contractor’s dangerous coverage gaps update 2013 ... · failure to clearly define the difference...

R. J. Marshburn & Associates

CertifiedRiskManagers.com

668 N. Coast Hwy #205, Laguna Beach, CA 92651 Phone 800.576.6607 Fax 800.576.7799 CertifiedRiskManagers.com © Copyright 1999-2013 R. J. Marshburn & Associates. All Rights Reserved.

Contractor’s Dangerous Coverage Gaps

Update

2013 Additional Insured Forms Require Revised Contract Wording

By

Robert J. Marshburn, CRM, CIC, ARM, CRIS, CISC

R. J. Marshburn & Associates Laguna Beach, California

[email protected] Disclaimer: This material is for educational purposes only. R J Marshburn & Associates is independent of any insurance company, law firm, or other entity. These matters are in a constant state of change. What is current today can be outdated tomorrow. This information is presented from an insurance and risk management perspective only, and can not apply to any single set of circumstances. It is not intended as a substitute for competent legal advice. You should check with your legal adviser to determine suitability, if any, to your specific circumstances. R J Marshburn & Associates expressly disclaim any responsibility for damages arising from any use, application, or reliance upon the information presented herein. .

http://www.certifiedriskmanagers.com/

mailto:[email protected]




2013 Additional Insured Forms Require Revised Contract Wording

Major changes in the new ISO forms for 2013! 1. ISO has introduced significant coverage changes affecting indemnity, insurance, and

contract requirements! These liability changes will begin appearing in renewal policies from now on.

2. This workshop explains why the new Additional Insured and other forms make it necessary that you must update your contracts!

3. For a number of years we have been warning that some Insurance Companies are

limiting their Insurance coverage for the Additional Insured to ONLY the requirements in the written contract (or agreement) between the parties. Now, all of the new 2013 ISO Additional Insured Endorsements with the edition date of 04.13 will contain this as well as other critical provisions!

4. The bottom line is that unless your contract contains the correct Insurance requirements

language you will not have coverage! 5. Put another way—coverage under the Insurance will now be directly determined by the

contract language between the parties! 6. Your own (wrongly worded) contract language may deny you insurance coverage! 7. Even if your Contractor’s policy contains broader coverage or higher limits of liability

than your contract requires, they will NOT apply in behalf of the Additional Insured or Indemnified Party (Indemnitee) unless it is required in the contract!

8. Careful integration of the Insurance with the Contract is no longer an option!





The following are the major changes affecting the new and revised Additional Insured forms that require accurate understanding and careful contract wording to obtain the expected coverage— The major changes for the new forms provide that the Insurance— 1. Shall only apply to the extent permitted by law; AND 2. Will not be broader coverage than that required by the contract or agreement; AND 3. The maximum limits paid for the additional insured is the amount Required by the

contract or agreement; or the Policy limit, whichever is less. 4. ISO has released a new Automatic (Blanket) Insurance coverage form 5. ISO has (finally) released a new form that specifically provides coverage on a primary

and non-contributory basis. The last two items, 4 and 5, are good news if used properly. The first 3 items for Additional Insureds can only bring reduced, not expanded, coverage. NOTE—The following (1) Law, (2) Coverage, and (3) Limits language is in all the new Additional Insured Endorsements with the 04.13 edition date, including the commonly used CG 2010, 2033, and 2037 (as well as the new Additional Insured form 2038 discussed below). 1—THE LAW—Because of anti-indemnity provisions contained in California law that restricts the scope of permissible coverage for the additional insured's own negligence (including SB474 effective January 1, 2013) Additional Insured coverage will be limited to the extent the law allows, despite any apparent (or actual) broader wording of an Additional Insured Endorsement.

A. California’s anti-indemnification provisions for construction are ambiguous as to whether the restrictions apply to only contractual indemnification between the parties; or also apply to indemnification from the insurance carrier that would affect coverage for both the named and additional insured. Other states have similar problems. This is one of the reasons ISO has added this restriction to additional insured endorsements.





B. For example, most of the ISO additional insured endorsements provide coverage to the additional insured Public Entity for shared negligence with the named insured under Type 1, 2 or 3 indemnity provisions.

C. However, SB474, effective 1.1.2013, prohibits providing the Additional Insured

with indemnity for its own active (not passive) negligence in a construction contract. Should this statute be found to apply to the additional insured Public Entity, the "to the extent permitted by law" restriction would reduce coverage for the additional insured Public Entity to its passive and vicarious liability.

D. This contractual indemnification/anti-indemnity issue is further exacerbated by the failure to clearly define the difference between an additional insured indemnitee (covered by the Insurance Company) and a non-insured indemnitee i.e., a party contractually indemnified by the Named Insured Indemnitor. There will no doubt be a need for legislative and/or case law clarification.

2—COVERAGE—Despite the actual wording provided by the additional insured endorsement, Insurance coverage for the additional insured will not be broader than required in the contract or agreement. This is to avoid giving an additional insured broader coverage than requested. Take care when drafting the contract to describe the desired coverage fully and accurately. Require that all coverage available to the named insured shall also be available and applicable to the additional insured.

A. For example, the underlying contract may require the additional insured be covered only for its liability arising out of the negligence of the named insured—a narrow scope of coverage. Despite actual wording to the contrary in the additional insured endorsement, in this example, the additional insured would not be covered for anything but the liability imposed on it solely because of the negligence of the named insured.





3—LIMITS—If the contract requires limits of liability that are less than the policy limits, the lower limits in the contract will apply. This addresses the amount of coverage available to the additional insured Public Entity. To avoid a windfall—limits available to the additional insured that exceed the limits required—the limit for the additional insured is now the lesser of the actual limit or the limit required in the underlying contract or agreement. If the contractor has limits of $2 million, but you only require limits of $1 million in the subcontract, you are walking away from $1 million in coverage.

A. Update your Contracts to require language (as approved by your Risk Manager and attorney) that specifically and unequivocally details the Insurance obligations for the required coverage and limits under your agreement.

B. In our opinion you should additionally consider using universal language to the

effect that any available insurance proceeds in excess of the specified minimum limits and coverage shall be available to the Additional Insured.

Introduction of the new CG 20 38 provides broader coverage than the CG 20 33 and Reduces Risk. 1. This is the ISO so-called Blanket Additional Insured Endorsement (CG 20 33) that

provides "Additional Insured—Owners, Lessees or Contractors—Automatic Status for Other Parties When Required in Written Construction Agreement with You" has been found in some instances to include as additional insured only those parties with which the downstream party entered a direct contract or agreement.

2. The purpose of the new CG 20 38 endorsement is to include not only those persons or

organizations the downstream party has directly contracted with as an additional insured but also any other person or organization the downstream party is required to add as an additional insured by the terms of any direct agreement with an upstream party. It provides “AUTOMATIC STATUS FOR OTHER PARTIES WHEN REQUIRED IN WRITTEN CONSTRUCTION AGREEMENT” and deletes the requirement that the Agreement be “with You” to trigger coverage.





3. If a subcontractor is required in the general contractor/subcontractor agreement to add the project owner/Public Entity as an additional insured, the NEW CG 20 38 would include the project owner/Public Entity even though the subcontractor has no direct contractual relationship with the project owner/Public Entity.

4. This new ISO endorsement includes specific pass through wording so when the GC is

added as an Additional Insured to the sub’s GL policy, the Public Entity is now included IF the contract requires it, even if the Sub is not a party to the owner’s contract. In other words, this blanket additional insured endorsement applies for parties (the Public Entity or GC) with which the named insured (a Sub to the GC you hired, or a Sub-Sub hired by a Sub) has no direct contractual relationship.

5. Make sure your Contract requires it!

a. How—Be sure your contract requires all Contractors hiring Subs to add the upstream parties, i.e., the hiring Contractor, GC, Owner, Public Entity, etc as additional insureds using ISO form number CG 20 38 04 13 or coverage at least as broad (do not say “equivalent”). Then place the responsibility on any Contractor you hire to verify the subcontractors’ policy endorsement.

6. The certificate of insurance, despite what it may say, is not enough! Be sure they

provide proof to you (a copy and/or listing on the policy declarations or endorsement page) of the actual CG 20 38 policy endorsement that changes the coverage on the policy.

a. You will not be named on the CG 20 38 endorsement since it provides Automatic (Blanket) Status, but ONLY for the parties specifically named and required in the written Contract or Agreement!

7. With this new CG 20 38 04 13 we see no reason to use the CG 20 33 form. FOLLOWING ARE THE NEW SAMPLE FORMS OF THE CG 20 38 & CG 20 33 WITH HIGHLIGHTING AND NOTES TO SHOW THE DIFFERENCES


COMMERCIAL GENERAL LIABILITY CG 20 38 04 13

THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY.

CG 20 38 04 13 © Insurance Services Office, Inc., 2012 Page 1 of 2

ADDITIONAL INSURED – OWNERS, LESSEES OR CONTRACTORS – AUTOMATIC STATUS FOR OTHER

PARTIES WHEN REQUIRED IN WRITTEN CONSTRUCTION AGREEMENT

This endorsement modifies insurance provided under the following:

COMMERCIAL GENERAL LIABILITY COVERAGE PART

A. Section II – Who Is An Insured is amended to

include as an additional insured: 1. Any person or organization for whom you are

performing operations when you and such person or organization have agreed in writing in a contract or agreement that such person or organization be added as an additional insured on your policy; and

2. Any other person or organization you are required to add as an additional insured under the contract or agreement described in Paragraph 1. above.

Such person(s) or organization(s) is an additional insured only with respect to liability for "bodily injury", "property damage" or "personal and advertising injury" caused, in whole or in part, by:

a. Your acts or omissions; or b. The acts or omissions of those acting on

your behalf; in the performance of your ongoing operations for the additional insured. However, the insurance afforded to such additional insured described above:

a. Only applies to the extent permitted by law; and

b. Will not be broader than that which you are required by the contract or agreement to provide for such additional insured.

A person's or organization's status as an additional insured under this endorsement ends when your operations for the person or organization described in Paragraph 1. above are completed.

B. With respect to the insurance afforded to these additional insureds, the following additional exclusions apply: This insurance does not apply to:

1. "Bodily injury", "property damage" or "personal and advertising injury" arising out of the rendering of, or the failure to render, any professional architectural, engineering or surveying services, including:

a. The preparing, approving, or failing to prepare or approve, maps, shop drawings, opinions, reports, surveys, field orders, change orders or drawings and specifications; or

b. Supervisory, inspection, architectural or engineering activities.

This exclusion applies even if the claims against any insured allege negligence or other wrongdoing in the supervision, hiring, employment, training or monitoring of others by that insured, if the "occurrence" which caused the "bodily injury" or "property damage", or the offense which caused the "personal and advertising injury", involved the rendering of, or the failure to render, any professional architectural, engineering or surveying services.

2. "Bodily injury" or "property damage" occurring after:

a. All work, including materials, parts or equipment furnished in connection with such work, on the project (other than service, maintenance or repairs) to be performed by or on behalf of the additional insured(s) at the location of the covered operations has been completed; or

of 2 © Insurance Services Office, Inc., 2012 CG 20 38 04 13

b. That portion of "your work" out of which the injury or damage arises has been put to its intended use by any person or organization other than another contractor or subcontractor engaged in performing operations for a principal as a part of the same project.

C. With respect to the insurance afforded to these additional insureds, the following is added to Section III – Limits Of Insurance: The most we will pay on behalf of the additional insured is the amount of insurance:

1. Required by the contract or agreement described in Paragraph A.1.; or

HIGHLIGHTS ADDED TO THE FORM Color Font Added to the Form

2. Available under the applicable Limits of Insurance shown in the Declarations;

whichever is less. This endorsement shall not increase the applicable Limits of Insurance shown in the Declarations.




ADDITIONAL INSURED – OWNERS, LESSEES OR CONTRACTORS – AUTOMATIC STATUS WHEN

REQUIRED IN CONSTRUCTION AGREEMENT WITH YOU This endorsement modifies insurance provided under the following:



include as an additional insured any person or organization for whom you are performing operations when you and such person or organization have agreed in writing in a contract or agreement that such person or organization be added as an additional insured on your policy. Such person or organization is an additional insured only with respect to liability for "bodily injury", "property damage" or "personal and advertising injury" caused, in whole or in part, by:

1. Your acts or omissions; or 2. The acts or omissions of those acting on your

behalf; in the performance of your ongoing operations for the additional insured. However, the insurance afforded to such additional insured:

1. Only applies to the extent permitted by law; and

2. Will not be broader than that which you are required by the contract or agreement to provide for such additional insured.

A person's or organization's status as an additional insured under this endorsement ends when your operations for that additional insured are completed.





This exclusion applies even if the claims against any insured allege negligence or other wrongdoing in the supervision, hiring, employment, training or monitoring of others by that insured, if the "occurrence" which caused the "bodily injury" or "property damage", or the offense which caused the "personal and advertising injury", involved the rendering of or the failure to render any professional architectural, engineering or surveying services.





HIGHLIGHTS ADDED TO THE FORM Color Font Added to the Form

C. With respect to the insurance afforded to these additional insureds, the following is added to Section III – Limits Of Insurance: The most we will pay on behalf of the additional insured is the amount of insurance:

1. Required by the contract or agreement you have entered into with the additional insured; or





668 N. Coast Hwy #205, Laguna Beach, CA 92651 Phone 800.576.6607 Fax 800.576.7799 CertifiedRiskManagers.com © Copyright 1999-2013 R. J. Marshburn & Associates. All Rights Reserved. Page 7

PRIMARY AND NON-CONTRIBUTORY COVERAGE 1. Primary and noncontributory is usually an attempt to establish the order or priority of

coverage; it is not concerned with allocating percentages of fault. 2. Noncontributory generally means that Insurance Company has agreed not to seek its

independent right to contribution when two or more insurers apply to the same accident for the same insured. In this context, noncontributory is usually shorthand for the insurer giving up its right of contribution.

3. A Waiver of subrogation to prevent contribution may fail since the right of contribution

is independent of any insured's rights. Since subrogation is derived solely from an insured's rights, the insurer retains its right of equitable contribution from another carrier.

4. Primary and noncontributory is not necessary when two ISO CGL policies with ISO

additional insured endorsements both apply to the same accident and same insured since the ISO CGL policies after 1997 already sets the priority of coverage in the other insurance condition; if you are an additional insured by endorsement on the Contractors policy, the Contractors policy is primary and your policy is excess.

5. However, non-ISO (aka manuscript, company, or proprietary) additional insured

endorsements may change the priority of coverage in a manner not intended by the parties unless the underlying contract requires primary and noncontributory.

6. For manuscript company endorsements, primary and noncontributory still has an

important role in establishing the priority of coverage in the hundreds of proprietary additional insured endorsements issued by insurers.





The NEW ISO CG 20 01 ENDORSEMENT PROVIDES EXPLICIT PRIMARY AND NON-CONTRIBUTORY COVERAGE 1. This is a new endorsement that expressly states that the coverage is provided to an

additional insured Public Entity on a “primary and non-contributory” basis, IF a written contract or agreement has been entered into by the insured stating the insured’s policy will be “primary and non-contributory” and will not seek contribution from any other insurance (or self-Insurance) available to the additional insured.

2. This endorsement is activated only if the named insured has agreed to these terms in a

written contract or agreement. 3. Make this a requirement in all your Contracts! 4. Excess Insurance—What happens when you require a Contractor to include you as an

additional insured on a primary and noncontributory basis not only on their primary CGL but also on their excess or umbrella liability policy?

a. Imposing primary and noncontributory on excess or umbrella policies is

problematic; the “other insurance” condition of most umbrella policies usually defeats any such attempt and requires horizontal exhaustion of all limits (including yours) before any excess policy applies.

b. This can be resolved by a Contractual requirement that any excess Insurance

shall contain a provision that such coverage shall also apply on a primary and non contributory basis for the benefit of the Public Entity (if agreed to in a written contract or agreement) before the Public Entity’s own primary Insurance policy or self Insurance shall be called upon to protect it as a named insured.

FOLLOWING IS THE NEW SAMPLE CG 20 01 ENDORSEMENT WITH NOTES


COMMERCIAL GENERAL LIABILITY CG 20 01 0413


PRIMARY AND NONCONTRIBUTORYOTHER INSURANCE CONDITION


COMMERCIAL GENERAL LIABILITY COVERAGE PART PRODUCTS/COMPLETED OPERATIONS LIABILITY COVERAGE PART

The following is added to the Other Insurance Condition and supersedes any provision to the contrary:

Primary And Noncontributory Insurance

This insurance is primary to and will not seek contribution from any other insurance available to an additional insured under your policy provided that:

(1) The additional insured is a Named Insured under such other insurance; and

(2) You have agreed in writing in a contract or agreement that this insurance would be primary and would not seek contribution from any other insurance available to the additional insured.

Robert

Highlight

Robert

Highlight

Robert

Highlight

Robert

Highlight

Robert

Highlight

Robert

Highlight

Robert

Highlight

Robert

Highlight

Robert

Highlight

Robert

Highlight




REVISION TO CG 24 26 AMENDMENT OF INSURED CONTRACT DEFINITION— 1. Currently, the 7.04 edition of the CG 24 26 Amendment of Insured Contract Definition

may be used to redefine the term “insured contract” and restrict the coverage provided by the unmodified definition in the policy. Paragraph f. of the definition addresses liability assumed by the named insured with respect to tort liability of another party. The current Amendment of Insured Contract Definition for liability assumed by contract (i.e., indemnification) is limited to “bodily injury” or “property damage” to only that “caused in whole or in part” by the named insured or those acting on behalf of the named insured.

2. Like the Additional Insured forms discussed above, paragraph f. of the “insured

contract” definition is revised in the 4.13 form to state, “However, such part of a contract or agreement shall only be considered an “insured contract” to the extent your assumption of tort liability is permitted by law”.

3. Note—ISO form CG 21 39 deletes paragraph f. of the “insured contract” definition and

all of its coverage completely! Avoid this endorsement! FOLLOWING IS THE NEW SAMPLE CG 24 26 ENDORSEMENT WITH NOTES





AMENDMENT OF INSURED CONTRACT DEFINITION This endorsement modifies insurance provided under the following:


The definition of "insured contract" in the Definitions section is replaced by the following: "Insured contract" means: a. A contract for a lease of premises. However,

that portion of the contract for a lease of premises that indemnifies any person or organization for damage by fire to premises while rented to you or temporarily occupied by you with permission of the owner is not an "insured contract";

b. A sidetrack agreement; c. Any easement or license agreement, except in

connection with construction or demolition operations on or within 50 feet of a railroad;

d. An obligation, as required by ordinance, to indemnify a municipality, except in connection with work for a municipality;

e. An elevator maintenance agreement; f. That part of any other contract or agreement

pertaining to your business (including an indemnification of a municipality in connection with work performed for a municipality) under which you assume the tort liability of another party to pay for "bodily injury" or "property damage" to a third person or organization, provided the "bodily injury" or "property damage" is caused, in whole or in part, by you or by those acting on your behalf. However, such part of a contract or agreement shall only be considered an "insured contract" to the extent your assumption of the tort liability is permitted by law. Tort liability means a liability that would be imposed by law in the absence of any contract or agreement.

Paragraph f. does not include that part of any contract or agreement:

(1) That indemnifies a railroad for "bodily injury" or "property damage" arising out of construction or demolition operations, within 50 feet of any railroad property and affecting any railroad bridge or trestle, tracks, road-beds, tunnel, underpass or crossing;

(2) That indemnifies an architect, engineer or surveyor for injury or damage arising out of:

(a) Preparing, approving, or failing to prepare or approve, maps, shop drawings, opinions, reports, surveys, field orders, change orders or drawings and specifications; or

(b) Giving directions or instructions, or failing to give them, if that is the primary cause of the injury or damage; or

(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, including those listed in (2) above and supervisory, inspection, architectural or engineering activities.

HIGHLIGHTS ADDED TO THE FORM ◄ WHY DOES THIS FORM NOT SAY LIKE THE OTHER 04.13 FORMS THE INSURANCE “Will not be broader than that required by the contract” AND 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.




MAJOR EFFECTS OF THESE CHANGES— 1. The first thing the Insurance Company will look for to deny coverage is the underlying

Contract! 2. If you do not have clear written requirements for the types of coverage in your contract,

you will have no coverage! 3. If you do not have clear written requirements for adequate limits in your contract, you

will have reduced or inadequate coverage for the loss! 4. Put another way, the Contract between the parties will now directly affect what

coverage, if any, is provided by the Insurance! 5. Even if the Contractor’s policy contains broader coverage or higher limits of liability

they will NOT apply in behalf of the Additional Insured / Indemnified Party (Indemnitee) unless it is required in the contract!

6. Unless agreements between “friendly parties” (both parties are Public Entities) contain

clear written requirements, you will have no Insurance coverage at all from your Insurance carrier for anything in excess of the Self Insured Retention limits!

7. The bottom line: Unless your contract contains the correct Insurance language

requirements, you will not have coverage! 8. Downstream contractors (Subs) need to be careful that their Insurance covers their

contract obligations! Otherwise they may agree to obligations not insured, be in breach of contract, and personally liable.

9. Upstream Contractors, GCs, and Owners need the correct written requirements in their

contracts! Otherwise the Insurance of downstream Contractors will not provide the expected coverage!





10. Attorneys—Nearly every loss of any substantial size will likely be contested and

litigated by Insurance Companies trying to find a weakness in the contract requirements! Disputes over the application of a statute or the meaning of contract wording should be anticipated, reducing the certainty of coverage.

11. An additional insured may be all but abandoned as ultimately the application of the

statute or the meaning of contract wording (and thus scope of coverage) has to be resolved by litigation, delaying payment of damages and possibly defense of the additional insured. In fact, disputes over the meaning of agreements or contracts may be the most troublesome result of the new ISO changes.

12. In my experience, most underlying contracts or agreements are not models of clarity as

respects the extent of additional insured coverage required. Many agreements simply require a party to the contract to be an "additional insured" or simply "an insured." What, then, is the scope of coverage agreed upon?

13. In addition to all the reasons for Insurance coverage being reduced or denied in the past

for Additional Insured Endorsements and Contractual Liability coverage, now Insurance coverage must pass the additional hurdle of clear, unambiguous written contract language requirements between the parties in order to trigger coverage!





BIOGRAPHICAL PROFILE—Robert J. Marshburn, CRM, CIC, ARM, CRIS, CISC

In independent industry evaluations, Mr. Marshburn is consistently rated as one of the nation’s top Risk Management Consultants and Educators. He is the founder and principal of R. J. Marshburn & Associates,

CertifiedRiskManagers.com, an independent risk management consulting and educational firm. He has been in risk management over 30 years. Mr. Marshburn holds the professional designations of Certified Risk Manager (CRM), Associate in Risk Management (ARM), Certified Insurance Counselor (CIC), Construction Risk & Insurance Specialist (CRIS), and Certified Insurance Specialist in Construction (CISC). Mr. Marshburn works as an outsourced risk manager, as an independent consultant to clients, and in association with other professionals with their clients. He is an appealing, frequent speaker before various groups on risk management and insurance topics. Mr. Marshburn was an original designated member of the National Faculty of the Certified Risk Manager’s program teaching advanced Risk Management courses leading to qualification for the CRM professional designation. He also served as a consultant in developing the CRM program on the Curricula Advisory Committee.

He authored Graduate courses and teaches workshops in Construction Defect issues, Indemnification & Additional Insureds, Contractual Liability & Insurance Coverage, Wrap-Up Policies, Contracts, and Ethics. He is the co-creator and author of the Certified Insurance Specialist in Construction (CISC) professional designation that was later merged into the Construction Risk & Insurance Specialist (CRIS) program from the International Risk Management Institute which he also teaches. In addition, he serves as an Instructor & Consultant to the Insurance Education Association and their Advisory Council. Mr. Marshburn is a nationally recognized expert in the field of Contractual risk transfer, including indemnity and insurance requirements for risk management. He specializes in the challenges posed in Construction Risk, including Construction Contracts, Contractual Liability Analysis & Design, Insurance Policy Coverages and Endorsements, Wrap Policies (OCIPs, CCIPs, etc), Construction Defect Liability, and Coverage Disputes. Mr. Marshburn has been retained as a consultant, educator, and expert witness for some of the nation's premier builders, contractors, risk managers, carriers, developers, brokers, consultants, attorneys, public entities, industry & trade associations, and educational organizations.




668 N. Coast Hwy #205, Laguna Beach CA 92651 Phone 800.576.6607 Fax 800.576.7799 CertifiedRiskManagers.com © Copyright 1999-2011 R. J. Marshburn & Associates. All Rights Reserved. Page 13

SAMPLE

FORMS


POLICY NUMBER: COMMERCIAL GENERAL LIABILITY CG 20 10 04 13



ADDITIONAL INSURED – OWNERS, LESSEES OR CONTRACTORS – SCHEDULED PERSON OR

ORGANIZATION This endorsement modifies insurance provided under the following:


SCHEDULE

Name Of Additional Insured Person(s) Or Organization(s) Location(s) Of Covered Operations

MUST LIST ALL ENTITIES PRECISELY! IF NOT LISTED, THEY ARE NOT COVERED!

ALL LOCATIONS FOR XYZ ENTITY(IES)

Information required to complete this Schedule, if not shown above, will be shown in the Declarations. A. Section II – Who Is An Insured is amended to

include as an additional insured the person(s) or organization(s) shown in the Schedule, but only with respect to liability for "bodily injury", "property damage" or "personal and advertising injury" caused, in whole or in part, by:


behalf; in the performance of your ongoing operations for the additional insured(s) at the location(s) designated above. However:

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.

B. With respect to the insurance afforded to these additional insureds, the following additional exclusions apply: This insurance does not apply to "bodily injury" or "property damage" occurring after:

1. All work, including materials, parts or equipment furnished in connection with such work, on the project (other than service, maintenance or repairs) to be performed by or on behalf of the additional insured(s) at the location of the covered operations has been completed; or

2. That portion of "your work" out of which the injury or damage arises has been put to its intended use by any person or organization other than another contractor or subcontractor engaged in performing operations for a principal as a part of the same project.


C. With respect to the insurance afforded to these additional insureds, the following is added to Section III – Limits Of Insurance: 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 HIGHLIGHTS ADDED TO THE FORM RED CAPS WORDING ADDED TO THE FORM






ADDITIONAL INSURED – OWNERS, LESSEES OR CONTRACTORS – COMPLETED OPERATIONS



SCHEDULE

Name Of Additional Insured Person(s) Or Organization(s) Location And Description Of Completed Operations

MUST LIST ALL ENTITIES PRECISELY! IF NOT LISTED, THEY ARE NOT COVERED!

ALL LOCATIONS FOR XYZ ENTITY(IES)


include as an additional insured the person(s) or organization(s) shown in the Schedule, but only with respect to liability for "bodily injury" or "property damage" caused, in whole or in part, by "your work" at the location designated and described in the Schedule of this endorsement performed for that additional insured and included in the "products-completed operations hazard". However:

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.

B. With respect to the insurance afforded to these additional insureds, the following is added to Section III – Limits Of Insurance: 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. This endorsement shall not increase the applicable Limits of Insurance shown in the Declarations.

HIGHLIGHTS ADDED TO THE FORM RED CAPS WORDING ADDED TO THE FORM




Contractor’s Dangerous

Coverage Gaps

by

Robert J. Marshburn, CRM, CIC, ARM, CRIS, CISC

R. J. Marshburn & Associates Laguna Beach, California

[email protected] Disclaimer: This material is for educational purposes only. R J Marshburn & Associates is independent of any insurance company, law firm, or other entity. These matters are in a constant state of change. What is current today can be outdated tomorrow. This information is presented from an insurance and risk management perspective only, and can not apply to any single set of circumstances. It is not intended as a substitute for competent legal advice. You should check with your legal adviser to determine suitability, if any, to your specific circumstances. R J Marshburn & Associates expressly disclaim any responsibility for damages arising from any use, application, or reliance upon the information presented herein. .


mailto:[email protected]




Contractor's Dangerous Coverage Gaps

1. Owners & GCs need protection from the risks of Contractors they hire

a. Owners & GCs have their own liability plus responsibility and liability for the actions of others they hire (Contractors and Subs)

2. Party best able to control the risk should be responsible

a. Proper use of Contract Agreements can transfer financial risk back to the responsible party—Owner or GC Transfers risk to the Contractor doing the work

b. Contract specifies the requirements and responsibilities

3. Two principal ways to transfer the risk to protect the Entity

1. Indemnity—Insured (paid for) by means of the definition of “insured contract” in Contractor’s Insurance policy

2. Insurance—Insure the Entity by am Additional Insured Endorsement on the Contractor’s policy

4. First look at what contracts require, or should require—then the coverages for it.





5. Indemnification and Risk Transfer

a. What it is—One party agrees to assume another’s liability

b. In California, the Legislature has codified the definition of indemnity as follows: "Indemnity is a contract by which one engages to save another from a legal consequence of the conduct of one of the parties, or some other person." California Civil Code § 2772.

6. Types of liability to be Transferred

a. Vicarious liability—liability as a function of law regardless of the actions of the Owner or GC

i. Is negligence required to have vicarious liability?

b. Negligent Tort liability—Duty of Care; Prudent person standard; Breach resulting in harm = Negligence

i. Active liability—What you did caused the harm

ii. Passive liability—What you did not do, but could have, caused the harm; you could have prevented it





1. Passive examples: Failure to discover, supervise, inspect; prevent; an omission of a duty

iii. How does Passive liability differ from Vicarious liability?

c. Joint & Individual (Several) Liability and its effect; deep pockets

d. Professional Liability—Different from General (tort) Liability in that it includes Financial Harm even if no Bodily Injury or Property Damage happens; a financial loss from an error or omission

e. Express indemnity, written in a contract, obligations spelled out

f. Amount of indemnity transferred varies with each agreement

i. Can be limited, or broad enough to require a Subcontractor to indemnify the Owner or GC’s Negligence, or even other subs!

7. Examples of indemnity agreements:

a. Not-at-fault Subcontractor for the Builder’s liability (Type 1)

b. Worker’s comp “action over’ liability from Sub’s EEs (discussed later)





c. Type I Contractual Indemnity— Allows indemnification for the Owner or GC’s Liability for damages from any tort liability, including Active or Passive, whether or not caused by the contractor or within his scope of work.

i. Must be Specific Indemnification; Explicit; “clear and unequivocal” (exceptions following)

ii. Continental Heller 1997—Fault or even a casual connection is not required to enforce the terms of the agreement. “Great freedom of action in allocating risk” and the parties were “expected to review, understand, & bargain over their indemnity agreement.”

iii. Exceptions: 1—Sole or 2—Willful Liability, including fraud (some states allow or restrict further)

d. Type II—Indemnification for the Passive, but not Active Liability of the Owner or GC regardless of how caused, i.e. whether or not caused by the indemnifying contractor (or others), i.e. whether or not at fault

e. Type III—Indemnification only for liabilities caused by the indemnifying contractor, but not liability caused by others

f. General Indemnity clause does not specifically address how much of the Owner or GC’s negligence is indemnified. At most, only





Passive, not Active liability, is indemnified. May be tossed out of Court entirely!

i. Is not explicit and clear; not “express and unequivocal”—Is subject to more than one reasonable interpretation

ii. When not explicit and clear, court will decide interpretation of how much is indemnified

iii. Contract may have provision to be judicially rewritten (not just the standard severability clause)

iv. Reference for Types 1-3 & General Indemnity clause: McCrary Construction Co. v. Metal Deck Specialists, Inc., 133 Cal. App. 4th 1528 (2005)

g. Very important to properly structure contract indemnity terms!

i. Knowledgeable, sophisticated personnel

ii. Leverage and supply and demand—“He who has the gold makes the rules”

iii. Not just what you do—but how you do it





8. Elements of Indemnification—

a. Hold Harmless, Defend, Indemnify, & Waive subrogation.

i. Is Contractual waiver allowed by carrier for CGL policy, Auto, & Work Comp?

ii. Effect of waiver of subrogation

b. Length of obligation—During construction, or including after completion (more details later) – Why later?

c. Additional Insured Endorsement—provides money for Defense and Coverage with Insurance Company money (AIE discussed later)

d. Is Indemnity regardless of or limited by insurance coverage?

e. Do Insurance requirements include “unmodified Contractual liability”? Why?

f. What about high deductibles/SIRs? What’s the difference?

g. Pass through or Pass down provisions

h. Amount of risk not necessarily consistent with size of job





i. Purchase order used for small jobs? Example: Tank Maintenance—built scaffold and EE injured

ii. Need indemnity & insurance requirements and signature on P.O., or Proposal, Memorandum of Understanding, Letter of Intent, etc.

i. Be reasonable—do not require provisions that are unnecessary, unobtainable, or unrealistic.

9. Anti indemnification provisions from the State limit how much liability can be transferred to and indemnified by others.

a. Residential Construction Only—Civil Code section 2772 provides restrictions by eliminating Type 1 & 2 indemnity for risks in residential construction.

b. Residential Wrap-up projects have significant additional restrictions where an OCIP or CCIP is provided. Redevelopment example.

c. Public Agency Commercial construction contracts indemnity are not affected, unless done as a wrap-up for which there are disclosure & allocation of contribution restrictions

d. Need to revise subcontract agreements to comply with the new provisions and adjust risk transfer provisions





e. Public Agency restrictions for all construction contracts:

i. Civil Code Section 2782(b) provides that indemnification for the active negligence of a public agency relating to a construction contract is invalid (i.e. void and unenforceable)

1. Type 1 is not allowable! Type 2 & 3 are ok

ii. Assembly Bill 573, effective January 1, 2007 (Section 2782.8 of the California Civil Code) prohibits public agencies (but not the State) from requiring design professionals to indemnify for the public agencies’ negligence or other fault (not just active), unless caused by that design professional

1. Type 1 & 2 is not allowable! Only Type 3 is ok

10. SB474—Major changes effective 1-1-2013

a. NO MORE Type 1 indemnity—For contracts executed on or after 1-1-2013, Indemnification for active liability will no longer be allowed in any construction contract

i. Limitation also applies to defense for the Owner or GC’s active negligence—may now obtain only defense proportionate to the extent of damage caused by the subcontractor.





b. Does NOT apply to non-construction contracts

c. Will Type 2 Indemnity still be allowed?

i. The passive liability of the Builder, but caused by another Sub other than the Sub providing the indemnification, i.e., the porta-potty guy paying for the passive liability of the GC from the active liability of the roofer

ii. What to do now to protect your Owner or GC—plan for the worst case

d. Still require Type 2 indemnity, but revise construction contracts to conform with any limitations on indemnity

i. Do not want indemnity to be thrown out for overly broad indemnification!





INSURANCE COVERAGE for Indemnification Liabilities—Does the Contractor have coverage for his indemnity for you?

1. For Risk transfer to be effective, Contractor must be financially responsible

a. Insurance provides the financial responsibility, i.e., the money for defense and damages

b. If Contractor’s Insurance does not provide coverage when needed you think you have the “money”, but it provides a false sense of security and makes you think you covered the risk and did not!

c. If Contractor’s policy does not have coverage—there is no Entity coverage!

2. CONTRACTUAL LIABILITY COVERAGE may include—

a. Coverage for indemnity regardless of contractor’s fault, or

b. Coverage for indemnity Only if it is contractor’s fault, or

c. No coverage at all by means of—

i. exclusion of contractual coverage, or





ii. amended definition of contractual coverage, or

iii. policy exclusions

d. CONTRACTUAL COVERAGE—Standard ISO CGL Policies contain coverage for the liability assumed in an “Insured contract.” What is that? The policy definition “f.” of “insured contract” (on page 13 of 15 on page 30 of the Exhibits) from the ISO CG 00 01 policy:

i. “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.”

ii. This wording covers contractor’s indemnification of liability for you regardless of whether it is contractor’s fault or even connected to contractor’s scope of work!

e. ISO CG 24 26 07 04 Amendment of Insured Contract Definition adds the phrase… “provided the “bodily injury” or “property damage” is caused, in whole or in part, by you or those acting on your behalf”.

i. This wording covers contractor’s indemnification of liability for you, but only if the liability is a result of contractor’s fault, i.e. “caused… by” the named insured!—see Appendix page 37





ii. What if the contractor’s Insurance Company claims he did not cause the problem?

1. Contractor has no coverage; Owner or GC has no coverage!

f. What if Contract coverage is excluded or re-defined in the policy?

i. Exclusion (with no exceptions) = No coverage!

ii. CG 21 39 deletes the “f.” portion of the definition clause

above—See Appendix page 38; Result = no coverage

1. Clue—If a CG 20 09 Additional Insured form is used, it

indicates there is no contractual coverage—Appendix 39

g. Effect on indemnity provisions—Contractor liable & no coverage

3. Employer’s Liability (Worker’s Comp) Indemnification—

a. Employee of Contractor sues Owner or GC for injuries

b. Employee lawsuit of Owner or GC usually indemnified by

Employer—Is there Contractual coverage for this exposure?

i. Standard ISO CGL covers this under the “insured contract”





ii. Has the definition of the “insured contract” been modified or

deleted? What is the effect of this?

c. Compare this lawsuit to subrogation by the Work Comp Insurance

i. You must have the Work Comp policy waiver of subrogation

endorsement —a Certificate of Insurance does not do it

4. ADDITIONAL INSURED COVERAGE and ENDORSEMENTS

a. ADDITIONAL INSURED Endorsements—What are they?

i. The Additional Insured is covered for their liability under contractor’s policy (subject to endorsement & policy provisions)

b. What are the different types of Additional Insured coverage forms and what effect do they have? Any combination of the following—

i. During construction (ongoing operations)

ii. After completion (completed operations)

iii. Regardless of contractor’s fault, or





iv. Only if it is contractor’s fault (“caused… by you…”)

c. When will the contract insurance requirements in the contract be enforced?

i. Before the job begins (part of bid package); or

ii. At the end of the job before final payment?

d. What Additional Insured Endorsement coverages are available for the additional insured (Owner or GC)?

i. “Your work” includes coverage for the Additional Insured for contractor’s ongoing & completed operations and products

ii. “Your ongoing operations” excludes coverage for the Additional Insured for contractor’s completed operations and products; Additional Insured status ends when ongoing operations end.

iii. May cover regardless of contractor’s fault, or only if it is contractor’s fault

e. Standard Additional Insured endorsements (ISO)





i. CG 20 09 – Not for use for insured that has policy with Contractual coverage; indicates NO contractual coverage!

ii. CG 20 10 – Edition date is important!

1. 11/85 Edition date— For additional insured, covers defense and liability during construction and for completed operations after construction

2. 10/93 and later edition dates—Additional insured status applies during “ongoing operations” of construction only and ceases when operations cease; Does not cover completed operations for additional insured; Insured (not Additional Insured) still has coverage under the policy

iii. CG 20 33—Gives automatic blanket coverage for additional insureds on an automatic basis when required by a written contract or agreement; does not cover completed operations

iv. CG 20 37—10.01 was the first edition date—Specifically adds only completed operations for additional insured. Intent is to be comparable to the old CG 2010 11.85 edition. It must be used with a CG 2010 or CG 2033, not by itself, in order to give the “ongoing operations” coverage.

v. All of the ISO 07 04 editions of Additional Insured endorsements require “caused…by” trigger of the named





insured for there to be coverage for the additional insured (See samples in Appendix pages 41-43)

1. Examine effects of 07/04 on CG 2010, 2033, & 2037—Shifts burden to you to prove coverage, rather than the insurance company to prove no coverage

vi. Be very careful with non-standard forms—Examples:

1. Some manuscript forms that look like a CG 20 10 11 85 add a phrase like “…but only for the sole negligence of the named insured”—will this ever happen?

2. Many, many others limit or exclude coverage

f. Additional Insured (and indemnity) usually not granted on Professional Liability

i. Contractor my need Contractor’s Professional Liability

g. Additional Insured not appropriate on Worker’s Comp

5. Benefit of Limits per Project or Location Endorsement (CG 25 03 or 25 04)

6. What does primary and non-contributory wording mean?





a. Requires Additional Insured coverage under named insured’s policy be primary and exhausted before AI’s own insurance covers anything

b. Get the endorsement from the Carrier!

7. Remember you want to accept the lowest responsible bid! Be reasonable—do not require coverage that is unnecessary, unrealistic, or unobtainable.

8. Is there a Completed Operations Exposure?

a. Construction usually has; Service exposures may not; i.e., Encroachment Permit, lawn maintenance, etc.

b. Which policy covers Completed Operations?

i. Policy in effect after work completed at time of loss, or Policy in effect when work was done?

ii. Effect on contract insurance requirements after completion

iii. Will indemnity cover this exposure?





9. “RESTRICTED COVERAGE POLICIES” – A Whole new class of Insurance

a. Some Companies actually specialize in Restricted Coverage policies, and other Companies have them as options.

b. Chilling statements made by an executive of a large, national Insurance Company:

i. ‘Brokers need to understand and explain to their Insureds that we don’t ever expect to pay a loss under this type of policy.’

ii. ‘They need to understand all they are getting is paper to allow them to get on the job.’

c. Will the Certificate of Insurance warn you of this?

d. Think you have transferred risk, and your Contractor’s Insurance Company will not pay

e. Many times they, or their broker, do NOT know!

f. Many, if not most, Contractor polices now have special endorsements!

i. Endorsements usually limit, restrict, or exclude coverage





ii. A simple question—if it’s the same coverage, why do you need a non standard, manuscript endorsement?

g. Examples of Restricted Coverage Endorsements put on policies:

i. Non-standard Additional Insured Endorsements discussed above

1. Prior work exclusions

2. Montrose exclusions – continuous injury coverage exclusions.

3. Modification of Occurrence definition

ii. These last 3 above have the effect of deleting Completed Operations Coverage, including Construction Defect coverage for both Additional Insured Endorsements and Contractual Liability indemnity coverage

iii. Restrictive exclusions – type of work, residential, # of units, etc

iv. Limitation of Coverage to Designated Premises or Project (CG 21 44)





v. Exclusion—Designated Ongoing Operations (CG 21 53)

vi. Exclusion—Damage to Work Performed by Subcontractors on Your Behalf (CG 22 94) – Removes coverage for Property Damage

vii. Wrap Up policies (OCIPs, CCIPS, etc) – can be very good, or very, very bad; Coverage Considerations for Wrap Policy at end of ouu

viii. Danger of large SIRs (not deductibles)

1. Forecast Homes Inc. vs. Steadfast Insurance Company—Carrier not obligated to provide coverage to Additional Insureds where the Named insured failed to pay the SIR. The Additional insured could not satisfy the SIR on behalf of the Named insured in order to trigger coverage.

ix. Contractor’s Endorsements – the catch all!

1. One Company underwriter said ‘we put all the bad stuff in that one endorsement hoping they won’t notice.’

x. Many, many more—samples in the Appendix after page 43





h. What if the Additional Insured is named on a policy with exclusions or “wrong” coverage or no coverage—what happens then?

i. For Additional Insured = no coverage

ii. For Named Insured = Possible Breach of contract and no coverage for indemnity & additional insured obligations

VERIFICATION of INSURANCE COVERAGE

1. Certificates of Insurance do NOT modify the policy!

a. Do not confer status of Additional Insured or policy endorsements

b. Do not give any idea of policy modifications or exclusions

2. Require the policy Endorsement or Declarations page listing all endorsements be attached with the Certificate of Insurance!

a. Things to look for on the Endorsement/Dec page:

i. Review for suspicious sounding or non-descriptive names, including those mentioned above.

ii. If in doubt, obtain copy of the endorsement & review





iii. Require Complete copy of policy for large risks, projects, or residential construction

3. Compare the endorsement to the standard coverage

a. How does this endorsement differ?

b. It is not the same—otherwise would be no need for an endorsement!

c. Usually gives less coverage, not more!

d. There are welcome exceptions to this rule, but they are rare—be cautious!

4. Look not only for what’s there, but what’s not there in the endorsement

5. What effect does the endorsement difference have on coverage?

6. How to handle non standard forms – Clause to put in RFPs & Contract:

a. “If non-standard Insurance forms are used rather than the standard Insurance Services Office (ISO) forms described, Contractor agrees to pay Entity for an Independent Expert evaluation and opinion as needed to determine whether or not they are at least equivalent in coverage to the standard ISO forms. The charge shall be $150 for





each non-standard endorsement and $575 for each non-standard policy.”

DUTY TO DEFEND

1. Contractual Duty to defend can stand separate from the duty to Indemnify

a. Crawford v. Weather Shield Mfg., Inc.(July 2008): Duty to defend arises immediately upon a proper tender of defense by the Owner regardless of actual negligence of the Contractor.

2. Review and update Defense obligation in contracts!

REVIEW—2 primary ways to cover Owner or GC by contract—

1. Indemnified Party—by means of Contractual liability coverage—

a. Is limited by definition of “Insured Contract” in Contractor’s Policy

b. Does definition require named insured contractor’s fault, i.e. “caused… by you” for the Additional Insured to be covered? (CG 24 26 07 04)





c. Does definition exclude Contractual Coverage? (CG 21 39 or other manuscript endorsements)

d. Does the policy have other exclusions or limitations that prevent coverage, as noted above under “Restricted Policies”

2. Additional Insured Party by means of Additional Insured Endorsement

a. Limited by which coverage form is used for AI

b. When does coverage apply, i.e. during construction or after completion (“ongoing operations” or “completed operations” or both)

c. Does form require contractor’s fault, ie “caused… by you” for there to be coverage for the Additional Insured (07.04 editions)

d. Does the policy have other exclusions or limitations that prevent coverage, as noted above under “Restricted Policies”





Application of knowledge learned

1. Carefully Structure Contract requirements for:

a. Contractual liability coverage for Indemnification & Defense

b. Additional Insured Endorsements

c. Prohibition of Restrictive Endorsements

d. Required copy of Policy Endorsement or Dec page

2. Compare insurance coverages to contract requirements to verify

they match. You MUST verify coverage!

3. Check for suspicious endorsements and correct them!

4. Be reasonable—do not require provisions or coverage that is unnecessary, unrealistic, or unobtainable.

5. Ignorance is not bliss—Ignorance can be Very Expensive!

NOTE: Drafting hold harmless, insurance, and indemnification language in contracts is a crucial part of the risk-transfer process and should not be undertaken without the advice and assistance of legal counsel. Be sure you coordinate these Risk Management concerns with legal counsel for their review, modification, and approval.





ISO “OTHER PARTY” COVERAGES (Other than Named Insured)

INDEMNIFIED PARTY Contractual Liability Coverage - (Definition of “Insured Contract”)

ADDITIONAL INSURED ENDORSEMENT Coverage

CAUTION!!! Manuscript Policies or Modified Definitions or Endorsements differ from the standard ISO coverage above! Be very careful! BEWARE of endorsements excluding or changing the “insured contract” definition. REMEMBER—the “insured contract” definition provides the Contractual Liability coverage for Indemnification of others (upstream parties) assumed by Contract. EXAMINE CAREFULLY Non-ISO Additional Insured Endorsements to see how they differ from the above for coverage in each of the 4 column and 3 row categories.

+ Only to the extent permitted by law * ALL of the 04.13 Additional Insured Endorsements will not (1) provide broader coverage or (2) pay higher limits than required by the written Contract or Agreement! The Contract must explicitly require the limits and extent of coverage or there is NO coverage even if the policy would otherwise provide the coverage! No clear Contract requirement = NO COVERAGE!

DURING CONSTRUCTION

(Ongoing Operations)

AFTER CONSTRUCTION

(Completed Operations)

REGARDLESS of FAULT of Named

Insured

REQUIRES FAULT of Named Insured to trigger

indemnity coverage

Standard ISO “Insured Contract” definition

in CG 00 01

Standard ISO “Insured

Contract” definition in CG 00 01

Standard ISO “Insured

Contract” definition in CG 00 01

CG 24 26 07 04 & 04.13+ AMENDMENT OF INSURED

CONTRACT DEFINITION CG 21 39—

NO COVERAGE CG 21 39—



NO COVERAGE

DURING CONSTRUCTION

(Ongoing Operations)

AFTER CONSTRUCTION

(Completed Operations)

REGARDLESS of FAULT of Named

Insured

REQUIRES Named Insured’s FAULT to trigger coverage. ALL 07.04 & 04.13* AIEs

CG 2010—All editions CG 2010 11.85 Edition only

YES—all except 07.04 & 04.13* CG 2010 07.04 & 04.13*

CG 2033 All editions & 2038 04.13*

CG 2033 & 2038 04.13* NO Coverage

YES—all except 07.04 & 04.13*

CG 2033 07.04 & CG 2038 04.13*

CG 2037—NO Coverage CG2037 ALL editions YES 10.01; NO

07.04 & 04.13* CG 2037 07.04 & 04.13*





Coverage Considerations for the Wrap Policy

1. NO Indemnity or Insurance is allowed from any Contractor or Sub

for a Residential Wrap Up program

a. The only coverage will be under the Wrap!

2. Wrap Policies are NOT standardized—each one MUST be carefully

reviewed for coverage!

a. Insurance Contract language and coverage used may create serious

gaps and limitations

3. Completed Operations Coverage under the Wrap Up —

a. Since there are no renewals, Wrap policy must cover into the future

b. Time Covered—10 years is not enough for residential

i. SB 800 definitions extend time (Residential only)

ii. Escrow, not date of substantial completion

iii. Turn over of ownership to HOA from Developer





4. Are the Limits adequate?

a. Number of subs

b. Size of project

c. Number of projects and locations

d. Duration of time

5. Include Off site coverage for work dedicated to the project

a. Events away from, but connected to site

b. Manufactured, partially assembled, or fabricated off site, then

installed on site i.e. windows, concrete, mechanical, cabinets, walls,

framing, plumbing, etc

6. Allocation of Policy Costs and Deductibles & SIRS—

a. NO profit can be made by Wrap sponsor from Subs on

1. the wrap policy

2. any deductibles or SIRs





7. Property Damage Liability issues

a. Property damage to “own work” not covered

b. Property damage to “others”, usually covered by Sub’s CGL,

usually not covered by Wrap liability policy. Why?

c. There is no coverage for “1st party liability”

d. Property Damage to Project exclusion nails this down

8. Builder’s Risk Should Cover all Contractors!

a. Danger of naming subs and suppliers individually

b. Include as a class all suppliers & contractors working on the project

c. When Builder’s Risk covers all, avoids “1st party liability” issues

9. Auto & Worker’s Comp issues are separate from the Wrap

10. Umbrella/Excess Policy issues

a. Care must be given to all of the above issues as they relate to

Umbrella/Excess coverage

b. Exclusions, terms, and conditions can vary from underlying and

leave gaps!





11. For Commercial projects— A Wrap exclusion will be on virtually

all GC & Subs’ policies—excludes work done under a wrap

a. CGL exclusion of work done under a wrap (CG 21 54 01 96 –

Designated Operations Covered By A Consolidated Insurance

Program)

b. It makes all work, and therefore all things not covered by a wrap,

also not covered by sub’s CGL

c. Other manuscript (non ISO) endorsements can be less or more

restrictive

d. May be able to require and modify coverage on a Sub’s policy for

commercial construction, but this creates a verification nightmare

12. Owner, Developer, GC, & Administrator Exposures—

a. (1) Procedural & (2) Substantive exposures for—

i. devising

ii. controlling

iii. placing





iv. administering wrap & coverage

b. Common Law Liability (E & O) for uninsured events i.e. exclusions

c. Responsibility (E&O) for safety and claims

d. Reduction of this exposure—

i. Obtain Quality Coverage!

ii. Disclosure

iii. Disclaimer

iv. Legal & Risk Management cooperation & assistance





BIOGRAPHICAL PROFILE—Robert J. Marshburn, CRM, CIC, ARM, CRIS, CISC

In independent industry evaluations, Mr. Marshburn is consistently rated as one of the nation’s top Risk Management Consultants and Educators. He is the founder and principal of R. J. Marshburn & Associates,

CertifiedRiskManagers.com, an independent risk management consulting and educational firm. He has been in risk management over 30 years. Mr. Marshburn holds the professional designations of Certified Risk Manager (CRM), Associate in Risk Management (ARM), Certified Insurance Counselor (CIC), Construction Risk & Insurance Specialist (CRIS), and Certified Insurance Specialist in Construction (CISC). Mr. Marshburn works as an outsourced risk manager, as an independent consultant to clients, and in association with other professionals with their clients. He is an appealing, frequent speaker before various groups on risk management and insurance topics. Mr. Marshburn was an original designated member of the National Faculty of the Certified Risk Manager’s program teaching advanced Risk Management courses leading to qualification for the CRM professional designation. He also served as a consultant in developing the CRM program on the Curricula Advisory Committee.

He authored Graduate courses and teaches workshops in Construction Defect issues, Indemnification & Additional Insureds, Contractual Liability & Insurance Coverage, Wrap-Up Policies, Contracts, and Ethics. He is the co-creator and author of the Certified Insurance Specialist in Construction (CISC) professional designation that was later merged into the Construction Risk & Insurance Specialist (CRIS) program from the International Risk Management Institute which he also teaches. In addition, he serves as an Instructor & Consultant to the Insurance Education Association and their Advisory Council. Mr. Marshburn is a nationally recognized expert in the field of Contractual risk transfer, including indemnity and insurance requirements for risk management. He specializes in the challenges posed in Construction Risk, including Construction Contracts, Contractual Liability Analysis & Design, Insurance Policy Coverages and Endorsements, Wrap Policies (OCIPs, CCIPs, etc), Construction Defect Liability, and Coverage Disputes. Mr. Marshburn has been retained as a consultant, educator, and expert witness for some of the nation's premier builders, contractors, risk managers, carriers, developers, brokers, consultants, attorneys, public entities, industry & trade associations, and educational organizations.


Reference Forms 35

REFERENCE FORMS

Reference Forms 36

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

9. "Insured contract" means: a. A contract for a lease of premises. However,

that portion of the contract for a lease of premises that indemnifies any person or organization for damage by fire to premises while rented to you or temporarily occupied by you with permission of the owner is not an "insured contract";

b. A sidetrack agreement; 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; f. That part of any other contract or agreement

pertaining to your business (including an indemnification of a municipality in connection with work performed for a municipality) 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. Paragraph f. does not include that part of any contract or agreement:






10. "Leased worker" means a person leased to you by a labor leasing firm under an agreement between you and the labor leasing firm, to perform duties related to the conduct of your business. "Leased worker" does not include a "temporary worker".

11. "Loading or unloading" means the handling of property:

a. After it is moved from the place where it is accepted for movement into or onto an aircraft, watercraft or "auto";

b. While it is in or on an aircraft, watercraft or "auto"; or

c. While it is being moved from an aircraft, watercraft or "auto" to the place where it is finally delivered;

but "loading or unloading" does not include the movement of property by means of a mechanical device, other than a hand truck, that is not attached to the aircraft, watercraft or "auto".

12. "Mobile equipment" means any of the following types of land vehicles, including any attached machinery or equipment:

a. Bulldozers, farm machinery, forklifts and other vehicles designed for use principally off public roads;

b. Vehicles maintained for use solely on or next to premises you own or rent;

c. Vehicles that travel on crawler treads; d. Vehicles, whether self-propelled or not,

maintained primarily to provide mobility to permanently mounted:

(1) Power cranes, shovels, loaders, diggers or drills; or

(2) Road construction or resurfacing equipment such as graders, scrapers or rollers;

e. Vehicles not described in a., b., c. or d. above that are not self-propelled and are maintained primarily to provide mobility to permanently attached equipment of the following types:

(1) Air compressors, pumps and generators, including spraying, welding, building cleaning, geophysical exploration, lighting and well servicing equipment; or

(2) Cherry pickers and similar devices used to raise or lower workers;

f. Vehicles not described in a., b., c. or d. above maintained primarily for purposes other than the transportation of persons or cargo. However, self-propelled vehicles with the following types of permanently attached equipment are not "mobile equipment" but will be considered "autos":

SEE CG 24 26 07 04 AMENDMENT OF INSURED CONTRACT DEFINITION ON THE NEXT

PAGE CG 00 01 12 04 © ISO Properties, Inc., 2003 Page 13 of 15

Reference Forms 37



AMENDMENT OF INSURED CONTRACT DEFINITION This endorsement modifies insurance provided under the following:


Paragraph 9. of the Definitions Section is replaced by the following: 9. "Insured contract" means: a. A contract for a lease of premises.

However, that portion of the contract for a lease of premises that indemnifies any person or organization for damage by fire to premises while rented to you or temporarily occupied by you with permission of the owner is not an "insured contract";

b. A sidetrack agreement; 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; f. That part of any other contract or

agreement pertaining to your business (including an indemnification of a municipality in connection with work performed for a municipality) under which you assume the tort liability of another party to pay for "bodily injury" or "property damage" to a third person or organization, provided the "bodily injury" or "property damage" is caused, in whole or in part, by you or by those acting on your behalf. Tort liability means a liability that would be imposed by law in the absence of any contract or agreement.

Paragraph f. does not include that part of any contract or agreement:






CG 24 26 07 04 © ISO Properties, Inc., 2004 Page 1 of 1

Reference Forms 38

CONTRACTUAL LIABILITY LIMITATION This endorsement modifies insurance provided under the following:


The definition of "insured contract" in the DEFINITIONS Section is replaced by the following: "Insured contract" means: a. A contract for a lease of premises. However, that portion of the contract for a lease of premises that

indemnifies any person or organization for damage by fire to premises while rented to you or temporarily occupied by you with permission of the owner is not an "insured contract";

b. A sidetrack agreement; c. Any easement or license agreement, except in connection with construction or demolition operations on or

within 50 feet of a railroad; d. An obligation, as required by ordinance, to indemnify a municipality, except in connection with work for a

municipality; e. An elevator maintenance agreement. NOTE: COVERAGE DEFINITION “f.” HAS BEEN DELETED FROM THE FORM COMPARED TO THE

STANDARD POLICY DEFINITION: f. That part of any other contract or agreement pertaining to your business (including an indemnification of a

municipality in connection with work performed for a municipality) 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.

CG 21 39 10 93 Copyright, Insurance Services Office, Inc., 1992 Page 1 of 1

Reference Forms 39


ORGANIZATION (FOR USE WHEN CONTRACTUAL LIABILITY COVERAGE IS NOT PROVIDED TO YOU IN

THIS POLICY) This endorsement modifies insurance provided under the following:


SCHEDULE

Name Of Person Or Organization (Additional Insured): Location Of Covered Operations

Bodily Injury And Property Damage Liability

Premium Basis Cost

Rates (Per $1000 Of Cost)

Advance Premium

$

Total Advance Premium $ (If no entry appears above, information required to complete this endorsement will be shown in the Declarations as applicable to this endorsement.)

A. Who Is An Insured (Section II) is amended to include as an insured the person or organization (called "additional insured") shown in the Schedule but only with respect to liability arising out of:

1. Your ongoing operations performed for the additional insured(s) at the location designated above; or 2. Acts or omissions of the additional insured(s) in connection with their general supervision of such operations. B. With respect to the insurance afforded these additional insureds, the following additional provisions apply: 1. Exclusions b., c., g., h.(1), j., k., l. and n. under Coverage A – Bodily Injury And Property Damage

Liability (Section I – Coverages) do not apply. 2. Additional Exclusions

This insurance does not apply to: a. "Bodily injury" or "property damage" for which the additional insured(s) are obligated to pay damages by

reason of the assumption of liability in a contract or agreement. This exclusion does not apply to liability for damages that the additional insured(s) would have in the absence of the contract or agreement.

b. "Bodily injury" or "property damage" occurring after: (1) All work, including materials, parts or equipment furnished in connection with such work, on the

project (other than service, maintenance or repairs) to be performed by or on behalf of the additional insured(s) at the site of the covered operations has been completed; or

(2) That portion of "your work" out of which the injury or damage arises has been put to its intended use by any person or organization other than another contractor or subcontractor engaged in performing operations for a principal as a part of the same project.

c. "Bodily injury" or "property damage" arising out of any act or omission of the additional insured(s) or any of their "employees", other than the general supervision by the additional insured(s) of your ongoing operations performed for the additional insured(s).

Page 1 of 2 Copyright, Insurance Services Office, Inc., 1996 CG 20 09 03 97

Reference Forms 40

d. "Property damage" to: (1) Property owned, used or occupied by or rented to the additional insured(s); (2) Property in the care, custody, or control of the additional insured(s) or over which the additional

insured(s) are for any purpose exercising physical control; or (3) Any work, including materials, parts or equipment furnished in connection with such work, which is

performed for the additional insured(s) by you.

Page 2 of 2 Copyright, Insurance Services Office, Inc., 1996 CG 20 09 03 97

Reference Forms 41

Reference Forms 42




ORGANIZATION This endorsement modifies insurance provided under the following:


SCHEDULE

Name Of Additional Insured Person(s)

Or Organization(s): Location(s) Of Covered Operations


include as an additional insured the person(s) or organization(s) shown in the Schedule, but only with respect to liability for "bodily injury", "property damage" or "personal and advertising injury" caused, in whole or in part, by:


behalf; in the performance of your ongoing operations for the additional insured(s) at the location(s) designated above.

B. With respect to the insurance afforded to these additional insureds, the following additional exclusions apply: This insurance does not apply to "bodily injury" or "property damage" occurring after:

1. All work, including materials, parts or equipment furnished in connection with such work, on the project (other than service, maintenance or repairs) to be performed by or on behalf of the additional insured(s) at the location of the covered operations has been completed; or

2. That portion of "your work" out of which the injury or damage arises has been put to its intended use by any person or organization other than another contractor or subcontractor engaged in performing operations for a principal as a part of the same project.


Reference Forms 43



ADDITIONAL INSURED – OWNERS, LESSEES OR CONTRACTORS – AUTOMATIC STATUS WHEN

REQUIRED IN CONSTRUCTION AGREEMENT WITH YOU This endorsement modifies insurance provided under the following:



include as an additional insured any person or organization for whom you are performing operations when you and such person or organization have agreed in writing in a contract or agreement that such person or organization be added as an additional insured on your policy. Such person or organization is an additional insured only with respect to liability for "bodily injury", "property damage" or "personal and advertising injury" caused, in whole or in part, by:


behalf; in the performance of your ongoing operations for the additional insured. A person's or organization's status as an additional insured under this endorsement ends when your operations for that additional insured are completed.









Reference Forms 44



ADDITIONAL INSURED – OWNERS, LESSEES OR CONTRACTORS – COMPLETED OPERATIONS



SCHEDULE

Name Of Additional Insured Person(s)

Or Organization(s): Location And Description Of Completed Operations

Information required to complete this Schedule, if not shown above, will be shown in the Declarations. Section II – Who Is An Insured is amended to include as an additional insured the person(s) or organization(s) shown in the Schedule, but only with respect to liability for "bodily injury" or "property damage" caused, in whole or in part, by "your work" at the location designated and described in the schedule of this endorsement performed for that additional insured and included in the "products-completed operations hazard".


Reference Forms 45

Reference Forms 46

Reference Forms 47

Reference Forms 48

Reference Forms 49

Reference Forms 50

This is a great example of the manuscripted forms. The main problem is there is no body of case law to define the meaning of forms such as this. The Additional Insured form reads:

This coverage does not apply to "bodily injury", "property damage” or 'personal and advertising injury": 1. Arising out of the sole negligence of the Additional Insured; 2. Arising out of the claimed negligence of the Additional Insured other than that directly caused by "your work' which shall be imputed to the Additional Insured;

1. is pretty straightforward, and is not allowed by California law anyway. No problem. 2. is much more problematic and an example of what happens when customized policy language is done without knowledge of the issues involved. There are 3 problematic phrases that give me pause. All would have to be satisfied for there to be coverage for the Additional Insured.

First –“Claimed negligence” is not defined in the form, and certainly not in the ISO CGL, but seems to imply alleged versus actual negligence, but there is no way to know for sure. All negligence is “claimed”, i.e., alleged until it is proven or stipulated by agreement. The problem is that there would be no defense to pay for the costs until it was determined that it was actual negligence. After that happened, would the prior costs be reimbursed? Or, would only the indemnity (and not defense) be paid? There is no way to know...

2nd—“directly caused by” is not defined. The statement continues that there is no coverage for “...the Additional Insured other than that directly caused by "your work' which shall be imputed to the Additional Insured”. I think the intent is to limit coverage for the Additional Insured to only those issues that are “directly caused by” the named Insured, similar to the 07.04 edition of the ISO Additional Insured Endorsement forms. They do not want to pay for defense and damages related to the work of others, but this is a very poor and ambiguous way of saying that.

But by adding the word “directly” to form the phrase “directly caused by” the named Insured’s work, it implies that there would be no coverage that was indirectly caused by the named Insured. Many construction-related issues are caused by a primary, and often times, several additional contributing causes. Or, there are many times simply no way to determine the direct cause, only the series of suspected or actual causes.

Additionally, what about coverage for issues that are partially caused by the named Insured? Would that still be considered “directly caused by”? At least the ISO 07.04 Additional Insured editions contain the phrase “caused, in whole or in part,” by the named Insured so that there is coverage.

Reference Forms 51

3rd—What qualifies as negligence “which shall be imputed to the Additional Insured”? Does this include vicarious liability only, or would it include passive liability of the Additional Insured? “Imputed” may very well mean only vicarious liability since that is imputed by law and not by any action of the Additional Insured such as inadequate or faulty supervision of the named insured’s work. If that is the case then any allegation of any passive negligence on the part of the City would mean there is no coverage. Now call me a cynic, but my experience has been that the carriers that use language such as that above are the same ones that take the most restrictive interpretation at claim time. Bottom line—I would not be comfortable with this language.

Reference Forms 52


EXCLUSION EMPLOYER'S LIABILITY This endorsement modifies insurance provided under the following:

COMMERCIAL GENERAL LIABILITY COVERAGE PART This Policy is hereby amended as follows:

Exclusion (e) of Paragraph 2. Exclusions of Section I Coverage A Bodily Injury And Property Damage Liability is deleted, and the following exclusion is added to Paragraph 2. Exclusions of Section I Coverage A Bodily Injury And Property Damage Liability and to Paragraph 2. , Exclusions of Section I Coverage B Personal And Advertising Injury Liability:

e. Employer's Liability

"Bodily injury" or “personal and advertising injury” to:

(5) Any "employee" of any insured arising out of and in the course of:

(a) Employment by any insured; or

(b) Performing duties related to the conduct of any insured's business; or

(6) The spouse, child, parent, brother or sister of that "employee" as a consequence of Paragraph (1) above.

This exclusion applies:

(1) Whether any insured may be liable as an employer or in any other capacity; and

(2) To any obligation to defend or indemnify any party against whom a claim or “suit” is brought as a result of the “bodily injury” or “personal and advertising injury.”

CIC / 2027 12-1-06

Coverage Amendatory Form CAF 12-01-06

Reference Forms 53

Page 1 of 1

Print Date 07/14/2009

Do NOT accept this exclusion! It would , in fact, exclude an action over suit from being covered by the carrier.

Because of that, your insured would have no coverage for his indemnity of the GC or Owner for any such action over lawsuit. VERY BAD!

You should also check to see if this carrier has amended the definition of an “insured contract,” or deleted the contractual liability coverage, since that is what this endorsement does by deleting the exception to the Employer’s liability exclusion for an “insured contract” under the CGL coverage, which normally provides coverage under the unmodified CGL without this exclusion.


DESIGNATED CONSTRUCTION PROJECTISI GENERAL AGGREGATE LIMIT



Schedule

Designated Construction Project(s):

CG 25 03 (Ed. 05 09)

Any construction project where "you" are performing operations when "you" have agreed in writing in a contract that a separate General Aggregate Limit s h a I I a p p I y t o s u c h con s t r u c t i o n p r o j e c t , b u t on I y i f " you r wo r k " on o r a t the construction project is performed during the period of this policy.

Information required to complete this Schedule, if not shown above, will be shown in the Declarations.

A. For all sums which the Insured becomes legally obligated to pay as damages caused by "occurrences" under SECTION I - COVERAGE A, and for all medical expenses caused by accidents under SECTION I -COVERAGE C, which can be attributed only to ongoing operations at a single designated construction project shown in the Schedule above:

1. A separate Designated Construction Project General Aggregate Limit applies to each designated construction project, and that limit is equal to the amount of the General Aggregate Limit shown in the Declarations.

2. The Designated Construction Project General Aggregate Limit is the most we will pay for the sum of all damages under Coverage A except damages because of "bodily injury" or "property damage" included in the "products-completed operations hazard," and for medical expenses under Coverage C regardless of the number of:

a. insureds;

b. claims made or "suits" brought; or

c. persons or organizations making claims or bringing "suits."

CG 25 03 (Ed. 05/09) PRO Copyright, ISO Properties, Inc., 2008

(Page 1 of 2)

PDF created with pdfFactory trial version www.pdffactory.com

Robert

Highlight


ADDITIONAL INSURED - OWNERS, LESSEES OR CONTRACTORS - COMPLETED OPERATIONS



Schedule

CG 20 37 (Ed. 07 04)

Name of Additional Insured Person(s} or Organization(s}: Location and Description of Completed Operations:

Any person or organization that "you" and such person or organization have agreed in writing in a contract that such person or organization be added as an additional insured on "your" pol icy, but on I y f o r "you r wo r k " p e r f o r me d during this policy period.

"Your work" For work performed by the insured during this policy period when required by written contract.

Add i t ion a I P rem i um: Included

Information required to complete this Schedule, if not shown above, will be shown in the Declarations.

SECTION II - WHO IS AN INSURED is amended to include as an Additional Insured the person(s) or organization(s) shown in the Schedule, but only with respect to liability for "bodily injury" or "property damage" caused, in whole or in part, by "your work" at the location designated and described in the schedule of this endorsement performed for that Additional Insured and included in the "products-completed operations hazard."

CG 20 37 (Ed. 07 /04) PRO Copyright, ISO Properties, Inc., 2004

(Page 1 of 1)

PDF created with pdfFactory trial version www.pdffactory.com

Robert

Highlight

Robert

Highlight

F X · M r ~~~~~~uu .. .u~nm.nm . .--.~.n--~·mn~·E· ........ _. .... I .... II

POLICY NUMBER: 60423382 COMMERCIAL GENERAL LIABILITY Named Insured: American Asphalt Repair


ADDITIONAL INSURED OWNERS, LESSEES OR CONTRACTORS {FORM B)



SCHEDULE

Name of Person or Organization: RE: All work performed under writtencontract with the named insured. The City of Livermore, its, officials, employees, agents, and vdlunteers are added as additional insured per the attached endorsement.

(If no entry appears above, information required to complete this endorsement will be shown in the Declarations as applicable to this endorsement.)

WHO IS AN INSURED (Section II) is amended to include as an insured the person or organization shown in the Schedule, but only to the extent that the person or organization is held liable for your work" for that person or organization by or for you.

This endorsement applies to the following work:

Description of Job: see Above

Location of Job: See Above

AI only Effective from: Effective Date: 1213112o12 Expiration Date: 12/31/2013

When this endorsement applies, such insurance as is afforded by the general liability policy is primary insurance and other insurance shall be excess to the insurance afforded by this endorsement.

CG 201 011 85 Modified (07-01) Page 1 of 1

Includes copyrighted material of Insurance Services Office, Inc., with its permission.

Robert

Highlight

Robert

Highlight

Robert

Highlight

contractor’s dangerous coverage gaps update 2013 ... · failure to clearly define the difference...

Documents