Are COVID-19 Claims Covered by Builders Risk Insurance Policies?
May 04, 2020 —
Jason M. Adams, Gibbs Giden Locher Turner Senet & Wittbrodt LLP and Cheryl L. Kozdrey, Saxe Doernberger & Vita, P.C.If you are an attorney, insurance broker, or other professional representing developers and contractors, then your clients have likely reached out with concerns about losses related to COVID-19. One common question is whether there is potential coverage under builders risk insurance policies.
The short answer is: It depends. As with most questions pertaining to insurance coverage, the answers depend on the specific policy language and underlying facts required to trigger coverage. Builders risk policies are even more fact specific due to the lack of uniformity of base policy forms and endorsements between insurance carriers.
The first step in any analysis is to gather facts and carefully document any impending and potential damages or delays. The facts are crucial because the coverage analysis may vary depending on the specific reason the project was shut down. For example, the analysis would be different if the project was shut down as a result of an express government order, such as those in Northern California and Washington, versus the project shutting down as a result of workers testing positive for COVID-19. Properly analyzing builders risk coverage involves a granular account of the facts and damages, and can require a great deal of hair splitting with respect to specific policy language.
Regardless of the strength of the insured’s facts and damages, or the breadth of its policy language, the policyholder still likely faces an uphill battle in finding coverage for COVID-19 related claims. The unfortunate reality of most builders risk policies is that they are property policies that require some evidence of physical loss or damage to trigger coverage. Whether or not COVID-19 claims constitute property damage will be the subject of great debate and litigation over the coming months and years. The outcome will likely depend on how the insured’s jurisdiction ultimately rules on the litany of COVID-19 cases that have already been filed – specifically, how broadly each court interprets the meaning of “physical loss or damage.”
Although these key issues have yet to be clearly defined by the courts, some policies are better than others and there are specific variables that could affect the likelihood of coverage. For example, some of the more policyholder-friendly insurance programs may contain coverage extensions for delay in completion, business interruption, loss of rental income, or civil authority that may not be tied to the property damage requirement, and which would tend to support coverage for COVID-19 claims.
Even if the insured crosses the initial threshold and can demonstrate a covered claim, the following common endorsements and exclusions may require additional analysis depending on the facts.
- Virus or Pandemic Exclusions: Virus or pandemic exclusions are not as common on builders risk policies as they may be on other forms of coverage. However, they do exist and, if present, result in a significant barrier to coverage. As with the policy itself, every endorsement is different and should be analyzed in terms of the express language contained in the endorsement and the facts.
- Abandonment or Cessation of Work: Most builders risk policies include provisions that preclude coverage in the event of the abandonment of the project or a lengthy cessation of work. As a result, the insured should take steps to articulate to the carrier that the project has not been abandoned, and that there exists an intent to return as soon as possible. The insured should also maintain a record of ongoing project oversight and protection efforts taken during the period when construction operations are suspended.
- Security and Safety Requirements: Many builders risk policies contain provisions requiring the insured to maintain protective safeguards and security protocols throughout the pendency of the project. Safety fencing, lighting and security guards are common examples. The policy should be analyzed to ensure that the policyholder can meet any such requirements during a COVID-19 related shutdown. For example, can the insured continue to staff a security guard? If not, arrangements will likely need to be made with the carrier depending on the language of the policy.
- Insurable Limits: Builders risk policies are typically underwritten based upon the total completed value of the structure, including materials and labor. The insured will need to analyze the policy to consider whether increased material or labor costs as a result of COVID-19 will alter the terms of coverage, trigger any escalation clauses, or result in an increase in premium due. If increased cost projections become apparent, the insured should report these changes to the carrier immediately.
- Extensions of Coverage: The insurance industry was facing a hard market even before the COVID-19 pandemic, which resulted in higher premiums and limited coverage options. The COVID-19 pandemic has only exacerbated these issues and it may be difficult to obtain coverage extensions on projects that have been shut down. The insured should work with its risk management team (risk manager, insurance broker and lawyer) to engage the carriers to negotiate any necessary coverage extensions resulting from COVID-19 related project delays.
To summarize, builders risk coverage for COVID-19 claims is far from certain, but not impossible. Insureds should provide notice of a claim to all potentially applicable carriers in order to preserve their rights. The insured should also report increased construction cost and articulate its intent to return to the project to preserve their escalation clause and avoid arguments that they have abandoned the project. The insured should continue to document its claims and damages, and be ready to substantiate its claims and push back on any coverage denial. Throughout the entirety of this process, the insured should work with its risk management team to get out in front of any extensions it may need to complete the project. In a climate where insurance carriers are receiving an insurmountable number of claims, the insured should be prepared to fight for coverage and not simply throw up its hands in the face of a denial. Given the intense social, legislative and executive pressure to cover COVID-19 claims, there may be a tendency for the courts to find coverage in gray areas, particularly if the insured was fortunate enough to have purchased one of the broader coverage forms referenced above.
About the Authors
Jason M. Adams, Esq. (jadams@gibbsgiden.com) is a partner at Gibbs Giden representing construction professionals in the areas of Construction Law, Insurance Law and Risk Management and Business/Civil Litigation. Adams is also a licensed property and casualty insurance broker and certified Construction Risk & Insurance Specialist (CRIS). Jason represents developers, contractors, public entities, investors, lenders, REITs, design professionals, and other construction professionals at all stages of the construction process. Jason is a published author and sought-after speaker at seminars across the country regarding high level construction risk management and insurance topics. Gibbs Giden is nationally and locally recognized by U. S. News and Best Lawyers as among the “Best Law Firms” in both Construction Law and Construction Litigation. Chambers USA Directory of Leading Lawyers has consistently recognized Gibbs Giden as among California’s elite construction law firms.
Cheryl L. Kozdrey, Esq. (clk@sdvlaw.com) is an associate at Saxe Doernberger & Vita, P.C., a national insurance coverage law firm dedicated exclusively to policyholder representation and advocacy. Cheryl advises insurance brokers, risk managers, and construction industry professionals regarding optimal risk transfer strategies and insurance solutions, including key considerations for Builder’s Risk, Commercial General Liability, D&O, and Commercial Property policies. She assists clients with initial policy reviews, as well as renewals and modification(s) of existing policies to ensure coverage needs are satisfied. Cheryl also represents policyholders throughout the claims process, and in coverage dispute litigation against insurance carriers. She is currently working on some of the largest construction defect cases in the country. Cheryl is a published author and is admitted to practice in the State of California and all federal district courts within the State.
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Will Protecting Copyrights Get Easier for Architects?
November 28, 2022 —
Scott L. Baker - Los Angeles Litigation BlogLike any creative business, architects rely on their intellectual property. Their designs are at the center of their work. For example, as we discussed in a previous post, many architects nowadays focus on creating new ways for their building designs to be environmentally friendly and sustainable.
However, nearly every form of intellectual property faces the risk of theft or infringement in the business world.
Architects face unique challenges with their copyrights – as well as risks.
Copyright Issues in the Architecture World
One of the biggest issues, of course, is that there are many aspects of building designs that architects
cannot protect by copyright. This is simply because various details are fundamental in the construction of every building. One person cannot own the rights to such a common design.
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Scott L. Baker, Baker & AssociatesMr. Baker may be contacted at
slb@bakerslaw.com
The Buck Stops Over There: Have Indemnitors Become the Insurers of First and Last Resort?
September 17, 2015 —
Garret Murai – California Construction Law BlogInsurance and indemnity are the primary risk management strategies on construction projects. Insurance, such as commercial general liability insurance, insures against third party claims for bodily injury and property damage, and in the case of builder’s risk insurance, insures against first party claims during construction.
Indemnity, on the other hand, shifts liability from one party to another and can be broader than the types of claims covered by insurance although anti-indemnity statutes can limit the breadth of those claims.
Sometimes though insurance and indemnity work in ways you might never have expected, like in the next case, Valley Crest Landscape Development, Inc. v. Mission Pools of Escondido, Inc., Case No. G049060 (July 2, 2015), in which the California Court of Appeals for the Fourth District held a subcontractor liable in the face of both an indemnity claim brought by a general contractor as well as a subrogation claim brought by the general contractor’s insurance company.
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Garret Murai, Wendel Rosen Black & Dean LLPMr. Murai may be contacted at
gmurai@wendel.com
Measure of Damages for a Chattel Including Loss of Use
November 16, 2020 —
David Adelstein - Florida Construction Legal UpdatesIn a non-construction case, but an interesting case nonetheless, the Second District Court of Appeals talks about the measure of damages when dealing with chattel (property) including loss of use damages. Chattel, you say? While certainly not a word used in everyday language, a chattel is “an item of tangible movable or immovable property except real estate and things (such as buildings) connected with real property.” Equipment, machinery, personal items, furniture, etc. can be considered chattel.
With respect to the measure of damages for a chattel:
“Where a person is entitled to a judgment for harm to chattels not amounting to a total destruction in value,” the plaintiff may make an election out of two theories of recovery in addition to compensation for the loss of use. Badillo v. Hill, 570 So. 2d 1067, 1068 (Fla. 5th DCA 1990) (quoting Restatement of Torts § 928 (Am. Law Inst. 1939)). In addition to compensation for the loss of use, the plaintiff may elect either “the difference between the value of the chattel before the harm and the value after the harm” or “the reasonable cost of repairs or restoration where feasible, with due allowance for any difference between the original value and the value after repairs.” Id. (quoting Restatement of Torts § 928).
Sack v. WSW Rental of Sarasota, LLC, 45 Fla.L.Weekly D2306a (Fla. 2d DCA 2020).
Sack is a good example of a case dealing with the measure of damages with a chattel, here, an aircraft, including loss of use damages.
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David Adelstein, Kirwin Norris, P.A.Mr. Adelstein may be contacted at
dma@kirwinnorris.com
The Small Stuff: Small Claims Court and Limited Civil Court Jurisdictional Limits
June 10, 2024 —
Garret Murai - California Construction Law BlogSometimes the small stuff matters.
And when it comes to legal disputes this can pose a problem for clients as well as their attorneys because litigation and arbitration, the two most frequently utilized venues to resolve legal disputes in the United States, can be and usually are expensive.
Data on the cost of civil litigation is sparse. According to a 2013 survey of trial lawyers conducted by the National Center of State Courts, the median cost of litigating a contract dispute – which is the category that most construction disputes would fall under – is $90,575. And this is in 2013 dollars. With inflation, that number rises to nearly $120,000 in 2023, and based upon our experience litigating and arbitrating complex (and even not so complex) construction disputes, it can be many multiples over that.
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Garret Murai, Nomos LLPMr. Murai may be contacted at
gmurai@nomosllp.com
Considerations in Obtaining a Mechanic’s Lien in Maryland (Don’t try this at home)
December 21, 2020 —
Christopher G. Hill - Construction Law MusingsFor this week’s Guest Post Friday at Construction Law Musings I welcome Matthew Evans. Matt is the owner of Law Offices of Matthew S. Evans, III, LLC located in Annapolis, Maryland. He has practiced construction, real estate and land use law in Maryland and D.C. for thirteen years. Prior to opening his own firm in May 2011, Mr. Evans was a partner at a mid-sized firm in Anne Arundel County, Maryland. Mr. Evans lives in Historic Annapolis (only three short blocks from his office) with his wife Margaret, and three children, Matthew (5), Bo (4) and Peyton (2).
Some of the most common calls I get are from irate contractor or subcontractor clients who have not been paid demanding that I “lien the property”. Many times after calming the client down, I determine, to their dismay, that they are not entitled to a mechanic’s lien. In Maryland, the mechanic’s lien law is driven by statute, which contains specific requirements which must be met before the client is entitled to a lien.
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The Law Office of Christopher G. HillMr. Hill may be contacted at
chrisghill@constructionlawva.com
Construction Warranties and the Statute of Repose – Southern States Chemical, Inc v. Tampa Tank & Welding Inc.
January 20, 2020 —
David R. Cook - AHC Construction and Procurement BlogIn a recent holding by the Georgia Court of Appeals, the court held that Georgia’s eight-year statute of repose applied to bar the project owner’s warranty claims. The renovation work by the contractor on the owner’s chemical tank constituted an improvement of real property, and thus, the statute of repose bared any claims eight years after substantial completion thereof. In addition, the court rejected the project owner’s claim that it qualified as a third-party beneficiary of an extended warranty contained in a report given by a subcontractor to the contractor.
Factual Background
In 2000, Southern States Phosphate and Fertilizer Company (“Southern States”) hired Tampa Tank & Welding, Inc (“Tampa Tank”) to renovate a tank to hold sulfuric acid. The parties’ written contract contained an express one-year warranty for material and workmanship from the date of completion. Two years later, in January 2002, the tank renovation was completed. Tampa Tank contracted with Corrosion Control Inc. (“CCI”) to design, assist with, and test the cathodic corrosion system. CCI provided only consultation and did not provide any onsite installation. Upon completion of installation, CCI supplied a report to Tampa Tank that the system was properly installed and fully functioning. Additionally, a post–installation report from CCI to Tampa Tank calculated an estimated life expectancy of forty-three to forty-five years.
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David R. Cook, Autry, Hall & Cook, LLPMr. Cook may be contacted at
cook@ahclaw.com
Reaffirming the Importance of Appeal Deadlines Under the Contract Disputes Act
January 26, 2017 —
Chadd Reynolds – Autry, Hanrahan, Hall & Cook, LLPA recent United States Court of Federal Claims (“COFC”) decision emphasizes the importance of deadlines for appealing a contracting officer’s (“CO”) decision under the Contract Disputes Act (“CDA”). On July 22, 2016, the COFC granted the consolidation of two naval contract dispute appeals totaling nearly $12.4 million in response to Nova Group/Tutor-Saliba’s (“NTS”) motion to resolve two Requests for Equitable Adjustment (“REA”) in the same forum. See Nova Group/Tutor-Saliba v. United States, No. 15-885C, 2016 WL 4009886, at *5 (Fed. Cl. July 22, 2016). NTS’s motion before the COFC sought to transfer an appeal of a REA before the COFC to the Armed Services Board of Contract Appeals (“ASBCA”), where another appeal of a REA arising under the same contract was presently on appeal. The COFC rejected NTS’s appeal to transfer the REA to the ASBCA because NTS did not appeal the REA within the 90-day limit under the CDA. Instead, the COFC allowed NTS to transfer the REA before the ASBCA to the COFC because timeliness was not an issue.
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Chadd Reynolds, Autry, Hanrahan, Hall & Cook, LLPMr. Reynolds may be contacted at
reynolds@ahclaw.com
