2009 Lessons Learned

1. 2009 Lessons Learned The Boxwood Group, LLC

2. Late Notice (Occurrence) • Insurers still holding fast to late is late in New York for dates of loss prior to January 19, 2009. The new law reverses the “no prejudice” rule, but is not retroactive. • (NY)- Insured’s employee injured 12/27/07. FNOL 02/09/09 when insured thought employee might make a claim against GC. No claim has been made, but the coverage was declined for late notice. Additionally, strong exclusionary language for claims by employees, except if liability is assumed under an insured contract. • (NY) – Insured’s employee injured on the job 11/30/2007. When employee continued to treat, the insured reported the claim 03/12/2009. Coverage declined for late notice.

3. Late Notice (Claims Made) • Employment Practices Liability – pays for claims first made against the insured within the policy period and reported within the policy period. • (SC)– Agent said he reported the claim prior to renewal to wholesale broker. Wholesale broker has no record of FNOL and reported claim under renewal policy. Coverage for claim declined for late notice. Due to a late ROR with vague wording, a deal was struck to share the loss between agent, insurer, and broker. • (CA)- Agent reported wrongful discrimination claim to wholesale broker. The loss was not reported to insurer within the policy period. EPLI policy had a $7,500 retention per claim and the claim was a 132a petition for wrongful termination. With the help of the agent’s claims person the claim was defended by the WC defense attorney and settled for a nominal amount all within what would have been the EPLI retention.

4. Prior Knowledge (Claims Made) • Policy applications are important. Insurer not liable to make any payment in connection with claims made against the insured prior to the inception of the policy. The policy also excludes claims arising out of any prior and pending litigation. • (CA) – Insured employee complained to GM about sexual harassment in Nov. 2007. On 06/22/08 the claimant filed charges of discrimination with CA’s DFE &H. On 12/06/08 the insured submitted a proposal form that omitted knowledge of any claims. In 2009 a civil suit was filed against the insured and reported to the insurer. Coverage declined.

5. Subsidence Exclusion • If the earth moves it’s not covered. Subsidence exclusion is extremely broad. • (NY) – The insured was excavating property next to a building that was in extreme disrepair. The building owner alleged that the insured's excavation work caused severe damage to their building. The underwriter declined coverage based on their assessment that earth movement caused the damage and the subsidence exclusion applied. Good detective work demonstrated that there was no proof to date there was earth movement of any kind that caused the damage, thus the insurer should defend the claim. The declination was rescinded and the insurer is presently handling under a ROR.

6. Smelly Construction • What is the damage and is there a covered claim? • (MD) - Insured constructed a condominium that the new owners claim has unbearable odors, allegedly causing them sickness and rendering the condominium uninhabitable. After extensive investigation by the insured no cause for the odor could be found and the new owner sued the insured. The insurer was reluctant to defend the claim, but is now doing so under a ROR. ROR is based on was there an occurrence, property damage, or bodily injury? They also ROR on exclusions a.,b.,j.,l.,m.,n., and the pollution and fungi bacteria exclusions, as well as late notice. Claim continues to be defended under a ROR.

7. What is a Construction Defect? • A defect in the design or construction of a residential or commercial structure. Common construction defects include, but are not limited to, improper installation of roofs, windows and doors permitting water intrusion and other leaks; improper construction of foundations permitting moisture penetration of structures; plumbing leaks; soil settlement and drainage issues; cracking stucco/drywall/concrete; balconies and decks; and odors/fumes of known and unknown origins.

8. CD claim Vs a PD claim? • When is it a CD claim vs. a PD claim? • (WA) – Insured installed a wood stove in 2005 and a fire resulted in 2008 allegedly because of poor installation of the product. The insured's current policy excludes coverage for work done prior to the policy inception. The insurer declined coverage. Often construction defect claims focus on poor workmanship, or a defective component part of the whole building causing damage over a period of time from installation.  Most courts hold that when the damage/injury occurs on a date certain, and all the subsequent damages flow from a single event, there is but a single occurrence. The original policy at the time of construction is not triggered.

9. Construction Defect Claim • What does the policy cover? Depends on which state you’re in and if the moon is full. • (CA) – Insured GC built condominiums and the condo association made a CD claim for a number of assorted problems. The insurer questioned whether the problems complained of were property damage under the policy; whether the exclusion for faulty work applied regardless of the subcontractor exception; was there an occurrence and how many occurrences were there; how many deductibles applied? • The insurer picked up the defense of over 14 subcontractors as additional insureds under a defense erosive policy limit. The damages alleged far exceeded the policy limit. The insurer attempted to segregate the covered vs. non-covered damages. The insured's attorney demanded that insurer settle within the policy limit. The insurer responded with a ROR to pursue reimbursement for non- covered items, and settled the claim within the policy limit. The insurer eventually offered to settle the matter with the insured for reimbursement of one deductible. Truly the magnitude of the damages claimed and the expenses to dispute coverage drove the settlement.

10. Manuscript Policy Challenge • Values on property schedule doesn't mean the values are the limits on the described property. • (LA)- Hurricane Gustav damaged a number of locations for this insured including sign damage. The policy was a manuscript form with an “occurrence limit of liability endorsement & 115% margin clause.” The agent and adjuster believed that since the value of the signs were not included in the property schedule they might not be covered property. This idea reached the underwriter and they needed to be convinced that 1.) a separate deductible or sub-limit should not apply, 2.) it did not matter if the signs were not included in the schedule, the policy covered all real and personal property under one policy limit.

11. Minor Word Change Limits Coverage • Owner of restaurant suffers business loss as a result of damage to bridge which is main access road. Ingress/egress wording differences. • “this policy is extended to cover business interruption as a direct result of physical loss or damage insured by this policy when ingress to or egress from a location(s) is physically prevented by such loss or damage” Property excluded ..bridges and tunnels used for vehicular traffic…(bridges and tunnels are not insured under the policy, and “prevented” equates to complete inaccessibility) • Broader coverage “this policy is extended to insure loss sustained during the period of time when, as a result of loss , damage or an event not excluded in clause 6 (not excluded)., ingress to or egress from real or personal property is impaired. “ (not limited to damage to “insured” property, and “impaired” does not mean complete inaccessibility. )

12. Contractual Indemnification • If you don’t have to, you don’t need to. Third party over action in NY. Insured’s employee injured on job site by another contractor unrelated to the insured’s work. • (NY) – GC/Developer’s insurer attempted to tender the claim to insured as an additional insured and under a contractual indemnification. The insured’s insurer declined in part on late notice, as well as wording in both the additional insured endorsement and the contract. Both coverage parts were triggered when loss arose out of and resulting from the performance of the subcontractors/insured’s work, but only to the extent caused by the subcontractors/insured’s negligence. Since the accident happened completely out of the control of the insured, but under the control of the GC and another subcontractor, the insurer was on solid ground and the insured’s broker agreed. • PS: Exclusion e. Employers Liability, coupled with the Cross Liability endorsement also caused concern as the insurer felt it negated coverage for any employee of any insured. This would include Additional Insureds.

13. WC Not Sole Remedy • WC not sole remedy for surviving spouse. Claim was made for the decedent’s pain and suffering under the Texas Survival Statute. • (TX)- The insured’s employee was killed in an oven explosion. The employee’s spouse and family seeks compensatory and gross negligence damages for unsafe place to work as well as negligence in the design and manufacture of the oven. The primary insurer defended the claim, but the umbrella insurer ROR as to damages on several fronts. The umbrella policy did not cover products liability and the damages to be awarded under the Texas Survival Statute are considered exemplary damages and not covered under their policy. The ROR and lack of perceived participation was jeopardizing the settlement. • After discussions with the umbrella insurer they took a less aggressive position and assisted with the settlement process.

14. WC Not Sole Remedy • (PA) injured worker (“IW”) severely injured by press. IW settles WC claim under compromise and release and then later sued parent company on a product liability and unsafe place to work claim. • Based on (Kiehl v. Action Manufacturing 517 Pa. 183 Supreme Court of PA), PA does not extend the workers’ compensation immunity of a subsidiary company to the parent holding company.

15. Certificates of Insurance • Disclaimer – “The Certificate of Insurance on the reverse side of this form does not constitute a contract between the issuing insurer(s), authorized representative or producer, and the certificate holder, nor does it affirmatively or negatively amend, extend or alter the coverage afforded by the policies listed thereon.” • Regardless of what it states on the certificate the certificate does not obligate an insurer to coverage. So what does it do? It provides some evidence of the issuer’s insurance of which evidence may help tender your insured’s claim to another party. The only way to confirm coverage is to get a copy of the policy.

16. Additional Insureds • How broad is broad? Broad Form Additional Insured Endorsement CG 20 10 1185 adds insureds to the policy “as required by contract and provided the contract is executed prior to the loss.” Make sure the insured's contract matches! • Pending Claim (NY) – Insured entered into a contract that did not require the insured to name the owner as an additional insured. Insurer declined coverage. The broker originally requested that the owner be added as an additional insured to the policy in 2005, but the insurer never did despite repeated requests prior to and after a loss in 2006. The insurer felt they had provided coverage under the AI Broad Form. The claimant filed his action in 2009 revealing the unfinished negotiation.

17. Sub-Warranty • When the AKA Subcontractor Deductible or Deductible Endorsement becomes Mission Impossible. Generally, this endorsement is meant to have the insured warrant or make sure that the subcontractors they use have the necessary insurance coverage to indemnify the insured and add the insured as an additional insured with respect to liability arising out of the subcontractors acts or omissions or the acts or omissions of those acting on the subcontractor’s behalf. If the insured fails to do so they can be subject to a occurrence deductible. • Pending Issue (NY) - the insurer quoted on the above wording, but inserted their own version which included a requirement for coverage for the Named Insured’s independent negligence and a matching policy limit deductible should a subcontractor not obtain the coverage. Since this type of coverage, from a practical standpoint, is not available in the market, in the event of a loss the insured is subject to a policy limit deductible.

18. Occurrence vs. Wrongful Act • Mixing general liability and professional liability damages in a manuscript policy using occurrence trigger wording can be misunderstood. • Pending Claim (CA) – judgments arising out of wrongful arrests, imprisonment, and bodily injury are not well received by the reinsurer. As a consequence, there is a dispute concerning claims made concepts (wrongful acts) vs. occurrence wording in the policy to choose the date of loss .

19. Working Across Borders in EMEA • Insured’s German subsidiary completed a construction/maintenance contract in France and was asked at the end of the job to supply “garantiedecennale” coverage before they received remuneration for their work. • French mandatory law requires a specific 10 year guarantee certificate (“garantiedecennale”) prior to commencing with construction work. French insurers are reluctant to provide coverage to companies that do not have legal representation in France. The insured had another subsidiary in France and the underwriters considered a one-off exception.

20. Third Party Auto Liability Coverage in Australia • Insured was buying third party auto coverage under their global program including Australia. Local business unit felt cost was too high. • Investigation revealed there are statutory/schemes for Compulsory Third Party Liability coverage within each territory in Australia. The coverage is paid for when you register your vehicle and each territory administers their own programs. Buying primary third party coverage is duplicative.

21. Conclusion • Timely Notice is critical to trigger coverage. • No exceptions to late notice on claims made policies. • Applications are important. • Indemnification agreements may not cover AI’s sole or independent negligence. • Independent negligence indemnification agreements may not be enforceable in some states. • Broad form AI coverage is only as good as the contract or written agreement. • Certificates of Insurance do not extend coverage. • Policy provisions also apply to AI – “separation of insured's,” “cross liability endorsements,” “limits shared”, “other insurance,” “employee exclusions,” “conditions.” • AI triggers – “arising out of,” “caused by,” or “resulting from,” may or may not provide coverage to AI if AI is negligent. • Construction defect claims - “the CGL does not cover the accident of faulty workmanship, but rather faulty workmanship which causes an accident” (resulting damage). You need “property damage” and an “occurrence” to have coverage before you look at the exclusions. • Workers’ compensation is not always the sole remedy. • Manuscript polices provide broad and unique coverages, different than ISO forms. Intent may be left to interpretation when a claim occurs. • Different countries have different laws and rules that don’t always match global policy form. • Check the policy, make sure it’s what you negotiated!

22. Is the builder covered? Is there property damage? Is this faulty work?