Coverage under CGL Policies
No matter how strong a case is, if the defendant is not collectible, finding coverage under applicable insurance policies is critical to ensure that a plaintiff will be able to recover for its losses. The best case is worthless to a client if there is no reasonable expectation of recovery after winning, especially after the client has spent a “small fortune” in legal fees to prosecute its claims. Thus, it’s important to know which parties have potential coverage for the claims and which do not (by reason of policy exclusions or otherwise), as this will shape how the initial pleadings are structured and how the litigation is managed.
Attorneys should carefully prepare pleadings to reflect “resultant” damages, in other words, damage to property other than the “work” of the named defendant/insured, loss of use, and/or “rip and tear” damage. Under applicable law, the cost of correcting or repairing defective work is generally not covered under standard commercial general liability policies. However, loss of use and “rip and tear” damage may be covered losses. Under applicable precedent, where non-defective work must be removed to repair defective work, such costs may be covered. Thus, attorneys should avoid pleading their clients OUT of coverage. Where practitioners cannot, in good faith, “plead around” coverage issues with respect to one or more parties at the inception of the litigation, they should focus discovery efforts on parties with coverage to maximize efficient use of resources. Developing supporting facts—or minimizing “bad” ones—will increase the chances of settlement with those parties at mediation. Where there are obvious coverage issues with a particular party, the plaintiff may be able to develop facts in discovery that bring a claim(s) against that party “within coverage.”
With respect to potential design defects, coverage issues present unique challenges. Attorneys must determine whether at fault design professionals currently have insurance coverage, as professional liability policies, unlike typical commercial general liability policies issued to contractors and subcontractors, are “claims made” policies. This means that, with limited exception, a claim under the policy must be made during the policy period. Otherwise, there is no coverage under a professional liability policy even if the property damage occurred previously while the policy was in effect. Further, if the professional liability policy under which a claim is made is issued by a subsequent carrier, there may not be coverage —even though the claim is made during the policy period—if the basis for the claim arose prior to the policy inception. Another challenge with professional liability policies is that they are “burning candle” or “wasting limits” policies. This means that every dollar spent on defending a claim is one less dollar available to pay a claim. Thus, it is imperative to resolve claims against design professionals early on before policy limits are exhausted on defense costs.
To learn more about finding coverage under CGL policies, contact Florida construction mediator and lawyer Gary L. Brown at (954) 370-9970 or (954) 448-1133.