Employers Liability Insurance and Third-Party-Action-Over Claims

Third-Party Action-Over claims are one of the fastest growing types of claims in contractor’s general liability insurance.  In a nutshell, lawyers have figured out a way to file a claim on your general liability policy for something that should be covered through your Employers Liability Insurance. The results of these claims for contractors are higher rates on their liability insurance and potential gaps in their liability insurance coverage.  The purpose of this article is to explain how these claims work and educate contractors on what they can do to protect themselves.  

What is Employers Liability Insurance?
Although different from Workers Compensation coverage, Employers Liability is typically included in your workers compensation policy.  It is meant to cover losses that fall outside of the scope of workers compensation like third-party action-over, dual capacity, loss of consortium and consequential bodily injury.  Unlike Workers Compensation, which is typically not capped by policy limits, Employers Liability is subject to limits.  Key Exclusion: Standard Employers Liability policies typically exclude coverage for liability assumed in a contract. 

What is Commercial General Liability Insurance?
Commercial General Liability Insurance (CGL) covers bodily injury and property damage to third parties.  It covers losses that occur on your premises, jobsite or as a result of your products and completed operations. 

CGL – Employers Liability Exclusion
Below is a sample of the standard Employers Liability Exclusion in the CG0001 Commercial General Liability Policy.  As you can see, this type of liability is excluded with one key exception: when the Employers Liability is assumed in an “insured contract”.  To read more about Contractual Liability and Insured Contracts, check out this article. 

How Action-Over Claims Work

Here’s the example scenario:   

1. A subcontractor’s employee is injured on the jobsite.  The subcontractor’s workers compensation insurance pays the employee for his injuries and lost time at work. 
2. In addition to filing a claim on the subcontractor’s workers comp policy, the employee also sues the general contractor for failure to provide a safe work environment.
3. As a condition of the construction contract, the general contractor is indemnified by the subcontractor and named as an additional insured on his commercial general liability policy. 
4. The subcontractors general liability policy must respond to the claim because although Employers Liability is excluded in his CGL policy; the exception to the exclusion provides coverage because the subcontractor’s indemnification agreement with the general contractor is considered an “insured contract”.

Action-Over Exclusions
Due to the increase in these types of claims, many general liability insurance carriers have responded by adding an Absolute Employers Liability Exclusion to the policy.  There are many versions of this exclusion but they all serve the same purpose of removing the exception to the standard Employers Liability Exclusion.  The result is that a contractor would not have coverage in the event of a third-party action-over claim. 

What Can You Do?
In addition to providing a safe work place for all of your employees and subcontractors, buy a general liability policy that does not include an Absolute Employers Liability Exclusion.  Additionally, address this type of liability in your construction contracts and indemnification agreements.  Failure to do so could leave you stuck paying for someone else’s legal fees. 

For more information, please contact Tarah Gruber at 619-487-0376 orTarah@redhotinsurance.net.  Or visit www.redhotinsurance.net.

Lead Paint: How The EPA’s New RRP Rules Affect Your Liability

If you’re a contractor in the US, you already know about the Renovation, Repair and Paint Rules issued by the Environmental Protection Agency in 2010.  But many contractors may not have considered how these rules may affect their business’s liability.  We believe that these laws increase contractor’s exposure to Pollution Liability losses. 

About Lead Paint Hazards

Lead paint was outlawed in 1978 after it was found to be harmful, especially to small children.  It can cause hypertension, high blood pressure and even brain damage.  As you can imagine, if somebody is held liable for a child getting brain damaged due to lead paint, the financial loss will likely be substantial.  

Summary of Lead Paint Rules

1.  Be Certified – The new rules require that all renovation contractors working in residential homes, schools or child care facilities built before 1978 must have at least one certified employee on the job at all times.  For information on how to get certified visithttp://www.epa.gov/opptintr/lead/pubs/toolkits.htm.
2.  Notification – The new rules also require contractors to provide notification to homeowners and child care facilities about the dangers of lead paint dust.  A standard notification issued by the EPA is available here:  http://www.epa.gov/lead/pubs/renovaterightbrochure.pdf.  There is a standard form that contractors can use to document that notice has been given to the homeowner or child care facility available here:http://www.epa.gov/lead/pubs/pre-renovationform.pdf
3. Follow Containment Guidelines – Anytime paint is disturbed in pre-1978 buildings, contractors must contain the work area, minimize dust and clean-up thoroughly according to the EPA’s Regulations on Residential Property Renovation at 40 CFR 745, Subpart E.

Definition of Negligence

Negligence is what a prudent person would NOT do in the same situation.  Contractors who are negligent can be held liable for damages resulting from such negligence. 

Conclusion

Due to the fact that these new regulations went into effect less than 2 years ago, there is really not any case history to show exactly how they will affect your liability.  However, based on the definition of negligence, it is reasonable to assume that a contractor could be considered negligent if he fails to get certified, notify the owner or properly contain the lead dust.  Due to the fact that negligence can result in tort liability, we believe that these new rules significantly increase liability exposures for renovation, repair and painting contractors. 

What Can You Do?

Don’t assume that your Commercial General Liability (CGL) policy will cover you for losses related to lead paint.  Most likely it will not.  Lead paint dust is a pollutant and should be covered by a Commercial Pollution Liability (CPL) policy.  If you are a remodeling or painting contractor, contact your broker and make sure that you have the coverage you need.  There are several new CPL programs that have emerged in the last couple of years and policies have become more affordable than you might expect. 

For more information, please contact Tarah Gruber at 619-487-0376 orTarah@redhotinsurance.net.  Or visit www.redhotinsurance.net.  Click here for a quote on Pollution Liability Insurance. 

Analysis of Security National Insurance Company’s California Department of Insurance Filing

Due to threats of civil litigation this article has been removed.

Subcontractor Warranties – CONTRACTORS BEWARE!

As a business owner, you’re probably aware of the fact that insurance companies will do whatever it takes to deny coverage in the event that you have a claim.  Subcontractor warranties written into commercial general liability policies are an easy way for them to do so.

As a general contractor, you are ultimately responsible for the ongoing and completed operations of your subcontractors.  There are two ways you can protect yourself:

1.       Include an indemnification agreement in your favor in the contract.

2.       Be named as an additional insured on your subcontractor’s general liability and collect updated certificates of insurance. 

This works great, until your subcontractor lets his policy cancel.  As the general contractor, you can request that the insurance carrier notify you in the event of a cancellation, but not all insurance carriers will agree to do that.  Furthermore, if a subcontractor has let his insurance policy lapse, odds are that he will not have the means to cover a loss even if you do have an indemnification agreement.   This is why subcontractor warranties can be so dangerous for contractors. 

Most subcontractor warranties have language that states that the subcontractor’s insurance must be in effect at the time of the occurrence.  Many subcontractor warranties stipulate that the subcontractor must carry adequate coverage for their operations.  So, as a general contractor, how are you supposed to know if the subcontractor’s policy cancels or is inadequate?  You are not the one paying the bill and you’re not an attorney that analyzes insurance policies either.  The best thing you can do to protect yourself is to hire subs that you can trust and buy a general liability policy that does not contain a subcontractor warranty.  

The experts at Orr & Associates can analyze your current coverage to find this exclusion and many others that you should know about.  For more information please contact Tarah Gruber at 619-487-0376 orTarah@redhotinsurance.net.  Or visit www.redhotinsurance.net.

The Seven Deadly Endorsements – Part 7 General Liability Endorsements That Are Bad For Contractors

Endorsement #7 – Designated Work Exclusion

A Designated Work Exclusion is a form used by insurance carriers to exclude specific types of work from coverage.  This general liability endorsement can be harmless or very bad for a contractor depending on what it says.  This is a “fill in the blank endorsement”.  Below is an example:

This exclusion can be especially dangerous for contractors if part of what they do is listed.  For example, a painting contractor might think he is covered to do all aspects of painting for which he is licensed.  When he bought his insurance policy, he wrote Interior Painting on his insurance application.  Six months into the policy, the painter does an exterior painting job not realizing that he had a Designated Work Exclusion which listed “Exterior Painting” as an excluded operation.  During the exterior job, an overspray results in the damage of several cars.   In this scenario, the painting contractor would have no coverage for the damage to the vehicles. 

If you notice that your policy has a Designated Work Exclusion, take a second look to be sure that parts of your operations are not excluded.  The experts at Orr & Associates can review your current insurance policies to find this and other key exclusions which you should be aware of.  We’ll give you the knowledge and tools to make the right decisions about your insurance.  For more information, please contact Tarah Gruber at 619-487-0376 orTarah@redhotinsurance.net.  Or visit www.redhotinsurance.net.

The Seven Deadly Endorsements – Part 6 General Liability Endorsements That Are Bad For Contractors

Endorsement #6 – The Manifestation Provision

Although there is not a standard manifestation provision, this type of wording has been adopted by many insurance carriers as a way to restrict coverage for losses resulting from long term exposures like construction defects.    The manifestation provision restricts coverage to occurrences that “first manifest” during the policy period.  Therefore, an occurrence is deemed to have happened when the damage is first discovered. 

Example of Standard Wording

Example of Manifestation Wording

So why is manifestation wording so bad for contractors?  Here’s a scenario: 

A general contractor builds a house in 2008 when he has a manifestation policy.  He continues to renew his coverage for the next two years.  In 2011 he lets his coverage lapse because he is unable to find work.  Late in 2011 there is a claim resulting from a construction defect on the house he built in 2008.  The contractor will have no coverage due to the fact that the damage was first discovered in 2011. 

Some insurance professionals will argue that manifestation wording provides sufficient coverage for contractors as long as the policy doesn’t have a Prior Work Exclusion and it is renewed year after year.  While there may be some validity to this argument, the fact remains that carriers are able to deny more claims with this wording than without it.  That is why some carriers offer discounts of up to 40% to have this wording added to your policy. 

The experts at Orr & Associates can review your current policies and uncover manifestation wording and other endorsements that you should know about.  We can give you the knowledge and tools to make the right decisions about your insurance.  For more information, please contact Tarah Gruber at 619-487-0376 or Tarah@redhotinsurance.net.    Or visit www.redhotinsurance.net.

Check back tomorrow to read about Deadly Endorsement #7.

The Seven Deadly Endorsements - Part 5

General Liability Endorsements That Are Bad For Contractors

Deadly Endorsement #5 - CG 21 49 - Total Pollution Liability Exclusion

To understand the Total Pollution Exclusion, you must first know about the standard Pollution Exclusion that already exists in most general liability policies.   Specifically, the standard ISO Commercial General Liability policy excludes bodily injury or property damage arising out of the release of a pollutant.  There are, however, several exceptions to this exclusion. Below is an example of the first page of the Pollution Exclusion:

Here’s a breakdown of the exceptions to the first half of the pollutionexclusion:

Your Premises

• Building Heating Equipment - Coverage will still be provided for bodily injury resulting from the release of smoke or toxins caused by equipment used to heat your building.
• Owner as Additional Insured – Provides coverage for bodily injury and property damage resulting from the release of pollutants if the insured is a contractor working at his client’s premises.  But, only if the client is named as an additional insured on the contractor’s policy.
• Hostile Fire – There is still coverage for bodily or property damage from smoke or fumes arising out of a hostile fire. 

Away From Your Premises

• Mobile Equipment – Provides coverage for the discharge of chemicals from your mobile equipment such as fuel and motor oil. 
• Operations Within Building – If a contractor brings materials into a building that release toxins or fumes that cause bodily injury or property damage, there is coverage as long as the damage or injury happened inside the building. 
• Hostile Fire - There is still coverage for bodily or property damage from smoke or fumes arising out of a hostile fire.

The first half of the Pollution Exclusion deals with bodily injury and property damage that arises from the release of pollutants.  The second half of the exclusion deals with the cleanup of such pollutants.

The second half of the Pollution Exclusion excludes all costs related to cleanup.  There is, however, one key exception.  It will cover cleanup for damages because of property damage, but not cleanup at the request of a government agency. 

So, after reviewing the Pollution Exclusion, we find that there is actually a lot of coverage for pollution under a standard general liability policy.  Look at all that yellow.  That’s all coverage. 

Now that you understand how the standard Pollution Exclusion works, the Total Pollution Exclusion is really simple.  All those exceptions are deleted.  It replaces the original Pollution Exclusion.

So why is this important to you?  Pollution Losses can be very costly.  This is one of the most overlooked types of coverage in contractors insurance.  A major pollution loss could put you out of business if you don’t have the right coverage.  

If your general liability policy has a Total Pollution Exclusion, you have two options to get yourself properly covered.  One, ask your broker to have the exclusion removed.  This might add a little bit of premium, but usually can be done.  If they insurance carrier you are with is unable to remove the exclusion, you can buy a Pollution Liability Policy.  The experts at Orr & Associates can review your currently policy and address any needs you may have to be covered for pollutant related losses.  For more information contact Tarah Gruber at 619-487-0376 or Tarah@redhotinsurance.net.  Or visitwww.redhotinsurance.net.

Check back later to read about Deadly Endorsement #6.