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Construction Industry Trends and Predictions Through 2021 and Beyond: Insurance and Emerging Threats

A 2021 survey identified three key issues impacting the construction industry in 2021: (1) the financial health of contractors; (2) the continuing risk of the pandemic; and (3) technology driving productivity, but also increasing the risk of cybersecurity threats. With this backdrop, insurance premiums in the construction industry are generally on the rise in 2021.

Overmyer Hall Associates, as a Columbus-based commercial insurance broker, provided the following rate outlook for 2021:

Type of Insurance

Rate Increase Outlook

Property

+5% to 10%

Contractors Equipment

Flat to +10%

General Liability

+5% to 15%

Builders Risk

Flat to +5%

Builders Risk – Frame

+10% to 20%

Umbrella/Excess

+10% to 20%

Executive Risk – EPL, Crime, Fiduciary, Cyber

+10% to 25%

Overmyer explained that builders risk insurance rates related to large frame projects (e.g. large hotels, multifamily complexes) have been on the rise because, generally, the number of carriers in the marketplace is shrinking. Moreover, there are an increased number of terms and conditions placed on larger frame projects by underwriters, such as specific and intensive security guidelines. Overmyer does not project the builders risk insurance in large frame projects will change anytime in the near future.

Another area of coverage with rates on the rise is cybersecurity. With the adoption and integration of technology in the construction industry, there has been an uptick in cyberattacks. For example, in early 2020, Bird Construction, a major Canadian Military Contractor, was a victim of a Maze ransomware attack in which hackers demanded approximately $9MM in exchange for a decryption key. Cyberattacks can result in, among other things: downtime on a project, breach of intellectual property, breach of bid data, and potential property damage. As these attacks become more widespread and sophisticated, cybersecurity insurance rates continue to rise at a higher rate.

To prevent cybersecurity threats and/or potential attacks, contractors are encouraged to have a risk assessment conducted by an IT professional, which can sometimes be coordinated through the contractor’s CPA. Other internal measures that contractors can take to defend against cybersecurity threats include: (1) providing training and information about cybersecurity to employees; (2) implementing multifactor authentication (MFA) to mitigate exposure when employees do make mistakes; (3) protecting sensitive data against back-end access in web applications; and (4) having a comprehensive, multifaceted strategy for addressing security needs. Even with the rise in rates, those in the construction industry should obtain and maintain cybersecurity insurance in the event of a potentially crippling cyberattack. 

For additional questions, please contact Construction Law Attorney Krista D. Warren at kdwarren@bmdllc.com.

Explosive Growth in Pot of Gold Opportunity for Bank (and Other) Cannabis Lenders Driving Erosion of the Barriers

Our original article on bank lending to the cannabis industry anticipated that the convergence of interest between banks and the cannabis industry would draw more and larger banks to the industry. Banks were awash in liquidity with limited deployment options, while bankable cannabis businesses had rapidly growing needs for more and lower cost credit. Since then, the pot of gold opportunity for banks to lend into the cannabis industry has grown exponentially due to a combination of market constraints on equity causing a dramatic shift to debt and the ever-increasing capital needs of one of the country’s fastest growing industries. At the same time, hurdles to entry of new banks are being systematically cleared as the yellow brick road to the cannabis industry’s access to the financial markets is being paved, brick by brick, by the progressively increasing number and size of banks that are now entering the market.

2021 EEOC Charge Statistics: Retaliation & Impact of Remote Work

The U.S. Equal Employment Opportunity Commission (EEOC) released its detailed information on workplace discrimination charges it received in 2021. Unsurprisingly, for the second year in a row, the total number of charges decreased as COVID-19 either shut down workplaces or disconnected employees from each other. In 2021, the agency received a total of approximately 61,000 workplace discrimination charges - the fewest in 25 years by a wide margin. For reference, the agency received over 67,000 charges in 2020, and averaged almost 90,000 charges per year over the previous 10 years.

Ohio’s Managed Care Overhaul Delayed – New Implementation Timeline

At the direction of Governor Mike DeWine, the Ohio Department of Medicaid (ODM) launched the Medicaid Managed Care Procurement process in 2019. ODM’s stated vision for the procurement was to focus on people and not just the business of managed care. This is the first structural change to Ohio’s managed care system since the Centers for Medicare & Medicaid Services' (CMS) approval of Ohio’s Medicaid program in 2005. Initially, all of the new managed care programs were supposed to be implemented starting on July 1, 2022. However, ODM Director Maureen Corcoran recently confirmed that this date will be pushed back for several managed care-related programs.

Laboratory Specimen Collection Arrangements with Contract Hospitals - OIG Advisory Opinion 22-09

On April 28, 2022, the Department of Health and Human Services, Office of Inspector General (“OIG”) published an Advisory Opinion[1] in which it evaluated a proposed arrangement where a network of clinical laboratories (the “Requestor”) would compensate hospitals (each a “Contract Hospital”) for specimen collection, processing, and handling services (“Collection Services”) for laboratory tests furnished by the Requestor (the “Proposed Arrangement”). The OIG concluded that the Proposed Arrangement would generate prohibited remuneration under the federal Anti-Kickback Statute (“AKS”) if the requisite intent were present. This is due to both the possibility that the proposed per-patient-encounter fee would be used to induce or reward referrals to Requestor and the associated risk of improperly steering patients to Requestor.

Property Owner Protection from Tax Valuation Challenges

New legislation provides significant new protections for commercial property owners against challenges to valuation primarily by local school boards and prohibiting side agreements to avoid tax valuation changes. The Ohio Legislature has approved House Bill 126 which will go into effect July 2022 but will effectively apply to the 2023 tax valuation year.