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October 28-29, 2013

Final

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Susan Page WhiteManatt, Phelps & Phillips LLP

John H. PodestaMurchison & Cumming LLP

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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

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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

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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)

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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)

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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)

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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))

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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

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Controlled Insurance Program◦ Common point of purchase for all contractors on

the project

OCIP◦ Owner Controlled Insurance Program

CCIP◦ Contractor Controlled Insurance program

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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

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Commercial General Liability Workers Compensation (with some exceptions

due to individual States’ laws) Umbrella/Excess liability Pollution liability Professional Liability

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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

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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

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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

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Product manufacturers Other non-enrolled parties Automobile and transportation risks, including

loading and unloading Ongoing maintenance in owner-builder scenario Uncovered defects

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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

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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

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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

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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)

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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

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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

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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

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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.

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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

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◦ 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

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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