Insuring Construction Risks - Hot
Topics Related to Construction
Defect Claims
• Jeffrey J. Vita – Saxe Doernberger & Vita, P.C. • Michael J. Donnelly – Murtha Cullina, LLP
Importance of Insurance and Risk Transfer
Construction Projects . . .
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
Indemnification/Hold Harmless Clauses
• Typically provide that, to the extent
permitted by law, the contractor will
Indemnification/Hold Harmless Clauses
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
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
• As construction work changes, lines are
blurring. Contractors are doing design
• Contractor deals with the subs using the same types of tools as the Owner does
with the contractor. This results in a
When the claims arise
• Section 11.3 of the A201 refers to the
Owner as a fiduciary in connection with a number of scenarios. You will want to
Additional Insured Status
• Typically required by contract
• Contract operates in conjunction with endorsement
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.
• 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.
• 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
Evolution of the AI Endorsement
2001 2004
1985
CG 20 10 11 85 “Arising out of”
AI Insurance – Primary v. Excess
• As AI, GC is entitled to same protection as named insured (sub)
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
Coverage Deficiencies
All insurance programs have holes!
♦ Coverage Grant Restrictions ♦ Exclusions ♦ Deductibles/SIRs ♦ Sublimits ♦ Time Limits ♦ Waiting Periods ♦ Valuation Conditions
“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.
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)
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
Risk Transfer through Contract
• Owner/GC, GC/subcontractor, side agreement
• Specific paragraphs for indemnity/insurance
• May shift payment of loss/damage and defense
Contractual Indemnity v. AI Coverage
• AI coverage and indemnity operate independently
• AI coverage determined by policy and AI endorsement
CGL Ins. Emerging Issue – Allocation Horizontal Exhaustion – Primary Policies Pays First
Vertical Exhaustion – Sub’s Policies Pay First
Questions
Jeffrey J. Vita
Saxe Doernberger & Vita, P.C. (203) 287-2103
Michael J. Donnelly Murtha Cullina, LLP
(860) 240-6058
Alice Sherman
Willis of Massachusetts, Inc. (860) 989-4341
Kathleen D. Monnes Day Pitney, LLP