Transcript THE TRANSFER OF RISK AS BETWEEN GENERAL …

Construction Coverage and
Indemnification
Presented by:
GETMAN, SCHULTHESS & STEERE, P.A
1838 Elm Street
Manchester, NH 03104
(603) 634-4300
Commercial General
Liability Policy Provisions
“ADDITIONAL INSURED”
ENDORSEMENTS
1. What is the purpose of “additional insured” endorsements?
2. What are the differences between indemnitee status and
“additional insured” status?
3. Does “additional insured” status supplement or trump
indemnitee rights?
PURPOSE OF “ADDITIONAL INSURED”
ENDORSEMENTS
•
Reduces uncertainty of relying exclusively on indemnity
clauses belt and suspenders approach – best to have both
•
Like indemnity clauses, can effectuate risk transfer but
more predictable when respective liability of parties is
uncertain either an insured or your not. Most of the time
with indemnity provisions you have to sort out who is at
fault to see if its triggered.
•
With “additional insured” status, the GC simply looks to
the sub’s insurer for a defense and indemnification
DIFFERENCES BETWEEN INDEMNITEE
STATUS AND “ADDITIONAL INSURED”
STATUS
CONTRACT INDEMNITEE
Protection via contract clause
Protection defined by contract & limited by statute
Duty to defend must be stated in contract to get
defense costs
Insurer owes duty to named insured/indemnitor
ADDITIONAL INSURED
Coverage created by endorsement
Protection defined by policy
Defense provided by insurer
Insurer owes duty directly to AI
REQUIRE ADDITIONAL INSURED STATUS
UNDER CONTRACT - EXAMPLES
Vague:
A, at its own expense, shall maintain the necessary
liability insurance adequate to protect the interests
of the parties hereto. Such policy shall be written so
as to protect B in the same manner and to the same
extent it protects A, and will name B as co-insured
REQUIRE ADDITIONAL INSURED STATUS
UNDER CONTRACT - EXAMPLES
Specific:
A, at A’s own cost shall maintain Comprehensive General Liability
Insurance with an insurance company authorized to do business in New
Hampshire. Said policy shall have liability policy limits of not less than
$1,000,000 combined single limit insuring against liability arising out of
and in connection with A’s use and occupancy of the Premises. Said
insurance shall be written on an “occurrence” basis. The CGL insurance
shall include contractual liability coverage.
B will be added as an additional insured by endorsement to said policy. A
shall deliver to B certificates of such coverage and a copy
of the policy prior to the commencement of the lease. The certificate of
insurance shall specify that the insurance shall not be canceled without at
least thirty (30) days written notice to B.
ADDITIONAL INSURED COVERAGE –
“ARISING OUT OF”
In order for coverage to be triggered under AI endorsement that
provides coverage to an AI “only with respect to liability arising out
of your [named insured’s] ongoing operations for that insured”:
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Named insured’s operations may be less than proximate cause,
but
Causal connection between insured’s operations and injury
must be “more than tenuous”
Not sufficient that claims would not have arisen “but for” the
insured’s presence
For Example:
Pro Con Construction, Inc. v. Acadia Ins. Co.,
147 N.H. 470 (2002)
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GC hires sub for interior painting at site
sub’s employee injured while walking from work
area to coffee truck
employee sues GC
GC seeks AI coverage under sub’s policy
insufficient causal connection between injuries and
sub’s painting operations – fact that injury would not
have occurred “but for” employee’s presence on
GC’s premises not enough to trigger coverage
“Growing Out Of”
OneBeacon Insurance/ Centercorp Retail
Properties, Inc. v. M&M Pizza, Inc. (8/19/2010)
“Growing out of”
is equated to
“Arising out of”
M&M Pizza Facts
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Defendant, M&M Pizza, Inc. owned and
operated a franchise in Derry.
In November 2002, an M&M employee slipped
and fell behind the premises while on the job
and while following M&M policies regarding
employee parking.
The employee suffered injuries and sued M&M’s
commercial landlord, Centercorp, but did not sue
M&M.
The landlord settled with the plaintiff following
mediation. M&M declined to attend the
mediation
M&M Pizza Facts
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OneBeacon was Centercorp’s insurer and brought suit
against M&M seeking indemnification for payments made
to the plaintiff.
The lease provides that M&M must indemnify and save
(Centercorp) harmless from and against any all liability
in damages, costs and expenses, including reasonable
counsel fees, and from and against any and all suits,
claims and demands of any kind or nature… growing out
of the condition, maintenance, repair, alternations, use,
occupation or operation of the leased premises.
M&M Pizza: The Holding
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Applying the Pro Con standard the court found
that OneBeacon was entitled to indemnification
since the plaintiff’s delivery mission and the
location where he parked the car were
circumstances “growing out of” the use,
occupation or operation of the leased premises.
Pizza delivery was an operation necessary
incidental to the conduct of the pizzeria.
National Union v. NGM Ins. Co.
(D.N.H. 2011)
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Wenzel employed by Daniels Landscaping
Brookfield hired Daniels to perform work at its
Berlin facility via contract
The Brookfield/Daniels contract had indemnity
provisions with a requirement that Daniels would
name Brookfield as an additional insured on its
CGL policy
Wenzel injured while using a machine called a
Rack Rake. Rack Rake owned by Brookfield and
was being operated by Daniel’s employee Gray.
National Union v. NGM Ins. Co.
(D.N.H. 2011) Cont.
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Wenzel filed PI suit against Brookfield.
Brookfield filed a 3rd party action v.
Daniels and alleged comparative fault
against Daniels’ employee Wenzel.
National Union, who insured Brookfield
sought defense and indemnity for
Brookfield from NGM, Daniel’s insurer.
National Union v. NGM Ins. Co.
(D.N.H. 2011) Cont.
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The NGM additional insured endorsement stated:
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Any person(s) or organization(s) shown in the Schedule is
also an additional insured, but only with respect to liability
for “bodily injury, “ ”property damage,” ”personal injury”
or “advertising injury” caused, in whole or part, by
A. [Daniels’ Landscaping’s] acts or omissions; or
 B. The acts or omissions of those acting on [Daniel’s
Landscaping’s] behalf;
in the performance of your ongoing operations or “[Daniel’s
Landscaping’s] our work” included within the “products completed
operations” hazard for the additional insured(s) at the location(s)
designated above and described in the written contract or
agreement.
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National Union v. NGM Ins. Co.
(D.N.H. 2011) Cont.
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Court held: The AI endorsement is
triggered and NGM has duty to defend.
However, other insurance clause provided
unambiguously NGM was excess. Court
refused to consider contract.
ADDITIONAL INSURED COVERAGE
ONGOING V. COMPLETED OPERATIONS
Policy providing coverage to AI for “liability arising out of your [named
insured’s] ongoing operations performed for that insured” but “ends when your
[named insured’s] operations for that insured are completed” – AI coverage
terminates after completion of work
- GL hires subcontractor & requires sub to name it as AI on CGL policies
- damage resulted after sub completed its work
- GL not entitled to coverage under sub’s policy since it was no longer an AI
after sub’s work was completed
Mactec Engineering & Consulting, Inc. v. OneBeacon Ins. Co., 2007 WL 2300706 (D.N.H. 2007)
ADDITIONAL INSURED ENDORSEMENTS
CL CG 20 08 01 06 OWNERS, LESSEES, OR CONTRACTORS –
LIMITED COMPLETED OPERATIONS COVERAGE – SCHEDULED
PERSON OR ORGANIZATION
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AI if listed on schedule
Only for injury/damage negligently caused by insured’s work performed for
AI at designated location and included in “products-completed operations
hazard”
Excludes coverage for professional services of architect, engineer or
surveyor
Limited coverage period as specified
Coverage is excess over AI’s policy unless insured and AI agree in writing
that it be primary
AI required to give notice of injury/damage “as soon as practicable”
ADDITIONAL INSURED ENDORSEMENTS
CL CG 20 09 01 06 OWNERS, LESSEES, OR CONTRACTORS –
LIMITED COMPLETED OPERATIONS COVERAGE – AUTOMATIC
STATUS WHEN REQUIRED IN CONSTRUCTION AGREEMENT
WITH YOU
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AI automatically includes any person/organization if AI status required by
written agreement
Only for injury/damage negligently caused by insured’s work under
contract and included in “products-completed operations hazard”
Excludes coverage for professional services of architect, engineer or
surveyor
Limited coverage period as specified
Coverage is excess over AI’s policy unless insured and AI agree in writing
that it be primary
AI required to give notice of injury/damage “as soon as practicable”
ADDITIONAL INSURED ENDORSEMENTS
AI CG 65 02 06 GENERAL LIABILITY EXPANSION ENDORSEMENT
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“Insured” includes any person or organization for whom the named
insured is performing operations if written contract requires AI status
Only for injury/damage caused in whole or in part by acts or omissions of
the named insured or anyone acting on its behalf
AI status ends when named insured’s operations are completed
Coverage is primary if required by contract
Limits are the lesser of amount required by contract & policy limits
Excludes specified professional services
Excludes completed operations coverage
ADDITIONAL INSURED ENDORSEMENTS
CG 20 10 07 04 ADDITIONAL INSURED – OWNERS, LESSEES OR
CONTRACTORS – SCHEDULED PERSON OR ORGANIZATION
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AI includes person or organization shown on schedule
Only for injury/damage caused in whole or in part by acts or omissions of
the named insured or anyone acting on its behalf in the performance of its
ongoing operations for the AI
Excludes completed operations coverage
Contractual Liability
HOW DOES THE GC ATTEMPT TO TRANSFER
RISK TO THEIR SUBS?
THREE WAYS GENERAL CONTRACTORS MAY SEEK PROTECTION:
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STRONG – INSURANCE CLAUSES
The General Contractor requires the subcontractors to purchase certain types
of insurance with minimum coverage limits.
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STRONGER – INDEMNIFICATION CLAUSES
The General Contractor requires the subcontractors to defend, indemnify,
and hold harmless the General Contractors
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STRONGEST – ADDITIONAL INSURED ENDORSEMENTS
The General Contractor requires the subcontractors to name it as an
“additional insured” on the subcontractor’s general liability insurance policy.
INDEMNIFICATION IN NEW HAMPSHIRE
TYPES OF INDEMNITY
1.
IMPLIED INDEMNITY
2.
EXPRESS (CONTRACTUAL) INDEMNITY
IMPLIED INDEMNITY
1.
2.
3.
Indemnity rarely implied & strictly construed – negligent parties should
bear responsibility for their own negligence
Implied indemnity based on:
a) fault of indemnitor as source of indemnitee’s liability
b) indemnitee’s freedom from fault
Requirements:
a) indemnitor performs service for indemnitee
b) indemnitor is negligent
c) harm results
d) indemnitee held liable due to breach of nondelegable duty or
liability imputed to indemnitee
e) indemnitee is not negligent
IMPLIED INDEMNITY
RARELY FOUND
Wentworth Hotel v. Gray, 110 N.H. 458 (1970)
Property owner entitled to pursue implied indemnity v. painting contractor
whose employee was injured on property due to contractor’s sole
negligence
Sears, Roebuck & Co. v. Phillip, 112 N.H. 282 (1972)
If store owner held liable for customer’s slip & fall due solely to highly
waxed condition of floor maintained by independent contractor, it would
be entitled to implied indemnity
PURPOSE OF INDEMNITY CLAUSES
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Indemnity clauses included in contracts in order to
allocate risk.
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The beneficiaries of the indemnity clause are often the
general contractor, owner, architect, and construction
manager.
EXPRESS (CONTRACTUAL) INDEMNITY
1.
Derived from express contractual provisions
2.
Interpreted as any contract: specific language used, surrounding
circumstances, intent of parties
3.
Strictly construed by courts
4.
Intent to require indemnity for one’s own negligence need not
be specifically stated, but intent must be “clearly evident”
5.
6.
Contracts requiring indemnification against one’s own
negligence generally not prohibited (but see RSA 338-A:1, 338A:2)
Duty to defend v. duty to indemnify
DUTY TO DEFEND
1.
Must be specified in contract.
Example: Supplier shall indemnify and hold Purchaser harmless
from all liability, loss, damage, and or expense, including all
attorneys’ fees and costs of investigating and litigating claims,
due to injury or property damage resulting directly or indirectly
from acts or omissions of Supplier. Supplier agrees to promptly
assume the defense and preparation for the defense (including
attorneys’ fees and costs) of any suit or threatened suit against
Purchaser.
DUTY TO DEFEND
2.
Includes obligation to provide legal counsel to defend claims
indemnified against, but not fees incurred to enforce
indemnity agreement.
Merrimack School District v. National Bus Service,
140 N.H. 9 (1995)
DUTY TO DEFEND
3. Indemnitor to pay for indemnitee’s defense despite
defense verdict in favor of both indemnitee and
indemnitor
Keating v. United Instruments, Inc., 144 N.H. 393 (1999)
TYPES OF INDEMNITY CLAUSES
TWO TYPES OF TRIGGERS:
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“CAUSED IN WHOLE OR IN PART
BY ANY NEGLIGENT ACT OR OMISSION OF THE
SUBCONTRACTOR…”
More restrictive than “arising out of” - some negligent act or
omission of subcontractor must be a substantial cause of the injury?
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“ARISING OUT OF OR IN CONNECTION WITH THE
SUBCONTRACTOR’S WORK OR OPERATIONS…”
“Arising out of” – a “very broad, general & comprehensive term”
meaning “originating from or growing out of or flowing from”
Merrimack School Dist. v. National School Bus Service, 140 N.H. 9 (1995)
INDEMNITY CLAUSES VARY FROM CONTRACT TO
CONTRACT AND SERVE DIFFERENT FUNCTIONS
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Some are limited to the obligation to indemnify
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Better indemnity clauses specifically include the duty to
defend, including attorneys’ fees and costs
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Scope of indemnity depends on specific contract
language
EXAMPLES OF INDEMNITY CLAUSES - BROAD
Equipment Lease:
From the time the rented item is taken until its return, Lessee is
responsible for the item and its use. The Lessee assumes all risks
inherent in the operation and use of the item and agrees to assume the
entire responsibility for the defense of, and to pay, indemnify and hold
the Lessor harmless from and hereby releases the Lessor from any and
all claims for damage to property or bodily injury (including death)
resulting from the use, operation or possession of the item, whether or
not it be claimed or held that such damage or injury resulted in whole
or in part from Lessor’s negligence, from the defective condition of the
item or from any cause. Lessee agrees that no warranties, expressed
or implied, have been made in connection with this rental.
Indemnitor required to indemnify even if indemnitee is 100%
liable
EXAMPLES OF INDEMNITY CLAUSES INTERMEDIATE
Construction:
To the fullest extent permitted by law, the Subcontractor shall
indemnify and hold harmless General Contractor…from and against
all claims, damages, losses and expenses including, but not limited to,
attorney’s fees, arising out of, resulting from and /or associated with
the performance of the Subcontractor’s work under this Subcontract,
provided that such damage, loss or expense is caused in whole or in
part by act(s) or omission(s) of the Subcontractor, their subcontractors,
anyone directly or indirectly employed by any of them or anyone for
whose acts they may be liable, regardless of whether or not such
claim, damage, loss or expense is caused in part by a party
indemnified hereunder.
Indemnitor required to indemnify as long as it is partially at fault
EXAMPLES OF INDEMNITY CLAUSES - LIMITED
Construction:
To the fullest extent permitted by law, the Subcontractor shall
indemnify and hold harmless General Contractor…from and against all
claims, damages, losses and expenses including, but not limited to,
attorney’s fees, arising out of, resulting from and /or associated with
the performance of the Subcontractor’s work under this Subcontract,
but only to the extent caused by an act or omission of the
Subcontractor, their subcontractors, anyone directly or indirectly
employed by any of them or anyone for whose acts they may be liable,
regardless of whether or not such claim, damage, loss or expense is
caused in part by a party indemnified hereunder.
Indemnitor required to indemnify, but only for its proportionate
share of liability
EXAMPLES OF INDEMNITY CLAUSES - MUTUAL
Lease Agreement:
Lessee shall indemnify and hold Lessor harmless from any and all claims
or demands, including attorney’s fees, whether for injury or property
damage, occurring on or about the Premises to the extent they arise out of
the use and occupancy or possession by Lessee of the Premises or any of
the areas which Lessee has the right to use, with the exception of any claims
or damages arising from the negligence of Lessor…
Lessor shall indemnify and hold Lessee harmless from any and all claims or
demands, including attorney’s fees, whether for injury or property damage,
occurring on or about the Premises to the extent they arise out of the use
and occupancy or possession by Lessor of the Premises or any of the areas
which Lessor has the right to use, with the exception of any claims or
damages arising from the negligence of Lessee…
Each party assumes responsibility for its own conduct
PRACTICAL LIMITATIONS OF INDEMNITY
CLAUSES
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Are they valid? Beware of statutory limitations
(i.e. RSA 338-A:1, RSA 338-A:2)
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Subcontractors and their insurers often resist tenders if the
facts are unknown or disputed
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Even with an ironclad indemnity clause, the sub may have
no insurance coverage or inadequate coverage
PRACTICAL LIMITATIONS OF INDEMNITY
CLAUSES
Indemnitor’s policy may contain exclusion precluding coverage
Merchants Mut. Ins. Co. v. Laighton, 153 N.H. 485 (2006)
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Sub’s employee injured on GC’s worksite
Employee sues GC & GC cross claims against Sub
Sub seeks coverage under its CGL policy for GC’s indemnity claims
CGL policy excludes coverage for injury to Sub’s employees
Sub’s insurer not obligated to provide coverage for indemnification
claim by GC due to policy’s employer’s liability exclusion
STATUTORY LIMITS ON INDEMNITY CLAUSES
RSA 338-A:1
Prohibits agreements or provisions whereby architects, engineers or
surveyors
seek to be held harmless or indemnified for claims arising from their own
Negligence
RSA 338-A:2
Prohibits provisions in most contracts for construction work on any building
or
real property which require any party to indemnify another for injury or
damage
not caused by that party or its employees, agents or subcontractors
TESTING THE APPLICABILITY OF INDEMNITY
CLAUSES
FIRST - Does the clause comply with RSA 338-A?
This is a matter of contract interpretation and will depend on the specific
language of the indemnity clause
SECOND – Do the facts of the case trigger the indemnity
clause?
This is the more vexing part because subcontractors and their insurers
are invariably called upon to defend and indemnify a general contractor
when the facts are unknown or, worse yet, disputed.
HOW DOES RSA 338-A:2 IMPACT
VALIDITY OF INDEMNITY CLAUSES?
No New Hampshire Supreme Court decisions applying RSA 338A:2
Massachusetts has interpreted substantially similar statute,
M.G.L. 149 SEC. 29:
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Indemnity agreement requiring sub to indemnify GC for injury
caused exclusively by GC’s negligence is invalid & unenforceable
Bjorkman v. Suffolk Const. Co., Inc., 42 Mass.App.Ct. 591 (1997)
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Does not prohibit proportionate indemnification requiring sub to
indemnify “only to the extent caused by” sub’s conduct
North American Site Developers, Inc. v. MRP Site Development, Inc., 63
Mass.App.Ct. 529 (2005)
HOW DOES RSA 338-A:2 IMPACT
VALIDITY OF INDEMNITY CLAUSES?
Massachusetts has interpreted substantially similar statute,
M.G.L. 149 SEC. 29 (continued):

Does not prohibit indemnity agreement requiring subcontractor to
indemnify for entire liability when both sub and GC are causally
negligent
Rush v. Norfolk Electric Co., 70 Mass.App.Ct. 373 (2007)

Does not preclude full indemnification when indivisible injury is
caused by negligence concurrently attributable to sub & GC
Collins v. Kiewit Const. Co., 40 Mass.App.Ct. 796 (1996)
THE IMPRACTICALITIES OF
PROPORTIONATE INDEMNITY
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THE APPLICATION OF PROPORTIONATE
INDEMNITY REQUIRES SOME DETERMINATION
OF FAULT
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USUALLY REQUIRES A TRIAL OR ARBITRATION
TO APPORTION THE NEGLIGENCE AS BETWEEN
THE GC AND THE SUBS.
Implied Contractual
Indemnification
WORKERS’ COMPENSATION – CONTRACTOR’S
LIABLITY FOR SUBCONTRACTOR EMPLOYEE
COVERAGE
RSA 281-A:18
Contractor who subcontracts out all or any part of a contract is liable for
payment of workers’ compensation to subcontractor’s employees unless
subcontractor has secured payment of workers’ compensation for its
employees
Contractor may recover from subcontractor amount of compensation paid
and
“necessary expenses”
- property owner hires painter & seeks recommendation for roof
replacement
- painter refers owner to roofer
- roofer’s employee injured
- roofer w/out workers’ compensation coverage
- roofer was not painter’s subcontractor, so not liable for workers’ compensation
Appeal of Harleysville, 937 A.2d 913 (N.H. 2007)
WORKERS’ COMPENSATION – NO IMMUNITY FOR
GENERAL CONTRACTOR UNDER RSA 281-A:18
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Employee of subcontractor injured on worksite
Subcontractor is uninsured, so GC is liable for payment of workers’
compensation
Employee brings negligence action against GC
GC argues that it is entitled to immunity as an “employer”
Statute does not provide immunity to GC
If GC cannot recover amount paid from subcontractor, it may set off that
amount against any verdict in favor of sub’s employee
Prive v. M.W. Goodell Construction Co., Inc., 119 N.H. 914 (1979)
Elliott v. Public Service Co. of N.H., 128 N.H. 676 (1986) (property owner that
paid workers’ compensation indirectly by absorbing cost into contract price was
not entitled to immunity against claims by injured employee of subcontractor)