Trending construction exclusions call for greater insurance contract scrutiny, negotiating

SAN DIEGO — The modernization of finalizing insurance for construction projects by automating applications could cause legal headaches later, and much of the reason is due to evolving and expanding exclusions and conditions in commercial general liability policies, according to presenters Monday at the International Risk Management Institute Inc.’s annual Construction Risk Conference.

It’s one example of how the changing nature, vocabulary and nuances of contract language calls for greater scrutiny and attention to detail, according to Rachel Dobbs, Orlando, Florida-based client executive at the Hylant Group Inc., who says renewal time can leave companies particularly vulnerable.

“If you’re just clicking through something online and not having a discussion, it’s very easy to miss that nuanced conversation,” she said, referring to one of the most common exclusions in construction: that which does not cover certain classifications of work, such as roofing. “That’s not my preferred way of working through a renewal; I like to actually sit with my clients and go through those questions together, particularly on supplemental (insurance) applications,” she said.

Of classification exclusions, Bethany Barrese, New York-based partner at Saxe Doernberger & Vita P.C., said she prefers for clients to avoid such language “because it’s far too complicated to manage that… unless you’re only doing the same type of job every single day, and it never varies from that.”

“You’re not going to call your insurance broker every time you get a change order, or you have to add something else onto your contract,” Ms. Dobbs added.

Contracts that exclude coverage for damages caused by perfluoroalkyl and polyfluoroalkyl substances, or PFAS, are also increasingly common, creating challenges for an industry that handles materials made of what is also known as “forever chemicals,” Ms. Dobbs said.

“PFAs is a growing concern, and it’s something that we are seeing (addressed in) nearly every policy,” she said.

The legal community helping companies navigating construction insurance contracts are also seeing more endorsements in policy language regarding subcontractors, according to Ms. Barrese.

Such conditions are “something that I’ve been running into with increasing frequency… and it’s causing a lot of problems for a lot of my clients,” mostly because insurers differ on language and phrasing, she said. “There are number of different names that I see these endorsements go by,” she added. She showed a list of different terms for what essentially affects a contract the same way, from “contractors special conditions” to “subcontractor warranty.”

“Whenever I do see this type of endorsement in the policy, my number one recommendation is to negotiate it off,” she said. “If you can’t… you need to go to great lengths to make sure that all the sub-contracts that you are entering have the appropriate terms and get signed. You have to make sure that your subcontractors insurance satisfies the required conditions.”