Policyholder and Insurer Perspectives Navigating Occurrences, - - PowerPoint PPT Presentation

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Presenting a live 90-minute webinar with interactive Q&A

Construction Defect Insurance Claims: Policyholder and Insurer Perspectives

Navigating Occurrences, Triggers, Business Risk and Other Exclusions, Priority of Coverage, and Contractual Risk Transfer

Today’s faculty features:

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific TUESDAY, NOVEMBER 3, 2015

Stephen S. Asay, Attorney, Pillsbury Winthrop Shaw Pittman, Washington, D.C. James P . Bobotek, Partner, Pillsbury Winthrop Shaw Pittman, Washington, D.C.

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Pillsbury Winthrop Shaw Pittman LLP

Construction Defect Insurance Claims

James P. Bobotek and Stephen S. Asay

Insurance in a Typical Construction Defect Case

6 | Construction Defect Insurance Claims

Owner / Developer Occupant

Insurance

General Contractor Design Professionals

Subcontractors Material Suppliers Building Product Manufacturers Insurance Insurance Insurance Insurance Insurance Insurance

Analyzing Coverage for a Typical Construction Defect Claim

• Is there an “occurrence”?
• Is there bodily injury or property damage?
• Did the injury or damage take place during the policy period?
• Is coverage excluded?
• Have you complied with all the policy conditions?

7 | Construction Defect Insurance Claims

Occurrence

“Occurrence” means an accident, including continuous or repeated exposure to substantially the same general harmful conditions.

8 | Construction Defect Insurance Claims

Occurrence

Is faulty workmanship an occurrence?

9 | Construction Defect Insurance Claims

IT IS!

• Cypress Point Condo. Ass’n, Inc. v. Adria Towers LLC, 118 A.3d 1080 (N.J.
• Super. Ct. App. Div. 2015).
• Essex Ins. Co. v. Sheppard & Sons Constr., Inc., 2015 WL 4132919 (W.D. Okla.

July 9, 2015).

• Owners Ins. Co. v. Jim Carr Homebuilder, LLC, 157 So. 3d 148 (Ala. 2014).
• Cherrington v. Erie Ins. Prop. & Cas. Co., 745 S.E.2d 508 (W. Va. 2013).
• Capstone Bldg. Corp. v. Am. Motorists Ins. Co., 67 A.3d 961 (Conn. 2013).
• I.J. White Corp. v. Columbia Cas. Co., 964 N.Y.S.2d 21 (N.Y. App. Div. 2013).
• K & L Homes, Inc. v. Am. Family Mut. Ins. Co., 829 N.W.2d 724 (N.D. 2013).

10 | Construction Defect Insurance Claims

IT IS!

• Scottsdale Ins. Co. v. R.I. Pools, Inc., 710 F.3d 488 (2d Cir. 2013).
• Crossmann Cmtys. of N.C., Inc. v. Harleysville Mut. Ins. Co., 717 S.E.2d 589

(S.C. 2011).

• Greystone Constr., Inc. v. Nat’l Fire & Marine Ins. Co., 661 F.3d 1272 (10th Cir.

2011).

• Am. Empire Surplus Lines Ins. Co. v. Hathaway Dev. Co., Inc., 707 S.E.2d 369

(Ga. 2011).

• Sheehan Constr. Co., Inc. v. Cont’l Cas. Co., 935 N.E.2d 160 (Ind. 2010).
• Architex Assoc., Inc. v. Scottsdale Ins. Co., 27 So. 2d 1148 (Miss. 2010).
• Fortney & Weygandt, Inc. v. Am. Mfrs. Mut. Ins. Co., 595 F.3d 308 (6th Cir. 2010).

11 | Construction Defect Insurance Claims

IT IS!

• Liberty Mut. Ins. Co. v. Pella Corp., 631 F. Supp. 2d 1125 (S.D. Iowa 2009).
• Stanley Martin Cos., Inc. v. Ohio Cas. Group, 313 F. App'x 609 (4th Cir. 2009).
• Martco Ltd. P'ship v. Wellons, Inc., 588 F.3d 864 (5th Cir. 2009).
• Pine Oak Builders, Inc. v. Great Am. Lloyds Ins. Co., 279 S.W.3d 650 (Tex. 2009).
• Acadia Ins. Co. v. Peerless Ins. Co., 679 F. Supp. 2d 229 (D. Mass. 2010).
• U.S. Fire Ins. Co. v. J.S.U.B., Inc., 979 So.2d 871 (Fla. 2007).
• Lamar Homes, Inc. v. Mid-Continent Cas. Co., 242 S.W.3d 1 (Tex. 2007).

12 | Construction Defect Insurance Claims

IT IS NOT!

• Cizek Homes, Inc. v. Columbia Nat’l Ins. Co., 853 N.W.2d 28 (Neb. Ct. App.

2014).

• Zurich Am. Ins. Co. v. R.M. Shoemaker Co., 519 F. App’x 90 (3d Cir. 2013).
• Westfield Ins. Co. v. Custom Agri Sys. Inc., 979 N.E.2d 269 (Ohio 2012)
• Cincinnati Ins. Co. v. Motorists Mut. Ins. Co., 306 S.W.3d 69 (Ky. 2011).
• Group Builders, Inc. v. Admiral Ins. Co., 231 P.3d 67 (Haw. Ct. App. 2010).
• CMK Dev. Corp. v. West Bend Mut. Ins. Co., 917 N.E.2d 1155 (Ill. App. Ct.

2009).

• Pursell Constr. Inc. v. Hawkeye-Security Ins. Co., 596 N.W.2d 67 (Iowa

1999); W.C. Stewart Constr., Inc. v. Cincinnati Ins. Co., 770 N.W.2d 850 (Iowa App. 2009).

13 | Construction Defect Insurance Claims

IT IS NOT!

• Friel Luxury Home Constr., Inc. v. ProBuilders Specialty Ins. Co. RRG, 2009

WL 5227893 (D. Mass. Dec. 22, 2009).

• 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).

• Pa. Nat’l Mut. Cas. Ins. Co. v. Parkshore Dev. Corp., 2009 WL 1737032 (D.

N.J. June 17, 2009).

• Kvaerner Metals Div. of Kvaerner U.S., Inc. v. Commercial Union Ins. Co.,

908 A.2d 888 (Pa. 2006).

14 | Construction Defect Insurance Claims

Legislative Attempts

• Colorado: Revised Stat. § 13-200-808 (2010) defines the term “accident” in a

CGL policy to clarify that construction defects are covered losses unless the damage is intended and expected.

• South Carolina: S.C. Code Ann. § 38-61-70 (2011) - CGL policies that insure

a “construction professional” for liability arising from “construction related work . . . shall contain or be deemed to contain an “occurrence” definition that includes: (1) an accident, including continuous or repeated exposure to substantially the same general harmful conditions; and (2) property damage

• r bodily injury resulting from faulty workmanship, exclusive of the faulty

workmanship itself.”

15 | Construction Defect Insurance Claims

Legislative Attempts

• Hawaii: H.R.S. § 431:1-217 - For purposes of a liability insurance policy that

covers occurrences of damage or injury during the policy period and that insures a construction professional for liability arising from construction- related work, the meaning of the term “occurrence” shall be construed in accordance with the law as it existed at the time that the insurance policy was issued.

• Arkansas: A.C.A. §23-79-155 (2011) - A commercial general liability

insurance policy offered for sale in this state shall contain a definition of “occurrence” that includes: (1) accidents, including continuous or repeated exposure to substantially the same general harmful conditions; and (2) property damage or bodily injury resulting from faulty workmanship.

16 | Construction Defect Insurance Claims

Texas—Maybe It Is?

• Ewing Construction Co. Inc. v. Amerisure Ins. Co.,

420 S.W.3d 30 (Tex. 2014).

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

327 S.W.3d 118 (Tex. 2010).

• Lamar Homes v. Mid-Continent Cas. Co.,

242 S.W.3d 1 (Tex. 2007).

17 | Construction Defect Insurance Claims

Coverage A – Insuring Agreement

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

ISO Form CG 00 01 12 07

18 | Construction Defect Insurance Claims

“The Insured”

• Named Insured—Declarations Page
• Insured (Who Is An Insured Section)



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



Real estate managers



Newly formed/acquired organizations (grace period)

• Additional Insureds
• Joint Ventures

19 | Construction Defect Insurance Claims

“Bodily Injury”

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

20 | Construction Defect Insurance Claims

“Property Damage”

a. Physical injury to tangible property, including all resulting loss of use

• f 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.

21 | Construction Defect Insurance Claims

Trigger

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

22 | Construction Defect Insurance Claims

Trigger

• Exposure
• Manifestation
• Injury-in-fact
• Continuous

23 | Construction Defect Insurance Claims

Myths?

A CGL policy distinguishes between:

• Negligence and breach of contract
• Property damage and economic loss

24 | Construction Defect Insurance Claims

Coverage Beyond Simple “Property Damage”

• Consequential damages



All damages “because of” property damage

• “Rip and tear”



Costs to remove and replace undamaged and/or non-defective work to access damaged and/or defective work

• Mitigation



Costs to repair defective work to mitigate against further damages and covered losses

25 | Presentation Title

Coverage for Economic Losses

• Am. Home Assurance Co. v. Libbey-Owens-Ford Co., 786 F.2d 22 (1st Cir.

1986)

• Mid-Continent Cas. Co. v. Circle S Feed Store, LLC, 754 F.3d 1175 (10th Cir.

2014) (diminution in value).

• Nat’l Union Fire Ins. Co. of Pittsburgh v. Puget Plastics Corp., 532 F.3d 398

(5th Cir. 2008) (lost profits).

• U.S. Fid. & Guar. Co. v. Andalusia Ready Mix, Inc., 436 So. 2d 868 (Ala.

1983) (labor and material costs).

• DiMambro-Northend Assocs. v. United Constr. Inc., 397 N.W. 2d 547 (Mich.
• Ct. App. 1986) (delay, overhead, lost profits, interest)

26 | Presentation Title

Coverage for “Rip and Tear”

• Carithers v. Mid-Continent Cas. Co., 782 F.3d 1240 (11th Cir. 2015).
• DeWitt Constr. Inc. v. Charter Oak Fire Ins. Co., 307 F.3d 1127 (9th
• Cir. 2002).
• Indian Harbor Ins. Co. v. Transform LLC, 2010 WL 3584412 (W.D.
• Wash. Sept. 8, 2010)
• Emp’rs Mut. Cas. Co. v. Grayson, 2008 WL 2278593 (W.D. Okla. May

30, 2008)

27 | Presentation Title

Coverage for Mitigation

• Carithers v. Mid-Continent Cas. Co., 782 F.3d 1240 (11th Cir. 2015).
• Big-D Constr. Corp. v. Take it for Granite Too, 917 F. Supp. 2d 1096

(D. Nev. 2013).

• AIU Ins. Co. v. Superior Court, 51 Cal. 3d 807 (1990).
• Am. Econ. Ins. Co. v. Commons, 552 P.2d 612 (Or. Ct. App. 1976).
• Leebov v. U.S. Fid. & Guar. Co., 165 A.2d 82 (Pa. 1960).

28 | Presentation Title

EXCLUSIONS

29 | Construction Defect Insurance Claims

Exclusion b. Contractual Liability

This insurance does not apply to: b. Contractual Liability “Bodily injury” or “property damage” for which the insured is

• bligated to pay damages by reason of the assumption of liability

in a contract or agreement.

30 | Construction Defect Insurance Claims

Exclusion b. Contractual Liability: Exception

This exclusion does not apply to liability for damages: (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 “insured contract”, provided the “bodily injury” or “property damage” occurs subsequent to the execution of the contract or agreement . . . .

31 | Construction Defect Insurance Claims

Exclusion b. Contractual Liability: 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 of a railroad; * * * * e. An elevator maintenance agreement;

32 | Construction Defect Insurance Claims

Exclusion b. Contractual Liability: Definition of “Insured Contract”

“Insured contract” means: * * * * 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 liability that would be imposed by law in the absence of any contract or agreement.

33 | Construction Defect Insurance Claims

Exclusion b. Contractual Liability: Definition of “Insured Contract”

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

34 | Construction Defect Insurance Claims

Exclusion b. Contractual Liability

• Includes warranty claims.
• Is the insured “legally obligated to pay” breach of contract damages,
• r does this language limit coverage to tort claims?

35 | Construction Defect Insurance Claims

Exclusion b. Contractual Liability

Breach of Contract Claims:

• A purpose of contractual liability coverage is to cover the 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.

• I.J. White Corp. v. Columbia Cas. Co., 964 N.Y.S.2d 21 (N.Y. App.
• Div. 2013) (rejecting insurer’s argument that there is no coverage

under a CGL policy for breach of contract actions).

36 | Construction Defect Insurance Claims

“Business Risk” Exclusions

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

37 | Construction Defect Insurance Claims

Exclusion j.1 Owned, Rented, or Occupied Property

• Designed to exclude coverage for exposures that are typically insured

through other types of policies, such as inland marine or fire policies.

• 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.

38 | Construction Defect Insurance Claims

Exclusion j.1 Owned, Rented, or Occupied Property

This insurance does not apply to: j. Damage To Property “Property damage” to: (1) Property you own, rent or occupy . . . .

39 | Construction Defect Insurance Claims

Exclusion j.2 Alienated Premises

This insurance does not apply to: j. Damage To Property “Property damage” to: (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 are “your work” and were never occupied, rented or held for rental by you.

40 | Construction Defect Insurance Claims

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

This insurance does not apply to: j. Damage To Property “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.

41 | Construction Defect Insurance Claims

Exclusions j.3 and j.4 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.

42 | Construction Defect Insurance Claims

Exclusions j.3 and j.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).

• 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 because the

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

43 | Construction Defect Insurance Claims

Exclusion j.5 Damage to Property

This insurance does not apply to:

• j. Damage To Property

"Property damage" to: (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 . . . .

44 | Construction Defect Insurance Claims

Exclusion j.5 Damage to Property

• “That particular part . . .”



Expansive/indivisible: Copple Constr., L.L.C. v. Columbia Nat'l Ins. Co., 279 Neb. 60 (Neb. 2009)



Restrictive/divisible: Mid-Continent Cas. Co. v. JHP Dev., Inc., 557 F.3d 207 (5th Cir. Tex. 2009)

• The named insured or its subcontractors must be performing
• perations on the real property, and the property damage must arise
• ut of those operations.
• Does not apply to products-completed operations.

45 | Construction Defect Insurance Claims

Exclusion j.6 Damage to Property

This insurance does not apply to:

• j. Damage To Property

"Property damage" to: (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”.

46 | Construction Defect Insurance Claims

Exclusion j.6 Damage to Property

Damage does not have to occur while the insured is performing

• perations, as long as it occurs before the project is completed.

47 | Construction Defect Insurance Claims

Exclusion k. Your Product

• Limited application in construction defect cases because “your

product” is defined to exclude real property. 

• Md. Cas. Co. v. Reeder, 221 Cal. App.3d 961 (1990).
• “Your product” defined:

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

48 | Construction Defect Insurance Claims

Exclusion l. Your Work

This insurance does not apply to:

• l. Damage To Your Work

“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 out of which the damage arises was performed on your behalf by a subcontractor.

49 | Construction Defect Insurance Claims

Exclusion l. Your Work

• Subcontractor exception is often key battleground
• Who is consider a subcontractor?



A sub-subcontractor?



A supplier?



On-site/made for project specs.



Must there be a written contract?

50 | Construction Defect Insurance Claims

Exclusion l. Your Work

Policyholder Tip:

• The exclusion demonstrates that property damage caused to a

construction project by the faulty work of a subcontractor is an “occurrence” otherwise covered by the insurance policy.

• Otherwise, if faulty work was not an “occurrence,” then there would be

no need for the exclusion.

51 | Construction Defect Insurance Claims

Exclusion l. Your Work

• May be no coverage for:



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

• What is “your work”?



Work or operations performed by you or on your behalf



Materials, parts, or equipment furnished in connection with such work or operations

• What does “your work” include?



Warranties or representations made at any time with respect to the fitness, quality, durability, performance or use of “your work”



The providing of or failure to provide warnings or instructions

52 | Construction Defect Insurance Claims

Exclusion l. Your Work

• May be coverage for:



Property damage to work performed by the insured when the damage results from the work of the insured’s subcontractor.



Property damage to work performed by the insured’s subcontractor when the damage results from that subcontractor’s work.



Property damage to work performed by the insured’s subcontractor when the damage results from work performed by the insured.



Property damage to work performed by the insured’s subcontractor when the damage results from the work of another contractor or subcontractor.

53 | Construction Defect Insurance Claims

Products-Completed Operations

• Separate sub-limits in a CGL policy.
• Failure to obtain and procure for additional insureds leads to many

breach of contract claims.

• Three-part test for coverage.

54 | Construction Defect Insurance Claims

Products-Completed Operations

Three-part test for coverage: 1. Must occur away from your premises. 2. Must arise out of “Your Product” or “Your Work,” terms defined in the CGL form. 3. Does not apply if the work has not yet been completed or abandoned.

55 | Construction Defect Insurance Claims

Products-Completed Operations

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

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

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.

• 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 | Construction Defect Insurance Claims

Contractual Risk Transfer Issues

• Additional Insureds
• Certificates of Insurance

57 | Construction Defect Insurance Claims

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 operations?



Priority of coverage?

• One size does not fit all.

58 | Construction Defect Insurance Claims

Additional Insureds: Who Pays the SIR?

Forecast Homes, Inc. v. Steadfast Ins. Co.,181 Cal.App.4th 1466 (Cal.

• Ct. App. 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

• ccurrence or offense, until you [the named insured Sub] have paid”

the full SIR amount.

• “Payments by others, including but not limited to additional insureds or

insurers, do not serve to satisfy the self-insured retention.”

59 | Construction Defect Insurance Claims

Additional Insureds: Policy Endorsements

CG 20 10 11 85

• Provides the additional insured with coverage for liability arising out of

the named insured’s work for the additional insured.

• Covers the additional insured’s sole negligence, as long as some

causal connection between the additional insured’s liability and the named insured’s activities can be demonstrated.

• Provides coverage for completed operations claims.

60 | Construction Defect Insurance Claims

Additional Insureds: Policy Endorsements

CG 20 10 03 97

• Provides the additional insured with coverage only for liability arising
• ut of the named insured’s ongoing operations.
• Intended to limit the term of the additional insured’s insurance

coverage to the time period during which the named insured is actually performing operations.

• Does not include coverage for completed operations.

61 | Construction Defect Insurance Claims

Additional Insureds: Policy Endorsements

CG 20 10 10 01

• Provides the additional insured with coverage only for liability 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 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 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.

62 | Construction Defect Insurance Claims

Additional Insureds: Policy Endorsements

CG 20 37 10 01

• Provides additional insured with coverage products-completed
• 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 coverage

similar to CG 20 10 11 85.

63 | Construction Defect Insurance Claims

Additional Insureds: April 2013 ISO Changes

1. The insurance afforded to such additional insured only applies to the extent permitted by law; and 2. If coverage provided to the additional insured is required by a contract or agreement, the insurance afforded to such additional insured will not be broader than that which you are required by the contract or agreement to provide for such additional insured.

64 | Presentation Title

Additional Insureds: April 2013 ISO Changes

If coverage provided to the additional insured is required by a contract or agreement, the most we will pay on behalf of the additional insured is the amount of insurance: 1. Required by the contract or agreement; or 2. Available under the applicable Limits of Insurance shown in the Declarations; whichever is less.

65 | Presentation Title

Certificates of Insurance

• What they are:



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

• What they are not:



Evidence of coverage for additional insureds.



Evidence of waivers of subrogation.



Evidence of any other special endorsements to the named insured’s insurance policies.

66 | Construction Defect Insurance Claims

Certificates of Insurance

• “Nor did the certificate of insurance confer additional insured status.”



Nicotra Grp., LLC v. Am. Safety Indem. Co., 48 A.D.3d 253, 254, 850 N.Y.S.2d 455, 457 (1st Dep't 2008)

• “We agree . . . that since the certificate of insurance was issued as a

matter of information only . . . it is neither proof of insurance nor proof

• f an oral contract.”



RodlessProps., L.P. v. Westchester Fire Ins. Co., 40 A.D.3d 253, 254-55, 835 N.Y.S.2d 154, 155 (1st Dep't 2007)

67 | Construction Defect Insurance Claims

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

• n representations made in the certificate. If the certificate 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 itself to determine the scope of coverage.” 

American Country Ins. Co. v. Kraemer Bros., Inc., 699 N.E.2d 1056 (Ill. Ct. App. 1998).

68 | Construction Defect Insurance Claims

Certificates of Insurance

If a certificate does not contain disclaimers, courts frequently apply one

• f 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 coverage as represented in the certificate.

69 | Construction Defect Insurance Claims

Certificates of Insurance: Contract Law

• Certificates without disclaimers that mirror the policy terms are usually

treated as being intended to provide evidence of coverage, not as

• perative 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 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: 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).



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. 2002).

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Certificates of Insurance: 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 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 that

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

72 | Construction Defect Insurance Claims

Certificates of Insurance

• Tip: Make sure to check state regulations and insurance bulletins for

discussion of certificate of insurance issues.

• Several 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 the certificate purports to amend or alter the coverage, then it effectively becomes an endorsement which must be approved before use

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Acord Certificate of Insurance – 05/10

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Acord Certificate of Insurance – 05/10

This certificate is issued as a matter of information only and 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 of 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 – 05/10

IMPORTANT: If the certificate holder is an ADDITIONAL 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 – 05/10

Notice of Cancellation 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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Thank you!

James P. Bobotek james.bobotek@pillsburylaw.com Stephen S. Asay stephen.asay@pillsburylaw.com

78 | Construction Defect Insurance Claims