Practical Tips for Pursuing Additional Insured Coverage North Carolina Association of Defense Attorneys 2016 Fall Seminar & Judicial Candidates Forum September 30, 2016 Greensboro, NC Robert C. derosset bob.derosset@youngmoorelaw.com 919-861-5099 With thanks to: William W. Silverman Wall Templeton & Haldrup, P.A. william.silverman@walltempleton.com
What are we talking about? Indemnity Tenders Tenders to lower tier subcontractors and/or suppliers that owe an indemnity obligation based on a written subcontract (i.e., express indemnity). Additional Insured Tenders Tender to insurance carriers for lower tier subcontractors and/or suppliers where your client has been added as an Additional Insured to those policies. Make both tenders together While the indemnity tender to the subcontractor and additional insured tender to the subcontractor s carrier are technically independent issues, the potential for coverage after the fact under the Insured Contract exception to Contractual Liability exclusion means that they are intertwined. CGL Policy generally excludes Contractual Liability from the definition of covered Property Damage. However, contractual liability from an Insured Contract is excepted out of this exclusion. Indemnity Agreements can fall within definition of Insured Contract. This DOES NOT create an obligation for the carrier to defend the indemnitee, but does possibly create coverage for that indemnitee s defense costs. 2
Investigating Potential Risk Transfer Avenues Written Contracts A written indemnity agreement is key. Make sure they are complete (and signed). Know the terms of the contract. Be aware of subsequent changes, invoice language. An indemnity agreement does not have to be in writing, but good luck proving an oral indemnity agreement. Indemnity implied-in-fact is a tough row to hoe in the construction context under North Carolina law. See, e.g., Kaleel Builders, 161 N.C. App. 34 (2003) and Schenkel & Shultz, 180 N.C. App. 257 (2008). Enforceability of Indemnity Agreements Always view the terms of an indemnity agreement through lens of N.C. Gen. Stat. 22B-1. If the indemnity agreement runs afoul of 22B-1, can blue penciling save it? Vecellio & Grogan, 183 N.C. App. 66 (2007). Int l Paper Co. v. Corporex, 96 N.C. App. 312 (1989). Be prepared to argue that the indemnity agreement is not voided by 22B-1 and that any offending language can be stricken to save the clause. Does the scope of the indemnity agreement include attorney s fees? If attorney s fee s aren t expressly provided for, then costs of defense are likely not included. See, e.g., Norfolk Southern Railway Co. v. TIMEC Co., Inc., 1:08-CV-99, 2009 WL 3787621 (M.D.N.C. Nov. 9, 2009). 3
Certificates of Insurance and Additional Insured Coverage Certificates of insurance alone, do not create coverage. This is an investigatory tool, not coverage itself. Scheduled Additional Insured Where your client is actually listed as an additional insured in the subcontractor s policy. Can be in the Declaration Pages. Can be in an endorsement listing out scheduled additional insured. Blanket Additional Insured Where required in the subcontract. Can be a separate endorsement OR be sure to check Contractor Enhancement Endorsements and the like. How to get copies of Subcontractors Insurance Policies Ask for them (Start with the obvious) Ask the subcontractor and/or its agent. Ask the carrier if you have a contact. If you are confident that you are an additional insured under a policy, do not take a no lying down. An insured should be able to get a copy of its policy from its carrier. Discovery requests Takes longer, may run into limits of Rule 26. Subpoena to insurance company Beware proper service and procedure for out of state entities. See, 2010 Formal Ethics Opinion 2 and AARP v. Am. Family Prepaid Legal Corp., 2007 NCBC 4, 2007 WL 2570841. 4
Tender Letters Nuts & Bolts Can come from defense counsel. Can also be ghost written for adjuster or insured to send. Make sure everyone (carrier and insured) gets a copy. If the subcontractor is represented, the letter should be directed to the subcontractor s defense counsel. Be sure to avoid communicating directly with a represented party. The demand should be made in the name of both the insured and the insured s carrier. The demand should be sent to both the subcontractor and its carrier. The demand should be for defense/indemnity both under the subcontract as indemnitee and under the subcontractor s insurance policy as additional insured. Tender Letters - Strategy How much detail? Keep burden of proof in mind. It is the putative additional insured s burden to bring itself within the coverage. What you say will depend, in part, on the language of the additional insured endorsement. In general, need to show that your client is being sued for damages caused in whole or in part by the actions of the subcontractor. Try to match language in the target policy as closely as possible. Endorsements vary widely, so be careful of relying on a form letter. How much information do I send? Again, this depends on what you have and how helpful it will be. At a minimum, you should a copy of the subcontract and the Complaint. Also consider sending Certificates of Insurance. 5
If you have a smoking gun that you think triggers a defense as an additional insured, SEND IT! Duty to defend measured by allegations in Complaint and also through considering facts which could have been learned by reasonable investigation. See Waste Mgmt. of Carolinas, 315 N.C. 688, 693 (1986). When to send? Risk Transfer efforts need to be part of defense strategy as soon as file is referred. Send the letter as quickly as possible, BUT It is difficult to make a meaningful tender right away because you need to collect information. Defense obligation is triggered when notice is given, so the benefits of tendering early are obvious. Indemnity and additional insured issues can take months (and months) to sort out, so you need to give them time to mature. No good to make these tenders the week before mediation. Be prepared to re-tender as the case develops. Additional Practical Considerations Demand a response in a given time frame. This gives all sides a reference point for follow-up. How long depends upon the information involved. Consider a specific date instead of x business days. Follow up at regular intervals. The squeaky wheel gets the grease. Additional Insured tenders are often ignored or overlooked. Make a record!!! If you do not have policies yet, ask for them in the tender letter correspondence. 6
Beware of Coverage/Defense Traps Defense Counsel tendering to other carriers is wading into coverage issues. Probably fine as long as you are advocating for additional coverage for your insured client, but need to constantly evaluate this issue. If you find yourself arguing coverage to an insurer who is sharing your defense, the additional insured issues may need to be handled by someone else. Excess/Primary Disputes Even if additional insured coverage triggered, that is not the end of the road. Now have to determine who owes what. Some coverage is provided on a primary/non-contributory basis. Otherwise, have to compare Other Insurance clauses in the respective policies. This determination will turn on the very specific language used in the respective policies. The indemnity agreement s language can also be used to argue who is responsible. See, e.g., St. Paul Fire & Marine Ins. Co. v. Am. Int l Specialty Lines Ins. Co., 365 F.3d 263 (4th Cir. 2004); Wal-Mart Stores, Inc. v. RLI Ins. Co., 292 F.3d 583 (8th Cir. 2002). This is untested in North Carolina. 7
SAMPLE TENDER LETTER RE: ADDITIONAL INSURED FROM COUNSEL HIRED DIRECTLY BY GENERAL CONTRACTOR 8
NC DRC Certified Mediator *Also licensed in South Carolina Via Email and Mail Young Moore YOUNG MOORE AND HENDERSON, P.A. ATTORNEYS AT LAW Post Office Box 31627 Raleigh North Carolina 27622 3101 Glenwood Avenue Suite 200 Raleigh North Carolina 27612 Office: 919-782-6860 Facsimile: 919-782-6753 www.youngmoorelaw.com September 19, 2014 Direct Dial 919-861-5099 Email: rcd@youngmoorelaw.com Clearing and Grading, Inc., SC 29461 Insurance Company.com Insurance Company 40742.com RE: Our Client: Claim #: Claim #: Loss Location: Dear Mr. This firm represents Builders, Inc. and of South Carolina, LLC (collectively ) in regards to its insurance coverage for the n project in South Carolina. Please direct any communications regarding insurance coverage to me.
September 19, 2014 Page 2 On November 27, 2013 Builders placed Clearing and Grading and Insurance Company on notice of claims presented to Builders as a result of work performed for Builders by Clearing and Grading at and requesting the following: that Builders be fully defended, indemnified and held harmless for any claims, expenses and attorney fees that have been incurred or may be incurred in the future due to work performed by Clearing and Grading, Inc. [and that] they be provided additional insured status under the above cited policy of insurance issued to Clearing and Grading per the terms of the contract and the policy of insurance issued by Insurance Company Builders has also placed Insurance on notice of these claims and demanded a defense and indemnity. So far, Clearing and Grading, Insurance Company, and Insurance Company have failed to meet their contractual obligations to Builders. Now, Builders has been named as a defendant in a lawsuit filed in Berkeley County, South Carolina titled (the Suit ). A copy of the Complaint and the Answer in the Suit are enclosed with this letter for your reference. reiterates its demand that it be fully defended, indemnified, and held harmless with respect to the claims, including the Suit, as an additional insured under Clearing and Grading s general liability policies with and and in accordance with Clearing and Grading s contract with Builders. You must contact us within ten days of the date of this letter to acknowledge s, s and Clearing and Grading s intent to undertake their contractual obligations to Builders, including the defense of this action. Builders also demands that within ten days Insurance and Insurance confirm all years for which n Builders was made an additional insured of Clearing and Grading, and provide to us complete copies of all applicable policies, including the additional insured endorsements.
September 19, 2014 Page 3 If, y, and Clearing and Grading fail to comply with these demands, then Builders will take appropriate legal action. Sincerely, YOUNG MOORE AND HENDERSON, P.A. By: Robert C. derosset cc: