SPECIFIED OR DESIGNATED OPERATIONS ENDORSEMENT – LIMITATION OF INSURANCE COVERAGE

Posted on June 16, 2024June 16, 2024 by David Adelstein

Your commercial general liability (CGL) policy may contain a specified or designated operations endorsement. This does not operate as an exclusion but as a LIMITATION of coverage. The endorsement may provide that bodily injury or property damage ONLY applies to the operations or business described therein. Similarly, there may be a limitation of coverage for designated classifications or codes which has the same effect—limiting coverage to the classifications/codes listed therein. This is an important consideration, and you need to understand and watch out for such limitations of coverage. (These aren’t the only ones, but it’s important to appreciate that limitations of coverage operate to limit the coverage to which the CGL policy applies.)

The Eleventh Circuit Court of Appeal dealt with this exact issue under Alabama law (although the same analysis would apply in numerous jurisdictions). In this case, a landscaper (the insured) had a CGL policy with a specified operations endorsement that limited coverage to landscaping operations. The landscaper was hired to install an in-ground trampoline in addition to site and landscaping operations at a house. A person got hurt using the trampoline and the landscaper was sued. The CGL insurer denied coverage outright (and, thus, any duty to defend) because the complaint asserted that the injury occurred from the landscaper’s assembly and installation of the trampoline, which was not a landscaping operation. Furthermore, the Eleventh Circuit noted that the landscaper’s insurance application specified that the landscaper did not perform any recreational or playground equipment erection or construction, and the installation and assembly of a trampoline would constitute recreational or playground equipment.

Here’s the Eleventh Circuit’s noteworthy discussion on this limitation of coverage:

While the distinction between limits to coverage and exclusions from coverage may be murky in some cases, the policy here makes clear that the Specified Operations provision is a limit — not an exclusion.

To begin with, the Policy’s “Schedule of Forms and Endorsements” describes 27 different “exclusions” — and “Specified Operations” is not one of them. “Specified Operations” is instead described as a “Limitation of Coverage.”

But we need not rest on the policy’s description of the Specified Operations provision, because the operation of the policy confirms its status. Commercial general liability policies generally “give[ ] coverage through the general coverage provision, and ‘take[ ] away‘ coverage through the various exclusions.” Recall, the general coverage provision provides that

[United] will pay those sums that the insured becomes legally obligated to pay as damages because of “bodily injury” or “property damage” to which this insurance applies. [United] will have the right and duty to defend the insured against any “suit” seeking those damages. However, [United] will have no duty to defend the insured against any “suit” seeking damages for “bodily injury” or “property damage” to which this insurance does not apply.

By those terms, the policy sets out an (albeit not-totally-fleshed-out) limit to coverage. However, this initial explanation does not provide the full scope of coverage because it very broadly tells us only that the insurer will pay damages “to which this insurance applies” but not for any suit “to which this insurance does not apply.” From there, the Specified Operations provision fills in the details by adding, to that same section, the following:

1. 1. 1. This insurance applies to “bodily injury” and “property damage” only if:

(4) The “bodily injury” or “property damage” arises from one or more of the operations shown above; and [i]f also scheduled above[.]”

What “operations are shown” and “scheduled above”? The policy states simply that “[the] Insured performs landscaping.” In short, the Specified Operations provision (fitting into the gap left by the general coverage provision) describes the contours or boundaries of coverage — it does not purport to take away coverage already granted.

Thus, the Specified Operations provision is a limitation of coverage — not an exclusion….

***

The parties expend significant energy parsing the words of the policy, including whether the site work necessary to install the trampoline was “landscaping” and whether the trampoline injury “arises from” that work. We conclude we need not resolve those issues here. Even taking the term “landscaping” as ambiguous, construing it in [landscaper’s] favor, and applying Alabama law’s broad understanding of the causal term “arises out of,” Snell’s claim still fails. As the district court explained, under Alabama law, “[e]very insurance contract shall be construed . . . as . . . modified by any . . . application which is a part of the policy.” And the district court’s analysis of [landscaper’s] application under that statute was correct:

[Landscaper] was asked in the application whether his work included “any recreational or playground equipment construction or erection” and Snell answered “No.” It is undisputed that the trampoline is “recreational equipment.” If [landscaper] had answered “Yes” to that question or if he had informed United Specialty at some time later that his operations were going to include structural work for recreational equipment and the installation of recreational equipment, then United Specialty could have added that coverage and made any appropriate adjustments to [landscaper’s] rate.

Accordingly, the information [landscaper] provided in his insurance application conclusively shows he is not entitled to coverage.

***

Taking the application as part of the policy itself, we agree with the district court that [landscaper] expressly disclaimed doing any of the sort of work he did here — including the site work necessary to install the trampoline that he now claims is “landscaping” out of which the underlying injury “arises.”

In sum, the district court correctly held that [landscaper’s] insurance application — which Alabama law requires us to consider part of the policy — expressly disclaims the work he did here. Accordingly, we affirm the grant of summary judgment on [landscaper’s] duty-to-defend claim against United.

Snell v. United Specialty Ins. Co., 30 Fla.L.Weekly C1008a (11^th Cir. 2024) (internal citations omitted).

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.

PROFESSIONAL SERVICES EXCLUSION IN CGL POLICIES

Posted on November 12, 2022November 12, 2022 by Edward Garber

A professional services exclusion in a commercial general liability policy means something. It’s an exclusion an insurer will rely on to avoid insurance coverage based on “professional services” performed or rendered by the insured. Don’t take it from me. Take it from the recent opinion in Colony Insurance Company v. Coastal Construction Management, LLC, 2022 WL 16636697 (M.D.Fla. 2022) where the trial court granted a commercial general liability insurer’s motion for judgment on the pleadings based on the professional services exclusion.

Here, an owner sued, among other parties, an entity performing only construction management services based on construction defects at its project. The construction manager did not perform any design or physical construction. It was hired to make site inspections of the construction, review construction quality and finish standards, ensure workmanship quality, coordinate the punchlist process, and supervise management and administration of the project.

The construction manager’s commercial general liability insurer sued for declaratory relief claiming it owed no duty to defend or indemnify based on the professional services exclusion.

The professional services exclusion stated that the commercial general liability insurance did not apply to property damages:

[A]rising out of the rendering or failure to render any professional service. This includes but is not limited to:

(3) inspection, supervision, quality control, architectural or engineering activities done by or for you on a project on which you serve as a construction manager;

(4) engineering services, including related supervisory or inspection services.”

Colony Insurance, supra, at *3.

While the words “professional” or “professional services” were not a defined term in the policy, the court found they do have commonly understood meanings: “professional services are those that require a high degree of training or proficiency or involve specialized knowledge, skill, or labor that is primarily mental rather than physical.” Colony Insurance, supra, at *3. (Just because a word or term is not defined in the policy does not make the word or term ambiguous. Id.)

The court found that the professional services exclusion applies to bar coverage. This means the construction manager’s commercial general liability insurer owed no duty to defend the construction manager in the underlying case and no duty to indemnify the construction manager for damages.

As a matter of common sense, the management, supervision, and quality control activities alleged in the complaint in the context of a construction project of the size and scope alleged are not activities a layperson could take. Therefore, reading the exclusion in context and from the perspective of an ordinary person, the Court has no difficulty concluding without extensive analysis that these duties and tasks by their nature require specialized skill, training, and/or experience. As such, the only reasonable conclusion is that the [owner’s underlying] claims against [the construction manager] fall within the [professional services exclusion].

***

Finally, paragraph (3) [in the exclusion above], if anything, supports the application of the exclusion here because ‘inspection, supervision [and] quality control’ are precisely the types of activities [owner’s] complaint alleges [the construction manager] undertook to perform. The fact that those activities are listed in the exclusion are linked to [the construction manager] acting as ‘construction manager’ does not mean that the activities themselves would change their character if [construction manager] where somehow acting solely as a “construction consultant’ or an ‘owner’s representative.’ In any event, the nature of the activities themselves controls, and the activities alleged in the complaint plainly required specialized training and experience.

Colony Insurance, supra, at *4 (internal citations omitted).

QUICK NOTE: TYPES OF INSURANCE FOR CONSTRUCTION PROJECTS

Posted on January 2, 2022January 2, 2022 by Edward Garber

I did a presentation on types of insurance for construction projects outside of builder’s risk insurance. The presentation briefly discussed insurance beyond commercial general liability, commercial automobile liability, and workers compensation and employer’s liability insurance.

There are many other insurance products that are relied on and needed to cover the MANY risks that contractors face when dealing with a construction project. Insurance is a major part of construction to cover risk and making sure you have the RIGHT insurance to cover the risks you face on a construction project cannot be understated.

When drafting and negotiating a construction contract, it is important to spend time on the insurance requirements including consulting with your insurance broker and lawyer to make sure the right language is included and/or you have the requested insurance.

[gview file=”https://floridaconstru.wpengine.com/wp-content/uploads/2022/01/Interplay-Among-BR-CGL-and-Wrap-Up.pptx”]

DETERMINING OCCURRENCE FOR INJURY UNDER COMMERCIAL GENERAL LIABILITY POLICY WITHOUT APPLYING “TRIGGER THEORY”

Posted on June 26, 2021June 26, 2021 by Edward Garber

Oftentimes an occurrence in a commercial general liability policy is defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” It is this occurrence that causes the bodily injury or property damage that may be covered by the policy.

An interesting non-construction case determined an occurrence under a commercial general liability policy occurred when the negligent act occurred irrespective of the date of discovery or the date the claim was discovered or asserted. See Certain Underwriters at Lloyd’s, London Subscribing to Policy No. J046137 v. Pierson, 46 Fla.L.Weekly D1288c (Fla. 4^thDCA 2021). This is interesting because the appellate court did NOT apply a “trigger theory” to first determine the occurrence’s policy period. The appellate court found it did not need to determine which “trigger theory” applied to determine the occurrence for the injury and relied on a cited case: “trigger theories are generally used in the context of deciding when damage occurred ‘in cases involving progressive damages, such as latent defects, toxic spills, and asbestosis’ because the time between the ‘injury-causing event (such as defective construction, a fuel leak, or exposure to asbestos), the injury itself, and the injury’s discovery or manifestation can be so far apart.” Pierson, supra, citing and quoting Spartan Petroleum Co. v. Federated Mut. Ins. Co., 162 F.3d 805, 808 (4^th Cir. 1998).

In Pierson, police officers were found civilly liable for civil rights violations that occurred twenty-years earlier when the officers physically and verbally forced a 15-year old boy to confess to a crime. Many years later, DNA evidence proved the boy did not commit the crime he was forced to confess and was incarcerated for. The officers sued the police department’s commercial general liability policy for failing to indemnify them in the civil lawsuit. The policy, however, was NOT in effect twenty years earlier when the officers verbally and physically forced the confession. “Since it is undisputed that the Officers’ misconduct occurred twenty years prior to the execution of the policies, there can be no duty to indemnify in this case…. [T]he fact that [the boy] suffered the consequences of the Officers’ wrongful conduct throughout his incarceration, including while the subject policies were in effect, is irrelevant for purposes of determining whether the Insurer has a duty to indemnify. Likewise, the fact that [the boy] was exonerated while the 2009 policy was in effect is of no consequence.” Pierson, supra.

What does this holding mean? It could likely mean outside of a latent defect scenario or a pollution liability issue–or property damage scenario–a “trigger theory” to determine when an occurrence occurred or is triggered is not applicable. An occurrence will be deemed to occur when the accident causing the injury occurred, as defined by the policy.

KNOW THY INSURANCE COVERAGE

Posted on May 23, 2020May 24, 2020 by Edward Garber

If you are involved in construction, insurance is vital. There are too many risks and you want to make sure you have insurance to cover many of those risks. Commercial general liability insurance (CGL) is an insurance product most contractors maintain and need to maintain. However, not all policies are the same by virtue of the endorsements issued with the policies that restrict coverage. It is important that you know what coverage you have and that you are not working on projects where you have no coverage. That would be a mistake for both you and the party that hired you.

You may think you have coverage only to find out that you do not, which seems to be the case in South Winds Construction Corp. v., Preferred Contractors Ins. Co. Risk Retention Group, 2020 WL 2463778 (Fla. 3d DCA 2020). In this case, a contractor was sued for water damage on the 6^ththrough 11^th floors caused to a condominium project. The contractor’s insurer denied coverage and, thus, its duty to defend the insured in the lawsuit, because the policy had an exclusion that precluded coverage for buildings and structures exceeding three stories. Essentially, this is a type of condominium exclusion where the policy does not apply to high-rise projects.

While an insurer’s duty to defend its insured in an underlying lawsuit is broader than its duty to indemnify its insured, here, the claim fell clearly and squarely within a policy exclusion. It was an easy coverage denial from the get-go. Southwinds Construction Corp., supra, at *1. (“This placed the claim squarely and unambiguously within the exclusion from coverage applicable to work in buildings above three stories in height.”)

It is possible the contractor was performing and had performed many condominium projects or projects exceeding three stories in height. All the while the contractor had no coverage as long as it was performing work with a policy that had this exclusion. Not only does this harm the contractor, but it also harms the owner that was relying on insurance coverage in the event of property damage caused by the contractor. This does not mean the contractor is not liable. It just means it has no insurance coverage!

INSURER’S DUTY TO INDEMNIFY NOT RIPE UNTIL UNDERLYING LAWSUIT AGAINST INSURED RESOLVED

Posted on November 3, 2019November 3, 2019 by Edward Garber

A liability insurer has two duties: 1) the duty to defend its insured; and 2) the duty to indemnify its insured.

With respect to the second duty – the duty to indemnify – this duty is typically “not ripe for adjudication unless and until the insured or putative insured has been held liable in the underlying action.” Hartford Fire Ins Co. v. Beazer Homes, LLC, 2019 WL 5596237, *2 (M.D.Fla. 2019) (internal quotation omitted).

For instance, Beazer Homes involved an insurance coverage dispute stemming from construction defects. An owner sued its general contractor for construction defects relating to stucco problems. The general contractor paid for the repairs. The general contractor then sued its stucco subcontractor to recover the costs it incurred. The subcontractor tendered the defense of the lawsuit to its commercial general liability insurer which is defending its insured-subcontractor under the commonly issued reservation of rights.

During the pendency of the general contractor’s lawsuit against its subcontractor, the subcontractor’s commercial general liability insured filed an action for declaratory relief in federal court seeking a declaration as to whether it owes its subcontractor a duty to indemnify. The issue was whether this action for declaratory relief was ripe since there was no adjudication against the insured-subcontractor in the general contractor’s lawsuit against the subcontractor. The Middle District Court of Florida held that it was not ripe: “The Eleventh Circuit agreed that an insurer’s duty to indemnify is not ripe until the underlying lawsuit is resolved.” Beazer Homes, 2019 WL at *2 (internal quotation omitted)

CONTRACTORS: CONSULT YOUR INSURANCE BROKER REGARDING YOUR CGL POLICY

Posted on February 10, 2018February 10, 2018 by Edward Garber

Contractors: do yourself a favor and consult your insurance broker regarding your commercial general liability (CGL) policy. Do this now, especially if you subcontract out work.

CGL policies contain a “your work” exclusion. The CGL policy is written such that it excludes “‘property damage’ to ‘your work’ arising out of it or any part of it and included in the ‘products-completed operations hazard.’” This exclusion will be raised in the post-completion latent construction defect scenario. (There are other exclusions that will be raised to a defect discovered during construction.) Certain policies will contain a subcontractor exception to this “your work” exclusion. You WANT this exception- no doubt about it so that this exclusion does not apply to work performed by your subcontractors. Without this subcontractor exception, truth be told, this “your work” exclusion is a total back-breaker to contractors. It will give your insurer an immediate out for many latent defect property scenarios since excluded from coverage is property damage to your work including work performed by your subcontractors.

In a recent opinion, Mid-Continent Casualty Co. v. JWN Construction, Inc., 2018 WL 783102 (S.D.Fla. 2018), an owner discovered water intrusion and damage at his property. He sued the general contractor and the general contractor’s insurer filed a separate action for declaratory relief claiming it had NO duty to defend or indemnify its insured—the general contractor—in the underlying suit. The court agreed because the contractor did not have the subcontractor exception to the “your work” exclusion.

If work was performed by JWN [contractor] or on JWN’s behalf-here by a subcontractor-then the “your work” exclusion applies. Historically, insurers could be liable under commercial general liabilities policies resembling the policy in the instant case for certain types of damages caused by subcontractors….Nonetheless, insurers do possess the right to define their coverage as excluding damages arising out of a subcontractor’s defective work by eliminating subcontractor’s exceptions from the policy. An insurer is only liable for a subcontractor’s defective work when the “your work” exclusion does not eliminate coverage for work performed by a subcontractor….In conclusion, the insurance policy in this case excluded coverage for work performed not only by JWN, but also by JWN’s subcontractors.

JWN Construction, Inc., supra, at *4.

This ruling meant that the general contractor’s CGL insurer had no duty to defend or indemnify its insured—again, the contractor—for the defects or resulting water damage. A total killer illustrating the absolute importance of the subcontractor exception to the “your work” exclusion in your CGL policy.

GOOD OLE DUTY TO DEFEND

Posted on July 30, 2017July 30, 2017 by Edward Garber

The good ole duty to defend. Certainly, a duty that should not be overlooked.

A commercial general liability insurer has two duties to its insured when it comes to third-party claims: 1) the duty to defend its insured and 2) the duty to indemnify its insured.

The insurer’s duty to defend its insured will always be broader than its duty to indemnify because this duty is triggered by the allegations in the lawsuit. (For this precise reason, insurers will oftentimes defend their insured under a reservation of rights.) The duty to defend is a very important duty as it is the first duty that typically comes into play when a third-party claim / action is initiated against the insured. Getting the insurer on board to provide a defense is an initial focus. One that cannot be neglected or overlooked.

If an insurer denies or refuses to defend its insured, this means the insurer is denying coverage outright. In other words, the insurer is coming out of the gate denying the duty to indemnify the insured and, as such, denying the duty to defend. There is no reservation of rights because the insurer is not going to provide a defense based on its denial of coverage. When this happens, it is imperative that the insured consult with counsel. Not later or tomorrow or down the road. But, now! Immediately. At a minimum, an insured wants to ensure that its insurer is picking-up the broader duty to defend and needs to make sure its rights are protected and preserved.

In Mid-Continent Casualty Company v. Flora-Tech PlantScapes, Inc., 42 Fla. L. Weekly D1649a (Fla. 3d DCA 2017), a general contractor initiated a third-party claim against a landscaper in a personal injury action. (It is uncertain whether the landscaper was hired by the general contractor or the developer.) The landscaper’s commercial general liability insurer denied coverage and, therefore, refused to defend the insured in the lawsuit. As a result, the landscaper initiated a fourth-party claim against its own insurer for coverage seeking a declaration that its insurer had a duty to defend it in the lawsuit and indemnify it for the third-party claims being asserted against it. Both the landscaper and its insurer filed motions for summary judgment and the trial court declared that the insurer had a duty to defend its insured, but that it was not making a determination as to the insurer’s duty to indemnify. From the insured-landscaper’s standpoint, this likely was fine because the landscaper was initially looking for a declaration that its insurer had a duty to provide it a defense in the personal injury action.

ADDITIONAL INSURED OBLIGATIONS AND THE UNDERLYING LAWSUIT

Posted on October 2, 2016November 8, 2024 by Edward Garber

As a general contractor, you understand the importance of being named an additional insured under your subcontractors’ commercial general liability (CGL) policies. Not only do you want your subcontract to express that a subcontractor’s CGL policy is primary and noncontributory to your policy, but you want it to express that the subcontractor must identify you as an additional insured for ongoing and completed operations. Even with this language, you want the subcontractor to provide you with their additional insured endorsement and, preferably, a primary and noncontributory endorsement. These additional insured obligations are important to any general contractor that has been sued in a construction defect / property damage lawsuit.

In the recent decision in Core Construction Services Southeast, Inc. v. Crum & Forster Ins. Co., 2016 WL 5403578 (11^th Cir. 2016), a general contractor built a residential development. The general contractor required its roofing subcontractor to identify it as an additional insured under the roofer’s CGL policy. The general contractor was sued with the lawsuit asserting that the roofs were installed incorrectly. The general contractor tendered the defense of the claim to the roofer’s CGL insurer and the insurer refused to provide the defense because there was no “property damage” within the definition of the CGL policy (“physical injury to tangible property…”). The general contractor then filed a lawsuit against the subcontractor’s insurer arguing that the insurer was obligated to defend and indemnify it since the general contractor was an additional insured under the subcontractor’s CGL policy. The trial court, and as affirmed by the Eleventh Circuit Court of Appeal, held that the insurer owed no duty to defend or indemnity the general contractor because there was NO asserted property damage within the meaning of the policy. If there was no property damage then there was no obligation for the roofing subcontractor’s insurer to defend the general contractor as an additional insured under the subcontractor’s CGL policy.

The underlying lawsuit only claimed that the roofs had been damaged but did NOT claim that the defective roofs had caused damage to other property (other components of the building). The omission of this assertion was important because the complaint was not pled to trigger insurance duties, such as additional insured obligations, since the cost to repair or replace the damaged roof would not be covered by the subcontractor’s CGL insurer. Rather, costs to replace or repair damage caused by the subcontractor’s defective roofing installation would be covered; however, such damage was not pled in the underlying complaint. Remember, the insurer’s duty to defend is only triggered based on allegations in the underlying complaint so without such allegations, there is no duty.

CONSTRUCTION DEFECT INDEMNITY OBLIGATIONS – COVERED VS. NON-COVERED CGL CLAIMS

Posted on August 28, 2016August 28, 2016 by Edward Garber

If you are a contractor or subcontractor and a construction defect claim is asserted against you, then you have tendered such claim to your commercial general liability (CGL) insurer. No doubt about it. In doing so, you have wondered whether your CGL insurer will indemnify you for the damages asserted against you by the third-party. You have wondered whether the damages asserted against you are covered by your CGL policy. If you have not wondered and asked these questions, then you should! Below is a portion of a presentation I recently put on regarding construction defect indemnity obligations under CGL policies and, particularly, covered claims versus non-covered claims.

[gview file=”https://floridaconstru.wpengine.com/wp-content/uploads/2016/08/FINAL-Covered-vs-Not-Covered-Power-Point.pdf”]