Liability Insurance | Contributing Columnist |
Three Steps To Managing Jen Pino-Gallagher March 2, 2018 |
Milk production growth is rapidly outpacing US processing capacity. So, how are processors responding? According to results from a recent Wisconsin Cheese Makers Association survey, processors are investing in brick and mortar expansions, equipment purchases, and process flow improvements. Per the survey, we can expect that in 2018, capacity and improvements to Wisconsin processing plants will result in processors being able to handle an additional 962 million pounds of milk. Alll you need to do is go for a drive around the state to see that the scenery supports the survey results. At dairy processors across the country, it’s almost as common to see a fleet of bulldozers, excavators and cranes as it is tanker trucks for delivering milk. Some plants have about as many hard-hats on site as they do hair nets. And construction neon is becoming the “colour de jour”. While expansions are exciting, they come with some tricky challenges. The keys to reducing risk during an expansion are ANTICIPATE, CONTROL & TRANSFER the risks. According to Jim Brunker, partner and senior account executive at M3 Insurance, there are several critical areas of risk management to consider when expanding a plant. While the list below is not all-inclusive, it provides some food for thought. 1) Prior to soliciting construction bids for your project, ANTICIPATE and identify potential risks that could arise during the course of construction. A good starting point for your building committee is to review the USDA General Specifications for Dairy Plants approved for USDA Inspection and Grading Service. Additionally, if Quality Assurance (QA) teams are included in the planning process, they will be an asset to your building committee throughout the design/build process. Include your legal counsel and insurance professional in the review of proposed construction contracts prior to signing. Among other things, lawyers can help identify intellectual property and patent issues in proposed equipment designs, and brokers can identify insurance related pitfalls in the proposed construction contract. 2) CONTROL the risks associated with plant expansions. Additionally, make contractors aware of your food safety policy and create plant postings and standard operating procedures for contractors. A pre-construction meeting with contractors and the QA team can help to put processes in place to minimize the risk. And, employees should be trained to spot the signs of potential food safety compliance risks during the construction process. As an additional value added service, insurance companies and brokers will schedule several inspections during the course of construction at no cost. Builder’s Risk: The dairy operation should control the builder’s risk insurance in the construction contract through the dairy’s insurance broker, not the general contractor’s insurance. The builder’s risk insurance policy is the primary risk transfer mechanism that will respond to most, but not all claims. It basically serves as a bond to the construction contract. The dairy processor’s financial risks and insurable interests greatly exceed the cost of brick and mortar construction. The contractor’s insurable interest on the project is limited to the project itself. It does not make sense for the dairy operation (the project owner) to give up this control. Here is a scenario to consider. Seven months into a nine-month project a fire or tornado occurs and work has to completely start over. The loss of anticipated income will not be covered by the construction contract nor the builder’s risk insurance. It can be covered, however, if the dairy plant leadership controls the insurance placement and includes extended loss of business income (including payroll) above the hard costs of the construction contract. Typically this additional insurance cost is very nominal and is often overlooked. 3) TRANSFER the risks Remember, when a knowledgeable insurance broker has a seat at the table and partners with the processor on new construction, everyone wins. No one would expect an insurance broker to be a master cheese maker … likewise, cheese makers aren’t expected to be insurance experts. JPG
Jen Pino-Gallagher is director of the food and agribusiness practice at M3 Insurance. M3 Insurance offers insight, advice and strategies to help clients manage risk, purchase insurance and provide employee benefits. The views expressed above do not necessarily reflect those of Cheese Reporter. You can contact the columnist by calling (800) 272-2443, or by visiting www.m3ins.com.
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Jen Pino-GallagherJen Pino-Gallagher is a Director of Food & Agribusiness Practice at M3 Insurance. M3 Insurance offers insight, advice and strategies to help clients manage risk, purchase insurance and provide employee benefits. Recent M3 Insurance Columns
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