CONTRACTUAL INSURANCE REQUIREMENTS Avoiding Pitfalls & Potholes Dan CretellaFrank Armstrong O&G Industries, Inc.Willis North America September 16, 2014 Willis Construction Risk Management Conference – Dallas, TX

Key Concepts Exposure Identification [ What insurance is needed?]  Construction Risk  Jurisdictional Risk Intent and Wording [ Does the contract wording accurately reflect the intent of the parties?] Verification/Compliance [ Does the insurance align with the intent of the parties?] Contractual Insurance Requirements | 1

Exposure Identification “There are known knowns. There are things we know that we know. There are known unknowns. That is to say, there are things that we now know we don't know. But there are also unknown unknowns. There are things we do not know we don't know.” --Donald Rumsfeld, U.S. Secretary of Defense, Feb 2002 Defense Department briefing Contractual Insurance Requirements | 2

Exposure Identification – Construction Risk Considerations Project Delivery Method / Joint Ventures Project Type/Value Project Complexity Public Liability Adjacent Properties Existing Structures Partial Occupancy Environmental Marine Railroad Contractual Insurance Requirements | 3

Exposure Identification – Jurisdictional Risk Considerations Anti-Indemnity, including AI Statute of Repose Upstream Immunity Faulty Work as an “Occurrence” (GL) Priority of Coverage (Horizontal-Vertical Exhaustion) Builder Friendly Laws (right/opportunity to repair) Joint & Several Liability Venue Analysis Contractual Insurance Requirements | 4

Intent and Wording Considerations Risk Transfer / Allocation Requested Terms are Commercially Reasonable Clear and Unequivocal When available, specify terms subject to standard forms (ISO) or equivalent Lender Requirements Contractual Insurance Requirements | 5

Verification / Compliance “It’s only when the tide goes out that you discover who’s been swimming naked.” -- Warren Buffett Contractual Insurance Requirements | 6

Verification / Compliance Considerations Review every downstream policy Review certain downstream policies COI with:  with key endorsements (AI, XS PNC, WOS)  with schedule of policy endorsements  with verification addendum COI Only Do nothing and hope for the best Additional Considerations  Continue verification through completed operations period?  Include contractual right to obtain copies of policies  Component of subcontractor pre-qualification? Contractual Insurance Requirements | 7

Coverage – Possible Coverage Types Workers’ Compensation * General Liability * Auto Liability * Excess / Umbrella Liability * Builders Risk * Professional Liability * Pollution Liability Contractors Equipment Marine/Cargo Riggers Liability Railroad Protective Liability Aircraft / Watercraft Owners and Contractors Protective Contractual Insurance Requirements | 8

Coverage Considerations – Workers’ Compensation USL&H, Maritime, FELA, DBA Sole proprietors or others not statutorily required to maintain WC Employer’s Liability/Stop Gap Liability (monopolistic states) Separate EL from statutory requirements with specified limits:  BI by acc – each acc  BI by disease – policy limit  BI by disease – each employee Contractual Insurance Requirements | 9

Coverage Considerations – Auto Liability ISO Business Automobile Liability Form CA 0001 “Any Auto”, including owned, hired or otherwise operated by/on behalf of MCS 90 Broadened Pollution Liability (CA 9948) Contractual Insurance Requirements | 10

Coverage Considerations – General Liability Specify ISO CGL Coverage Form CG 0001 (2004 edition or later) or equivalent Limits:  “Minimum of” / “No less than”  Single limit combined with excess/umbrella  Project specific aggregate (operations)  Vary by subcontractor trade? Amendatory Endorsements  Limited Contractual Liability for Personal & Advertising Injury (ISO CG 2274)  Waiver of Rights of Recovery (ISO CG 2404)  Contractual Liability – Railroad (ISO CG 2417)  Electronic Data Liability (ISO CG 0437; CG 0065) Completed Operations Exposure (Statute of Repose) Unacceptable Exclusions (e.g. residential ) Downstream SIR’s Additional Insured Terms – scope and length of requirement Contractual Insurance Requirements | 11

Coverage Considerations – General Liability/Additional Insured ISO AI Endorsements: CG 2010 (operations) and CG 2037 (completed operations) Edition dates matter:  11/85, 10/01 – “arising out of”  07/04 – “caused in whole or in part”;  04/13 – same as 07/04 with additional terms  To the extent permitted by law  Scope of coverage no broader than required by contract  Limits of coverage no broader than required by contract Completed Operations: Maintain AI requirement for X years after completion Primary/Non-Contributory (ISO CG 2001), including excess/umbrella (vertical exhaustion) Contract Privity:  AI status when “... you [the named insured] and such person [the party seeking AI status] have agreed in writing in a contract or agreement”  ISO Blanket AI Endorsements: CG 2033 vs. CG 2038 Avoid “tying” AI requirements to indemnity provisions Many manuscript AI endorsements Contractual Insurance Requirements | 12

Coverage Considerations – Excess/Umbrella Follow-form excess Amend “other insurance” provisions to assure vertical exhaustion (AI) Limits: “minimum of” or “no less than”; combined single limit with primary Include EL in underlying Contractual Insurance Requirements | 13

Coverage Considerations – Builders Risk No industry standard forms “All Risk” Who is procuring the coverage? Who are Insureds? Transit Offsite Existing Structures Partial Occupancy Deductible Responsibility Waiver of Right to Recovery / Subrogation  Typical: “…to the extent of available insurance”  Consider: “…to the extent of available insurance, [including or excluding] any applicable deductible.” Contractual Insurance Requirements | 14

Coverage Considerations – Professional Liability No industry standard forms Coverage for acts or omissions in performance of professional services contemplated in the scope of services outlined in this contract Claims Made (and Reported) Prior acts/Retro date (particularly on project specific) Continuously maintain during the term of the contract and for X period after final acceptance of the project Limitation of Liability (LoL) provisions Contractual Insurance Requirements | 15

Coverage Considerations – Other Insurance Related Contractual Indemnity Provisions Flow Down Provisions (except limits?)  All tiers  Employee Leasing Companies  Alternate Employer Endorsement Waivers of Subrogation Consequential Damages  Mutual waiver  To the extent of available insurance  GL/PL Coverage implications Liquidated Damages  GL/PL Coverage implications Notice of Cancellation Insurers – Authorized / Financial Rating (AM Best A- VII) Contractual Insurance Requirements | 16

Recap and Final Thoughts Understand the construction project risk Understand the jurisdictional risk Develop method for coverage verification / compliance Early involvement of risk management professionals (and/or their respective brokers) Pay close attention to manuscript endorsements, especially AI Contractual Insurance Requirements | 17

Questions Contractual Insurance Requirements | 18