Owner Controlled Insurance Program Liability Claims Challenges, Part 2

In the context of underwriting risks associated with an Owner Controlled Insurance Program, there are four critical issues: (1) marketing, (2) determining who qualifies as named insureds under the program, (3) remembering that the policy protects the contractor rather than the owner for many claims, and (4) how the liability policy interacts with other Owner Controlled Insurance Program coverages.|

Harry Griffith

September 21, 2011

This is the second article in an 11-part series on Owner Controlled Insurance Programs. Preceding and subsequent articles in this series can be found here: Part 1, Part 3, Part 4, Part 5, Part 6, Part 7, Part 8, Part 9, Part 10, and Part 11. Liability Owner Controlled Insurance Program From The Underwriting Perspective In the context of underwriting risks associated with an Owner Controlled Insurance Program, there are four critical issues: (1) marketing, (2) determining who qualifies as named insureds under the program, (3) remembering that the policy protects the contractor rather than the owner for many claims, and (4) how the liability policy interacts with other Owner Controlled Insurance Program coverages. Marketing The starting point for any insurance relationship between a sophisticated carrier and a project owner is through brokers in an arms-length transaction. The insured (or its broker) presents a risk to the insurance company and requests that coverage be quoted. The insurance company decides whether it is interested in that risk and the amount that it will charge in its premium. In marketing the Owner Controlled Insurance Program, however, the underwriter may become actively involved in convincing the client that the insurance company is the best to underwrite such a large and sophisticated risk. As discussed below, the owner is often the party seeking damages from an enrolled contractor for damage caused by the latter's work. The owner is thereby a potential claimant as well as the named insured. Statements concerning coverage therefore need to be measured carefully. The underwriter or marketing representative is an employee or an authorized representative of the insurance company. He or she is an agent of the insurance company binding the principal to his statements. (Marsh & McLennan of California, Inc. vs. City of Los Angeles (1976) 62 Cal.App.3d 108.) A statement made by an agent is binding upon his or her principal, as if the principal itself had made the statement. (California Civil Code §2298, et seq.; House of Grain vs. Finerman & Sons (1953) 116 Cal.App.2d 485.) Statements made in the marketing of an Owner Controlled Insurance Program have the potential to create confusion and resulting tension. Some of the more common areas of misunderstanding we have encountered include the following: Who is responsible for explaining the Owner Controlled Insurance Program coverage, deductibles, etc., to the prospective insureds? As to the sponsor of the program, the owner, the broker will have the relationship and ordinarily represent their interest in the transaction. However, what about the contractors? We have experienced claims where contractors claim that simply setting foot on the Owner Controlled Insurance Program insured project entitles them to coverage. Exactly what is the process to become enrolled in the insurance program, and when does coverage become effective? In many cases it is the issuance of a workers compensation policy. However, sometimes there is a lapse in the paperwork, and a job site accident occurs before the enrollment is completed. There are ways that Owner Controlled Insurance Program administrators have created to document enrollment. As a general matter, problem areas exist whenever there is an issue beyond the terms of the insurance policy as issued. The owner, broker, and underwriter need to be aware that the ultimate "insureds” under the program are not a part of the marketing and program design. Communications that do not clearly spell out the rights and responsibilities of all the program participants can lead to confusion or, worse, to coverage gaps and uninsured losses which in turn lead to litigation for all of the parties, including the broker, the sponsor, and the carrier.

Harry Griffith

The late Harry Griffith had over 25 years of experience in insurance coverage, trial and appellate work. He was a partner of Branson, Brinkop, Griffith & Strong, LLP, and supervised the coverage group within the firm, which consisted of eight coverage attorneys. Mr. Griffith published numerous opinions in the area of insurance coverage. Mr. Griffith was a named California Super Lawyer both for 2009 and 2010.

MORE FROM THIS AUTHOR

Owner Controlled Insurance Program Liability Claims Challenges, Part 8

Harry Griffith

Under a typical general liability policy, if a claim presented against an "insured” is partially covered by the policy, the insurance carrier issues a reservation of rights. The reservation of rights letter identifies those claims, causes of action, or damages that are not covered by the policy.|

Owner Controlled Insurance Program Liability Claims Challenges, Part 7

Harry Griffith

In the construction contract, there will be contractual language relating to the procurement of insurance and the operation of the Owner Controlled Insurance Program. In the context of property damage claims for damage occurring to the project itself, those contracts may articulate defenses available to the enrolled contractors. Two of the most important would be the waiver of subrogation clause and the identification of builders risk insurance.|