- For Small Businesses in Construction: Does the Defective Workmanship Exclusion in Your GLC Policy Defeat your Claim for Coverage? Maybe Not.
Why are insurance policies so long and wordy?
It would be nice if insurance policies were written in clear concise easy to understand language. Unfortunately policies are often lengthy and as interesting to read as an automobile mechanics manual (sorry to the auto enthusiasts out there), even when you have a personal interest at stake. Some policies go on for a hundred pages or more, with the specific terms you care about may be scattered far and wide across this verbose expanse. This occurs because insurance policies develop over time and new clauses are added on to fit changing circumstances, like new branches on an existing tree. The key to understanding a policy is to follow the particular branch of coverage that applies to you all the way out to the end of the branch. Far too many people stop short of that final answer, sometimes falling off the branch too soon, as when the insurer gives them a strategic push with an initial denial of coverage letter that may or may not be correct. Under the law, insurance companies don’t have to be correct when they say “no”: they only have to be reasonable. Thus the initial denial letter may be thorough, or not. It pays to keep the dialogue going, and make sure your claim receives a full and complete coverage analysis.
Following the path to coverage: Scope of coverage - exclusions of coverage - exceptions to exclusions - definitions of specific terms.
As you read your policy, keep in mind that all policies have some characteristics in common. Look for the scope of coverage, the basic reason you bought the insurance in the first place. The “insuring agreement” often starts with words such as “we will pay…” Don’t get too excited about such payment, however, for soon thereafter come multiple exclusions. Check to see if the exclusions apply to your situation. But even if the exclusions seem to apply, be persistent and go all the way out to the end of the analysis. Look for exceptions to the exclusions. And double check the legal meaning of any terms that are particularly important to your claim.
A real life example of a winding coverage path: CGL coverage under the subcontractor’s exception to the defective work exclusion for materials provided by a construction supplier.
Here’s an interesting example of a coverage analysis I dealt with recently. A small business engaged in remodeling projects was brought in as a party defendant in a lawsuit alleging that the remodeling was defective and not up to advertised standards. In this instance the purchaser alleged that cabinets were negligently designed and installed. The small business owner responsible for installing the cabinets would then turn to his or her comprehensive general liability (”CGL”) policy to defend it against the lawsuit and to pay any damages awarded. The CGL insurance policy provides broad protection for claims arising out of construction defects. But the policy also included a “defective work exclusion” which excluded coverage for lawsuits challenging the insured’s workmanship. This would seemingly bar coverage and the insured would be left to defend itself in such a lawsuit.
But the policy contains further applicable language. Many GLC policies include a “subcontractor exception” to the “defective work exclusion”, which was the case here. Thus, if a subcontractor to the insured was responsible for the allegedly poor workmanship, the CGL insurer will defend and indemnify its insured, the remodeling contractor. In this instance there was no subcontractor who actually worked on building and installing the cabinets, but there was a supplier that supplied the wood for the cabinets. The purchaser/homeowner was unhappy that the wood used for the cabinets was soft and easily damaged. Courts have held that suppliers of materials may also be subcontractors under CGL policies. For more on this twist see http://www.irmi.com/expert/Articles/2001/Wielinski05.aspx. Hence the GCL insurer had a duty to defend and indemnify this small business contractor for the workmanship of the supplier.
Handling Your Claim
How should you deal with your insurance claim? Like a physician dealing with a medical issue over the phone, I can’t give you legal advice without seeing the policy and reviewing the specific facts of the claim. In general, though, it is a good idea to carefully read your policy and try to understand it. Go ahead and file a claim with the insurer and see if the insurer accepts or denies the claim, or deals with it in some other manner, such as under a reservation of rights. If the insurer denies your claim, or worse cancels your coverage, then seek further legal advice without delay. Remember that an initial denial of the claim is not a final decision and may not be fully reasoned. It may be in your best interest to challenge the insurer’s unfavorable decision, or at least to keep the dialogue going until you obtain a fully reasoned decision. If the decision makes no sense to you, or you believe it to be faulty, that’s a good time to seek the legal advice of an attorney who specializes in insurance.
This blog has been prepared by Barbara Gallios, Attorney at Law, to provide information and commentary on recent legal developments of interest to the public. It is not intended to provide legal advice for a specific situation or to create an attorney-client relationship.
Cost of Insurance Far Outpaces Income
April 29, 2008 - Princeton, N.J.
The Robert Wood Johnson Foundation
Study released during “Cover the Uninsured Week” shows cost of covering families takes bigger piece of household budget.
Americans who get health insurance for their families through their jobs have seen their premiums increase 10 times faster than their income in recent years, according to a new analysis of government data. The study, released today by the Robert Wood Johnson Foundation, shows that a growing share of workers’ earnings is being absorbed by the increasing cost of health insurance.
Nationwide, the amount employees pay for family coverage increased 30 percent from 2001 to 2005, while family policyholders’ income increased just 3 percent over the same period.
The analysis was conducted by researchers at the University of Minnesota. It shows that the proportion of insurance premiums that workers pay for family coverage has remained constant over the years, but the dollar amount that workers contribute has substantially increased.
Nationally, the average cost of family coverage increased nearly $2,500—from $8,281 in 2001 to $10,728 in 2005. The percentage of family premiums that employees pay held steady at about 24 percent. The amount that workers pay for family premiums, on average, increased $664, from $1,921 in 2001 to $2,585 in 2005. Meanwhile, the median income of people who hold family health insurance policies increased just $1,250 during the same period, from $40,818 in 2001 to $42,068 in 2005. The average cost that employers pay for their share of family coverage increased from $6,360 to $8,143, or 28 percent, during the period.
“This study makes plain what every working parent knows—that providing insurance coverage takes a bigger bite from the family budget every year,” said Risa Lavizzo-Mourey, M.D., M.B.A., president and CEO of the Robert Wood Johnson Foundation. “There is a clear connection between the rising cost of health care and the increasing number of uninsured Americans. As costs continue to go up, fewer people can pay their portion of the premium, and fewer employers are able to offer insurance benefits. This research shows that an ever-increasing number of people will join America’s uninsured unless our nation’s leaders act to reform our health care system.”
The findings show:
Fewer employees are working in private-sector jobs that offer insurance.
Nationally, 4.1 million fewer people worked in private-sector jobs that offered health insurance in 2005 than in 2001.
Fewer private-sector businesses offer coverage.
The number of private-sector employers nationwide who offered health insurance benefits to their employees fell by 30,000 from 2001 to 2005.
Fewer people have private health insurance coverage.
Americans with private health insurance fell nearly 2.4 million, or 6 percent, from 2001 to 2005.
More people are uninsured.
According to the latest Census figures, 47 million Americans do not have any health insurance.
The analysis was compiled by researchers at the State Health Access Data Assistance Center, located at the University of Minnesota. It uses the most recent data from the U.S. Census Bureau (two-year averages for 2001–2002 and 2006–2007) and the Medical Expenditure Panel Survey, conducted by the Agency for Healthcare Research and Quality (2000, 2001, 2005).
“Public opinion polls show that health care reform is a top concern among Americans, and policy-makers are responding with ideas,” said Lavizzo-Mourey. “As these discussions continue, our leaders need to pledge to work together to find common ground policies to provide coverage to all Americans. This will require every interest being willing to give a little to find a solution that everyone can support. Real action involves tough choices, trade-offs and compromise—but we need action.”
The report is being released during Cover the Uninsured Week, a nonpartisan campaign organized by RWJF to advocate for health coverage for all Americans. Now in its sixth year, Cover the Uninsured Week (April 27–May 3) has become the largest, nonpartisan mobilization in history seeking solutions for the 47 million Americans who are uninsured. Thousands of people will participate in hundreds of Cover the Uninsured Week community service and education events held across the nation.
“Throughout this week, working moms and dads who are struggling to make ends meet will add their voices to demand solutions for our health care system,” said Lavizzo-Mourey. “With our economy sputtering, more than 47 million people already uninsured and millions more worried about losing their coverage, the plight of the uninsured cannot continue to be ignored. These are Americans who are worried about their future. When millions of Americans lack stable, affordable coverage, it affects all of us. We all need a solution.”
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The Robert Wood Johnson Foundation focuses on the pressing health and health care issues facing our country. As the nation’s largest philanthropy devoted exclusively to improving the health and health care of all Americans, the Foundation works with a diverse group of organizations and individuals to identify solutions and achieve comprehensive, meaningful and timely change. For more than 35 years the Foundation has brought experience, commitment, and a rigorous, balanced approach to the problems that affect the health and health care of those it serves. When it comes to helping Americans lead healthier lives and get the care they need, the Foundation expects to make a difference in your lifetime.
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Contacts for Journalists
Amy Martin
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Related Publications
Reports
Squeezed: How Costs for Insuring Families are Outpacing Income