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

Presenting a live 90-minute webinar with interactive Q&A Performance Bonds and CGL Insurance in Construction Projects: Navigating the Interplay Between Insurance and Surety Minimizing Risks and Maximizing Recovery for Defective Workmanship and Property Damage TUES DAY, APRIL 1, 2014 1pm East ern | 12pm Cent ral | 11am Mount ain | 10am Pacific Today’s faculty features: David M. Adelstein, Partner, Kirwin Norris , Orlando, Fla. James C. Washburn, Pohl & Short , Winter Park, Fla. 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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PERFORMANCE BONDS on CONSTRUCTION PROJECTS P R E S E N T E D B Y : J A M E S C. W A S H B U R N , E S Q . P O H L & S H O R T , P . A . W A S H B U R N @ P O H L S H O R T . CO M 4 0 7 - 6 4 7 - 7 6 4 5 A P R I L 1, 2 0 14

PERFORMANCE BONDS on CONSTRUCTION PROJECTS AGEN D A • N a t u r e o f t h e S u r e t y s h i p R e l a t i o n s h i p • P e r f o r m a n c e B o n d Co v e r a g e • S u r e t y ’s D e f e n s e s • S u r e t y ’s R e m e d i e s 6

NATURE OF THE SURETYSHIP RELATIONSHIP “S U R E TYS H I P I S N OT I N S U R AN CE ” P e a r l m a n v . R e l i a n c e I n s u r a n c e C o . , 3 7 1 U . S . 13 2 , 14 0 n . 19 , 8 3 S . Ct . 2 3 2 , 9 L . E d . 2 d 19 0 ( 19 6 2 ) 7

NATURE OF THE SURETYSHIP RELATIONSHIP D I S TI N CTI O N S B E TW E E N S U R E TY B O N D S A N D I N S U R A N CE : T h r e e - P a r t y A g r e e m e n t v . T w o - P a r t y A g r e e m e n t 1 . S u r e t y ’s R i g h t o f I n d e m n i t y 2 . P r e m i u m s 3 . S c o p e o f C o v e r a g e 4 . R i g h t s a n d R e m e d i e s 5 . 8

NATURE OF THE SURETYSHIP RELATIONSHIP TH R E E P A R TY A GR E E M E N T S u r e t y 1 . 2 . O b l i g e e 3 . P r i n c i p a l 9

NATURE OF THE SURETYSHIP RELATIONSHIP R I GH T O F I N D E M N I TY : Co m m o n L a w R i g h t o f I n d e m n i f i c a t i o n 1 . 2 . C o n t r a c t u a l I n d e m n i t y 10

NATURE OF THE SURETYSHIP RELATIONSHIP P R E M I U M S : P o o l o f R e s e r v e s t o C o v e r L o s s e s o f N u m e r o u s 1 . I n s u r e d s 2 . Ca s e - b y - Ca s e C a l c u l a t i o n o f E c o n o m i c R i s k 11

PERFORMANCE BOND COVERAGE Co s t o f Co m p l e t i o n • D e f e c t i v e W o r k • D e l a y D a m a g e s • P e n a l S u m Li m i t a t i o n • 12

PERFORMANCE BOND COVERAGE P R O J E CT CO M P LE TI O N F i n a n c i n g t h e D e f a u l t e d P r i n c i p a l • S e c u r e a Co m p l e t i o n Co n t r a c t o r • Ca s h P a y o u t t o O b l i g e e • 13

PERFORMANCE BOND COVERAGE D E F E CTI V E W O R K D e f e c t s D i s c o v e r e d P r i o r t o • Co m p l e t i o n W a r r a n t y W o r k • La t e n t D e f e c t s • 14

PERFORMANCE BOND COVERAGE D e l a y D a m a g e s Lo s s o f U s e / L o s t P r o f i t s / F i n a n c i n g • Ch a r g e s I n c r e a s e d La b o r a n d M a t e r i a l Co s t s d u e • t o D e f a u l t • Li q u i d a t e d D a m a g e s • 15

PERFORMANCE BOND COVERAGE P E N AL S U M LI M I TATI ON • P r i n c i p a l / Co v e r e d D a m a g e s L i t i g a t i o n A t t o r n e y ’s F e e s • 16

SURETY’S DEFENSES P r i n c i p a l ’s D e f e n s e s a n d Cl a i m s • S e t - o f f f o r a m o u n t s o w e d o n a • s e p a r a t e P r o je c t O b l i g e e ’s I m p r o p e r P a y m e n t • I n a d e q u a t e o r U n t i m e l y N o t i c e o f • D e f a u l t 17

SURETY’S DEFENSES Ca r d i n a l Ch a n g e s • S t a t u t e o f Li m i t a t i o n s • La c k o f S t a n d i n g o f t h e • P e r f o r m a n c e B o n d Cl a i m a n t 18

SURETY’S REMEDIES R i g h t o f S u b r o g a t i o n • Co m m o n La w I n d e m n i t y • Co n t r a c t u a l I n d e m n i t y • 19

SURETY’S REMEDIES R i g h t t o S e t t l e Ob l i g e e ’s Cl a i m s • a g a i n s t t h e P r i n c i p a l / B o n d R i g h t t o S e t t l e P r i n c i p a l ’s Cl a i m s • a g a i n s t t h e Ob l i g e e Co l l a t e r a l D e p o s i t s • 20

SURETY’S REMEDIES As s i g n m e n t t o p r o c e e d s o n o t h e r • P r o je c t s n o t i n d e f a u l t E x o n e r a t i o n • At t o r n e y F e e s • 21

CGL Coverage in Construction Projects Presented by: David M. Adelstein, Esq. Kirwin Norris dma@kirwinnorris.com 954-759-0026 April 1, 2014

A. CGL BASICS (1) PURPOSE OF CGL (THIRD PARTY LIABILITY) POLICY: 2 main purposes or duties: 1) defend insured 2) indemnify insured from 3 rd party claims *duty to defend broader than duty to indemnify & triggered by allegations of complaint that would give rise to “ potential ” coverage **This is why if insurer provides defense, it is often under a reservation of rights to deny coverage / duty to indemnify 23

CGL (Commercial General Liability) COVERAGE 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). 24

A. CGL BASICS (2) COVERAGE APPLICABLE TO CONSTRUCTION  PROPERTY DAMAGE- TRIGGERED BY AN “OCCURRENCE”  Bodily injury/death – SAME TRIGGER 25

A. CGL BASICS 26

A. CGL BASICS (3) WHAT IS AN OCCURRENCE THAT TRIGGERS POTENTIAL COVERAGE SECTION V- DEFINITIONS 27

A. CGL BASICS An “occurrence” is defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” Id., § V 12. The term “accident” is not defined. “[W]here the term ‘accident’ in a liability policy is not defined, the term ... encompasses not only ‘accidental events,’ but also injuries or damage neither expected nor intended from the standpoint of the insured Assurance Co. of America v. Lucas Waterproofing Co., Inc. , 581 F.Supp.2d 1201, 1208 (S.D.Fla. 2008) 28

A. CGL BASICS “Under Section V of the Policies, the term occurrence is defined to mean “an accident which takes place during the policy period, or that portion of a policy period of a continuous or repeated exposure to conditions, which causes personal injury, property damage or advertising liability neither expected nor intended by the insured.” Canal Ins. Co. v. Montello, Inc ., 2013 WL 6732658, *8 (N.D.Okla. 2013) 29

A. CGL BASICS What is completed operations? - Coverage for bodily injury / property damage that “occurs” post-completion 30