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Insurance - The 2017 AIA Insurance Exhibit and prohibited exclusions

image Charles E. Comiskey Sr., Vice President, Brady Chapman Holland & Associates, Inc., Houston, TX

SAN ANTONIO - The 2017 AIA Insurance Exhibit includes significant enhancements in both the coverage required and in the manner in which coverage is required. One of those enhancements is that this Exhibit not only details certain coverages that must be provided but goes on to prohibit a variety of exclusions that cannot included in a downstream party’s insurance program.

 

 

 

    While legal, these practices by the insurance industry effectively border on widespread deception.  Insurance policies frequently don’t change in front of your eyes.  They are changed behind your back. The manner in which coverage is reduced is often quite subtle, making the limitations and coverage gaps difficult to identify.  The revised policy or endorsement may have the identical heading as a standard coverage form, the exact same font, and contain almost the identical language.  Sometimes the change is just one word, or the word is simply positioned differently.  No warnings are given, no explanations are provided, and the changes can be difficult for even the most seasoned insurance professional to grasp.

    There are only two times when an upstream party (the company requiring the insurance) can accurately determine what coverage is being provided by a downstream party (the contractor or subcontractor providing the insurance):  in negotiation or in litigation.  Upstream parties placing insurance requirements on downstream contractors must have their guard up during negotiation to avoid being misled.  If you’re not somewhat paranoid, you’re simply not paying attention.

    For example, what is the worst general liability insurance endorsement in current use?  The author suggests that it is the Continuous or Progressive Injury and Damage Exclusion.  While different insurance companies use different wording, the most damaging states:  “This insurance does not apply to: (1) Any damages arising out of or related to ‘bodily injury’ or ‘property damage’ whether such ‘bodily injury’ or ‘property damage’ is known or unknown; (2) Which first occurred in whole or in part prior to the inception date of this policy); or (3) Which are, or are alleged to be, in the process of occurring as of the inception date of the policy; or (4) Which were caused, or are alleged to have been caused, by the same condition(s) or defective construction which first existed prior to the inception of this policy.”

    What makes it so bad?  A variety of questions and issues arise.  Known to whom?  This is not limited to known by the insured.  Alleged by whom?  The insurance company adjuster, perhaps?  By a condition that existed prior to policy inception?  An unknown condition that had not previously caused any injury or damage? 

    There may be, depending on state law, an argument that damage to property may be covered under other policies, but what about bodily injury?  Assume that the policy incepted two months ago and a serious injury arose today from an unknown condition that had existed for the past few years (e.g., a missing screw on a railing).  No coverage would be provided under the current policy incorporating this endorsement, and because most general liability policies cover only claims that arise during that policy period, no coverage is available under any prior policy.  And of course, when this policy is renewed with the same wording, the issue compounds.  This effectively becomes a claims-made coverage with no prior acts coverage and no extended reporting period.

    Another egregious exclusion is the Prior Work Exclusion, which is effectively another quasi claims-made coverage in occurrence clothing.  This endorsement excludes allegations arising from work that has been completed prior to the inception of current coverage.  The result is that coverage is provided only with regard to work in progress at the time of policy inception or begun during that policy period. Coverage is completely lost for liabilities arising out of work that was completed prior to the inception of the current policy.

    These are just two quick examples in a long list of harsh but invisible exclusions in common use.  If you are the upstream party requiring insurance, how do you protect yourself?  Three steps:

    •    Your insurance requirements should be drafted in a detail manner, referring to industry-standard ISO forms to the greatest extent possible.

    •    Your insurance requirements should prohibit those exclusions and limitations that would effect the protection provided to you by your downstream contractors/subcontractors. Those listed in the AIA Insurance Exhibit are a good start but may not be sufficiently clear or broad for your purposes.

    •    Require a copy of the Schedule of Forms and Endorsements page from the downstream contractor’s general liability policy and review it carefully.  This will list every endorsement added to the policy.  Are some included that you do not recognize?  If so, demand copies and read them.  Are some included that are unacceptable?  If so, negotiate or perhaps move on to another contractor that can provide the insurance coverage required.

    If you are the contractor buying the insurance, make sure that your agent or broker understands the insurance needs of your firm, including what it is being required by others to provide, and has fully met those needs.

Charles E. Comiskey, CPCU, CIC, CPIA, CRM, PWCA, CRIS, CCM, CMIP
Sr. Vice President
 Brady Chapman Holland & Assoc.,
10055 West Gulf Bank  • Houston, TX  77040
713-688-1500
Charles.Comiskey@bch-insurance.com


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