Don’t Undercut the Value of the Insurance You Buy
DON’T UNDERCUT THE VALUE OF THE INSURANCE YOU BUY
By: 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 [email protected]. For more information, please visit www.mkpalaw.com.
Usually, a company that buys liability insurance does so to protect against accidents that cause personal injury or property damage. Too often, however, not enough attention is paid (a) before purchasing the insurance to the policy language so as to understand the coverage that the insurer proposes to provide and (b) after purchasing the insurance to ensure compliance with the policy conditions that have to be met to get the insurance protections and benefits. With regard to (b), it is not safe to assume that simply paying the premiums will entitle the insured to full coverage.
In Burlington Insurance Company v. Industrial Steel Fabricators, Inc., 2010 WL 2812852 (U.S. 11 th Circuit, July 19, 2010), Industrial Steel Fabricators, Inc. (“Contractor”) purchased a general liability insurance policy from Burlington Insurance Company (“Insurer”). The policy contained an endorsement that required Contractor to require its subcontractors to have insurance “for legal liability arising out of their operations with coverage and limits” at least equal to the coverage and limits Insurer provided. Further, the endorsement required Contractor to obtain certified proof of its subcontractors’ liability insurance before allowing them to start work. Finally, the endorsement established that, if Contractor failed to comply with those requirements, then the limits of coverage ($1 million) would be reduced according to a pre-defined schedule (to $25,000).
Contractor had been sued in a state court lawsuit where the personal representative for the estate of Michel Abi Nasr (“Worker”) alleged that Worker operated a smooth drum roller on a construction project where Contractor was erecting the steel superstructure of a building and had subcontracted some portion of the work to A&K Erectors, Inc. (“Subcontractor”). In that lawsuit, it was alleged that Contractor and Subcontractor negligently failed to secure 1,200 pound horizontal beams and that Worker was killed when one of the unsecured beams fell on him.
Insurer, which would potentially be on the hook to pay Worker’s claim (or some part of it), filed a declaratory action against its insured, Contractor. In the declaratory action, Insurer asked the court to determine that Contractor had failed to comply with the requirement of ensuring that Subcontractor was properly insured and, therefore, Insurer’s liability was limited to $25,000 rather than $1 million. The trial court granted summary judgment in favor of Insurer. Worker appealed, but the appellate court upheld the ruling.
As a result of the declaratory judgment in favor of Insurer, if Worker obtained a judgment against Contractor, Contractor would have only $25,000 of coverage under its liability policy, not the $1 million of coverage for which it presumably paid all premiums. For many contractors, a judgment in a personal injury case can result in the company’s demise if the contractor does not have sufficient insurance protection. Liability insurance is purchased, and the often steep policy premiums are paid, not only to protect the company, but those who are injured in the course of the company’s work. Paying proper attention to ensuring that you are purchasing the right insurances and then to complying with all policy provisions (not just the requirement to pay the premiums) can go a long way to ensuring you receive full value of the insurance and might even avert complete disaster for both yourself and others.