contractors vs subcontractors vs...7/19/2013 3 antiquated, problematic and just plain wrong property...
TRANSCRIPT
7/19/2013
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Contractors vs Subcontractors
Charles E. Comiskey
CPCU, CIC, CPIA, CRM, PWCA, CRIS, CCMPresident, RiskTech, Inc.
SVP, Brady, Chapman, Holland & Associates, Inc.
Contractors vs. Subcontractors
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Disclaimer
This seminar is for general information only and is not intended to provide, and should not be relied upon for, legal advice in any particular circumstance or fact situation.
All participants are advised to consult with legal counsel.
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The opinions expressed are those of the presenter and are not necessarily those of IIAH.
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Antiquated, Problematic and Just Plain Wrong GL Terminology
Where were you in 1986?
Comprehensive general liability
Blanket or broad form contractual liability
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Broad form property damage
Broad form GL endorsement
Antiquated, Problematic and Just Plain Wrong GL Terminology
Deletion of personal injury employee exclusion
Cross liability or severability of interest
30 day notice of cancellation, amendment, reduction of limits or nonrenewal
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Products/completed operations for 2 years following completion of work
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Antiquated, Problematic and Just Plain Wrong Property Terminology
Fire insurance
Extended coverage
Vandalism & malicious mischief
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Special extended coverage
All Risk or “All Risk” (in most cases)
Other Pet Peeves
Performing first step of risk management – identification of i k i h d i drisk with regard to our own industry
As regards insurance, you’re not dealing with other side
You’re not paranoid if …
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Mantra
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Parties to Construction Agreements
Owner
Construction Manager
Construction Manager At Risk
Design Builder
General Contractor
Subcontractor
b b ( l l ) Sub‐Subcontractor (varying levels)
Suppliers
Other Professionals (architect, engineer, etc.)
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Perspective
Upstream Parties – those to whom your insured owes a responsibility
Downstream Parties – those who owe a responsibility to your insured
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Texas Anti‐Indemnity (and Anti‐Additional Insured) Act
What kind of construction contracts prohibit the transfer of joint, concurrent, and sole negligence prohibited?joint, concurrent, and sole negligence prohibited? Agreements not related to residential or municipal work – to what degree?
What kind of construction contracts permit the transfer of joint, concurrent, and sole negligence? All of them At least with regard to injury to employee of contractor or its subcontractor(s)subcontractor(s)
Exposures regarding the contractual transfer of joint, concurrent and sole negligence can remain in every construction agreement
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How Indemnity Provisions Differ From Insurance Requirements
Parties Involved
Indemnity is between the Indemnitor and the Indemnitee
Indemnitor is assuming risk
Indemnitee is being relieved of risk
Insurance is not a participant in this agreement
Indemnification is a voluntary assumption Indemnification is a voluntary assumption
Not liability imposed – the Indemnitor has agreed to be liable
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Indemnification
$ Blank Check
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Exposure (any and all liabilities)
What Portion of Transferred Risk Is Insurable?
Contractual liability insurance is the funding mechanism for portions of the risk assumed in indemnification
Provided as (1) series of definitions to (2) an exception to (3) an exclusion to (4) the coverage provision of BODILY INJURY and PROPERTY DAMAGE ONLY
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What Portion of Transferred Risk Is Insurable?
Problem: “Contractor shall provide contractual liability insurance covering the liabilities assumed in the indemnification agreement.”
Insurance does not and can not “cover” an indemnity Not “any and all liabilities”, fines, penalties Only bodily injury and “property damage” Limited in amount
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Recommended: Contractor shall provide contractual liability insurance applying to the indemnification agreement.
Indemnification
$ Uninsured Bodily Injury and Physical Injury to
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Exposure (any and all liabilities)
y j y y j yTangible Property + Loss of Use
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But Wait! There’s More!
Potentially bankrupting to the Indemnitor (a/k/a downstream Named Insured)downstream Named Insured)
And it gets much worse
Indemnification is subject to judicial scrutiny
New exclusions may be added
Defense provided in behalf of an Indemnitee (upstream
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Defense provided in behalf of an Indemnitee (upstream party) erodes your limits of liability
Who wins?
Additional Insured Advantages
No “fair notice rules”
Direct rights
Separate defense
Unlimited defense
Can include concurrent and sole negligence
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Now who wins?
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Indemnification vs. Additional Insured
C l t i k t f i i Complementary risk‐transfer provisions
Perform similar function but are totally independent Act as two entirely separate contracts
Negotiate indemnification but fail to consider ramifications of additional insured status
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Practical advice – coordinate corporate culture
Practical Advice
Problem: “[Downstream Party] shall name [Upstream P ] ddi i l i d”Party] as an additional insured”.
Meaningless
Shell game
Illusory
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Illusory
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What To Look For In An
Additional Insured Endorsement
Who is being added as an insured?
What scope of negligence is being transferred?
For what kind of operations?
Any exclusionary wording added?
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Any exclusionary wording added?
ISO
ISO = Insurance Services Office
“© ISO Properties, Inc., 20__”
“© Insurance Services Office, Inc., 20__”
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CG 20 10 11 85
Form # ‐ CG 20 10
Edition date – CG 20 10 11 85
Includes “as an insured the person or organization shown in the Schedule”
“but only with respect to liability”
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“arising out of”
“your work”
Other CG 20 10 Endorsements
Same description of “insured”
CG 20 10 10 01 “arising out of your on‐going operations”
CG 20 10 07 04 and CG 20 10 04 13 “caused in whole or in part by
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caused in whole or in part by your acts or omissions; or the acts or omissions of those acting on your behalf in the performance of on‐going operations”
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Additional Insured Editions
All ISO 10 01 editions use “arising out of” and cover joint, concurrent and sole negligence
All ISO 07 04 and 04 13 editions do not include “arising out of” and cover joint and concurrent negligence but not sole negligence
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Other ISO Additional Insured Endorsements
CG 20 33 Includes “as an insured any person or organization
for whom you are performing operations” On‐going operations only Has 10 01, 07 04, and 04 13 editions
CG 20 38 04 13 ‐ New
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CG 20 38 04 13 New
Adds “any other person or organization you are required to add as an additional insured under the contract or agreement”
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Other ISO Additional Insured Endorsements
CG 20 37
Includes “as an insured the person or organization shown in the Schedule”
Provides coverage for completed operations only
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g p p y
Has 10 01 , 07 04 and 04 13 editions
New ISO GL Additional Insured Editions
New 04 13 Editions to all Additional Insured endorsements New 04 13 Editions to all Additional Insured endorsements
Provides that the insurance afforded to AI
Applies to the extent permitted by law
Will be no broader than required by contract
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Will provide no greater amount than required by contracto How can you affect this?
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Still More Additional Insured Endorsements
“Blanket” or “Automatic”
Specific
ISO rarely used
“Includes Copyrighted Material of Insurance Services
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Includes Copyrighted Material of Insurance Services Office, Inc., With Its Permission – Beware!
Manuscript Additional Insured Endorsements
Essential to read & understand
Limited parties covered?
Limited scope of coverage?
Limited operations?
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May add new exclusions
o “No coverage is provided for damages because of bodily injury to employees of the insured”
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Recap
If you simply require “additional insured” status, who decides what will be provided?
If adequate additional insured status is not provided, how is coverage potentially provided?
Who wins?
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Who wins?
Practical Advice
Require a specific ISO endorsement or scope of coverage
What does “or equivalent” mean?
Require a copy & make sure you understand it
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Practical Advice
Recommended: Subcontractor shall obtain additional insured coverage in favor of Contractor Parties on commercial general liability and excess liability policies. Additional insured status shall be provided on a combination of unmodified ISO endorsements CG 20 10 10 01 and CG 20 37 10 01.
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This option includes the sole negligence of the additional insured.
Practical Advice
Alternative: Subcontractor shall obtain additional insured coverage in favor of Contractor Parties on commercial general liability and excess liability policies. Additional insured status shall be provided on a combination of unmodified ISO endorsements CG 20 10 04 13 and CG 20 37 04 13.
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This option excludes the sole negligence of the additional insured.
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Primary Liability
Problem: “[Down‐stream party’s] insurance shall be primary”
All general liability policies start out providing primary liability coverage – share in payment
E h dd d dditi l i d b
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Excess where added as additional insured by endorsement
Primary and non‐contributory liability
New GL Primary & Noncontributory Endorsement
ISO CG 20 01 04 13
This insurance is primary to and will not seek contribution from any other insurance available to an additional insured under your policy provided that:
The additional insured is a Named Insured under such other insurance; and
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You have agreed in writing in a contract or agreement that this insurance would be primary and would not seek contribution from any other insurance available to the additional insured
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Primary Liability
Recommended: It is the intent of the parties to this pAgreement that all insurance coverage required herein shall be primary to and shall seek no contribution from all insurance available to [Upstream Parties], with [Upstream Parties]’s insurance being excess, secondary and non‐contributing. This CGL coverage shall be endorsed to provide such primary and noncontributory liability.
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Who Is Protected?
Problem: Failure of consistency
Indemnification v. waiver of subrogation v. additional insured
Who wins?
Recommended: Consider “Contractor Parties”
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Recommended: Consider Contractor Parties
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Invisible GL Exclusions & Limitations
l b l Contractual Liability Limitation – CG 21 39
Amendment of Insured Contract Definition – CG 24 26
Damage to Work Performed By Subcontractors On Your Behalf – CG 22 94 or CG 22 95
E l i C ll d U d d P t D
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Explosion, Collapse and Underground Property Damage –CG 21 42 and 21 43
Invisible GL Exclusions & Limitations
Employer’s Liability exclusion changes Employer s Liability exclusion changes
This insurance does not apply to:“Bodily injury” to an employee of the insured arising out of and in the course ofEmployment by the insured; or Performing duties related to the conduct of the insured’s business
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This exclusion does not apply to liability assumed by the insured under an “insured contract”.
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Invisible GL Exclusions & Limitations
Construction Defect Completed Operations Exclusion
Excludes coverage for actual or alleged deficiency in new construction, conversion, reconstruction, rehabilitation, renovation, remodeling, repair, maintenance or demolition
Classification Exclusion
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Example, insurance sold to roofer that excludes roofing operations
Invisible GL Exclusions & Limitations
Residential or Habitational
Subsidence Improper soil compaction, collapse of drains,
earth movement of any type
“Insured vs Insured”
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“Insured vs. Insured”
Punitive, Exemplary, Multiplied Damages
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Invisible GL Exclusions & Limitations
Any many, many more!Any many, many more!
Problem: How would you know?
Transparency
R d d S I S ifi ti
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Recommended: See Insurance Specifications
Invisible GL Exclusions & Limitations
Electronic Data Liability
This insurance does not apply to:
Damages arising out of the loss of, loss of use of, damage to, corruption of, inability to access, or inability to manipulate electronic data.
As used in this exclusion, electronic data means information, facts or programs stored as or on, created or used on, or transmitted to or from computer software including systems
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transmitted to or from computer software, including systems and applications software, hard or floppy disks, CD‐ROMS, tapes, drives, cells, data processing devices or any other media which are used with electronically controlled equipment.
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Is Workers’ Compensation Really Required?
Problem: “[Downstream Party] shall provide Workers’ Compensation insurance as required by law”
Recommended: “[Downstream Party] shall provide Workers’ Compensation insurance. No “alternative” forms of insurance shall be permitted.
Waiver of Subrogation endorsement required
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Waiver of Subrogation endorsement required
DWC Forms
Establishes an independent contractor relationship
Can elect for workers’ compensation to be provided or not
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Is not a release of liability
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Business Auto – Why Demand Additional Insured Status?
Definition of Who Is An Insured
Includes “anyone held liable for the conduct of an insured is also considered an insured, but only to the extent of that liability”
Designated Insured (a/k/a Additional insured endorsement)
“Each person or organization shown in the Schedule is an
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‘insured’ for Liability Coverage, but only to the extent that person or organization qualifies as an ‘insured’ under the Who Is An Insured Provision.”
Umbrella/Excess Liability
Most “umbrella liability policies” are not umbrellasy p
Most “excess liability policies” are not strictly excess
Failure to follow form
Recommended: Such insurance shall be excess over and
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no less broad than all coverages described above.
Won’t be excess of Professional or Pollution Liability
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Waivers of Subrogation Transfers of Rights of Recovery Against Others To Us
General Liability If the insured has rights to recover all or part of any payment we
have made under this Coverage Part, those rights are transferred to us. The insured must do nothing after loss to impair them.
Two step process
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Workers’ compensation – endorsement required
Inland Marine – endorsement may be required
Builder’s Risk Issues For Subcontractors
Problem: “Owner/Contractor may provide builder / y prisk. If provided, Subcontractor agrees to waive rights of recovery in favor of Contractor & Owner. Subcontractor shall be responsible for deductible.”
Seemingly so simple, potentially so catastrophic.
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Builder’s Risk Issues For Subcontractors
Recommended: Subcontractor should:
Be informed whether coverage exists
Be added as named insured and/orNot an “additional insured”
Not “as their interest may appear”
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Be provided with waiver of subrogation (i.e., it should be mutual)
Builder’s Risk Issues For Subcontractors
Be informed of the deductible amount or include agreement that Subcontractor’s responsibility for the deductible shall not exceed $5,000
Not be liable for any portion if loss is caused by another party or an act of God
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Not be liable for any portion if loss is caused after that contractor’s has been completed
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Contractor’s Professional Liability Exposures
Economic damages – excluded in the indemnity?
Consultative advice on constructability, sequencing, & scheduling
Oversight of subcontractors
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Shop drawings
“Value engineering”
Contractor’s Professional Liability Exposures
Construction managementg
Leed construction
Design‐build
What is it?
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What is it?
Never be added as additional insured on professional liability policy
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Contractor’s Professional and Pollution Liability
Pollution is physical injury to tangible property – excluded in the indemnity?in the indemnity?
Commonly combined on one policy
If combined, obtain higher limits
Either or both may be claims‐made
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Either or both may be claims made
OK to be additional insured on pollution but not on professional
Certificates of Insurance
“It is a tale, told by an idiot,
full of sound and fury,
signifying nothing.”
‐Macbeth
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Certificate Specifications
ACORD 25, Certificate of Liability Insurance
ACORD 28, Evidence of Commercial Property Insurance
Unenforceable
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Detailed requirements
TDI Certificate Rules
Any explanatory information included in a completed certificate of insurance is limited to language in thecertificate of insurance is limited to language in the referenced policy and any executed endorsements.
A certificate of insurance may not refer to, describe, explain, or define obligations under a contract other than the underlying contract of insurance.
A certificate of insurance may not alter the terms
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ce t cate o su a ce ay ot a te t e te sand conditions of a right to notice of cancellation, nonrenewal, or material change, or any similar notice concerning a policy of insurance . A certificate may not create a new or additional duty to notify.
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Insurance Specifications
Don’t invite litigation by failing to handle these issue proactively Who wins?
Insurance trigger is subject to a lot of “whether” conditions.
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Insurance Specifications
Remember your audience
Describe precisely what is expected
Prohibit certain exclusions and limitations
Demand copy of the Additional Insured endorsement(s)
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Demand copy of Schedule of Forms and Endorsements page of GL, listing of all exclusions and limitations added by endorsement
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Questions?
Charles E. Comiskey
CPCU, CIC, CPIA, CRM, PWCA, CRIS, CCM
713.797.9706
charles.comiskey@bch‐insurance.com
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www.linkedin.com/in/charlescomiskey