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Posts Tagged ‘subcontractors’

Federal Court Rules No “Insured” Status for General Contractor and Subcontractor under Builders Risk Insurance Policy

Posted on: September 17th, 2020

By: Ben Dunlap

A recent ruling by the United States District Court for the District of Massachusetts underscores the importance of confirming the effectiveness of coverage for contractors and subcontractors on construction projects. In Factory Mut. Ins. Co. v. Skanska United States Bldg., No. 18-cv-11700-DLC, 2020, the Court ruled that a general contractor and subcontractor were not entitled to insured status under the project owner’s Builders Risk insurance policy (“the Policy”). The case arose from the construction of a biomedical facility in Cambridge, Massachusetts. During construction, a threaded cleanout plug at the project allegedly failed and released water into the construction site, causing substantial damage. The project owner submitted a claim for the property damage to the Builders Risk insurer, which paid the claim. The insurer then filed a subrogation action against the general contractor and subcontractor, alleging their negligence caused the damage.

The general contractor and subcontractor sought to dismiss the suit against them by filing motions for summary judgment, arguing they were insureds under the Policy and therefore could not be liable in subrogation, based on the “anti-subrogation” doctrine. The anti-subrogation doctrine provides that an insurer has no right of subrogation against its own insured, and thus may not seek indemnification against a third party if the third party also happens to qualify as an insured under the policy.

The general contractor and subcontractor argued they qualified as insureds because the Policy’s “Property Damage” provision “also insures the interest of contractors and subcontractors in insured property during construction at an insured location. . . to the extent of the Insured’s legal liability for insured physical loss or damage to such property,” “limited to the property for which they have been hired to perform work.”

The Court denied the motions for summary judgment, concluding that the  general contractor and the subcontractor were not entitled to insured status under the Policy.  The Court reasoned that an “insured” under the Policy would be one whose liability would be purely vicarious “to the extent of the insured’s legal liability for insured physical loss or damage.” The suit alleged the contractor and subcontractor were directly liable, not vicariously liable, and the named insured project owner was not alleged to have any legal liability for the loss, so the contractor and subcontractor were not “insured” with respect to the alleged damage.  Further, the language of the Policy itself indicated that it applied to only one insured, meaning only the project owner. As a result, the Court concluded that the anti-subrogation doctrine did not apply, and the subrogation lawsuit could proceed.

The ruling offers lessons for contractors and subcontractors evaluating litigation risk on construction projects.  When considering coverage under another party’s insurance policy, interested parties must proceed with care, including having that insurance policy reviewed by a professional and obtaining an opinion as to whether such insurance coverage is afforded.

If you have questions or would like more information, please contact Ben Dunlap at [email protected].

Cyberrisks to Contractors and Securing Proper Coverage

Posted on: June 29th, 2018

By: Barry Brownstein

Increasingly sophisticated hackers have targeted personal and business data held by companies like Target Corp., Sony Corp., Equifax Inc. and Yahoo Inc. during the past decade. The construction industry is just as susceptible to these risks as any other industry.  As construction projects increase in size and there is more sharing of data related to buildings and projects, and as more of that sharing becomes electronic, cyberrisks increase as well.

Contractors and their business partners hold personal information about their clients and employees, and they are increasingly using more electronic means to exchange data and survey construction projects. A significant threat for companies in the construction industry comes from the open and increasingly connected network between those in charge of a project and their various subcontractors and business partners, who need swift and seamless access to plans and other sensitive data to do their part of the work.

Many companies in the construction industry assume that since they have policies that cover losses stemming from physical and property damage, any infiltration into their systems that result in the loss of access to sensitive information is covered by such insurance.  However, most commercial general liability policies carve out cyberthreats from coverage.  While contractors can still make claims under more traditional policies and may find that some of their losses are covered, relying solely on these protections may be dangerous and result in uncovered losses.

Specialized cyberinsurance can fill in the gaps left by commercial general liability policies that do not account for losses caused by damage to virtual information systems, and ensure that any damages, injuries or delay caused by downstream contractors or business partners are covered as well. Once policies are in place, contractors need to revisit them regularly to account for changes in the cyberthreat landscape as they relate to the construction industry.

If you have any questions or would like more information, please contact Barry Brownstein at [email protected].

Contractors are Under Greater Scrutiny for Compliance with Davis Bacon Requirements

Posted on: July 9th, 2013

By: Kamy Molavi

 

Recently, we at FMG’s construction law group have seen several cases involving the Davis Bacon Act.  Davis Bacon is the federal law that requires all workers to be paid the “prevailing wages” on federal contracts.  The law also applies to a non-federal contract if the project is at least partially paid for from certain federal funds.

Our clients in the recent cases are either general contractors or subcontractors.  The Department of Labor claimed our clients’ first-tier or second tier subcontractors had failed to pay the prevailing wages, and sought to collect the shortfall from our clients even though the unpaid or underpaid workers were not employees of the clients.

This indirect liability is not new.  What seems to be new is the prevalence of DOL investigations in the past two years.  Some attribute the recent focus to the political climate, and others blame unions for instigating the investigations.  We do not know what is causing the recent investigative vigilance, but the trend is undeniable.

If the Davis Bacon Act applies, contractors and subcontractors cannot rely on certified payrolls from downstream employers.  They should take steps to understand the wage requirements of their projects, especially the classification of workers needed on the job, and the proper rate for each classification.  It is also prudent to make sure all employers on the project maintain good time records, and to the extent feasible, also to monitor payments to all workers.