Construction projects must have proper coverage [Central Penn Business Journal (PA)]

Proper insurance coverage is critical for construction projects. All forms of construction involve serious risks of personal injury and property damage.When an incident occurs that triggers a lawsuit, a plaintiff's attorney will include all potential parties (the construction firms, design firms and owner) in a filing. It is critical to keep in mind certain issues with respect to insurance and construction projects.

Monitor policy expirations.

It may seem basic, but this kind of failure can result in serious consequences. If insurance policies expire in the middle of a project, it is imperative to make sure these policies are renewed for each particular project. Gaps in coverage can occur when a company decides to go with a new insurance carrier. When obtaining a new carrier, be certain that existing projects also receive coverage.

A lapse in coverage due to nonrenewal may lead to out-of-pocket payment for a defense counsel as well as other consequences, including suspension/debarment or paying a third party's attorney fees.

Duty to defend vs. duty to indemnify

This distinction is not commonly known or understood. When an insurance construction company is sued, two separate issues are involved. First, does the company have a defense counsel? Second, if the company eventually owes damages as a result of the litigation, will it be indemnified?

While the first is not directly related to the second issue, having no counsel defending the case (or a gap in a legal defense) makes the prospect of paying damages greater.Under Pennsylvania law, an insurer's duty to defend is broader than its duty to indemnify. The duty to defend arises whenever the allegations in the underlying complaint state a claim to which the policy potentially applies. (Frog, Switch & Mfg. Co. v. Travelers Ins. Co., 193 F.3d 742, 746; 3d Cir.1999). Even if a single claim in a multicount lawsuit is potentially covered, the insurer must defend all claims until there is no possibility that the plaintiff could recover on a covered claim.On the other hand, the duty to indemnify arises only if the damages the insured must pay are actually within the policy coverage. (Lucker Mfg. v. Home Ins. Co., 23 F.3d 808, 821; 3d Cir.1994).

Consequences of not having third-party coverage

Not having proper coverage in place may mean paying outside costs to an attorney to defend an action instead of the insurance company defending the case, in addition to other consequences.If a public entity has a suit filed against it stemming from a construction site matter, the contractor/vendor is almost always required to provide insurance coverage under the construction contract. If coverage to the public entity is denied by an insurance company, sanctions (including suspension from future public work) may be sought. The public entity may also seek reimbursement for expenses associated with its attorneys, who are likely public employees.In PennDOT v. I.A. Construction Corp, 122 Dauph. 430 (2005), the commonwealth ultimately obtained thousands of dollars in attorney fees from the defendants for failing to provide earlier coverage.

The Perry-Ruzzi rule

If you seek to obtain a policy where you expect to be indemnified for acts of your company's negligence, it is imperative to confirm that the policy provides this explicit coverage. As noted by the Pennsylvania Supreme Court in Greer v. City of Philadelphia, (795 A.2d 376, 379; 2002) "(I)f parties intend to include within the scope of their indemnity agreement a provision that covers losses due to the indemnitee's own negligence, they must do so in clear and unequivocal language.") (quoting Ruzzi v. Butler Petroleum Co., 527 Pa. 1, 7, 588 A.2d 1, 4 (1991)).Known as the "Perry-Ruzzi rule," this provision has existed for more than 100 years.Consequently, if a company wants an insurance policy providing for indemnification for acts of its own negligence during construction, it must be explicitly stated in its policy coverage.

Insurance certificates

While an insurance certificate may appear to show an existing policy, an actual policy may not be in place. This unfortunate situation happened in the case of Donegal Mut. Ins. Co. v. Grossman (195 F. Supp. 2d 657; M.D. Pa. 2001). In that matter, some parties who believed they had insurance coverage actually did not. A good working relationship with an insurance broker should reduce the prospect of this occurring.

Experienced coverage counsel

Coverage cases are inherently a very specialized field of law.Specialist coverage counsels for insurance companies are often brought in from outside areas on Central Pennsylvania disputes. These coverage attorneys litigate the exact same issues throughout the country for a company and want to maintain consistent practices. Thus, having an advocate experienced in advancing these cases for construction and design firms is critical, especially when the coverage issue is complicated and involves exposure of millions of dollars.

An attorney familiar with a specific county's practice is also something to strongly consider. As these coverage matters are time sensitive for companies involved with ongoing construction projects, it is critical for coverage to start as early as possible - especially to avoid a future prospect of paying damages.

Knowing the pitfalls of construction insurance matters may avoid future problems for construction firms and/ or reduce the consequences in the event an issue does arise. The costs associated with defending an insurance related action, in addition to potential damages, fines and sanctions, can be expensive and an overwhelming distraction from day-to-day operations.

Christopher F. Wilson is the owner of the Law Office of Christopher F. Wilson in Harrisburg, Pennsylvania