We are all familiar with the more common named risks that construction all risk policies may cover on construction sites – such as fires, floods, strikes and “acts of god” – and also with more catastrophic risks that could arise – such as hurricanes, earthquakes and el niño’s – which may constitute a “sudden and unforeseeable” event which attracts cover. However, have you heard of the phenomenon of “palizadas”? If you are underwriting any construction projects on rivers or their banks, especially bridges, you should become familiar with these.
Palizada I hear you say?
First of all, what is a “palizada” in this context? There is no confirmed definition of this term, and we are not referring to a town in Mexico of the same name. The Spanish word “palizada” is best described as “large tree debris” or “pile of driftwood” and it has the potential to gain speed as it travels along rivers and tears down construction projects, such as bridges. In fact, the Mississippi River was once called the “Rio de La Palizada”, which gives us a clue that whilst the term “palizada” is Spanish and is a common problem in the Amazon (especially in Brazil and Bolivia), other rivers around the world also need to consider this risk where there is a history of tree debris choking the river.
Should the policy provide cover?
It all comes back to those key words, was the loss from the palizada “accidental, sudden and unforeseen”? We have been involved in cases where bridges in construction (including temporary bridges) have been torn down and claims for coverage made under the policy. In such cases, the foreseeability of the loss is a question of fact. Whilst there is no reported statistical data on the frequency or severity of palizada related losses to allow policies to manage the risk with the use of return periods, they are a known phenomenon on certain rivers and as such we would suggest that they are most often foreseeable risks even although by their nature the accumulation of the debris is random and unpredictable.
In one such case in Bolivia, there were several key factors which demonstrated that the loss of the bridge was foreseeable:
- It had happened only months before on a section of the river close to where this loss occurred and was known to the insured.
- The construction proposals referred to the risk of palizadas.
- The insured (a foreign contractor) had been informed by locals to take extra precautions with construction during the wet season when the risk of palizada was at its peak (the original schedule tried to accommodate this but with delays they pushed on in the wet season only to lose the structure to a palizada).
- The insured had opted to use a cleaning system in an attempt to avoid the risk of damage but could not support their justification for this method and had failed to operate an early warning system.
Is it damage or is it defective design?
Whilst there is no specific mention of allowance for the load effects of palizadas in design codes dealing with bridge designs (AASHTO, Bolivian Codes, Eurocodes) more consideration needs to be given to the design of the structures being built:
- The width between piles needs to be sufficient
- The trestles need to be designed for the possible loads
- The height of the structure
- Whether barges can be used in lieu of temporary bridge structures.
As such, consideration as to whether the design failed to address the risk and might be excluded to some extent where the policy contains design exclusions is required.
Final food for thought
These catastrophes pose an interesting question on how underwriters need well informed engineers/construction experts to determine how the projects are being undertaken before underwriting the risk; and this applies to any construction project. We recognise that this can be a commercial challenge as the time given to insurers to assess the risk can be very limited when considering the volume of construction proposals. Furthermore, insurers may want to consider more monitoring of construction projects to ensure that their risks are not being increased by the method of construction used.
In all cases we have seen, there was a lack of consideration of this local phenomenon – perhaps due to foreign contractors, unfamiliar with the location of the project, and attempting to apply methods that worked for them elsewhere and/or cost cutting exercises – and the design did not consider the risk, especially when temporary structures were considered. In Latin America in particular, it raises the important question of the extent to which professional indemnity insurance needs to be more prevalent in the region and might capture these losses where a construction all risks policy may not.
By Anna Weiss, Head of Construction for Latin America and Caribbean at Kennedys CMK. anna.weiss@kennedyscmk.com
