construction builder's risk and cgl insurance: scope of...

Construction Builder's Risk and CGL

Insurance: Scope of Coverage, Covered

Losses, Exclusions, AI Endorsements

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THURSDAY, FEBRUARY 8, 2018

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

Bruce H. Schoumacher, Shareholder, Querrey & Harrow, Chicago

Steven A. Coombs, Principal, Risk Resources, LaGrange Park, Ill.

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Builders Risk Policies

Presented by: Steve Coombs, CPCU, ARM President, Risk Resources, Inc. scoombs@riskresources.net

Areas of Focus

1. BR Contractual Requirements

2. Policy Structure: Who, What, Where, When and How

2. Common Problems and Solutions

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Common Misconceptions

1. BR policies are designed to work hand-in-hand with “contract documents”

2. BR policies are generic

3. Lower limits or reduced coverages benefit the

sponsor

4. You can design a BR policy without reviewing contract docs

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Sources of Minimum BR Requirements

1. Model Contracts • AIA

• ConsensusDOCS

• EJCDC

• DBIA

2. Custom

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Comparison of Requirements

1. Comments on handouts

2. Can all requirements be met?

3. Key areas : Who, What, Where, When and How?

4. Legal counsel should match requirements to the project

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Who Does What?

1. Procures?

2. Pays premium?

3. Pays deductibles?

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Who Does What? (cont.)

4. Adjusts claims?

5. Distributes claims proceeds?

6. Provides BR policy to others?

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Who is an Insured?

1. Named Insureds vs. Additional Insureds

2. Issues with design team

3. Issues with lenders

4. Issues with CIPs

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What Must be Insured?

1. “Insured Project” description

2. “Covered Property” definition

3. Foundations and underground property

4. Land improvements

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What Must be Insured? (cont.)

5. Temporary buildings/structures

6. Existing buildings?

7. Key pieces of contractors equipment?

8. FF&E?

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Where Must the BR Apply?

1. Model requirements are generally silent other than transit/off-site storage

2. How site specific is the project?

3. Revisit the “Insured Project” definition

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Where Must the BR Apply? (cont.)

4. “Policy Territory” definition

5. Limitations (e.g., airborne, waterborne, transit, off-site)

6. Critical or overseas suppliers?

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When Must the BR Apply?

1. Variability in Model Contracts

2. When coverage ends varies in BR policies • Policy expiration

• Upon occupancy: whole or part

• Acceptance

• When insurable interest ends

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When Must the BR Apply? (cont.)

3. Delta: requirements vs. policy

4. Transitioning to a permanent property policy

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How Must the BR Apply?

1. Builders Risk vs. Property Insurance • Is property insurance “equivalent” to BR insurance?

• Common areas where property insurance falls short: Naming of insureds

Inadequate automatic limits

Foundations/underground

Land improvements

Property in transit/off-site

Scope of exclusions

Troublesome conditions (e.g., vacancy/unoccupancy; increase in hazard)

Unintended coverage for others (time element)

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How Must the BR Apply? (cont.)

2. Required Amounts • Contract sum

• Change orders

• Materials supplied/installed by others

• Use of insured limits less than above (sublimits)

• Replacement valuation

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How Must the BR Apply? (cont.)

3. Particularly Troublesome Exclusions • Concurrent causation for all/most perils

• Faulty design, workmanship, materials

• Rain/snow/sleet/hail

• Catastrophe perils: wind, flood and earthquake

• Existing property

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How Must the BR Apply? (cont.)

4. Subrogation Condition • Mutual?

• Applicable to: BR insurance proceeds?

Other property insurance?

Owner’s loss of use insurance?

Owner’s insurance covering adjacent property?

Owner’s replacement insurance?

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How Must the BR Apply? (cont.)

4. Subrogation Condition • Mutual?

• Applicable to: BR insurance proceeds?

Other property insurance?

Owner’s loss of use insurance?

Owner’s insurance covering adjacent property?

Owner’s replacement insurance?

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Common Problems and Solutions

1. Sponsor will not include others as insureds

2. Owner will not waive subrogation rights

3. Owner imposes deductible responsibilities on contractors

4. Owner decides to “self-insure” perils

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Common Problems and Solutions? (cont.)

5. Inadequate sublimits

6. CIP issues

7. Renovation/remodeling projects- existing building

8. Owner uses permanent property policy

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Common Problems and Solutions? (cont.)

9. Soft costs/loss of revenue-improperly described

10. BR sponsor will not sponsor claim

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COMMERCIAL GENERAL LIABILITY INSURANCE

Bruce H. Schoumacher Querrey & Harrow, Ltd.

Chicago

A Little History

• 1966 Comprehensive General Liability Policy

• 1971 Insurance Services Office formed

• 1972 Form

• 1985/1986 Forms

• 2009 ISO becomes subsidiary of Verisk Analytics

• 2013 Commerical General Liability Polcy

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The Standard Policy Format

• Coverages—the Insuring Agreement

• Exclusions

• Who is insured

• Limits of liability

• Definitions

• General Conditions

• Endorsements

• Declarations

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Coverages

• Bodily injury

• Property damage

• Advertising and personal injury

• Medical payments

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Property Damage

• “Physical inury to tangible property, including all resulting loss of use of that property…or

• “Loss of use of tangible property that is not physically injured.”

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Need for an occurrence

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

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Exclusions • a. Intentional injuries

• b. Contractual liability

• c. Liquor liability

• d. Workers’ compensation

• e. Employer’ liability

• f. Pollution

• g. Aircraft, auto or watercraft

• j. Damage to property

• k. Damage to your product

• l. Damage to your work

• m. Damage to impaired property

• n. Recall

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b. Contractural Liability Exclusion

“ ‘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 agreement. This 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 …’insured contract’.

Examples of insured contract—lease of premises and a sidetrack agreement.

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Exclusion j. Property damage to

“(1) Property you own, rent or occupy…”

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Exclusion j. 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.”

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Exclusion j. 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.”

Does not apply to property damage included in completed operations hazard.

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l. Damages to Your Work

“’Property damage’ to ‘your work’ arising out of it or any part of it included in the ‘products-completed operations hazard’.”

Does not apply to work of your subcontractor.

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m. Damage To Impaired Property or Property Not Physically Injured

“Property damage’ to ‘impaired property’ or property that has not been physically injured arising out of :

…

(2) A delay or failure by you or anyone acting on your hehalf to perform a contract or agreement in accordance with its terms.”

Does not apply to sudden and accidental physical injury to your work.

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Who is insured

• Sole owner and spouse

• Partners and their spouses

• LLC members

• Employees

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Frequent issues

• Defense of claims for economic loss

• Claims for construction defects

• Completed Operations

• Suit requirement

• Defense of covered and uncovered allegations

• Insufficient policy limits

• Additional insured

• Indemnification provisions

• Contractural insurance provisions

• Certificates of insurance

• Wrap up programs—OCIPs and CCIPs

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Completed Operations and Products Hazard

• Provides coverage for completed construction projects

• But, policy only covers claims occuring during the policy period.

• Covers a claim occurring during this policy period, even though project was completed before the start of the policy period.

• What happens in the future?

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Construction Defects

• Look at the exclusions—j (1), j (5), j (6), l, and m

• 1986—Broad Form Property Damage Endorsement

• Covers general contractor for claims for completed operations (work) arising from work of a subcontractor.

• See second sentence of exclusion l (Damage to Your Work)

• “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.”

• Trade contractor wrongful act policies.

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Additional Insured Endorsements 1

• Purpose of the endorsement

• CG 20 10 11 85 “ WHO IS AN INSURED is amended to include (the Additional Insured) but only with respect to liability arising out ‘your work’ for that insured by or for you.”

• Covered the additional insured for liability for the insured’s work and the additional insured’s negligence related to the insured’s work.

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Additional Insured Endorsements—a detour

• 10 93 Only covered liability arising out of the named insured’s “ongoing operations.” Negated completed operations coverage.

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Additional Insured Endorsements 2

• CG 20 10 10 01 Coverage limited to claims arising from named insured’s “on going operations.”

• When combined with endorsement for completed operations, same coverage as Additional Insured Endorsement 1.

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Additional Insured Endorsement 3

• CG 20 10 07 04 Additional insured afforded coverage for claims “only with respect to liability… caused in whole or part by” by the acts or omissions of the name insured or its subcontractors.

• Purpose—to eliminate cover for the negligence of the additional insured.

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Additional Insured Endorsement 4

• CG20 10 04 13 To bring the additional insured endorsement into line with those states which have anti-indemnification statutes.

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Thank You

Bruce H. Schoumacher

Querrey & Harrow, Ltd.

175 W. Jackson Blvd.

Suite 1600

Chicago, IL 60604

312-540-7046

bschoumacher@querrey.com

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