Construction Defect Insurance Claims Strategies for Policyholders - - PowerPoint PPT Presentation

presents

Construction Defect Insurance Claims

presents

Strategies for Policyholders and Insurers to Resolve Coverage Disputes

A Live 90-Minute Teleconference/Webinar with Interactive Q&A

Today's panel features: Ruth S. Kochenderfer, Of Counsel, Steptoe & Johnson, Washington, D.C. 202.429.8173, rkochenderfer@steptoe.com J P B b t k S i Att Pill b Wi th Sh Pitt W hi t D C James P. Bobotek, Senior Attorney, Pillsbury Winthrop Shaw Pittman, Washington, D.C. 202.663.8930, james.bobotek@pillsburylaw.com

Wednesday, September 15, 2010 The conference begins at: The conference begins at: 1 pm Eastern 12 pm Central 11 am Mountain 10 P ifi 10 am Pacific

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Construction Defect Insurance Claims Construction Defect Insurance Claims

Ruth S. Kochenderfer – Steptoe & Johnson LLP James P. Bobotek – Pillsbury Winthrop Shaw Pittman LLP

INSURANCE IN A CONSTRUCTION DEFECT CASE INSURANCE IN A CONSTRUCTION DEFECT CASE

Occupant Owner/Developer Insurance Contractor Design Consultants Insurance Building Product Insurance 1 Building Product Manufacturers Insurance Material Suppliers Insurance Insurance Subcontractors

5

Occurrence Occurrence Occurrence Occurrence

"Occurrence" means an accident, including continuous or repeated exposure g p p to substantially the same general harmful conditions.

6

Occurrence Occurrence Occurrence Occurrence

Major issue in construction defect cases – is faulty workmanship an y p

• ccurrence?

7

IT IS! IT IS! IT IS! IT IS!

 Architex Assoc., Inc. v. Scottsdale Ins. Co., 27 So. 2d 1148, 2010 WL 457236 (Miss. 2010).  United Fire & Cas. Co. v. Boulder Plaza Residential, LLC, 2010 WL 420046 (D. Colo. Feb. 1, 2010).  Auto-Owners Ins. Co. v. Pozzi Window Co., 984 So. 2d 1241 (Fla. 2008).  Hathaway Dev. Co. v. American Empire Surplus Lines Ins. Co., 686 S.E.2d 855 (Ga. App. 2009).

8

IT IS! IT IS! IT IS! IT IS!

 T.R. Bulger, Inc. v. Indiana Ins. Co., 901 N.E.2d 1110 (Ind.

• App. 2009).

 Liberty Mut. Ins. Co. v. Pella Corp., 631 F. Supp. 2d 1125  Liberty Mut. Ins. Co. v. Pella Corp., 631 F. Supp. 2d 1125 (S.D. Iowa 2009). Generali U.S. Branch v. National Trust Ins. Co., 2009 WL 2762273 (W.D. Ky. Aug. 27, 2009).  Martco Ltd. P'ship v. Wellons, Inc., 588 F.3d 864 (5th Cir.  Martco Ltd. P ship v. Wellons, Inc., 588 F.3d 864 (5th Cir. 2009).  Acadia Ins. Co. v. Peerless Ins. Co., 679 F. Supp.2d 229 (D.

• Mass. 2010).

ass 0 0)  Fortney & Weygandt, Inc. v. American Mfrs. Mut. Ins. Co., 595 F.3d 308 (6th Cir. 2010).

9

IT IS! IT IS! IT IS! IT IS!

 Furey Roofing & Constr. Co., Inc. v. Employers Mut. Cas. Ins. Co., 2010 WL 422253 (R.I. Super. Feb. 1, 2010).  Auto Owners Ins. Co., Inc. v. Newman, 684 S.E.2d 541 (S.C. 2009).  Pine Oak Builders, Inc. v. Great Am. Lloyds Ins. Co., 279 S.W.3d 650 (Tex. 2009).  Stanley Martin Cos., Inc. v. Ohio Cas. Group, 313 Fed. App'x 609 (4th Cir. 2009).

10

IT IS NOT! IT IS NOT! IT IS NOT! IT IS NOT!

 Lexicon, Inc. v. ACE Am. Ins. Co., 2010 WL 79479 (E.D. Ark.

• Jan. 7, 2010), on appeal, Case No. 10–1100 (8th Cir. 2010).

 CMK Dev. Corp. v. West Bend Mut. Ins. Co., 917 N.E.2d 1155  CMK Dev. Corp. v. West Bend Mut. Ins. Co., 917 N.E.2d 1155 (Ill. App. Ct. 2009).  Trinity Homes, LLC v. Ohio Cas. Ins. Co., 2009 WL 3163108 (S.D. Ind. Sept. 25, 2009). (S.D. Ind. Sept. 25, 2009).  W.C. Stewart Constr., Inc. v. Cincinnati Ins. Co., 770 N.W.2d 850 (Iowa App. 2009).  Friel Luxury Home Constr Inc v ProBuilders Specialty Ins  Friel Luxury Home Constr., Inc. v. ProBuilders Specialty Ins.

• Co. RRG, 2009 WL 5227893 (D. Mass. Dec. 22, 2009).

11

IT IS NOT! IT IS NOT! IT IS NOT! IT IS NOT!

 Meridian Mut. Ins. Co. v. James Gilligan Builders, 2009 WL 1704474 (E.D. Pa. June 18, 2009).  Brake Landscaping & Lawncare, Inc. v. Hawkeye-Security Ins. Co., 2009 WL 4725293 (E.D. Mo. Dec. 2, 2009).  Pennsylvania Nat'l Mut. Cas. Ins. Co. v. Parkshore Dev. Corp., 2009 WL 1737032 (D.N.J. June 17, 2009).

12

MAYBE? MAYBE? MAYBE? MAYBE?

COLORADO – It is not?

• Colorado H.B. 10-1395 “Construction Professional Commercial

Liability Insurance Act”

• Legislating changes to an insurance contract
• “accident”
• Known loss/loss in progress
• Effective as of May 21, 2010

13

MAYBE? MAYBE? MAYBE? MAYBE?

TEXAS – It is?

• Gilbert Texas Construction LP v. Underwriters at Lloyd’s

y London, No. 08-0246 (Tex. June 4, 2010)

• Contractual liability exclusion bars coverage for breach
• f contract claim.
• Lamar Homes v. Mid-Continent Cas. Co., 242 S.W.3d 1

(Tex. 2007) f

• Breach of contract claim may involve an occurrence

and coverage does not turn on the label of the cause of action.

14

C A C A I i A t I i A t Coverage A Coverage A -

• Insuring Agreement

Insuring Agreement

We will pay those sums that the insured becomes legally obligated to pay as becomes legally obligated to pay as damages because of "bodily injury" or "property damage" to which this insurance applies. pp

ISO Form CG 00 01 12 07

15

The “Insured” The “Insured” The “Insured” The “Insured”

 Who is “the insured”?

• Named Insured – Declarations Page

g

• Insured (Who Is An Insured section)
• employees, officers, directors (acting in scope of

employees, officers, directors (acting in scope of employment)

• real estate managers
• newly formed/acquired organizations (grace period)
• newly formed/acquired organizations (grace period)
• Additional insureds

16

“Bodily Injury” “Bodily Injury” Bodily Injury Bodily Injury

means bodily injury, sickness or disease sustained by a person, y p , including death resulting from any of g y these at any time.

17

“Property Damage” “Property Damage” Property Damage Property Damage

• a. Physical injury to tangible property, including all

resulting loss of use of that property. All such loss of resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it; or

• b. Loss of use of tangible property that is not physically
• injured. All such loss of use shall be deemed to occur at

the time of the "occurrence" that caused it.

18

Trigger Trigger Trigger Trigger “This insurance applies to This insurance applies to . . . ‘property damage’ only if: . . . the . . . ‘property damage’ occurs during the policy period.” p y p

19

Trigger Trigger Trigger Trigger

Exposure Manifestation Injury-in-fact Continuous

20

Trigger Trigger Trigger Trigger

 The Incorporation Doctrine: whether the incorporation of a defective product or work into th d t k f th the product or work of another constitutes “property damage”  Travelers Ins Co of Illinois v  Travelers Ins. Co. of Illinois v. Eljer Manufacturing, Inc., 757 N.E.2d 481, 502 (Ill. 2001)  Esicorp v. Liberty Mut. Ins. Co., 266 F.3d 859 (8th Cir. 2001) (applying Missouri law)

21

Myths? Myths? Myths? Myths?

A CGL policy distinguishes between:  Negligence and breach of contract;  Property damage and economic loss  Property damage and economic loss.

22

EXCLUSI ONS EXCLUSI ONS EXCLUSI ONS EXCLUSI ONS

23

Exclusion b Exclusion b - Contractual Liability Contractual Liability Exclusion b. Exclusion b. - Contractual Liability Contractual Liability

This insurance does not apply to:

• b. Contractual Liability

"Bodily injury" or "property damage" for which the Bodily injury or property damage for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or t agreement.

24

Exception to the Contractual Liability Exception to the Contractual Liability Exclusion Exclusion

This exclusion does not apply to liability for damages: (1) Th t th i d ld h i th b f th (1) That the insured would have in the absence of the contract or agreement; or (2) Assumed in a contract or agreement that is an ( ) ssu ed a co ac o ag ee e a s a "insured contract", provided the "bodily injury" or "property damage" occurs subsequent to the execution of the contract or agreement execution of the contract or agreement . . .

25

Definition of “Insured Contract” Definition of “Insured Contract” Definition of Insured Contract Definition of Insured Contract

"Insured contract" means: * * * *

• c. Any easement or license agreement, except in connection

with construction or demolition operations on or within 50 feet

• f a railroad;

* * * *

• e. An elevator maintenance agreement;

26

Definition of “Insured Contract” Definition of “Insured Contract” Definition of Insured Contract Definition of Insured Contract

"Insured contract" means: f That part of any other contract or agreement pertaining to your

• f. That part of any other contract or agreement pertaining to your

business . . . under which you assume the tort liability of another party to pay for "bodily injury" or "property damage" to a third person or organization. Tort liability means a to a third person or organization. Tort liability means a liability that would be imposed by law in the absence of any contract or agreement.

27

Definition of “Insured Contract” Definition of “Insured Contract” Definition of Insured Contract Definition of Insured Contract

Paragraph f. does not include that part of any contract or agreement: agreement: * * * * (2) That indemnifies an architect, engineer or surveyor for injury

• r damage
• r damage . . .

(3) Under which the insured, if an architect, engineer or surveyor, assumes liability for an injury or damage arising out of the insured's rendering or failure to render professional services insured's rendering or failure to render professional services . . .

28

Exclusion b Exclusion b - Contractual Liability Contractual Liability Exclusion b. Exclusion b. - Contractual Liability Contractual Liability

 Includes warranty claims.  Is the insured “legally obligated to pay” breach of contract damages, or does this language limit coverage to tort claims?  “[T]here is nothing in the basic coverage language of the current CGL policy to support any definitive tort/contract line of current CGL policy to support any definitive tort/contract line of demarcation for purposes of determining whether a loss is covered by the CGL's initial grant of coverage. ‘Occurrence’ is not defined by reference to the legal category of the claim. y g g y The term ‘tort’ does not appear in the CGL policy.” Am. Family Mut. Ins. Co. v. Am. Girl, Inc., 673 N.W.2d 65 (Wis. 2004).

29

Exclusion b Exclusion b - Contractual Liability Contractual Liability Exclusion b. Exclusion b. - Contractual Liability Contractual Liability

 Does “assumption” mean that the assumed liability must be that of another?

• YES

"'assumption' must be interpreted to add something

• YES. "'assumption' must be interpreted to add something

to the phrase 'assumption of liability in a contract or agreement.' Reading the phrase to apply to all liabilities sounding in contract renders the term 'assumption' superfluous “ Am Family Mut Ins Co v Am Girl Inc

• superfluous. Am. Family Mut. Ins. Co. v. Am. Girl, Inc.,

673 N.W.2d 65 (Wis. 2004)

• NO. “exclusion's language applies without qualification to

liability assumed by contract” Gilbert Texas Construction LP v. Underwriters at Lloyd’s London, No. 08-0246 (Tex. June 4 2010)

30

June 4, 2010)

Breach of Contract Claims Breach of Contract Claims Breach of Contract Claims Breach of Contract Claims

 A purpose of contractual liability coverage is to cover the liability of third parties assumed by the insured in contractual liability of third parties assumed by the insured in contractual agreements, particularly hold harmless or indemnification agreements.  In most cases, it does not provide coverage to an insured for its own liability arising out of its own breach of contract.

31

“Business Risk” Exclusions “Business Risk” Exclusions Business Risk Exclusions Business Risk Exclusions

 j.1 - owned, rented, or occupied property  j.3 and 4 - care, custody and control  j.3 and 4 care, custody and control  j.5 - operations  j.6 - faulty workmanship  m - impaired property  m. - impaired property  l. - your work

32

Exclusion j.1 Exclusion j.1 -

• Owned, Rented, or Occupied

Owned, Rented, or Occupied Property Exclusion Property Exclusion

This insurance does not apply to: j Damage To Property

• j. Damage To Property

"Property damage" to: (1) Property you own, rent or occupy, ...

33

Exclusion j.1 Exclusion j.1 -

• Owned, Rented, or Occupied

Owned, Rented, or Occupied Property Exclusion Property Exclusion

 Designed to exclude coverage for exposures that are typically insured through other types of policies, such as inland marine insured through other types of policies, such as inland marine

• r fire policies.

 Because of the straightforward nature of the exclusion, it has  Because of the straightforward nature of the exclusion, it has not been the subject of much court interpretation, especially as applied in the defective work context.

34

Exclusion j 2 Exclusion j 2 – Alienated Premises Alienated Premises Exclusion j. 2 Exclusion j. 2 – Alienated Premises Alienated Premises

• j. Damage To Property

"Property damage" to: (2) Premises you sell give away or abandon if the "property (2) Premises you sell, give away or abandon, if the property damage" arises out of any part of those premises; Paragraph (2) of this exclusion does not apply if the premises Paragraph (2) of this exclusion does not apply if the premises are "your work" and were never occupied, rented or held for rental by you.

35

Exclusions j 3 and 4 Exclusions j 3 and 4 - Care Custody or Control Care Custody or Control Exclusions j.3 and 4 Exclusions j.3 and 4 Care, Custody, or Control Care, Custody, or Control

This insurance does not apply to:

• j. Damage To Property

"Property damage" to: Property damage to: (3) Property loaned to you; (4) Personal property in the care, custody or control of the insured; Paragraphs (3), (4), (5) and (6) of this exclusion do not apply to liability assumed under a sidetrack agreement.

36

Exclusions j 3 and 4 Exclusions j 3 and 4 - Care Custody or Control Care Custody or Control Exclusions j.3 and 4 Exclusions j.3 and 4 Care, Custody, or Control Care, Custody, or Control

 Care, custody, or control exclusion is limited to personal property.  Maintenance contractors or specialty contractors who install equipment -- personal -- rather than real -- property.  The loaned property exclusion could be broadly applied to preclude coverage for damage to any tools or equipment borrowed by an insured contractor, whether or not the tools or equipment were being used at the time of the loss. For contractors who borrow tools or equipment from each other, this exclusion may be significant.

37

Exclusions j 3 and 4 Care Custody or Control Exclusions j 3 and 4 Care Custody or Control Exclusions j. 3 and 4 Care, Custody, or Control Exclusions j. 3 and 4 Care, Custody, or Control

 National Union Fire Ins. Co. of Pitts., Pa. v. Structural Sys. Tech., Inc., 964 F.2d 759 (8th Cir. 1992). The court rejected Tech., Inc., 964 F.2d 759 (8th Cir. 1992). The court rejected the contention of the insurer that the care, custody, or control exclusion applied to a radio tower that collapsed. It held that the tower constituted real property, and since the care, custody, or control exclusion applied only to personal property, the exclusion did not eliminate coverage.

38

Exclusions j.3 and 4 Exclusions j.3 and 4 Care, Custody, or Control Care, Custody, or Control

 National Union Fire Ins. Co. of Pitts., Pa. v. Structural Sys. Tech., Inc., 964 F.2d 759 (8th Cir. 1992).

• Rejected insurer’s contention that the care, custody, or

control exclusion applied to a radio tower that collapsed.

• Held that the tower constituted real property, and since the

care, custody, or control exclusion applied only to personal property exclusion did not eliminate coverage property, exclusion did not eliminate coverage.

39

Exclusion j 5 Exclusion j 5 - Damage to Property Damage to Property Exclusion j.5 Exclusion j.5 - Damage to Property Damage to Property

This insurance does not apply to . . . "Property damage" to:

• j. (5) That particular part of real property on which you or any

contractors or subcontractors working directly or indirectly on your behalf are performing operations, if the "property damage" arises out of those operations . . .

40

Exclusion j 5 Exclusion j 5 - Damage to Property Damage to Property Exclusion j.5 Exclusion j.5 - Damage to Property Damage to Property

 The named insured or its subcontractors must be performing  The named insured or its subcontractors must be performing

• perations on the real property, and the property damage

must arise out of those operations.  Does not apply to products/completed operations.

41

Exclusion j 6 Exclusion j 6 - Damage to Property Damage to Property Exclusion j.6 Exclusion j.6 - Damage to Property Damage to Property

This insurance does not apply to . . . "Property damage" to: j (6) That particular part of any property that must be restored

• j. (6) That particular part of any property that must be restored,

repaired or replaced because "your work" was incorrectly performed on it. Paragraph (6) of this exclusion does not apply to "property damage" included in the "products-completed operations hazard" hazard .

42

Exclusion j 6 Exclusion j 6 - Damage to Property Damage to Property Exclusion j.6 Exclusion j.6 - Damage to Property Damage to Property

 Damage does not have to occur while the insured is performing operations as long as it occurs before performing operations, as long as it occurs before the project is completed.

43

Exclusion k Exclusion k – Your Product Your Product Exclusion k. Exclusion k. – Your Product Your Product

 Limited application in construction defect cases because “your product” is defined to exclude real property.  "Your product"

• a. Means:

(1) Any goods or products other than real property (1) Any goods or products, other than real property, manufactured, sold, handled, distributed or disposed of by . . .

44

Exclusion l Exclusion l – Your Work Your Work Exclusion l. Exclusion l. – Your Work Your Work

This insurance does not apply to . . . "Property damage" to:

• 1. "Property damage" to "your work" arising out of it or any part of

it and included in the "products-completed operations hazard." This exclusion does not apply if the damaged work or the work

• ut of which the damage arises was performed on your

behalf by a subcontractor behalf by a subcontractor.

45

Exclusion l Exclusion l - Your Work Your Work Exclusion l. Exclusion l. - Your Work Your Work

 Subcontractor exception is often key battleground.  Who is considered a subcontractor?

• A sub-subcontractor?
• A supplier?

46

Exclusion l Exclusion l - Your Work Your Work Exclusion l. Exclusion l. - Your Work Your Work

 Policyholder tip:

• The exception to the exclusion demonstrates that property

damage caused to a construction project by the faulty damage caused to a construction project by the faulty work of a subcontractor is an "occurrence" otherwise covered by the insurance policy.

 Carrier tips:

• There is no need to rely on an exclusion when there is no

y

• ccurrence or property damage in the first instance.
• Exceptions to exclusions are not coverage grants.

47

Exclusion l Exclusion l – Your Work Your Work Exclusion l. Exclusion l. – Your Work Your Work

 May be no coverage for:

• Damage to the insured’s work arising out of its work.

 May be coverage for:

• Damage to the insured’s work arising out of a subcontractor's

work;

• Damage to a subcontractor's work arising out of the

subcontractor's work;

• Damage to a subcontractor's work, or if the insured is a

f subcontractor, the insured would have coverage for damage to a general contractor's work or another subcontractor's work, arising

• ut of the insured's work.

48

Exclusion m Exclusion m – Impaired Property Impaired Property Exclusion m. Exclusion m. – Impaired Property Impaired Property

"Property damage" to "impaired property" or property that has not Property damage to impaired property or property that has not been physically injured, arising out of: (1) A defect, deficiency, inadequacy or dangerous condition in "your product" or "your work"; or (2) A delay or failure by you or anyone acting on your behalf to f perform a contract or agreement in accordance with its terms.

49

Exclusion m Exclusion m – Impaired Property Impaired Property Exclusion m. Exclusion m. – Impaired Property Impaired Property

"Impaired property" means tangible property, other than "your product" or "your work", that cannot be used or is less useful because:

• a. It incorporates "your product" or "your work" that is known or

thought to be defective, deficient, inadequate or dangerous; or

• b. You have failed to fulfill the terms of a contract or agreement;
• b. You have failed to fulfill the terms of a contract or agreement;

If such property can be restored to use by: a The repair replacement adjustment or removal of "your

• a. The repair, replacement, adjustment or removal of "your

product" or "your work"; or

• b. Your fulfilling the terms of the contract or agreement.

50

Exclusion m Exclusion m – Impaired Property Impaired Property Exclusion m. Exclusion m. – Impaired Property Impaired Property

 Applies to property that has not been physically injured but has been rendered less useful from the insured's product or work insured s product or work.  Damaged property must be capable of being g p p y p g restored to use by repair or replacement of the insured's product or work.  Both parts of the definition have to be present for the exclusion to apply.

51

Exclusion m Exclusion m – Impaired Property Impaired Property Exclusion m. Exclusion m. – Impaired Property Impaired Property

 Some courts have found it to be ambiguous:

• Computer Corner, Inc. v. Fireman's Fund Ins. Co., 46 P.3d 1264

(N.M. 2002);

• McKinney Bldrs. II, Ltd. v. Nationwide Mut. Ins. Co., 1999 WL

608851 (N.D. Tex. Aug. 11, 1999);

• Serigne v. Wildey, 612 So. 2d 155 (La. App. 1992), cert. denied,

613 So. 2d 994 (La. 1993).

52

Exclusion n. Exclusion n. -

• “Sistership”

“Sistership”

Applies if the defective product or work is i hd ll d f h k withdrawn or recalled from the market or from use by any person. May not apply to a construction defect claim because many defect claims are limited to because many defect claims are limited to problems with one building or structure.

53

Products Products-

• Completed Operations

Completed Operations

 Separate sub-limits in a CGL policy  Failure to obtain and procure leads to many breach of contract claims.  Three-part test for coverage.

54

Products Products-Completed Operations Completed Operations Products Products Completed Operations Completed Operations 3-

• Part Test

Part Test

 Must Occur Away from Your Premises.  Must Occur Away from Your Premises.  Must arise out of “Your Product” or “Your Work,” terms defined in the CGL form.  Does not apply if the work has not yet been completed or abandoned.

55

Products Products-Completed Operations Completed Operations Products Products Completed Operations Completed Operations

 The work is considered to be completed the earlier of:

• When all the named insured’s work as required in a contract has been

finished finished.

• When all the work at a job site has been completed if the named

insured’s contract requires work under the same contract but at another job site.

• For example, a mechanical sub has a contract to repair the HVAC systems for

at three different locations. Once the sub has completed the repair of the HVAC equipment at the first location, that job is considered to be complete. Thus, any bodily injury or property damage that may arise from that first location is included within the products-completed operations hazard, even if th th t j b t fi i h d the other two jobs are not finished.

• When that part of the work done at a job has been put to its intended use

by someone other than another contractor or subcontractor working on the same project.

56

Priority of Coverage Priority of Coverage Priority of Coverage Priority of Coverage

 Other insurance clauses

• Pro rata
• Excess
• Excess
• Escape

 Closer to the risk  Additional insured  Indemnity provisions in a construction contract

57

Contractual Risk Transfer Issues Contractual Risk Transfer Issues Contractual Risk Transfer Issues Contractual Risk Transfer Issues

 Additional Insureds  Additional Insureds  Certificates of Insurance  Indemnity/Insured Contract

58

Additional Insureds Additional Insureds Additional Insureds Additional Insureds

 Requires a separate endorsement to the basic CGL form - can be either specific or a blanket endorsement.  Terms of the endorsement must be reviewed.

• Coverage for the additional insured’s own negligence?
• Coverage for completed ops?

g p p

• Priority of coverage?

 One size does not fit all  One size does not fit all.

59

Additional Insured Additional Insured – – Who Pays the SIR? Who Pays the SIR? Who Pays the SIR? Who Pays the SIR?

 Forecast Homes, Inc. v. Steadfast Ins. Co., No. G040876, 2010 Cal. App. LEXIS 172 (Jan. 12, 2010) 2010)

• "[I]t is a condition precedent to our liability that you [the

named insured Sub] make actual payment of all damages and defense costs for each occurrence or offense until and defense costs for each occurrence or offense, until you [the named insured Sub] have paid" the full SIR amount.

• "Payments by others including but not limited to additional
• "Payments by others, including but not limited to additional

insureds or insurers, do not serve to satisfy the self- insured retention."

60

Additional Insureds Additional Insureds -

• Policy

Policy Endorsements Endorsements

 CG 20 10 11 85

• Provides the additional insured with coverage for liability arising

g y g

• ut of the named insured’s work for the additional insured;
• Covers the additional insured's sole negligence, as long as some

l ti b t th dditi l i d' li bilit d causal connection between the additional insured's liability and the named insured's activities can be demonstrated;

• Provides coverage for the named insured’s completed
• Provides coverage for the named insured s completed
• perations.

61

Additional Insureds Additional Insureds -

• Policy

Policy Endorsements Endorsements

 CG 20 10 03 97

• Provides the additional insured with coverage only for liability

g y y arising out of the named insured’s ongoing operations;

• Intended to limit the term of the additional insured’s insurance

t th ti i d d i hi h th d i d i coverage to the time period during which the named insured is actually performing operations;

• Does not include coverage for completed operations
• Does not include coverage for completed operations.

62

Additional Insureds Additional Insureds -

• Policy

Policy Endorsements Endorsements

 CG 20 10 10 01

• Provides the additional insured with coverage only for liability
• des

e add o a su ed co e age o y o ab y arising out of the named insured’s ongoing operations;

• Expressly excludes injuries or damages suffered after (i) the

“named” insured’s work at the site of the cove operations has been completed or (ii) the relevant portion of named insured’s been completed, or (ii) the relevant portion of named insured s work has been put to its intended use;

• Intended to limit the term of the additional insured’s coverage to

the time period during which the named insured is actually f i ti performing operations;

• Adopted in conjunction with CG 20 37 10 01, a new standard

form endorsement that will, if used in conjunction with this form, provide coverage similar to the CG 20 10 11 85.

63

Additional Insureds Additional Insureds -

• Policy

Policy Endorsements Endorsements

 CG 20 37 10 01

• Provides additional insured with coverage products-completed

g p p

• perations hazard arising out of the named insured’s work;
• Only applies to completed operations;
• No coverage for premises or operations;
• When used in conjunction with CG 20 10 10 01 provides
• When used in conjunction with CG 20 10 10 01, provides

coverage similar to CG 20 10 11 85.

64

Additional Insureds Additional Insureds -

• Policy

Policy Endorsements Endorsements

 CG 20 10 07 04

• Provides the “additional” insured with coverage only for liability caused in

whole or in part by the acts or omissions of either (i) the named insured

• r (ii) someone acting on behalf of the named insured;
• Limits coverage to ongoing operations for the additional insured;
• Excludes injuries or damages suffered after (i) the named insured’s work
• Excludes injuries or damages suffered after (i) the named insured s work

at the site of the covered operations has been completed, or (ii) the relevant portion of named insured’s work has been put to its intended use;

• Intended to limit the coverage provided to the additional insured to liability
• Intended to limit the coverage provided to the additional insured to liability

caused at least in part by the named insured’s ongoing operations, eliminating coverage for the additional insured’s sole negligence.

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Additional Insureds Additional Insureds -

• Policy

Policy Endorsements Endorsements

 CG 20 37 7 04

• Provides the additional insured with coverage for the products-

l t d ti h d d i h l i t b th completed operations hazard caused in whole or in part by the acts omissions of either (i) the named insured or (ii) someone acting on behalf of the named insured;

• Intended to limit the coverage provided to the additional insured

to liability caused at least in part by the named insured’s completed operations;

• Not intended to provide coverage for the additional insured’s sole

negligence; negligence;

• When used in conjunction with CG 20 10 07 04, meets typical

contract requirement to provide additional insured coverage coverage for both ongoing and completed operations.

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Certificates of Insurance Certificates of Insurance Certificates of Insurance Certificates of Insurance

 What they are:

• Evidence of insurance issued to the policy’s named insured
• Evidence of insurance issued to the policy s named insured.

 What they are not:

• E idence of co erage for additional ins reds
• Evidence of coverage for additional insureds.
• Evidence of waivers of subrogation.
• Evidence of any other special endorsements to the named

insured’s insurance policies insured s insurance policies.

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Certificates of Insurance Certificates of Insurance Certificates of Insurance Certificates of Insurance

• Clarendon Am. Ins. Co. v. Aargus Sec. Sys.,

I 870 N E 2d 988 994 (Ill A Ct 2007) Inc., 870 N.E.2d 988, 994 (Ill. App. Ct. 2007);

• Rodless Props., L.P. v. Westchester Fire Ins.
• Rodless Props., L.P. v. Westchester Fire Ins.

Co., 40 A.D.3d 253, 835 N.Y.S.2d 154, 155 (2007).

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Certificates of Insurance Certificates of Insurance Certificates of Insurance Certificates of Insurance

 At common law, the enforceability of a certificate of insurance depends on whether or not it contains written disclaimers.

• “The presence or absence of ... a disclaimer on the certificate of

insurance determines whether an insured may rest its coverage case on representations made in the certificate. If the certificate d t i l d di l i th i d l does not include a disclaimer, the insured may rely on representations made in the certificate.... If the certificate includes a disclaimer, the insured may not rely on representations made in the certificate but must look to the policy p p y itself to determine the scope of coverage.” American Country

• Ins. Co. v. Kraemer Bros., Inc., 298 Ill. App. 3d 805, 232 Ill. Dec.

871, 699 N.E.2d 1056 (App. Ct. 1st Dist. 1998).

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Certificates of Insurance Certificates of Insurance Certificates of Insurance Certificates of Insurance

 If a certificate does not contain disclaimers, courts frequently apply one of two legal theories to determine its legal effect: apply one of two legal theories to determine its legal effect:

• Contract law - courts compare the terms of the certificate against

the terms of the policy to determine what effect the parties meant the certificate to have;

• Equitable estoppel - if the certificate holder reasonably relies on

the certificate it may be unfair to allow the insurer to deny the certificate, it may be unfair to allow the insurer to deny coverage as represented in the certificate.

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Certificates of Insurance Certificates of Insurance – – Contract Contract Law Law

 Certificates without disclaimers that mirror the policy terms are usually treated as being intended to provide evidence of coverage, not as operative legal documents themselves. Skezas v. Safway Steel Prods., Inc., 85 Ill. App. 2d 295, 229 N.E.2d 781 (App. Ct. 1st Dist. 1967).  Certificates without disclaimers that contain additional policy terms may be construed as being the functional equivalent of an endorsement amending the underlying policy, assuming f G that the agent had authority to issue the certificate. TIG Ins.

• Co. v. Sedgwick James of Washington, 276 F.3d 754 (5th Cir.

2002).

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Certificates of Insurance Certificates of Insurance – Equitable Estoppel Equitable Estoppel Certificates of Insurance Certificates of Insurance Equitable Estoppel Equitable Estoppel

 Can certificates of insurance be used to support an estoppel theory?

• Majority – no:
• TIG Ins. Co. v. Sedgwick James of Washington, 184 F. Supp. 2d 591

(S.D. Tex. 2001), aff’d, 276 F.3d 754 (5th Cir. 2002); R d d St t F I C 728 A 2d 1202 (D C 1999)

• Redmond v. State Farm Ins. Co., 728 A.2d 1202 (D.C. 1999).
• Minority - yes:
• Marlin v Wetzel County Board of Education 569 S E 2d 462 (W Va

Marlin v. Wetzel County Board of Education, 569 S.E.2d 462 (W. Va. 2002).

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Certificates of Insurance Certificates of Insurance – Disclaimers Disclaimers Certificates of Insurance Certificates of Insurance Disclaimers Disclaimers

 Three methods for overcoming standard disclaimers:

• Extrinsic evidence may show that the parties meant to use the

certificate to amend the terms of the underlying policy. See, e.g., Bucon, Inc. v. Pennsylvania Mfg. Ass'n Ins. Co., 151 A.D.2d 207, 547 N.Y.S.2d 925 (App. Div. 3d Dep't 1989);

• A careful reading of disclaimers may reveal that they are not

inconsistent ith the holder's beliefs abo t co erage and inconsistent with the holder's beliefs about coverage, and therefore should not automatically defeat an estoppel claim. See, e.g., TIG Ins. Co. v. Via Net, 178 S.W.3d 10 (Tex. 2005).

• Disclaimers may conflict with two provisions of the UCC requiring
• Disclaimers may conflict with two provisions of the UCC requiring

that certificates of insurance issued in connection with certain commercial transactions must be viewed as acceptable proof of insurance.

73

Certificates of Insurance Certificates of Insurance Certificates of Insurance Certificates of Insurance

 Tip - Make sure to check state regulations and insurance bulletins for discussion of certificate of insurance issues.

• At least five states have enacted statutes or administrative

regulations that expressly prohibit the use of a certificate of insurance to make modifications to the underlying policy.

• State laws generally require insurers to file all insurance policy

forms with the department prior to use, and admitted insurers are prohibited from selling insurance using unfiled policy forms If prohibited from selling insurance using unfiled policy forms. If the certificate purports to amend or alter the coverage, then it effectively becomes an endorsement which must be approved before use.

74

Acord Certificate of Insurance Acord Certificate of Insurance – 05/10 05/10

75

Acord Certificate of Insurance Acord Certificate of Insurance – 05/10 05/10 Acord Certificate of Insurance Acord Certificate of Insurance – 05/10 05/10

This certificate is issued as a matter of information only and confers no rights upon the certificate holder This certificate confers no rights upon the certificate holder. This certificate does not affirmatively or negatively amend, extend or alter the coverage afforded by the policies below. This certificate

• f insurance does not constitute a contract between the

issuing insurer(s), authorized representative or producer, and the certificate holder.

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Acord Certificate of Insurance Acord Certificate of Insurance – 05/10 05/10 Acord Certificate of Insurance Acord Certificate of Insurance – 05/10 05/10

IMPORTANT: If the certificate holder is an ADDITIONAL INSURED the policy(ies) must be endorsed If INSURED, the policy(ies) must be endorsed. If SUBROGATION IS WAIVED, subject to the terms and conditions of the policy, certain policies may require an

• endorsement. A statement on this certificate does not

confer rights to the certificate holder in lieu of such endorsement(s).

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Acord Certificate of Insurance Acord Certificate of Insurance – 05/10 05/10 Acord Certificate of Insurance Acord Certificate of Insurance – 05/10 05/10

Notice of Cancellation Should any of the above described policies be cancelled Should any of the above described policies be cancelled before the expiration date thereof, notice will be delivered in accordance with the policy provisions.

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QUESTIONS? QU S O S

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