Insuring Construction Risks - Hot Topics Related to ... Construction Risks - Hot Topics Related to...
Transcript of Insuring Construction Risks - Hot Topics Related to ... Construction Risks - Hot Topics Related to...
Insuring Construction Risks - Hot
Topics Related to Construction
Defect Claims
• Jeffrey J. Vita – Saxe Doernberger & Vita, P.C.
• Michael J. Donnelly – Murtha Cullina, LLP
• Alice Sherman – Willis of Massachusetts, Inc.
• Kathleen D. Monnes – Day Pitney, LLP
1. Need to make sure that your project is
covered.
2. Need to make sure that you are protected
from claims of others:a) Your insurance
b) Indemnification/Hold Harmless Clauses
c) Additional Insured Clauses
Pre-Job Insurance Issues From the Owner’s Perspective
Indemnification/Hold Harmless Clauses
• Typically provide that, to the extent
permitted by law, the contractor will
indemnify and hold harmless the owner for
any loss, damage or claim arising out of
the work—but frequently exclude damage
to the Work itself—and caused by the
Contractor or anyone working on behalf of
the Contractor.
Indemnification/Hold Harmless Clauses
• Want to ensure that you require that the
coverage extends past the completion
date.
Additional Insured Clauses
• Require that the Owner be named as
Additional Insured on Comprehensive
General Liability Policies.
• Frequently require that Contractor provide
the Owner with a Certificate of Insurance.
• The Certificate does not mean that your
client is covered.
Pre-Job Issues from the Contractor’s Perspective
1. The Owner has pushed liability down to
you, you want to push it down to subs.
2. Do you need Professional Liability
Coverage?
• As construction work changes, lines are
blurring. Contractors are doing design
work, and designers are deeply involved in
installation. Urge your clients to sit down
with you and their insurance professional
to discuss how their work is changing to
ensure that they have the right coverage.
• Contractor deals with the subs using the
same types of tools as the Owner does
with the contractor. This results in a
significant amount of redundancy.
• Section 11.3 of the A201 refers to the
Owner as a fiduciary in connection with a
number of scenarios. You will want to
negotiate that down to good faith.
Additional Insured Status
• Typically required by contract
• Contract operates in conjunction with
endorsement
• AI is treated as separate insured with
independent rights to policy
Insurance recommendations
• 1) Commercial General Liability (CGL) with limits of Insurance of not less than $1,000,000 each occurrence and $2,000,000 Annual Aggregate.
• a) If the CGL coverage contains a General Aggregate Limit, such General Aggregate shall apply separately to each project.
• b) CGL coverage shall be written on ISO Occurrence form CG 00 01 10 01 or a substitute form providing equivalent coverage and shall cover liability arising from premises, operations, independent contractors, products-completed operations, and personal and advertising injury.
• c) General Contractor, Owner and all other parties required of the General Contractor, shall be included as insureds on the CGL, using ISO Additional Insured Endorsement CG 20 10 11 85 or CG 2010 (10/93) AND CG 20 37 or CG2033 AND CG2037 or an endorsement providing equivalent coverage to the additional insureds. This insurance for the additional insureds shall be as broad as the coverage provided for the named insured subcontractor. It shall apply as Primary and non-contributing Insurance before any other insurance or self-insurance, including any deductible, maintained by, or provided to, the additional insured.
• d) Subcontractor shall maintain CGL coverage for itself and all additional insuredsfor the duration of the project and maintain Completed Operations coverage for itself and each additional insured for at least 3 years after completion of the Work.
• 2) Automobile Liability
• a) Business Auto Liability with limits of at least $1,000,000 each accident.
• b) Business Auto coverage must include coverage for liability arising out of all
owned, leased, hired and non-owned automobiles.
• c) General Contractor, Owner and all other parties required of the General Contractor, shall be
included as insureds on the auto policy.
• 3) Commercial Umbrella
• a) Umbrella limits must be at least $5,000,000.
• b) Umbrella coverage must include as insureds all entities that are additional insureds on the CGL.
• c) Umbrella coverage for such additional insureds shall apply as primary before any other insurance
or self-insurance, including any deductible, maintained by, or provided to, the additional insured other
than the CGL, Auto Liability and Employers Liability coverages maintained by the Subcontractor.
• 4) Workers Compensation and Employers Liability
• a) Employers Liability Insurance limits of at least $500,000 each accident for bodily injury by
accident and $500,000 each employee for injury by disease.
• b) Where applicable, U.S. Longshore and Harborworkers Compensation Act Endorsement shall be
attached to the policy.
• c) Where applicable, the Maritime Coverage Endorsement shall be attached to the policy
• Waiver of Subrogation
• To the fullest extent permitted by law, subcontractor waives all rights against Contractor, Owner and Architect and their agents, officers, directors and employees for recovery of damages to the extent these damages are covered by commercial general liability, commercial umbrella liability, business auto liability or workers compensation and employers liability insurance maintained per requirements stated above
Evolution of the AI Endorsement
2001 20041985
CG 20 10 11 85
“Arising out of”
CG 20 10 10 01
Excludes coverage
for completed
operations
CG 20 10 07 04
Replaces
“arising out of”
with “caused in
whole or in part.”
Excludes
completed
operations
CG 20 37 10 01
Reinstates
completed
operations coverageCG 20 37 07 04
Reinstates
completed
operations coverage
AI Insurance – Primary v. Excess
• As AI, GC is entitled to same protection as
named insured (sub)
• Make sure contract and policy are clear
that sub’s insurance (primary and excess)
will act as primary with GC’s insurance as
excess
Comprehensive Coverage is Critical
Essential Insurance for Constr. Projects
A. “Third Party Coverage”
CGL – Primary, Umbrella, AI,
Wrap-ups
Professional Liability – A&E, CM,
OPPI, CPPI, Wrap-ups
B. “First Party” Coverage
Builders Risk – Physical Loss and
Business Interruption
Coverage Deficiencies
All insurance programs have holes!
♦ Coverage Grant Restrictions
♦ Exclusions
♦ Deductibles/SIRs
♦ Sublimits
♦ Time Limits
♦ Waiting Periods
♦ Valuation Conditions
Disputes arise over the application and meaning of such policy limitations.
“Occurrence”
DEFECTIVE CONSTRUCTION AS AN OCCURRENCE
Highest Court has found defective construction to be an occurrence (or by state statute).
Tending towards coverage; only lower state court or federal court authority exists.
Highest Court has found defective construction not to be an occurrence.
Tending against coverage; only lower state court or federal court authority exists.
Defective construction only an occurrence when there is damage to third-party property.
Unclear, cases/legislation conflict.
No decision
Recent Cases Re: “Occurrence”
Yes Coverage
Architex Association, Inc. v. Scottsdale Ins. Co.,
27 So.3d 1148 (Miss. 2010)
American Empire Surplus Lines Ins. Co. v. Hathaway Devel. Co. 707
S.E.2d 369 (Ga. 2011)
No Coverage
Cincinnati Ins. Co. v. Motorists Ins. Co., 306 S.W.3d 69 (Ky. 2010)
Stanley Martin Cos., Inc. v. Ohio Cas. Group, 313 Fed. Appx. 609 (4th
Cir. 2009)
Connecticut law is not established (lower courts divided)
Legislating the Meaning of “Occurrence”
Recent State Legislatures Have Entered the Debate
Colorado: C.R.S.A 13-20-808 “a court shall presume that the work of a construction
professional that results in property damage… is an accident.”
Arkansas: A.C.A. 23-79-155
Requires CGL policies to contain a definition of “occurrence” that includes “property
damage or bodily injury resulting from faulty workmanship
South Carolina: S.C. Code Ann. 38-61-70
Definition of “occurrence” must include “property damage or bodily injury resulting from
faulty workmanship, exclusive of the faulty workmanship itself.”
Hawaii: H.R.S. 431-1-217
Meaning of “occurrence” “shall be construed in accordance with the law as it existed at the
time the insurance policy was issued.”
Risk Transfer
Additional
Insured
Coverage
3rd Party Liability
Insurance
CGL
Professional
Pollution
1st Party
Insurance
Subcontractor
Indemnity
Commercial
Property
Builders Risk
Contractual Rights
Subcontractor
Default Insurance
Risk Transfer through Contract
• Owner/GC, GC/subcontractor, side
agreement
• Specific paragraphs for
indemnity/insurance
• May shift payment of loss/damage and
defense
• Limited by anti-indemnity laws
Contractual Indemnity v. AI Coverage
• AI coverage and indemnity operate
independently
• AI coverage determined by policy and AI
endorsement
• AI coverage not limited by states’ anti-
indemnity laws (exceptions)
CGL Ins. Emerging Issue – Allocation
Horizontal Exhaustion – Primary Policies Pays First
Vertical Exhaustion – Sub’s Policies Pay First
Promise to Procure
Insurance
Sub-Contractor
(“Sub”)
General Contractor
(“GC”)
GC’s Corporate
Primary Insurance
GC’s Corporate
Excess Insurance
Sub’s Primary
Insurance
(GC’s AI Carrier)
Sub’s Excess
Insurance
(GC’s AI Excess Insurance)
Promise to Indemnify