allocation oct2013 wraps ocips soup to nuts or nuts to soup
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October 28-29, 2013
Final
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Susan Page WhiteManatt, Phelps & Phillips LLP
John H. PodestaMurchison & Cumming LLP
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Allocation of the loss at issue◦ Inter-insurer
Contribution◦ Insured versus insurer
Breach of contract regarding defense or indemnity Allocation after the fact
◦ Insurer versus insured Indemnity for uncovered amounts paid by insurer
◦ Insurer or insured versus “others” Subrogation or indemnity
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Different kinds of policies◦ Different triggers or scope of coverage
Coverage vs. damage claims◦ e.g. claims against brokers, subcontractors and
other third parties Different insureds
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The duty to defend may exist as to each individual policy, but Insured is only entitled to a single defense. San Gabriel Valley Water Co. v. Hartford Accident & Indem. Co., 82 Cal. App. 4th 1230 (Cal. App. 2d Dist. 2000)
The duty to settle may occur when liability is reasonably clear, but a defending insurer has the right to control settlement and may decide to try the case rather than settle. Hamilton v. Maryland Casualty Co., 27 Cal. 4th 718 (Cal. 2002)
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The insurer must defend immediately and until the case is resolved against the insured before seeking reimbursement. Buss v. Superior Court, 16 Cal. 4th 35 (Cal. 1997)
If grounds for non-coverage are “at issue” in the case, the declaratory relief suit will be stayed. Haskel, Inc. v. Superior Court, 33 Cal. App. 4th 963 (Cal. App. 2d Dist. 1995)
The requirements for an insurer to settle and then seek recovery for uncovered claims is difficult in a complex case. Blue Ridge Ins. Co. v. Jacobsen, 25 Cal. 4th 489 (Cal. 2001)
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Defense:◦ There is a potential for coverage and the pursuing
insurer shares the same risk of loss Maryland Cas. v Nationwide, 65 Cal.App.4th 65
(1998) Indemnity:
◦ The burden shifts to the non-participating insurer to prove the absence of coverage Safeco Ins. Co. of Am. v. Superior Court, 140 Cal.
App. 4th 874 (2006)
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Admissible evidence of the trigger of coverage under target policy
Beware ◦ Attorney-client privilege as to non-defending
insurer?◦ Mediation protections Simmons v. Ghaderi, 44
Cal. 4th 570, 588 (2008))
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Controlled Insurance Programs (Wrap Ups)◦ Allocation between program policies◦ Allocation between program policies and
“practice” policies◦ Allocation of uncovered losses
Between OCIP participants Between OCIP insurer and participants
Design Build Contracts
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Controlled Insurance Program◦ Common point of purchase for all contractors on
the project
OCIP◦ Owner Controlled Insurance Program
CCIP◦ Contractor Controlled Insurance program
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Consider: ◦ All contractors insured by same insurer for each
line of business◦ All contractors insured under same policy
Contractors cancel coverage under their normal policy or “practice” policy when they enroll
Most practice policies exclude coverage for projects insured under a wrap up
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Commercial General Liability Workers Compensation (with some exceptions
due to individual States’ laws) Umbrella/Excess liability Pollution liability Professional Liability
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Cross suits exclusions Damage to the project limitations Other insurance provisions
But: each subject to their own terms for purpose of contribution to a loss
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Non-OCIP exposures◦ Material suppliers, uncovered damages
Overlapping issues on project◦ Third party over suits (WC/CGL)◦ Pollution/construction claims◦ Damage to the project (Builders Risk/CGL)
Excess claims and insolvent OCIP insurers◦ When do practice policies participate
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Analyze the claims presented from a Casualty Event◦ What is damaged◦ What party(ies) is(are) responsible, ◦ Who is damaged◦ What policy(ies) would respond ordinarily◦ If there is a gap, and there is no coverage for
the Casualty, is there a responsible party, and can it be pursued presently
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Product manufacturers Other non-enrolled parties Automobile and transportation risks, including
loading and unloading Ongoing maintenance in owner-builder scenario Uncovered defects
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May involve funding and chasing given the nature of OCIP
Cross complaint/third party complaint against responsible non-enrolled party
Cooperative settlement with insured/third party Settle on behalf of all enrolled parties then
pursue contribution/indemnity
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Design versus construction issues◦ Economic losses versus “physical injury to
tangible property” Workers compensation vs. liability issues
◦ Suits against GC for jobsite injury after Privette Loading and unloading vs. premises liability
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Project specific language ◦ Is there language in the policies that, read
together, resolves which policy pays? Other insurance clauses Retentions
◦ Are likely different for different types of policies Covered damages?
◦ Direct physical loss and loss of income – Builders Risk
◦ Physical Injury to tangible property and loss of use – CGL
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How do practice policies apply when excess policies apply above “all underlying insurance”?
Answer: The OCIP is irrelevant. Read the policies and apply allocation principles.
“Tell me like I’m Six”: Nat'l Union Fire Ins. Co. v. Am. & Foreign Ins. Co., 2006 U.S. Dist. LEXIS 96778 (C.D. Cal. Feb. 8, 2006)
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Practice policies pick up slack? Other OCIP policies fill the gap?
◦ Umbrella “drop down”◦ CGL cover damage to project rather than Builders
Risk◦ Surety Bonds?◦ Professional Liability policies?◦ Director’s and Officer’s policies
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USING THE RULES FOR ALLOCATION, CAN YOU PROVE A COVERED DAMAGE CLAIM MEASURED BY THE UNINSURED LOSS?
◦ Additional Insured claim◦ Umbrella drop down due to insolvent primary◦ Other insurance for enrolled parties for same
line of business◦ Other type of insurance cover the same loss
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Fund and Chase◦ Using subrogation to obtain recovery from
indemnitor’s contractual liability coverage◦ Pursuing indemnity after the fact to avoid cross
claim against enrolled parties Litigation approaches to control evidence
◦ Mediation protects evidence from being used in later proceeding
◦ Strategic use of cross complaints and parties that are involved in unique issues
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One stop shopping for owner Shifts risk of loss to GC or Architect to deliver a
finished project that is “move in” ready.
Owner typically has a contract with milestones from plans through COO.
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Will retain a designer to meet the engineer/architect requirements
Designer owes obligations to Owner and Contractor◦ Errors and Omissions Insurance◦ Indemnity
Portions of the project may be further designated design/build, e.g. HVAC
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◦ Non-conforming work due to bad plans or construction
◦ Economic loss or Property Damage Liability and a coverage issue
◦ Surety bond for GC vs. --Contractor’s General Liability --Professional Liability
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Susan Page White Manatt, Phelps & Phillips LLP (310) 312-4310 [email protected]
John H. Podesta Murchison & Cumming LLP (415) 524-4317 [email protected]