CONTRACTUAL INSURANCE REQUIREMENTSAvoiding Pitfalls & Potholes

Dan Cretella Frank ArmstrongO&G Industries, Inc.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 | 2

General Principles

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

Definition of “good” contractual insurance requirements:

When a claim event takes place, the insurance coverage responds as intended.

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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

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CoverageWC 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

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CoverageGeneral 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Avoid outdated terms (“broad form property damage”, “XCU”, etc.)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)?

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CoverageCGL / 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

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CoverageAuto Liability

ISO Form CA 0001

“Any Auto”, include owned, hired or otherwise operated by/on behalf of

MCS 90

Broadened Pollution Liability (CA 9948)

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CoverageExcess / 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

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CoverageBuilders Risk

Who is procuring the coverage?

All Risk

Who are Insureds?

Delay

Transit

Offsite

Existing Structures

Partial Occupancy

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CoverageOther 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

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ProcessPractical 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

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Questions

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