QUICK NOTE: IMPORTANCE OF EQUIPMENT FLOATER INSURANCE

imagesA recent case out of New York held that damage to a tower crane from a storm during construction is excluded from a builder’s risk policy because a tower crane is a machine that fits within the contractor’s tools exclusion, a common exclusion in builder’s risk policies.  (Check out this article for a discussion on this case.)   This case exemplifies the importance of a contractor that owns or leases equipment, such as a crane, to obtain equipment floater insurance (or inland marine insurance coverage).  But, it is important that the contractor discuss the type of equipment it needs insured for purposes of its operations to ensure there is coverage under the floater insurance.  Such floater insurance is not universally the same so the contractor needs to ensure the insurance covers the risks and types of owned, leased, and loaned equipment utilized.  (For more information on insurance applicable to construction projects, check out this chart.) 

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

QUICK NOTE: AIM TO AVOID A STAY TO YOUR MILLER ACT PAYMENT BOND CLAIM

imagesStrategy is important.  This is especially true if you are trying to avoid arbitration.  In a recent federal district court case, a subcontractor sued the prime contractor and the Miller Act payment bond surety.  The subcontractor, however, had an arbitration provision in its subcontract with the prime contractor.  The prime contractor moved to compel arbitration pursuant to the subcontract and moved to stay the subcontractor’s Miller Act payment bond claim.  The last thing, and I mean the last thing, the subcontractor wanted to do was to stay its claim against the Miller Act payment bond.  However, the district court compelled the subcontractor’s claim against the prime contractor to arbitration and stayed the subcontractor’s Miller Act payment bond claim pending the outcome of the arbitration.  See U.S. v. International Fidelity Ins. Co., 2017 WL 495614 (S.D.Al.  2017).  This is not what the subcontractor wanted. 

 

The outcome of this ruling may have been different if the subcontractor never sued the prime contractor and only sued the Miller Act payment bond surety.  The Miller Act payment bond surety did not move to compel the Miller Act claim to arbitration evidently meaning there was nothing in the subcontract that would support such an argument.  Had only the Miler Act payment bond surety been sued, the subcontractor may have likely been able to proceed with its payment dispute against the surety in federal district court without having to worry about arbitrating the same dispute with the prime contractor. 

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

QUICK NOTE: SUBCONTRACTOR PAYMENT BOND = COMMON LAW PAYMENT BOND

imagesWhat is a common law payment bond?  A common law payment bond is a bond not required or governed by a statute.  For example, if a prime contractor provides the owner a payment bond, that bond will be a statutory payment bond.  On the other hand, if a subcontractor provides the general contractor with a payment bond, that bond will be a common law payment bond.  Why?  Because there is not a statute that specifically governs the requirements of a  subcontractor’s payment bond given to a general contractor.   The subcontractor’s payment bond is aimed at protecting the general contractor (and the general contractor’s payment bond) in the event the subcontractor fails to pay its own subcontractors and suppliers.  The subcontractor’s payment bond will generally identify that claimants, as defined by the bond, are those subcontractors and suppliers the subcontractor has failed to pay.  This common law payment bond is not recorded in the public records so sometimes it can be challenging for a claimant (anyone unpaid working under the subcontractor that furnished the bond) to obtain a copy of the bond. With that said, an unpaid claimant should consider pursuing a copy of this bond in certain situations, particularly if it may not have preserved a claim against the general contractor’s statutory payment bond.

 

Common law payment bonds have a one-year statute of limitations.  This statute of limitations runs from the later of (i) one year from the claimant’s final furnishing date or (ii) one year from the general contractor’s final furnishing date if the general contractor provided a payment bond on the project.  

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

GENERAL CONTRACTORS: CONSIDER IMPORTANCE OF “PRIMARY AND NONCONTRIBUTORY” LANGUAGE

UnknownIn prior articles, I reinforced the importance of general contractors including “primary and noncontributory” language in subcontracts and requiring the subcontractor to provide an analogous “primary and noncontributory” endorsement.   As a general contractor this is important, particularly since you are going to require the subcontractor to (i) indemnify you for claims relating to personal injury, property damage, or death, and (ii) identify you as an additional insured under its commercial general liability (CGL) policy for claims arising out of the subcontractor’s scope of work.   The “primary and noncontributory” language in your subcontracts allows you to maximize the value of your additional insured status.  

 

A recent opinion explains why I reinforced the importance of this language.

 

The case of Zurich American Insurance Co. v. Amerisure Ins. Co., 2017 WL 366232 (S.D. Fla. 2017) involved an underlying construction defect lawsuit where a condominium association sued a general contractor.    The general contractor hired subcontractors and required them to identify the general contractor as an additional insured.   This is all routine, right?  A few of the subcontractors had CGL policies issued from the same insurer (Amerisure).  They contained the same additional insured endorsement that included the following “other insurance” clause:

 

Any coverage provided in this endorsement is excess over any other valid and collectible insurance available to the additional insured whether primary, excess, contingent, or on any other basis unless the written contract, agreement, or certificate of insurance requires that this insurance be primary, in which case this insurance will be primary without contribution from such other insurance available to the additional insured.

 

When the general contractor was sued it, as it should, tendered the defense of the lawsuit to the responsible subcontractors as an additional insured under their policies demanding both a defense and indemnification from the association’s claims.  The insurer, however, refused to defend the general contractor.  The general contractor’s insurer (Zurich) defended the general contractor in the action. 

 

Thereafter, the general contractor’s CGL insurer sued the subcontractors’ CGL insurer.  (The general contractor had also assigned its additional insured rights under the policies to its CGL insurer.)  The general contractor’s CGL insurer was seeking reimbursement for the attorney’s fees and costs expended in the defense of the general contractor in the underlying construction defect lawsuit.  The subcontractors’ CGL insurer moved to dismiss the claims based on the clause above—that the subcontractors’ CGL insurance operated as excess insurance over the general contractor’s CGL insurance.  In other words, the subcontractors’ CGL insurance was not primary and noncontributory.  There was no allegation that the subcontract included language requiring the subcontractor’s CGL insurer to be primary and noncontributory. 

 

The first reason this is an important point is because “when an insurance policy defines its coverage as secondary or “excess” to a primary policy, the excess insurer has no duty to defend the insured—so long as the primary policy provides for a defense and its coverage has not been exhausted.”  Zurich American Ins. Co., supra, at *4.    If the subcontractors’ CGL policy is excess, then than their CGL insurer does not have a duty to defend if the primary policy is not exhausted.   This means they have no duty to defend the additional insured – not very helpful to a general contractor tendering the defense of the claim to responsible subcontractors. 

 

The second reason this is an important point is because of what is known between liability insurers as the anti-contribution rule:

 

Florida courts have consistently held that, once the duty to defend is activated, every subject insurer assumes it on a personal and indivisible basis. That means that when an insured tenders a claim to multiple insurance providers, the entity that actually engages in the defense and incurs the fees and costs associated with it cannot subsequently seek contribution or equitable subrogation from the fellow insurer who “lagg[ed] behind.”

Zurich American Ins., Co., supra, at *5 (internal citations omitted).

 

Since the general contractor’s CGL insurer bore the costs of the general contractor’s defense in the construction defect lawsuit, it cannot now divvy up the defense fees and costs to other insurers that may have had a similar obligation unless an exception to this rule applies (see below).

 

The third reason this is an important point is because there is an exception to this anti-contribution rule:

 

A “responsive” insurer who complied with its insured’s tender for defense can extract reimbursement from the “nonresponsive” insurer when the insured had separately contracted with another entity, itself an insured of the nonresponsive carrier, to indemnify the first insured. The logic of the exception is that the insured parties’ express decision to “shift[ ] exposure” from one to the other is imputed to the insurer relationship and overcomes the general anti-contribution principle.

Zurich American Ins., Co., supra, at *8 (internal citations omitted). 

 

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.