REMODELERS COUNCIL DINNER 9/29/16

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Archibald Wheeler
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1 REMODELERS COUNCIL DINNER 9/29/16 PRESENTER: Shelli Lucus-Kennedy, American Insurance Associates/Insurance Risk Services TOPIC: Document, Document, Document; How to Lower Insurance Rates and the Possibility of Claims 1

2 RISK MANAGEMENT METHODS AVOIDANCE MINIMIZE TRANSFER ACCEPT > The least expensive and most effective form of Risk Management for a General Contractor is to pre-qualify their subcontractors and suppliers and transfer risk through their contracts. > The most expensive and least effective form of Risk Management for a General Contractor is buying insurance. 2

3 DEFINITION OF A CONTRACT Black s Law Dictionary says,...a contract is an agreement between two or more persons, which creates an obligation to do or not to do a particular thing. A contract is usually in writing, although it can be oral. A contract is binding and enforceable if there is: > Agreement: An agreement consists of an offer by one party and acceptance by another party > Competent parties: The legal capacity of the parties must not be restricted by age, insanity or intoxication > Consideration: Both parties must receive or give up something (usually money for services) > Legal purpose: The contract must have a legal object consistent with public policy > Genuine assent: The decision to contract must not be affected by fraud, duress, concealment or mistake 3

4 HISTORY OF CONSTRUCTION DEFECT LITIGATION What is Construction Defect - History? It couldn t happen to me? Class Action ongoing/progressive Solution and Market Status Legislative Process Victories > SB6409 Right to Cure > HB2039 Contractor s Protection/Affirmative Defenses > SB5536 Amendment to Condominium Act > HB1848 Managing Construction Defect Disputes Attempts last year that we will see again. > HB2004 Remove the 6-year Statue of Repose > SB5773 Property Liens/No Commingling of Funds 4

5 WHAT YOU NEED TO KNOW Certificate of Insurance versus Subcontractor Agreement Layers; Owner, Developer, General Contractor, Construction Manager, Subcontractors, Lower-Tier Subcontractors, Suppliers and General Vendors Matter of Law Who is responsible Consumer Protection Contractual Liability Issues Everything must match Coverage Issues (what they must have and where you can relax business decisions) Disclaimers and Warranties Affirmative Defense SHB2039 (purchase & sale agreements) Home Maintenance Manuals Signed receipts for documentation YOUR PAPERWORK IS YOUR DEFENSE. CONTRACTORS ARE GUILTY UNTIL PROVEN INNOCENT. 5

6 DISCLAIMERS #1 & #2 6

7 DISCLAIMER THE GRAND DADDY 7

8 INSURANCE COMPANY REQUIREMENTS Insurance Company s Requirements for Subcontractors (are you incompliance?) > Because an Insurance Policy is a contract, the Subcontractor Warranty is consideration for the lower premium > A- or better insurance carrier > Same General Liability Limits; $1,000,000 Occurrence and $2,000,000 Aggregate > Auto Liability - $1,000,000 (minimum Non-Owned Auto Liability) > Washington Stop Gap and L&I Certificate wwws2.wa.gov/lni/bbip/ contractor.asp > Written Agreement and Hold Harmless (matching names) > Additional Insured Certificate that has actual endorsement i.e. form attached and does it apply to you. Various ISO Forms; CG2009, CG /85 CG2010 all other, CG2033 & CG2037 8

9 CONSEQUENCES The Consequences Void Coverage or Pay More (are you really saving money????????) Misrepresentation, intentional or not, insured or agent Uninsured Losses versus Covered Losses Loss Ratios hurt the industry, not just the one insured Insurance Companies do not make money on the premium, they money on the float that is used for investing. Impact of Reserves Admitted Versus Surplus Lines Subcontractor s Insurance must be collectible and certificate issued PRIOR to loss 9

10 CONTRACTUAL/CERTIFICATE REQUIREMENTS Occurrence versus Claims Made Manifestation Trigger versus Montrose Primary Additional Insured Status, Completed Operations and On-going Operations Limits of Insurance Application; Primary and Umbrella/Excess Continuous Coverage their lapse is your liability reminders begin 60 days prior Outstanding Claims and Large Deductibles (financial reserves & personal guarantee) Do they hire subcontractors or temporary labor controls and responsibility Per Project Aggregate, Waiver of Subrogation, Stop Gap and Auto. Misrepresentation Clause applies, whether intentional or not 10

11 EXCLUSIONS WITHIN CG

12 EXCLUSIONS & LIMITATIONS Exclusions & Limitation (including, but not limited to the following) > Residential, Multi-Family, Condo, Mixed-Use, No. Stories/Units Tract and Specific Operations > Construction Defect and/or Vertical Construction > Subcontractor s Work (very serious) CG2239 Many different Versions > Classification Limitation (only covered for a specific trade i.e. framing or plumbing) > Contractual Liability (any liability assumed by contract) Beware of CG2139 & CG

13 EXCLUSIONS & LIMITATIONS (CONT) > Water Damage/Moisture, Fungus Organic Pathogens > Subsidence of Land (settling, cracking, sinking, etc) Permit Issues > Prior Work and/or Pending Litigation (stacking of limits beware of lapse in coverage) > Product Specific; EFIS, LP Siding, Asbestos, Polybutylene Piping > Construction Professional, Construction Managers are not covered by General Liability unless performing tangible work, they must have professional liability > ACTION OVER Unacceptable (Safety in Workplace) because there are 2 strict liabilities; 1)GC is responsible for Site Safety of all employees (including subs and suppliers) while on jobsite and 2) The Property Owner is responsible for injuries on his property 13

14 OCCURRENCE FORM VS CLAIMS MADE Most general liability policies provide occurrence coverage. This means that a claim can be made today for an injury or damage that occurred 20 years ago. The insurer will investigate and settle the claim as long as the injury or damage occurred during the policy period and it is covered by the terms and conditions of the policy. For these reasons, occurrence coverage is usually the best option. Claims-made coverage is much different from occurrence coverage. If a contractor or vendor or lessee buys claims-made coverage, the claim must be first made during the policy period or an extended reporting period described in the policy. Additionally, the injury or damage must occur before the end of the policy period and after the retroactive date, if any. If the policy has a retroactive date, claims for injury or damage that occurred before that date will not be covered by the policy. 14

15 CONTRACTUAL LIABILITY 15

16 Shelli Lucus-Kennedy American Insurance Associates / Insurance Risk Services P.O. Box 850 Woodinville, WA P/ F/ shelli@americaninsuranceassociates.com 16

EXHIBIT B. Insurance Requirements for Construction Contracts

EXHIBIT B. Insurance Requirements for Construction Contracts EXHIBIT B Insurance Requirements for Construction Contracts Contractor shall procure and maintain for the duration of the contract, and for 3 years thereafter, insurance against claims for injuries to