Contractual Insurance Requirements - Avoiding Pitfalls and

Report
CONTRACTUAL INSURANCE
REQUIREMENTS
Avoiding Pitfalls & Potholes
Dan Cretella
O&G Industries, Inc.
Frank Armstrong
Willis North America
September 16, 2014
Willis Construction Risk Management Conference – Dallas, TX
Agenda
 General Principles
 Coverage Lines and Common Pitfalls
 Process, including Verification / Compliance
Contractual Insurance Requirements | 1
General Principles
Definition of “good” contractual insurance requirements:
When a claim event takes place, the insurance coverage responds as intended.
Exposure Identification

Project Delivery Method

Construction Risk Considerations: Project Value, Adjacent Properties, Existing Structures, Partial Occupancy, Public
Liability, Professional, Environmental

Jurisdictional Risk Considerations: Anti-indemnity/AI, Upstream Immunity, Duty to Defend (AI), Statute of Repose,
Faulty Work as an “Occurrence” (GL)

Lender Requirements
Intent – Required Coverage / Terms

Risk Transfer / Allocation
Contractual wording aligned with intent

Clear, unequivocal

When available, specify terms subject to standard forms (ISO) or “equivalent”

Commercially reasonable terms
Verification / Compliance
Contractual Insurance Requirements | 2
Coverage
Possible Requirements

Workers’ Compensation

General Liability

Auto Liability

Excess / Umbrella Liability

Builders Risk

Professional Liability

Pollution Liability

Contractors Equipment

Riggers Liability

Railroad Protective Liability

Owners and Contractors Protective
Contractual Insurance Requirements | 3
Coverage
WC Considerations

USL&H, Harborworkers, Maritime

Alternative Employer Endorsement

Sole proprietors or others not statutorily maintain WC

Separate EL from statutory requirements with specified limits:
 BI by acc – each acc
 BI by disease – policy limit
 BI by disease – each employee
Contractual Insurance Requirements | 4
Coverage
General Liability Considerations

Avoid outdated terms (“broad form property damage”, “XCU”, etc.)

Specify ISO Form CG 0001 (2004 edition or later) or equivalent

Limits: minimum of / no less than and/or single combined limit with excess/umbrella; vary by subcontractor
trade?

Additional Insured Terms – scope and length of requirement

Additional Insured – Primary/Non-Contributory (ISO CG 2001)

Project specific aggregate (operations)

Completed operations

Amendatory Endorsement: Limited Contractual Liability for Covg Personal & Advertising injury (ISO CG 2274)

Amendatory Endorsement: Waiver of Rights of Recovery (ISO CG 2404)

Amendatory Endorsement: Contractual Liability – Railroad (ISO CG 2417)

Unacceptable Exclusions (e.g. residential)

Project Specific (GL only Wrap)?
Contractual Insurance Requirements | 5
Coverage
CGL / Additional Insured Considerations

ISO AI Endorsements: CG 2010 (operations) and CG 2037 (completed operations)

Edition dates matter:
 10/01 – “arising out of”;
 07/04 – “caused in whole or in part”;
 04/13 – additional terms
 To the extent permitted by law
 Scope of coverage no broader than required by contract
 Limits of coverage no broader than required by contract

“Saving” clause: To the maximum extent permitted by law

Avoid “tying” AI requirements to indemnity provisions

Priority of Coverage (Excess/Umbrella)

Contract Privity: ISO CG 2033 vs. CG 2038
Contractual Insurance Requirements | 6
Coverage
Auto Liability

ISO Form CA 0001

“Any Auto”, include owned, hired or otherwise operated by/on behalf of

MCS 90

Broadened Pollution Liability (CA 9948)
Contractual Insurance Requirements | 7
Coverage
Excess / Umbrella Considerations

“minimum of” or “no less than”; and/or combined single limit with primary

Follow-form

Amend “other insurance” provisions to assure vertical exhaustion (AI)

Include EL in underlying
Contractual Insurance Requirements | 8
Coverage
Builders Risk

Who is procuring the coverage?

All Risk

Who are Insureds?

Delay

Transit

Offsite

Existing Structures

Partial Occupancy
Contractual Insurance Requirements | 9
Coverage
Other Insurance Related Considerations

Waivers of Right to Recovery
 Typical: “…to the extent of available insurance”
 Consider: “…to the extent of available insurance, [including or excluding] any applicable deductible”

Contractual Indemnity: Align with CGL Contractual Liability Coverage?

Consequential Damages
 Mutual waiver
 To the extent of available insurance

Liquidated Damages

Flow Down Provisions (except limits?)
 Sub-subcontractor
 Employee Leasing Companies
 Alternate Employer Endorsement

SIR’s and deductibles

Notice of Cancellation

Reserve right to obtain certified copies of policies

Insurers – Authorized / Financial Rating (AM Best A- VII)

Compliance failure constitutes default, with allowance to terminate for cause, withhold payment and/or purchase
the required insurance at downstream party’s expense
Contractual Insurance Requirements | 10
Process
Practical Considerations

Streamline the process

Pre-bid / Post Bid

Who is negotiating?

Risk professional (and/or their respective brokers) should communicate

Pay attention to insurers
Verification / Compliance Considerations

Do nothing and hope coverage is there when needed

COI’s

COI’s with key endorsements (AI, WOS, XS PNC)

COI’s with verification addendums

Review policies

Completed operations period
Contractual Insurance Requirements | 11
Questions
Contractual Insurance Requirements | 12

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