More likely than most people realize or care to know, accidents happen on the construction site. This can be catastrophic to the workers and also to the companies that contracted those workers. The standard protocol for dealing with these situations is sometimes not laid on in a way that is comprehensible especially when dealing with insurance.
There are multiple types of insurance coverage for the various risks on a construction project. However, when there are multiple insurance carriers covering the same risk (i.e., general liability, builder’s risk, workers’ compensation, professional liability) over different periods of time, there may be a dispute as to which carrier covers the loss.
In a recent case, Cincinnati Insurance Co. v. Motorists Mutual Insurance Co., the Ohio Court of Appeals addressed this very issue. In that case, an electrical contractor installed certain wiring and lighting in the owner’s home during construction. Insurance Company #1 provided a commercial general liability policy (“CGL”) and an umbrella policy from 2000-2004, which covered the period when the house was built. From 2004-2005, Insurance Company #2 provided a different CGL policy. In 20015, the electrical subcontractor went out of business.
In 2006, the home was severely damaged due to a fire. The home owner’s insurance carrier paid out the losses, and subsequently tried to recover those monies from the electrical subcontractor’s insurance carriers, alleging that the electrical subcontractor was negligent in the construction and installation of the wiring in the home.
If you read the decision in the case, you can tell that there was a lot of finger-pointing among the parties and insurance carriers. However, there are a few take-aways from the decision as to which insurance carrier may be responsible for damages:
- A CGL policy generally provides for coverage during the policy period. In this case, the trial court concluded that the policy issued by Insurance Company #2 did not provide coverage because the property damage sustained by the Owners in 2006 did not occur during the policy period.
- There are different conclusions as to whether claims for defective work are covered, but most states say “no”. In other words, there is a mess of case law all across the country about whether claims of defective construction or workmanship by property owners are claims for “property damage” cause by an “occurrence” under a CGL policy. For purposes of the Cincinnati Insurance decision, the question was one of timing and whether the allegations of the complaint excluded the possibility that property damage was occurring during Company #2’s policy period.
- The duty to defend is definitely broader than the duty to indemnify. In examining the complaint, the court in Cincinnati Insurance could not conclude that the “claims are clearly and indisputably outside the contracted coverage.” The court noted that the defective installation itself could not be considered an accident (and, therefore, could not be considered an occurrence under the policy). However, at the time the complaint was filed, it was possible that property damage occurred during the policy period and was of a continuous nature such that coverage could be implicated under the policy.
In this case, Insurance Company #1 participated in the defense of the electrical subcontractor and ultimately paid to settle the dispute. Insurance Company #1 then sought contribution from Insurance Company #2 for 75% of the settlement costs, attorney’s fees and interest. Ultimately, the court concluded that Insurance Company #2 had the duty to defend the claim.
So What? As an owner or developer, you should know and understand your policy coverage provided by your own insurance, as well as those provided by the contractors and subcontractors working on your projects. If you are a contractor or subcontractor, understand that you may have changed insurance carriers during a construction project and there may be multiple sources of coverage depending on the type of loss and when the loss occurred. You should keep an “insurance file” for each project that contains copies of all insurance certificates.