Construction Risk Management: Key Issues in Risk Transfer for Owners and Developers

Transcription

1 Construction Risk Management: Key Issues in Risk Transfer for Owners and Developers JEREMIAH M. WELCH, ESQ. Saxe Doernberger & Vita, P.C. GREGORY D. PODOLAK, ESQ. TOM GRANDMAISON AIG Property Casualty JAMES SCALISE JOHN ALICANDRI Hunter Roberts Construction February 28, 2013

2 Construction Risk 3 rd Party Property Damage Business Risks

3 Construction Risk Transfer Contracts Insurance

4 Risk Transfer Perspectives Landowner/Bank Project Owner CM/GC Architect Prime Trade Prime Trade Engineers Consultants Subcontractor Subcontractor Subcontractor Subcontractor Sub-consultants

5 Risk Transfer Methods Contractual Indemnity Claim Downstream Party Upstream Party Downstream Party s Insurance Additional Insured Coverage

6 Construction Risk Transfer Upstream Parties (Owners and Contractors) goal: transfer as much risk as possible Downstream Parties and Insurers goal: avoid as much risk from upstream parties as possible Same objective: Minimize loss exposure, retain limits in own policies, and maintain good insurance loss history/rating

7 Contractual Risk Transfer

8 Contractual Risk Transfer Indemnity Owner Claim/Subrogation Waivers Liability Caps Insurance Procurement Contractor

9 Contractual Risk Transfer Indemnity 101 Contractor will indemnify and hold Owner harmless from Not Covered Covered Indemnitee (Owner) vs. indemnitor (Contractor) Defend/Reimburse Pay/settle claims

10 Contractual Risk Transfer Anti-Indemnity Statutes Not Permitted Permitted Indemnitee is Only Defendant - Direct Liability Indemnitee is Only Defendant Vicarious Liability Indemnitee s Fault if Shared with Others

11 Contractual Risk Transfer Expansion of Anti-Indemnity Statutes Not Permitted Permitted Any Indemnitee Fault Indemnitee is Only Defendant Vicarious Liability Fault of Others

12 Contractual Risk Transfer Saving the Indemnity Obligation SAVINGS CLAUSE To the fullest extent permitted by law

13 Contractual Risk Transfer Waivers Subrogation Waiver Claim Wavier

14 Contractual Risk Transfer Liability Caps Liability Cap Insurance

15 Insurance Procurement

16 Insurance Procurement Builders Risk Commercial Property CGL Professional Workers Comp

17 Insurance Procurement Owner s Insurance General Liability Builders Risk Property Start Construction Completion

18 Insurance Procurement Contractor s Insurance General Liability Professional Builders Risk Start Construction Completion

19 Insurance Procurement Additional Insured versus Indemnity Parallel tracks Insures indemnity Policy terms control No anti-indemnity concern, generally...

20 Insurance Procurement Benefits of AI Coverage Covers your own negligence Avoids claims between parties Prohibits subrogation No impact on your program

21 Insurance Procurement AI Coverage Limitations Scope Causation Privity Horizontal Exhaustion Anti-indemnity

22 Insurance Procurement AI Coverage Limitations - Scope Arising Out Of Caused in Whole or in Part By Due to the negligence of

23 Insurance Procurement AI Coverage Limitations - Scope No-Fault arising out of Upstream Contractual Indemnity Claim Additional Insured Coverage Downstream

24 Insurance Procurement AI Coverage Limitations - Scope Fault-Based Caused in whole or in part Upstream Contractual Indemnity Claim Additional Insured Coverage LITIGATION Who is at fault? Downstream

25 Insurance Procurement AI Coverage Limitations Privity CG AI status when you [the named insured] and such person [the party seeking AI status] have agreed in writing in a contract or agreement

26 Insurance Procurement AI Coverage Limitations Privity Owner General Contractor Subcontractor

27 Insurance Procurement AI Coverage Limitations Horizontal Exhaustion Owner s Corporate Excess Insurance GC s Excess Insurance (Owner s AI Excess Insurance) Owner s Corporate Primary Insurance GC s Primary Insurance (Owner s AI Carrier) Owner Promise to Indemnify Promise to Procure Insurance General Contractor ( GC )

28 Insurance Procurement AI Coverage Limitations Horizontal Exhaustion Anti-Horizontal Language All insurance furnished by Subcontractor in accordance with this Agreement, including primary and umbrella/excess policies, shall state that the coverage provided to an additional insured is primary to, and non-contributory with, any insurance, including self-insurance, whether primary, excess, or on any other basis, maintained by such additional insured.

29 Insurance Procurement AI Coverage Limitations Anti-Indemnity Express language in statute Court extension of statute Inextricably tied

30 Insurance Procurement Project Insurance OCIP OCP CCIP Owner s Interest AI

31 Insurance Procurement Project Specific Insurance CCIP Additional Insured Named Insured

32 Damage to the Project Builder s Risk? Contractor Contractor CGL

33 Insurance Procurement Wraps - Exclusivity? Owner Claimant? GC No Subcontractor Employer

34 Insurance Procurement Wraps Deductible Shifting Deductible Owner Contractor Wrap Up

35 Insurance Procurement Wrap Risk Transfer Policy Contract Manual

36 Solutions Contract Claim Handling Insurance

37 Condo Conversions

38 Conversion Timeline Conversion Substantial Completion Discovery

39 Evolution of Owner s PD Insurance Builder s Risk Property CGL Construction Leasing Conversion

40 Conversion Why Existing Insurance May Not Work Exclusion J(2) Residential Exclusion

41 Exclusion J (2) Premises you sell, give away or abandon, if the property damage arises out of any part of those premises. This does not apply if the premises are your work and were never occupied, rented or held for rental by you.

42 Residential Exclusions Insurers don t want condo-related risks Application is very fact/language specific Second Circuit addresses condo conversions Ment Bros. v. Interstate Fire & Cas. - December 2012

43 Ment Bros. v. Interstate Fire & Cas. - December 2012 Construe the Exclusion at the Time of the Damage

44 Solutions Contract Claim Handling Insurance

45 Third Party Conversion Sale Conversion Completion + Leasing Discovery

46 Third Party Conversion Builder Perspective No Condo Cover No Contract Protection Buyer Perspective At Risk to Prior Work Warranty Obligations Not Insured on Project Policies

47 Solutions Contract Claim Handling Insurance

48 Exploiting Trigger Rules Pre-Condo Exclusion Condo Exclusion Defective Work Discovery

49 Does an altercation = 240? Plaintiff was standing on a flatbed truck unloading materials when he had an altercation with another worker. Phillip v. Rockledge

50 Is alcohol a defense? Intoxicated worker falls from a scaffold which lacked safety railings. Moran v. 200 Varick Street Associates, LLC

51 New York Labor Law Verdict Plaintiff, 23 year old iron worker, fell while descending a ladder and sustained a torn anterior cruciate ligament ( ACL ) and a herniated lumbar disc