The uncertainty over contract terms and insurance coverage could be seen in the way people crowded into the conference workshops entitled “The Additional Insured Illusion” and “Whose Design Is It Anyway?”
As many who attended the International Risk Management Institute’s construction conference in Las Vegas Nov. 9-12 will attest, clarification is in high demand but not easily secured.
Another session, about liability coverage for “rip-and-tear” costs—the expense of replacing non-defective work to reach defective work that requires repair—opened a new line of discussion on what kinds of defects and what types of claims are covered or excluded under a contractors’ general liability policy. Insurers have been denying claims as part of a legal effort to narrow the scope of what is covered while contractors are fighting to keep it broader, or, if you listen to insurers, expand it.
Insurers have been disputing claims by contractors under the liability policies that the insurers argue involve the contractors’ workmanship and are germane to the contract. But, insurers' claims department attorneys argue, such mistakes don’t trigger coverage under a liability policy and under the policy’s definition of an occurrence.
Insurers who asked not to be identified compared what they say are efforts to expand the scope of liability policy coverage to instances when contractors tried to include in years past the costs related to pollution under liability policies.
Pollution-related insurance is now a distinct and much standardized, formalized and separately priced and purchased coverage area.
Behind the scenes, insurers also said they are vexed by the continuing litigation over the scope of liability policy coverage, and the cost of the litigation.
Doubts on Separate Endorsement
One executive from a carrier said his company had mulled the possibility of specifically excluding from liability policies foreseeable defects in contractors’ workmanship, and then writing a separately priced endorsement for it. But so far that approach is still only a thought.
Another carrier executive wondered if the price on the theoretically separately endorsed “workmanship” coverage would, under the pressure of competition, be forced too low to make it profitable.
For now, insurers seem likely to continue to insist that those claims are meant to be resolved through contracts and are not insured by liability policies.
Attorney Jeffrey D. Masters, a partner at Cox, Castle & Nicholson who serves as defense counsel to insurance carriers, led the session on rip-and-tear costs. He described the nuances of various state court decisions and the way the matter had been interpreted differently.
To date, no single “supercase” exists in the federal court system, or has potential to reach the Supreme Court, that could clarify the matter, Masters said.
Asked why insurance carriers wouldn’t separately price and endorse the controversial and disputed aspects of liability coverage, Masters said the insurers may wish to simply allow state courts to interpret the language used in the contracts, or language used from the Insurance Services Office model provisions, and take their chance on litigation.