Insurance Mic

The Difference between a Named Insured versus Additional Insured

The difference between a named insured and Additional named insured could be who pays a million dollar loss. Lately a disturbing contractual trend is emerging whereby those at the top of the food chain, (typically owners), are asking to be named insured on Developer’s and General Contractor’s insurance policies. The attorney’s on the other side of the transaction feel that they are getting better protection and coverage if they are “named insured” versus an “additional insured”. There is also a misconception that if you have “named insured” status you had the right to written notice of cancellation. While true years ago, now the carrier is obligated to make a best effort only to the first “named insured”.

A knowlegable risk manager or insurance consultant would politely suggest the contrary is the reality, with the result quite often being coverage that would ordinarily not be excluded for the very events you are trying to protect, are disclaimed simply because the wrong category of insured is used to list the entity on the Contractor’s policy.

A Brief Discussion on Various Categories of Insured’s :

Named Insured under a Commercial General Liability policy is the person(s) or organization (s) in whose name the policy is written-in general terms, the person(s) or organization(s) that has purchased the coverage. That person or organization will be identified on the declarations page of the policy, in the blank space provided next to “Named Insured”. They may also be referred to throughout the policy as “you” and “your”.

Additional Insured’s are typically other persons, organizations, municipalities, or lenders who do not have named insured status, or automatic insured status that may be added to the commercial general liability policy by means of an additional insured endorsement. For details on which Additional Insured endorsement to useclick here: All Additional Insured Endorsements Are Not The Same. These endorsements are used to extend insured status and confer coverage based upon their business relationship with the Named Insured, or the named insured’s contractual obligation to provide them with insured status under the policy. All of these Additional Insured’s have different rights and duties from those conferred on the policies Named Insured’s which could have a substantial impact on coverage and coverage triggers contingent on what the Category of Insured is.

Automatic Insured’s are people or parties that have “insured status” under the policy, but not named insured status. Under Section II – Who Is An Insured these parties and people are typically defined as follows: ( Consult Section II of Your Policy for Your Carrier’s Definition.)

• The spouse of an Individual Named Insured
• Partners and Joint Ventures in a Named Insured Partnership or Joint Venture. (Note the Joint Venture must be listed as a Named Insured on the policy)
• Members and managers of named insured limited liability company.
•  Officers, directors, and stockholders of a named insured corporation or other named insured organizations. 
• Trustee of a Named Insured Trust
• Employees and volunteer workers of the named insured business.
• The named insured’s real estate manager
• Any person having proper temporary custody of a deceased named insured’s property.
• The deceased named insured’s legal representative.
  
  

Both attorney’s and the insurance brokerage community, sadly too often do not properly categorize insured status on the policy. What everyone overlooks is that the subtle difference between Named Insured and Additional Insured can fail to trigger coverage for the very “named insured’s “ the policy was designed to protect, or fail to trigger coverage for the listed entity because they are improperly categorized within the policy.

A Construction Defect claim is a perfect example of where coverage that would ordinarily apply would be excluded because the category of “Insured Status” was incorrect. If the property owner requests by contract to be listed as a “Named Insured” on the Developer / G.C.’s policy, and a construction defect claim emerges whereby the flashing was incorrectly installed on the façade of the building, resulting in various leaks throughout the building the liability carrier who insured the general contractor/developer will deny coverage under the “your work” doctrine which is a typical exclusion under the general liability policy. Since the owner is now a “Named Insured” as opposed to being the “Additional Insured” the construction defect (flashing) is now considered the owners work, and thus excluded. If they were correctly listed as additional insured’s then the defect would remain the General Contractor’s work, and the additional insured would enjoy coverage. Damage to various categories of property do not apply to an additional insured with respect to owned property (Exclusion J). This preserves coverage for the damage to the additional insured’s property or premise. (This is a simplified scenario that I am using to illustrate a point. There are several contingencies that I won’t bring in as they are superfluous to the point.)

Another brief example would be the Contractual Liability carve out. In a typical general liability policy contractual liability is excluded EXCEPT FOR. The policy then adds Contractual Liability back in under the exceptions section of the Coverage A exclusions; notably Part F the definition of “Insured Contract” does NOT apply to additional insured’s; therefore no coverage would apply to liabilities assumed by the Additional Insured in a hold harmless agreement UNLESS it exists within a contract that otherwise qualifies as an “Insured Contract”. Thus if the Owners Entity is a Named Insured on the contractors policy , then the Contract (including Indemnity) would not qualify as an Exception under Part F, which means the initial Contractual Liability exclusion who take hold. Bottom line do NOT add the Owner’s entity as a named insured, period.

Another by product of improper use of “Insured Status” emanates from the “Cross Suits Liability Exclusion” which states if two “Named Insured’s” litigate against one another, no coverage (defense nor indemnification) will be provided. Thus is the owner of a property is listed as a “Named Insured” on the General Contractor’s /Developer’s insurance policy, and they owner brings suit for some reason against the General Contractor, the General Contractor’s insurance coverage would not be triggered because both parties are “Named Insured’s “ on the same insurance policy. Coverage would be disclaimed via the “Cross Suits Exclusion”.

If you have two parties; an owner, and a general contractor, where the owner has required in their written contract that they must be a “named insured” on the general contractors policy; this situation becomes an acute problem if the owner sues the general contractor for whatever the reason. Since they are both named insured’s on the policy, the cross suits exclusion would disclaim coverage for the very general contractor and situation the coverage was purchased for since they are both “named insured’s on the policy. Remember insurance is simply a mechanism to finance risk or a loss. The terms of the contract dictate when funds can and will be released to pay the loss. If coverage is not triggered, then the loss is not transferred or financed, resulting in an on balance sheet loss for the G.C. because they must pay from their own pocket., perhaps the owner as well.

A perfect example of this situation are some of the contracts that were issued by certain city agencies or Non Profits. In certain contracts the Non Profits were requesting in their contracts that they be specifically added as “Named Insured’s” to the insurance policies of the Developer’s and Builders they do their deals with. In speaking with a few of these Non Profits at they stated that “their attorney advised them that they should be listed on the policies as “Named Insured’s”.

One of many pet peeve’s of mine, I do not dispense legal advice as I am not a member of the bar and realize my limitations with respect to my area of practice, I only wish that attorney’s would heed the same advice. Their business is Law, mine is Risk Management & Insurance. What works best for the client is when the two professions collaborate in tandem to achieve the desired result for their client’s.

I know many Metro NY based development companies and general contractors that not only have the language in their contracts but also have the non Profits as well as other entities listed as “named insured” on their corresponding insurance policies leaving a huge gaping hole. If they ever get into direct litigation with one of these Builder Developer’s, the possibility exists that there will be NO pool of capital (insurance) for defense and judgment

provided by those insurance polices thus subjecting both the Non Profit and the firms they do business with uninsured losses.

So What The @#!* DO I Do Now !

Pull your current insurance policy and look at your named insured list. If you don’t have an ownership interest in an “Additional NAMED INSURED” , and there is a possibility of some type of squabble that could result in litigation, then remove them immediately from the policy, irrespective of the contract. Insurance is a pool of capital that you may need access to. That is your number one priority. Simultaneously I would contact the organizations you are removing from your policy, forward them this article and request an addendum to the contract that corrects the insured status so the transaction remains consistent.

A simple rule of thumb, do not list any direct entity of which you do not have an ownership interest in as a “Named Insured” on your insurance policy. The contract itself should not be the sole vehicle to establish “insurable interest”. The second litmus test; if this entity sues me, will the Cross Suits Exclusion, or other insurance contract provisions prevent the policy from being triggered thus excluding coverage whereby it would have existed if the “Insured Status” were different. If the answer to either of those questions is yes, then push back and offer only “additional insured status”.

Lastly run the question past your insurance advisor, if they blink more than three times call me, I will be happy to review this conundrum.

Insurance Pricing Heading Higher in 2009

Insurance carriers make money historically in one of two ways; taking in more in premium than they pay in losses, or thru investment returns on the premiums they charge their customers. Usually for most companies it's an amalgam of both. I this current economic environment the return on investment model has crashed into the recession built wall, with the bear perched prominantley atop. That puts pressure on insurance carriers to generate a profit by returning to the fundementals of properly pricing the risk the accept. Back in the good old days they called that underwriting.

For a carrier to generate consistent underwriting profits they need to find that equilibrium between premium dollars taken in, and losses (claims paid plus carrier expenses). In industry parlance that is referred to as a combined ratio. Simply put if an insurance carrier has a combined ratio of 95% what they are telling you is that for every premium dollar they take in, they are paying 95 cents in claims and fixed expenses. Fixed expenses are what it costs an insurance carrier to do business, from facilities to employees to marketing. I am offering this macro look at the insurance industry to provide you a basis of why I believe rates are headed higher.

According to a December 08 report issued by Towers Perrin managing principle Jeanne Holiister , "We expect to see abatement in soft market conditions in the U.S. Property & Casualty market, as companies consider a number of factors in their pricing decisions, including equity and credit related losses to asset portfolios, a continuation of poor underwriting results in many sectors, heavy weather related losses and a forecasted spike in directors & officers liability claims. In our view the industry is fast approaching a point where underwriting results are no longer favorable relative to economic hurdle rates, and that generally signals a 'tipping point' in terms of insurance companies pricing actions."

1. In a survey of Re-insurance carriers by the Re-Insurance Association of America, 20 re-insurance carriers have reported a combined ratio of 104.2 % for the nine months ending Sept 30th. This same group of 20 reported a combined 94.1% a year earlier. Just as a primer, Re-insurance is coverage insurance carriers buy on the risk they retain and underwrite. Without re-insurance the capacity to underwrite and retain risk by most of the name recognized insurance companies you know would evaporate leaving little insurance coverage available to the general marketplace. In my opinion it is doubtful that the carriers who purchase this coverage, will be able to absorb this increase without passing some if not all of the cost back down to policyholders. The margins are so thin coupled with their losses on the investment side most property & casualty insurance carriers just can't absorb the increased cost .
2. The substantial decrease in construction volume erodes the scale necessary keep down insurance rates, thus without all the scale and capacity rates will head north to make up for the loss of premium due to the decrease in insurable exposure. The net effect will put pressure on construction company margins as rates charges per thousand of sales increase, eroding already thin margins these constructions firms are operating under right now.
3. Only Construction firms with pristine loss histories will be offered the most competitive prices. As carrier put more emphasis on generating profits thru underwriting only firms with a proven historical track record of returning underwriting profits to their insurance carriers thru demonstrated low claims frequency and payouts will see sustained competiton for their business keeping rates stable. Those construction firms with significant or even moderate losses will not have many carriers fighting for their business, creating a take it or leave environment for those carriers that remain who have not outright declined the risk. Construction firms are deemd profitable if their 5 loss ratio ( premium versus loss paid & reserved) is less than 35%. If a firm goes above 35% it's up to the individual underwriter to calculate if their insurance company can make a future profit on your account, above 50% expect a decent rate increase to drive the ratio downward.
4. Carriers will look to underwrite more stringently a construction firm's cash flow, and credit worthiness. Historically firms that have a strong cash position, and have a good credit rating have historically lower incidence of claims. It's one of their fundemental acturial axioms. More constructionfirms are experiencing financial pressures than ever before, thus the expecttion that they will cut back, notably on safety, yielding higher incidences of claims, and furture insurance losses.
5. In down economic cycles insurance carriers typically see a rise in insurance claims as people strapped for cash use insurance as a subsidy and not a risk transfer tool. The combination of expected increased claims activity, poor investment results, and historically low insurance rates will drive carriers to try and achieve that profit equilibrium back. You cannot continue to post combined ratios in excess of 100, for a sustainabe period of time without increasing rates to off set losses.

Performance of Insurance Companies (Stock) versus the Rest of the Market

• Consumer Staples -19%
• Healthcare -31.1%
• Telecom -33.0 %
• Utilities-35.3%
• Energy-37.2%
• Consumer Discretionary -38.6%
• S&P 500 -41.8 %
• Industrials -43.4%
• Information Technology - 45.7%
• Materials -49.5 %
• Financials -58.4 %
• INSURANCE - 61.8%

SOURCE: Saturday NY Times Dec 6th, 2008

Many insurance carriers are bleeding losses, some thru both nostrils (investment & underwriting resuts), it's only a matter of time before the market loses some of it's capacity, and rates adjust to reflect the reality of their balance sheets, the big question is when, and not if. The smart construction firms should calculate thier own 5 year historical loss picture to determine how potentially attractive they are in the market place, and run a quick D&B report on their firm to poll their credit score. If you are on the cusp of profitablity it may be wise to budget for a 5 to 7% increase for your G.L. and comp rates. If your loss pic is over 50% , budget somewhere between 10 and 15%. If it's over 70%, you need to have an aggressive action plan to improve your loss experience, and solict the help of a qualified construction insurance broker who can help you engineer and better result, and craft the right message to the insurance marketplace. If you email me, I have just the right person who could help right the ship.

The Hard Cold Realities of a Soft Insurance Market

My favorite analogy is the game of musical chairs. In this game it is always your goal to make certain you have a chair when the music stops. The same holds true when it comes to insuring your business. When a claim happens, (music stops), you want to be certain you have a chair, (insurance coverage or pool of capital other than your own). With poorly designed insurance coverage, the chances of you having a chair when the music stops diminishes greatly, putting your company at substantial risk of financial loss.

Soft markets are supposed to be a boon for purchasers of insurance products, however this market is substantively different, and not in a positive way for clients. Insurance carriers have figured out that the insurance buying pubic has a blind spot, and that blind spot is understanding how much of their business risk they retain, versus how much they actually transfer to an insurance carrier for a negotiated premium.

An example of a claim you might not retain is Products & Completed Operations exposure. An example of this may be years after a project is completed it’ determined that the wrong bolts were used to fasten railing to the stairs. Instead of galvanized bolts, which were called for in the drawings, untreated bolts were used, which eventually rusted. The corrosion weaken the bolts to the point where the railing that was fasten with the bolts eventually snapped off injuring a child. The cost to defend that suit, and ultimately the judgment should you lose could be financially devastating if you had to pay that out of pocket. Since the severity of the risk may be too much for you to retain, you make certain that exposure is transferred to an insurance carrier, so if the music stops, your company has the chair.

What you purchase when you buy insurance is a contract. Depending on how broad, or how narrow that contract is written will ultimately determine if what ever unfortunate event that has just occurred will be paid with your money, or the insurance carriers. People fact that fact and just focus on how much the "insurance contract " costs. Worse than the general public’s blind spot, is the large amount of insurance brokers or advisors that focus all the attention on the premium the clients pay, without balancing the amount of risk the client actually retains. In short they fail to properly address or overlook the holes in coverage, downplaying the ramifications of a claim denial, instead focusing on the short term often illusory gain in the cheaper cost of the insurance. Some insurance brokers do it so they can simply book the deal, others don’t even realize the holes or gaps in coverage themselves, leaving the insurance buyer at great peril.

Cost of Risk Equation

Here is my formula for greatly increasing your chances of always having a chair when the music ceases :

Cost of Insurance + Unpaid Claims (including legal and adjustment fees) = Cost of Risk. The Cost of Risk formula is one of the most important fundamental tools risk managers around the world use to decide how to allocate risk. Whether you are the risk manager for Exxon Mobile , or evaluating a small town bakery on Main St the science is the same. Do you retain the risk, transfer the risk, or abstain from the risk all together. These three allocation methods are essential for understanding and arriving at a level of risk your company can and will accept. We call this your “risk appetite”.

Too often when consulting with various businesses throughout the NY Metropolitan area the single most important factor they use to evaluate, and purchase insurance is the price or premium for the coverage. They only have half the information, and more often than not they arrive at an un-informed or wrong answer. Fortunately, or unfortunately contingent on where you stand, the true answer only manifests itself if your company has an event (music stops), and your insurance purchasing decisions are put to the test. Many companies can go years before their errors present themselves in the form of on balance sheet realized losses that can severely hampering their competitive position in the market place or worse, force them to leave the marketplace all together. At that point their education has become very expensive.

It may seem a fundamental axiom, however it’s irrefutable, you can’t manage what you don’t know, which is why it’s essential to have a feel or grasp of what you and your insurance advisor perceives are the greatest threats to your business. We typically create a risk profile with the clients to get a feel for what they do, how they do it, and overlay what we see are the potential dangers that threaten the business or Quantifying the Exposure. Any strong insurance advisor or broker can and should take the lead on building this risk profile which should be the blueprint for your insurance transactions.

After you have made your “Keep Me Up At Night List” of potential threats and dangers, decide which of those risks you want to retain, and which you would prefer to transfer to an insurance carrier, and at what cost. An example of a risk you might retain is any property damage claim under $10,000. You wont’ put a claim in for that anyway, so why retain it yourself, and get a cost savings on the insurance. A small claim like that might be an inconvenience, but it’s not lethal

Hopefully I have illustrated my point that you must understand what your potential exposures are, ( Keep Me Up At Night List), and then decide what which ones you are transferring and which you are retaining. It’s the risk that you are retaining that drives the Cost of Risk.

Consider this example:

ABC Development Company just saved $50,000 on their general liability premium because they went out to bid soliciting quotes from 3 outside brokers, plus their incumbent broker. After reviewing the 4 proposals they chose the cheapest quote, not picking up on the fact this quote had only a 3 year products & completed operations extension, where the incumbent had 6 years, or alternatively they did pick up the difference but decided that the premium savings was too enticing not to pocket, so they “took their chances, optioning for the short term benefit of a premium reduction.

Five years later the bolts snapped off, sending a child down two stories resulting in serious injuries.

Here is the Cost of Risk scenario broken out in two ways:

OPTION A : ABC Company chose the longer Products & Completed Ops coverage transferring the risk to the carrier.

OPTION B: ABC Company chose to retain the Products & Completed Ops exposure by only going out 3 years, anything after 3 years they would cover themselves.

Hindsight being 20/20 you would think the choice would be obvious, sadly too often it’s not. I have actually sat in front of companies that have been thru this very scenario, and will still try and debate me as to why they should continue to retain certain pieces of risk, even though the financial consequences to them were significant.

They say you can only help those that help themselves. Even if you are well capitalized and a loss like this won’t hurt you, from a business standpoint, you would have to go out over 20 years to break even on the above example. The label sucker bet seems to jump out at me when I see things like this which is exactly what the house(insurance carriers) are counting on!

Quick Tips To Assist In Evaluating Your Insurance Quotes

• 1) Have a checklist (Keep me Up At Night List) prepared. If you don’t have one, solicit help from a broker or third party consultant. I have provided my own evaluation list I custom tailored for my G.C. & Developers. It’s a bit technical, but it’s comprehensive and a great starting point.

• 2)How does each carrier address these exposures, or don’t they? What is your company retaining here, at what potential future cost? What are the consequences of loss, and can your company absorb it?

• 3)What is the discount you are getting from the competing carriers to retain exposure? On a worse case basis, how many years out are you before you break even on the discount you received versus a potential claim payout?

• 4)Erase the premium charged, and swap the proposals between two of your preferred brokers and have them criticize the other proposal. Also ask them for things they like about the proposal, (check their bias question).

• 5)Weigh the arguments on both sides, and list them.

• 6)If the answer is still not obvious, float the question and supporting documents to both your attorney, and perhaps your accountant for their view. Take with a grain of salt both opinions as they are not experts in insurance. You value their business acumen, but their true knowledge in this arena is limited. Too often companies rely on legal council that is short on all the facts and expertise. Don’t ask your insurance advisor for legal advice, and vice versa.

• 7)If you still have an issue, hire a risk consultant to evaluate the proposals for you so you may make an informed decision.

The knowledge you will get from the process, if structured properly will be invaluable. It will be the template for your organization going forward for years to come. It will make not only the insurance procurement process simpler and less painful, but you will arrive at a very informed answer. To evaluate any insurance purchase without using the Cost of Risk method is simply rolling the dice with your companies financial and competitive future.

Managing the Risk of a Construction Manager

Recently, I have been asked by quite a number of my Builder Developer clients about purchasing insurance as a "Construction Manager" , INSTEAD of , and not in addition to their current general liability insurance. They are very curious about going this route due to the prospect of enormous premium savings , versus their current insurance costs structure of insuring the business as a general contractor. My immediate reply is the premium is much less expensive, however your "cost of risk" is enormous. For those of you who have not heard this stump speech, "Cost of Risk" is the amount of insurance premium a business pays plus the cost of un-insured losses equals your "Cost of Risk". The formula looks something like this: (Insurance premium + Uninsured losses= Cost of Risk).

Under a Construction Management Errors & Omissions policy, actual construction work, and the resulting liabilities of performing such work is not a covered event, which is why the rates are far less expensive. The higher the risk that is transferred to the insurance company, the higher the insurance premium is to off-set that risk. If an insurance policy quote seems too "cheap" there is a reason, not enough of your business risk has been transferred.

To understand what insurance to buy to cover your risk as a Construction Manager and to properly transfer the risk, it is critical to properly define the role, scope of work and responsibilities of the Construction Manager. Construction Management can be a blend of the functions and responsibilities traditionally performed by the general contractor and design professional. In essence, the Construction Manager could be responsible for the coordination and administration of the project, however, they do not directly participate in the design and construction of the project. The Construction Manager represents the interests of the owner by administering the construction contract, and managing the work performed, including cost, time, and quality aspects of the project. This service is typically performed on a fee basis. For purposes of this discussion we will focus on the two most prevalent models of Construction Management, each with it's own scope of responsibilities, obligations and attendant risk-reward aspects. The two models re Pure "Agency" Construction Management and "At Risk" Construction Management.

Pure Agency Construction Management

A Pure " Agency" Construction Manager is also referred to as "Agent of the Owner" , neither designing nor constructing the project. Instead, the Pure Agency Construction Manager administers the construction contract throughout the planning, design and construction phases of the project. As a general rule, the Pure "Agency" Construction Manager is usually empowered to:

1) Act on behalf of the owner regarding contract matters, including overseeing the design and construction phases of the project; and
2) Transact specified business on behalf of the owner. For example all requisitions, and payments are made by the construction manager to verify and confirm both the quality of work and billable costs submitted by the various trade contractors, or the general contractor, hired by the owner.

Under this model of Construction Management, the owner contracts separately with the Construction Manager, design professional and either a general contractor or (more frequently) various prime contractors. The Construction Manager is generally not responsible for the means or methods of construction and does not guarantee construction cost, time or quality aspects of the work as well as does not provide direct supervision of the work force on the job.

"At Risk" Construction Management

In contrast to the Pure "Agency" Construction Manager is the "At Risk" Construction Manager, who may provide construction leadership throughout all phases of the project, which may include the planning, design, contract management, direction, supervision, coordination and control of the work (especially during the construction phase). While the owner typically contracts out directly with the design professional, the At Risk Construction Manager contracts directly with the trade contractors, similar to a general contractor model. Under the At Risk model, the Construction Manager has control directly over the means and methods of construction, the management and safety of the workers, as well as delivery of the completed work consistent with the owner's cost, time and quality requirements.

Understanding the Liability For Both Pure "Agency" Construction Management and "At Risk" Construction Management

There is divergent exposures to liability contingent on which mode you choose and the scope of work associated with each model. Under the "At Risk" model, the Construction Manager will have front line responsibilities for providing the owner with the completed product in accordance with all cost, schedule and quality requirements. Failure to perform these duties will expose the Construction Manager to liability to the owner. Liability potential exists vis-a-vis the architect or engineer with whom the owner has contracted (if separate from the Construction Manager), for certain limited items related to the Construction Manager's administrative role. Another class of litigants to whom the "At Risk" Construction Manager could be liable includes third parties such as workers or other individuals injured during or after the completion of construction.

The liability exposure of the Pure "Agency" Construction Manager mirrors that of a typical design professional with a somewhat higher degree of exposure due to the administrative relationship with the Architects, Engineers, and Contractors. Please also bare in mind design professionals and most Pure "Agency" Construction Managers, contingent on their scope of work, are held to a lower standard of care, that of negligence, versus implied warranty for "At Risk" Construction Managers , which is a much higher standard of care. To understand more about the difference in the standards of care, please read the article The Inherent Coverage Gap in Design Build Insurance Programs .

Managing the Construction Management Risk

The liability risks discussed above irrespective of which model you choose, "At Risk" or Pure "Agency" , will generally fall into two categories: (a) risks to other project participants in the project, (i.e. owner, contractor(s), design professionals, (b) risks to third parties (i.e. workers of the trade contractors, or other individuals injured during or after the completion of construction. The first category (a) can best be reduced through the use of clearly defined roles, rights , responsibilities and scope of work among the various project participants. To this end, the Construction Manager should devote considerable attention to the provisions in the contract with the owner and in the case of the "At Risk" Construction Manager, in the contract with the trade contractors.

Please also pay careful attention to the contract language, assuring the bid documents and contract documents are as clear and complete as possible so as to avoid conflicts as the project progresses. One of the most important clauses in the contract is the indemnity provision, indemnifying the owner, design professional and construction manager in the event of a negligent act of the trade contractor. Assuming your indemnity provision in the contract is tight, it is equally imperative that the trade contractor have the "correct" insurance in place, insuring a pool of capital is there in waiting to satisfy the indemnity provision in the contract.

Insurance Considerations for the Construction Manager

In most instances we prefer the Construction Manager have two types of insurance to protect them from liabilities, commercial general liability insurance as well as professional liability insurance. These two insurance contracts, if designed properly, should work in tandem with one another. The commercial general liability insurance will typically respond to accidents stemming from operations of a business, especially the "At Risk" Construction Manager who is in charge of providing a safe work environment, safety and the quality of the construction. These are typically third party litigants that commercial general liability insurance will protect against. The second policy , covering an entirely different set of potential claims, is the Construction Managers Error & Omissions policy, covering them in their professional capacity as either a fiduciary or other professional service for others in their capacity where legal liability is predicated on a negligent act, error or omission. An example would be a Pure "Agency" Construction Manager who in their fiduciary capacity as Agent of the owner administering accounts payable on behalf of the owner failed to pay the premium for the Builder's Risk policy. There is a loss that would normally be covered under their builder's risk, however due to the construction manager's error or omission for failure to pay the premium, the owner no longer has coverage, thus he may litigate against the construction manager, whose Errors & Omission policy would both defend and indemnify him to the policy limits in the event of a loss.

Interestingly enough the Commercial General Liability policy excludes coverage for "Professional Services" rendered, including errors or omissions and a Construction Managers Errors and Omissions policy will typically exclude claims of a general contractor nature (e.g., actual performance of the work, construction means & methods, techniques, sequences, safe place to work, fines, and penalties). The other typical exclusions you will find on a Construction Managers E&O policy are: Pollution, Project Financing, Cost Overruns, failure to complete the project in a timely fashion.

Recommendations and Conclusions

The liabilities of the CM are expanding. In light of the increased exposure, the following risk management techniques may be useful.

1) Identify which model applies to the particular project. Are you an "At Risk" CM, or are you Purely "Agent" of the Owner, acting only in a fiduciary or advisory capacity.

2) Precise contractual language and standard contracts which clearly delineate the CM's scope of services, and responsibilities are necessary. The CMMA Owner CM Agreement, A-1, and the AIA Standard Form Agreement between Owner and Construction Manager are industry standard contracts . Standard contracts are important because they are time tested and legal precedents exist. If standard contracts are not an option, compare the standard contract to the proposed manuscript contract and ensure that the most important provisions are incorporated into the agreement.

3) Use insurance as a vehicle to transfer risk where it is cost effective. It may be necessary to retain a portion of the risk thru a high deductible to ensure the program is cost effective.

4) Coordinate both the Commercial General Liability policy and the CM Errors & Omissions policy to be certain all potential "insurable" liabilities are accounted for and transfered thru insurance whenever practical.

5) Continually review the job site activity to ensure that neither the Construction Manager nor the staff inadvertently increases their responsibilities through the course of their conduct in regard to work site safety, means and methods; likewise, they should be trained in how to respond appropriately when an unsafe work site situation or accident is observed.

Managing the Risk of a Construction Manager

Recently, I have been asked by quite a number of my Builder Developer clients about purchasing insurance as a "Construction Manager" , INSTEAD of , and not in addition to their current general liability insurance. They are very curious about going this route due to the prospect of enormous premium savings , versus their current insurance costs structure of insuring the business as a general contractor. My immediate reply is the premium is much less expensive, however your "cost of risk" is enormous. For those of you who have not heard this stump speech, "Cost of Risk" is the amount of insurance premium a business pays plus the cost of un-insured losses equals your "Cost of Risk". The formula looks something like this: (Insurance premium + Uninsured losses= Cost of Risk).

Under a Construction Management Errors & Omissions policy, actual construction work, and the resulting liabilities of performing such work is not a covered event, which is why the rates are far less expensive. The higher the risk that is transferred to the insurance company, the higher the insurance premium is to off-set that risk. If an insurance policy quote seems too "cheap" there is a reason, not enough of your business risk has been transferred.

To understand what insurance to buy to cover your risk as a Construction Manager and to properly transfer the risk, it is critical to properly define the role, scope of work and responsibilities of the Construction Manager. Construction Management can be a blend of the functions and responsibilities traditionally performed by the general contractor and design professional. In essence, the Construction Manager could be responsible for the coordination and administration of the project, however, they do not directly participate in the design and construction of the project. The Construction Manager represents the interests of the owner by administering the construction contract, and managing the work performed, including cost, time, and quality aspects of the project. This service is typically performed on a fee basis. For purposes of this discussion we will focus on the two most prevalent models of Construction Management, each with it's own scope of responsibilities, obligations and attendant risk-reward aspects. The two models re Pure "Agency" Construction Management and "At Risk" Construction Management.

Pure Agency Construction Management

A Pure " Agency" Construction Manager is also referred to as "Agent of the Owner" , neither designing nor constructing the project. Instead, the Pure Agency Construction Manager administers the construction contract throughout the planning, design and construction phases of the project. As a general rule, the Pure "Agency" Construction Manager is usually empowered to:

1) Act on behalf of the owner regarding contract matters, including overseeing the design and construction phases of the project; and
2) Transact specified business on behalf of the owner. For example all requisitions, and payments are made by the construction manager to verify and confirm both the quality of work and billable costs submitted by the various trade contractors, or the general contractor, hired by the owner.

Under this model of Construction Management, the owner contracts separately with the Construction Manager, design professional and either a general contractor or (more frequently) various prime contractors. The Construction Manager is generally not responsible for the means or methods of construction and does not guarantee construction cost, time or quality aspects of the work as well as does not provide direct supervision of the work force on the job.

"At Risk" Construction Management

In contrast to the Pure "Agency" Construction Manager is the "At Risk" Construction Manager, who may provide construction leadership throughout all phases of the project, which may include the planning, design, contract management, direction, supervision, coordination and control of the work (especially during the construction phase). While the owner typically contracts out directly with the design professional, the At Risk Construction Manager contracts directly with the trade contractors, similar to a general contractor model. Under the At Risk model, the Construction Manager has control directly over the means and methods of construction, the management and safety of the workers, as well as delivery of the completed work consistent with the owner's cost, time and quality requirements.

Understanding the Liability For Both Pure "Agency" Construction Management and "At Risk" Construction Management

There is divergent exposures to liability contingent on which mode you choose and the scope of work associated with each model. Under the "At Risk" model, the Construction Manager will have front line responsibilities for providing the owner with the completed product in accordance with all cost, schedule and quality requirements. Failure to perform these duties will expose the Construction Manager to liability to the owner. Liability potential exists vis-a-vis the architect or engineer with whom the owner has contracted (if separate from the Construction Manager), for certain limited items related to the Construction Manager's administrative role. Another class of litigants to whom the "At Risk" Construction Manager could be liable includes third parties such as workers or other individuals injured during or after the completion of construction.

The liability exposure of the Pure "Agency" Construction Manager mirrors that of a typical design professional with a somewhat higher degree of exposure due to the administrative relationship with the Architects, Engineers, and Contractors. Please also bare in mind design professionals and most Pure "Agency" Construction Managers, contingent on their scope of work, are held to a lower standard of care, that of negligence, versus implied warranty for "At Risk" Construction Managers , which is a much higher standard of care. To understand more about the difference in the standards of care, please read the article The Inherent Coverage Gap in Design Build Insurance Programs .

Managing the Construction Management Risk

The liability risks discussed above irrespective of which model you choose, "At Risk" or Pure "Agency" , will generally fall into two categories: (a) risks to other project participants in the project, (i.e. owner, contractor(s), design professionals, (b) risks to third parties (i.e. workers of the trade contractors, or other individuals injured during or after the completion of construction. The first category (a) can best be reduced through the use of clearly defined roles, rights , responsibilities and scope of work among the various project participants. To this end, the Construction Manager should devote considerable attention to the provisions in the contract with the owner and in the case of the "At Risk" Construction Manager, in the contract with the trade contractors.

Please also pay careful attention to the contract language, assuring the bid documents and contract documents are as clear and complete as possible so as to avoid conflicts as the project progresses. One of the most important clauses in the contract is the indemnity provision, indemnifying the owner, design professional and construction manager in the event of a negligent act of the trade contractor. Assuming your indemnity provision in the contract is tight, it is equally imperative that the trade contractor have the "correct" insurance in place, insuring a pool of capital is there in waiting to satisfy the indemnity provision in the contract.

Insurance Considerations for the Construction Manager

In most instances we prefer the Construction Manager have two types of insurance to protect them from liabilities, commercial general liability insurance as well as professional liability insurance. These two insurance contracts, if designed properly, should work in tandem with one another. The commercial general liability insurance will typically respond to accidents stemming from operations of a business, especially the "At Risk" Construction Manager who is in charge of providing a safe work environment, safety and the quality of the construction. These are typically third party litigants that commercial general liability insurance will protect against. The second policy , covering an entirely different set of potential claims, is the Construction Managers Error & Omissions policy, covering them in their professional capacity as either a fiduciary or other professional service for others in their capacity where legal liability is predicated on a negligent act, error or omission. An example would be a Pure "Agency" Construction Manager who in their fiduciary capacity as Agent of the owner administering accounts payable on behalf of the owner failed to pay the premium for the Builder's Risk policy. There is a loss that would normally be covered under their builder's risk, however due to the construction manager's error or omission for failure to pay the premium, the owner no longer has coverage, thus he may litigate against the construction manager, whose Errors & Omission policy would both defend and indemnify him to the policy limits in the event of a loss.

Interestingly enough the Commercial General Liability policy excludes coverage for "Professional Services" rendered, including errors or omissions and a Construction Managers Errors and Omissions policy will typically exclude claims of a general contractor nature (e.g., actual performance of the work, construction means & methods, techniques, sequences, safe place to work, fines, and penalties). The other typical exclusions you will find on a Construction Managers E&O policy are: Pollution, Project Financing, Cost Overruns, failure to complete the project in a timely fashion.

Recommendations and Conclusions

The liabilities of the CM are expanding. In light of the increased exposure, the following risk management techniques may be useful.

1) Identify which model applies to the particular project. Are you an "At Risk" CM, or are you Purely "Agent" of the Owner, acting only in a fiduciary or advisory capacity.

2) Precise contractual language and standard contracts which clearly delineate the CM's scope of services, and responsibilities are necessary. The CMMA Owner CM Agreement, A-1, and the AIA Standard Form Agreement between Owner and Construction Manager are industry standard contracts . Standard contracts are important because they are time tested and legal precedents exist. If standard contracts are not an option, compare the standard contract to the proposed manuscript contract and ensure that the most important provisions are incorporated into the agreement.

3) Use insurance as a vehicle to transfer risk where it is cost effective. It may be necessary to retain a portion of the risk thru a high deductible to ensure the program is cost effective.

4) Coordinate both the Commercial General Liability policy and the CM Errors & Omissions policy to be certain all potential "insurable" liabilities are accounted for and transfered thru insurance whenever practical.

5) Continually review the job site activity to ensure that neither the Construction Manager nor the staff inadvertently increases their responsibilities through the course of their conduct in regard to work site safety, means and methods; likewise, they should be trained in how to respond appropriately when an unsafe work site situation or accident is observed.

The Inherent Coverage Gap in Design Build Insurance Programs

First it’s important to distinguish between the two most basic Developer / General Contractor business models, Design, Bid, Build, & Design Build. In Design, bid, build the owner typically has an architectural design done for the project, at which point they solicit bids from various general contractors to build the project, also referred to as lump sum bidding. Clearly, we are not breaking new ground here pardon the pun.

In a Design Build business model, the owner contracts with one entity for both the design and the construction of a project. The design builder can be a contractor, a design firm, or collaboration between both. The common philosophy here is the integration of design & construction.

If you are still questioning which model fits some or all of your projects, the question I would ask is who is paying the design/architectural firm? If it’s the owner, then you have less risk (Design, Bid, Build). If it’s the G.C., then the risk profile dramatically increases and it would resemble a (Design Build) model.

A Design Build project delivery offers significant change and imposes new risks upon the participants. To understand the nature of these risks it is necessary to understand the fundamental differences in the roles and relationships of the parties to the design and construction process. Under Design, Bid, Build there are separate duties, separate responsibilities, and separate goals. Under the Design, Build model, you have the paradigm of mutual duties, shared responsibilities and goals. Those of you in the industry are well aware of the distinct differences, however I wanted to clarify the point to establish a clear definition between the two, ultimately highlighting the difference in the risk profile of the two business models which is really the point of this article.

Under the Design, Bid, Build model, a project owner provides the contractor with completed design specifications for the project. These documents set forth measurements materials, methods, and processes or other specific information needed to construct and produce the desired building. In keeping with the United States Supreme Court ruling in United States v Spearin, the project owner who furnishes plans and specifications warrants that they are sufficient for their intended purposes, and that if the contractor adheres to the specifications, the desired result will be achieved. Any design-related omissions, errors, or deficiencies in the specifications and the drawings are the responsibility of the owner.

In Design, Build the owner provides the design builder only with performance specifications that lay out the operational mechanics of the project and provide the standards the contractor’s work must meet in order to deliver the owner’s desired result. Here is the critical difference in risk between the two business models; unlike pure construction contractors, design builders cannot invoke an implied warranty that the specifications and plans provided by the owner, if followed, will produce the desired product without defect. The Design Builder accepts the responsibility for the design and construction that will produce the product set forth in the owner’s performance requirements. The ability to transfer much of the liability for the adequacy of the design to the design builder is one of the greatest advantages to owners of the Design Build method.

Although in most cases the design work is often provided by an external design firm, the design builder has little common law protection from its design consultant. The criteria applied to design professionals in determining liability for design deficiencies is whether the party met it’s legal standard of care. The traditional standard of liability for the design professionals is one of “negligence, which is a much lower standard of care than the implied warranty the design builder provides to the owner. As a result, the Design Builder has a huge potential gap between its liability to the owner, and it’s ability
to seek protection and reimbursement for the defective design from the design consultants.

Design Builders can seek to impose a higher standard of care on the Architects & Engineers contractually, but most will resist. In addition most architectural and engineering firms have a minimal net worth and no real assets, so any attempts to contractually impose a higher standard of care on the designer are of diminutive value. Lastly, Architects & Engineers professional liability insurance typically only covers negligence, and almost always excludes contractually assumed liabilities that exceed this standard. The bottom line is that Design Builders often face a perilous gap between the design liability they accept for the project, and that, which can be transferred to the design professionals.

Now that I have raised the question, what’s the answer? What we espouse is a well-crafted Construction Errors & Omissions Insurance policy that will contemplate these additional exposures, and more importantly provide a pool of capital to tap in the event in your Design Build model results in a design deficiency that results in either physical or economic damage due to poor or inadequate design. In absence of this insurance contract, or pool of capital, the G.C. or Developer will fund the design remediation, and reimburse owner for costs and expenses.

We urge our clients to vet the Construction Errors and Omissions policies carefully as they differ dramatically in coverage, and pricing. Please consult an educated broker or insurance advisor that is both conversant on the exposures you face, and the placement of these specialized insurance contracts.

Should you have specific questions on this post, you my email directly: mstoop@bncagency.com

Use Caution When Approving Additional Insured Endorsements Issued 2004 and Beyond

In July of 2004 the additional insured endorsements had a significant change that may have a dramatic impact on the various construction firms using them. The concern emanates from the substitution of a few select words, "arising out of" versus "caused, in whole or in part, by". I can spend quite some time on the nuance of this change, but I want to focus most of the attention it's effect on New York Labor Law Claims ( Third Party Action Over).

The substitution of "arising out of" versus "caused, in whole or in part, by" substantially narrows the scope of the endorsement's coverage significantly in my opinion. The injury or damage under Additional Insured endorsement CG 20 10 07/04, must be " caused by in whole or in part" , not just the named insured's (Entity Issuing the Cert) ongoing operations (as in the current endorsements), but by the named insured's "acts or omissions" in the performance of those operations. It may be interpreted, absent any fault of the Named Insured, there will be no coverage for the Additional Insured.

If this proves true, it may be problematic in how insurance companies will apply the new endorsement to third party-over actions ( Labor Law) claims. These claims typically involve actions by employees of named insureds, such as sub-contractors, against the Additional Insureds such as General Contractors and/or owners. This is one of the largest exposures to loss construction firms face, with the average awards increasing dramatically,(see table). They often allege failure to maintain a safe work place, with the general contractor / owner having additional insured status in the sub contractor's general liability policy. These claims have been historically covered under the pre-2004 additional insured endorsement. The employee is typically not allowed by workers compensation statute to bring suit against his employer, alleging only negligence against the additional insured (general contractor/owner). The big concern is that since the suit does not allege any degree of fault or negligence against the named insured ( entity issuing the cert) subcontractor/employer, insurance carriers can take the position that the employee of the sub's injuries were not "caused in whole or in part" by the subcontractor (Entity Issuing the Cert).

Naturally, the subcontractor (Entity Issuing the Cert) will usually have been somewhat at fault even though the suit does not contain allegations against it. State laws typically vary in the obligation they place on insurers to seek beyond the allegations in the suit itself to see if a duty to defend exists. Typically the duty to defend is much broader than the duty to indemnify. The only allegations that would fall clearly outside the coverage provisions of the new additional insured endorsements (07/04 Edition) would be explicit allegations of the additional insureds sole fault. In most cases insurance carriers should consider facts beyond the allegations in the lawsuit to determine if coverage applies under Additional Insured Endorsement CG 20 10 07/04. If their named insured's (sub-contractor) acts or omissions contributed to the bodily injury or property damage, they should defend and indemnify on behalf of the additional insured even though these acts or omissions are not mentioned in the underlying suit. We may see an emerging trend whereby additional insureds attempt to prove some degree of culpability against their sub-contractors to obtain coverage under the sub-contractors general liability policies.

We realize in writing this article how difficult it is to procure these certificates in the first place. Where you can exercise the control, it may be best to request or contractually dictate that the subs cannot use this particular additional insured endorsement , CG 20 10 7/04, Instead request CG 20 10 11/85.

For more information on which additional insured endorsement to use click here.

All Additional Insured Endorsements Are Not The Same

Having the right tool for the job is imperative if you are in construction. Having the correct additional insured endorsement protecting your interest is absolutely critical, saving hundred's of thousands of dollars in most liability claims situations. The fact is most of the Development / General Contractor companies I consult with spend countless hours, and thousands of dollars on their construction contracts. Conversely the task of making sure there is a pool of capital from the sub-contractors in the event of a claim , as they flash that fancy contract is often overlooked or misunderstood. The goal of this article is to highlight the various differences between all the disperate additional insured endorsements, and make a recommendation as to which one you should request depending on which side of the transaction you fall on, and what you agreed upon in the contract you signed, and to whom. I will endeavor to give you the knowledge, you negotiate what you can in your companies best interest. If you have a staff person dedicated to managing the sub contractors Certs, make sure they book mark this post and download this table for future reference. Due to the software limitations I was unable to translate directly this table, so please down load the file for the rest of this to make sense.

Please click on this file to view and download : Evolving Coverage Standards for Additional Insured Endorsements Evolving Coverage Standar-2.doc

Some notes of interest on the various terms that have a substantial impact on the coverage afforded to the additional insureds. Pay attention to "your work" v.s. "your on going operations". "Your work" has been interpreted broadly to include both work in progress and work that has been completed. Thus the end result would be that coverage would be available to the additional insured (entity receiving the certificate) long after the work by the named insured ( entity issuing the certificate) has been done. Conversely if the Additional Insured endorsement only affords coverage for your "On Going Operations" , then once the job is complete your status as an additional insured ends, irrespective of how your contract reads with the sub, which is why it is critical that the sub-contractors policy meet the obligations set forth in the builder contract.

If you are a General Contractor / Developer/ or Building Owner CG 20 10 11/85 is the specific additional insured endorsement that you should require any construction entity below you on the food chain to carry for the reasons noted above.

If the carrier insuring the sub contractor or GC is unwilling to issue the CG 20 10 11/85 endorsement, you may request that the carrier issue CG 20 37 10/01 (Titled Additional Insured - Owners, Lessees Or Contractors Completed Operations. which adds the Products & Completed extension. without this endorsement, you will lose your status as an additional insured the moment the final check is cut, and the job is deemed complete by that particular sub-contractor or G.C. If you are the building owner. This is used in tandem with CG 20 10 ( Various Issuing Years). This is not as good as the (11/85) version because of the revised "arising out of " language was changed to "caused in whole or in part by acts or omissions of the named insured", which first appeared in the 2004 revisions. For more on that topic, I have devoted a whole article on the 2004 Additional Insured Revisions. Click here for the post (forthcoming).

If you are a Trade Sub-Contractor, I would think you would like your obligation to the job to cease once the work has been completed. Therefore it's in your best interest to use one of the narrower additional insured endorsements. If this is your chosen path, please be certain the contract you signed with the owner or G.C. is consistent with your narrow additional insured endorsement, other wise you will have promised contractually a dollar, but in effect will deliver only pennies. Remember, insurance is only a financial instrument meant to cover your contractual promises and obligations made to your clients. Make sure your insurance policies are designed and will meet the promises you have made, or you will not be in business long should you have an accident .

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.

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.