{"id":900797,"date":"2023-01-31T14:14:06","date_gmt":"2023-01-31T21:14:06","guid":{"rendered":"https:\/\/www.myconstructionexpert.com\/blog\/?p=900797"},"modified":"2023-01-31T14:14:10","modified_gmt":"2023-01-31T21:14:10","slug":"indemnity-insurance-considerations-construction","status":"publish","type":"post","link":"https:\/\/www.myconstructionexpert.com\/blog\/indemnity-insurance-considerations-construction\/","title":{"rendered":"Basic Indemnity and Insurance Considerations in the Construction Context"},"content":{"rendered":"\n

Julia Edwards Bobbitt and Brian Waters | Gray Reed<\/a><\/p>\n\n\n\n

Construction companies spend countless hours drafting agreements requiring indemnification<\/a> and insurance for their projects. These obligations are prevalent for all tiers of construction industry members\u2014 from subcontractors and suppliers, to project owners. The purpose of this article is to address some considerations in anticipation of a claim being made after an incident on a construction project.<\/p>\n\n\n\n

The Starting Point<\/h5>\n\n\n\n

When a claim is made against you, or an incident occurs that is likely to generate a claim, you should immediately review the insurance and indemnity provisions in both your upstream and downstream construction contracts. As soon as possible, you must determine to whom you agreed to provide indemnity and\/or insurance coverage, and conversely, who owes you indemnity and\/or insurance coverage for such claims. For example, a general contractor often\u2014if not always\u2014will have agreed to indemnify the owner of the project for claims and to include them as an additional insured on the general contractor\u2019s policy. Likewise, a subcontractor likely will have agreed to indemnify the general contractor and make it an additional insured on the subcontractor\u2019s policy.<\/p>\n\n\n\n

Putting All Parties on Notice<\/strong><\/h5>\n\n\n\n

If a claim is made against you\u2014that is, you receive a demand letter or are named in a lawsuit based on an incident occurring on your project\u2014immediately notify both your carrier and any parties who may owe you defense and indemnity. In the notice letter to parties who owe you indemnity, you should demand a defense and refer to the provisions in the construction contract that require the other party to provide defense and indemnity. You should also include in the letter a specific reference to any insurance that the party may have and request that the party immediately put its insurance carrier on notice and provide you with a copy of the policy or contact information for its insurance carrier.<\/p>\n\n\n\n

Sending a timely notice of the claim to your carrier is particularly important if your insurance policy is \u201cclaims-made\u201d\u2014meaning there is only coverage for incidents that happen during the policy period and are reported to the insurance carrier during the policy period (or a stated time after the policy period). Failing to put your carrier on notice may mean you lose coverage for that claim.<\/p>\n\n\n\n

Conversely, if a claim (demand or lawsuit) is made against someone else\u2014e.g., upstream contracting party\u2014who demands indemnity from you, you should likewise place your carrier on notice. Your commercial general liability policy may cover the indemnity claim against you as an exception to the Contractual Liability Exclusion. The claim for indemnity is an indirect route to coverage for your indemnitee (that is, the person you agreed to indemnify) under your policy, separate and apart from that party\u2019s own potential claim as an additional insured on your policy.<\/p>\n\n\n\n

Coverage for an Additional Insured<\/strong><\/h5>\n\n\n\n

Whether you are trying to get coverage as an additional insured on another\u2019s policy, or another party is trying to get coverage as an additional insured on your policy, there are two differences in additional insured endorsements that may change an insurer\u2019s coverage analysis. For example, one standard version of an additional insured endorsement provides that an additional insured is only covered \u201cwith respect to liability arising out\u201d of the named insured\u2019s work. Another version of an additional insured endorsement provides that an additional insured is only insured where the damage is \u201ccaused, in whole or in part, by [the named insured\u2019s] acts or omissions.\u201d Courts interpret the language of each differently, which should be considered when drafting contractual insurance requirements and when procuring coverage.<\/p>\n\n\n\n

The \u201carising out of\u201d coverage language is broad. Typically, any claim resulting from an injury to the named insured\u2019s employee is said to \u201carise out of\u201d the named insured\u2019s work if the employee was present on the jobsite by virtue of the named insured\u2019s work on the project, whether or not the named insured\u2019s work proximately caused the injury. On the other hand, the \u201ccaused\u2026by\u201d language requires that the named insured\u2019s work proximately caused the injury. These differences often affect whether an insurer will undertake the duty to defend or ultimately provide any coverage.<\/p>\n\n\n\n

Who\u2019s Paying Defense Costs?<\/strong><\/h5>\n\n\n\n

Insurers are generally obligated to defend their insureds in a lawsuit by paying for legal counsel. However, insurers usually only have the duty to do so when the allegations in the lawsuit fit within a basis for coverage under the policy. And, as discussed above, the specific policy language will determine when that duty arises. This is Texas\u2019s so called \u201cEight-Corners Rule.\u201d It requires the insurer to provide a defense based on the policy language and the facts stated in the lawsuit, regardless of whether such facts are true and without looking at outside evidence or facts.<\/p>\n\n\n\n

Which facts are alleged can have serious impacts on the coverage provided. In a recent Texas Supreme Court case, Monroe v. BITCO, the Court expanded the \u201cEight-Corners Rule\u201d and held that Texas courts may consider outside evidence, \u201cif the underlying petition states a claim that could trigger the duty to defend, and the application of the \u2018Egiht-Corners Rule\u2019, sure to a gap in the plaintiff\u2019s pleading, is not determinative of whether coverage exists,\u2026provided the evidence (1) \u2018goes solely to an issue of coverage and does not overlap with the merits of liability, (2) does not contradict facts alleged in the pleading, and (3) conclusively establishes the coverage fact to be proved.\u2019\u201d 640 S.W.3d 195 (Tex. Feb. 11, 2022). In theory, the Monroe Exception may be used to both create or avoid the insurer\u2019s duty to pay for its insured\u2019s legal defense where the underlying pleadings lack key coverage facts.<\/p>\n\n\n\n

Remember, if the carrier does not pick up defense costs- whoever owes that party indemnity may have to pay those costs as part of their indemnity obligations.<\/p>\n\n\n\n

Why it Matters: Expanding the Available Funds<\/strong><\/h5>\n\n\n\n

Insurance policies have limits. If a general contractor and owner are both sued for $2 million, as a result of an incident during construction, and both make claims on the general contractor\u2019s policy with a limit of $1 million, either or both parties may not be covered for the full value of their potential liability if the policy has a limit \u201cper occurrence.\u201d If the general contractor also owes the owner indemnity for that claim, the general contractor is then at risk to pay out of pocket for both its and the owner\u2019s liability over policy limits. However, if the general contractor has coverage available to it under another policy\u2014 such as a subcontractor\u2019s\u2014then the general contractor does not necessarily have to expend its own funds or insurance coverage, and can utilize a separate bucket of available funds. It is important to spread the loss across policies where exposure is high.<\/p>\n\n\n\n

If the general contractor also owes the owner indemnity for that claim, the general contractor is then at risk to pay out of pocket for both its and the owner\u2019s liability over policy limits.<\/p>\n\n\n\n

In summary, there are many moving pieces to determine who has what financial responsibility for a claim following an incident. It is important to keep these notions in mind during both contract negotiations and after a claim arises.<\/p>\n\n\n\n

\n\n\n\n

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net<\/a>.<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

Julia Edwards Bobbitt and Brian Waters | Gray Reed Construction companies spend countless hours drafting agreements requiring indemnification and insurance for their projects. These obligations are prevalent for all tiers of construction industry members\u2014 from subcontractors and suppliers, to project owners. The purpose of this article is to address some considerations in anticipation of a… Continue reading Basic Indemnity and Insurance Considerations in the Construction Context<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","enabled":false},"version":2}},"categories":[14,9],"tags":[9895,12,381],"class_list":["post-900797","post","type-post","status-publish","format-standard","hentry","category-construction-2","category-construction-contracts","tag-advise-consult","tag-construction","tag-indemnification","entry"],"jetpack_publicize_connections":[],"yoast_head":"\nBasic Indemnity and Insurance Considerations in the Construction Context - 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