INSURANCE AND RISK MANAGEMENT ‘Prior Work’ Exclusion Shifts Risk Back to GCs


By Bob Mahan and Jessica Schellentrager – Mahan Insurance Brokers Inc.


I


n the placement of one of our contractor clients, we were perplexed to discover that one of


our new promising liability markets mandates a “prior work” exclusion on all of their California contractor new business. Our agency as a matter of business practice will not accept heinous exclusions such as “prior work,” “action over” or “earth movement” for any of our clients under any normal scenario. Tese exclusions open up contractors


to unnecessary financial loss for occur- rences that can be covered by insurance. Unfortunately, not all agencies realize or see the dangers that lay in such exclu- sions, and we have seen them lurking on policies provided for review more often than we would like. One would think it a serious breach


of duty for an agent to place such limitations on a client’s balance sheet. Sadly, the California appellate courts think otherwise. In the case of San Diego Assemblers v Work Comp for Less, in 2014 the California court ruled that there is no such responsibility upon the agent unless “the broker assumes an additional duty by either express agreement or by “holding himself out” as having expertise in a given field of insurance being sought by the insured.” In this example, a prior work exclusion left Assemblers holding the bill after a building explosion while two carriers and the broker were simply allowed to walk away.


Courts Resolve Broker from Liability


In another recent appellate case


from 2013 the courts absolved a broker from liability with this ruling: …”[i]nsurance brokers owe a limited


duty to their clients, which is only ‘to use reasonable care, diligence, and judgment in procuring the insurance requested by an


14 March/April 2016


insured.’ Accordingly, an insurance broker does not breach its duty to clients to procure the requested insurance policy unless (a) the broker misrepresents the nature, extent or scope of the coverage being offered or provided..., (b) there is a request or inquiry by the insured for a particular type or extent of coverage...” (Pacific Rim Mechanical Contractors, Inc. v. Aon Risk Ins. Services West, Inc. (2012) 203 Cal. App.4th 1278) In the above determination we


find that it takes almost an active act of negligence or certain level of self-proclaimed expertise before an insurance broker will be held accountable for a deficient policy. Tere is no implied contractual duty placed upon the broker to provide more than what the client has asked for, as the case continues to state. Te courts are not likely to change


their stance any time soon when it comes to regulating GL policies with a prior work exclusion. Again, referencing what the court


stated in the Assemblers v Work Comp case: “As we explained in Pacific Rim, balancing these types of considerations is properly the function of the Legislature, not the courts. If imposing a broad duty on brokers to affirmatively determine and procure insurance to meet an insured’s coverage needs, or mandating prior completed work coverage in all contractor general liability policies, ‘ is in the interest of the public..., the people of California, by initiative or through the Legislature, can create that duty....’”


No Universal Broker Standards


While our agency would hold that it


is our duty to provide the best coverages possibly to our clients and to clearly explain the risks associated with lesser coverage, the State of California will not at this time mandate this high set of standards for brokers across the board. Te courts have made it clear


that each contractor should take the


time and care to review their policies thoroughly. Tere are many agents as well as third part risk management professionals who are able to provide this type of service. Not only are they able to review your current or renewal insurance policies, but they can also review your entire safety program, from contracts to company policy.


What Can the Contractor Do? Taking on a qualified, full-time


safety manager or contracting with a third party risk management firm may not be the right solution for every contractor. However, there are ways to begin vetting your insurance profes- sional. Look for brokers who have designations such as Esq., CPCU, or Construction Risk Insurance Specialist (CRIS®) designations, and an AGC membership is highly recommended. Tese types of certifications indicate that the broker has taken commercial or construction insurance seriously. Remember, a broker can be merely an order taker, or they can go that extra mile for your company. By understanding what you’re


getting in all your insurance contracts, you’re taking an important step to minimize your company’s exposure and risk and ultimately, to protect your bottom line or very existence. For advice on any of the above issues, contact your qualified AGC member broker or lawyer, or feel free to contact Mahan Insurance anytime with questions. Bob (949) 279-9937 or Jessica (714) 389-9450. 


Bob Mahan, Principal of Mahan


Insurance Brokers, Inc., Newport Beach, CA, is a registered engineer and a member of the California bar. He is a Past Chair of the AGC Legal Advisory Committee and served on the committee that drafted the new Standard Form Subcontract. Jessica Schellentrager, Account Director at Mahan Insurance, is a Certified Construction Insurance Specialist (CRIS ®).


California Constructor


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