builder's risk and cgl insurance for construction projects...
TRANSCRIPT
Builder's Risk and CGL Insurance for
Construction Projects: Mitigating
Developer and Contractor Risks Evaluating Scope of Coverage, Covered Losses, Policy Exclusions,
Additional Insured Endorsements and More
Today’s faculty features:
1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific
The audio portion of the conference may be accessed via the telephone or by using your computer's
speakers. Please refer to the instructions emailed to registrants for additional information. If you
have any questions, please contact Customer Service at 1-800-926-7926 ext. 10.
WEDNESDAY, MAY 28, 2014
Presenting a 90-Minute Encore Presentation of the Teleconference with Live, Interactive Q&A
Melissa C. Lesmes, Partner, Pillsbury Winthrop Shaw Pittman, Washington, D.C.
Michael S. McNamara, Partner, Pillsbury Winthrop Shaw Pittman, Washington, D.C.
Sound Quality
If you are listening via your computer speakers, please note that the quality
of your sound will vary depending on the speed and quality of your internet
connection.
If the sound quality is not satisfactory, you may listen via the phone: dial
1-866-258-2056 and enter your PIN when prompted. Otherwise, please
send us a chat or e-mail [email protected] immediately so we can
address the problem.
If you dialed in and have any difficulties during the call, press *0 for assistance.
Viewing Quality
To maximize your screen, press the F11 key on your keyboard. To exit full screen,
press the F11 key again.
FOR LIVE EVENT ONLY
For CLE purposes, please let us know how many people are listening at your
location by completing each of the following steps:
• In the chat box, type (1) your company name and (2) the number of
attendees at your location
• Click the SEND button beside the box
If you have purchased Strafford CLE processing services, you must confirm your
participation by completing and submitting an Official Record of Attendance (CLE
Form).
You may obtain your CLE form by going to the program page and selecting the
appropriate form in the PROGRAM MATERIALS box at the top right corner.
If you'd like to purchase CLE credit processing, it is available for a fee. For
additional information about CLE credit processing, go to our website or call us at
1-800-926-7926 ext. 35.
FOR LIVE EVENT ONLY
If you have not printed the conference materials for this program, please
complete the following steps:
• Click on the ^ symbol next to “Conference Materials” in the middle of the left-
hand column on your screen.
• Click on the tab labeled “Handouts” that appears, and there you will see a
PDF of the slides for today's program.
• Double click on the PDF and a separate page will open.
• Print the slides by clicking on the printer icon.
FOR LIVE EVENT ONLY
Pillsbury Winthrop Shaw Pittman LLP
CGL and Builder's Risk Insurance for
Construction Projects
Melissa C. Lesmes
Michael S. McNamara
ARCHITECT
SUBCONTRACTOR SUBCONTRACTOR
SUBCONTRACTOR
OWNER
CONTRACTOR
The Context: A Typical Construction Project
Credit: quietaction; Creative Commons
Attribution 2.0 Generic License
6 | CGL and Builders Risk Insurance for Construction Projects
Types of Insurance for Construction Projects
“First party”
Loss to the insured’s own property Commercial Property insurance
Builders Risk insurance
Contractor’s equipment insurance
“Third party”
Third parties’ claims and suits against the insured Commercial General Liability
Pollution Legal Liability
Professional Liability/Errors and Omissions
Workers Compensation
7 | CGL and Builders Risk Insurance for Construction Projects
How to read “insurance”
Which is easier to read?
Photo © Horia Varlan, All Rights Reserved – Creative Commons.
8 | CGL and Builders Risk Insurance for Construction Projects
Why Builders Risk?
To protect insureds against damage and
resulting loss to work in the course of
construction, before it is accepted and
delivered to the owner;
To insure against financial/economic losses
arising in the course of construction.
9 | CGL and Builders Risk Insurance for Construction Projects
What Is Builders Risk Insurance?
Two basic types of Builders Risk insurance:
All-risk - insures against all risks of loss except for those
specifically excluded.
Named peril - covers only those risks specifically enumerated
within the policy.
Builders Risk almost always on “manuscript” forms –
ISO form exists but rarely used
In contrast to typical commercial general liability forms
10 | CGL and Builders Risk Insurance for Construction Projects
Basic Insuring Agreement
11 | CGL and Builders Risk Insurance for Construction Projects
Navigating a Property Insurance Policy
The three P’s
Parties
Property
Perils – a/k/a “Causes of Loss”
12 | CGL and Builders Risk Insurance for Construction Projects
Parties Property Perils
Sample from a Builders Risk Policy
ABC Corp.
13 | CGL and Builders Risk Insurance for Construction Projects
Parties Property Perils
Sample from a Builders Risk Policy
14 | CGL and Builders Risk Insurance for Construction Projects
Sample from a Builders Risk Policy
Contractor
Parties Property Perils
15 | CGL and Builders Risk Insurance for Construction Projects
Who should be insured?
Parties Property Perils
16 | CGL and Builders Risk Insurance for Construction Projects
Should include owner, general contractor and all
subcontractors
Best practice: name all of the above as named
insureds
On Builders Risk policy declarations page; or
On a Named Insured Endorsement to the Policy.
Can be identified by position: “contractor and subcontractors of
every tier.
Parties Property Perils
Sample from a Property Policy
17 | CGL and Builders Risk Insurance for Construction Projects
Parties Property Perils
Sample from a Property Policy
(1) Completed additions;
(3) Fixtures, including outdoor fixtures;
(10) Foundations of buildings, structures, machinery or boilers;
(11) Bulkheads, pilings, piers, wharves or docks;
(12) Underground pipes, flues or drains; and
(13) Retaining walls.
18 | CGL and Builders Risk Insurance for Construction Projects
Parties Property Perils
Sample from a Property Policy
(1) Furniture and fixtures;
(2) Machinery and equipment;
* * *
(4) All other personal property owned by you and used in your business . . .
19 | CGL and Builders Risk Insurance for Construction Projects
Parties Property Perils
Continued
(7) Leased personal property which you have a contractual responsibility to insure;
(8) Personal Property, which will become part of your installation, erection or fabrication
project, while: (a) At the site of installation, erection or fabrication;
(b) In temporary storage pending installation, erection or fabrication.
Coverage under this provision is not restricted to building or structures at your
“covered location” or within 1,000 fee of a “covered location’;
* * *
(10) Personal property of others in your care, custody or control including property
sold under and installation agreement by which your responsibility continues until the
buyer has accepted the property.
However, our payment for loss of or damage to personal property of others will only be
for the account of the owner of the property
20 | CGL and Builders Risk Insurance for Construction Projects
Parties Property Perils
Sample from a Property Policy
a. Accounts, bills, currency, etc.
d. Automobiles, motorcycles, motortrucks, motorhomes, tractors,
and similar vehicles, held for sale, lease, loan or rent;
f. Bridges, roadways, walks, patios or other paved surfaces;
m. Land . . . water, growing crops or lawns.
21 | CGL and Builders Risk Insurance for Construction Projects
Parties Property Perils
Two basic types of property insurance:
All-risk - insures against all perils except for those
specifically excluded.
Named peril - covers only those perils specifically
enumerated within the policy.
22 | CGL and Builders Risk Insurance for Construction Projects
Parties Property Perils
From “Insurance to English Dictionary”
“Covered Cause of Loss” – A cause of loss which results in coverage under a first
party insurance policy. Syn., Peril.
All risk policy
23 | CGL and Builders Risk Insurance for Construction Projects
Parties Property Perils
Remember the Basic Insuring Agreement?
24 | CGL and Builders Risk Insurance for Construction Projects
Parties Property Perils
25 | CGL and Builders Risk Insurance for Construction Projects
Typically excluded perils
Delays
Pollution
Mechanical Breakdown
Defective design or workmanship
Settling, cracking, shrinking or expanding
Flood and Earth Movement
Parties Property Perils
The peril that started chain of events that lead to your loss is excluded,
so you can never have coverage.
True or False?
26 | CGL and Builders Risk Insurance for Construction Projects
Parties Property Perils
Earthquake =
Excluded Peril
27 | CGL and Builders Risk Insurance for Construction Projects
Parties Property Perils
Fire =
Covered Peril
28 | CGL and Builders Risk Insurance for Construction Projects
Parties Property Perils
What if the earthquake causes a fire?
29 | CGL and Builders Risk Insurance for Construction Projects
Broad Exclusion
Excluded Peril Covered peril Damage =
Parties Property Perils
Medium Exclusion
Excluded Peril Specified peril Damage =
Narrow Exclusion
Excluded Peril Covered peril Damage =
30 | CGL and Builders Risk Insurance for Construction Projects
Parties Property Perils
Example of
broad exclusion
31 | CGL and Builders Risk Insurance for Construction Projects
Parties Property Perils
Example of medium exclusion
32 | CGL and Builders Risk Insurance for Construction Projects
Parties Property Perils
Example of narrow exclusion
33 | CGL and Builders Risk Insurance for Construction Projects
Soft Costs – Policies Differ Dramatically
34 | CGL and Builders Risk Insurance for Construction Projects
Business Income
Difference between Soft Costs and Business Income:
Business income covers only those earnings that would have
been generated had the loss not occurred
Soft costs cover the additional cost irrespective of anticipated
earnings
35 | CGL and Builders Risk Insurance for Construction Projects
Common Myths
Negligence is required
Negligence bars coverage
No coverage for force majeure events
Only force majeure events are covered
No coverage where faulty design or workmanship
are at issue
36 | CGL and Builders Risk Insurance for Construction Projects
Commercial General Liability Insurance
Approaches to Managing Risk and Procuring Insurance
Traditional Insurance – General Practice Policy
Ongoing operations coverage for policy period
Completed operations coverage for policy period
Project-Specific Policy/ Controlled Insurance Program (“CIP”/ “Wrap”)
Ongoing operations coverage for term of project
Extended completed operations coverage
37 | CGL and Builders Risk Insurance for Construction Projects
The CGL Policy Form
The Policy Form Matters
CGL policies are generally NOT manuscripted
Form policies drafted and issued by the Insurance Services Office (ISO)
The Endorsements Matter
Coverage expanded or limited by endorsements
38 | CGL and Builders Risk Insurance for Construction Projects
CGL Insurance: What is it good for?
Defense
Indemnity
“Duty to defend” broader than “duty to indemnify”
“Duty to defend” any one claim triggers duty to defend all
“Duty to defend” triggered by any mere allegation of a potentially
covered claim – not by truth or merit of the allegations
Four corners rule
39 | CGL and Builders Risk Insurance for Construction Projects
Coverage A – Triggering Coverage
This insurance applies to “damages because of ‘bodily injury’ or
‘property damage’” caused by an “occurrence” … during the policy
period.
Property Damage = “physical injury to tangible property” and “loss
of use of tangible property not physically injured”
Bodily Injury = “bodily injury, sickness or disease sustained by a
person, including death resulting from any of these at any time”
Emotional Distress?
During the policy period
“Triggers of coverage” -- manifestation vs. continuous trigger
40 | CGL and Builders Risk Insurance for Construction Projects
Caused by an Occurrence
Caused by an Occurrence = “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.”
The majority of states recognize that construction defects can give rise to an Occurrence
The trend is in favor of coverage
Supported by language and history of ISO Form Policy: The Subcontractor Exception to the Your Work Exclusion:
“This exclusion does not apply if the damaged work or the work out of which the damage arises was performed on your behalf by a subcontractor.”
Number of Occurrences can make a difference
41 | CGL and Builders Risk Insurance for Construction Projects
During the Policy Period
Occurs during the policy period
“Triggers of coverage” – manifestation vs. continuous trigger
Progressive Losses – what policies are triggered
42 | CGL and Builders Risk Insurance for Construction Projects
Key Exclusions Under Coverage A
Exclusion “a” – “Expected or Intended Injury”
Exclusion “b”—“Contractual Liability” “Bodily injury” or “property damage” for which the insured is
obligated to pay damages by reason of the assumption of liability in a contract or agreement.
Exceptions:
(1) Liability for damages that the insured would have in the absence of the contract; and
(2) Liability for damages assumed in a contract that is an “Insured Contract”
43 | CGL and Builders Risk Insurance for Construction Projects
What is an Insured Contract? – Contractual Liability Exclusion
Generally defined to include a contract pertaining to your business under which you assume the tort liability of another party to pay for bodily injury or property damage to a third person or organization.
Works in conjunction with defense and indemnity provisions in most subcontracts
The Contractual Liability exclusion is trying to avoid providing insurance coverage where the insured has assumed the contractual obligations of another
44 | CGL and Builders Risk Insurance for Construction Projects
Key Exclusions Under Coverage A
Exclusion “f”—“Pollution” “Bodily injury” or “property damage” arising out of the actual, alleged
or threatened discharge, dispersal, seepage, migration, release or escape of pollutants.
Exclusion “j” – “Damage to Property”
(1) Property you own, rent or occupy
(2) Property you sell (except “your work”)
(5) That particular part of real property on which the insured or its
subcontractors are performing operations if the damage arises out of
those operations
(6) ---”That particular part of any property that must be . . . repaired or
replaced because ‘your work’ was incorrectly performed on it.”
45 | CGL and Builders Risk Insurance for Construction Projects
Key Exclusions Under Coverage A
Exclusion “l”—“Damage to Your Work”
“Property damage” to “your work” arising out of it or any part of it
and included in the “products-completed operations hazard.”
This exclusion does not apply if the damaged work or the work out
of which the damage arises was performed on your behalf by a
subcontractor.
“Broad form property damage” coverage
Intent is to exclude only damages caused by the named
insured to his own work
Circular, Broad Form Property Damage Coverage Explained (January 29,
1979)
46 | CGL and Builders Risk Insurance for Construction Projects
Key Exclusions Under Coverage A
Professional Services Exclusions – By Endorsement
CG 22 43
47 | CGL and Builders Risk Insurance for Construction Projects
Key Exclusions Under Coverage A
Professional Services Exclusions – By Endorsement
CG 22 79
48 | CGL and Builders Risk Insurance for Construction Projects
Key Exclusions Under Coverage A
Professional Services Exclusions – By Endorsement
CG 22 80
49 | CGL and Builders Risk Insurance for Construction Projects
Additional Insured Endorsement
Additional Insured: generally entitled to defense and indemnity
Advantages: named insured’s policy limits are depleted; loss history;
increased total limits potentially available; application of work exclusions;
primary to additional insured’s own coverage
Which ISO endorsements? Ongoing vs. completed operations
Prefer CG 20 10 85 not CG 20 10 93; or
CG 20 33 07 and 20 37 07 (together)
Use of the wrong endorsements undercuts the utility of AI status
Endorsements are better than Accord forms
50 | CGL and Builders Risk Insurance for Construction Projects
CGL Policy “Myths”
Economic Losses Are Never Covered
Liquidated Damages Are Never Covered
Punitive Damages Are Never Insurable
Breach of Contract Claims Are Never Covered
Damage to “Your Work” Can Never Arise from An Occurrence
The Carrier is Always Entitled to Select Counsel
51 | CGL and Builders Risk Insurance for Construction Projects
Questions?
52 | CGL and Builders Risk Insurance for Construction Projects
Feedback and Discussion
Credit: Greene Connection; Creative Commons
Attribution 2.0 Generic License
Credit: bulliver; Creative Connections Attribution 2.0 Generic
License
Credit: Christopher Hsia; Creative Commons
Attribution 2.0 Generic License