September 16, 2014

Adam SmithCoughlin Duffy LLP

Carlton SpillerGreenbaum Row Smith & Davis LLP

Christopher CarrollCarroll, McNulty & Kull LLC

Deborah MasucciMasucci Dispute Management and Resolution Services

What are the common methods of risk transfer in the construction industry? 

Can mediation effectively handle insurance issues?

What do you consider when selecting a mediator?

What are some of the common provisions used in contractual indemnity agreements and how may the specific language used impact the scope of the contractual indemnity obligation?

Are these contractual indemnification provisions enforceable? (i.e., anti-indemnity statutes)

Do the anti-indemnity statutes address insurance coverage as a risk transfer alternative to a contractual indemnification agreement? (i.e., if the indemnity provision is unenforceable, do the insurance requirements survive?)

Broad Form◦ Example: Company A

agrees to defend, indemnify and hold harmless Company B from any damages or loss arising out of or related to Company B’s work or operations regardless of whether the damages or loss arises out of Company A’s negligence or the negligence of Company B.

Intermediate Form◦ Example: Company A

agrees to defend, indemnify and hold harmless Company B, from any damages or loss arising out of or related to Company A’s work or operations and which also arises out of Company A’s negligence except for damages or loss arising out of the sole negligence of Company B.

Limited Form◦ Example: Company A

agrees to defend, indemnify and hold harmless Company B, from any damages or loss arising out of or related to Company A’s work caused by Company A ’s negligence. There is no duty to indemnify Company B for Company B’s own negligence.

New Jersey’s Construction Anti-Indemnity Statute

◦ A covenant, promise, agreement or understanding in, or in connection with or collateral to a contract, agreement or purchase order, relative to the construction, alteration, repair, maintenance, servicing, or security of a building, structure, highway, railroad, appurtenance and appliance, including moving, demolition, excavating, grading, clearing, site preparation or development of real property connected therewith, purporting to indemnify or hold harmless the promisee against liability for damages arising out of bodily injury to persons or damage to property caused by or resulting from the sole negligence of the promisee, his agents, or employees, is against public policy and is void and unenforceable; provided that this section shall not affect the validity of any insurance contract, workmen’s compensation or agreement issued by an authorized insurer. N.J. Stat. Ann §2A:40A-1.

What are the most common versions of additional insured endorsements? (i.e., blanket contractual endorsements; “arising out of your work” versus “caused in whole or in part by your acts or omissions”; “completed operations” versus “ongoing operations” additional insured coverage; etc.) 

Does the modern “caused in whole or in part by” language require a finding of liability before a putative additional insured is entitled to coverage? Can an insurer with the “caused in whole or in part by” language simply argue that its duty to defend is turned into an obligation to reimburse in the event liability is established?

   What are some of the pros and cons of contractual indemnity versus additional

insured coverage?

How are contractual indemnity and additional insured issues typically approached in a mediation?  

“ARISING OUT OF”“Additional Insured – Owners, Lessees or Contractors –

Scheduled Person or Organization”

WHO IS AN INSURED (Section II) is amended to include as an insured the person or organization shown in the Schedule, but only with respect to liability arising out of your work for that insured by or for you.

WHO IS AN INSURED (Section II) is amended to include as an insured the person or organization shown in the Schedule, but only with respect to liability arising out of your ongoing operations performed for that insured.

Who is an Insured (Section II) is amended to include as an insured any person or organization for whom you are performing operations when you and such person or organization have agreed in writing in a contract or agreement that such person or organization be added as an additional insured on your policy. Such person or organization is an additional insured only with respect to liability arising out of your ongoing operations performed for that insured. A person’s or organization’s status as an insured under this endorsement ends when your operations for that insured are completed.

WHO IS AN INSURED (Section II) is amended to include as an insured the person or organization shown in the Schedule, but only with respect to liability arising out of your ongoing operations performed for that insured.

With respect to the insurance afforded to these additional insureds, the following exclusion is added:

Exclusions

This insurance does not apply to “bodily injury” or “property damage” occurring after:

1. All work, including materials, parts or equipment furnished in connection with such work, on the project (other than service, maintenance or repairs) to be performed by or on behalf of the additional insured(s) at the site of the covered operations has been completed; or

2. that portion of “your work” out of which the injury or damage arises has been put to its intended use by any person or organization other than another contractor or subcontractor engaged in performing operations for a principal as a part of the same project

Section II – Who Is An Insured is amended to include as an insured the person or organization shown in the Schedule, but only with respect to liability arising out of “your work” at the location designated and described in the schedule of this endorsement performed for that insured and included in the “product-completed operations hazard.”

Section II – Who Is An Insured is amended to include as an insured the person or organization shown in the Schedule, but only with respect to liability for “bodily injury”, “property damage” or “personal and advertising injury” caused, in whole or in part, by:

1. Your acts or omissions; or2. The acts or omissions of those acting on your behalf; in

the performance of your ongoing operations for the additional insured(s) at the location(s) designated above.

How have NJ courts addressed the “property damage” caused by an “occurrence” issue?  (i.e., how the analysis may differ from an insured general contractor to an insured subcontractor; repair/replace work versus consequential damages (or damages to non-defective components, etc.)

Significance of the subcontractor exception to the “your work” exclusion?

When is the best time to mediate in a construction defect action and how are coverage issues typically approached in a construction defect mediation? 

What are some emerging endorsements/exclusions in the construction defect context? (i.e., continuous/progressive injury/damage exclusions – apply regardless of knowledge of the loss by any property)

Carlton T. SpillerGreenbaum Rowe Smith & Davis LLP732-476-2720; cspiller@greenbaumlaw.com

Adam M. SmithCoughlin Duffy LLP973-631-6050; asmith@coughlinduffy.com

Christopher R. CarrollCarroll, McNulty Kull LLC908-848-6300; ccarroll@cmk.com

Deborah MasucciArbitrator646-670-7224; dm@debmasucciadr.com