In construction contracts, the insurance requirements are often some of the most important provisions in the entire contract. The requirements can sometimes be confusing, or worse contradictory. On occasion, the contract may purport to require coverages that are unobtainable in the marketplace. The best practice in all circumstances is to work with a licensed insurance broker or agent to ensure that all the proper coverages are in place and all the proper certificates are issued. First, it is important to get the insurance broker or agent the correct information about what coverages are required under the contract. The best practice in this circumstance is to simply provide the broker or agent with the proposed contract through email and request that they confirm that the coverages required in the contract are available and provide a cost estimate or pricing of the required coverages. Second, it is ideal to have the broker or agent confirm in writing that the coverages they are proposing to sell do in fact meet the requirements of the contract; do not accept vague or equivocal statements that the coverages “appear to be” correct or “to the best of our knowledge.” Third, a best practice is to then take the description of the coverages provide by the broker or agent to the general contractor or owner for approval and to obtain that approval in writing.
Once the coverage is in place, the hope is that the insurance will never be needed. But of course, claims often arise on construction projects. In response to those claims, the best practice is to get the insurance carrier involved as soon as possible. A “tender” to an insurance carrier means to put the carrier on notice of a claim and to request that the carrier provide the benefits due under the policy to the insured. In nearly every instance, a “tender” letter contains the insurance policy number, the name of the claim or case, the name of the insured, encloses a copy of the insurance policy (not necessary, but often helpful), and requests that the carrier agree to defend and indemnify the insured in relation to the claim. If a complaint has been filed in court, it is helpful to include a copy of the complaint as well. Insurance carriers are obligated by law to respond to a tender of defense or indemnity from an insured, even if only to deny the claim. While a tender letter may be prepared by anyone, the best practice is to retain legal counsel to handle the process.
Finally, even in instances where the insurance carrier agrees to defend the claim based on the policy and provides a lawyer hired by the insurance company to represent the insured in litigation, it is still a best practice to have personal counsel review the acceptance of tender/coverage letter from the insurance carrier. In certain instances, there may be actual or potential conflicts of interest between the insured and the insurance carrier that would entitle the insured to separate counsel under the terms of the policy; this separate counsel is often referred to as Cumis counsel in California. Additionally, personal counsel can also be helpful in asserting the insured’s rights under the policy during the course of settlement of the claim at issue. For these reasons, the best practice is to get counsel involved as early as possible in the insurance claims process, even if only to monitor the case as it progresses.
Zachariah H. Rowland is a partner in the law firm of Dunn DeSantis Walt & Kendrick. He advises clients on all types of commercial litigation and construction matters in state and federal courts throughout California. He can be reached at zrowland@ddwklaw.com.
Dunn DeSantis Walt & Kendrick provides a broad spectrum of legal services to businesses of all sizes, from small, local start-ups and non-profits to large, national companies. DDWK’s real estate development and construction practice includes representing all segments of the development and construction industries on both private and public projects.
You can find additional information and resources related to helping business owners and their businesses through COVID-19 challenges on the DDWK website.
