CGL POLICIES AND THE PROFESSIONAL LIABILITIES EXCLUSION

shutterstock_1140059885Commercial general liability (CGL) policies for contractors traditionally contain a professional liabilities exclusion.  This exclusion is generally added through a specific endorsement to eliminate coverage for professional services. Read the endorsement   The point of the exclusion, in a nutshell, is simply to eliminate a CGL policy for a contractor serving as a professional liability policy. 

 

Contractors need to appreciate a professional liabilities exclusion added through endorsement because oftentimes there are delegated design components they are responsible for. Perhaps the contractor value engineered a system and is responsible for engineering and signing and sealing the engineered documents (through its subcontractor) associated with that system.  Perhaps there is a performance specification that requires the contractor to engineer a system.  Perhaps there is a design-build component.  Regardless of the circumstance, this professional liabilities exclusion can certainly come into play, particularly if a defect is raised with the design or professional services associated with the engineered system.

 

In a non-construction case dealing with a professional liabilities exclusion, the Second District Court of Appeal in Alicea Enterprises, Inc. v. Nationwise Ins. Co. of America, Inc., 43 Fla.L.Weekly D1713b (Fla. 2d DCA 2018) held:

 

Whether a professional service has, or has not, been rendered is a fact-intensive analysis.  Thus, when deciding whether an act arises out of the rendering of or failure to render a professional service, the court must focus on the act itself and not the character of the individual performing the act.  The act from which the claim arises must be related to a professional service that requires the use of professional judgment or skill. 

 

Id. (internal citations omitted).

 

 

In this case, the insurer issued a CGL policy to a pharmacy.   The pharmacy was sued in a negligence action.  The pharmacy’s CGL insurer filed an action for declaratory relief claiming it had neither a duty to defend nor indemnify its insured (the pharmacy) since the underlying claims arose out of professional services and the CGL policy contained a professional liabilities exclusion.

 

The Second District maintained, as to the insurer’s duty to defend its insured, that the insurer had a duty to defend the pharmacy (insured) in the negligence action because the allegations in the underlying complaint could be deemed unrelated to professional services. 

 

The Second District maintained, as to the insurer’s duty to indemnify its insured, that this duty is more fact-intensive and without sufficient discovery, there was a genuine issue of material fact as to whether the evidence brought the pharmacy’s conduct within the meaning of the professional liabilities exclusion in the CGL policy.

 

Here, while the pharmacy will get the benefit of the insurer’s duty to defend since that is triggered by the underlying complaint, the duty to indemnify is different and triggered by the facts.  It is likely that the facts in this case trigger the application of the professional liabilities exclusion, meaning the CGL insurer does NOT have a duty to indemnify the insured for the damages proven against it.  Not the situation an insured wants to be in!

 

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.

INSURANCE FOR LARGE CONSTRUCTION EQUIPMENT SUCH AS A CRANE

shutterstock_559826938Many, many projects require the use of a crane.  The skyline is oftentimes filled with the sight of  cranes—one after the other.  Most of the time, the cranes are leased from an equipment supplier. What happens if the crane (or any large, leased equipment) gets damaged?

 

I wrote an article regarding a builder’s risk carrier NOT covering damage to a crane from a storm based on a common exclusion.  Another case, Ajax Bldg. Corp. v. Hartford Fire Ins. Co., 358 F.3d 795 (11th Cir. 2004), had a similar result.

 

In this case, a prime contractor leased a crane from an equipment supplier.  The crane was used by the structural concrete subcontractor. The crane collapsed during the subcontractor’s work.  The supplier sued both the contractor and subcontractor.  The prime contractor was defended under a contractor’s equipment liability policy and the subcontractor was defended under a general liability policy it procured for its work on the project.  Ultimately, a settlement was reached where the subcontractor’s liability insurer paid a bulk of the damage.

 

However, the subcontractor’s insurer, through subrogation rights, pursued a claim against the builder’s risk carrier for the project arguing that the damage to the crane was an insured risk under the builder’s risk policy and its difference-in-conditions (DIC) supplemental endorsement to the builder’s risk policy.  The insurer argued that coverage was excluded per the following exclusion:

 

Coverage

 

a. Structures … fixtures, equipment, machinery and similar property which will become a permanent part of the structure

 

Property NOT Covered [Exclusion]

 

a. Machinery, tools, equipment, or other property which will not become a permanent part of the structure(s) described in the Declarations or Schedule unless the replacement cost of such property is included in the contract price and reported to us;

 

The builder’s risk policy did not cover damage to the crane because the crane was equipment which will NOT become a permanent part of the structure.   The Eleventh Circuit agreed:

 

In addition to insuring the structure itself, these policies also typically include building materials, machinery, and equipment on the premises that are awaiting installation.  This kind of machinery and equipment is clearly different from a contractor’s machinery and equipment that is used in the construction process, such as the damaged craneThe type of machinery and equipment intended to fall under the definition of “covered property” in a builder’s risk policy is that which will become a permanent part of the structure—this includes materials such as elevators, doors, windows, electrical equipment, and water pumps. However, since these materials are generally delivered to the site before they are required in order to avoid delays in construction, ownership of the property may not yet belong to the owner of the building.  It is these materials that the DIC [builder's risk] policy is referring to when it provides coverage for “property of others.” Although Kelley’s [supplier's] damaged crane technically falls within the category “property of others,” it is not the type of property to become a part of the building and covered under a builder’s risk policy; consequently, it is expressly excluded in the DIC policy by the provision requiring covered property to be that which will become a permanent part of the structure.

 Ajax Bldg., 358 F.3d at 799-800 (internal citations omitted).

 

Cranes are expensive so it is important to insure potential damage to cranes (and any equipment used for purposes of construction).   Noteworthy insurance considerations to consult with your insurance broker about include, but are not limited to:

 

  • Contractor’s equipment insurance-  you want to confirm any sublimit for any leased equipment, whether it is based on replacement cost or actual cash value, and whether you need to report such leased equipment to your insurer per the policy in advance of using the equipment
  • Equipment liability coverage-  you want to ensure your liability policy insures equipment you rent or you have an endorsement that provides coverage for equipment rented or leased from others  
  • Builder’s Risk – the exclusion in the builder’s risk policy discussed above for equipment that will not become a permanent part of the structure is a common exclusion, so you want other insurance to cover this risk and/or confirm whether there is an endorsement modifying that exclusion

 

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.

 

PROPERTY INSURANCE EXCLUSION: LEAKAGE OF WATER OVER 14 DAYS OR MORE

shutterstock_196921499The recent opinion of Whitley v. American Integrity Ins. Co. of Florida, 43 Fla.L.Weekly D1503a (Fla. 5th DCA 2018), as a follow-up to this article on the property insurance exclusion regarding the “constant or repeated seepage or leakage of water…over a period of 14 or more days,” is a beneficial opinion to insureds. 

 

In this case, the insured had a vacation home.  A plumbing leak occurred that caused water damage to the home.  The plumbing leak occurred during a period of time that lasted approximately 30 days.  For this reason, the property insurer denied the claim per the exclusion that the policy does not cover loss caused by repeated leakage of water over a period of 14 or more days from a plumbing system.  Summary judgment was granted by the trial court in favor of the insurer based on this exclusion. 

 

The insured countered that the policy did not address whether it covered a loss occurring within the first 14 days.  The insured argued, and the appellate court agreed, that the insurer therefore failed to establish that the water loss did not occur within the first 14 days.  “The undisputed fact that the property was exposed to water for more than fourteen days did not establish that the loss occurred on the fourteenth or later day of exposure pursuant to the exclusionary provision.”   Whitley, supra.

 

This is a beneficial case to an insured because if loss occurred due to the continued seepage or leakage of water over a period of 14 days or more (e.g., continuous plumbing leak), the insured can establish it is still entitled to coverage for loss that occurs during the first 14 days.  This puts the onus on the insurer to argue the loss occurred after the 14th day.  However, the insured will counter that the loss occurred during the first 14 days.  In other words, the insured can make this a question of fact for the jury.  

 

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.

WORKERS COMPENSATION IMMUNITY AND THE INTENTIONAL TORT EXCEPTION

 

shutterstock_251422126In prior articles, I discussed the benefit of workers compensation immunity for contractors.  Arguing around workers compensation immunity under the “intentional tort exception” is really hard – borderline impossible, in my opinion.  Nevertheless, injured workers still make an attempt to sue a contractor under the intentional tort exception to workers compensation immunity.  Most fail based on the seemingly impossible standard the injured worker must prove to establish the intentional tort exception.  A less onerous standard (although certainly onerous), as a recent case suggests, appears to be an injured worker suing a co-employee for the injury.

 

Florida Statute s. 440.11 discusses the intentional tort exception to workers compensation immunity.   Workers compensation shall be the exclusive remedy to an injured worker UNLESS the injured worker can establish a claim against the contractor or fellow-employee under the intentional tort exception as statutorily set forth below:

 

440.11 Exclusiveness of liability. – 

(1) The liability of an employer prescribed in s. 440.10 shall be exclusive and in place of all other liability . . . except as follows:

. . . .

(b) When an employer commits an intentional tort that causes the injury or death of the employee. For purposes of this paragraph, an employer’s actions shall be deemed to constitute an intentional tort and not an accident only when the employee proves, by clear and convincing evidence, that:

1.  The employer deliberately intended to injure the employee; or

2. The employer engaged in conduct that the employer knew, based on prior similar accidents or on explicit warnings specifically identifying a known danger, was virtually certain to result in injury or death to the employee, and the employee was not aware of the risk because the danger was not apparent and the employer deliberately concealed or misrepresented the danger so as to prevent the employee from exercising informed judgment about whether to perform the work.

 

The same immunities from liability enjoyed by an employer shall extend as well to each employee of the employer when the employee is acting in furtherance of the employer’s business and the injured employee is entitled to receive benefits under this statute. Such fellow-employee immunities shall not be applicable to an employee who acts, with respect to a fellow employee, with willful and wanton disregard or . . . with gross negligence when such acts result in injury or death or such acts proximately cause such injury or death . . . .

 

In Ramsey v. Dewitt Excavating, Inc., 43 Fla. L. Weekly D1366a (Fla. 5th DCA 2018), an employee was cleaning a cement-mixing pugmill with a fellow employee.  An accident happened while the employee was inside the mixing box causing his death.  While he was inside, his fellow-employee turned on the mixing box causing his death.  The employee’s estate sued both the employer and the fellow-employee for the wrongful death and argued under the intentional tort exception to get around workers compensation immunity.  

 

The trial court granted summary judgment on the issue of workers compensation immunity finding that the immunity barred the estate’s claims against the employer and the fellow-employee.

 

Intentional Tort Exception as to Employer

 

The appellate court affirmed the summary judgment as to the employer because the employee could NOT prove the virtually impossible burden in establishing the applicability of the intentional tort exception.

 

Three elements must be proved to establish the intentional tort exception to worker’s compensation immunity, and the failure to prove any one of the elements will prevent the exception from applying.  The elements are:

1) employer knowledge of a known danger . . . based upon prior similar accidents or explicit warnings specifically identifying the danger that was virtually certain to cause injury or death to the employee;

2) the employee was not aware of the danger . . . because it was not apparent; and

3) deliberate concealment or misrepresentation by the employer . . . preventing employee from exercising informed judgment as to whether to perform the work.

 

Ramsey, supra (internal citation omitted).

 

There was no evidence to suggest that the employee was not aware of the danger involved in cleaning the inside of the cement mixing box and that he had to be aware based on working on the machine in the past, which was inherently dangerous in of itself.  This alone supported the application of the workers compensation immunity and there likely would have been a lot more facts (or facts the employee’s estate would not be able to prove) supporting the immunity.

 

Intentional Tort Exception as to Fellow-Employee

 

The appellate court, however, reversed the summary judgment as to the fellow-employee finding that a jury could find that the fellow-employee acted with gross negligence causing the death of the employee.

 

In order to establish that Gubbins [fellow-employee] acted with gross negligence when he turned on the pug mill while Ramsey [employee] was still inside, the parents [representatives of estate] were required to present evidence as to each of the following three elements:

1) circumstances constituting an imminent or clear and present danger amounting to a more than normal or usual peril [;]

2) knowledge or awareness of the imminent danger on the part of . . . [Gubbins;] and

3) an act or omission [on the part of Gubbins] that evinces a conscious disregard of the consequences. 

Ramsey, supra.

 

 

 

The estate had evidence that the fellow-employee directed the decedent-employee inside the cement mixing box and then activated the box without utilizing any safety system or checking to see if the decedent-employee was still inside.  Based on this evidence, a jury could conclude that the fellow-employee was grossly negligent in activating the mixing box.

 

 

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.