Presenting a live 90-minute webinar with interactive Q&A Construction Defect Indemnity Obligations Under CGL Policies: Identifying Covered vs. Non-Covered Damages Leveraging Insurance Coverage Arguments for Contractors, Subcontractors and Insurers TUESDAY, AUGUST 23, 2016 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: David M. Adelstein, Partner, Kirwin Norris , Orlando and Ft. Lauderdale, Fla. Brendan Winslow-Nason, Member, Cozen O'Connor , Seattle 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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CONSTRUCTION DEFECT INDEMNITY OBLIGATIONS UNDER CGL POLICIES ___________________________ Covered vs. Non-Covered ___________________________ Presented by: Brendan Winslow- Nason, Cozen O’Connor & David Adelstein, Kirwin Norris August 23, 2016
INITIAL QUESTIONS Scenario: You are GC, Sub, or Supplier. You have CGL insurance. A construction defect claim is asserted that implicates YOUR WORK. 1. Is there CGL insurance coverage?!? 2. Is there “ property damage ” within the meaning of my CGL policy? 3. What was the “ occurrence ” that triggered CGL policy(ies)? 4. What “ property damage ” is covered vs. not covered (excluded) under the CGL policy(ies) …pre -completion...post-completion? 6
CGL IS NOT A PERFORMANCE BOND! “ [A] performance bond is a form of insurance that guarantees the completion of the general contractor’s work on the project. This [5 th ] Circuit has previously noted the significance of the difference between these two forms of insurance [CGL and performance bond]: A CGL policy generally protects the insured when his work damages someone else’s property. The ‘your work’ exclusion [in the policy] prevents a CGL policy from morphing into a performance bond covering an insured’s own work .” Carl E. Woodward, L.L.C. v. Acceptance Indemnity Insurance Co ., 2014 WL 902575, *7 (5th Cir. 2014) (internal quotations and citations omitted). 7
CGL COVERAGE APPLICABLE TO CONSTRUCTION Purpose of CGL Duty to defend insured 1. Duty to indemnify insured from 3 rd party 2. claims *duty to defend broader; triggered by allegations in “suit” **insurers typically defend under reservation of rights to deny coverage / duty to indemnify 8
CGL COVERAGE APPLICABLE TO CONSTRUCTION Coverage Property damage – triggered by occurrence bodily injury/death – triggered by occurrence **Remember, coverage will be subject to exclusions in the applicable CGL policy(ies) 9
CGL COVERAGE APPLICABLE TO CONSTRUCTION What is Covered? What is an occurrence & property damage? *Remember the Exclusions... 10
INDEMNIFICATION OBLIGATIONS CGL Policy Again, CGL policy to indemnify insured(s) for covered damages associated with third-party claims (duty to indemnify) Flowing Down Damage Additional Insured Status – e.g ., getting yourself named as insured on another’s CGL policy so that you can be defended & indemnified for primary insured’s negligence…for pre -completion and post-completion operations Contractual Indemnification - e.g., contractually requiring another / indemnitor to indemnify you / indemnitee for... Narrow (indemnitor’s sole negligence) Intermediate (caused wholly or partially by indemnitor’s negligence) Broad (for indemnitee’s sole negligence) **Indemnification lang. must comply with statutory requirements Primary & noncontributory lang . - deals with priority of coverage – e.g ., you want another / indemnitor’s liability policy to be primary and noncontributory to insurance coverage provided by add’l insured 11
COVERED DAMAGES Depends on Jurisdiction… Resulting Damage - damage to other work caused by defect “Rip & Tear” Damages - damage associated with repairing resulting damage Loss of Use Damages - loss of use of property Big-D Const. Corp. v. Take it for Granite Too , 917 F .Supp.2d 1096 (D.Nev. 2013) – loss of use of front entrance door due to defective exterior stone tile (that had fallen) was covered; damaged to be determined at trial Lyerla v. AMCO Ins. Co ., 536 F .3d 684 (7 th Cir. 2008) – LDs and owner’s storage fees associated with delay not covered loss of use as they aren’t result of loss of use of tangible property but damages due to delay National Union Fire Ins. Co. of Pittsburgh, Pennsylvania v. Structural Systems Technology, Inc., 756 F .Supp. 1232 (E.D.Mo. 1991) -radio tower collapsed and owner sued for lost profits / diminution in value of radio station; court held this is this is covered damage if determined insurer has duty to indemnify 12
COVERED DAMAGES Depends on Jurisdiction Diminution in Value – diminished value of property American Mercury Ins. Group v. Urban , 2001 WL 1723734 (D.Kan. 2001) - CGL does not cover diminution in value damages to owner’s facility Pavarini Construction Co (Se) Inc. v. Ace American Ins. Co ., 2015 WL 9686009 (S.D.Fla. 2015) – CGL policies do not cover damages purely economic in nature; therefore, no coverage to GC for delay costs, lost profits, diminution in value, or other economic losses flowing from injury to property Missouri Terazzo Co. v. Iowa Nat. Mut. Ins. Co ., 740 F .2d 647 (8 th Cir. 1984)- diminished value of supermarket building due to damage to terrazzo floor (cracking and discoloration) and connecting structures was covered since it was means to measure damage sustains as the result of property damage 13
THE METHODOLOGY Consider Know the Consider the scope applicable the of jurisdiction’s underlying Additional laws on key exposure Insured coverage coverage issues Consider Involve Consider the impact experts in what law of anti- the applies indemnity complex statutes cases Extracontractual Considerations 14 End Product
THE METHODOLOGY Step One – Consider the Underlying Exposure Job files • Contracts • Discovery • Expert reports • Scopes of repair • Repair estimates • Defense counsel reports / liability analysis • 15
THE METHODOLOGY Step Two – Consider What Law Applies 16
THE METHODOLOGY Step Three – Consider the Scope of Additional Insured Coverage Pre-2013: 2013 Additions: 17
THE METHODOLOGY Step Four – Consider Impact of Anti-Indemnity Statutes “ Sole Negligence ” States “ Any Negligence ” States Arizona Missouri Alaska New Jersey California Montana Arkansas Pennsylvania Colorado Nebraska Georgia South Carolina Connecticut New Hawaii South Dakota Delaware Hampshire Idaho Tennessee Florida New Mexico Indiana Utah Illinois New York Maryland Virginia Iowa North Carolina Massachusetts Washington Kansas North Dakota Michigan West Virginia Kentucky Ohio Louisiana Oklahoma Minnesota Oregon Mississippi Rhode Island Texas 18
THE METHODOLOGY Step Five – Know the Applicable Jurisdiction’s Laws on Key Coverage Issues “Property Damage” and “Occurrence” “Trigger Theory” “Work” exclusions “Rip and tear” Loss of use and impaired property “Contractual Liability” exclusion Modification of coverage by endorsement 19
THE METHODOLOGY Step Six – Involve Experts if Warranted 20
THE END PRODUCT Create a chart like this one identifying what damages are covered vs. not covered… Covered Non-Covered • Resultant damage to other • Repair and replacement of contractor ’ s work caused by just the defective work itself the insured ’ s defective work • “ Rip and tear ” that is necessary to repair physical damage to other contractor ’ s work 21
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