Any insurance agent that has construction contracting clients knows that their projects are a web of contractual risk transfer. The owner uses its contract with the general contractor to transfer its risk, the GC uses its contracts with subcontractors to transfer its risks, and so on. When an insurance policy somewhere along the chain fails to cover a loss, an agent is often the target of ensuing blame.
An Arizona general contractor hired an electrical contractor as a subcontractor to perform work at a residential property. The GC’s agent had obtained a commercial general liability (CGL) policy from a Lloyd’s of London syndicate. The contract between the GC and the sub required the sub to carry its own CGL insurance that covered the GC as an additional insured. The sub did in fact have a CGL policy that covered the GC.
One of the sub’s employees stepped on a wood board that was acting as a ramp. The ramp collapsed, the employee fell four feet and suffered serious injuries. The appellate court’s opinion does not explicitly state that he received Workers’ Compensation benefits, but it is safe to assume that he did. However, he also sued the GC for its responsibility for his injuries in a third party over action.
The opinion also did not describe the nature of the injuries nor the amount of the damages. However, the employee’s lawsuit against the GC went to a jury trial, and the jury found the GC “largely liable” for the injuries. The fact that the subsequent lawsuit against the insurance agent went to both a trial and an appeal indicates that the damages sought were significant, probably in six figures.
The court’s opinion does not explain why, but the GC’s owner testified that the sub’s insurer declined to provide the GC with a legal defense against the claim. The Lloyd’s syndicate also denied coverage, citing an exclusion in its policy for injuries to subcontractors or their employees. The GC then assigned its claims against the insurance agency to the injured worker, in exchange for his agreement not to execute on the jury’s damage award against them.
The employee subsequently sued the agency, arguing that they:
- Failed to meet the legal standard of care by obtaining a CGL policy for the CG that excluded subcontractor injuries
- Negligently failed to explain the exclusion to the GC
A jury trial was scheduled, but a controversy erupted four weeks before it began. Despite the fact that the deadline for discovery had passed, the agency disclosed the sub’s CGL policy and announced its intention to use it as evidence in the trial. They wanted to use it as an example of the custom of subcontractors’ insurance filling in coverage gaps for GCs. The worker sought to have its use prohibited due to its late disclosure, but the judge allowed the agency to reference it during the trial.
The judge also held that discussions of whether the sub’s policy would have covered the loss were irrelevant to the question of what the agency should have done and therefore off limits. When the jury ultimately found in favor of the agency, the worker appealed based on the use of the sub’s policy and requested a new trial.
The appellate court upheld the jury’s decision and denied the request for a new trial, saying that the trial judge did not abuse his discretion. They ruled that the evidence of the industry standard for insurance coverage directly related to the question of whether the agency was negligent. Accordingly, it was proper for the jury to consider its existence but not its coverage. Liability insurance for construction projects is a fraught undertaking. Many insurers try to limit their exposures by attaching exclusions like the one at issue here. This agency probably obtained the best policy it could find in the marketplace. It is difficult to find an obvious error in the agency’s handling of this account. We do not know why the sub’s policy did not cover the GC, but this agency appeared to do what it reasonably could to insure its client.
