PLUGGING HOLES IN CONTRACTORS LIABILITY COVERAGE

Transcription

1 WORKSHOP W7 Wednesday, November 11 12:30 p.m. 2:00 p.m. PLUGGING HOLES IN CONTRACTORS LIABILITY COVERAGE Presented by Karen A. Reutter Executive Vice President and Director, Construction Insurance Willis North America This fast-moving workshop will pinpoint common problems that can result in gaps in contractors general liability and umbrella liability insurance policies. Often, there are relatively easy fixes that can close holes in the basic policy forms and avoid unexpected gaps in coverage. Find out how to maximize the value of your liability insurance program (or your client s) and protect the company balance sheet from a potentially devastating uninsurable loss by closing these common holes in a contractor s liability program. Even where gaps cannot be closed, contractors who know they exist can make informed decisions about alternative methods of managing these risks. Workshop W7 To print on both sides of the page, set your printer for duplex printing. Copyright 2015 International Risk Management Institute, Inc. 1

2 JUNE 5TH, 11:08 A.M. A STAGGERING STATISTIC INSPIRES A LIFE-SAVING RULE IN AN INSTANT, CALVIN BERGER SAW THE VALUE OF IN-CAB BEHAVIOR TRAINING FROM CNA When a recent safety webinar revealed that 280,000 drivers are involved in serious accidents every year, Calvin Berger of Calberg Contracting took CNA s recommendation to heart, and posted placards restricting cell phone use in each of his company s vehicles. Now Calberg Contracting is filing fewer claims, and Calvin s enjoying a handsome bonus for worker safety and performance. When you re looking for risk control programs that keep contractors dialed in to relevant industry trends we can show you more. To learn more about CNA s coverages and programs for building contractors, contact your independent agent or visit The examples provided in this material are for illustrative purposes only and any similarity to actual individuals, entities or places is coincidental. Please remember that only the relevant insurance policy can provide the actual terms, coverages, amounts, conditions and exclusions for an insured. All products and services may not be available in all states and may be subject to change without notice. CNA is a registered trademark of CNA Financial Corporation. Copyright 2014 CNA. All rights reserved.

3 Karen A. Reutter Executive Vice President and Director, Construction Insurance Willis North America As the director, Construction Insurance, for the Willis North America National Construction Team, Ms. Reutter is responsible for coverage excellence and growth opportunity, including growth and retention, developing marketplace strategies, crafting solutions for unusual business and insurance risks, aggregation, and product innovation. Ms. Reutter, who is based in Minneapolis, Minnesota, also serves as the primary construction insurer partner liaison. She has nearly 30 years of experience in the insurance industry and has held several national positions within the insurance industry, both as an underwriter and a broker. Ms. Reutter is a frequent industry speaker and has authored numerous articles on construction risk management. She is active in industry organizations such as the Associated General Contractors of America (AGC) and Construction Financial Management Association (CFMA). Ms. Reutter holds the Chartered Property Casualty Underwriter (CPCU) and Associate in Risk Management (ARM) designations and the Construction Risk and Insurance Specialist (CRIS) certification. She holds a BBA in business administration and an MBA in strategic management from the University of North Texas. Workshop W7 3

4 Notes 4

5 Plugging Holes in Liability Coverage Presented By: Karen A. Reutter, CPCU, CRIS, ARM Executive Vice President Willis Construction North America 1 Agenda Brief 40 year history of GL Coverage for Construction Risk Focus on General Liability Brief discussion of forms Where gaps hide Key gaps to address Workshop W7 2 5

6 From 1973 to 1986 to now in 15 minutes. Overview of CGL Policy Design During past 40 years, coverage has expanded for construction-related property damage claims by narrowing exclusions Coverage narrowed via exclusions Broad insuring agreement Has to be an occurrence as defined by the polity Needs to be BI or PD to third party arising out of your work Damage or injury has to be fortuitous from standpoint of insured Exclusions (emphasis added) (n) Property damage to the named insured s products arising out of such products or any part of such products; (o) Property damage to work performed by or on behalf of the named insured arising out of the work or any portion thereof; or out of materials, parts or equipment furnished in connection therewith; 4 6

7 1973 CGL Policy Courts broadly interpreted exclusions generally denying coverage for damage to work o Treated construction project as a product Issues involved denying coverage for property damage due to insured s work or work performed by subcontractors o Issues involved in denying coverage for all work No delineation between completed operations and course of construction BFPD Endorsement Intended to address the courts broad denial of coverage for construction-related risks Endorsement for additional premium Intended to narrow exclusions of 73 form and provide some coverage for inadvertent construction defects or property damage Workshop W7 6 7

8 1976 BFPD (Continued) Specifically addressed the following: That Particular Part Delineated between work by insured and work performed by subcontractors Delineated between ongoing operations and completed operations Continued interpretation confusion Centered on the faulty workmanship exclusion CGL Attempted to clarify key construction-related coverages associated with the 1973 and 1976 forms 8 8

9 1986 CGL (continued) (Exclusion J.5 & 6) Specifically addressed timing issue related to damage to that particular part Distinguishes that there is coverage for the particular part in completed operations, that the particular part exclusion applies during course of construction (Exclusion K) Distinguishes that the product exclusion does not apply to a building or construction project by way of excepting real property from exclusion 9 General Liability Coverage Coverage for third party losses arising out of your work or operations Occurrence Third party Bodily Injury (BI) and/or Property Damage (PD) (Advertising and Personal Injury, too) Fortuitous from standpoint of insured Indemnity and defense dollars Insureds and additional insureds Once policy is triggered, read entire policy; some give backs to coverage by way of exceptions to exclusions This is very important for contractors re: business risk type of exclusions Workshop W7 11 9

10 Brief Description of Forms Standard versus non-standard (e.g., General Liability versus Builders Risk) Filed versus non-filed (Standard markets versus non-standard markets) Manuscript endorsements Why forms change over time Legal trends, case law (forms and endorsements) Social policy Clarification of coverage (also, dovetail coverage) 12 Where Gaps in Coverage Hide Definitions Insured Conditions Exclusions 13 10

11 Key Gaps to Address Definitions of Occurrence Definition of Your Product (exclusion K clarification) Definition of Insured Contract (Contractual liability railroads) Broad Named Insured language Employees as Insureds (Health Care professionals) Knowledge of Occurrence endorsement Amend Representations (unintentional failure to disclose hazards) Amend Duties in the Event of Occurrence, Offense, Claim or Suit Most Favorable State endorsement 14 Workshop W

12 SECTION V- DEFINITIONS 9. "Insured Contract" Definition of Insured Contract ADD: Endorsement CG 2417 Contractual Liability- Railroads- "Any Railroad"; "All Job Sites" Standard CGL policy language limits contractual liability coverage under an easement or license agreement to construction or demolition operations outside 50' of a railroad. Endorsement CG 2417 eliminates the 50 limitation and broadens contractual liability coverage to a degree sufficient to support related indemnity or hold harmless agreements; a typical requirement in construction contracts involving work near or on railroads. 19 Broad Named Insured Language Named Insured in CGL policy is defined as the person or entity specified in the Declarations Page of the policy Current or past JVs or LLCs are not covered unless specifically listed as a Named Insured on the Dec. Page. There is no standard ISO form for Broad Named Insured language but most insurers have these and expect to provide BFNI provides automatic coverage for all subsidiaries, affiliated, controlled or allied companies, or corporations of the Named Insured Helps avoid oversights in adding new acquisitions or newly formed organizations to the policy Helps avoid errors in listing related entities 20 12

13 Knowledge of Occurrence Limit the obligation for reporting a claim to a few or even one person or position Duties exist, as outlined in the CGL policy, and are put upon "you" or an insured in event of a claim, suit, offense or occurrence. Sample: Knowledge of an "accident", "occurrence", offense, "injury", claim, or suit" by your agent, servant, or employee" will not be considered to be your knowledge of such unless the following person or person in the following position(s) shall have knowledge of the "accident", occurrence", offense, "injury", claim or suit" - Person or Position: Risk Manager 22 Duties in Event of Occurrence Section IV- COMMERCIAL GENERAL LIABILITY CONDITIONS, Paragraph 2. is amended as follows: ADD: e. The failure to comply with any condition under this insurance, including but not limited to, giving notice of, or providing information and documents in connection with, an "accident", "occurrence", offense, "injury", claim, or "suit" shall not invalidate any claim made by the insured, injured person or any other claimant, if it was not reasonably possible to comply with such condition, or the failure to comply with such condition has not prejudiced us. The burden to prove such prejudice shall be on us. Workshop W

14 Unintentional Failure to Disclose: Representation Section IV- COMMERCIAL GENERAL LIABILITY CONDITIONS Paragraph 6, is amended as follows: ADD: d. Your failure to disclose all hazards or prior "occurrences" existing as of the inception date of the policy shall not prejudice the coverage afforded by this policy provided such failure to disclose all hazards or prior "occurrences" is not intentional. 24 Most Favorable State Endorsement This is an attempt to create a greater degree of coverage certainty and consistency in claim adjustment Disparity of state law re: interpretation of coverage terms Add as endorsement amending policy Conditions, Section IV 25 14

15 Key Gaps to Address: Exclusions Expected or Intended Injury exclusion -exclusion 2.a. Contractual Liability exclusion- exclusion 2.b. Mobile Equipment exclusion- exclusion 2.h. Damage to Property exclusion- exclusion 2.j. Alienated Premises- j.(2) Care, custody and control - j.(4) Damage to Your Work exclusion-exclusion L "That Particular Part" language CG 2294 Contractors Professional Liability coverage" exclusion CG 2279 CG 2280 CG Damage to Property Exclusion Section 1- COVERAGES, COVERAGE A, BODILY INJURY AND PROPERTY DAMAGE LIABILITY, 2. Exclusions, j. Damage to Property, paragraphs (5) and (6) are amended as follows: Exclusion j.(s) and j.(6) are clarified as follows: The language "that particular part" in Exclusions j.(s) and j.(6) precludes coverage only for damage to the segregated portion of the property on which the insured, or its contractors or subcontractors working on its behalf, are actively performing work at the time of the loss. The language "that particular part'' does not mean the entire project regardless of whether or not the insured is acting as a construction manager or a general contractor. Workshop W

16 Damage to Property Exclusion: CCC Intent Rigger s Liability Sublimit Exclusion deleted 32 Professional Liability and CGL No Exclusion in standard form Exclusions are attached with some exceptions CG 2243, CG 2279, CG 2280 "means, methods, techniques and sequencing" CG these terms are not included; plus, coverage for work done on your behalf Still no economic loss" Market realities 36 16

17 Take-Aways There are gaps in coverage Not just liability Coverage changes based on legal trends, legislation Coordinate policies Balance sheet protection 37 Workshop W7 17

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19 To enter the drawing for $500, affix your personal bar code label here or complete this evaluation online. W7. Plugging Holes in Contractors Liability Coverage Rating scale for all questions: 4 = Excellent 3 = Very Good 2 = Average 1 = Somewhat Disappointing 0 = Very Disappointing Overall rating for this workshop? Karen A. Reutter Preparation and quality of information Energy and enthusiasm of delivery Educational focus (not a sales pitch) Comments: