Archive for the ‘Insurance’ Category

Did You Know…You Can Insure Against Non-Payment

On May 17, 2010 Author By Scott Wolfe Jr

Construction Indemnity offers a real revolutionary product for the construction industry: payment insurance. Yes, you’re reading this correctly. You can now purchase an insurance policy to protect your organization against non-paying projects.

Here’s the pitch: Getting paid is one of the biggest challenges to those in the construction industry. Construction Indemnity Group insures that your company is paid the money you’ve earned. When you’re not paid, you make a claim against your policy. Construction Indemnity spreads the risk across multiple contractors, and you assign them your lien and collection rights and let them do the hard (and expensive) work of collecting amounts due.

Their website sums up the policy’s offering and cost with this:

For around $1000 annually (plus cost and fees) with only $150 down and guaranteed payment plans, CIG can provide you $25,000 worth of coverage annually against non-payment by your customer.

This is a real neat product. And I think it fills a real serious need for those contractors and suppliers who perform work or provide materials on construction projects but only have a few thousand (or up to $25k) of outstanding debt on any single project.

As an attorney, I have potential clients approach me to help collect these types of debts all the time. The trouble is that the cost of collection and risk of non-collection is too high. These companies frequently walk away from the account and lose the money. Here at the construction law monitor, we have an entire section devoted to Collections laws and techniques, and we frequently discuss this practical burden to successfully collecting on a marginally small debt.

But just because the number is small when compared to the cost of collecting doesn’t mean its small to you or your company. To the contrary, they mean everything.

Construction Indemnity has a neat calculator on its website titled “See How Much Bad Debt is Costing You.” It’s eye-opening. Put in the amount of bad debt you have per year and your typical profit margin, and the site calculates the sales you need to replace your bad debt. Let’s take something small ($25k of bad debt), and a typical profit margin (5%), and get a dose of reality: You need $500,000 in sales to replace this bad debt.

Construction Indemnity lets you insure it for approximately $1,000.00 a year.

This is not to mention that policyholders are eligible for savings on certain industry services. Express Lien is proud to have a marketing relationship with Construction Indemnity Group, providing its policyholders a discount of at least 20% on all of our products and services. Policyholders also get a discount to Lien Law Online, which is a real neat online service providing folks with legal information about construction lien laws nationwide.

Get more information about Construction Indemnity Group here, or click here to submit an application.

This article was originally posted on Express Lien’s topic-specific Construction Lien Blog.

Posted in:     Collections, Insurance  /  Tags: , ,   /   Leave a comment

Construction Insurance Carriers Address Green Building Projects

On March 16, 2010 Author By Scott Wolfe Jr

We’ve previously written about the intersection of standard insurance policies and green building projects.   And at times, have discussed specific insurance products that may be available.

The problem is simply explained:   Green building projects present unique liability exposures.

Will one party promise energy performance that does not deliver (read:  negligent misrepresentation)?   Will a newer and not fully tested green product constitute a defect in the building, and lead to consequential damages (read: negligence)?  These two examples notwithstanding the obvious possible contractual breaches.

So how does the insurance industry address this unique exposure?

Susanne Sclafane, managing editor of National Underwriter’s Property and Casualty edition, published a really great article on this topic earlier this year:  Insurers ‘Green Up’ Gray Coverage Areas.

The author discusses the coverage problems presented by green building projects, and analyses items that insurance companies are refusing to cover and new endorsements and coverages becoming available.

I highly recommend the article.

Posted in:     Green Building, Insurance  /  Tags: , ,   /   Leave a comment

Is Your Contractor's or Subcontractor's Certificate of Insurance Worthless?

On September 3, 2009 Author By Scott Wolfe Jr

If you look closely at your contractor’s or subcontractor’s certificate of insurance, you’re likely to find a disclaimer that reads something like this:

This certificate is issued as a matter of information only and confers no rights upon the certificate holder.   This certificate does not amend, extend or alter the coverage afforded by the policies below.

Normally, the certificate of insurance is produced specifically for the purpose of demonstrating that a particular party is a “certificate holder” or “additional insured.”  But the very document itself has a boldfaced disclaimer that the certificate cannot be relied upon.

This begs our question:  Is the certificate of insurance worthless?

Legally Speaking…Yes

It will be the burden of the insured (or the party claiming coverage) to prove the existence of a policy and coverage.  Tunstall v. Stierwald, 809 So.2d 916 (La. 2002).

There is clear case law that reliance on certificates of insurance may be easily misplaced.   In T.H.E. Insurance Co. v. City of Alton, for example, the US 7th Circuit held that a party “could not simply rely on the certificate [of insurance] for the terms and conditions of coverage.”  227 F.3d 802, 806 (2000).

A certificate of Insurance is not an insurance policy, and the certificate itself is not ordinarily issued by the insurance company.   Simply speaking, a party claiming coverage will likely not meet its burden of proving insurance coverage by pointing to a certificate of insurance only.

So, How Do You Confirm Insurance?

Our friends in Mississippi who run the Construction Law Toolbox blog posted last week asking “Can I Rely On My Subcontractor’s Certificate of Insurance?“   They provide a good analysis of the problem with certificates of insurance in their article, and they offer a “best practices’” for those in the construction industry:

The best business “policy” is to always obtain and read the actual insurance policy itself. In reviewing the policy, take into consideration the circumstances related to each particular project.

While this is more difficult than the ordinary receipt and filing of your contractor’s or subcontractor’s certificate of insurance, it’s the only way to confirm that the insurance policy required by your contract has been properly provided.

Options If You Have a Certificate, But No Insurance

What to do if you have a Certificate of Insurance…but no actual insurance?

While you may not have a perfect claim against the insurer, you have a number of alternative claims.   Some example claims:  A suit against the insurance agency for negligent or intentional misrepresentation, or for errors and omissions, or a suit for breach of contract against the person or entity who was required to provide insurance.

These claims may expire quickly, so if you a certificate of insurance (but, no actual insurance), it’s important to promptly seek the advice of counsel.

Posted in:     Insurance  /  Tags: , , ,   /   Leave a comment

Homeowner Sues Their Homeowners Insurer for Chinese Drywall Defects

On April 29, 2009 Author By Scott Wolfe Jr

On the Chinese Drywall Blog, we’ve talked about class action suits, individual suits against builders and suppliers, suits by builders against its suppliers, and other similar actions.

However, in Florida, one couple seeks to hold another party liable for their Chinese Drywall damages:  their own homeowners insurer.

The claim makes a great deal of sense, and it adds to the mystery of who will eventually be responsible for the Chinese Drywall damages.

The suit was brought in a Florida U.S. District Court, and is captioned Baker v. American Home Assurance Company, Inc., Middle District of Florida, No. 09-cv-188-FtM-99DNF.  (read here)

According to the complaint, the homeowners made a claim in December 2008 related to damages caused by Chinese Drywall.  The complaint describes the cause of the damage as coming from “drywall…emitting gases which have damaged the Subject Property and the contents therein.”

After inspection and testing, the insurer denied the claim for “contamination.”     The Baker complaint argues that the damages were not caused by “contaminants” as defined by the policy.

The policy at the center of the Baker action defines “contaminates” as follows:

An impurity resulting from the mixture of or contact with a foreign substance.

According to the complaint, there was not ‘mixture or contact with a foreign substantance,’ and therefore, the pollution exclusion would not apply.

The Baker exclusion is far less detailed then some of the other pollution exclusions found in Commercial General Liability policies…and therefore, may be interpreted differently.

If pollution exclusions in homeowners policies are generally less complex than GCL policies, it may be prudent for homeowners to make timely claims against their homeowner policies if they are faced with Chinese Drywall damages.

It’s too early to predict exactly who will be responsible for damages associated with Chinese Drywall, especially since so many parties are involved.   To rely simply on one remedy (i.e. a class action) is probably an irresponsible choice for homeowners faced with significant damages.

We’re likely to see a flood of suits in the coming months against builders, home insurers, suppliers and other responsible parties.   Home insurance policies will likely file subrogation claims against builders, suppliers and other parties as well.

We’ll monitor the Baker suit as it proceeds.  Stay tuned.

Posted in:     Insurance  /  Tags: , , ,   /   1 Comment

Green Building and Risk Management

On April 29, 2009 Author By Scott Wolfe Jr

Just recently, the U.S. Green Building Council published an update to its readers explaining Risk Management issues to its readers, explaining that while green building is growing even in the current U.S. Economy, it presents unknowns that makes it difficult for the industry and insurance underwriters to manage risks.

Here is a snippet:

Underwriting insurance coverage is the art of understanding, assessing, and mitigating risk. Green building has presented challenges to insurance carriers stemming from the fact that green building design and construction is new. New things are tougher to understand from a historical loss perspective, requiring leading insurance carriers to take a proactive approach to understanding the possible ramifications of providing expanded coverage to meet the needs of firms engaged in the green building industry, while anticipating the market demand for these specialty insurance products.

As mentioned in previous posts, as the green building market continues to boom, green litigation and losses becomes more likely.   What if the planned LEED certification is not achieved?  What if the design is not as energy efficient as planned?

And the questions go on and on.

One question that is still unanswered, as hinted by the USGBC above, is with regard to Risk Management & Insurance.

In December 2008, Wolfe Law Group published an informative article on its Construction Law Monitor titled Green Building Insurance & Limiting Exposure.   The article discusses the need for specialty insurance, the packages available to contractors and the idea of green building performance bonds.

Just last week, ACE USA announced the launch of a Green-Specific Contractors Insurance Program, joining the ranks of companies like Fireman’s Fund, Travelers & AON.

Like everything else in the green building industry, the waters here are untested.   While we can read the policies and the brochures on the policies, it’s too early to determine what types of claims will be paid versus those denied, or the role green building insurance will play – or ever play – in protecting a contractor from professional liability losses.

Posted in:     Insurance  /  Tags: , , , , ,   /   2 Comments
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