A CERTIFICATE OF INSURANCE IS NOT INSURANCE COVERAGE

Posted on October 29, 2013November 8, 2024 by Edward Garber

Owners always want to see the certificate of insurance (“COI”) from the general contractor. The general contractor wants to see the COI from its subcontractors. Parties want to see the COI from an entity they are hiring to confirm they have applicable insurance (proof of insurance) and so that the COI identifies them as an additional insured. (Importantly, just because an entity is listed as a “certificate holder” on the COI does not make them an additional insured; it just means they are being provided proof of the insurance identified in the COI. This is not additional insured status!) Without seeing the actual policy, specifically with respect to a liability policy, it is uncertain (a) what that entity is actually covered for and (b) what entities would be covered as an additional insured under the liability policy.

The summary judgment opinion in Bluewater Builders, Inc. v. United Specialty Ins. Co., 2013 WL 5670957 (S.D.Fla. 2013), demonstrates that a COI is not all it is cracked up to be. In this case, a general contractor sued its subcontractor’s CGL carrier for indemnification. The general contractor did so after it obtained a judgment against the subcontractor for water damage arising from the subcontractor’s work at a commercial high-rise officer tower. (Under Florida Statute s. 627.4136, the general contractor could not sue the subcontractor without first obtaining a settlement or verdict against the subcontractor-insured.) The insurer moved for summary judgment because the insured-subcontractor’s policy provided on the Declarations page that the policy covered the subcontractor’s operations for the following classification: “carpentry-construction of residential property not exceeding three stories in height.” Buewater Builders, 2013 WL at *1. The Declarations page further provided that coverage was strictly limited to this classification and that no coverage would be provided for any other classification. The policy did not cover the subcontractor’s work at a commercial high-rise tower.

The general contractor argued that the insurer should be estopped from relying on the exclusionary language in the policy because it received a COI from the subcontractor and it detrimentally relied on this COI in hiring the subcontractor. Specifically, the general contractor relied on the doctrine of promissory estoppel which applies when a “plaintiff detrimentally relies upon a defendant’s promise, the defendant should have expected the promise to induce reliance, and injustice can only be avoided by enforcement of the promise.” Bluewater Builders, 2013 WL at *3. However, the general contractor could not point to any promise the insurer actually made because the insured-subcontractor was the one that transmitted the COI. And, the COI did not state that it would insure the subcontractor’s work for the project; it was simply evidence of insurance without any “promise.” In fact, the COI at-issue is believed to have not even listed the insurer as the liability insurer for the subcontractor. Thus, the Court granted summary judgment in favor of the insurer finding there was no coverage for the subcontractor’s work at the commercial high-rise under the policy.

It is important to remember that the COI does not create an obligation for an insurer. This is demonstrated by the following portion of the Court’s opinion:

The Certificate [of Insurance] does not suggest that Defendant [insurer] would insure Ferman [insured-subcontractor], nor does it create some other obligation on Defendant’s part. Further insight into the preparation of the Certificate [of Insurance] is therefore inapposite to whether Defendant owes any obligation to Ferman or Plaintiff [general contractor] under the Policy.”

Bluewater Builders, 2013 at *4.

Remember, the COI does not create insurance coverage which is why it is always beneficial to see the policy and, as it pertains to additional insured status, to see the actual additional insured endorsement.

For more information on a third party suing a liability carrier, please see https://floridaconstru.wpengine.com/a-third-party-suing-a-liability-carrier/

For more information on additional insured status, please see https://floridaconstru.wpengine.com/understanding-your-rights-as-an-additional-insured/

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

CGL POLICIES AND THE “YOUR PRODUCT” EXCLUSION

Posted on September 10, 2013November 8, 2024 by Edward Garber

Understanding exclusions in insurance policies is important to understand what is and what is not covered under the policy. The recent case of Liberty Mutual Fire Insurance Co. v. MI Windows & Doors, 38 Fla. L. Weekly, D1890a (Fla. 2nd DCA 2013), discusses the “your product” exclusion that is found in CGL policies.

In this case, MI is a manufacturer of sliding glass doors. It sold its doors to All Seasons which installed the sliding glass doors in condominium projects. In some of the condominiums, All Seasons manufactured and installed transoms along the top of the sliding glass doors. Condominium associations sued MI and All Seasons when the condominiums experienced damage from tropical storms and hurricanes. MI settled the lawsuits. It then sued its CGL carrier to recover consequential damages and for the costs of replacing defective sliding glass doors in the condominiums.
The CGL carrier argued at the trial level that the “your product” exclusion barred coverage for MI’s damages to its products, i.e., sliding glass doors. The trial court found that the “your product” exclusion did not apply to the doors with transoms because adding the transoms to the top of the sliding glass doors significantly changed the doors. Thus, the doors were no longer MI’s product.

The “your product” exclusion in MI’s CGL policy provided that the insurance did not apply to:

“Damage to Your Product. ‘Property Damage’ to ‘your product’ arising out of it or any part of it.”

On appeal, the Second District reversed finding that “[t]he addition of transoms to the sliding glass doors did not fundamentally change the nature and function of those doors.” MI Windows & Doors, supra. In other words, because the sliding glass doors continued to operate as sliding glass doors even with the addition of the transoms, the doors remained MI’s product. For this reason, the Second District held that the “your product” exclusion applied to bar damages to replace the doors.

In MI Windows & Doors, the Court found that if alchemy alters the original product, then the “your product” exclusion may not apply based on cases outside of Florida that discuss this exclusion. Importantly, however, the Court footnoted Auto-Owners Ins. Co. v. American Building Materials, Inc., 820 F.Supp.2d 1265, 1272 (M.D.Fla. 2011), where the Middle District of Florida also discussed this exclusion. The Middle District in this case maintained that drywall that was incorporated into a house was not barred by the “your product” exclusion based on the language of the exclusion because the drywall, once incorporated, became real property and the exclusion did not apply to real property. Because this case or issue was not framed on appeal in MI Windows & Doors, the Court did not apply this case to the facts.

The “your product” exclusion can be found in CGL policies to bar coverage. Understanding the exclusion as written in the policy (as well as other exclusions) is important so that coverage is understood before or when a dispute arises.

A THIRD PARTY SUING A LIABILITY CARRIER

Posted on July 17, 2013November 8, 2024 by Edward Garber

It is important to understand liability coverage, especially if you are a third party seeking liability coverage.

Florida Statute s. 627.4136 provides in material part:

“It shall be a condition precedent to the accrual or maintenance of a cause of action against a liability insurer by a person not an insured under the terms of the liability insurance contract that such person shall first obtain a settlement or verdict against a person who is an insured under the terms of such policy for a cause of action which is covered by the policy.”

Under this statute, a third party cannot sue a liability policy seeking a declaration that there is coverage for its claims without first obtaining a settlement or verdict against the insured of the liability policy. See Lantana Insur., Ltd. v. Thornton, 38 Fla. L. Weekly D1537a (Fla. 3d DCA 2013) (finding that trial court should have dismissed third party’s claim against liability policy where there had been no settlement or verdict against the insured and, thus, no compliance with Fla.Stat. s. 627.4136).

What if the third party is an additional insured under the primary insured’s liability policy? Section 627.4136 has also been referred as the non-joinder statute because even though an additional insured is technically an insured under the liability policy, a claim seeking coverage under the primary insured’s policy should either be stayed or severed from the third party’s claim against the primary insured. The reason is so the availability of insurance has no effect whatsoever on a jury’s determination of the primary insured’s liability and damage. See General Star Indemnity Co. v. Boran Craig Barber Engel Construction Co., Inc., 895 So.2d 1136 (Fla. 2d DCA 2005).

For example, in General Star Indemnity, a general contractor sued its fire sprinkler subcontractor for damages when the fire sprinkler ruptured. In the same lawsuit, the general contractor sued the subcontractor’s liability carrier for a declaratory judgment seeking coverage as an additional insured under the subcontractor’s policy. The insurer moved to sever and stay the claims against it which the trial court denied. On appeal through a petition for writ of certiorari, the Second District, relying on s. 627.4136, reversed the trial court holding that the general contractor’s claims against the subcontractor’s liability carrier should have been severed or stayed from the contractor’s action against its subcontractor.

Although an additional insured (e.g., general contractor) is an insured under a liability policy provided by the primary insured (e.g., subcontractor) and can sue the liability carrier (without first obtaining a settlement or verdict against the primary insured), it should not be able to do so in its action against the primary insured. It would be prejudicial to the primary insured and liability carrier because the jury would know about the availability of insurance. Notwithstanding, there is nothing that would prevent the additional insured from trying to file a separate declaratory action against the primary insured’s liability carrier and at least trying to consolidate the cases for purposes of discovery if the suits remain pending in the same court.

UNDERSTANDING AN INSURER’S SUBROGATION RIGHTS

Posted on May 30, 2013November 8, 2024 by Edward Garber

There are situations where an owner sues its property insurer (or builders risk insurer) in addition to suing its contractor or design professional for defects / damage. Sometimes, the owner’s lawsuit against its insurer is filed simultaneously with the lawsuit against its contractor and sometimes it is filed before or after it settles its dispute with its contractor. The contractor, if it knows the owner is suing its insurer, wants to ensure that once it settles with an owner, that the owner’s insurer will not pursue a subrogation claim against it. (In a subrogation claim, an insurer that pays its insured can stand in the shoes of the insured and sue third parties deemed liable for the claim.)

If a contractor settles with an owner and obtains a well-written release (that would release the contractor for all claims [known and unknown], damages, etc. arising out of or relating to the project and subject matter of the lawsuit/claim, etc.) the insurer will be precluded from asserting a subrogation claim against the contractor. The reason being is that the insured owner already released the contractor. See, e.g., Landmark American Ins. Co. v. Santa Rosa Beach Development Corp., 107 So.3d 1135 (Fla. 1st DCA 2012) (condominium development’s agreement with developer and contractor that was interpreted as containing release barred development’s insurer from seeking subrogation claim).
However, if the insurer is already suing the contractor in a subrogation claim or has perfected its rights, the contractor cannot try to settle with the owner and obtain a release thinking that the insurer’s claim would then be barred. The insurer cannot be prejudiced like this, especially if it already perfected its subrogation rights. For instance, in Twin City Fire Ins. Co. v. Jones, 918 So.2d 403 (Fla. 5th DCA 2006), an insurer paid an insured’s claim and then sued the defendants in a subrogation claim. The insured also filed a separate lawsuit against the defendants. The insured settled with the defendants and released the defendants. The defendants used the release to argue that the insurer should be barred from its subrogation claim. The Fifth District held that “a settlement executed by the insured cannot act as a bar to an action for subrogation by the insurer against a third party tortfeasor if, prior to the settlement, the tortfeasor learns of the insurer’s perfected subrogation rights. Twin City Fire Ins. Co., 918 So.2d at 404 quoting Lincoln Nat’l Health & Cas. Ins. Co. v. Mitsubishi Motor Sales of Am., Inc., 666 So.2d 159, 163 (Fla. 5th DCA 1995).

Understanding an insurer’s subrogation rights is important in construction. Oftentimes, there are waiver of subrogation rights that are set forth in contracts. Sometimes, these provisions are either stricken or the contract does not contain a waiver of subrogation. It is important to consider subrogation as a contractor if you have knowledge that the party suing you is also suing an insurer and/or you are being sued by an insurer in a subrogation claim (or the insurer has taken steps to perfect subrogation rights) so that you know your rights and options as the dispute progresses to settlement.

UNDERSTANDING YOUR RIGHTS AS AN ADDITIONAL INSURED

Posted on March 9, 2013November 8, 2024 by Edward Garber

Being an additional insured is a topic discussed, and it absolutely should be, in the negotiation of construction contracts. It is an important part of risk management in construction. An owner wants its contractor and consultants to name it as an additional insured under their liability policies. A contractor, likewise, wants its subcontractors, etc. to name it as an additional insured under their liability policies.

Let’s say a general contractor wants its window/glazing subcontractor to name it as an additional insured under the subcontractor’s commercial general liability (CGL) policy. The window subcontractor would be the primary or named insured under its CGL policy. The general contractor, smartly, wants the window subcontractor’s CGL policy to have an endorsement that identifies the general contractor as an additional insured under that policy (ideally, for both ongoing and completed operations). By adding the general contractor as an additional insured, the window subcontractor is protecting / providing coverage to the general contractor for the window subcontractor’s negligence. It is not designed to protect the general contractor for its negligence — so the general contractor will still need its own liability insurance; rather, it is again designed to provide coverage to the general contractor for the window subcontractor’s negligence.

Let’s also say that during the subcontractor’s operations or after, an incorrectly installed window simply fell and caused an injury to a person or damage to property other than the window. (Yes, an extreme example!) As a result of the injury / damage, both the general contractor and the window subcontractor get sued. The general contractor will seek indemnification from the window subcontractor and the subcontractor’s CGL policy as an additional insured under the subcontractor’s policy. The reason being is that the general contractor wants to be indemnified by the subcontractor and have the subcontractor’s insurer provide it a defense and coverage because the window fell out due to the subcontractor’s negligence.

In this situation, either the window subcontractor’s CGL insurer should provide (pay for) a defense for both the window subcontractor (named insured) and the general contractor (additional insured) subject to the insurer’s reservation of rights. This can be done by the insurer retaining counsel for both the named insured or additional insured or, which may be the case in a multi-party litigation such as a multi-party construction defect case, contributing to the general contractor’s defense.

Importantly, in the recent decision of University of Miami v. Great American Insurance Co., 38 Fla. Law Weekly D392a (Fla. 3d DCA 2013), the Third District maintained that where both the named insured and additional insured have been sued in negligence with allegations that both caused the injury / damage to the plaintiff, the insurer (for the named insurer) is required to provide separate defense counsel for each in order to avoid conflicts of interest with one defense counsel. This is done to ensure that the additional insured has independent counsel to represent its interests.

Understanding rights of an additional insured is a must for any construction project in order to maximize insurance coverage and indemnification rights.

CGL POLICIES AND THE IMPORTANCE OF COUCHING THE CLAIM TO THE INSURER

Posted on August 24, 2011November 8, 2024 by Edward Garber

Contractors and subcontractors that work on construction projects should, and generally do, maintain commercial general liability policies (“CGL Policies”). Owners absolutely want their contractor and the subcontractors to be sufficiently insured in the event a claim is made either against them or damages or defects occur to their project. Likewise, the contractor wants its subcontractors to be sufficiently insured for the same reasons. Contractors and subcontractors, jointly, want CGL Policies so that if a claim is made or they are sued the insurer defends their interests and, hopefully, pays insurance proceeds to resolve the claim.

Insurers, however, are not always keen on paying claims and rely on various exclusions in policies that are applicable to the circumstances of the claim. In other words, if there is no coverage for the claim based on an exclusion, the insurer will appropriately rely on an exclusion in the CGL policy. As it pertains to CGL Policies, there are two important exclusions insurers rely on when a claim is asserted against a contractor or subcontractor for construction defects. These exclusions are known as the j(5) and J(6) exclusions and exclude damage to:

j(5) That particular part of real property on which you…are performing operations, if the property damage arises out of those operations; or

j(6) That particular part of any property that must be restored, repaired or replaced because your work was incorrectly performed on it.

A contractor or subcontractor that reviews their CGL Policies will find the j(5) and j(6) exclusions to be substantially similar to the above. While contractors typically do not self-perform work, subcontractors typically do self-perform all or a substantial part of the work.

A recent case, Wilshire Insurance Co. v. Birch Crest Apartments, Inc., 2011 WL 3586228 (4th DCA 2011), bolsters insurers’ arguments to exclude coverage under a self-performing subcontractor’s CGL Policy under the (j)5 and j(6) exclusions. In this case, a painter performing work on an apartment project spattered paint on glass doors and windows. The painter tried to remove the paint spatter, and in the process of doing so, damaged the glass doors and windows. The owner sued the painter and the painter consented to a judgment and assigned its rights under its CGL Policy to the owner. This allowed the owner to sue the insurer directly and assert certain claims against it.

The issue in this case was whether the painter’s damage to the glass windows and doors were covered under the policy, or, conversely, whether coverage was excluded pursuant to the j(5) and j(6) exclusions under the policy. The Fourth District Court of Appeal held that these exclusions barred coverage for all of the owner’s damages:

“[T]he record here shows that cleaning paint spatter from windows and doors was within the natural and intended scope of work undertaken by the contractor as part of the painting operations on Birch’s [owner] property if in fact such paint spatter occurred.

***

[T]he scope of the contractor’s operations were intended to include the apartments which were being painted and would, if required, involve cleaning up surfaces which were spattered with paint. There is no genuine issue of material fact that the property damage in this case was to the apartment upon which H&H [painter] was performing its operations, and that it arose out of the insured’s operations within the meaning of (j)5. Additionally, there is no genuine issue of material fact that the underlying claim resulted from the insured’s incorrect work on the glass doors and windows of the apartments within the meaning of exclusion j(6).

Wilshire Insurance Company, 2011 WL at *2.

In this case, it appears that the owner hired the painter directly and that the painter self-performed the work. This is noteworthy because had the owner hired the general contractor and the general contractor hired the painter, or had the painter hired sub-subcontractors to perform all of its work, there could have been certain arguments raised to maximize insurance coverage. These arguments, however, will not be discussed in this specific post. What is also noteworthy is that the Fourth District focused on what fell within the “natural and intended scope of work” of the self-performing painter. Since the damage or activity of cleaning up paint on glass fell within the natural and intended scope of the painter’s work, the Fourth District found that the painter essentially damaged property it was performing work on (the j(5) exclusion) and, thus, required repairs to the painter’s own work (the j(6) exclusion).

It is imperative that when an owner, etc. submits a claim to a contractor or subcontractor’s CGL Policy, the owner consults with a lawyer in furtherance of couching the claim to optimize insurance recovery. Furthermore, and equally important, when a contractor or subcontractor receives a claim, especially a claim for defects or damage, that they too should consult with a lawyer to best present the claim to optimize the insurer protecting their interests and paying proceeds to resolve the claim.

COMPLYING WITH POST-LOSS POLICY CONDITIONS UNDER AN INSURANCE POLICY

Posted on June 16, 2011November 8, 2024 by Edward Garber

Insurance policies, particularly property insurance policies, contain post-loss obligations (that serve as conditions precedent to payment). This essentially means that when an insured submits a claim to an insurer, an insurer can demand obligations from the insured, and the insured is required to comply with these obligations. These obligations could be requiring the insured to submit a sworn proof of loss, allowing the insurer to inspect the damaged property, submitting all applicable documentation to the insurer, and allowing the insurer to take an examination under oath of the insured. An examination under oath is simply a pre-suit deposition where the insured answers the insurer’s questions under oath about the insurance claim with a court reporter memorializing the questions and answers. While these post-loss obligations can pose an inconvenience to the insured, they are obligations under the policy (the insurance contract) and refusing to comply with these obligations will allow the insurer to easily argue that the insured forfeited insurance coverage. Thus, an insured could be in a position where they are denied coverage for failure to comply with post-loss obligations in an insurance policy when, had they complied, there would have been coverage and payment.

To briefly illustrate, recently, in Edwards v. State Farm Florida Insurance Company, 37 Fla. L. Weekly D1269a (Fla. 3d DCA 2011), a homeowner, through a public adjuster, submitted a claim to its property insurer for reimbursement for the costs to fix roof damage from a hurricane. The insurer made numerous efforts to obtain documentation of expenses that the homeowner incurred to fix the roof, but was never provided this documentation. The insurer also scheduled an examination under oath of the insured, which was cancelled prior to the scheduled date. The insured providing documentation to reflect the amount of the claim and submitting to an examination under oath were post-loss conditions in the insurance policy. Because the insured did not comply with these policy conditions, the Third District Court of Appeal held that the insured forfeited coverage: “Failure to comply with a condition precedent to payment relieves the insurer of its duty to make payment.” See Edwards.

Accordingly, an insured that submits a property insurance claim (or any insurance claim, for that matter) should ensure they are complying with post-loss policy conditions that are being requested by the insurer.