That question was raised in December by a federal appeals court panel judge in Atlanta hearing arguments in a case called Liberty Surplus Insurance Corp. v. Kaufman Lynn Construction, Inc. The issue is of enough concern that the Associated General Contractors has planned a meeting on the subject in September.

Differing interpretations of the contractor-controlled liability insurance program (CCIP) purchased by Kaufman Lynn Construction underlie the court case.

In 2018, JM Family Enterprises in Deerfield Beach, Fla., one of the largest Toyota dealerships and financing operations in Florida, hired Delray Beach-based Kaufman Lynn to construct a new corporate headquarters. The campus included office buildings, dining hall, energy plant and a garage. To protect itself and its subcontractors, Kaufman Lynn secured a commercial general liability (CGL) policy through Liberty Surplus Insurance Corp., structured as a CCIP. 

Such policies have become popular as a cost-effective way to insure all companies working on complex projects.

By November 2020, Kaufman received certificates of occupancy for the office buildings, dining hall, energy plant and garage. Then, Tropical Storm Eta struck South Florida and caused $3.3 million in water damage to completed portions of the campus. Kaufman Lynn filed for coverage from Liberty Surplus but the insurer denied the claim, pointing to the policy’s course of construction exclusion (COCE), which delays coverage until the entire project is finished.

Differing definitions of "project" and "complete" became a problem.

The parties sought a legal remedy. In February 2023, a federal judge in West Palm Beach, Donald M. Middlebrooks, ruled that the COCE barred coverage since the project was not fully completed despite some buildings having certificates of occupancy. The judge agreed with Liberty’s definition of “project” and “completed” and rejected Kaufman Lynn’s effort to apply a definition from the policy’s Products-Completed Operations Hazard section, which considers work “completed” when put to use.

Kaufman Lynn had also asked for reformation, which in legal cases requires the parties to go back to the original contract to "reform" a mistake or misunderstanding in the language.

The judge deferred the reformation argument and gave Kaufman Lynn until March 17, 2023, to submit a brief about it. But the other parts of the decision stood and Kaufman Lynn appealed. A panel of federal judges heard oral arguments in December. The attorneys continued to debate the meaning of project and completion.

AGC and Homebuilders Step In

Industry associations got involved at that point. AGC, with support from Florida chapters and the National Association of Homebuilders, filed a friend of the court brief supporting Kaufman Lynn’s claim.

The brief’s author, Patrick J. Wielinski, a principal at Cokinos Law Firm in Dallas, argued that the exclusion should not apply to occupied, substantially complete phases. Wielinski described the insurer’s actions as a “bait-and-switch” scheme, where marketed coverage fails to protect against real risks due to ambiguous policy language. 

In the brief, Wielinski also argued that the exclusion in a CGL policy should not apply to work that has achieved a certificate of occupancy, where exclusive possession has passed to the owner and the policy's Products-Completed Operations Hazard coverage is triggered—despite ongoing construction on a separate, distinct phase of the project.

Liberty Surplus’s lawyer, Carol Rooney, a partner at Hinshaw & Culbertson LLP, responded to the appeals court judges’ questions about Liberty’s definition of "project" and "completion."

Rooney argued that Liberty’s position is that "project" refers to the entire JM Family Enterprises headquarters as described in the policy’s project description and the customized CCIP endorsement, including "Buildings A, B, D, and all associated structures." The policy was tailored for this specific development, and Kaufman Lynn, through its broker, agreed to this definition, she said.

In March, the appeals court upheld Liberty’s single-project interpretation, agreeing with Liberty’s stance that Kaufman Lynn should have clarified phased construction coverage.

The court did leave the door open for reformation of the original policy and upheld the denial of Liberty's motion for attorney's fees, citing the settlement proposal's failure to resolve all claims.

In a recent interview, Wielinski notes that "reformation would appear to be appropriate in the case of ambiguous policy language employed by insurers in a manuscripted wrap-up policy,” meaning, customized terms outside of standard contract forms, “such as the garbled project description in Kaufman.”

Wielinski also warns of an “imploding disaster” if this issue is not addressed. 

Other Related Exclusion Cases

The Kaufman Lynn case is not an isolated instance. Other lawsuits involving such exclusions issues are currently in the courts, including another one in Florida, 

“The hope of my clients,” says Wielinski, “particularly industry organizations such as the AGC, is that they will make contractors aware of the issue and be diligent about being clear of the definitions of 'project' and 'completion' in their insurance policies.”

Of AGC's upcoming meeting on the topic, Wielinski says, “Hopefully, awareness of insured contractors at the underwriting stage will foster clearer language to avoid this problem. Insureds need to get ahead on these issues.” 

Besides carefully reading the policies, how should insured contractors avoid the “project and completion” debate?

“Contractors should try to negotiate for the removal or limitation of overly broad builders risk exclusions in CCIP policies during the underwriting phase," Wielinski says. "An experienced broker may help.”