Insurance Mic

Case Study of a Job Site Liability Claim.

A worker, while cutting a piece of ribar, safety glasses absent, obtains a piece of debris in his eye. He informs his boss (Masonry sub-contractor), who then informs the site supervisor. The gentlemen is sent to a local hospital to get checked out. The hospital rinses his eye and sends him home. He reports to work the next day, all is right with the world. The incident report is logged into the job's daily activity, but no Notice is given to any liability insurance carrier. Notice was filed with the sub's comp carrier for reimbursement of treatment received. Does this sound familiar? Sounds like the majority of the job sites in the country, accept in the great State of New York, where the story continues due in part to the Labor Law.

Several weeks go by and the workers vision begins to fail incrementally. He mentions nothing to anyone, not wanting to risk his job or wage. Shortly there after he develops a serious eye infection that put's his eye in jeopardy. He is fails to show up for work because he is hospitalized. Several weeks, several surgeries later the worker emerges, informing his employer he will not be returning to work, his is going out on disability, how do we file the claim? The Steel Sub-Contractor notifies his disability carrier, and his comp carrier (again) , updating them on this news. The sub fails to notify the G.C. of this critical update, simply slipping his mind. He also never notified his Liability Carrier. The broker that handles the liability insurance for the sub is different than the broker who handles his worker's comp, again, sound familiar?

Quiet months pass, until the thud-some sound of legal papers being served echos in the offices of both the G.C. and the Steel Sub-contractor. Bewildered first thing they do is call their respective General Liability insurance brokers to deliver the loathsome news. Having received these calls thousands of times myself, the first questions I ask is when did this happen, did you know about it, and is there a paper trail documenting your knowledge? You can actually hear the guy blink on the other end of the phone, then panic starts to creep in. Are you telling me I may not be covered, why I am paying all this insurance premium for?

What transpired was the employee filed suit against both the G.C. and the Sub-Contractor, under the New York State Labor Law , alleging grave injury which this fits the classic definition. Since the Steel sub-contractor signed a hold harmless agreement with the G.C. promising to defend and indemnify him in the event of an employee based suit, the Steel Sub-contractor has a legal obligation to defend the G.C., and if they lose in court, then the Steel Sub-Contractor may be responsible for some or all of the judgement awarded. All of this is fact, and understood at the time the job was awarded. The problem arises because both the Steel Sub-Contractor, as well as the G.C. never gave proper notice to their respective general liability carrier.

Under the terms and conditions of almost every insurance contract there is an obligation by the insured ( G.C. & Sub-Contractor), under each of their respective insurance policies that stipulate you must give the insurance company proper notice of any incident or occurrence, this applies incidentally to additional insureds as well, put that's a whole different topic. This clause protects the insurance company by allowing them to jump on, and procure information quickly on a claim that they may have to defend and litigate at some future point. The longer the time period between when the incident occurred, and when the company was put on Notice, the less chance they will have to build a proper defense. Information, witnesses, and potential material facts become contaminated with the passage of time. I will speak at length about Proper Notice, and the Declination of Coverage in a future post. Suffice it to say, the carrier for the G.C. and the carrier for the Steel Sub in all probability will decline coverage based on improper notice of loss.

The G.C. should have reported to their carrier same day the incident was filed, having no knowledge of where the claim may lead. Although the G.C. is counting on the sub's carrier to step up, you cannot rely solely on that. The G.C. should always use their policy as a safety net. The upside is they can control their financial destiny, in absence of that, their financial destiny is in the hands of a sub contractor. Similarly the sub-contractor, aware of their promise and obligation to the G.C. must always be cognizant that any workers compensation claim may lead to a labor law claim, which will always lead to a liability claim.

In Conclusion: If you are the G.C. there should always be a closing disposition report on any job injury. As part of that closing report there should be a box that states something like "reported to G.L. Carrier" or "Reported to G.L. (General Liability) Broker." This will force your staff to recognize the importance of at least having the conversation with respective to future obligations that may appear from this particular injury. It also forces the G.C to close out , or track any job site injury for a change in condition. Hint, back injuries, and eye injuries are almost always reported to the G.L. carrier.

If you were the Sub-contractor here, be mindful of your contractual obligations, and remember to discuss all Worker's Comp claims with your Construction Liability Advisor. Make it protocol that all C-2 forms ( Workers Comp Claim Forms) are sent to both the Liability Broker and the Comp Broker if they are different. Best advice is to think of all Workers Compensation Claims as potential General Liability claims, handling them with care.

The Huge Liability Trap on Builder's Risk

The spring on this trap is loaded with the General Contractor in mind, let me explain. The owner hires a builder to build him a home on the land he owns. The owner buys a Builder's risk policy to insure that if the project burns, or befalls a physical catastrophe, the owner is not out the funds. After all he can't expect the G.C. to rebuild it at their cost. The G.C. already did the work, if he has to do it again, he will want to be paid again. That is fair for both sides. The problem arises when the insurance carrier who covered the Builder's Risk, (property coverage) seeks to get reimbursed from whoever they deem at fault for catastrophe. Naturally the first place they will look, is the General Contractor, surely it must be their fault. The result, the Builder's Risk carrier sues the General Contractor for the money they paid. The G.C. gets the law suit and hands it to his liability insurance carrier for both defense, and payment. After several weeks they get a nice letter from their liability insurance carrier stating the claim is not covered, wonderful, isn't this a glorious business!

This insurance denial is not uncommon, and can be typically avoided with some well crafted language in the Builder's Contract. The denial usually emanates from the CGL 0001 form ( Commercial General Liability) , under the exclusion section, specifically letter J Damage To Property Exclusion. If you actually read this exclusion prior to a loss it states: J (5) : That particular part of the real property on which you or any contractors or sub contractors working directly or in directly on your behalf are performing operations, if the "property damage" arises out of those operations; or J(6) That particular part of any property that must be restored, repaired, or replaced because "your work" was incorrectly performed on it. Please note J(6) of this exclusion may not apply to "property damage" included in the "products & completed operations hazard".

Incidentally when you see words put in quotes " ", that typically means the policy has a specific definition for those words in quotes. To find out how the policy defines " products & completed operations hazard, look in the definitions section of the policy. If you still are not clear on that definition, get clarification from an underwriter of that specific carrier who wrote and issued the policy.

Sorry for the sidetrack, however I figured some of you are wondering what's with all the quotes. Rather than spend my time trying to tell you how to get this situation covered on your CGL policy, I would rather give advice on how to avoid the situation all together. My suggestion is get in a position, as the G.C., to have either the owner, or the owner's builders risk carrier, relinquish their right to subrogate any claim under the Builder's Risk. It's the subrogation by the other insurance company that is causing all of the pain. Nuder their ability to recover damages, and they are stuck with the loss, not you the general contractor. This is achieved in several ways, I'll give you only two.

The first, and least expensive way to accomplish this is to have the General Contractor be named on the Builder's Risk policy as a "Named Insured" . Be careful not to have "As Their Interest May Appear" in the named insured language as it may limit the protections of the policy to only the specific work that the contractor or sub-contractor did. Over the years there have been numerous cases where insurers have attempted to exercise the named insured's rights of recovery in subrogation against another party who allegedly caused the damage, despite the fact that this other party was a named insured under the policy. The cases in New York that I am aware of are as follows: Paul Tishman Company, Inc v. Carney & del Guidice, Inc. 320 NYS 2d 396, aff'd 359 NYS 2d 561 (1974) / The New York Board of Fire Underwriters v Trans Urban Construction co., Inc. 458 N.YS. 2d 215 . In New York Board of Fire Underwriters , Insurer's right to subrogate was overruled, confirming our strategy that by naming the G.C. , and the sub contractor's as named insured's , you in effect limits the Builder's Risk carrier from their ability to subrogate.

The second tact you should take is to include a clause in the construction contract and, if possible, in the policy itself, under which all owners, contractors, and sub contractors waive their rights of subrogation against one another with respect to losses covered by the builders risk policy. This agreement, and contract should take precedent, irrespective of how aggressive the Builder's Risk carrier is.

Please be careful though, you must first ask the Agent or Broker who is providing the Builder's Risk quote to be certain the policy does not have a subrogation provision that would prohibit the insured from waiving rights of recovery against others. The execution of a contract containing a typical mutual waiver of subrogation provision would constitute a violation of the policy conditions by the insured, and that violation may well prevent anyone from recovering from the loss, even the rightful owner.

These two strategies will work best in tandem, please consult your construction attorney for the exact language so you are consistent with your goals. This is even more important for some Development companies that are both the G.C., and the end user owner of the property. Too often it's a very sloppy arrangement often without formal contracts in place between the two entities. The executives of these companies are under the misguided assumption that they will never litigate against their own companies. While that may be true, their vendors, and or insurance carriers aren't always so courteous. It's little details like these that can make a huge difference in your organization. Work with professionals who are familiar with these details, not just the broker who provides the cheapest insurance quote. It could be a very costly mistake.

Insurance Carriers That Are Known To Exclude Contractual Liability

These carriers are known to have excluded contractual liability in the past. This is critical for the General Contractor/ Developer and sub-contractor to know.The general contractor typically has indemnity agreements  with the sub contractor making certain obligations and promises in the event of a claim or occurrence. It's critically important that your "sub-contractors" insurance policy contain contractual liability coverage so their insurance carrier can make good on the obligations and  promises made in the sub-contract agreement. If your "sub-contractor's" policy excludes this coverage, you the General Contractor and or Developer still have the financial obligation to pay. Difference being instead of their  insurance carrier paying, your insurance carrier pays driving up your insurance costs at renewal. If you are insured with Everest, you may not have coverage at all.

If upon review your sub-contractor is insured by one of these carriers I suggest you take a much closer look. Order a copy of the forms and endorsements section of their policy , or contact your broker for their advice. Your efforts could be worth tens of thousands of dollars.

This list is not the end all, be all, but it's fairly accurate. It is a combination list distributed to me by both the Claims Department at Harleysville Insurance, and  John Hannum of  Hawkins Feretic & Daly, LLC  in Manhattan.  Thank you folks !                                                                           

Admiral ( Subcontractors Warranties) May either exclude coverage for sub contractors if the subs coverage does not conform to the requirements set by Admiral or the may charge their insured   at the rate the sub would pay.)
Atlantic Casualty ( Exclusion of injury to employees, contractors and employees of contractors. They also have classification limitations/exclusions.)
American Safety 
Berkley Specialty
Burlington ( Cross Liability exclusion-amended to include any employee of any insured.)
Colonial Co-Operative
Colony
Cover X First Mercury  (May offer buy backs for coverage, need proof by endorsement)
Erie & Niagara (Contractual Limitation)
Essex Ins. Co. ( Contractual limitation, independent subcontractors and their employees, including leased works.)
Farm Family
First Mercury
Hartford ( Need to look at the forms and endorsement section of the contract, coverage limitations vary by class)
Hermitage
Hudson (Third Party Action Over Exclusion)
James River Ins Co. Classification limitations, sub contractors warranty
Merchants " Handyman Program" Contractual Limitation & Exclusion to employees injuries
Mount Vernon Fire
Mountain Valley indemnity Company ( Preserver Group)
Mt Hawley w/ MCF Policy pre-fix Beware of contractual liability limitation.
National Casualty Employers liability exclusion amended " This exclusion does not apply to liability assumed by the insured under an "insured contract"
National Fire & Marine Contractual Limitation
North Sea
Nova Casualty
QBE Non-Admitted
RCA
RLI / Mt Hawley
Rutgers  Casualty
Scotsdale Some Scotsdale policies will offer the proper coverage, need to check the forms and endorsements to vet the contract.
Selective   ( Need to look at the forms and endorsement section of the contract, coverage limitations vary by class)
Everest America Sub contractor's Warranty & Classification Limitation Endorsements )
TIG
Tower Insurance Company
Tudor
United National Residential projects exclusion ( all habitational)
US Liability Ins Co.
US Underwriters
Utica First  Exclusion of Injuries to employees
Valley Forge 
 
 

To be certain, order a copy of the policy from the sub, and have your insurance advisor read it.