Fraud victims have to buy real insurance, some suing Murray [The Times-Tribune, Scranton, Pa.]

Sept. 02--L.R. Costanzo Construction Services, one of largest construction firms in the region, has filed a lawsuit against Brian Murray Insurance Agency accusing the firm of allowing the construction company to go without essential insurance for four years.

The lawsuit was filed just days before Murray Insurance Agency and its owner, Brian Murray, claimed bankruptcy last year after Costanzo officials learned they were paying for insurance the firm never had, according to Costanzo's civil lawsuit and criminal complaints against agency owner Brian Murray. For four years, the company was building industrial, education and health care buildings with no coverage for excess liability.

Mr. Murray faces more than 20 criminal charges ranging from running a corrupt organization to theft and forgery. One aspect of his $10 million "pyramid scheme," as it was described by state Attorney General Tom Corbett, was his firm collecting money from clients and not buying the insurance. A grand jury presentment that accompanied criminal charges against Mr. Murray and other principals of the Murray Insurance Agency listed L.R. Costanzo among those clients. Mr. Murray's preliminary hearing was continued until Sept. 22.

Murray Insurance Agency's practice of pocketing premiums and issuing phony declaration sheets was first uncovered in 2009, according to state insurance investigators. They claim Mr. Murray admitted he was aware of the practice, but depicted the act as a victimless crime, noting that he was paying claims from his agency's general fund.

However, the Costanzo suit shows that some of Murray's clients will now have to buy real insurance for periods lacking coverage. Construction firms, in particular, face large liabilities.

In 2005, Costanzo was building Scranton Preparatory School's Arts & Science Center. One of many projects the firm completed during four years under Mr. Murray's insurance, the school building posed special challenges that increased liability.

The new three-story center tied into the existing historic school building. Construction took place during the school year, with students and staff in and out of the building. The tight lot on a busy street left little staging area for material and crews.

L.R. Costanzo thought it was fully insured, having purchased commercial umbrella insurance policy from Murray Insurance Agency designed to protect the company from large claims that exceeded coverage for primary liability coverage. According to the criminal and civil complaints, the insurance was never purchased.

L.R. Costanzo sued Murray for more than $200,000 -- $100,638 for premiums the company alleges Mr. Murray pocketed and $100,000 for the actual insurance it purchased to cover 2002 to 2006, when the suit says the company had no excess liability insurance.

Company president Louis A. Costanzo nor company attorney A. James Hailstone declined to comment on the suit.

Michael Kennedy, chief counsel of Associated General Contractors of America, a national group representing 33,000 construction firms, said unlike most consumer insurance policies, liability insurance is occurrence-based, and claims may pop up years after the fact. Depending on state rules, someone could file a claim more than 10 years after the occurrence, so any gap in coverage for a contractor is unacceptable. The potential claims in commercial construction could be massive, Mr. Kennedy said, exceeding total project costs. Mr. Murray's willingness to cover claim out-of-pocket isn't worth much, considering the potential for a claim.

"An insurance broker who is not placing policies is not likely to have the assets to cover a major liability claim from this sort of construction," Mr. Kennedy said. "Imagine the potential exposure if a $100 million building has unintended defects and can't be occupied?"

So-called defect claims come an average of six or seven years after a project is completed, Mr. Kennedy said, illustrating the "tail liability" of construction.

Fortunately, the construction of the arts and science center went off without problems. The building has been in service since it opened and has been heralded in education trade magazines. The building earned a local building design award from the Greater Scranton Chamber of Commerce.

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