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Illinois Subcontractor by kbi18197

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Illinois Subcontractor document sample

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									   What is Illinois Doing??
A Construction Walk Through
     of the Legal Maze
                     OBJECTIVES

 Discuss indemnity & hold harmless agreements
 Discuss Changes in the Law with Virginia Surety and
Kajima Construction Cases
 Clarify purpose of Additional Insured Endorsements
 Provide Solutions to the Challenges Caused by the Recent
Illinois Case Law
 Provide key issues to consider when underwriting
contractors and providing sureties
Virginia Surety Case,
Illinois Supreme Court, 2007

 Not wanting to duplicate protection provided by
 workers' compensation insurance, CGL policies
 exclude coverage for injuries sustained by the
            policyholder's employees.

However, there is an important exception to this
      exclusion for "insured contracts."
       The Big Three
• Limited   Form

• Intermediate Form

• Broad Form
               Limited Form
   Only covers indemnitor’s negligence

   Does not cover indemnitee’s negligence

   Possible reimbursement of legal fees
   Example:
      The Subcontractor shall indemnify and
       hold harmless the General
       Contractor….from and against all
       claims, damages….. arising out of the
       work of the subcontractor, but only to
       the extent caused by the negligent act or
       omission of the Subcontractor…..
          Intermediate Form
   The most common form
   Covers negligence of indemnitee
   Does not cover sole negligence of
    indemnitee
   May include active negligence
   Is it enforceable?
   Example:
      - The Subcontractor shall indemnify and
        hold harmless the General Contractor
        ….from and against all claims,
        damages….. arising out of the
        subcontractor’s work provided it is
        caused in whole or in part by any
        negligent act or omission of the
        Subcontractor…..
        Broad Form
 Indemnification for sole
  negligence
 Most comprehensive form


 Is it enforceable?


 Clear and Unequivocal
   Example:
        Subcontractor assumes and agrees to

         hold harmless, indemnify, protect and
         defend General Contractor against
         any and all liability including the sole
         negligence of the General
         Contractor……..resulting from any
         and all operations performed by the
         Subcontractor…………..
                Which is the Excellent Risk?
 You receive applications for two General Contractors. Based on the
  following indemnity agreements, which is a better risk:

       • The Subcontractor shall indemnify and hold harmless the
         General Contractor ….from and against all claims, damages…..
         arising out of the subcontractor’s work provided it is caused in
         whole or in part by any negligent act or omission of the
         Subcontractor…..

       • Subcontractor assumes and agrees to hold harmless, indemnify,
         protect and defend General Contractor against any and all
         liability including the sole negligence of the General
         Contractor……..resulting from any and all operations
         performed by the Subcontractor…………..
                Trick Question
   General Contractor = The Broader the
    Better

   Maximize the risk transfer allowable by
    state
       Which is the Excellent Risk?
 When reviewing applications for Subcontractors
 which State presents the excellent risk:

  • State that allows Broad form indemnity
    agreements?

  • State that does not allow Broad form indemnity
    agreements?
                    Answer
   State that does not allow Broad form
    indemnity agreements

   Subcontractor = As Limited as Possible
Third Party Actions Over
         Third Party Actions Over

   Intermediate form of the indemnification
    agreement
   The entire purpose of indemnification agreements
    is to transfer risk from one party to another.
   GC requires “indemnification and hold harmless”
    for “concurrent” liability or liability caused “in
    part”.
Virginia Surety Case-
Importance
    The case signals a change for what
    had been recognized law in Illinois
    and supported law in nearly all of the
    state jurisdictions which recognize the
    intermediate form agreement as valid.
Virginia Surety Case,
Illinois Supreme Court



     If a policyholder assumes liability for the
negligence of another party, as part of a written
contract with a client, then this exception to the
 exclusion provides insurance coverage for the
          assumed tort liability of another.
Virginia Surety Case,
Illinois Supreme Court 2007



  Where a subcontractor waives the so-called
 “Kotecki cap” and promises to "indemnify" the
   general contractor -- these commonplace
provisions are not "insured contracts" as defined
                     by CGL.
Virginia Surety Problems


Illinois construction contracts, every single "insured
contract" will involve an unenforceable contract (Not
for Maintenance Contracts)‫‏‬
 Risk Transfer is Huge for GC's versus Subcontractors
 Uninsured Gap for Contractually Responsible Losses
 Are Surety Bonds on the Hook For Contractual
Performance?
Virgina Surety Solutions

 Remedy this risk transfer- mandating strict
adherence to “AI's” being named on the policy by
the GCs before the job starts.

Specifically request a declaration sheet, and
policy provided to the general or subcontractor
from the lower tier contractor before any work to
obviate this risk.

Modify exclusions under both the EL and CGL
Policies.
Insuring Transfer of Risk
          Applicability to the Policy
 Loss date vs. execution of contract

 Is the contract an “insured” contract

 Does not cover breach of contract, only liability
 assumed under contract

 Prior contracts may be included

 Indemnitee as an “additional insured”
     Master Pak- Additional Insured
   Requires a written contract
   Executed prior to the loss
   Arise out of real property
   Caused by ongoing operations
   No coverage for sole negligence
     Key Master Pak Considerations
   Limits of coverage
        General Contractor- no limits in agreement
        Subcontractor- limits in agreement


   Excess unless specified primary*
        General Contractor- specified primary and non-
         contributory
        Subcontractor- no specification of primary
                Kajima Construction-
            Illinois Supreme Court 2007
   Order of coverage
   Supreme Court to decide if additional insured
    status on both a primary and excess policies
    forced the subcontractor's insurer to bear the
    entire risk for the loss.
   "the deselected insured or insurer's primary
    policy must first answer for the loss before they
    may invoke coverage under any excess policy."
              Kajima Construction-
          Illinois Supreme Court 2007

   1) Coverage for Additional Insureds under the
    Primary policy pursuant to the contract
   2) Coverage under your own policy of insurance for
    your primary insured amount
   3) Coverage as Additional Insured under any excess
    policy pursuant to the contract
   4) Coverage under your own policy for your excess
    amounts.
   What about Multiple Tenders????
Kajima Problems

   General Contractor who may have believed that they
    were insulated from exposure with the requirements
    of excess insurance may not need to rewrite their
    contracts.
   What is the risk for insurance carriers and
    underwriters due to account for this change?
Kajima Solutions

   Multiple Tenders under “Targeted Tender”
    Rule in Illinois
   Solid Additional Insured Contracts with Sub
    and Sub of Sub. “Primary Non-Contributory”
   Receive policy before agreeing to start work.
Questions??

   He that is surety for a stranger shall
    smart for it: and he that hateth
    suretyship is sure.

								
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