Update: Construction Claims
Recent case law out of California and New York illustrates the intricacies of how deductibles and excess insurance works in connection with construction-related claims. The below analysis explains some unusual provisions in insurance contracts and how they could help, or hurt, your company.
- Deductibles and the number of occurrences; don’t assume every underlying claim counts. In the case below, although there were 636 separate claims, the subcontractor was only required to pay the deductible of three ‘claims’ associated with three separate lawsuits.
- Primary v. Excess Coverage:
a. The wording can make all the difference. In the second case below a single word, ‘any’, precluded coverage on the excess policy but enforced coverage on the primary.
b. Remember, your own insurance may be excess to that of your subcontractor. In the third case below, the ‘Contractors Extension Endorsement’ in the sub-contractor’s liability policy extended coverage to the GC.
DEDUCTIBLES AND THE NUMBER OF OCCURRENCES; DON’T ASSUME EVERY UNDERLYING CLAIM COUNTS
In ProBuilders Specialty Ins. Co., RRG v. Yarbrough Plastering, Inc., 2018 U.S. App. LEXIS 17226 (9th Cir. June 25, 2018) (California law), a case involving the construction defect claims of 636 homeowners, the Court held that the stucco and drywall contractor only had to pay three deductibles before recovering under its liability insurance, not a separate deductible for each of the 636 underlying claims, because the contractor got involved only after the developer was sued in three separate lawsuits on behalf of the 636 homeowners and then asserted three separate cross-claims against the contractor.
PRIMARY V. EXCESS COVERAGE
The Wording Can Make All The Difference
J.T. Magen & Co., Inc. v. Atlantic Cas. Ins. Co., 2018 N.Y. Misc. LEXIS 2985 (N.Y. Supr. Ct. July 10, 2018) (New York law) involved construction defect claims in connection with the construction and/or renovation of a residential building on Central Park South in Manhattan. After holding that a sub-contractor’s unsigned purchase order did not negate the general contractor’s additional insured status under that sub-contractor’s insurance (despite the policy’s written contract requirement), the Court ruled that an issue of fact existed as to whether the subcontractor’s primary insurance applied to cover the general contractor, but that, as a matter of law, the sub-contractor’s excess insurance did not. Both the sub-contractor’s primary and excess insurance policies contained an exclusion for residential construction or renovation projects. However, only the excess policy’s exclusion used the word “any” eliminating any doubt as to its application.
Remember, Your Own Insurance May Be Excess To That Of Your Subcontractor
In Tricon Constr., LLC v. Main St. Am. Assur., 2018 N.Y. Misc. LEXIS 3175 (N.Y. Supr. Ct. July 23, 2018) (New York law), a case involving injuries to a worker when he received an electric shock and fell from scaffolding, the Court held that a sub-contractor’s insurer was obligated to step up and defend and indemnify the general contractor as its primary insurer, based on the wording of (1) the “Other Insurance” clause contained in the general contractor’s liability insurance policy and (2) a “Contractors Extension Endorsement” contained in the liability insurance policy of the subcontractor. The general contractor’s own insurance was deemed excess.