Construction Subcontractor Default Insurance: A Viable Alternative to Performance Bonds?

Evaluating the Pros and Cons of SDI Insurance as a Risk Mitigation Vehicle for Contractual Performance Defaults

Recording of a 90-minute CLE webinar with Q&A


Conducted on Tuesday, September 30, 2014

Recorded event now available

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Program Materials

This CLE webinar will discuss construction subcontractor default insurance (SDI) as a potential alternative to performance bonds, the key differences between SDI and surety bonds, the benefits and disadvantages of SDI, and the factors that should be considered in weighing SDI as an acceptable vehicle for performance risk protection.

Description

SDI can be a viable alternative to surety bonds, depending on the size and scope of the project. SDI policies are purchased by the project manager and obligate the insurer to reimburse costs incurred because of subcontractor default. SDI policies often have lower premium costs than surety bonds and tend to give the prime contractor more flexibility in resolving subcontractor defaults.

The differences between SDI and surety bonds, however, give rise to one of the disadvantages of SDI, namely that the insurer is not obligated to complete a defaulted subcontractor’s work. Furthermore, as the 2013 New York Waterscape Resorts case illustrates, the project owner is not an insured under the policy and has no recourse against the SDI insurer.

Construction counsel must understand the differences between traditional performance bonds and SDI insurance, the pros and cons of SDI insurance, and whether SDI is a viable risk mitigation vehicle for a particular client or project.

Listen as our authoritative panel of practitioners guides you through the pros and cons of subcontractor default insurance, the differences between SDI and surety bonds, and the factors that should be considered in choosing SDI as an alternative to traditional bonding.

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Outline

  1. Overview of SDI coverage
  2. Distinguishing from performance surety bonds
  3. Pros and cons of SDI policies
  4. Evaluating viability for a particular project

Benefits

The panel will review these and other key questions:

  • What are the key advantages of SDI, and what are the drawbacks that must be considered?
  • How does SDI differ from traditional performance bonds?
  • How do construction lenders view SDI policies as an alternative to performance bonds?

Faculty

David M. Adelstein
David M. Adelstein

Partner
Kirwin Norris

Mr. Adelstein is Board Certified in Construction Law by The Florida Bar. He represents general contractors,...  |  Read More

Scott R. Sleight
Scott R. Sleight

Atty
Ahlers & Cressman

Mr. Sleight's practice emphasizes construction and real estate matters, including providing advice for development...  |  Read More

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