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CONTRACTUAL INSURANCE REQUIREMENTS

Avoiding Pitfalls & Potholes. CONTRACTUAL INSURANCE REQUIREMENTS. Dan Cretella Frank Armstrong O&G Industries, Inc. Willis North America September 16, 2014 Willis Construction Risk Management Conference – Dallas, TX. Agenda. General Principles Coverage Lines and Common Pitfalls

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CONTRACTUAL INSURANCE REQUIREMENTS

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  1. Avoiding Pitfalls & Potholes CONTRACTUAL INSURANCE REQUIREMENTS Dan Cretella Frank ArmstrongO&G Industries, Inc. Willis North America September 16, 2014 Willis Construction Risk Management Conference – Dallas, TX

  2. Agenda • General Principles • Coverage Lines and Common Pitfalls • Process, including Verification / Compliance

  3. General Principles • Definition of “good” contractual insurance requirements: • When a claim event takes place, the insurance coverage responds as intended. • Exposure Identification • Project Delivery Method • Construction Risk Considerations:Project Value, Adjacent Properties, Existing Structures, Partial Occupancy, Public Liability, Professional, Environmental • Jurisdictional Risk Considerations: Anti-indemnity/AI, Upstream Immunity, Duty to Defend (AI), Statute of Repose, Faulty Work as an “Occurrence” (GL) • Lender Requirements • Intent – Required Coverage / Terms • Risk Transfer / Allocation • Contractual wording aligned with intent • Clear, unequivocal • When available, specify terms subject to standard forms (ISO) or “equivalent” • Commercially reasonable terms • Verification / Compliance

  4. Coverage • Possible Requirements • Workers’ Compensation • General Liability • Auto Liability • Excess / Umbrella Liability • Builders Risk • Professional Liability • Pollution Liability • Contractors Equipment • Riggers Liability • Railroad Protective Liability • Owners and Contractors Protective

  5. Coverage • WC Considerations • USL&H, Harborworkers, Maritime • Alternative Employer Endorsement • Sole proprietors or others not statutorily maintain WC • Separate EL from statutory requirements with specified limits: • BI by acc – each acc • BI by disease – policy limit • BI by disease – each employee

  6. Coverage • General Liability Considerations • Avoid outdated terms (“broad form property damage”, “XCU”, etc.) • Specify ISO Form CG 0001 (2004 edition or later) or equivalent • Limits: minimum of / no less than and/or single combined limit with excess/umbrella; vary by subcontractor trade? • Additional Insured Terms – scope and length of requirement • Additional Insured – Primary/Non-Contributory (ISO CG 2001) • Project specific aggregate (operations) • Completed operations • Amendatory Endorsement: Limited Contractual Liability for Covg Personal & Advertising injury (ISO CG 2274) • Amendatory Endorsement: Waiver of Rights of Recovery (ISO CG 2404) • Amendatory Endorsement: Contractual Liability – Railroad (ISO CG 2417) • Unacceptable Exclusions (e.g. residential) • Project Specific (GL only Wrap)?

  7. Coverage • CGL / Additional Insured Considerations • ISO AI Endorsements: CG 2010 (operations) and CG 2037 (completed operations) • Edition dates matter: • 10/01 – “arising out of”; • 07/04 – “caused in whole or in part”; • 04/13 – additional terms • To the extent permitted by law • Scope of coverage no broader than required by contract • Limits of coverage no broader than required by contract • “Saving” clause: To the maximum extent permitted by law • Avoid “tying” AI requirements to indemnity provisions • Priority of Coverage (Excess/Umbrella) • Contract Privity: ISO CG 2033 vs. CG 2038

  8. Coverage • Auto Liability • ISO Form CA 0001 • “Any Auto”, include owned, hired or otherwise operated by/on behalf of • MCS 90 • Broadened Pollution Liability (CA 9948)

  9. Coverage • Excess / Umbrella Considerations • “minimum of” or “no less than”; and/or combined single limit with primary • Follow-form • Amend “other insurance” provisions to assure vertical exhaustion (AI) • Include EL in underlying

  10. Coverage • Builders Risk • Who is procuring the coverage? • All Risk • Who are Insureds? • Delay • Transit • Offsite • Existing Structures • Partial Occupancy

  11. Coverage • Other Insurance Related Considerations • Waivers of Right to Recovery • Typical: “…to the extent of available insurance” • Consider: “…to the extent of available insurance, [including or excluding] any applicable deductible” • Contractual Indemnity: Align with CGL Contractual Liability Coverage? • Consequential Damages • Mutual waiver • To the extent of available insurance • Liquidated Damages • Flow Down Provisions (except limits?) • Sub-subcontractor • Employee Leasing Companies • Alternate Employer Endorsement • SIR’s and deductibles • Notice of Cancellation • Reserve right to obtain certified copies of policies • Insurers – Authorized / Financial Rating (AM Best A- VII) • Compliance failure constitutes default, with allowance to terminate for cause, withhold payment and/or purchase the required insurance at downstream party’s expense

  12. Process • Practical Considerations • Streamline the process • Pre-bid / Post Bid • Who is negotiating? • Risk professional (and/or their respective brokers) should communicate • Pay attention to insurers • Verification / Compliance Considerations • Do nothing and hope coverage is there when needed • COI’s • COI’s with key endorsements (AI, WOS, XS PNC) • COI’s with verification addendums • Review policies • Completed operations period

  13. Questions

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