Construction Defect Litigation: from A to Z seminar covers issues of commercial general liability insurance coverage, duties of defense, indemnity, insurance debates, surety bonds, wrap insurance options and class action suits.

1. Construction Defect Litigation: From A to Z
Insurance: Covered v. Uncovered?
Presented and Prepared By:
Charles R. Bailey
Andrew R. Herrick
Charleston, West Virginia
Thursday, November 7, 2013

2. Table of Contents
A.
Introduction ..........................................................................................................................3
B.
Commercial General Liability Insurance Coverage Issues ..................................................4
C.
Duties of Defense .................................................................................................................5
D.
Indemnity .............................................................................................................................7
E.
Insurance Debates ................................................................................................................9
1.
Fortuity Principles and the Definition of Occurrence ..............................................9
2.
Known Loss ..........................................................................................................11
3.
Four Corners Rule ..................................................................................................12
4.
Rule of Reasonable Expectations...........................................................................13
F.
Surety Bonds ......................................................................................................................14
G.
Wrap Insurance Options: OCIP or CCIP ..........................................................................16
H.
Class Action Suits ..............................................................................................................17
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3. A.
Introduction
The CGL policy provides coverage for liability arising from bodily injury, personal
injury or damage to property of third parties. It acts as a platform by which other policies are
subsequently integrated to coordinate coverages, such as Builder‟s Risk, Umbrella/Excess
Liability, Professional Liability or Contractor‟s Pollution Liability. The typical CGL policy has
a few Coverage Sections; usually, Coverage A for “bodily injury and property damage,”
Coverage B for “personal and advertising injury,” and Coverage C for medical payments arising
out of accidents in which third parties suffer bodily injury.
The majority of the case law surrounding CGL insurance involves issues dealing with
Coverage A, “bodily injury and property damage.” A typical “bodily injury and property
damage” Coverage reads as follows:
a. We will pay those sums that the insured becomes legally obligated to pay as damages
because of “bodily injury” or “property damage” to which this insurance applies. We
will have the right and duty to defend the insured against any “suit” seeking those
damages . . . .
b. This insurance applies to “bodily injury” and “property damage” only if:
(1) The “bodily injury” or “property damage” is caused by an “occurrence” that
takes place in the “coverage territory”; and
(2) The “bodily injury” or “property damage” occurs during the policy period.
Over the years, CGL policies have come to include a number of specific exclusions to
coverage. As such, insureds that wish to fill the gaps left by exclusions may purchase
endorsements to the CGL or seek special policies. Many of the issues that surround CGL
policies are the same as those that surround traditional insurance policies, plus new issues
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4. exclusive to CGL policies. Those include, but are not limited to policy interpretation, the duty to
defend, indemnification, and reasonable expectations as well as the recently developed field of
wrap insurance options. CGL policy litigation is bound to continue to grow along with the
businesses themselves. For example, many of the risks that businesses confront are related to
methods of doing business that were unheard of even twenty years ago. The rise of the Internet
and e-commerce has led to a broad range of information-based potential liabilities along with the
new first-party risks associated with the new economy. As a result of CGL and insurance
jurisprudence‟s rapid development over the past decades, courts have addressed new issues,
developed new law, rethought old law, and continued traditional methods into the present.
B.
Commercial General Liability Insurance Coverage Issues
One of the largest issues surrounding CGL policies is the court‟s interpretation of the
coverage sections. In WV, “where the provisions of an insurance policy contract are clear and
unambiguous they are not subject to judicial construction or interpretation, but full effect will be
given to the plain meaning intended." Syllabus Point 4, National Mut. Ins. Co. v. McMahon &
Sons, Inc., 177 W.Va. 734, 356 S.E.2d 488 (1987), overruled on other grounds by Potesta v.
United States Fid. & Guar. Co., 202 W. Va. 308, 504 S.E.2d 135 (1998). On the other hand, "it
is well settled law in West Virginia that ambiguous terms in insurance contracts are to be strictly
construed against the insurance company and in favor of the insured." Id. Under West Virginia's
law, an insurance policy is considered to be ambiguous if it can reasonably be understood in two
different ways or if it is of such doubtful meaning that reasonable minds might be uncertain or
disagree as to its meaning. Hamric v. Doe, 201 W. Va. 615, 499 S.E.2d 619 (1997). When the
words of an insurance policy are, without violence, susceptible of two or more interpretations,
that which will sustain the claim and cover the loss must be adopted. See Raffel v. Travelers
Indemnity Co., 141 Conn. 389, 392, 106 A.2d 716, 718 (1954). This is based on the doctrine of
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5. contra preferentem: the automatic construction of ambiguous language against the drafter. The
U.S. District Court for the Southern District of West Virginia has noted that “the same rule of
construing an insurance policy or bond strongly against the insurer and favorably to the insured
(contra proferentem) applies to an application as to the policy itself, the instrument having been
prepared by the insurer." White v. Am. Gen. Life Ins. Co., 651 F. Supp. 2d 530, 543 (S.D. W. Va.
2009).
The doctrine of illusory coverage requires an insurance policy to be interpreted so that it
is not merely a delusion to the insured. “An insurance policy should never be interpreted so as to
create an absurd result, but instead should receive a reasonable interpretation, consistent with the
intent of the parties." Syllabus Point 2, D'Annunzio v. Security-Connecticut Life Ins. Co., 186 W.
Va. 39, 410 S.E.2d 275 (1991).
In interpreting CGL policies, however, courts have not completely shred insurer
protections. Courts will not construe exclusions in the policy so as to “strip the insured of
protection against risks incurred in the normal operation of his business, especially when the
insurer was aware of the nature of the insured's normal operations when the policy was sold.”
McMahon, 177 W. Va. at 742, 356 S.E.2d at 496 (internal quotations omitted).
C.
Duties of Defense
The duty to defend is an insurer's obligation to provide an insured with defense to claims
made under a liability insurance policy. This duty also includes a promise to cover all legal fees
and costs. The rights and obligations of the insurer and insured in this context are controlled by
numerous rules and exceptions. Disputes over whether a civil lawsuit, or other legal proceeding,
triggers an insurer's duty to defend are common. These disputes are unique in that two parties,
jointly defending against a third-party lawsuit, are directly adverse to each other in a separate
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6. lawsuit regarding which one of them is responsible for covering the costs of the third-party
lawsuit, as well as any resulting judgment.
In West Virginia, "[a]s a general rule, an insurer's duty to defend is tested by whether the
allegations in the plaintiff's complaint are reasonably susceptible of an interpretation that the
claim may be covered by the terms of the insurance policy." Aetna Cas. & Sur. Co. v. Pitrolo,
176 W. Va. 190, 194, 342 S.E.2d 156, 160 (1986). West Virginia has further recognized that
"the duty to defend an insured may be broader than the obligation to pay under a particular
policy. This ordinarily arises by virtue of language in the ordinary liability policy that obligates
the insurer to defend even though the suit is groundless, false, or fraudulent." Id. at 194, 342
S.E.2d at 160.
For example, in W. Va. Fire & Cas. Co. v. Stanley, 216 W. Va. 40, 602 S.E.2d 483
(2004), the insurer issued a homeowner's insurance policy providing liability coverage for bodily
injury or property damage caused by an accident. Id. at 44, 602 S.E.2d at 487. It excluded
coverage for bodily injury or property damage that was expected or intended by a covered
person. Id. The claimants filed an action against the insureds for damages for sexual abuse
committed within the insured home. Id. The Court found that the term “accident” is defined as
“an unusual, unexpected and unforeseen event . . . that is never present when a deliberate act is
performed unless some additional unexpected, independent and unforeseen happening occurs
which produces the damage.” Id. at 49, 602 S.E.2d at 492. The Court did not believe that the
term "accident" in the policy was ambiguous and that the meaning did not include the kinds of
deliberate acts alleged in the complaint. Id. The Court went further and explained that there was
“neither a duty to defend an insured in an action for, nor a duty to pay for, damages allegedly
caused by the sexual misconduct of an insured, when the liability insurance policy contains a so-
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7. called „intentional injury‟ exclusion” because the intent to injure would be inferred. Id. at 50,
602 S.E2d at 493. As a result, the Court held that the insured was under no duty to defend. Id. at
55, 602 S.E.2d at 498.
In Tackett v. Am. Motorists Ins. Co., 213 W. Va. 524, 584 S.E.2d 158 (2003), an
employee allegedly sexually harassed a customer. Id. at 526-27, 584 S.E.2d 160-61. The
employer‟s general liability policy included an "intentional injury" exclusion which applied only
to the policy's bodily injury coverage. Id. at 532, 584 S.E.2d at 166. Bodily injury coverage was
not available as there were no allegations that bodily injury resulted from the employee's alleged
sexual misconduct, and the mental afflictions alleged did not constitute bodily injury. As the
policy's bodily injury coverage did not apply to the underlying allegations, the intentional injury
exclusion applicable thereto also did not apply. Id. The policy, however, did contain a personal
injury provision which did not contain an intentional acts exclusion. Id. at 533, 584 S.E.2d at
167. The Court explained that "personal injury" includes not only physical injury but also any
affront or insult to the reputation or sensibilities of a person and “bodily injury" encompasses
only physical injuries to the body and the consequences thereof. Id. The Court found that
underlying allegations in the Complaint fell within the policy's personal injury coverage. Id. As
a result, the Court held that the employer's insurer had a duty to defend the employee. Id. at 534,
584 S.E.2d at 168.
D.
Indemnity
Indemnity is the insurer's agreement to pay for the insured's legal liability up to the stated
policy limits. Indemnity insurance aims to protect business owners and employees when they
are found to be at fault for a specific event. West Virginia law allows indemnity provisions in
contracts because "indemnity clauses serve our goals of encouraging compromise and settlement
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8. by reducing settlement discussions to bilateral discussions, by encouraging adequate levels of
insurance, and by allowing the parties to a contract to allocate among themselves the burden of
defending claims." Dalton v. Childress Service Corp., 189 W.Va. 428, 431, 432 S.E.2d 98, 101
(1993) (emphasis omitted). Also, in terms of contractual law, “parties to a contract may
contractually shift a risk of loss through an indemnity provision in the contract. The
„indemnitee‟ in the contract can also require the „indemnitor‟ to provide some insurance
protection for the indemnitee.” Marlin v. Wetzel County Bd. of Educ., 212 W. Va. 215, 223, 569
S.E.2d 462, 470 (2002).
In an insurance contract, the phrase “liability assumed by the insured under any contract”,
or words to that effect, refers to “liability incurred when an insured promises to indemnify or
hold harmless another party, and thereby agrees to assume that other party's tort liability.” Id. at
222, 569 S.E.2d at 469. Furthermore, the defendant seeking indemnification must be one "who
has committed no independent wrong." Harvest Capital v. West Virginia Dept. of Energy, 211
W.Va. 34, 37, 560 S.E.2d 509, 512 (2002). Indemnity can arise not only from the words of the
insurance contract, but also from circumstances surrounding the contract. This is known as
implied indemnity. West Virginia recognizes implied indemnity and has found that the requisite
elements of an implied indemnity claim include:
“[A] showing that: (1) an injury was sustained by a third party; (2)
for which a putative indemnitee has become subject to liability
because of a positive duty created by statute or common law, but
whose independent actions did not contribute to the injury; and (3)
for which a putative indemnitor should bear fault for causing
because of the relationship the indemnitor and indemnitee share."
Syllabus Point 4, Harvest Capital v. West Virginia Dept. of Energy, 211 W.Va. 34, 560 S.E.2d
509 (2002).
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9. The Court has also noted that reviewing courts are directed to “liberally construe
insurance policy exclusions in favor of an affected insured.” Tackett, 213 W. Va. at 529, 584
S.E.2d at 163. Also, exclusionary language “will be strictly construed against the insurer in
order that the purpose of providing indemnity not be defeated.” Id. This same standard applies
to determinations of an insurer's duty to defend its insured. Id. This interpretation of
exclusionary language in favor of the insured seems to advance the principle noted above that
exclusions are not to be construed so as to “strip the insured of protection against risks incurred
in the normal operation of his business.” McMahon, 177 W. Va. at 742, 356 S.E.2d at 496
(internal quotations omitted).
E.
Insurance Debates
1.
Fortuity Principles and the Definition of Occurrence
The very nature of insurance implicitly creates the requirement that a loss is accidental or
by chance in order to be a covered loss under an insurance policy. Fortuity is that contingency or
uncertainty with respect to the risk insured. A loss is fortuitous if it resulted from a risk, as
opposed to an almost certain outcome of the inherent qualities and intended use of the property.
Until the 1960s, insurance policy coverage was keyed on the term “accident,” which was defined
as “a sudden and unforeseeable event.” As a result, insureds were not covered if the event was
not “sudden.” For example, a toxic chemical leak from a storage site over a long period of time
would not be covered. Due to this, most CGL insurance policies beginning in the early 1970s
started to key coverage off the term “occurrence.”
“Occurrence” is typically defined as, “An accident, including continuous or repeated
exposure to substantially the same general harmful conditions, which results in bodily injury or
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10. property damage neither expected nor intended from the standpoint of the insured.” The word
“accident” is still used in the definition, but clarified to also pertain to events that are not sudden.
Courts have struggled with how to define “accident” and as a result “occurrence.” The
West Virginia Supreme Court has noted: “In determining whether under a liability insurance
policy an occurrence was or was not an „accident‟—or was or was not deliberate, intentional,
expected, desired, or foreseen—primary consideration, relevance, and weight should ordinarily
be given to the perspective or standpoint of the insured whose coverage under the policy is at
issue.” Syllabus Point 1, Columbia Casualty Co. v. Westfield Insurance Co., 217 W. Va. 250,
617 S.E.2d 797 (2005). In other words, “the circumstances giving rise to the claimed damages or
injuries must not have been „deliberate, intentional, expected, desired, or foreseen‟ by the
insured.” Cherrington v. Erie Ins. Prop. & Cas. Co., 745 S.E.2d 508, 520 (W. Va. 2013). An
insured intends an injury if he "consciously desires the result of his act or knows with substantial
certainty that the loss or damage will follow from his conduct regardless of his desire." Health
Care and Retirement Corp. v. St. Paul Fire & Marine Ins. Co., 621 F.Supp. 155 (S.D. W. Va.
1985).
Until recently, West Virginia had always held that defective workmanship fell outside of
CGL coverage. The courts had always found that CGL policies were not designed to protect
against poor workmanship: “Poor workmanship, standing alone, does not constitute and
„occurrence‟ under the standard policy definition of this term as an “accident including
continuous or repeated exposure to substantially the same general harmful conditions.‟”
Syllabus Point 2, Corder v. William W. Smith Excavating Co., 210 W. Va. 110, 556 S.E.2d 77
(2001). The Court has similarly noted that CGL policies are designed to protect against the risk
of tort liability from physical injury to persons or property as the result of the work performed or
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11. from the completed product, but not faulty workmanship claims which are contractual in nature.
See Webster County Solid Waste Authority v. Barackenrich and Associates, Inc., 217 W. Va.
304, 617 S.E.2d 851 (2005).
Recently, West Virginia‟s Supreme Court held that “defective workmanship causing
bodily injury or property damage is an „occurrence‟ under a policy of commercial general
liability insurance.” Cherrington, 745 S.E.2d at 521. In Cherrington, the Court found that a
majority of states had begun to find coverage for defective workmanship claims as within the
term “occurrence.” Id. at 518. When looking at the definition of “occurrence” and “accident,”
the Court found, as noted above, the claimed injuries must not have been foreseen, deliberate, or
intentional. Id. at 520. After defining the appropriate terms, the Court noted that the damages
incurred during construction and in the completion of the project were not within the
contemplation of the contractor when it hired the subcontractors, because had the contractor
foreseen the poor workmanship of the subcontractor, it would not have hired them in the first
place. Id. Similarly, the contractor did not deliberately intended the consequences that resulted
from the subcontractor‟s poor workmanship because that would suggest the contractor sabotaged
its own project at the risk of its professional name and business reputation. Id. Finally, the
Court held that to conclude defective workmanship fell outside of coverage would be to create an
absurd result when viewed in light of policy language that provided an exclusion to the policy
did not apply to work by subcontractors. Id. at 520-21.
2.
Known Loss
The known loss doctrine is a common law defense to insurance coverage according to
which insurers are not obligated to cover losses that are already occurring when the coverage is
written or that have already occurred. One way general liability insurers have tried to expand the
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12. reach of the known loss doctrine is to incorporate language that excludes coverage where the
policyholder has knowledge that bodily injury or property damage had occurred, in whole or in
part, prior to the policy period. A U.S. District Court has opined in a pollution case that the West
Virginia Supreme Court had not adopted the "known loss" doctrine. Supertane Gas Corp. v.
Perry, 1996 U.S. Dist. LEXIS 22992, *11 (N.D. W. Va. Aug. 30, 1996).
3.
Four Corners Rule
In some jurisdictions, an insurer's duty to defend depends solely on a comparison of the
allegations of the complaint to the policy language. This is known as the four corners rule.
Other jurisdictions do not rely solely on the four corners approach. These jurisdictions also
require that, where the complaint does not trigger the duty to defend, an insurer must conduct a
reasonable investigation of the surrounding facts to determine whether it has an obligation to
defend. It appeared at one point that West Virginia was moving away from a strict "four
corners" test. In Farmer & Mechanics Mut. Ins. Co. v. Hutzler, 191 W. Va. 559, 447 S.E.2d 22
(1994), the state Supreme Court ruled that an insurer may not restrict its scrutiny to the
allegations in the underlying complaint and must undertake a "reasonable inquiry into the facts"
to determine whether its coverage is potentially triggered. See also Health Care and Retirement
Corp. v. St. Paul Fire & Marine Ins. Co., No. 84-2488 (S.D. W. Va. 1985)(predicting that West
Virginia Supreme Court would require a liability insurer to undertake a reasonable investigation
of a claim, even where the complaint itself alleges only that the insured "expected or intended"
harm).
More recently, however, Justice Starcher noted in a concurring opinion:
“[A]s a general rule, an insurer's duty to defend the insured is
determined primarily by the pleadings in the underlying lawsuit,
without regard to their veracity, what the parties know or believe
the alleged facts to be, the outcome of the underlying case, or the
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13. merits of the claim. This rule has variously been called the „four
corners‟ because the insurance company's duty is defined by the
allegations in the "four corners" of the complaint or the "eight
corners" rule [because] the insurance company or trial court
compares the „four corners‟ of the complaint with the „four
corners‟ of the insurance policy.”
West Virginia Fire & Cas. Co. v. Stanley, 216 W.Va. 40, 56, 602 S.E.2d 483, 499 (2004)
(Starcher, J. concurring). One distinction between the two conflicting opinions is that in Hutzler,
the pleadings were rather ambiguous in regard to the type of tortious conduct that was being
alleged, and general allegations of negligence that are directed at all of the defendants under
common law theories related to negligence, might then fall within the insurance protection
provided. Another point to note is that even in a four corners jurisdiction, the actual facts, as
opposed to the alleged facts, may still play an important role in determining an insurer's defense
obligation, particularly when the insurer knows about such facts.
4.
Rule of Reasonable Expectations
The rule of reasonable expectations states that provisions of a contract are to be
interpreted according to what a reasonable person would interpret them. It favors the objectively
reasonable expectations of the weaker insured party although the language of the provisions does
not explicitly supports them. In West Virginia, courts have found that "[a]n insurance contract
should be given a construction which a reasonable person standing in the shoes of the insured
would expect the language to mean." Soliva v. Shand, Morahan & Co., 176 W. Va. 430, 345
S.E.2d 33, 35-36 (1986). This means that the “objectively reasonable expectations of applicants
and intended beneficiaries regarding the terms of insurance contracts will be honored even
though painstaking study of the policy provisions would have negated those expectations.”
McMahon & Sons, 177 W. Va. at 741, 356 S.E.2d at 495.
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14. The Court has noted that where an insured has reasonable expectations of coverage under
a policy, those expectations should not be subject to “technical encumbrances or hidden pitfalls.”
Id. at 742, 356 S.E.2d at 496. Should an insurer want to avoid liability, exclusionary clauses
need to be clear and conspicuous so as to make the exclusions obvious in relation to the other
terms and brought to the attention of the insured. Id. The insurer can avoid liability by proving
the insured read and understood the terms in question or the insured indicated understanding
through words or conduct. Id. In many jurisdictions, the insured has a general duty to read the
insurance policy. West Virginia has sided with the majority, however, held that in contracts of
adhesion, like modern insurance contracts, the insured is not presumed to know the contents of
the policy. Id. at fn. 6.
F.
Surety Bonds
A surety bond is a bond given to protect the recipient against loss in case the terms of a
contract are not filled, in which case, a surety company assumes liability for nonperformance.
The West Virginia Code states that surety insurance includes:
(1) Fidelity insurance, which is insurance guaranteeing the fidelity
of persons holding positions of public or private trust;
(2) Insurance guaranteeing the performance of contracts, other than
insurance policies, and guaranteeing and executing bonds,
undertakings and contracts of surety ship: Provided, That surety
insurance does not include the guaranteeing and executing of
bonds by professional bondsmen in criminal cases or by
individuals not in the business of becoming a surety for
compensation upon bonds;
(3) Insurance indemnifying banks, bankers, brokers, financial or
moneyed corporations or associations against loss, resulting from
any cause, of bills of exchange, notes, bonds, securities, evidences
of debt, deeds, mortgages, warehouse receipts or other valuable
papers, documents, money, precious metals and articles made
therefrom, jewelry, watches, necklaces, bracelets, gems, precious
and semiprecious stones, including any loss while they are being
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15. transported in armored motor vehicles or by messenger, but not
including any other risks of transportation or navigation, and also
insurance against loss or damage to such an insured's premises or
to his furnishings, fixtures, equipment, safes and vaults therein,
caused by burglary, robbery, theft, vandalism or malicious
mischief, or any attempt to commit such crimes; and
(4) Title insurance, which is insurance of owners of property or
others having an interest therein, or liens or encumbrances thereon,
against loss by encumbrance, defective title, invalidity or adverse
claim to title.
W. Va. Code § 33-1-10(f). The West Virginia Supreme Court has gone on to define the scope of
surety insurance: “[W]hen a principal purchases a bond he [she] does not purchase insurance
from liability. A bond is issued for the protection of those with whom the principal deals." State
ex rel. Mayle v. Aetna Casualty & Sur. Co., 152 W. Va. 683, 166 S.E.2d 133, 136 (1969). Under
the insurance contract, surety liability is limited by the penalty of the bond (and is otherwise the
same as that of the principle), so long as there is no bad faith or breach on the part of the surety.
State ex rel. Mayle v. Aetna Casualty & Sur. Co., 152 W. Va. 682, 166 S.E.2d 133, 135 (1969).
The West Virginia Supreme Court recently addressed surety bond issues in Hartford Fire
Ins. Co. v. Curtis, 2013 W. Va. LEXIS 608 (W. Va. June 5, 2013), which included two
consolidated suits filed against Hartford as surety. In its decision, the Court held that the surety
on a judgment bond was “conclusively bound by a default judgment entered against its principal,
even when the surety did not have notice of the prior suit against the principal, so long as the
judgment is the type of judgment contemplated by the bond and the surety cannot establish
collusion or fraud.” Id. at *41. Hartford argued that because it did not receive notice of the
actions against its principals, then it was not responsible for paying the default judgments
rendered against said principals. Id. at *30. In so deciding, the Court had to first determine what
types of bonds were at issue. It distinguished between judgment bonds and performance bonds.
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16. It described judgment bonds as a bond “in which the surety agrees to be liable for a judgment
based on a specific statutory violation covered by the bond.” Id. at *18. A performance bond,
on the other hand, is either “[a] bond given by a surety to ensure the timely performance of a
contract [or] [a] third party's agreement to guarantee the completion of a construction contract
upon the default of the general contractor.” Id. at*19. After reading the bonds, the Court
determined that language in the bond relating to the principal maintaining an action upon the
surety of the bond of the amount claimed upon the recovery of judgment against the principal
should be read in light of the plain language of the bond and held that it was a judgment bond.
Id. at *20-22.
Once the Court decided that Hartford‟s bonds were judgment bonds, the Court, relying on
stare decisis, noted that judgment bonds are not subject to W. Va. Code § 45-1-3, which requires
notice to the surety. Id. *33-34; see also State v. Myers, 74 W. Va. 488, 82 S.E. 270 (1914). The
Court also found that as judgment bonds, the surety was bound by the judgment against the
principal, was not entitled to re-litigate defenses available to the principal, and would not be
entitled to any credit due to the principal in default judgment. Id. at *43.
G.
Wrap Insurance Options: OCIP or CCIP
Wrap insurance is a relatively new insurance vehicle for construction projects. Due to
the proliferation of construction defect litigation, wrap insurance policies are fast becoming the
only option for developers, general contractors and subcontractors. Wrap insurance covers all
parties in a construction project under one umbrella policy. The wrap policy includes the owner,
general contractor, sub-contractors and all other parties involved in the construction project. See
Travelers Prop. v. Centex Homes, 2011 U.S. Dist. LEXIS 36128 (N.D. Cal. Apr. 1, 2011). Wrap
insurance provides insurance coverage for those contractors and subcontractors supplying direct
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17. labor or personnel at a construction project, and insure against the risk of loss arising from, inter
alia, property damage, personal injury, and workers' compensation claims. Alpha Constr. &
Eng'g Corp. v. Ins. Co., 402 Fed. Appx. 818, 820 (4th Cir. Md. 2010).
There are two types of wrap insurance: owner controlled insurance program (OCIP) and
contractor controlled insurance program (CCIP). There are a few differences between the two
programs. In OCIP, the owner is the named insured; whereas in CCIP, the owner is an additional
insured. Costs in a CCIP are for a fixed amount, adjustable on exposures, but costs in a OCIP
are both fixed and variable, also adjustable on exposures. Thirdly, OCIPs provide liability limits
to the dedicated project only, but CCIP limits can be shared among multiple projects enrolled in
the program. Finally, under an OCIP, the owner controls the insurance program which leads to
more stability; whereas under a CCIP issues like insolvency, nonpayment of premiums, safety
issues on other projects, or a contract dispute with the owner could all lead to the cancellation of
the policy which could shut down the project.
H.
Class Action Suits
Recent major U.S. Supreme Court rulings have transformed the class action landscape,
Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011) (plaintiffs required to show convincing
proof of a companywide discriminatory pay and promotion policy to proceed with an
employment discrimination class action), but class action filings still remain alive and well. As
far as the impact on decision by lower courts, Wal-Mart Stores v. Dukes has resulted in a greater
focus in class certification decisions on the elements of each cause of action, and whether the
theory of liability or statistics being proffered are sufficiently aligned with the class definition.
One of the most important things any class action defendant should do immediately is
examine whether the lawsuit potentially triggers any of the policies in the company‟s insurance
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18. contract. Class actions claims can raise some unique insurance coverage challenges, but
generally, issues of whether an insurer has a duty to defend and indemnity a class action claim
are analyzed no differently from any other claim. An insurer whose coverage is only potentially
implicated likely should agree to provide a defense under a reservation of rights, and then
terminate its defense of the class action if it later becomes clear that the claim is not covered.
Consumer class actions raise a number of coverage issues not presented by a more
conventional lawsuit. For example, one issue is whether a class action lawsuit amounts to a
single “occurrence” under the policy, or whether each potential class member‟s claim constitutes
a separate and distinct “occurrence.” Another issue presented by a consumer class action is
whether the liabilities sought against the policyholder defendant constitute “damages” covered
by the policy because the liabilities underlying consumer class actions are often established by
statute or regulation.
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