Contractors’ Liability Insurance (Something New)
For companies engaged in a construction contracting business, recent decisions of the Connecticut Supreme Court and the U.S. Court Appeals for the Second Circuit (AZ) have opened the door for claims against a contractors’ liability insurer. The first case came down from the Connecticut Supreme Court the second is one from the U.S. Court of Appeals. The first referenced is Capstone Building Corporation v. American Motorists Insurance Company and the latter is Scottsdale Insurance Company v. R.I. Pools, Inc.
The policies excluded claims relating to work done “by others”, for example subcontractors of the insured. Because of that exclusion the courts reasoned that by inference the policy might insure against work done by the named insured (the contractor). The courts also reasoned that the contractors’ work might be considered an “occurrence” or an “accident” which are terms the policies insured against.
Although neither case ruled that the insurance company defendants were in fact liable under the policies, the reviewing courts decided that because the insurance companies might be liable under the terms of the policy, the cases were remanded (sent back) to the trial courts for further consideration.
Also at issue in the cases was whether or not the insurance companies were required to provide and pay for the defense fees and costs. These cases stand for the proposition that the insurance companies were obligated to defend the claims at their cost. In the Scottsdale Insurance Company case the court ruled that the duty of the insurance company to defend is considerably broader than the duty to indemnify. So, notwithstanding the fact that the insurance company may eventually be found not to be liable to the contractor, under the policy to pay for the claim against the insured the court ruled that “if an allegation of the complaint falls even possibly within the coverage” the insured company was liable to provide and pay for the cost of defense, including legal fees and costs. On November 4, 2013 the Appellate Court of Illinois, Third District published an Opinion in the case entitled Selective Insurance Company of South Carolina v. Cherrytree Companies, Inc., d/b/a Macon General Contractors arriving at a similar result as the out of state cases mentioned above.
These cases open the door for insured companies to make claims against their liability insurer for indemnification.