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Additional Insured Coverage for Construction Defects – 

General Liability Endorsement CG2010 11/85 edition – is GONE!

by

Robert J. Marshburn, CRM, CIC, ARM, CRIS, CISC

CertifiedRiskManagers.com 

 

There is no longer any responsible carrier we know of that will endorse the Commercial General Liability policy for residential construction in California with this edition date of the Additional Insured endorsement for completed operations.  It is rapidly becoming unavailable in other states as well.  It is also becoming difficult to get for commercial construction.

 

In the past, this endorsement obtained by Sub Contractors on their policies gave the Additional Insured (the Developer/General Contractor) the ability to not only transfer the completed operations liability of the construction operation for as long as the statue of limitations would allow (usually at least 10 years), but also gave the Additional Insured coverage for the costly defense of Construction Defect Liability under the Sub's policy

 

The Additional Insured endorsement that carriers will now accept and use are the newer 1993, ’97, 2001 and 2004 versions that only allow coverage for "ongoing operations", not completed operations, and therefore have NO coverage for Construction Defect Liability or defense costs for the Additional Insured.  Carriers will generally not issue the ISO CG2037 10/01 combined with the later versions of the CG2010, since it is essentially the same endorsement as the old CG2010 11/85 edition for completed operations.

 

Those carriers that have in the past issued the CG2010 11/85 for the Subs suffered the long term obligation over many years to defend and pay judgments of the Sub as well as the Additional Insured and have been swamped with claims and costs.  A number are now insolvent.  The last of the carriers who were still doing so have now pulled the plug on issuing this endorsement to try to avoid the same fate...  

 

Many contractors and carriers are using Wrap Policies (OCIPs, CCIPs, etc.) to cover these exposures, but they contain many dangers and gaps of their own.  California will no longer  allow the Owner, General Contractor, or Developer to to be indemnified or insured by the subcontractor for these residential wrap-up construction projects! 

 

To manage this risk, General Contractors and Developers are now going to have to be sure that they deal ONLY with Sub Contractors that:

 

1.     Do quality work in the first place;

 

2.     Have a SUPERIOR customer service department that will 'cure' any alleged defective workmanship by their people in a timely manner;

 

3.     Do business with subcontractors that are financially sound and will be there to handle problems with their workmanship 7, 8, 9, 10 years down the road when the complaints and lawsuits will appear. 

 

They can no longer shift the financial burden via endorsement and be assured of payment by the insurance companies.  They will have to be sure the Sub Contractors themselves are reliable, financially sound, craftsmen.  Using the lowest bidder with questionable work that creates problems, especially for those without the financial ability to correct any problems,  will be far too risky in the future. 

 

Additionally, there is now a need to revise all the Sub Contractor contracts to reflect the new reality.

 

Fixing problems in workmanship is no longer 'insurable' by means of this Additional Insured endorsement and each contractor will fund the repair out of their own pockets with their own funds... so it is important that they are financially healthy. 

 

Quality, responsible, financially sound contractors with a solid performance record are now going to be in very high demand!

 

QUALITY CONTRACTORS now more than ever need qualified, experienced Risk Managers who are specialists in Contractual, Legal, and Construction Defect matters to develop a set of Construction Defect Risk Management Protocols that will: 

 

1.     Provide quality workmanship with a comprehensive program designed and focused to avoid and prevent Construction Defect issues.

2.     Provide the contractual right to cure any alleged problems without costly litigation.  This is now a necessity!

3.     Devise and install internal service, claims, and legal procedures that minimize costs.  A great deal can be done in this area!

4.   Avoid, prevent, and minimize potential Construction Defect Claims before they reach the litigation stage.  We have innovative ways of doing so!

5.     Provide (and revise) sound contractual provisions that provide protections and clarity to all the Sub Contractor contracts to reflect the new reality.  There are a number of ways to do this.

6.   Devise these protocols to integrate with the SB800 Construction Defect law in California or the "right to repair" laws and case law in your state.

7.     And, bottom line, protect the bottom line…

 

A Risk Management Specialist managing the costs for Construction Defect claims is now more important than ever, since these costs will now come directly out of the pocket of the contractor, NOT the insurance company.  A strong, well implemented set of Construction Defect Risk Management Protocols will contribute heavily to the bottom line in the years to come through claims that are avoided completely, or at least significantly reduced…

 

As widely recognized National Educators and Consultants specializing in solving Construction Defect and related issues we are happy to help you with a personalized program to protect your bottom line in this rapidly changing area. 

 

If you would like information on how our consulting services can benefit your business, please contact us

 

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