BUILDERS RISK POLICIES: ALL RISK PROTECTION OR BLACK HOLES IN WHICH TO DROP YOUR PREMIUMS?

Transcription

1 BUILDERS RISK POLICIES: ALL RISK PROTECTION OR BLACK HOLES IN WHICH TO DROP YOUR PREMIUMS?

2 Builders Risk Policies: All Risk Protection or Black Holes in Which to Drop Your Premiums?

3 PANELISTS Moderator Paul Z. Lewis, Esq.; Managing Partner, Lewis & McKenna (NJ) Speakers Don Ackerman VP & Chief Estimator Frontier-Kemper Constructors, Inc. Henry Daar - Executive Vice President, AON Corporation Kyle Duke Senior Risk Control Specialist, Willis Group John P. DiBiasi, Esq., Partner, Lewis & McKenna (TX)

4 CASE STUDY Interceptor Project - South West United States Coverage Under the Policy All Risk (sinkholes and collapses) Earth Movement Earth Movement means earthquake, landslide, mudslide, mudflow, volcanic eruption, earth sinking (other than sinkhole collapse), rising, shifting, mine subsidence, or other earth movement, whether observable or not observable, and whether man-made or caused by natural phenomena Flood Flood means a general or temporary condition during which the surface of normally dry land is partially or completely inundated, which arises from: a) rain or resultant runoff; b) the rising, overflow or breach of any boundary of a natural or manmade body of water; or, c) waves, tides, tidal waves or movements, storm surge, tsunami, or spray from any of these, whether driven by wind or not.

5 Case Study, cont. The Defective Work Exclusion A Sample Fault Work Exclusion We will not pay for loss caused by or resulting from any of the following: Faulty, inadequate or defective design, process, construction methods, specifications, workmanship, repair, construction, renovation, or remodeling, grading, compaction.

6 Open Windows in Tunnel Dutchman Connection

7 Misaligned tunnel support connections (Dutchman); missing bolts, etc.

8 Case Study, cont. The Resulting Loss Exception to the Exclusion But if a loss from a Covered Cause of Loss results [flood, earth movement, all risk (including sinkhole)], we will pay for the resulting loss.

9 9 2/2/12 Concrete Plug Sinkhole/Collapse 650 Grouted Section

10 10

11 Case Study, cont. Case Law: Texas Courts Uphold the Preservation of Coverage through the Resulting Loss (or sometimes referred to as the Ensuing Loss ) Exception to the Exclusion National Union Fire Ins. Co. of Pittsburgh v. Valero Energy Corp., 777 S.W.2d 501 (Tex. App. Corpus Christi 1989, writ denied). Valero brought suit for costs of repair and replacement of defective and damaged components of a citrate scrubber All risk policy insured against all occurrences causing physical loss or damage to property. Faulty design insurer relied on faulty workmanship/design exception

12 Case Study, cont. Case Law: Texas Courts Uphold the Preservation of Coverage through the Resulting Loss (or sometimes referred to as the Ensuing Loss ) Exception to the Exclusion RLI Ins. Co. v. Willbros Constr. (U.S.), LLC, 2011 WL (S.D. Tex. October 5, 2011). Willbros installing pipe beneath a river while insured s subcontractor was pulling pipe through bore hole. Pipe was lost and damaged, requiring Willbros to drill a replacement bore and purchase replacement pipe. Insurer relied on defective workmanship/design exclusion Court found that exclusion did not eliminate coverage for ensuing losses caused by defective workmanship Court found that the line pipe was covered property even if the hole was defectively drilled, the resulting damage to the line pipe itself was a covered loss

13 Case Study, cont. Mag-Dolphus, Inc. v. Ohio Casualty Ins. Co., 40 F.Supp.3d 817 (S.D. Tex. 2014). The purpose of the ensuing loss clause in a faulty workmanship/design exclusion is that if the excluded cause of the loss results in a covered cause of loss, the insurer is required to pay for the loss or damage caused by that covered cause of loss

14 Case Study, cont. Adrian Assoc. General Contractors v. National Surety Corp., 638 S.W.2d 138 (Tex. App. Dallas 1982). Rupture of underground water main Contractor required to tear out and reconstruct portions of concrete slab that had settled Insurer relied on settlement of foundation exclusion Court held that the exclusion did not apply due to an ensuing loss, which stated that if loss by peril not excluded ensues, then the insurer shall be liable only for such ensuing loss Since the loss resulted from a peril covered under the policy [water below the ground, including water from an artificial source], the Court held that the settlement foundation exclusion did not apply

15 Case Study, cont. Mitigation of Damages (Sue & Labor) Insured's Duty to Mitigate Damages Take all reasonable steps to protect Covered Property from further damage, and keep a record of your expenses necessary to protect the Covered Property, for consideration in the settlement of a claim However, we will not pay for any subsequent loss or damage resulting from a cause of loss that is not a Covered Cause of Loss.

16 Case Study, cont. Mitigation of Damages Sue & Labor Case Law American Home Assur. Co. v. J. F. Shea Co., 445 F.Supp. 365 (D.D.C. 1978). Insured erected a support of excavation system for the digging of the D.C. Metro. After determining that coverage for imminent danger /collapse of the system was not excluded under the inherent vice or defective design/workmanship exclusion, Court upheld coverage under the sue and labor clause since the damages arose out of the insured s efforts to minimize or prevent a loss occurrence Court held that the costs must relate to the occurrence of a Covered Loss

17 Case Study, cont. Direct Physical Loss to Covered Property Covered Property includes: Property of every kind and description intended to become a permanent part of the building or structure described in the Declarations. This may be your property or the property of others for which you are liable and in your care, custody or control. This property includes building excavations and foundations; grading and filling; permanent fencing; sidewalks, curbs, gutters, streets, parking lots and other paved surfaces; and other permanent structures.

18 Case Study, cont. Direct Physical Loss to Covered Property Teeples v. Tolson, 207 F.Supp. 212 (D. Or. 1962); Hampton Foods, Inc. v. Aetna Casualty & Surety Co., 787 F.2d. 349 (8 th Cir. 1996) A structure in its entirety can be deemed to have suffered a direct physical loss based upon damage to part of it.

19 Beware: Anti-Concurrent Cause Exclusions Koskovich v. American Family Mut. Ins. Co., 2012 WL (Minn. App. June 25, 2012): Policy language: We do not cover loss to property resulting directly or indirectly from or caused by one or more of the following Such loss is excluded regardless of any other cause or event contributing concurrently or in any sequence to the loss deterioration condensation, mold, wet or dry rot; insects.

20 Beware: Anti-Concurrent Cause Exclusions Friedberg v. Chubb & Son, Inc., 691 F.3d 948 (2012) Caused by (as used in faulty workmanship exclusion) any loss that is contributed to, made worse by, or in any way results from that peril. In other words, the provision intends to bar coverage from any loss, regardless of whether a covered cause of the loss contributes to, makes worse, or results from faulty workmanship, the entire loss is nevertheless excluded and is an anti-concurrent cause

21 Questions?