Current Trends in Construction Insurance Presented by: Roger Guilian, Esq. Kent Collier, J.D., CRIS, LEED AP

Introduction/Overview Outline Introduction/Overview Overview of GC/CM and Design Professional Insurance Programs Additional Insured Status and Endorsements Design Professional Standard of Care Indemnification Defense-of-Claims by Engineers CGL Insurance Issues Questions?

GC/CM Insurance Program

Design Professional Insurance Program

Additional Insured Status Allows another person or entity direct access to a CGL policy Creates insurer duty to defend another party Should only be given to identifiable parties Subsidiaries, related entities, officers, directors, employees NOT agents, consultants, invitees, representatives, other contractors Granted by endorsement typically Blanket vs. scheduled (e.g., endorsement to amend policy)

Additional Insured Endorsements CG 20 10 (11/85) – “arising out of” “your work” CG 20 10 (10 93) – “arising out of” “ongoing operations” CG 20 10 (10/01) – “arising out of” “liability” “ongoing operations” CG 20 10 (07/04) – “in whole or in part” “liability for bodily injury, property damage or personal and advertising injury" “ongoing operations” CG 20 10 (04/13) – same as above but: Only applies to the extent permitted by law. Coverage is not broader than that to which you agreed in a contract. CG 20 33 (04/13) – same as above but applies blanket where required by written contract CG 20 38 (04/13) – same as above but adds covg for any other organization you are required to add by contract N/A CG 20 37 (10/01) – “arising out of” “your work“ “products and completed operations” CG 20 37 (07/04) - “in whole or in part” “your work“ “products and completed operations” CG 20 37 (04/13) - same as above but: Only applies to the extent permitted by law. Coverage is not broader than that to which you agreed in a contract.

Blanket Additional Insured Endorsements Gilbane Building Company v. St. Paul Fire & Marine Ins. Co., No. 653199/11,884 (N.Y. App. Div. Sept. 15, 2016) Prime GC required to name CM and Owner entities as AI “With whom you have agreed to add” language did not create AI with parties not in privity Blanket language should allow for any entity where agreed in a contract

Additional Insured Status “Why can’t clients be Additional Insureds on my E&O policy?” A/E PLI (“E&O”) policies cover only damages caused by the insured’s negligent professional acts Unlike CGL insurance Owners/Clients/Indemnitees do not engage in any covered professional acts Owners/Clients/Indemnitees are usually not licensed professionals Even if they were, they have not gone through PLI underwriting Defense of Indemnitees would erode the A/E’s SIR, policy limits

Standard of Care for Design Professionals As a member of a learned and skilled profession (like doctors and lawyers) Reasonableness standard Similarly situated Common law duty for professionals to exercise ordinary care Use technical skill, ability, and competence of an architect, engineer, or other registered design professional in the same or similar locality and under like or similar circumstances Act like the average or ordinary or typical Normally requires “expert testimony” Some states (Alabama included) required “expert” to be a licensed P.E.

Heightened Standard of Care Contract, Website, Marketing Presentation “Highest” level of care The “Best” A+, Superior, Industry-Leading Not insurable Can you think of examples when you have seen this in your company? “Time is of the Essence”

Indemnification Indemnity is an agreement to pay for the tort liability of another Indemnitor (i.e., Engineer) agrees to indemnify and hold harmless the indemnitee (e.g., Owner/Client) from claims, losses, or damages to the extent caused by the negligent acts, errors, or omissions in rendering professional services Limited, Joint, and Broad Broad clauses void against public policy in most states But not Alabama! Alabama does not have An anti-indemnity statute Insurability of defense obligations in indemnity clause Beware of “negligence” at the end

Defense-of-Claims by Engineers In Alabama (and most states), the duty to defend is separate from the duty to indemnify Doesn’t just apply in the insurance context “Indemnify” does not automatically subsume “Defend” Indemnity clauses that obligate the engineer to “defend, indemnify, and hold harmless” will likely be upheld in Alabama as parties as free to contract as they see fit While indemnity (reimbursement) is covered by an A/E’s PLI policy, a defense of others is not. A/Es who agree to “defend” are exposed to an uninsured obligation

Defense-of-Claims by Engineers Why should Engineers refuse to “defend” and negotiate that word out? Not insured or insurable Inequitable because Engineer has not yet been found to have committed any wrongdoing Engineer will not be reimbursed by Indemnitee(s) should Engineer prevail Leaves both Engineer and Indemnitee(s) in uninsured position Creates wedge and conflict between Engineer and Indemnitee(s) Indemnitee(s) still entitled to be indemnified (reimbursed) for losses actually incurred to the extent they were caused by Engineer’s professional negligence (including attorneys’ fees – There’s your “defense”!)

Is Faulty Workmanship an Occurrence? Majority view: faulty workmanship is an occurrence U.S. Fire Ins. Co. v. J.S.U.B., Inc., 979 So.2d 871 (Fla. 2001) Minority view: faulty workmanship is not an occurrence Kvaerner Metals v. Comm. Union Ins. Co., 908 A.2d 888 (Pa. 2006) The dispute still rages: Auto Owners Insurance Co. v. Hagler, 2015 WL 3862713 (S.D. Ill.) – subcontractor faulty workmanship could be an occurrence Brit UW, Ltd. v. Tripar, Inc., 2017 WL 66821 (N.D. Ill.) – subcontractor faulty workmanship is not an occurrence Yes in Alabama - Owners Insurance Company v. Jim Carr Homebuilder, LLC, ---So.3d---, 2014 WL 1270629 *6 (Ala. March 28, 2014)

Is Mandatory Mediation Covered By CGL? Altman Contractors, Inc. v. Crum & Foster Specialty Insurance Co., 832 F.3d 1318 (11th Cir. 2016) Fla. Stat. Ch. 558: mandatory prelitigation “notice and opportunity to repair” statute. “An effective alternative dispute resolution mechanism in certain construction defect matters … should provide … an opportunity to resolve the claim through confidential settlement negotiations without resort to further legal process.” Contractor tenders 558 claim to insurer, who denies duty to defend, claiming no “suit.” Clarendon Am. Ins. Co. v. StarNet Ins. Co., 186 Cal. App. 4th 1397 (2010) (CA statutory construction ADR is a “suit”) Cincinnati Ins. Co. v. AMSCO Windows, 593 Fed. Appx. 802 (10th Cir. 2014) (NV statutory construction ADR is not a “suit”)

Greyling Insurance Brokerage, a division of EPIC Questions? Greyling Insurance Brokerage, a division of EPIC Georgia | Missouri | Maine | Florida (770) 552-4225 www.greyling.com www.epicbrokers.com