By Francis Laws and Henry Andrews
Comprehensive General Liability (CGL) Insurance is one of the tools owners and contractors use to manage risk on construction projects. However, a CGL policy’s ability to manage liability is only as good as an owner’s ability to identify potential losses and make sure that the insuring agreement adequatley covers them. When it comes to multi-party projects with contractors, brokers, and carriers in different states, the issue of adequate coverage becomes even more complex. Not only must the parties determine if damages are covered, they also must determine which state law applies to their situation. This can result in project delays and unexpected, expensive litigation.
This article focuses on the five ways in which owners can stay above the fray and protect their next construction project without incurring exorbitant legal fees. First, the article defines coverage under a CGL policy. Then the article discusses how terminology limitations lead to varying state law interpretations of defined CGL terms. Finally, the report concludes by providing concrete steps that owners can take to avoid being blindsided by those varying interpretations and succeed in their next claim.
Imagine this—an owner contracts with a General Contractor (“GC”) to relocate its building in Maryland. The owner limits the GC’s scope of work solely to lifting the building from its current foundation and relocating it to a site with a newly constructed foundation. The owner’s contract with the GC does not include any construction work to the building itself.
The GC engages a Pennsylvania subcontractor to perform the building relocation. Here too, the GC limits the subcontractor’s scope of work to the relocation only. To expose the foundation for the move, the GC must excavate around the building to expose the foundation, cut holes in the oundation to insert beams and lift the building off the foundation to move it to its new site.
As a matter of standard practice, the subcontractor has a commercial general liability (CGL) insurance policy that covers its activities in all 50 states. Typically, a mover would rely on its riggers policy for coverage. However, because moving a building requires a broader coverage, the subcontractor has a modified CGL policy that names the owner and GC as additional insureds, provides that it is primary and non-contributory, and adds a care, custody and control endorsement to extend coverage to the building in case it is damaged during relocation.
As soon as the project begins, things go wrong. During the move, the building suffers a partial collapse damaging aspects of its superstructure. The subcontractor files a claim under the CGL policy believing that the insurance contract covers the damage, but the carrier denies the claim. The insurer contends that there was no “property damage” caused by an “occurrence” under Pennsylvania law and that Pennsylvania law applies because the policy was delivered to the subcontractor in its home state.
Although the subcontractor is a Pennsylvania corporation, the owner does not agree that Pennsylvania law applies because the subcontractor’s contract with the GC provides that Maryland law will control, and the policy specifically envisioned its applicability to all 50 states. To further complicate matters, the subcontractor’s broker is a South Carolina corporation licensed in Maryland. The underwriter is based in Georgia, and the carrier is a Delaware corporation with its principal place of business in Texas. (Although the insurer is a surplus lines carrier, it does not have a license in Maryland.)
So here is the question for the GC, and presumably, the GC’s attorneys—is the carrier correct? Does Pennsylvania law apply, and can the insurer legally deny the subcontractor’s claim?
II. CGL Policy Coverage Defined
One of the most basic CGL concepts is that insurance coverage can never be broader than what has been agreed to under the insuring agreement. Therefore to determine how to protect the project, you must first ascertain what is and is not covered under your insurance contract.
The standard Insurance Services Office, Inc. (“ISO”) CGL policy defines coverage as:
[T]hose sums that the insured becomes legally obligated to pay as damages because of “bodily injury” or “property damage” to which this insurance applies . . . .This insurance applies to “bodily injury” and “property damage” only if [t]he “bodily injury” or “property damage” is caused by an “occurrence” that takes place in the “coverage territory”. . . during the policy period . . . .
Accordingly to determine whether coverage exists the insured must show, among other things, that: 1) the insured is the person causing injury or damage, 2) there is “bodily injury” or “property damage” as defined and limited by the definitions in the policy, 3) the insured is legally obligated to pay for the damage, 4) legal liability arises out of a civil suit and 5) legal liability for bodily injury or property damage arises out of a defined “occurrence.”
The ISO defines an “occurrence” as an accident, including continuous or repeated exposure to substantially the same general harmful conditions. “Bodily injury” means bodily injury, sickness or disease sustained by a person, including death resulting from any of these at any time. Finally, “property damage” indicates:
[The] physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it; or
Loss of use of tangible property that is not physically injured. All such loss of use shall be deemed to occur at the time of the “occurrence” that caused it.
A carrier can further limit coverage by modifying the standard ISO definitions. When the insuring agreement does not define a word, courts generally give the term its “everyday” meaning.
III. Terminology Limitations
While the ISO definitions may seem to clearly explain what construction incident merit insurance coverage, courts differ in interpreting the meaning of those phrases especially when it comes to deciding whether or not an insurable “occurrence” has taken place. Although the ISO defines “occurrence” as an “accident,” it does not provide a definition for the term “accident” which can take on different meanings.
Generally, courts define an “accident” as an unexpected, unforeseen or un-designed happening or consequence of the insured’s negligent behavior. However, because the ISO does not specifically define this term, some courts, including those in California, Connecticut, Kentucky, New York, Pennsylvania, Texas and Wisconsin have found the term to be ambiguous. Other courts, such as those in Florida, Louisiana, Maryland, Virginia and Washington, only deem the “accident” term ambiguous when viewed in light of other policy language or the “occurrence” at issue. All the while, other tribunals find that you must define a point of view to determine the meaning of the term.
Another issue at play in defining an “accident” is whether faulty or defective workmanship is an unforeseen happening within the ISO meaning of occurrence. Again courts are at odds on this issue as well.
On the one hand, some courts hold that faulty workmanship can rise to the level of an insurable occurrence. For example, in Lerner Corp v. Assurance Company of America, the purchaser of a newly constructed office building rescinded its acceptance of the building after discovering a defect to the stone facade that could not have been found by inspection before the sale. After repairing the latent defects, the developer filed a claim under its CGL policy for the repair work. The carrier argued that the incident was not an “occurrence” within the meaning of the policy and denied the claim.
In deciding the case, the Maryland Court of Special Appeals sided with the carrier. The court found that the developer’s liability to repair the facade did not result from an “occurrence,” but “from [the developer’s] failure to satisfy its obligation” under its contract. Therefore, the resulting damages were “not unexpected or unforeseen” within the meaning of the “accident” under the policy. However, the court went on to explain that:
if the defect [had] cause[d] unrelated and unexpected personal injury or property damage to something other than the defective object itself, the resulting damages, subject to the terms of the applicable policy, may be covered.
Conversely, other courts hold that defective workmanship can never constitute an occurrence. Those courts find that faulty workmanship does not present the degree of fortuity, or chance happening, contemplated by the ordinary meaning of “accident.” Those courts also hold that including negligent workmanship within the meaning of “accident” amounts to improperly converting an insurance policy into a performance bond.
IV. The 5 Ways To Protect Your Project And Succeed In Your Next Claim
Given the competing interpretations as to what constitutes a covered occurrence within the meaning of a GCL, the best way for an owner to forestall any potential problems is to implement the following practice before the project begins.
Practice #1 – Be Sure Your Broker Can Answer Difficult Questions
A good insurance broker should do more than just sell you the cheapest policy. You want to look for a true expert in the field who can guide you through the process of identifying the right carrier and help you to ensure that the insurance contract adequately covers your project.
Before selecting a broker, review their credentials, talk with references and interview more than one candidate before deciding on the best broker for you. You should be able to ask your broker, in writing, if the policy adequately covers anticipated losses and to have a discussion with your broker about their professional liability coverage. This conversation puts the broker on notice that any negligent action on their part will result in a malpractice claim.
Practice #2 – Be Sure Your Contractor’s/Subcontractor’s Broker Can Answer Difficult Questions Too
As the owner, it is also essential that your contractors and subcontractors have insurance brokers that are experts in the field as well. Their brokers should also have superior credentials, be able to put coverage limitations in writing and provide proof of their professional malpractice insurance.
Practice #3 – State Your Choice of Law And Require Indemnification
Because the interpretation of “occurrence” and “accident” varies from state-to-state, it is important that you contractually define your choice of law in all of the contracts for your construction project. This is especially true if you have contractors, subcontractors, brokers or carriers from other states. Your construction agreements should clearly specify your choice of law, choice of forum and contain indemnification clauses and contractual commitments requiring that you are named as an additional insured on all insurance policies.
Practice #4 – Review Your Carrier’s Credentials and Policies
You must do your due diligence when selecting an insurance carrier for your project as well. Verify that the insurer has the credentials necessary to provide multi-state coverage. Inquiry as to whether the carrier is licensed in the project state and therefore subject to state agency oversight. Finally, stay in communication with your carrier throughout the project, so the insurer always knows your expectations for coverage.
Practice #5 – Add Protective Endorsements To Your Policy
In addition to making sure that the owner and contractor are listed as additional insures on all CGL policies, work with your insurance professionals to add any necessary endorsements to your policy and ensure that your insuring agreement includes “insured contract” coverage.
If You Need Help
Do you need assistance navigating the ins and outs of the insurance coverage for your next project? Thomas & Libowitz, P.A. can help. Contact our construction law attorneys, Frank Laws or Henry Andrews at (410) 752-2468, email@example.com or firstname.lastname@example.org.
 California – Am. Home Assurance Co. v. SMG Stone Co., Inc., 119 F. Supp. 3d 1053, 1059 (N.D. Cal. 2015); Connecticut – Capstone Bldg. Corp. v. Am. Motorists Ins. Co., 67 A.3d 961, 975, 976 (Conn. 2013); D.C. – W. Exterminating Co. v. Hartford Acc. & Indem. Co., 479 A.2d 872, 875 (D.C. 1984); Florida – Farm Fire & Cas. Co. v. CTC Dev. Corp., 720 So. 2d 1072, 1076 (Fla. 1998); U.S. Fid. & Guar. v. Toward, 734 F. Supp. 465, 468 (S.D. Fla. 1990); Louisiana – Gaylord Chem. Corp. v. ProPump, Inc., 753 So. 2d 349, 354 (La. Ct. App. 2000); Maryland – Gemini Ins. Co. v. Earth Treks, Inc., 260 F. Supp. 3d 467, 477 (D. Md. 2017), subsequently aff’d, 728 Fed. Appx. 182 (4th Cir. 2018); New York – Leo v. New York Cent. Mut. Fire Ins. Co., 20 N.Y.S.3d 842, 847–48 (N.Y. Sup. Ct. 2014), aff’d as modified, 24 N.Y.S.3d 567 (N.Y. App. Div. 2016); Texas – Lamar Homes, Inc. v. Mid-Continent Cas. Co., 242 S.W. 3d 1, 9 (Tex. 2007); Pine Oak Builders, Inc. v. Great American Lloyds Ins. Co., 279 S.W.3d 650 (Tex. 2009); Virginia – Harris v. Bankers Life & Cas. Co., 278 S.E. 2d 809, 810 (Va. 1981); Washington – Yakima Cement Products Co. v. Great Am. Ins. Co., 608 P.2d 254, 257 (Wash. 1980); Wisconsin – American Family Mut. Ins. Co. v. American Girl, Inc., 673 N.W.2d 65 (Wis. 2004).
California – Liberty Surplus Ins. Corp. v. Ledesma & Meyer Constr. Co., 418 P.3d 400, 403 (Cal. 2018), as modified (July 25, 2018); Connecticut – Capstone Bldg. Corp. v. Am. Motorists Ins. Co., 67 A.3d 961, 975 (Conn. 2013); Kentucky – Westfield Ins. Co. v. Tech Dry, Inc., 336 F.3d 503, 508 (6th Cir. 2003); New York – Rosalia v. Hartford Acc. & Indem. Co., 266 N.Y.S.2d 3, 6 (Sup. Ct. 1965); Pennsylvania – Millers Capital Ins. Co. v. Gambone Bros. Dev. Co., 941 A.2d 706, 717 (Pa. Super. Ct. 2007); Texas – Allstate Ins. Co. v. Hicks, 134 S.W.3d 304, 309 (Tex. App. 2003); Wisconsin – Kremers-Urban Co. v. Am. Employers Ins. Co., 351 N.W.2d 156, 164 (Wis. 1984).
 Florida – Council v. Paradigm Ins. Co., 133 F. Supp. 2d 1339, 1344 (M.D. Fla. 2001);Grissom v. Commercial Union Ins. Co., 610 So. 2d 1299, 1304 (Fla. Dist. Ct. App. 1992); Louisiana – W. World Ins. Co. v. Paradise Pools & Spas, Inc., 633 So. 2d 790, 794 (La. Ct. App. 1994); Maryland – St. Paul Fire & Marine Ins. Co. v. Pryseski, 438 A.2d 282, 288 (Md. 1981); Virginia – S.F. v. W. Am. Ins. Co., 463 S.E.2d 450, 452 (Va. 1995); Washington – Allstate Ins. Co. v. Bowen, 91 P.3d 897, 901 (Wash. Ct. App. 2004).
 Accident “encompasses not only ‘accidental events,’ but also injuries or damage neither expected nor intended from the standpoint of the insured,” which can arise from negligence. State Farm Fire & Cas. Co. v. CTC Dev. Corp., 720 So. 2d 1072, 1076 (Fla. 1998); U.S. Fid. & Guar. v. Toward, 734 F. Supp. 465, 468 (S.D. Fla. 1990); Accident is defined from the viewpoint of the victim; losses that were unforeseen and unexpected by the victim are the result of an accident. Gaylord Chem. Corp. v. ProPump, Inc., 753 So. 2d 349, 354 (La. Ct. App. 2000); Whether an event is an unexpected accident that happens is determined from the insured’s view point under subjective rather than objective standard. Gemini Ins. Co. v. Earth Treks, Inc., 260 F. Supp. 3d 467, 477 (D. Md. 2017), subsequently aff’d, 728 Fed. Appx. 182 (4th Cir. 2018); An “occurrence” is considered an “accident” if “from the point of view of the insured….” the incident resulting in the injury “was unexpected, unusual and unforeseen” Leo v. New York Cent. Mut. Fire Ins. Co., 20 N.Y.S.3d 842, 847–48 (N.Y. Sup. Ct. 2014), aff’d as modified, 24 N.Y.S.3d 567 (N.Y. App. Div. 2016); An “occurrence” is synonymous with “accident” and these terms “refer to an incident that was unexpected from the viewpoint of the insured,” which can be negligent acts. AES Corp. v. Steadfast Ins. Co., 725 S.E.2d 532, 536 (Va. 2012); Fid. & Guar. Ins. Underwriters, Inc. v. Allied Realty Co., 384 S.E.2d 613, 615 (Va. 1989); “Inherent in the plain meaning of ‘accident’ is the doctrine of fortuity,” which requires the loss to be without the intent of the insured. Cincinnati Ins. Co. v. Motorists Mut. Ins. Co., 306 S.W.3d 69, 73-74 (Ky. 2010). However, intent and fortuity is also dependent upon control––a fortuitous event is one that is “beyond the power of any human being to bring … to pass, [or is] … within the control of third persons.” Id. at 76; The term “occurrence” or “accident” means “‘[a]n unexpected and undesirable event,’ or ‘something that occurs unexpectedly or unintentionally’” and implies a “degree of fortuity.” Kvaerner Metals Div. of Kvaerner U.S., Inc. v. Commercial Union Ins. Co., 908 A.2d 888, 900 (Pa. 2006).
 California – Am. Home Assurance Co. v. SMG Stone Co., Inc., 119 F. Supp. 3d 1053, 1060, 63 (N.D. Cal. 2015).
Connecticut – Capstone Bldg. Corp. v. Am. Motorists Ins. Co., 67 A.3d 961, 980 (Conn. 2013); D.C. – Commonwealth Lloyds Ins. Co. v. Marshall, Neil & Pauley, Inc., 32 F. Supp. 2d 14, 19 (D.D.C. 1998); Cent. Armature Works, Inc. v. Am. Motorists Ins. Co., 520 F. Supp. 283, 288 (D.D.C. 1980); Florida – U.S. Fire Ins. Co. v. J.S.U.B., Inc., 979 So. 2d 871, 889-90 (Fla. 2007); Louisiana – Martco Ltd. P’ship v. Wellons, Inc., 588 F.3d 864 (5th Cir. 2009); Rando v. Top Notch Props., L.L.C., 879 So.2d 821, 833 (La.Ct.App.2004); Iberia Par. Sch. Bd. v. Sandifer & Son Const. Co., 721 So. 2d 1021, 1023, 1026 (La. Ct. App. 1998); Maryland – State Auto. Mut. Ins. Co. v. Old Republic Ins. Co., 115 F. Supp. 3d 615 (D. Md. 2015); French v. Assurance Co. of Am., 448 F.3d 693, 696 (4th Cir. 2006) Lerner Corp. v. Assurance Co. of Am., 707 A.2d 906 (Md. Ct. App. 1998); Texas – Pine Oak Builders, Inc. v. Great American Lloyds Ins. Co., 279 S.W.3d 650 (Tex. 2009); Lamar Homes, Inc. v. Mid-Continent Cas. Co., 242 S.W. 3d 1, 9 (Tex. 2007); Virginia – Hotel Roanoke Conference Ctr. Comm’n v. Cincinnati Ins. Co., 303 F. Supp. 2d. 784 (W.D. Va. 2004); Nautilus Ins. Co. v. Strongwell Corp., 968 F. Supp. 2d 807 (W.D. Va. 2013); Stanley Martin Cos. v. Ohio Cas. Group, 313 Fed. Appx. 609 (4th Cir. 2009) (Virginia law); Nautilus Ins. Co. v. Strongwell Corp., 968 F. Supp. 2d 807 (W.D. Va. 2013); Washington – Truck Ins. Exchange v. Vanport Homes, Inc., 58 P.3d 276 (Wash. 2002); Aetna Cas. and Sur. Co. v. M & S Industries, Inc., 827 P.2d 321 (Wash. Ct. App. 1992); Dewitt Const. Inc. v. Charter Oak Fire Ins. Co., 307 F.3d 1127, 1133 (9th Cir. 2002), as amended on denial of reh’g and reh’g en banc (Dec. 4, 2002); Mut. of Enumclaw Ins. Co. v. T & G Const., Inc., 199 P.3d 376, 384 (Wash. 2008); Wisconsin – Glendenning’s Limestone & Ready-Mix Co. v. Reimer, 721 N.W.2d 704 (Wis. Ct. App. 2006) American Family Mut. Ins. Co. v. American Girl, Inc., 673 N.W.2d 65 (Wis. 2004); Acuity v. Society Ins., 810 N.W.2d 812 (Wis. Ct. App. 2012).
Lerner Corp. v. Assurance Co. of America, 120 Md. App. 525 (1998)
 Kvaerner Metals Div. of Kvaerner U.S., Inc. v. Commercial Union Ins. Co., 908 A.2d 888 (Pa. 2006)