Proactive, scheduled OSHA inspections have proven beneficial to many of Ware’s clients recently. “By actively planning for the visit and responding accordingly to recommendations, companies are not being burdened by unforeseen fines and overly disruptive, frequent surprise inspections,” states Michael Kellam.
Democrats in Congress have introduced bills to raise the federal OSHA fines, something that hasn’t been done in two decades. But even without new legislation, OSHA is finding ways to issue large fines.
After being issued the largest fine in OSHA’s history ($87 million) BP once again faces a multi-million dollar penalty from the workplace safety and health agency. It wasn’t a death, injuries or explosion that brought OSHA to this BP plant. It was inspected just because it was a refinery. OSHA often reacts to catastrophic workplace accidents by starting National Emphasis Programs (NEPs) to inspect businesses with similar hazards.
Example: After the Imperial Sugar plant explosion near Savannah, GA, in 2008, OSHA initiated an NEP for combustible dust hazards. As part of an NEP targeting refineries, BP’s plant near Toledo, OH, has been hit with just over $3 million in citations. OSHA used per-instance citations and classified many of them as willful, a categorization that carries larger fines. More than half BP’s fine - $1.82 million _ stemmed from 26 per-instance, willful violations.
(Reprinted: Fred Hosier, 3/16/2010)
While lifting boxes at work, a man suffered a back injury which required surgery. During his recovery, he was unable to work and received workers’ comp benefits. The employee said that pain in his leg, which was a result of the back injury, forced him to walk with a limp and limited his activities. But he was caught on tape picking up and swinging his grandchildren. In addition, when the insurance carrier’s doctor saw him, he walked with a severe limp. But when the doctor watched him walk out to the parking lot, the limp had noticeably improved.
Benefits cut off – permanently
The Workers’ Compensation Board in New York State ruled to cut off his benefits. It also ruled to disqualify him from receiving any workers’ comp in the future. The worker appealed the decision in a state court, but the decision was upheld.
(Reprinted: Christian Schappel 1/26/2010; Cite: Church v. Arrow Electric)
A recent survey sponsored by Insurance Journal states that the quality of claims service continues to be the top factor in how independent agencies evaluate their carriers, although insurer’s financial strength ratings are now a much bigger concern for agents than in the past. Nearly half of those polled said financial strength ratings were critical – the jump likely reflects the recent dramatic instability in the entire financial services sector. The survey polled nearly 1,100 agents in all 50 states. “Agents placed the highest importance on things that matter to their customers, not themselves,” said Kevin Jenne, Project Manager for the research firm. “They clearly prioritized things such as claims service and pricing over the service and compensation they receive,” Jenne adds.
“Because the Ware Company represents a number of financially stable insurance carriers, we are able to concentrate on meeting the client’s risk management and protection needs – with seamless immunity from administrative and policy differences in carriers,” states Ed Kellam, President.
The types of accounts that Ware writes are frequently cases where the customer has had problems with their current provider agency. These clients can be labor intensive, and typically manufacture a unique or complex product.
“If it was easy, anyone could do it,” adds Ed. “Our success is apparent because we are technicians. Our competition simply does not have the knowledge, experience and precision that Ware possesses. Further, in today’s age, we have learned how to work harder, smarter and faster than other agencies. This is an edge that manifests directly to the client’s satisfaction and bottom line.”
General liability carriers specializing in contractor insurance for builders and drywall subcontractors (subs) are "sweating it out" over the potentially massive claims dollars that could be paid out in litigation, settlement, and adverse jury verdicts arising from Chinese drywall. However, due to the impact of little known policy exclusions and evolving case law in many states, general liability carriers may escape liability for all or a significant percentage of claims leaving builders and trade subs facing huge uninsured losses and potential bankruptcy.
From the point of view of the homeowner, these claims will not likely be covered by homeowner's property insurance. And unfortunately to the extent that the damages are not covered by the general liability policies of builders, subs and distributors, homeowners will incur devastating out-of-pocket losses.
Per House Damage Could Be Astronomical
There is a lot at stake for all parties because the damages on a per house basis are likely to be astronomical. The lawsuit papers will allege that the fumes from the defective Chinese drywall have resulted in corrosion damages to all metal parts of the house including electrical systems, copper piping, HVAC and other metal fixtures.
In addition, lawsuits will alleged that the nonmetal parts of the house have been damaged by foul-smelling and noxious sulfur dioxide fumes.
Some experts may claim that the drywall can be sealed, but this approach is questionable and unlikely to be accepted by homeowners. Most lawsuits will likely ask for the total removal and replacement of all drywall and electrical systems, as well as other building materials that may have been contaminated by the fumes.
Next, add damages for remediation or replacement to household contents for exposure to corrosive and foul-smelling fumes. Top this off with the possibility of bodily injury claims due to adverse health consequences to occupants due to exposure.
Pollution Liability Exclusions
All contractor general liability policies include a standard exclusion for liability arising from the "actual, alleged or threatened discharge, seepage, release or escape of pollutants." Pollutants are defined as any solid, liquid, gaseous, or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals, and waste. Based on this broad definition, the carriers will take the position that the fumes released from Chinese drywall fall under the policy definition of pollution.
Fortunately, the standard policy language includes an exception to the exclusion for pollution that results from the products or completed operations of an insured. In other words, the insurance carrier can't use the pollution exclusion to deny a claim when the pollution arises after the house has been sold.
Unfortunately, many general liability policies that are sold to contractors include a total pollution exclusion that does not allow the exception that is mentioned in the above paragraph. The presence of the total pollution exclusion (or similar exclusion) on a policy will allow the insurance carrier to take the position of denial of all damages and legal defense. The success of such a position will be determined by the allegations in a specific lawsuit, as well as case law. The successful use of the total pollution exclusion, if upheld by the courts, will have a devastating impact on all defendants.
Property Damage Exclusions and Emerging Case Law
In the event that the total pollution exclusion is not present on the general liability policy, or if it is not ultimately upheld by the courts, claims adjusters will have a fallback position in their quest to deny a significant percentage of Chinese drywall claims.
As a result of the construction defect crisis, most general liability carriers specializing in builders insurance began to insert special policy exclusions around five years ago to escape liability for construction defect claims.
The most common exclusion entitled, "Exclusion: Damage To Work Performed By Subcontractors On Your Behalf" (CG2294), virtually eliminates all property damage liability for damage to the builder's faulty work itself (drywall) and resulting damage to the builder's non-faulty work (corrosion to electrical systems, copper piping, HVAC and other metal fixtures).
Existing case law in many states has resulted in claim denials for construction defect under the theory that property damage to a builder's work is not considered to be an "occurrence" or accident, and thus the policy should not act as a warranty. Therefore, the result in these states is the same as the application of exclusion CG2294.
However, general liability coverage under the builder's insurance policy will still likely apply to property damage to contents and bodily injury claims by occupants. Because most lawsuit papers are likely to allege at least some covered damages, coverage will still be triggered for the entire legal defense for all claims at the expense of the insurance carrier.
As concerns drywall subcontractors, their general liability policies will not cover property damage to their work (drywall) but will cover resulting property damage to other parts of the house and contents. Their policy will also cover bodily injury to occupants. In addition, their policy will likely trigger a full legal defense of all claims.
Assuming that both the builder and drywall sub have general liability insurance in force continuously from the completion of the job to the filing of the lawsuit papers, their combined policies won't likely cover the cost to tear out and replace the drywall. Such a repair job represents a huge undertaking and will be very expensive.
U.S. Suppliers and Chinese Manufacturers
U.S. suppliers of Chinese drywall will undoubtedly participate in these lawsuits with both builders and drywall subs. Plans for class action lawsuits are already under way. Under a worst case scenario, some U.S. suppliers may run out of general aggregate limits under their general liability policies, and it is unlikely that Chinese manufacturers will share in these claims due to the difficulties in enforcing judgments against foreign manufacturers.
Builders Can Protect Themselves
Builders are advised to protect themselves from future construction defect and pollution claims by implementing the following practices:
One of Ware’s residential clients was moving his residence and found one of his expensive art pieces had a chipped frame during the process. Ware’s carrier took possession of the damaged goods and transported it to the company’s art restoration department to restore it back to its original value. Then, their Risk Management group actually came to the new residence and re-hung the painting to ensure that it was done correctly, that the room’s humidity was appropriate and finally that the room and spotlight’s lighting would not damage the piece.
An employee of a subcontractor, injured on a construction project, filed a lawsuit against the general contractor for the development. The latter, holder of a certificate of general liability insurance furnished by the subcontractor, and its insurer tendered defense of the suit to the subcontractor's insurer. That carrier declined on the basis of a policy exclusion for injury or damage arising out of roofing work, in which the subcontractor was engaged at the time.
The general contractor and its insurer initiated legal action, claiming that the subcontractor's insurer should provide defense because of the general contractor's reliance on representations in the certificate that it was an additional insured. The sub-contractor's insurer filed a motion for summary judgment, contending that the claim was excluded from coverage. The motion was granted, and the judgment of the trial court was appealed. The evidence was clear that the subcontractor, by contract, agreed "to indemnify (the general contractor) against all claims, damages, losses or expenses arising out of (its) work on the project." Relative to the contractual provision, the subcontractor arranged for its insurer to issue a certificate of insurance to the general contractor, identifying the sub as named insured and the general and the project as additional insureds under various described policies, including general liability insurance.
The appeal court noted that the certificate included a prominent statement, in large type, as follows: "This certificate is issued as a matter of information only and confers no rights upon the certificate holder. This certificate does not amend, extend or alter the coverage afforded by the policies below." Another highlighted statement made clear that ". . . .the insurance afforded by the policies described herein is subject to all of the terms, exclusions, and conditions of such policies."
The appeal court concluded that the certificate served only to inform the general contractor that it had the same coverage as did the subcontractor. The effect of the certificate was that it was up to the general contractor to determine the scope of its protection and policy exclusions from the policy itself. Furthermore, the court said, it was not the policy issuer's responsibility, but rather that of the certificate holder, to determine if the coverage was proper for the situation.
The judgment of the trial court was affirmed in favor of the subcontractor's insurance carrier.
Source: Silverplume Reference Systems