THE MANY POLICIES INVOLVED IN A CONSTRUCTION PROJECT Insurance Coverage Update 2018 CLE THE MANY POLICIES INVOLVED IN A CONSTRUCTION PROJECT New York City May 18, 2018 Justin N. Kinney, Esq.

CONSTRUCTION PROJECT RISKS First Party Risks – damage to the project, tools, materials, etc.   Third Party Risks – damage to persons or property of others Construction Risks – collapse, faulty workmanship, etc. Design/Professional Risks – common law, statutory/administrative and contractual liability Auto/Pollution Risks

BUILDERS RISK INSURANCE First party insurance for buildings under construction   Can be all risk or named peril Most policies manuscripted

BUILDERS RISK INSURANCE SCOPE OF COVERAGE Typically limited to “course of construction” and project specific May include: temporary structures, fixtures/machinery, materials and supplies Numerous coverage add-ons Should include contractors and subcontractors but interest may be limited (ATIMA)

BUILDERS RISK INSURANCE TYPICAL EXCLUSIONS Land and existing buildings Contractors’ tools and equipment Defects, errors & omissions Loss of use/consequential damages/soft costs Anti-concurrent v. “straight” exclusions

OCIP/CCIP/WRAP-UP Single insurance program for larger construction projects Program sponsor arranges multiple coverages for each insured in exchange for elimination of insurance costs from bids Typically involves third-party administrator and governed by program manual Allows sponsor control over insurances in place for project

OCIP/CCIP/WRAP-UP SCOPE OF COVERAGE Traditionally includes general liability, umbrella/excess and workers’ compensation/employer’s liability Arising out of operations on a designated project Performed by enrolled contractor or by/on behalf of insured Covers sponsor and most on-site contractors

EXCLUSIONS/LIMITATIONS OCIP/CCIP/WRAP-UP EXCLUSIONS/LIMITATIONS Coverage limited to project site/on-site risks Damage to real property of owner Can be limited to ongoing operations Form stand-alone policy exclusions/limitations

OWNERS/CONTRACTORS PROTECTIVE LIABILITY (OCP) Liability insurance for project owner Typically purchased by contractor Can be alternative to additional insured coverage

OWNERS/CONTRACTORS PROTECTIVE LIABILITY (OCP) - SCOPE/LIMITATIONS/EXCLUSIONS Covers operations performed for Named Insured by designated contractor Covers vicarious liability and acts/omissions in connection with general supervision of designated contractor’s operations Does not cover owner or its employees for other acts/omissions Limited to designated project Typically no completed operations coverage

CONTRACTORS POLLUTION LIABILITY NATURE & SCOPE Covers contractor for pollution-related liability Can fill gap created by CGL pollution exclusion Typically covers injury/damage from “pollution event” or “pollution conditions” resulting from insured’s operations, including remediation expense May be limited to traditional environmental pollution Can be occurrence or claims-made

OTHER CONSTRUCTION PROJECT INSURANCE Professional Liability/Construction Management Insurance Automobile Liability Insurance Subguard/Contractor Default Insurance

COMMON LITIGATED ISSUES Subrogation Rights To subrogate or not to subrogate. Does a waiver of subrogation in contract documents bar builders risk insurer’s subrogation action against subcontractors? Anti-subrogation rule

COMMON LITIGATED ISSUES Additional Insured Coverage “Arising out of” v. “caused by” endorsements Some causal relationship satisfies “arising out of” standard Proximate cause required to satisfy “caused by” standard Certificates of Insurance - Is the issuing broker an agent of the insurer and would coverage otherwise exist?

COMMON LITIGATED ISSUES Additional Insured Coverage (Cont.) Is contractual privity required? Is a written contract required? Is execution required? Cannot incorporate insurance procurement obligation by reference

COMMON LITIGATED ISSUES Priority of Coverage Policy language controls over contracts unless priority defined in policy by reference to contract What “other insurance” clauses do the policies have? Primary policies cannot be excess to a “true excess” policy Analysis can be undone by Named Insured’s contractual indemnity obligations

COMMON LITIGATED ISSUES Policy Exclusions Contractual liability – exceptions for liability in absence of contract and for “insured contract” may swallow exclusion Business risk exclusions – excluding coverage for certain damages to or arising out of insured’s work or product OCIP exclusion – can apply if there was an OCIP at any time and regardless of whether provides coverage

COMMON LITIGATED ISSUES Policy Exclusions (Cont.) Employer’s liability “the” v. “any” “insured contract” exception may limit to common law claims Residential Construction Exclusion Contractors Limitation Endorsement – is it absolute?

CONSTRUCTION PROJECT INSURANCE QUESTIONS ?