract.
During the loading from barge to ship, one of the structural foundations was damaged. In anticipation of this very problem, the DSU underwriter had required the contract between the GC and the manufacturer to stipulate that damage during transport would be repaired by employees of the manufacturer on-site in Alaska, rather than holding up shipping. The repairs being made in Alaska were critical to avoid an interruption during transit that could have caused a significant time delay in construction.
Fortunately, the cargo was delivered on time, the repairs were made and the project concluded within the weather window.
When planning logistics in the marine and non-marine transportation of expensive, time-sensitive materials to a project site:
· Align the language of insurance policies with the contractual language.
· Simplify liability to as few parties as possible.
· Use recognized experienced underwriters with knowledge of the Cargo Project business.
· Consult with your broker to identify risk exposure and insurance gaps.
We recommend partnering with experienced, detail-oriented Property and Marine Brokers who can develop the underwriting information, dovetail the required coverage, and communicate with lead underwriters who are knowledgeable in this class of business.