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Thursday, June 14, 2018

DIFFERING COVERAGES AND EXCLUSIONS OF YOUR GCL POLICY, EXCESS POLICY AND UMBRELLA POLICY





THINK YOU’RE COVERED?
UNDERSTANDING THE DIFFERING COVERAGES AND EXCLUSIONS OF YOUR GCL POLICY, EXCESS POLICY AND UMBRELLA POLICY
A PRIMER

After almost two decades in the construction industry I have found that most of my contractor and subcontractor clients do not understand the coverage provided by their Commercial General Liability Polices, Excess Policies and/or Umbrella Policies.
In most instances, it is more important to understand what types of claims are excluded from coverage under these insurance products to better understand the limited coverage that is provided by each.
In evaluating policies and coverage, the starting point is your Commercial General Liability Policy.
I.         COMMERCIAL GENERAL LIABILITY POLICY [CGL]
The typical post-1986 CGL policy is comprised of standardized forms and thus is primarily uniform from policy to policy.  These polices have identical built-in exclusions to coverage. However, the policies can and do differ with respect to exclusions added to the policies via endorsements. These endorsements should be reviewed carefully.
Under the CGL policy you [the insured] are entitled to:
1.    Coverage [payment] for covered claims up to the coverage amount provided by the policy; and
2.    A defense of lawsuits filed against your company [provided the lawsuit alleges damages for items that are or may be covered under the policy]. 
I could write 20 pages on the subject of “covered claims and the insurer’s duty to defend its insured and the difference between a claims made policy vs an occurrence policy.”  For brevity purposes [and keeping the reader awake], this article is focused on the coverages and primary exclusions provided within CGL and the purposes and coverages of Excess and Umbrella policies.
A. COVERED AND EXCLUDED CLAIMS
Covered Claims
The CGL policy provides coverage for damage to “other property”.  “Other property” as defined under the policy does not include the specific part of the construction project that the insured is performing its work. 
Thus, coverage will be provided if your work damages “other property”, such as a building across the street from the construction project you are working on. 
For example, one of your forklift operators strikes the building across the street with its load damaging the building.  The damage to that building [other property] would be covered under your CGL policy up to the limits of insurance [barring any exclusions to the contrary].  
Example 2, your sheet pile installation at the construction project causes vibrations and the vibrations damage the foundation of a property adjacent to the construction project.  The damage to the foundation of the adjacent property is covered under the policy, as it is damage to “other property”.
Excluded Claims
One of the most important exclusions under the CGL policy that all contractors/subcontractors should understand is the “your work” exclusion.
 The CGL policy does not provide coverage for a contractor or a subcontractor’s defect work.  The policies contain a “your work” exclusion. 
For example, you install a roof with defects [i.e.-leaks or improper construction] and the roof was must be replaced due to the defects. There is no coverage for the cost to replace the roof.  This is considered “your work” and the exclusion applies to bar coverage. 
Limited exceptions to this exclusion exist so long as the policy contains “completed operations coverage”.
The exception to the exclusion for “your work” in CGL policy with “completed operations coverage”: in Florida
  In Florida, coverage under the post-1986 CGL policy for defective work exists in limited circumstances.  Most contractors [and some subcontractors] do not self-perform their work, they hire subcontractors to perform the work.  The limited exception for coverage of construction defects favors the non-performing contractor or subcontractor in some instances.
The exclusion for “your work” contains an exception if a subcontractor performed “your work” and that subcontractor’s work caused damage to other property.  
For example, the contractor hires subcontractor, ABC Roofing to perform the roof work at the project and hires subcontractor, XYZ Drywall to perform the drywall work at the project. ABC Roofing’s work is defective and the roof leaks and the leaks cause damage to the drywall installed by XYZ Drywall.  Coverage will be provided for the damage to the drywall under the policy, as the damaged drywall is “other property” under the exception to the exclusion for “your work”. 
However, there will be no coverage if ABC Roofing performed both the roof work and the drywall work.   Damage to “other work” under this exception must be damage to work performed by a different subcontractor than the subcontractor that performed the defective work causing damage. 
Additionally, there is still no coverage for the defective work itself-the defective roof.  Thus, coverage exists for the damage to the drywall [other work] but not the roof itself [the defective work].
The “your work” exclusion and the exception to the exclusion has caused much confusion and litigation in the construction industry.  In most instances, the confusion can by crystalized by remembering that in almost all[1] circumstances your CGL policy does not provide coverage for the cost to correct your defective work or your subcontractors defect work.  Coverage is provided to a contractor for the cost to correct damage to “other work” caused by a subcontractor’s defective work.
There are many more exclusions under the CGL policies that are not covered in this article.  

B. THE DUTY TO DEFEND UNDER THE CGL POLICY
The duty of the insurer to defend you against a lawsuit under these policies is very broad.  The insurer must provide you a “defense” [pay for a lawyer to represent you] if the claims in the lawsuit are covered claims under the policy or may potentially be covered under the policy.  Any indication that the claims in the lawsuit may be covered requires the insurer to provide you a defense. 
The duty to defend is very broad and often times the insurer will provide a defense to a lawsuit even though the insurer denies coverage for the claims.
Plaintiff’s in construction litigation have become sophisticated and often plead their claims [within the lawsuit] to trigger coverage under the policy.  Insurers often complain that plaintiffs “write their way into coverage.”  Writing into coverage in this sense is often done by claiming damage to ‘other work” caused by defective work performed. 

II.       EXCESS AND UMBRELLA POLICIES ARE NOT EQUAL
Excess and Umbrella polices are often mentioned interchangeably by most laymen, even though there is a difference between the policy forms. 
         Both are designed to provide coverage above the underlying insurance.  The underlying insurance is the CGL policy. 
         The Excess policies provide coverage beyond the limits of the underlying coverage.  For example, if your CGL policy provides $1 million in coverage and you are found liable for $1.5 million, you can make a claim on your excess policy for the remaining $500,000.  However, excess policies are often more restrictive than the underlying policy.  In other words, your CGL policy may provide coverage for a specific claim while your excess policy may not provide coverage for the same claim. 
In addition, the excess policy does not provide coverage that is unavailable in the underlying policy. Thus, if the claim is not covered under the CGL policy it is not covered under the excess policy. 
Further, an excess policy can only be applied to one underlying policy.
The Umbrella policies are a type of excess insurance that not only provides additional limits [as does the excess policy] but also provides broader coverage not available in the underlying policy.
For instance, if there is a coverage denial in the underlying policy, Umbrella policy can "drop down" and provide defense and indemnity.
Another distinction between excess and umbrella is that the umbrella policy can be applied to multiple underlying policies.     
         Most Excess and Umbrella policies are not written on standardized forms.  Thus, coverage and exclusions vary from policy to policy.  It is very important to read your policies to see what each cover and consult with an attorney versed in insurance policies and coverage matters.







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The hiring of a lawyer is an important decision that should not be based solely upon advertisements. Before you decide, ask us to send you free written information about our qualifications and experience. Additionally, the information above is not intended to be legal advice. Please consult with an experienced lawyer if you have a specific issue or dispute.
Office locations: 2400 E. Commercial Boulevard, Suite 400, Fort Lauderdale, FL 33308
2901 Q. Street, NW Suite 2, Washington, D.C. 20007


[1] In Florida, at least one court has ruled that coverage does exist for defective work in the rare instances where the defective work must be corrected to prevent ongoing damage to other work.

Monday, September 18, 2017

DBPR'S EMERGENCY RULE ALLOWS GENERAL, BUILDING, AND RESIDENTIAL CONTRACTORS TO DO RE-ROOFING



DBPR’S EMERGENCY RULE ALLOWS GENERAL, BUILDING, AND RESIDENTIAL CONTRACTORS TO DO RE-ROOFING


To our clients who are hard at work in repairing the damages of Hurricane Irma, the Department of Business and Professional Regulation has declared an emergency rule permitting general, building, and residential contractors to do re-roofing in FEMA identified disasters zones.

This is an opportunity for your company to gain some additional business while serving your community that’s in need of relief.

The Disaster Contractors Network; register and select the areas in which you are available to provide services: http://www.dcnonline.org/



The DBPR Emergency Order: http://files.constantcontact.com/de700d13601/9dc735f5-4bc6-4c12-8890-d6987b4377b9.pdf

Thursday, September 14, 2017

APPLY FOR ASSISTANCE – www.fema.gov



APPLY FOR ASSISTANCE – www.fema.gov

After Hurricane Irma’s devastation, FEMA is accepting applications for Individual Assistance; you will not be required to pay back FEMA. You may be referred to the Small Business Administration (SBA) for a low interest disaster loan; if you qualify, you will be required to pay back the loan. Stay Safe.


Please visit: https://www.fema.gov/apply-assistance for instructions; https://www.disasterassistance.gov/ for application; https://www.sba.gov/loans-grants/see-what-sba-offers/sba-loan-programs/disaster-loans for SBA loan application

TAX RELIEF FOR VICTIMS OF HURRICANE IRMA IN FLORIDA – www.irs.gov


TAX RELIEF FOR VICTIMS OF HURRICANE IRMA IN FLORIDA – www.irs.gov

To our clients who reside or have a business in the counties affected by Hurricane Irma, the IRS has declared extensions for filing tax returns, paying taxes and for other time-sensitive acts. Certain deadlines on or after September 4, 2017 and before January 31, 2018, are now postponed through January 31, 2018.


Please see link for further details; you may qualify for relief: https://www.irs.gov/newsroom/tax-relief-for-victims-of-hurricane-irma-in-florida

Friday, September 1, 2017

United States Citizenship and Immigration Services - Revision to the I-9


REVISION TO THE I-9

  Last month, the United States Citizenship and Immigration Services (USCIS) released its most recent revised version of the I-9 form, also known as the Employment Eligibility Verification Form. The new I-9 can be found here: https://www.uscis.gov/news/alerts/revised-form-i-9-now-available. Employers can immediately switch over to the revised version or continue using the I-9 with a revision date of 11/14/16 up until September 17, 2017. On September 18, 2017, however, employers must use the revised form with a revision date of 07/17/17 for all new employees. Although the revisions may seem inconsequential, they are designed with the intention of making the form easier to navigate and reduce the number of errors. 

  Employers must continue following existing storage and retention rules for any previously completed Form I-9 and the rules regarding storage and retention have not changed under the newly revised I-9. Current employees do not have to fill out the new forms, even though the acceptable documents list has changed. Be warned, if an employer fails to identify a new worker using the proper I-9 form, violators may face significant fines reaching upwards of $2,156 per employee. 

  As the new changes take place, employers are encouraged to review the Handbook for Employers: Guidance for Completing Form I-9 (M-274) to ensure understanding and compliance with all rules and procedures.





















Monday, August 28, 2017

Contractors and Subcontractors Beware


Contractors and Subcontractors beware of shopping center, retail and out parcel projects. Big box and specialty retailer store closures may impact collectability for ongoing projects.

Fortune 500: The Death of Retail is Greatly Exaggerated | Fortune.com 




TOP TEN CONSTRUCTION CLAUSES - PART IX - PAYMENT TERMS


TOP TEN CONSTRUCTION CLAUSES – PART IX – PAYMENT TERMS

This article is the ninth in a ten-part series analyzing the top ten critical construction clauses.  In this installment, we analyze the “payment terms” provision, which encompasses a discussion on retainage and final payment.  This article will focus primarily on the updated American Institute of Architects’ Agreement between the Owner and Contractor (AIA Document A101-2017) as well as Florida case law. 

                               I.            OVERVIEW

The payment terms provision is perhaps the most palpable of all construction clauses as each party to a construction contract has unique concerns when it comes to payment.  An owner is concerned about overpaying its general contractor before its work is completed and will require some kind of assurance that the work will be completed.  Meanwhile, a general or subcontractor is concerned about receiving prompt payment so not to create financial hardship.  In negotiating the terms of payment, the goal is to reach a balanced resolution of all concerns.

                            II.            PAYMENT PROCEDURES

The American Institute of Architects’ Agreement between the Owner and Contractor (AIA Document A101-2017) attempts to find this balance by incorporating monthly progress payments based upon applications for payment submitted to the owner after being reviewed and approved by the architect.  The AIA form provides that prior to any application for payment being submitted, the contractor must first submit an itemized schedule of values for the architect’s approval.  The schedule of values allocates a line item value for various items of work.  An application for payment will typically list each item on the schedule of value and provide the percentage complete along with the value of the completed work.  The architect is tasked with reviewing the payment application and signing off on it.  The owner is then responsible for making the determined payment minus any retainage.  The owner’s failure to make payment in accordance with the contractual requirements constitutes a material breach of contract.  See J.M. Beeson Co. v. Sartori, 553 So. 2d 180 (Fla. 4th DCA 1989); see also Newkirk Construction Corp. v. Gulf County, 366 So. 2d 813 (Fla. 1st DCA 1979). 

                         III.            TIMING OF PAYMENT

Under Florida’s Construction Contract Prompt Payment Law, any party with an obligation to make payments under a written construction contract must make the payments promptly once certain conditions have been met.  Fla. Stat. §715.12(4) (2017).  The law generally provides that, unless some exception exists, the obligor has 14 days to make payment to the obligee otherwise the payment due will bear interest at the statutory rate.  Fla. Stat.  §715.12(5)(a) (2017).

With this in mind, AIA Document A101-2017 provides a form provision that leaves it to the contracting parties to set their own deadlines for payment.  The relevant provision reads as follows:

§ 5.1.3 Provided that an Application for Payment is received by the Architect not later than the ______ day of a month, the Owner shall make payment of the amount certified to the Contractor not later than the _____ day of the month.  If an Application for Payment is received by the Architect after the application date fixed above, payment of the amount certified shall be made by the Owner not later than _____ (     ) days after the Architect received the Application for Payment.”

                         IV.            RETAINAGE & FINAL PAYMENT

As previously mentioned, the owner has an interest in ensuring there are sufficient funds to complete the contractor’s scope of work in the event the contractor fails to do so.  Hence, it is common for contracts to provide for retainage, commonly 10% of the contract amount, of each payment application.  The retainage is held by the owner until the contractor reaches some pre-defined stage of construction and all other conditions have been met. 


The American Institute of Architects’ General Conditions of the Contract for Construction is incorporated into AIA A101-2017 by reference.  Section 9.10.2 of the General Conditions contains contractual conditions that the contractor must satisfy in order to receive final payment of the retainage.  Specifically, the contractor is required to submit to the architect 1) proof that all payrolls, bills for materials and equipment, and other indebtedness connected with the work for which the owner or the owner’s property might in any way be responsible have been paid or satisfied, 2) written proof that all insurance required by the contract is in effect and will remain in effect unless written notice is provided 30 days in advance, 3) a written statement that the contractor knows of no reason why the insurance will not be renewable to cover the period required by the contract, 4) written proof of any surety’s consent to final payment, and 5) any additional data that the owner requires to establish the contractor’s payment or satisfaction of all contractual obligations.

Under the AIA, contractors must be conscience of the General Conditions § 9.10.5 which provides that once the contractor accepts final payment it is deemed to have waived all claims not previously made in writing and identified by the contractor as unsettled at the time of the final payment application.

It is important to note that you may encounter non-AIA form contracts.  Regardless of the form used in drafting any construction contract, the payment terms provision should be concisely drafted and touch on all the basics discussed above to reduce ambiguity.  Whether you are an owner, contractor or subcontractor, it is advisable to consult with an attorney knowledgeable in construction contracts to assist you in deciding what payment terms are best suited for your business.