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.

KNOW YOUR RIGHTS AS AN INSURED UNDER FLORIDA’S CLAIM ADMINISTRATION STATUTE

UnknownFlorida Statute s. 627.426 is known as Florida’s Claims Administration Statute.   The Claims Administration Statute contains important information relating to your rights as an insured when a claim is asserted against you and you tender that claim to your liability insurer.  Of applicability, s. 627.426 provides:

 

 

 

(2) A liability insurer shall not be permitted to deny coverage based on a particular coverage defense unless:

(a) Within 30 days after the liability insurer knew or should have known of the coverage defense, written notice of reservation of rights to assert a coverage defense is given to the named insured by registered or certified mail sent to the last known address of the insured or by hand delivery; and

(b) Within 60 days of compliance with paragraph (a) or receipt of a summons and complaint naming the insured as a defendant, whichever is later, but in no case later than 30 days before trial, the insurer:

1. Gives written notice to the named insured by registered or certified mail of its refusal to defend the insured;

2. Obtains from the insured a nonwaiver agreement following full disclosure of the specific facts and policy provisions upon which the coverage defense is asserted and the duties, obligations, and liabilities of the insurer during and following the pendency of the subject litigation; or

3. Retains independent counsel which is mutually agreeable to the parties. Reasonable fees for the counsel may be agreed upon between the parties or, if no agreement is reached, shall be set by the court.

 

In short, “[u]nder Fla. Stat. s. 627.426(2), an insurer cannot deny coverage based upon a particular ‘coverage defense’ unless ‘within 30 days after the liability insurer knew or should have known of the coverage defense’ the insurer sends the insured ‘written notice of reservation of rights to assert a coverage defense.’”  See also Mid-Continent Cas. Co. v. King, 552 F.Supp.2d 1309, 1316 (N.D.Fla. 2008) quoting s. 627.426(2).

 

Importantly, an insurer does not need to comply with the Claims Administration Statute if there is no coverage under the liability policy—noncompliance with the Claims Administration Statute does not automatically create insurance coverage that never existed.  See Doe on Behalf of Doe v. Allstate Ins. Co., 653 So.2d 371, 374 (Fla. 1995).  Stated differently, the Claims Administration Statutes does not apply when the insurer is denying coverage because there is a complete lack of insurance coverage under the policy.  See Florida Municipal Ins. Trust v. Village of Golf, 850 So.2d 544 (Fla. 3d DCA 2003).

 

But, the Claims Administration Statute does apply:

 

[W]here coverage exists under an insurance policy, but the insurer seeks to assert a coverage defense. “[T]he term ‘coverage defense,’ as used in section 627.426(2), means a defense to coverage that otherwise exists. We do not construe the term to include a disclaimer of liability based on a complete lack of coverage for the loss sustained.

 

Danny’s Backhoe Service, LLC v. Auto Owners Ins. Co., 116 So.3d 508, 511 (Fla.  1st DCA 2013) quoting AIU Ins. Co. v. Block Marina Inv., Inc., 544 So.2d 998, 1000 (Fla. 1989).

 

Now, assume the insurer timely issues the reservation of rights letter to its insured and will assume the defense for the insured.  The insurer must select mutually agreeable independent counsel as the Claims Administration provides:

 

Within 60 days of compliance with paragraph (a) or receipt of a summons and complaint naming the insured as a defendant, whichever is later, but in no case later than 30 days before trial, the insurer:…3.  Retains independent counsel which is mutually agreeable to the parties. Reasonable fees for the counsel may be agreed upon between the parties or, if no agreement is reached, shall be set by the court.

 

Failure to select mutually agreeable counsel could result in a noncompliance with the Claims Administration Statute, meaning the insurer cannot now rely on a coverage defense to deny coverageSee American Empire Surplus Lines Ins. Co. v. Gold Coast Elevator, Inc., 701 So.2d 904, 906 (Fla. 4th DCA 1997) (“We find the language of the statute to be clear, and that unilateral retention of counsel by the insurer, which was the very antithesis of a mutual selection, did not comply. We therefore affirm the summary judgment determining that the insurer cannot deny coverage because it violated the statute….”); State Farm Mutual Automobile Ins. Co. v. Brown, 767 F.Supp. 1151, 1153 (S.D.Fla. 2012) (“Section 627.426…states that an insurer may not deny coverage based on a particular coverage defense unless, within 60 days of the receipt of a summons and complaint naming the insured as a defendant, the insurer retains independent counsel which is mutually agreeable to the parties.”)

 

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.

 

 

WRAP-UP INSURANCE ON LARGE CONSTRUCTION PROJECTS: OCIP OR CCIP

UnknownWrap-up insurance is commonplace on large, complex construction projects.  There are two types of wrap-up insurance programs routinely utilized: (1) Owner’s Controlled Insurance Program (“OCIP”) or (2) Contractor’s Controlled Insurance Program (“CCIP”).  Under either wrap-up program, the objective is that most (if not all) of the construction participants (such as the contractor and subcontractors) are wrapped-up or covered under one insurance coverage program.   

 

When a construction project has wrap-up insurance, whether OCIP or CCIP, there will be an insurance manual that will explain certain aspects to the construction participants such as (a) what type of insurance is included in the wrap-up program, (b) how premiums are to be determined for the wrap-up program including the required close-out audit, (c) who is responsible for any deductibles for claims, (d) the type of insurance the participant still needs to procure and/or the type of insurance not covered under the program (and, if not in the manual, it should be outlined in the contract), and (e) how to submit and handle claims under the wrap-up program.  The manual will also identify the administrator of the wrap-up program. 

 

In my experience, wrap-up coverage includes builder’s risk coverage, worker’s compensation coverage, commercial general liability (CGL) coverage, and umbrella coverage.  Insurance not routinely included in a wrap-up program is pollution liability, errors & omissions / professional liability, automobile liability, equipment coverage such as boiler and machinery insurance, and coverage for a contractor’s off-site operations.   This will be applicable insurance the contractor and subcontractors will still need to procure as may be required by the wrap-up program or underlying contracts.

 

The advantage of a wrap-up program is ideally to streamline risk management issues including additional insured status, (higher) limits of liability and excess (umbrella) liability coverage, products completed operations (applicable to CGL coverage so that products completed operations ideally runs through the applicable statute of repose for construction defects), waiver of subrogation concerns, and the claims process since major construction participants will be covered under the same global insurance policies (as opposed to many different carriers).  Another advantage is that there ideally is a cost benefit since the program should reduce overall insurance costs by all of the enrolled participants which corresponds to a reduction in overall construction costs.

 

There are, however, perceived disadvantages to wrap-up programs too.  There is an administrative burden in having to deal with these programs which is why there is often a third party administrator engaged to handle the administrative process associated with ensuring that major construction participants are properly enrolled in the program, insurance costs that are routinely included in bids / proposals are backed-out to avoid duplication in insurance costs, claims are properly and timely handled, and enrolled participants are audited during the close-out of their contracts to determine their final, allocated premium.  Also, as mentioned above, the wrap-up program does not relieve the enrolled participant from obtaining other required insurance coverage not included in the program but required of the participant through the wrap-up program’s manual or contract. And, there is the concern that even if there is an insurable construction defect claim, the claim is still going to flow downstream irrespective of the fact that there is a wrap-up program designed to cover that type of claim. (For example, with OCIP, there is concern that such a claim will be formally asserted against the contractor and then subcontractors instead of perhaps tendering the claim to the OCIP administrator so that the carrier can make a determination as to the claim since the contractor and subcontractors would have the same insurance through OCIP. Thus, any duty to defend obligation would be owed to all from the same OCIP carrier which will hopefully reduce protracted litigation.)  See, e.g., Southeast Wisconsin Professional Baseball Park District v. Mitsubishi Heavy Industries America, Inc., 304 Wis.2d 637 (Wis. Ct. App. 2007) (finding that in a multi-party litigation regarding deficiencies with a retractable roof, the OCIP carrier owed duty to defend obligation to all of the parties).

 

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.

 

 

CGL POLICIES AND THE IMPORTANCE OF COUCHING THE CLAIM TO THE INSURER

UnknownContractors and subcontractors that work on construction projects should, and generally do, maintain commercial general liability policies (“CGL Policies”).  Owners absolutely want their contractor and the subcontractors to be sufficiently insured in the event a claim is made either against them or damages or defects occur to their project.  Likewise, the contractor wants its subcontractors to be sufficiently insured for the same reasons.   Contractors and subcontractors, jointly, want CGL Policies so that if a claim is made or they are sued the insurer defends their interests and, hopefully, pays insurance proceeds to resolve the claim.

 

Insurers, however, are not always keen on paying claims and rely on various exclusions in policies that are applicable to the circumstances of the claim.  In other words, if there is no coverage for the claim based on an exclusion, the insurer will appropriately rely on an exclusion in the CGL policy.  As it pertains to CGL Policies, there are two important exclusions insurers rely on when a claim is asserted against a contractor or subcontractor for construction defects.  These exclusions are known as the j(5) and J(6) exclusions and exclude damage to:

 

j(5)   That particular part of real property on which you…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.

 

A contractor or subcontractor that reviews their CGL Policies will find the j(5) and j(6) exclusions to be substantially similar to the above.  While contractors typically do not self-perform work, subcontractors typically do  self-perform all or a substantial part of the work.

 

A recent case, Wilshire Insurance Co. v. Birch Crest Apartments, Inc., 2011 WL 3586228 (4th DCA 2011), bolsters insurers’ arguments to exclude coverage under a self-performing subcontractor’s  CGL Policy under the (j)5 and j(6) exclusions.  In this case, a painter performing work on an apartment project spattered paint on glass doors and windows.  The painter tried to remove the paint spatter, and in the process of doing so, damaged the glass doors and windows.  The owner sued the painter and the painter consented to a judgment and assigned its rights under its CGL Policy to the owner. This allowed the owner to sue the insurer directly and assert certain claims against it.

 

The issue in this case was whether the painter’s damage to the glass windows and doors were covered under the policy, or, conversely, whether coverage was excluded pursuant to the j(5) and j(6) exclusions under the policy.  The Fourth District Court of Appeal held that these exclusions barred coverage for all of the owner’s damages:

 

“[T]he record here shows that cleaning paint spatter from windows and doors was within the natural and intended scope of work undertaken by the contractor as part of the painting operations on Birch’s [owner] property if in fact such paint spatter occurred.

***

[T]he scope of the contractor’s operations were intended to include the apartments which were being painted and would, if required, involve cleaning up surfaces which were spattered with paint.  There is no genuine issue of material fact that the property damage in this case was to the apartment upon which H&H [painter] was performing its operations, and that it arose out of the insured’s operations within the meaning of (j)5Additionally, there is no genuine issue of material fact that the underlying claim resulted from the insured’s incorrect work on the glass doors and windows of the apartments within the meaning of exclusion j(6).

Wilshire Insurance Company, 2011 WL at *2.

 

In this case, it appears that the owner hired the painter directly and that the painter self-performed the work.  This is noteworthy because had the owner hired the general contractor and the general contractor hired the painter, or had the painter hired sub-subcontractors to perform all of its work, there could have been certain arguments raised to maximize insurance coverage.  These arguments, however, will not be discussed in this specific post.  What is also noteworthy is that the Fourth District focused on what fell within the “natural and intended scope of work” of the self-performing painter.  Since the damage or activity of cleaning up paint on glass fell within the natural and intended scope of the painter’s work, the Fourth District found that the painter essentially damaged  property it was performing work on (the j(5) exclusion)  and, thus, required repairs to the painter’s own work (the j(6) exclusion).

 

It is imperative that when an owner, etc. submits a claim to a contractor or subcontractor’s CGL Policy, the owner consults with a lawyer in furtherance of couching the claim to optimize insurance recovery.  Furthermore, and equally important, when a contractor or subcontractor receives a claim, especially a claim for defects or damage, that they too should consult with a lawyer to best present the claim to optimize the insurer protecting their interests and paying proceeds to resolve the claim.

  

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.