Central Artery/Third Harbor Tunnel Project - Selected Aspects of Wrap-up Insurance Program

This is a state audit of the Central Artery/Third Harbor Tunnel Project's wrap-up insurance program, especially workers' compensation and general liability insurance, covering November 1, 1992 through October 31, 1999.

“This interim report deals with MTA’s wrap-up insurance program and, in particular, certain aspects of its workers’ compensation and general liability coverage.”

Auditors looked at whether the project was managing key parts of its insurance program effectively, including premium payments, reserves, and insurance risks.

“The objective of our review, which covered the period November 1, 1992 to October 31, 1999, was to determine the effectiveness of certain aspects of the management of the workers’ compensation and general liability portions of the wrap-up insurance program.”

The project was already facing major cost growth, so unused insurance money and possible uninsured risks mattered to taxpayers, bondholders, and state financial reporting.

“The significant amount of this potential risk exposure and its possible concern to bondholders and other interested readers of the Commonwealth’s Comprehensive Annual Financial Report require us to furnish this information to the cognizant audit group responsible for conducting the state’s annual financial audit under the Single Audit Act of the United States.”

For an ordinary Massachusetts resident, the practical point is that using already available insurance reserves could reduce borrowing costs and leave less of the project's cost burden to the public.

“This would further reduce state borrowing costs by another $27 million.”

The auditors said the project accepted the recommendation to use excess insurance reserves, but they also warned that the project still had large possible uninsured or underinsured risks to disclose and manage.

“The actions planned by the project are consistent with the recommendation in our September 1998 report to use excess insurance reserve funds for current project purposes.”

The auditors wanted the project to actually follow through on using the $172 million and to make sure state finance officials knew about the potential insurance risks so disclosures could be handled properly.

“Because CA/T has not always used the amount of excess premium payments it has planned to use to offset future premium payments, we reiterate our recommendation that CA/T adhere to its present plan and use the $172 million to offset workers’ compensation premiums.”

This report is significant because it identified a way to use existing reserve funds for current project costs while also flagging possible insurance exposure ranging from hundreds of millions to billions of dollars.

“The study reported that the estimated range of potential risk, excluding workers’ compensation and general liability exposures, was from a low of $513 million to a high of $3.7 billion.”

A 'wrap-up' insurance program means the project bought one broad insurance package for contractors instead of having each contractor buy separate coverage.

“While design and construction contractors generally purchase their own insurance coverage and recover costs through their contracts, the CA/T Project purchased "wrap-up" insurance that provides contractors working at the CA/T Project with coverage for a variety of risks.”