Risk Management 101: Get the Insurance You Agreed to Get

RISK MANAGEMENT 101 - GET THE INSURANCES YOU AGREED TO GET

By: Larry Leiby, Esq. and Robert S. Tanner, Esq.

About the Author: Larry Leiby, Esq. was the founder and first chairman of the Florida Bar Construction Law Committee in 1976. He is the author of the Florida Construction Law Manual. He is Board Certified in Construction Law and was on the Construction Law Certification Committee that creates and grades the tests for construction law board certification. He was awarded the lifetime achievement award by the Florida Bar Construction Law Committee and teaches construction law at the Florida International University College of Law. He can be reached at leiby@mkpalaw.com. For more information, please visit www.mkpalaw.com.

A typical construction contract will require one or both of the parties to have insurance. Project owners frequently agree to obtain a builder's risk policy. Contractors and subcontractors frequently agree to procure worker's compensation, public liability, and property damage liability insurance. They may agree to procure those coverages in amounts beyond that required of them by statute. They also frequently obligate themselves by contract to have others named as "additional insureds". Having insurance to protect against calamities is a widely endorsed method of controlling or limiting risk mitigation. Needless to say, proper time and attention should be devoted to analyzing your risks and determining the adequacy of the insurance products that you purchase, pay premiums on, and often renew subject to any number of amendments, revisions, and new exclusions put in place by the insurer.

But, aside from potentially having inadequate insurance coverage, what are the implications when a party to a contract fails to live up to his agreement to procure a certain type of coverage, a certain amount of coverage, or to have others made additional insureds under the policy? Would that failure constitute a breach of contract, and if so, to what consequence?

In Cone Brothers Contracting Company v. Ashland-Warren, Inc., 458 So. 2d 851 (Fla. 2d DCA 1984), Contractor and Subcontractor entered into an agreement that required Subcontractor to provide and maintain certain insurance coverages, including completed operations coverage, personal injury and property damage coverage. Additionally, the agreement required Subcontractor to indemnify Contractor for all claims of "injuries to persons . . . arising out of the performance of the work . . . ." Further, Subcontractor agreed that the insurances it was required to have would "name the Contractor as an additional assured thereunder . . . ."

While working on the project, Subcontractor placed a temporary barrier wall near the construction site. A motor vehicle collided with the barrier, giving rise to four personal injury actions. The plaintiffs sued Contractor. Contractor demanded that Subcontractor and/or Subcontractor's insurance carrier provide a defense and indemnify for any losses, as required under the subcontract agreement. However, Subcontractor had not obtained an endorsement from its insurer making Contractor an additional insured on Subcontractor's policies. So, Contractor retained its own defense counsel. Ultimately, Contractor paid damages of $103,638.22 to the plaintiffs and incurred more than $65,000.00 in attorney's fees in defending the four personal injury actions. Contractor sued Subcontractor to recover those amounts. When the case concluded in the trial court, the only legal theory Contractor proceeded on was that Subcontractor breached the agreement by failing to procure insurance pursuant to which Contractor was an additional insured.

The trial court entered summary judgment in favor of Contractor, finding that Subcontractor breached the subcontract by failing to procure insurance naming Contractor as an additional insured. The trial court awarded Contractor the full amount it had paid to the plaintiffs plus the fees Contractor incurred in defending the personal injury action plus the fees Contractor incurred in prosecuting the action against Subcontractor. Subcontractor appealed, and Subcontractor lost that appeal.

The law enforces contractual provisions to procure insurance and provisions requiring a party to obtain insurance that makes others additional insureds. This type of contractual requirement is no different from any other legal contractual requirement -- if you agree to do it, you may be held liable for the damages caused by not doing it. That is a basic essence of contracts. Understand your contracts. Be sure you can actually get the insurance you are agreeing to get. Understand your insurance policies. Be sure they provide the coverage you need and have agreed to secure. Don't let a simple failure to follow through with your insurance agent cost you tens or hundreds of thousands of dollars.