Presenting a live 90-minute webinar with interactive Q&A Performance Bonds and CGL Insurance in Construction Projects: Navigating Interplay Between Insurance and Surety Minimizing Risks and Maximizing Recovery for Defective Workmanship and Property Damage WEDNESDAY, SEPTEMBER 21, 2016 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Marc A. Sanchez, Partner, Frantz Ward , Cleveland Patrick R. Kingsley, Chair , Construction, Stradley Ronon Stevens & Young , Philadelphia 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 .
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COMMERCIAL GENERAL LIABILITY POLICIES Strafford Publications, Inc. Presented by: Marc A. Sanchez, Frantz Ward LLP SEPTEMBER 21, 2016
RISK TRANSFER • Liability Insurance • Commercial General Liability Policy • Umbrella Policy • Excess Policy •Builder’s Risk • Performance Bond/SDI •Contractor’s Professional Liability/E&O • Contractual Indemnity 6
COMMERCIAL GENERAL LIABILITY • First line of defense against claims of others • Insurance Services Office, Inc. (ISO) • Excess vs. umbrella • Bodily injury and property damage • Occurrence vs. aggregate limits •Deductibles vs. SIR’s • Defense vs. indemnity 7
TYPICAL CONTRACTOR INSURANCE REQUIREMENTS • CGL - $2 MM • Business Auto - $1 MM • Umbrella or excess - $5 MM •Workers’ compensation • Send schedule of insurance requirements to agent – note if flow-down provision • Some specified forms may not be available 8
DUTY TO DEFEND •Duty to Defend requires a “civil proceeding” • Claim arguably or potentially within policy coverage • Resultant or consequential damage usually enough • Obligation to pay defense costs brings insurer to the table 9
DUTY TO DEFEND •Only a “claim” is required • Not based on potential; claim must actually fall within policy coverage • Usually settlement or verdict; withholding draw money probably enough 10
CONTRACTOR’S PROFESSIONAL LIABILITY COVERAGE • Annual or project basis • Covers design liability of contractor • Why needed if subcontracted design work and have hold harmless, waiver of subrogation and insurance requirements? • Design subcontractor carries low limits • Design firm out of business/claims-made policies • Policy language limitations in the A/E coverage • Value engineering, shop drawings, CM services 11
COVERAGE •“Bodily injury” or “property damage” •Caused by “occurrence” • During the policy period • Then look to policy exclusions 12
BUSINESS RISK EXCLUSIONS • Damage to property – “that particular part” • Damage to your work – subcontractor exception to the exclusion • Damage to impaired property or property not physically injured 13
INSURED CONTRACT COVERAGE • Indemnity agreement in contract • Assumption of liability in a contract or agreement • Insured would have liability in absence of contract, e.g. “property damage” and “occurrence” within policy period •CGL will cover indemnitor’s obligation; especially important if bankrupt 14
CONTACT Marc A. Sanchez (216) 515-1638 msanchez@frantzward.com Location: 200 Public Square, Suite 3000 Cleveland, OH 44114 15
Performance Bonds Patrick Kingsley, Esquire Stradley Ronon Stevens & Young, LLP 2600 One Commerce Square Philadelphia, PA 19103 pkingsley@stradley.com 215-564-8029
Discussion Outline • Nature of the Suretyship Relationship • Performance Bond Coverage • Surety’s Defenses • Surety’s Remedies • Suretyship v. Insurance Stradley Ronon Stevens & Young, LLP 17
The Nature of Suretyship Stradley Ronon Stevens & Young, LLP 18
A surety agrees to answer for the debt of another. Stradley Ronon Stevens & Young, LLP 19
Why do construction projects often include sureties? Stradley Ronon Stevens & Young, LLP 20
Suretyship Involves a Tri-party Relationship Owner = Obligee General Contractor = Principal Bonding Company = Surety Stradley Ronon Stevens & Young, LLP 21
Suretyship Involves a Tri-party Relationship General Contractor = Obligee Subcontractor = Principal Bonding Company = Surety Stradley Ronon Stevens & Young, LLP 22
The surety is the secondary obligor and stands behind the debts and obligations of the principal. Stradley Ronon Stevens & Young, LLP 23
The surety is the secondary obligor and stands behind the debts and obligations of the principal. The surety is typically liable only if the principal defaults. Stradley Ronon Stevens & Young, LLP 24
Surety is a credit accommodation. Stradley Ronon Stevens & Young, LLP 25
Surety is a credit accommodation. If a principal cannot secure surety credit, it may have to obtain a bank line of credit or deposit cash collateral. Stradley Ronon Stevens & Young, LLP 26
The principal owes a duty to the surety to perform and, failing that, to indemnify the surety for any losses it incurs due to the principal’s default. Stradley Ronon Stevens & Young, LLP 27
How Does a Performance Bond Work? Stradley Ronon Stevens & Young, LLP 28
What is a Performance Bond? A guarantee from a financial institution that if a principal defaults, his obligation will be fulfilled up to the penal sum of the bond. Stradley Ronon Stevens & Young, LLP 29
Performance Bond Coverage Stradley Ronon Stevens & Young, LLP 30
Performance Bond Coverage • Completion • Defective Work • Delay Damages • Penal Sum Limitation Stradley Ronon Stevens & Young, LLP 31
Project Completion Stradley Ronon Stevens & Young, LLP 32
Project Completion • Financing the Defaulted Principal • Engaging a Completion Contractor • Tendering a Completion Contractor • Paying the Obligee Stradley Ronon Stevens & Young, LLP 33
Defective Work Stradley Ronon Stevens & Young, LLP 34
Defective Work • Pre-default Defects • Warranty Work • Latent Defects Stradley Ronon Stevens & Young, LLP 35
Delay Claims Stradley Ronon Stevens & Young, LLP 36
Delay Damages • Lost Profits • Lost Use • Financing Charges • Inefficiency Costs • Liquidated Damages Stradley Ronon Stevens & Young, LLP 37
Penal Sum Limitation Paying v. Performing v. Declining Stradley Ronon Stevens & Young, LLP 38
Surety’s Defenses • Principal’s Defenses • Impairment of Collateral • Improper Notice • Cardinal Changes • Statute of Limitations • Standing Stradley Ronon Stevens & Young, LLP 39
Principal’s Defenses A surety’s liability is usually no greater than that of its principal. Usually all defenses available to the principal may be asserted by the surety. Stradley Ronon Stevens & Young, LLP 40
Impairment of Collateral Stradley Ronon Stevens & Young, LLP 41
Impairment of Collateral The surety is discharged to the extent of the impaired collateral. Stradley Ronon Stevens & Young, LLP 42
Notice of Termination (a/k/a Notice to Cure) Stradley Ronon Stevens & Young, LLP 43
Common Cure Provision Contractor’s services will not be terminated if Contractor begins within seven days of receipt of notice of intent to terminate to correct its failure to perform and proceeds diligently to cure such failure within no more than 30 days of receipt of said notice. Stradley Ronon Stevens & Young, LLP 44
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