Search
Close this search box.

Contractual liability-Action Over

images

Contractual liability-Action Over

Action Over Liability Exclusions
Action-over issues are misunderstood by a lot of contractors and insurance brokers in New York. It’s a pretty confusing topic, so we’re
going to simplify it. And to do that, we’re going to give you an example. In this example there are only three parties that we need to be
aware of. The first one is the contractor who is going to be doing a job or a project. The second party to this deal is the employee who
works for the contractor and the third party to this agreement is the project owner or the property owner. Now prior to starting a job,
the owner of the property or the project is going to send the contractor a construction contract and within that contact is going an
indemnity agreement, very common. An indemnity agreement or a hold harmless agreement as we commonly call them, says something
like that the contractor promises to indemnify and hold the property owner harmless from any or all claims which may arise during the
course of construction. They’ll also ask for a certificate of insurance naming the owner and maybe other entities as additional insurance
on the contractor’s policies.

How Action Over Claims Occur
So, during the course of construction, the employee, party number two that we talked about is injured during the course of
construction. Normal work place injury, but it’s pretty serious. So the employee files a claim with the contractor’s workers
compensation insurer. The claim handles all of the medical bills and pays all the loss wages while that worker is out of work. Now half
way through this claim’s process, the employee decides that they’re also going to sue the property owner for negligence to maintain a
safe workplace. Now we don’t need to talk about whether the workplace was safe or unsafe or who had control of it or who didn’t
control of it. The simple fact is that we’ve got a multimillion dollar lawsuit that the employee has filed against the property owner. Now
the property owner is going to take that lawsuit and they’re going to tender it, or give it over, to the contractor. Under the terms of the
construction contract, we mentioned earlier, the indemnity agreement makes the contractor responsible for any or all claims which could
arise from the performance of that job and this is one of them. So the contractor takes that claim and they bring it to their insurance
broker.

Action Over Exclusions
Now here’s the rub, contractor’s insurance in the down state New York, especially in the Five Boros can get very expensive. So this
particular contractor decided that they were going to exclude action-over liability in their general liability policy and that’s a real
problem. Another way that this can happen is that an unscrupulous broker maybe competing on a contractor’s liability insurance and
bid 30-50% less. We’ve seen this happened and they don’t disclose why it was so much cheaper. The reason that it’s cheaper is because
action-over claims are excluded and unfortunately, the contractor didn’t asked enough questions and actions-over claims are going to be
excluded.


However this happened, whether it was the contractor trying to save a few dollars or it was due to an unscrupulous broker, it really
doesn’t matter at this point. The contractor has a multi-million dollar lawsuit on their hands and they’ve got a contractual obligation to
indemnify for it and what are they going to do? They’re either going to try to give it back to the property owner. They don’t want it, the
property owner’s liability insurance company doesn’t want it – they’ll ultimately have to pay the claim but they’re going to subrogate
against the contractor under the terms of the contract. So what ultimately happens in many cases is that the contractor has to go
bankrupt. It’s probably not the best situation. You’ve put your entire life’s work into a business and now you have to go in to
bankruptcy because you didn’t have the right insurance coverage.

Compounding the Problem
Now what compounds this problem even further in some situations is that endorsements or exclusions in some liability policies, don’t
specifically say, “Action Over Claims Excluded” – they’re going to have different wordings and that’s going to mask the problem.
I’m going to read some of the titles of these exclusions. They can be: ‘amendment to employee injury exclusion’ or ‘amendment of
definition of employee injury’ or ‘carved back of contractual liability’ or something else like that. And like I said, that masks the real
issue. So you may not even understand that you don’t have the coverage even if you read your policy.
Look, I realize that liability insurance in the Five Boros and downstate New York is really expensive and if you’re working at height,
meaning you’re on a ladder or something, you’re a painting contractor, masonry, drywall, those sorts of trade – it gets even more
expensive and very limited availability. But the question is – do you want to have coverage for third party action over claim or not? And
I really recommend that you have it because these kinds of claims happen and they happen with regular frequency and they get very
expensive.

Leave a Reply

Your email address will not be published. Required fields are marked *

Related posts

Insurance-technology

InsurTech Priorities for 2024 and Beyond

As we head into 2024, the tech sector is experiencing a shift in focus amid an evolving market landscape. The past few years saw a talent boom with a surge in funding and hiring, leading to widespread workforce changes known as the “Great Resignation.” But recent economic conditions have altered the playing field significantly, with over 86,000 tech layoffs reported in 2024 alone. Now, companies must balance the high cost of operations with new challenges in talent retention and risk management. People, Prices, and Pressures in Tech Managing cash flow has become a top concern for many tech companies. Rising costs and inflation are making it challenging for organizations to sustain growth, with 59% of tech leaders reporting struggles in managing these financial pressures. Interestingly, only 20% are prioritizing funding this year, while 43% are concentrating on increasing revenue through enhanced sales initiatives. This pivot towards financial stability reflects a broader industry sentiment, with over three-quarters of tech firms expressing optimism about market recovery and the potential for growth in product development and automated processes. The Path Forward: Enhancing Risk Management To remain resilient, many tech companies are re-evaluating their approach to risk. While two-thirds of organizations have adopted new risk mitigation strategies, a significant portion is still determining the best path forward. Here are four key strategies that tech firms can consider to strengthen their risk management framework: Looking Ahead: Opportunities Amid Uncertainty Despite current challenges, tech companies are positioning themselves for future success. Economic conditions are stabilizing, interest rates are anticipated to ease, and revenue growth is expected to improve retention rates. By enhancing risk management practices and focusing on strategic growth areas, tech companies can navigate uncertainty with greater confidence and lay a strong foundation for sustained innovation. Ben Jennings, CEO of Embroker, highlights the critical role of innovative insurance solutions in supporting businesses of all sizes and driving future growth in InsurTech. With over 25 years of industry experience, Jennings brings a wealth of expertise in aligning technology and insurance to meet the evolving needs of modern businesses.

Read More
Risk Management

California’s Cannabis Growers Struggle to Find Insurance Amid Rising Wildfire Risks

In California’s wildfire-prone regions, cannabis farmers face unique challenges in securing insurance for their high-value operations. Cannabis, despite its booming $5 billion industry within the state, remains federally classified as a Schedule I substance, preventing many conventional insurance providers from covering the crop. The Wildfire Risk Impacting California’s Emerald TriangleIn areas like Humboldt, Mendocino, and Trinity counties — collectively known as the Emerald Triangle — cannabis cultivators face increased risk. With wildfire seasons growing longer and more intense, even established insurers like State Farm are withdrawing from the market, leaving properties uninsured and at risk. Farmers like Hannah Whyte, whose farm produces up to 1,600 pounds of cannabis annually, have become “uninsurable” under traditional and state-created plans due to federal restrictions. The FAIR Plan’s Limited Options for Cannabis FarmersCalifornia’s FAIR Plan, established to help provide coverage for high-risk properties, excludes cannabis farms, citing federal restrictions. Cannabis growers must either forgo insurance altogether or attempt to cover their farms in other ways — a choice that presents significant risk, especially as wildfires continue to escalate. Regulatory Hurdles and Cost ConcernsEven where insurance is available, premiums for cannabis growers are notably higher than other agricultural sectors, and policies may require additional, costly coverage beyond wildfire protection. Michael Polson, of UC Berkeley’s Cannabis Research Center, highlights that these challenges often stem from policy restrictions on where cannabis farms can be located, placing many within high-risk zones. A Call for Change in Cannabis CoverageAlthough regulatory steps, such as California’s 2022 law allowing insurers to provide cannabis coverage without facing criminal charges, have improved the landscape, the demand for further reform persists. Former insurance commissioner Dave Jones has advocated for expanding the FAIR Plan to include cannabis-related risks, noting that these farmers are essential contributors to California’s economy. As Skyscraper Insurance strives to support a diverse range of clients facing unique challenges, these issues underscore the importance of continually adapting our insurance solutions. At Skyscraper, we aim to work closely with top underwriters and industry leaders to craft comprehensive solutions, even as the landscape of cannabis insurance evolves.

Read More
Try your instant quote