Allocation oct2013 WRAPs OCIPs Soup to Nuts or Nuts to Soup
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Allocation oct2013 WRAPs OCIPs Soup to Nuts or Nuts to Soup

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Allocation oct2013 WRAPs OCIPs Soup to Nuts or Nuts to Soup Allocation oct2013 WRAPs OCIPs Soup to Nuts or Nuts to Soup Presentation Transcript

  • Final October 28-29, 2013 1
  • 2
  • Susan Page White Manatt, Phelps & Phillips LLP John H. Podesta Murchison & Cumming LLP 3
  •  Allocation of the loss at issue ◦ Inter-insurer  Contribution ◦ Insured versus insurer  Breach of contract regarding defense or indemnity  Allocation after the fact ◦ Insurer versus insured  Indemnity for uncovered amounts paid by insurer ◦ Insurer or insured versus “others”  Subrogation or indemnity 4
  •  Different kinds of policies ◦ Different triggers or scope of coverage  Coverage vs. damage claims ◦ e.g. claims against brokers, subcontractors and other third parties  Different insureds 5
  •  The duty to defend may exist as to each individual policy, but Insured is only entitled to a single defense. San Gabriel Valley Water Co. v. Hartford Accident & Indem. Co., 82 Cal. App. 4th 1230 (Cal. App. 2d Dist. 2000)  The duty to settle may occur when liability is reasonably clear, but a defending insurer has the right to control settlement and may decide to try the case rather than settle. Hamilton v. Maryland Casualty Co., 27 Cal. 4th 718 (Cal. 2002) 6
  •  The insurer must defend immediately and until the case is resolved against the insured before seeking reimbursement. Buss v. Superior Court, 16 Cal. 4th 35 (Cal. 1997)  If grounds for non-coverage are “at issue” in the case, the declaratory relief suit will be stayed. Haskel, Inc. v. Superior Court, 33 Cal. App. 4th 963 (Cal. App. 2d Dist. 1995)  The requirements for an insurer to settle and then seek recovery for uncovered claims is difficult in a complex case. Blue Ridge Ins. Co. v. Jacobsen, 25 Cal. 4th 489 (Cal. 2001) 7
  •  Defense: ◦ There is a potential for coverage and the pursuing insurer shares the same risk of loss  Maryland Cas. v Nationwide, 65 Cal.App.4th 65 (1998)  Indemnity: ◦ The burden shifts to the non-participating insurer to prove the absence of coverage  Safeco Ins. Co. of Am. v. Superior Court, 140 Cal. App. 4th 874 (2006) 8
  •  Admissible evidence of the trigger of coverage under target policy  Beware ◦ Attorney-client privilege as to non-defending insurer? ◦ Mediation protections Simmons v. Ghaderi, 44 Cal. 4th 570, 588 (2008)) 9
  •   Controlled Insurance Programs (Wrap Ups) ◦ Allocation between program policies ◦ Allocation between program policies and “practice” policies ◦ Allocation of uncovered losses  Between OCIP participants  Between OCIP insurer and participants Design Build Contracts 10
  •  Controlled Insurance Program ◦ Common point of purchase for all contractors on the project  OCIP ◦ Owner Controlled Insurance Program  CCIP ◦ Contractor Controlled Insurance program 11
  •    Consider: ◦ All contractors insured by same insurer for each line of business ◦ All contractors insured under same policy Contractors cancel coverage under their normal policy or “practice” policy when they enroll Most practice policies exclude coverage for projects insured under a wrap up 12
  •      Commercial General Liability Workers Compensation (with some exceptions due to individual States’ laws) Umbrella/Excess liability Pollution liability Professional Liability 13
  •     Cross suits exclusions Damage to the project limitations Other insurance provisions But: each subject to their own terms for purpose of contribution to a loss 14
  •    Non-OCIP exposures ◦ Material suppliers, uncovered damages Overlapping issues on project ◦ Third party over suits (WC/CGL) ◦ Pollution/construction claims ◦ Damage to the project (Builders Risk/CGL) Excess claims and insolvent OCIP insurers ◦ When do practice policies participate 15
  •  Analyze the claims presented from a Casualty Event ◦ What is damaged ◦ What party(ies) is(are) responsible, ◦ Who is damaged ◦ What policy(ies) would respond ordinarily ◦ If there is a gap, and there is no coverage for the Casualty, is there a responsible party, and can it be pursued presently 16
  •      Product manufacturers Other non-enrolled parties Automobile and transportation risks, including loading and unloading Ongoing maintenance in owner-builder scenario Uncovered defects 17
  •     May involve funding and chasing given the nature of OCIP Cross complaint/third party complaint against responsible non-enrolled party Cooperative settlement with insured/third party Settle on behalf of all enrolled parties then pursue contribution/indemnity 18
  •    Design versus construction issues ◦ Economic losses versus “physical injury to tangible property” Workers compensation vs. liability issues ◦ Suits against GC for jobsite injury after Privette Loading and unloading vs. premises liability 19
  •     Project specific language ◦ Is there language in the policies that, read together, resolves which policy pays? Other insurance clauses Retentions ◦ Are likely different for different types of policies Covered damages? ◦ Direct physical loss and loss of income – Builders Risk ◦ Physical Injury to tangible property and loss of use – CGL 20
  •  How do practice policies apply when excess policies apply above “all underlying insurance”?  Answer: The OCIP is irrelevant. Read the policies and apply allocation principles. “Tell me like I’m Six”: Nat'l Union Fire Ins. Co. v. Am. & Foreign Ins. Co., 2006 U.S. Dist. LEXIS 96778 (C.D. Cal. Feb. 8, 2006)  21
  • Practice policies pick up slack?  Other OCIP policies fill the gap?  ◦ ◦ ◦ ◦ ◦ Umbrella “drop down” CGL cover damage to project rather than Builders Risk Surety Bonds? Professional Liability policies? Director’s and Officer’s policies 22
  •  USING THE RULES FOR ALLOCATION, CAN YOU PROVE A COVERED DAMAGE CLAIM MEASURED BY THE UNINSURED LOSS? ◦ Additional Insured claim ◦ Umbrella drop down due to insolvent primary ◦ Other insurance for enrolled parties for same line of business ◦ Other type of insurance cover the same loss 23
  •   Fund and Chase ◦ Using subrogation to obtain recovery from indemnitor’s contractual liability coverage ◦ Pursuing indemnity after the fact to avoid cross claim against enrolled parties Litigation approaches to control evidence ◦ Mediation protects evidence from being used in later proceeding ◦ Strategic use of cross complaints and parties that are involved in unique issues 24
  •    One stop shopping for owner Shifts risk of loss to GC or Architect to deliver a finished project that is “move in” ready. Owner typically has a contract with milestones from plans through COO. 25
  •    Will retain a designer to meet the engineer/architect requirements Designer owes obligations to Owner and Contractor ◦ Errors and Omissions Insurance ◦ Indemnity Portions of the project may be further designated design/build, e.g. HVAC 26
  • ◦ Non-conforming work due to bad plans or construction ◦ Economic loss or Property Damage  Liability and a coverage issue ◦ Surety bond for GC vs.  --Contractor’s General Liability  --Professional Liability 27
  •         Susan Page White Manatt, Phelps & Phillips LLP (310) 312-4310 spwhite@manatt.com John H. Podesta Murchison & Cumming LLP (415) 524-4317 jpodesta@murchisonlaw.com 28