Bait-and-Switch ASA Press Release
ALEXANDRIA, Va. - Construction subcontractors, like all businesses, rely on insurance products to protect their businesses when the unexpected or the unthinkable happens. In Texas, the decision of an appeals court could decide whether or not that reliance is justified for businesses that have purchased the standard form of commercial general liability (CGL) policy in recent years. If the appeal, which is supported by the American Subcontractors Association, Inc., (ASA) and ASA of Texas, Inc. (ASAT), fails, subcontractors and other businesses will need to revisit their CGL policies and determine what coverage they're not getting that they believed they were.
What's at issue in the appeal of Lamar Homes Inc. v. Mid-Continent Casualty Company is whether a standard CGL policy covers a home builder when work performed on the builder's behalf by subcontractors allegedly caused property damage after the job was complete. The home builder's CGL policy contains a standard exclusion of coverage for damage caused by the home builder's own work, but also contained a standard "subcontractor provision" that said the exclusion of coverage did not apply "if the damaged work or the work out of which the damage arises was performed on your behalf by a subcontractor."
The insurer argued that the damage was outside the scope of the CGL policy because it was not an "occurrence" under the policy. A federal district court agreed and denied the home builder coverage under the CGL policy against the homeowner's claims, and the home builder filed an appeal.
On Jan. 12, 2005, ASA and ASAT filed a "friend of the court" brief with the U.S. Court of Appeals for the 5th Circuit supporting the home builder and asking the appeals court to overturn the district court's ruling. Their brief cites information produced by insurance industry organizations, such as the International Risk Management Institute and the Insurance Services Office, that demonstrates the intended coverage of standard CGL policies, including the "subcontractor provision." ASA and ASAT said that if the lower court's denial of coverage is upheld, the home builder was "misled by the marketing of the policy by the insurance industry that it provides coverage for property damage arising out of the work of subcontractors."
"ASA sees very little merit to the argument that the policy says something other than what it plainly says," said ASA President Mat Glover, president of Glover Masonry Associates Inc., Arvada, Colo. "The 'subcontractor provision' in the CGL policy says in plain language that accidents allegedly caused by the work of subcontractors are not excluded from coverage for completed work. Apparently, to some insurance companies, 'not excluded' from coverage does not mean 'included' in it. A wrong decision by the court could have serious consequences for all builders, including subcontractors, so ASA and ASA of Texas intervened."
The home builder will not be the only victim of "bait-and-switch" marketing tactics if the appeal is denied. In their brief, ASA and ASAT pointed out that many businesses believe they are protected by standard CGL language: "That policy provides coverage for virtually all players in the construction industry, including ASA members and general contractors, together with all other parties that are affected by defective construction - including project owners and homeowners."
ASA tapped its Subcontractors Legal Defense Fund (SLDF) for the funds to pay legal fees for ASA and ASAT in the case. The SLDF is funded entirely by voluntary contributions, and is earmarked for cases where ASA determines that important legal precedents affecting subcontractor rights are at stake.
A copy of ASA's brief is available on ASA's Web site, www.asaonline.com . For more information, visit the Web site and select "Subcontractors Legal Defense Fund" under "Subcontractor Advocacy," or call ASA at (703) 684-3450, ext. 1311.
Founded in 1966, the American Subcontractors Association serves 5,000 member companies and is dedicated to improving general business conditions for all subcontractors through unified and cooperative actions. ASA's vision is to be the united voice dedicated to improving the business environment in the construction industry. ASA provides its members with advocacy, leadership, education and networking.
CONTACT: David Mendes
dmendes@asa-hq.com
(703) 684-3450, ext. 1335 |
