As Contractor Shake-Out Continues, So Does Wrangling Over Insurance
One case involving a business risk exclusion brought up at the IRMI event related to the difference between a subcontractor and a supplier.
The issue came up several years ago over Mosser Construction's work on the backfill foundation of a wastewater treatment plant at Port Clinton, Ohio (see related link).
A supplier had provided Mosser a fill material that contained gypsum, which expanded when it was exposed to water and caused cracking in the structure above. When Port Clinton sued Mosser for the damage, Mosser turned the matter over to Travelers Indemnity Co., but the insurer declined to cover the damage and lawsuit defense, arguing that the defective fill was provided by a material supplier, not a subcontractor. Mosser lost the initial case but prevailed against Travelers on appeal this past summer.
The lesson was not lost on panelists at the conference. Sometimes subs and suppliers are engaged with a simple purchase order as a way to bypass insurance requirements.
That can be a mistake, noted Steven D. Davis, senior vice president of McGriff, Seibels & Williams Inc., a Birmingham-based broker. As much as possible, purchase orders should mirror a company's subcontract agreement, he said.
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