QUESTION: What do these three have in common?

• Additional insured status when required by contract, • Late notice

• Designated locations

ANSWER: All three were the subjects of interesting decisions reported in a recent issue of Hurwitz & Fines’ bi-weekly email newsletter “Coverage Pointers.”1

 When Required by Contract

Today ‘s commercial general liability policies issued to contractors frequently provide automatic additional insured status for the owner the contractor is working for, but only when the contract between the parties clearly calls for it. Requests for additional insured status are commonplace. This endorsement saves work for the insured, the broker, and the insurer, but it’s not fail-safe.

The ISO endorsement is CG 20 33 07 04 (Additional Insured - Owners, Lessees Or Contractors - Automatic Status When Required In Construction Agreement With You). Many insurers use their own forms to accomplish the same end. A problem arises when the contract between the parties doesn’t specifically say that the contractor shall provide additional insured status for the owner.

In one reported case, 140 Broadway Property had contracted with Schindler Elevator Company to do work in 140’s building. Although the written contract between 140 and Schindler required Schindler to purchase several forms of insurance coverage, it did not expressly state that Schindler was required to name 140 as an additional insured on its general liability coverage2. Zurich provided general liability coverage for Schindler. Its policy extended coverage to any entity “for whom the named insured [Schindler] has specifically agreed by written contract to procure bodily injury, property damage and personal injury liability insurance.” The court ruled that because the contract between the parties did not specifically require that 140 be added as an additional insured, Zurich was not obligated to defend and indemnify 140. A similar problem arose for Hargob Realty Associates. Its contract (which ran all of one page!) with USA Interior, LLC for demolition work contained a hold harmless agreement, but no language requiring that Hargob be named as an additional insured. A certificate of insurance was issued showing Hargob as an additional insured on USAI’s policy, nevertheless USA Interior’s insurer declined to cover Hargob as an additional insured and the court agreed that Hargob was not an additional insured on the policy.3 (Certificates of insurance do not amend policy provisions. That’s well settled law in New York and most other states.) When our clients hire contractors, they want the contractors to be responsible for accidents arising out of the work and to defend and indemnify them when there is a claim. To accomplish this, they should include specific wording in all their contracts requiring that they be named as additional insureds in addition to incorporating a properly-worded hold harmless/ indemnification agreement.

As insurance practitioners, we can help the client’s attorney use insurance-appropriate wording. I’ve seen newly drafted insurance requirements that call for “comprehensive general liability” despite the fact that comprehensive general liability policies haven’t been available in the insurance marketplace since 1986. I recommend that specific policy forms be listed in the requirements, for example: commercial general liability insurance at least equal to ISO form CG 00 01 12 07.

Late Notice

Prompt notice of an occurrence is a standard insurance policy provision. New York courts were the strictest in the nation when it comes to enforcing this policy condition. New York cases abound where coverage was denied for not much more than one month’s delay in giving notice.

Effective with policies issued after January 19, 2009, New York law now provides that the insurance company must show that it was prejudiced by the failure of the insured to promptly report an occurrence. This puts New York in sync with most of the rest of the country. However, it does not change the requirement to promptly report losses; it only requires that the insurance company show it was prejudiced by the late notice, if the insured challenges the denial.

No one knows for sure how the courts will interpret the term “prejudice.” One attorney suggests the following as possible bases to support a claim of prejudice: Did the insurer lose the opportunity to get substantially the same information? Could it take photos of the scene or has the area changed? Are all the witnesses available and do they still have good memories of the accident or have witnesses become unavailable?4 In the opinion of most observers, it will be much more difficult for insurers to sustain a denial for late notice. However, it’s a new law; this is an area that will be fleshed out as New York courts deal with actual cases.

A late-notice case involving a claim that pre-dated the change in law is Tower Ins. Co. of N.Y. v. Classon Heights LLC. Tower disclaimed for late notice. The building manager knew about the accident and knew that the injured party was taken away in an ambulance5. The accident occurred on October 30, 2006, but no notice was given to the insurance company until March 26, 2007. The court agreed with Tower.

If the new law were applicable to such a case, the insured might have argued that the insurer was not prejudiced by the late notice. Other states that have adopted a notice-prejudice standard require the insurer to prove prejudice by a preponderance of the evidence.6 Further, the New York law requires that the prejudice be material. But, even if the insured were successful in disputing a declination, its legal expenses to obtain coverage are not insured and there’s no coverage for the wear, tear, and worry that this type of incident generates. The court house is never the place to look for coverage.

Insureds can protect themselves by having a knowledge-of-occurrence provision attached to their policies. This endorsement, which is widely offered to middle-market insureds, requires the insured to provide notice only when a specified individual (for example, the risk manager for firms that have one) has knowledge of the occurrence.

The best advice in any event? Remember the three rules of claims-handling: REPORT, REPORT, REPORT.

Designated Premises Coverage

We’re seeing more and more liability policies that are limited to specifically designated premises. The ISO endorsement is CG 21 44 07 98 (Limitation Of Coverage To Designated Premises Or Project). Here’s the key wording:

This insurance applies only to “bodily injury”, “property damage”, “personal and advertising injury” and medical expenses arising out of:

1. The ownership, maintenance or use of the premises shown in the Schedule and operations necessary or incidental to those premises; (emphasis added) or

2. The project shown in the Schedule. It’s a provision that we ask to have removed from our clients’ policies, but that’s not always possible; there are sometimes legitimate reasons for attaching it, for example when the named insured has locations that are covered by other insurance. Richner Communications is an insured that lost coverage due to a designated premises endorsement. Its CGL policy contained a designated premises endorsement. A claimant was injured at a location that Richner admitted was not listed. It argued that because the policy said that the insurance applies to bodily injury caused by an occurrence that takes place in the coverage territory, the policy should provide coverage, the designated premises endorsement to the contrary notwithstanding.

The Appellate Court disagreed; it upheld the insurer’s declination.7 Arguments frequently center on the portion of the endorsement that reads: “operations necessary or incidental to the premises.” Just what that means can be a tough call, but the answer frequently leaves he insured empty-handed. Trader Ed’s, a restaurant in Hyannis, MA, came up short on its quest for coverage.8 Its policy had a designated premises endorsement similar to the one discussed above. The events that left it with out coverage arose when Bacardi U.S.A., a supplier to Trader Ed’s Restaurant, sponsored a Jimmy Buffet concert and supplied tickets for some of Trader Ed’s personnel. Baccardi also donated alcohol for tailgate parties, which started an unfortunate chain of events. The owner of Trader Ed’s organized a group trip to the concert and a tailgate party. He rented a bus to transport employees and customers and invited other local business owners to travel on the bus for a twenty dollar fee. Trader Ed’s supplied a gas grill, a frozen drink machine, food and drinks, and equipment. Three of its employees operated the grill. Training for the employees running the event occurred at Trader Ed’s premises in Hyannis. The purpose of Trader Ed’s involvement was to promote its business and improve its employees’ morale.

Things did not go smoothly at the tailgate party. The employees had difficulty lighting the grill; it was alleged that one of the employees used gasoline to get the charcoal to burn. An explosion ensued, badly burning one person. When the injured person, who was not an employee, sued Trader Ed’s, its insurance company declined coverage. The insurer said that the occurrence at the concert did not arise out of the insured premises nor was it incidental to the operation of that premises. The court agreed. It reasoned that while there may have been a causal connection to the insured’s business, there was no causal connection to the insured’s premises. In its opinion, the endorsement requires that the occurrence at least be incidental to the insured’s premises. (emphasis added). Learning point: When a policy includes such a provision, the insured should notify the insurance company whenever it has activities at, or involvement with, an unlisted location.

Appraisal Update

ISO has just published a new appraisal endorsement for use in Florida to comply with changes in Florida insurance law. The endorsement is IL 01 12 11 06 [Florida Changes – Mediation Or Appraisal (Commercial Residential Property)]. It provides that when the insurer and the insured disagree on the value of the property or the amount of loss, either may request non-binding mediation in accordance with the rules established by the Florida Department of Financial Services. The cost of the mediation is paid by the insurance company unless the insured fails to appear at the mediation conference. The mediator is assigned from a list of mediators maintained by the Florida Department of Financial Services. The law provides that all communications with the mediator are confidential and all statements made and documents produced at a settlement conference are confidential and inadmissible in any subsequent adversarial proceeding. The insured can refuse to participate in the mediation and demand appraisal instead. Or the insured may institute suit on the policy; however in that event the insurer can demand appraisal, if it chooses, unless it had previously requested mediation that the insured rejected.

Either party may reject any settlement proposed at the mediation conference. In that event either party may demand appraisal. The appraisal provision is the same as the one found in almost every commercial property policy with one exception: the insured is not required to submit to appraisal if the insurer requested mediation and either party rejected the mediation result.

Some commentators feel that an insured who represents him or herself at the mediation will be at a disadvantage because the insurance company representative, usually an adjuster, will most likely have been trained in negotiation skills and participated in prior mediations9 .

Nevertheless, I feel that this is an insuredfriendly provision. The insured can take advantage of non-binding mediation at no cost and the mediators will be disinterested parties beholden to neither the insured nor the insurer. It will be interesting to see how it works in Florida and if other states adopt this procedure.

 

 

 

1 “Coverage Pointers” is an email newsletter published every other Friday by Hurwitz & Fine, insurance attorneys in Buffalo. I’d recommend that every insurance practitioner look it over. If you’d like to receive it, email Dan Kahane ddk@hurwitzfine.com. Tell him Jerry sent you.

2 “Contractual Additional Insured Status Not Triggered Where Underlying Contract Did Not Require Such Status” Coverage Pointers May 14, 2010. The case is: 140 Broadway Property v. Schindler Elevator Company, NYS Appellate Division, Second Department 2009-02305 (Index No. 40725/07)

3 Hargob Realty Associates v. USA Interior, LLC 2010 NY Slip Op 04143 NYS Appellate Division, Second Department (May 11, 2010) http://www.courts.state.ny.us/reporter/3dseries/ 2010/2010_04143.htm 4 Based on email message 5/27/10 from Daniel Kohane, attorney with Hurwitz & Fine, Buffalo, NY ddk@hurwitzfine.com 5 Tower Insurance Company Of New York v. Classon Heights LLC, etal. 109826/07, Supreme Court, New York County. 2010 NY Slip Op 31105 May 3, 2010 http://scholar.google.com/scholar_case?case=17 431975953855012145&hl=en&as_sdt=2&as_vis= 1&oi=scholarr

6 For an excellent discussion of the topic see Friedland v. Travelers Indem. Co., 105 P. 3d 639 - Colo: Supreme Court 2005 http://scholar.google.com/scholar_case?case=18 287696011854705902&q=Friedland+v.+Traveler s+indemnity&hl=en&as_sdt=20000000002&as_v is=1

7 Richner Communications, Inc., respondent v Tower Insurance Company, Supreme Court of the State of New York Appellate Division: Second Judicial Department, Case # 2009-07300 4/6/2010 http://www.courts.state.ny.us/courts/ad2/calend ar/webcal/decisions/2010/D26819.pdf

8 United States Liability Insurance Company vs. Harbor Club, Inc. & East Bay Management d/b/a Trader Ed’s etal. Suffolk Superior Court Civil Action No. 06-3938-BLS2 (May 2008) http://www.socialaw.com/slip.htm?cid=18211&s

9 See Chip Merlin “Mediation May Not be the Answer to a Best Alternative Insurance Claim Resolution Process Because it is Subject to Abuse” posted 1/15/10 http://www.propertyinsurancecoveragelaw.com/ 2010/01/articles/insurance/mediation-may-notbe- the-answer-to-a-best-alternative-insuranceclaim- resolution-process-because-it-is-subjectto- abuse/