United States: Dramatic Changes On The Horizon For CGL Coverage Law

Originally published by Risk Management magazine (November 1, 2013)

Recent changes in national case law suggest that a major shift is under way for CGL coverage of property damage to an insured contractor's own work. Contractors of all tiers, property and project owners and developers, risk managers, and concerned others should watch this development closely.

For many years, perhaps as many as 50% of the U.S. jurisdictions that considered the point completely barred CGL coverage for property damage to an insured contractor's own work under one theory or another, such as by holding that defective construction cannot satisfy the "occurrence," "property damage" or "legally obligated" requirements in the CGL policy insuring agreement. Courts and commentators sometimes lump these theories together under the banner of "business risk doctrine," as they are motivated by the underlying and mistaken belief that to allow such coverage would encourage negligent construction practices. (Of course, this begs the question, "Why are lawyers, doctors and design professionals deemed trustworthy of insurance for their mistakes, while contractors are not?" There's a musty whiff of old school class prejudice in the air here.)

That position starkly contradicted the ISO policy drafters' original intent for the modern CGL and the policy language, which carefully delineates between many such business risks that the drafters intended to insure and those they deemed uninsurable, usually because of moral hazard. Originally, this partial—but very substantial—coverage for property damage to the policyholder's own work was known as "broad form coverage," as it was first available by an endorsement of that name. Since 1985, that coverage was drafted into the body of the standard CGL forms, but the name for this aspect of CGL coverage lingers on. An example of this coverage is the current "your work Exclusion, exclusion l," which begins by excluding coverage for any property damage to the policyholder's completed work. But it then carves out a significant exception for property damage either caused by the work of the policyholder's subcontractors or that was experienced by work performed by subcontractors. Of course, most general contractors perform most, if not all, of their work through subcontractors, so this subcontractor exception largely voids the exclusion. Other aspects of broad form coverage allow coverage for many instances of property damage to a policyholders' on-going work by way of limitations and qualifications to standard exclusions j.(5) and j.(6).

So, there is a great deal of coverage that was always intended to be covered by the policy drafters, and for which construction industry policyholders have paid billions of dollar over the last four decades. Sadly, the courts in the many business risk doctrine jurisdictions have wrongly nullified this coverage, affecting an enormous unearned transfer of wealth from the construction industry to the insurance industry.

Over the last several years, however, previously undecided states have gone pro-coverage, and formerly anticoverage states are switching sides. In this year alone, the influential Second Circuit of the U.S. Court of Appeals and the supreme courts of Connecticut, West Virginia and Georgia have all turned away from the business risk doctrine and upheld one or more aspects of broad form coverage. The Second Circuit did so applying Connecticut law, but on a basis that suggests it will take the same pro-coverage position in the next New York case it hears. That would force the New York state courts to seriously re-examine their position and probably follow suit. Even Alabama, a bastion of the business risk doctrine, signaled its awareness of the trend and its willingness to reconsider its historically anti-coverage stance this September. In several other states, the legislatures have intervened to correct their courts' mistake.

If your company is located in, or does business in, a business risk doctrine state, that state's position is now subject to switching overnight to recognizing and upholding broad form coverage. You should hedge your bets accordingly. But how?

First, educate yourself as to the nuances of broad form coverage and the considerable body of law surrounding its enforcement as developed in the many pro-coverage states.

Second, while awaiting the change, don't sell off or impair your broad form coverage for a modestly lower premium, such as by accepting endorsements CG 22 94 10 01 or CG 22 95 10 01 which eliminate or weaken the subcontractor exception in the your work exclusion.

Third, the change in the law will probably apply retroactively, so today's coverage claim will fall under tomorrow's new coverage law. Until that change arrives, preserve coverage for your current claims by tendering now despite the bad current law, receiving a denial of coverage from the insurance company, negotiating an agreement with them to toll the statute of limitations on the claim, and settling the claim with your own money (just as you have been doing). This way, if or when the change comes, you will have preserved a strong claim for reimbursement.

Finally, prepare for the enormous changes the new law will usher in. Construction claims handling is revolutionized when broad form coverage is recognized and applied. Insurance companies—sometimes scores of them—must be included in the already crowded, multi-lateral, settlement negotiations. Become aware of how such claims are being handled in the traditionally pro-coverage states. Locate and use construction coverage litigation counsel who are experts at pursuing broad form coverage and have established credibility on point with the insurance companies.


Robert M. Horkovich is managing partner and shareholder in the New York office of Anderson Kill. He is a trial lawyer who has obtaining more $5 billion in settlements and judgments for policyholders from insurance companies.

Scott C. Turner is of counsel in Anderson Kill's Washington, D.C., and Ventura, California, offices. He is a construction insurance attorney with over 20 years of experience securing insurance recoveries for property losses and in securing defense and indemnification for liability resulting from construction disputes and defects.

About Anderson Kill

Anderson Kill practices law in the areas of Insurance Recovery, Commercial Litigation, Environmental Law, Estate, Trusts and Tax Services, Corporate and Securities, Antitrust, Banking and Lending, Bankruptcy and Restructuring, Real Estate and Construction, Foreign Investment Recovery, Public Law, Government Affairs, Employment and Labor Law, Captive Insurance, Intellectual Property, Corporate Tax, Hospitality, and Health Reform. Recognized nationwide by Chambers USA for Client Service and Commercial Awareness, and best-known for its work in insurance recovery, the firm represents policyholders only in insurance coverage disputes - with no ties to insurance companies and has no conflicts of interest. Clients include Fortune 1000 companies, small and medium-sized businesses, governmental entities, and nonprofits as well as personal estates. Based in New York City, the firm also has offices in Ventura, CA, Dallas, TX, Stamford, CT, Washington, DC, Newark, NJ, and Philadelphia, PA.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions