Presenting a live 90-minute webinar with interactive Q&A Construction Insurance: Tendering Your Claim to the Correct Carrier, Understanding Carriers’ Right to Allocate to Others Navigating Indemnity, Contribution and Subrogation to Determine the Appropriate Liability Allocation WEDNESDAY, FEBRUARY 18, 2015 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Theresa A. Guertin, Esq., Saxe Doernberger & Vita , Hamden, Conn. John H. Podesta, Partner, Murchison & Cumming , San Francisco 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 Insurance: Tendering Your Claim to the Correct Carrier, and Understanding Carriers’ Right to Allocate to Others Theresa sa A. Guerti tin John H. Podest desta Saxe Doernberger & Vita, P.C. Murchison & Cumming LLP February 18, 2015 5
Basic Principles of Risk Transfer Parties to construction projects pass along to others what would otherwise be their own risks of loss via contract. Usually risk transfer flows “downstream” General Contractor Owner or Construction Subcontractors Vendors/Suppliers Manager 6
Risk Transfers Downhill 7
Risk Transfer Methods Downstream Contractual Indemnity Claim Party Downstream Upstream Party’s Party Insurance Additional Insured Coverage 8
Additional Insured Status • Most common form of risk transfer is asking for “additional insured” (“AI”) status on a downstream party’s Commercial General Liability (“CGL”) policy. • A CGL policy is a type of insurance policy purchased by businesses to protect them from the risks associated with doing business. • The CGL insurer has two duties: – Defense – Indemnification 9
Why Is Risk Transfer Important? • The AI (the upstream party) (typically) has all the same coverage under the CGL policy as the named insured (the downstream party). • Getting coverage as an AI is preferable financially to party seeking coverage. – AI usually not responsible for paying premiums. – AI also usually not responsible for paying deductibles or self-insured retention (by contract). – AI’s own policy remains intact – no exhaustion of limits, no claims fees (if applicable). 10
Claims Scenario #1: Bodily Injury Project Drywall Subcontractor’s employee trips over Owner electrical conduit that was negligently left exposed by Electrical Subcontractor. General Contractor Injured employee sues General Contractor and Project Owner. Electrical Drywall Where should the GC and Subcontractor Subcontractor Owner turn for coverage? Injured Employee 11
Tendering the Claim • “Tender” = Request that an insurer provide defense and indemnity. • Usually takes the form of a formal notification or demand. • In Claims Scenario #1 – Owner and General Contractor want to preserve their own insurance and get coverage for the employee’s suit from downstream parties. – Tender to AI insurers. 12
Where to Direct the Tender • GATHER YOUR FACTS – For bodily injury claims – who employed the injured worker? Who caused the injury? – For property damage claims – who did the deficient work? Who supplied the deficient product? • REVIEW THE CERTIFICATE OF INSURANCE – This should tell you the name of the insurer. – If unclear, demand new COI from downstream party or copy of policy (contract may provide the right). – Research carrier. – Broker assistance. 13
Claims Scenario #1: Bodily Injury Project Owner’s Corporate Project Owner insurance program General Contractor’s General Contractor Corporate insurance program Drywall Electrical Subcontractor’s Electrical Drywall Subcontractor’s Subcontractor Subcontractor insurance [Owner & insurance [Owner GC as AIs] & GC as AIs] Owner/GC Owner/GC Tender Tender Injured Employee 14
What Should the Tender Include? • Most policies explain how to make a claim – follow the insurer’s procedures. • If you can’t review the policy there are a few guidelines: – Make the tender IN WRITING. – Identify name of insured(s) making the tender and the named insured (if applicable, on an AI claim). – Identify policy number(s) if known. – Enclose any pleadings (complaint), demand letters, etc. – Clearly request defense/indemnity. – Request to be notified of claim number & claims handler. – REQU QUES EST T PO POLI LICY CY. 15
Other Tender Tips • Keep a record of when tendered, how tendered, what documents provided. • Follow-up on tender if no response. • Consider also tendering to your own (corporate) insurer in AI situations. – Secures coverage in the event AI insurer denies coverage. – Avoids late notice argument from corporate insurer. – May incur a claims fee for reporting – weigh pros and cons of reporting. 16
Claims Scenario #2: Property Damage HVAC Subcontractor installs air Project conditioning system throughout high Owner rise office building project. Negligently manufactured pipes General develop leaks after project completion. Contractor Project Owner sues GC for property damage. HVAC Tender? Subcontractor - GC to HVAC Subcontractor & Pipe supplier. - HVAC Subcontractor to Pipe supplier Pipe supplier 17
Claims Scenario #3: Long Tail Losses Start of Construction Project Complete Exposure to rain, expansive soils Lawsuit filed Year zero Year 4 18
Claims Scenario #3: Long Tail Losses • Owner sues GC for property damage that occurred over the course of four years. • GC should tender to GL carrier for all four years. • Q: What happens with deductibles, SIRS? Answer may depend on jurisdiction. • Note: Some policies restrict coverage to one year for long tail losses (deemer clauses, non-cumulation of limits provisions, etc.) 19
Tendering “Mixed” Claims • “Mixed” claims may trigger coverage under two or more types or lines of coverage. Example: Homeowner hires contractor to design and build home. Contractor negligently designs the home’s foundation. Subcontractor negligently prepares concrete for foundation. • Tender to CGL and Professional. – Beware claims made policies (notice issues!) 20
Once the claim is tendered, now what? • INSURER: – Insurer should begin investigation. – Insurer should issue an Acceptance, Reservation of rights, or denial of the claim within a reasonable time of receipt of tender. – Control of defense. • INSURED: – Duty to cooperate (investigation, settlement, defense). – Retender if necessary. 21
The Targeted Carrier • Some states do not allow Targeted Carrier to pursue others – Illinois - John Burns Constr. Co. v. Indiana Ins. Co., 189 Ill. 2d 570 (Ill.2000) • Some states allow the chosen carrier to seek contribution – Colorado – Public Serv. Co. v. Wallis & Cos., 986 P2d 924 (Colo. 1999) – California – See Armstrong World Industries, Inc. v. Aetna Casualty & Surety Co., 45 Cal. App. 4 th 1, 105-106 (Cal. App. 1 st Dist. 1996) 22
Possible Sources of Recovery or Allocation • Carriers with same Insured – Named Insured or Direct Carriers – Additional Insured Carriers • Parties that owe indemnity to insured – Other carriers for Named Insured if Additional Insured tender – Manufacturers, distributors if Product Liability Case 23
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