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.
