Journal of American Law

SPRING 2015

The Journal of American Law is a peer-reviewed journal and the only one of its kind in the country. The Journal is a law review focused on important legal issues ranging from complex litigation to Supreme Court rulings.

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22 Journal of American Law // Spring 2015 Wrap-up insurance programs, also known as controlled insurance programs (CIP), have been used for decades for large infrastruc- ture projects, but they transitioned to a vi- able alternative to traditional insurance for many smaller construction projects in the mid to late 1990s based on several factors. First, the combination of a 10-year statute of limitations for construction defect claims with the difcult market for contractors' in- surance meant that owners needed insurance to protect themselves against uncollectable indemnity claims. Second, monitoring and maintaining insurance for each of the con- tractors on a site was nearly impossible for the duration of the completed operations tail. Finally, the premiums for providing all the insurance for a single project were attrac- tive to underwriters. Te purpose of this article is to survey unique professional liability and claims is- sues presented by the general liability insur- ance wrap-up product for insurance agents, lawyers defending wrap-up enrolled contrac- tors, and wrap-up insurers. unique Professional Liability and eth- ical Concerns Presented by Wrap-up Policies A successful wrap-up insurance program re- quires qualified professionals experienced with significant construction projects since construction values for wrap-up programs can range from a few million to more than a billion dollars. Owners retain insurance brokers to obtain the correct coverage for themselves and the contractors. The own- er must hire a specialized administrator to handle enrolling contractors in the wrap-up program and to make sure that the cost of insurance is properly managed. The admin- istrator may be responsible for obtaining payroll information from the contractors for workers' compensation and general liability rating purposes and coordinating safety and loss control for the project as a whole. After a claim occurs, a different set of potential liabilities arise from the wrap-up product. Lawyers hired to defend insureds under li- ability policies and the insurers themselves face exposure and must be wary of the John H. Podesta, Esq., is a partner in the San Francis- co ofce of Murchison & Cumming LLP. Mr. Podesta focuses his practice in the areas of insurance coverage and bad faith, commercial litigation, and general civil litigation. In his 24 years of law practice, he has handled a wide variety of litigated and nonlitigated matters, including construction insurance disputes involv- ing ongoing operations and construction defect and CIP/wrap-up matters. Before practicing law, he was a claims professional for a major insurer. He is a graduate of the University of California, Berkeley and University of San Francisco Law School. He is licensed in California and Nevada. SUMMARY A wrap-up program, or controlled insurance program (CIP), is an insurance program created to "wrap" all the needed insurance for a construction project into a single program. While conceptually simple, wrap-up programs present unique liability exposures for the professionals retained in connection with the procurement and administration of the project and claims handling when a loss occurs. Insurance brokers potentially have a client relationship with each contractor on the project and face liability if the coverage is not accurately and properly disclosed or is inappropriate for the project. Wrap-up administrators may assume the duty to properly account for insurance costs to enroll the contractors in the wrap-up program and possibly to oversee or coordinate safety and loss control. Un- insured losses and potentially catastrophic claims could result from negligence of either the insurance broker or wrap-up administrator. Insurers that handle wrap-up claims must account for the fact that each contractor is a separate insured with a separate right to coverage and a right to enforce fair claims-handling statutes. Defense lawyers, who may be used to receiving assignments from the insurer and representing the insureds, must frst understand and then address each potential confict between the involved insureds and make disclosures required by state law. Te lawyer could unwittingly represent parties with conficting in- terests due to deductibles or inadequate limits, uncovered damages, or because of indemnity claims between the prospective clients. Depending on the circumstances, the lawyer could be subject to disci- pline or forced to withdraw. Tis article is a survey of the concerns that could create professional liability exposures for insur- ance brokers, wrap-up administrators, insurer claims departments, and outside lawyers. Tese expo- sures must be identifed and managed. Wrap-Up Insurance Programs An Examination of Liability Exposures for Participants in California By John H. Podesta, Esq. ConStRuCtion/ReAL eStAte

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