Construction Coverage and Indemnification Presented by: GETMAN, SCHULTHESS & STEERE, P.A 1838 Elm Street Manchester, NH 03104 (603) 634-4300

Commercial General Liability Policy Provisions

“ADDITIONAL INSURED” ENDORSEMENTS 1. What is the purpose of “additional insured” endorsements? 2. What are the differences between indemnitee status and “additional insured” status? 3. Does “additional insured” status supplement or trump indemnitee rights?

PURPOSE OF “ADDITIONAL INSURED” ENDORSEMENTS Reduces uncertainty of relying exclusively on indemnity clauses belt and suspenders approach – best to have both Like indemnity clauses, can effectuate risk transfer but more predictable when respective liability of parties is uncertain either an insured or your not. Most of the time with indemnity provisions you have to sort out who is at fault to see if its triggered. With “additional insured” status, the GC simply looks to the sub’s insurer for a defense and indemnification

DIFFERENCES BETWEEN INDEMNITEE STATUS AND “ADDITIONAL INSURED” STATUS CONTRACT INDEMNITEE Protection via contract clause Protection defined by contract & limited by statute Duty to defend must be stated in contract to get defense costs Insurer owes duty to named insured/indemnitor ADDITIONAL INSURED Coverage created by endorsement Protection defined by policy Defense provided by insurer Insurer owes duty directly to AI

REQUIRE ADDITIONAL INSURED STATUS UNDER CONTRACT - EXAMPLES Vague: A, at its own expense, shall maintain the necessary liability insurance adequate to protect the interests of the parties hereto. Such policy shall be written so as to protect B in the same manner and to the same extent it protects A, and will name B as co-insured

REQUIRE ADDITIONAL INSURED STATUS UNDER CONTRACT - EXAMPLES Specific: A, at A’s own cost shall maintain Comprehensive General Liability Insurance with an insurance company authorized to do business in New Hampshire. Said policy shall have liability policy limits of not less than $1,000,000 combined single limit insuring against liability arising out of and in connection with A’s use and occupancy of the Premises. Said insurance shall be written on an “occurrence” basis. The CGL insurance shall include contractual liability coverage. B will be added as an additional insured by endorsement to said policy. A shall deliver to B certificates of such coverage and a copy of the policy prior to the commencement of the lease. The certificate of insurance shall specify that the insurance shall not be canceled without at least thirty (30) days written notice to B.

ADDITIONAL INSURED COVERAGE – “ARISING OUT OF” In order for coverage to be triggered under AI endorsement that provides coverage to an AI “only with respect to liability arising out of your [named insured’s] ongoing operations for that insured”: Named insured’s operations may be less than proximate cause, but Causal connection between insured’s operations and injury must be “more than tenuous” Not sufficient that claims would not have arisen “but for” the insured’s presence

For Example: GC hires sub for interior painting at site Pro Con Construction, Inc. v. Acadia Ins. Co., 147 N.H. 470 (2002) GC hires sub for interior painting at site sub’s employee injured while walking from work area to coffee truck employee sues GC GC seeks AI coverage under sub’s policy insufficient causal connection between injuries and sub’s painting operations – fact that injury would not have occurred “but for” employee’s presence on GC’s premises not enough to trigger coverage

“Growing Out Of” “Growing out of” is equated to “Arising out of” OneBeacon Insurance/ Centercorp Retail Properties, Inc. v. M&M Pizza, Inc. (8/19/2010) “Growing out of” is equated to “Arising out of”

M&M Pizza Facts Defendant, M&M Pizza, Inc. owned and operated a franchise in Derry. In November 2002, an M&M employee slipped and fell behind the premises while on the job and while following M&M policies regarding employee parking. The employee suffered injuries and sued M&M’s commercial landlord, Centercorp, but did not sue M&M. The landlord settled with the plaintiff following mediation. M&M declined to attend the mediation

M&M Pizza Facts OneBeacon was Centercorp’s insurer and brought suit against M&M seeking indemnification for payments made to the plaintiff. The lease provides that M&M must indemnify and save (Centercorp) harmless from and against any all liability in damages, costs and expenses, including reasonable counsel fees, and from and against any and all suits, claims and demands of any kind or nature… growing out of the condition, maintenance, repair, alternations, use, occupation or operation of the leased premises.

M&M Pizza: The Holding Applying the Pro Con standard the court found that OneBeacon was entitled to indemnification since the plaintiff’s delivery mission and the location where he parked the car were circumstances “growing out of” the use, occupation or operation of the leased premises. Pizza delivery was an operation necessary incidental to the conduct of the pizzeria.

National Union v. NGM Ins. Co. (D.N.H. 2011) Wenzel employed by Daniels Landscaping Brookfield hired Daniels to perform work at its Berlin facility via contract The Brookfield/Daniels contract had indemnity provisions with a requirement that Daniels would name Brookfield as an additional insured on its CGL policy Wenzel injured while using a machine called a Rack Rake. Rack Rake owned by Brookfield and was being operated by Daniel’s employee Gray.

National Union v. NGM Ins. Co. (D.N.H. 2011) Cont. Wenzel filed PI suit against Brookfield. Brookfield filed a 3rd party action v. Daniels and alleged comparative fault against Daniels’ employee Wenzel. National Union, who insured Brookfield sought defense and indemnity for Brookfield from NGM, Daniel’s insurer.

National Union v. NGM Ins. Co. (D.N.H. 2011) Cont. The NGM additional insured endorsement stated: Any person(s) or organization(s) shown in the Schedule is also an additional insured, but only with respect to liability for “bodily injury, “ ”property damage,” ”personal injury” or “advertising injury” caused, in whole or part, by A. [Daniels’ Landscaping’s] acts or omissions; or B. The acts or omissions of those acting on [Daniel’s Landscaping’s] behalf; in the performance of your ongoing operations or “[Daniel’s Landscaping’s] our work” included within the “products completed operations” hazard for the additional insured(s) at the location(s) designated above and described in the written contract or agreement.

National Union v. NGM Ins. Co. (D.N.H. 2011) Cont. Court held: The AI endorsement is triggered and NGM has duty to defend. However, other insurance clause provided unambiguously NGM was excess. Court refused to consider contract.

ADDITIONAL INSURED COVERAGE ONGOING V. COMPLETED OPERATIONS Policy providing coverage to AI for “liability arising out of your [named insured’s] ongoing operations performed for that insured” but “ends when your [named insured’s] operations for that insured are completed” – AI coverage terminates after completion of work - GL hires subcontractor & requires sub to name it as AI on CGL policies - damage resulted after sub completed its work - GL not entitled to coverage under sub’s policy since it was no longer an AI after sub’s work was completed Mactec Engineering & Consulting, Inc. v. OneBeacon Ins. Co., 2007 WL 2300706 (D.N.H. 2007)

ADDITIONAL INSURED ENDORSEMENTS CL CG 20 08 01 06 OWNERS, LESSEES, OR CONTRACTORS – LIMITED COMPLETED OPERATIONS COVERAGE – SCHEDULED PERSON OR ORGANIZATION AI if listed on schedule Only for injury/damage negligently caused by insured’s work performed for AI at designated location and included in “products-completed operations hazard” Excludes coverage for professional services of architect, engineer or surveyor Limited coverage period as specified Coverage is excess over AI’s policy unless insured and AI agree in writing that it be primary AI required to give notice of injury/damage “as soon as practicable”

ADDITIONAL INSURED ENDORSEMENTS CL CG 20 09 01 06 OWNERS, LESSEES, OR CONTRACTORS – LIMITED COMPLETED OPERATIONS COVERAGE – AUTOMATIC STATUS WHEN REQUIRED IN CONSTRUCTION AGREEMENT WITH YOU AI automatically includes any person/organization if AI status required by written agreement Only for injury/damage negligently caused by insured’s work under contract and included in “products-completed operations hazard” Excludes coverage for professional services of architect, engineer or surveyor Limited coverage period as specified Coverage is excess over AI’s policy unless insured and AI agree in writing that it be primary AI required to give notice of injury/damage “as soon as practicable”

ADDITIONAL INSURED ENDORSEMENTS AI CG 65 02 06 GENERAL LIABILITY EXPANSION ENDORSEMENT “Insured” includes any person or organization for whom the named insured is performing operations if written contract requires AI status Only for injury/damage caused in whole or in part by acts or omissions of the named insured or anyone acting on its behalf AI status ends when named insured’s operations are completed Coverage is primary if required by contract Limits are the lesser of amount required by contract & policy limits Excludes specified professional services Excludes completed operations coverage

ADDITIONAL INSURED ENDORSEMENTS CG 20 10 07 04 ADDITIONAL INSURED – OWNERS, LESSEES OR CONTRACTORS – SCHEDULED PERSON OR ORGANIZATION AI includes person or organization shown on schedule Only for injury/damage caused in whole or in part by acts or omissions of the named insured or anyone acting on its behalf in the performance of its ongoing operations for the AI Excludes completed operations coverage

Contractual Liability

HOW DOES THE GC ATTEMPT TO TRANSFER RISK TO THEIR SUBS? THREE WAYS GENERAL CONTRACTORS MAY SEEK PROTECTION: STRONG – INSURANCE CLAUSES The General Contractor requires the subcontractors to purchase certain types of insurance with minimum coverage limits. STRONGER – INDEMNIFICATION CLAUSES The General Contractor requires the subcontractors to defend, indemnify, and hold harmless the General Contractors STRONGEST – ADDITIONAL INSURED ENDORSEMENTS The General Contractor requires the subcontractors to name it as an “additional insured” on the subcontractor’s general liability insurance policy.

INDEMNIFICATION IN NEW HAMPSHIRE TYPES OF INDEMNITY IMPLIED INDEMNITY EXPRESS (CONTRACTUAL) INDEMNITY

IMPLIED INDEMNITY 1. Indemnity rarely implied & strictly construed – negligent parties should bear responsibility for their own negligence 2. Implied indemnity based on: a) fault of indemnitor as source of indemnitee’s liability b) indemnitee’s freedom from fault Requirements: a) indemnitor performs service for indemnitee b) indemnitor is negligent c) harm results d) indemnitee held liable due to breach of nondelegable duty or liability imputed to indemnitee e) indemnitee is not negligent

IMPLIED INDEMNITY RARELY FOUND Wentworth Hotel v. Gray, 110 N.H. 458 (1970) Property owner entitled to pursue implied indemnity v. painting contractor whose employee was injured on property due to contractor’s sole negligence Sears, Roebuck & Co. v. Phillip, 112 N.H. 282 (1972) If store owner held liable for customer’s slip & fall due solely to highly waxed condition of floor maintained by independent contractor, it would be entitled to implied indemnity

PURPOSE OF INDEMNITY CLAUSES Indemnity clauses included in contracts in order to allocate risk. The beneficiaries of the indemnity clause are often the general contractor, owner, architect, and construction manager.

EXPRESS (CONTRACTUAL) INDEMNITY Derived from express contractual provisions Interpreted as any contract: specific language used, surrounding circumstances, intent of parties Strictly construed by courts Intent to require indemnity for one’s own negligence need not be specifically stated, but intent must be “clearly evident” Contracts requiring indemnification against one’s own negligence generally not prohibited (but see RSA 338-A:1, 338-A:2) Duty to defend v. duty to indemnify

Must be specified in contract. DUTY TO DEFEND Must be specified in contract. Example: Supplier shall indemnify and hold Purchaser harmless from all liability, loss, damage, and or expense, including all attorneys’ fees and costs of investigating and litigating claims, due to injury or property damage resulting directly or indirectly from acts or omissions of Supplier. Supplier agrees to promptly assume the defense and preparation for the defense (including attorneys’ fees and costs) of any suit or threatened suit against Purchaser.

DUTY TO DEFEND Includes obligation to provide legal counsel to defend claims indemnified against, but not fees incurred to enforce indemnity agreement. Merrimack School District v. National Bus Service, 140 N.H. 9 (1995)

3. Indemnitor to pay for indemnitee’s defense despite DUTY TO DEFEND 3. Indemnitor to pay for indemnitee’s defense despite defense verdict in favor of both indemnitee and indemnitor Keating v. United Instruments, Inc., 144 N.H. 393 (1999)

TYPES OF INDEMNITY CLAUSES TWO TYPES OF TRIGGERS: “CAUSED IN WHOLE OR IN PART BY ANY NEGLIGENT ACT OR OMISSION OF THE SUBCONTRACTOR…” More restrictive than “arising out of” - some negligent act or omission of subcontractor must be a substantial cause of the injury? “ARISING OUT OF OR IN CONNECTION WITH THE SUBCONTRACTOR’S WORK OR OPERATIONS…” “Arising out of” – a “very broad, general & comprehensive term” meaning “originating from or growing out of or flowing from” Merrimack School Dist. v. National School Bus Service, 140 N.H. 9 (1995)  

INDEMNITY CLAUSES VARY FROM CONTRACT TO CONTRACT AND SERVE DIFFERENT FUNCTIONS Some are limited to the obligation to indemnify Better indemnity clauses specifically include the duty to defend, including attorneys’ fees and costs Scope of indemnity depends on specific contract language

EXAMPLES OF INDEMNITY CLAUSES - BROAD Equipment Lease: From the time the rented item is taken until its return, Lessee is responsible for the item and its use. The Lessee assumes all risks inherent in the operation and use of the item and agrees to assume the entire responsibility for the defense of, and to pay, indemnify and hold the Lessor harmless from and hereby releases the Lessor from any and all claims for damage to property or bodily injury (including death) resulting from the use, operation or possession of the item, whether or not it be claimed or held that such damage or injury resulted in whole or in part from Lessor’s negligence, from the defective condition of the item or from any cause. Lessee agrees that no warranties, expressed or implied, have been made in connection with this rental. Indemnitor required to indemnify even if indemnitee is 100% liable

EXAMPLES OF INDEMNITY CLAUSES - INTERMEDIATE Construction: To the fullest extent permitted by law, the Subcontractor shall indemnify and hold harmless General Contractor…from and against all claims, damages, losses and expenses including, but not limited to, attorney’s fees, arising out of, resulting from and /or associated with the performance of the Subcontractor’s work under this Subcontract, provided that such damage, loss or expense is caused in whole or in part by act(s) or omission(s) of the Subcontractor, their subcontractors, anyone directly or indirectly employed by any of them or anyone for whose acts they may be liable, regardless of whether or not such claim, damage, loss or expense is caused in part by a party indemnified hereunder. Indemnitor required to indemnify as long as it is partially at fault

EXAMPLES OF INDEMNITY CLAUSES - LIMITED Construction: To the fullest extent permitted by law, the Subcontractor shall indemnify and hold harmless General Contractor…from and against all claims, damages, losses and expenses including, but not limited to, attorney’s fees, arising out of, resulting from and /or associated with the performance of the Subcontractor’s work under this Subcontract, but only to the extent caused by an act or omission of the Subcontractor, their subcontractors, anyone directly or indirectly employed by any of them or anyone for whose acts they may be liable, regardless of whether or not such claim, damage, loss or expense is caused in part by a party indemnified hereunder. Indemnitor required to indemnify, but only for its proportionate share of liability

EXAMPLES OF INDEMNITY CLAUSES - MUTUAL Lease Agreement: Lessee shall indemnify and hold Lessor harmless from any and all claims or demands, including attorney’s fees, whether for injury or property damage, occurring on or about the Premises to the extent they arise out of the use and occupancy or possession by Lessee of the Premises or any of the areas which Lessee has the right to use, with the exception of any claims or damages arising from the negligence of Lessor… Lessor shall indemnify and hold Lessee harmless from any and all claims or demands, including attorney’s fees, whether for injury or property damage, occurring on or about the Premises to the extent they arise out of the use and occupancy or possession by Lessor of the Premises or any of the areas which Lessor has the right to use, with the exception of any claims or damages arising from the negligence of Lessee… Each party assumes responsibility for its own conduct

PRACTICAL LIMITATIONS OF INDEMNITY CLAUSES Are they valid? Beware of statutory limitations (i.e. RSA 338-A:1, RSA 338-A:2) Subcontractors and their insurers often resist tenders if the facts are unknown or disputed Even with an ironclad indemnity clause, the sub may have no insurance coverage or inadequate coverage

PRACTICAL LIMITATIONS OF INDEMNITY CLAUSES Indemnitor’s policy may contain exclusion precluding coverage Merchants Mut. Ins. Co. v. Laighton, 153 N.H. 485 (2006) Sub’s employee injured on GC’s worksite Employee sues GC & GC cross claims against Sub Sub seeks coverage under its CGL policy for GC’s indemnity claims CGL policy excludes coverage for injury to Sub’s employees Sub’s insurer not obligated to provide coverage for indemnification claim by GC due to policy’s employer’s liability exclusion

STATUTORY LIMITS ON INDEMNITY CLAUSES RSA 338-A:1 Prohibits agreements or provisions whereby architects, engineers or surveyors seek to be held harmless or indemnified for claims arising from their own Negligence RSA 338-A:2 Prohibits provisions in most contracts for construction work on any building or real property which require any party to indemnify another for injury or damage not caused by that party or its employees, agents or subcontractors

TESTING THE APPLICABILITY OF INDEMNITY CLAUSES FIRST - Does the clause comply with RSA 338-A? This is a matter of contract interpretation and will depend on the specific language of the indemnity clause SECOND – Do the facts of the case trigger the indemnity clause? This is the more vexing part because subcontractors and their insurers are invariably called upon to defend and indemnify a general contractor when the facts are unknown or, worse yet, disputed.

HOW DOES RSA 338-A:2 IMPACT VALIDITY OF INDEMNITY CLAUSES? No New Hampshire Supreme Court decisions applying RSA 338-A:2 Massachusetts has interpreted substantially similar statute, M.G.L. 149 SEC. 29: Indemnity agreement requiring sub to indemnify GC for injury caused exclusively by GC’s negligence is invalid & unenforceable Bjorkman v. Suffolk Const. Co., Inc., 42 Mass.App.Ct. 591 (1997) Does not prohibit proportionate indemnification requiring sub to indemnify “only to the extent caused by” sub’s conduct North American Site Developers, Inc. v. MRP Site Development, Inc., 63 Mass.App.Ct. 529 (2005)

HOW DOES RSA 338-A:2 IMPACT VALIDITY OF INDEMNITY CLAUSES? Massachusetts has interpreted substantially similar statute, M.G.L. 149 SEC. 29 (continued): Does not prohibit indemnity agreement requiring subcontractor to indemnify for entire liability when both sub and GC are causally negligent Rush v. Norfolk Electric Co., 70 Mass.App.Ct. 373 (2007) Does not preclude full indemnification when indivisible injury is caused by negligence concurrently attributable to sub & GC Collins v. Kiewit Const. Co., 40 Mass.App.Ct. 796 (1996)

THE IMPRACTICALITIES OF PROPORTIONATE INDEMNITY THE APPLICATION OF PROPORTIONATE INDEMNITY REQUIRES SOME DETERMINATION OF FAULT USUALLY REQUIRES A TRIAL OR ARBITRATION TO APPORTION THE NEGLIGENCE AS BETWEEN THE GC AND THE SUBS.

Implied Contractual Indemnification

Appeal of Harleysville, 937 A.2d 913 (N.H. 2007) WORKERS’ COMPENSATION – CONTRACTOR’S LIABLITY FOR SUBCONTRACTOR EMPLOYEE COVERAGE RSA 281-A:18 Contractor who subcontracts out all or any part of a contract is liable for payment of workers’ compensation to subcontractor’s employees unless subcontractor has secured payment of workers’ compensation for its employees Contractor may recover from subcontractor amount of compensation paid and “necessary expenses” - property owner hires painter & seeks recommendation for roof replacement - painter refers owner to roofer - roofer’s employee injured - roofer w/out workers’ compensation coverage - roofer was not painter’s subcontractor, so not liable for workers’ compensation Appeal of Harleysville, 937 A.2d 913 (N.H. 2007)

WORKERS’ COMPENSATION – NO IMMUNITY FOR GENERAL CONTRACTOR UNDER RSA 281-A:18 Employee of subcontractor injured on worksite Subcontractor is uninsured, so GC is liable for payment of workers’ compensation Employee brings negligence action against GC GC argues that it is entitled to immunity as an “employer” Statute does not provide immunity to GC If GC cannot recover amount paid from subcontractor, it may set off that amount against any verdict in favor of sub’s employee Prive v. M.W. Goodell Construction Co., Inc., 119 N.H. 914 (1979) Elliott v. Public Service Co. of N.H., 128 N.H. 676 (1986) (property owner that paid workers’ compensation indirectly by absorbing cost into contract price was not entitled to immunity against claims by injured employee of subcontractor)