At a recent construction conference on insurance, these insurance programs were discussed by highly credentialed speakers. The goal of these encompassing insurance programs are to allow one insurance policy or a set of policies to protect the contractors, architects, engineers, owners, and subcontractors from lawsuits by injured employees and to reduce expenses associated with claims arising out of the construction environment. The trade off for reduced costs is often a reduced policy limit and an agreement to waive any conflicts of interests among the various signatories to the contracts.
These agreements, while well intended, can be problematic for a number of reasons if one is not careful. The ability of one of the parties to assert a conflict, as well as the potential for there to be an insufficient amount of policy limits to settle each of the company’s exposure are a just a few. Also, when the policy limits are exhausted, does the insurer have a continuing duty to pay any more defense costs? A thorough reading of these agreements together with the proposed insurance policy is a mandatory practice for those who would enter into them! Imagine trying to settle a claim and your agent telling you there is not enough policy proceeds are available to settle your exposure because other parties to the agreement have already used up the balance. The aggrieved parties will then look to the company’s assets to begin with for the rest of what they claim is due. Is an umbrella or excess available to step in at that time? What of the potential for gaps in the coverage provided?
We recommend that our clients involve these discussions with not only a knowledgeable insurance agent, but also attorneys whose background in these and similar areas allow a reasoned evaluation to these issues. More than one jurist has said from the Bench that “there is nothing more expensive than a poorly drafted contract.”
Fountain, Bruce & Mellencamp PLLC is an AV Preeminent rated law firm located in The Woodlands, Texas. The Firm handles insurance coverage and insurance litigation matters and is proud to have represented carriers in many specialty areas, including homeowners, construction defect, auto (including specialized representation for non-standard auto insurance carriers), trucking, commercial general liability and aviation insurance. For more information see our WebSite at www.fbmpllc.com or call (281) 296-6500.