Articles Posted in Construction

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We put lights on the front of trains so we can see them approaching in a tunnel. And we buy insurance for the accidents that occur despite such precautions. General contractors try to manage their project risks by taking precautions to avoid accidents, but they also require subcontractors to name them as “additional insureds” on their general liability or project-specific insurance should an accident happen. Suppose you’ve done that. An accident follows: Your subcontractor injures a person on the project site as a result of your own workers’ failure to warn. You’re covered, right? Better slow down.

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Imagine you are a prime contractor to a Department of the United States of America supplying logistical support for the war on terrorism in Afghanistan. As the prime, you are kicking on all cylinders, including purchasing comprehensive Employer’s Liability, Workers’ Compensation and Defense Base Act (DBA) insurance to cover your own employees against a worker injury claim abroad.

Then the phone rings.

iStock-187940286-falling-ladder-300x224A 30-year-old American worker hired by your subcontractor working on base encountered a swarm of bees while painting; he fell and was crippled. The sub isn’t paying his medical expenses and is apparently nowhere to be found. The injured employee’s bulldog lawyer is on the line threatening to sue your company directly for his client’s devastating injuries.

How can this be?

DBA coverage is workers’ compensation insurance that employers may turn to in the event that an employee is injured while working on a contract financed by the U.S. Government and performed outside the United States. Section 5(a) of the Act provides that “a contractor shall be deemed the employer of a subcontractor’s employees if the subcontractor fails to secure the payment of compensation.”

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Is damage resulting from faulty workmanship covered under your CGL policy? In the past, insurers have had success in certain jurisdictions arguing that construction defect cases did not constitute iStock-117230091-300x236a covered “occurrence” because the damage was purportedly not unintended or unexpected. In recent years, however, courts have shifted course; the majority of courts have found that property damage arising out of faulty workmanship constitutes an “occurrence” under standard-form CGL policies. Additionally, some states enacted legislation requiring CGL policies to define occurrence to include property damage or bodily injury resulting from faulty workmanship, or have made it easier for insureds to obtain coverage for damages as a result of work the insureds performed.

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Construction projects—especially those of any complexity—often experience unexpected delays, resulting in loss of use to the owner. Owners sometimes insure against this risk by getting “Soft Cost” iStock-485271996-clock-and-crane-300x300coverage, which covers certain cost increases resulting from project delay (think higher finance costs). Typically, though, when a construction project experiences an unanticipated delay, everyone—the owner, the builder, the subcontractors and suppliers—is interested in getting the project back on schedule. So owners sometime also get “Expense to Reduce the Amount of Loss” (ERAL) coverage, which covers the cost of accelerating the project to get it back on schedule (think higher costs for additional construction crews and overtime). But if you have both “Soft Cost” and ERAL coverage, do they cancel each other out?

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A few weeks back, we told you how South Carolina May No Longer Hold Insurers’ Reservations. In that post we left you with a teaser: “There’s more to this case.”iStock-537435705-burden-200x300

In fact, Harleysville Group Insurance v. Heritage Communities, Inc. does more than just take insurers to task with regard to their vague reservations of rights. Reaffirming that, in a case involving both covered and excluded losses, the insurer bears the burden of proving which damages are excluded from coverage, Harleysville shows how easily an insurer can find itself in a bind when trying to prove “no coverage” at the same time and in the same proceedings that it is providing a defense for its insured.

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Barely removed from the Super Bowl, football fans have begun their long hibernation in anticipation of next season. But the Patriots’ incredible comeback reminds me that it coincided with the tenth anniversary of one of the great NFL coach rants, courtesy of the late Dennis Green of the Arizona Cardinals. Coach Green was interviewed after his team blew a 20-0 halftime lead to my beloved Chicago Bears. Using some other choice words, Green said about the comeback kids: “the Bears are who we thought they were!”

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So what does this have to do with insurance? Well, unlike Coach Green, not all policyholders can say that their insurance policies are exactly what they thought they were. A recent Fifth Circuit case, Richard v. Dolphin Drilling Ltd., is such a case. There, the policy exclusions were so broadly construed that 99 percent of the insured’s operations were excluded from coverage.

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Say you want to make a reservation for a nice dinner. Do you call the restaurant and simply say you plan to come sometime in the next two weeks? Of course not. If you want your reservation to doiStock-516720550-reservations-200x300 any good, you give the restaurant a date, time, and number of people. So why should insurers be able to issue reservations of rights where they quote half the policy and say they may deny coverage at some time, based on some unspecified provision? The South Carolina Supreme Court was presented with that question and decided that insurers need to provide greater specificity or risk losing their reservations completely.

 

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When an insurance company pays a claim by its insured, the insurance company acquires a legal right to pursue a so-called “subrogation” claim against another party who may be responsible for the damage. The insurance company “stands in the shoes” of its insured to seek damages from whoever caused the loss. Typically, construction contracts include a “waiver of subrogation” clause that limits the right of the insurer to file a subrogation action against another participant in the construction project.

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These waiver of subrogation clauses are good public policy and generally benefit all project participants insofar as they (1) avoid excessive finger pointing among parties who are involved in an ongoing commercial relationship (and thereby encourage immediate repairs in lieu of a lawsuit) and (2) are economically efficient because only one party needs to value and insure the risk.

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Over the past four months, a trio of cases has introduced a policyholder-friendly breath of fresh air to Iowa insurance coverage law as Iowa state and federal courts have found that defective workmanship may constitute a covered occurrence under the plain language of CGL policies.

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Since 1979, commercial general liability (CGL) insurers have relied on the New Jersey Supreme Court case of Weedo v. Stone-E-Brick, Inc. and its progeny to argue that a subcontractor’s defective work can never qualify as an “occurrence” under a standard form ISO CGL policy. This argument is contrary to both the language of standard CGL policies and the trend in recent case law, but courts in New Jersey and elsewhere have continued to cite Weedo for this proposition. With its new decision in Cypress Point Condominium Association, Inc. v. Adria Towers, LLC, the New Jersey Supreme Court has now finally relegated Weedo to its proper status as an historical footnote based on outdated policy language.

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Cypress Point involved claims for rain water damage to a condo building. When the condo association began noticing the damage, it brought claims against the developer/general contractor and several subcontractors. The association alleged that the subcontractors’ defective work on the exterior of the building allowed water leaks that damaged steel supports, sheathing and sheetrock, and insulation. When the developer’s CGL insurers refused to cover the claims, the association sued the insurers, seeking a declaration that the association’s claims against the developer were covered.

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