By: Heather Blumberg
In large multi-party construction lawsuits, builders and general contractors rely on the additional insured coverage in their subcontractors’ policies to help provide for defense costs in litigation with the owner. Engaging as many additional insured carriers as possible, as early as possible, benefits the builder or general contractor’s primary carriers, as well as any subcontractor’s carrier who agrees to participate in the defense. More engagement means smaller pro rata shares for all involved.
While many builders and general contractors, or their primary carriers, eventually hire coverage counsel to maximize additional insured coverage, defense counsel often handles the initial tenders and has first access to key policy information from the other parties. With this in mind, this article provides a few key tips on tendering for defense counsel to maximize additional insured coverage later in the litigation.
1. Tender the Carriers Directly
One of the first tasks in complex construction litigation is to put the necessary subcontractors and suppliers on notice. An early pitfall at this stage is sending notice only to the relevant subcontractors, and not their carriers directly as well. While a notice letter sent to a subcontractor may instruct it to put its carriers on notice, this directive is no guarantee that the carrier actually will be put on notice. Until that carrier has been tendered by the additional insured with a petition alleging a potentially covered claim, the carrier has no duty to that insured. Royal Ins. Co. of Am. v. Hartford Underwriters Ins. Co., 391 F.3d 639, 644 (5th Cir. 2004).
Sending a copy of the subcontractor’s notice letter to the insurance agent listed on the subcontractor’s certificate of insurance may be helpful; but, it is not a substitute for notifying the carriers themselves. Therefore, to the extent carrier information is available on a certificate of insurance or elsewhere in the project documents, defense counsel should tender the carrier directly. Information for sending notices of claims to carriers also is available on the Texas Department of Insurance website.
2. Tender as Early as Possible
The earlier a carrier has notice, the earlier that carrier’s obligation to participate in the defense begins. A carrier has no duty to reimburse an insured for pre-tender defense costs. Lafarge Corp. v. Hartford Cas. Ins. Co., 61 F.3d 389, 399 (5th Cir. 1995). High-priced items such as inspections, destructive testing, and initial reports all occur early in construction defect litigation. If the carriers have not been tendered before counsel incurs such costs, then those defense costs will not be recoverable.
3. Save and Scan a Copy of the Whole Tender
This seems obvious but can be onerous. Nevertheless, the effort often is well worth it. In most cases, adding attachments to the tender happens at the mailing stage, so typically, only a copy of the final letter is saved to the system. Having a copy of the whole tender package, however, can be valuable down the line. If, in the coverage litigation that follows, a carrier denies receiving a crucial document—such as the petition—having the full tender with all mailing information attached is valuable evidence.
4. Respond to Coverage Correspondence
Defense counsel normally has more than enough to do when fighting a two-front battle with the owners on one hand and the subcontractors on the other. It is easy for emails and form letters from insurance carriers to end up shoved into a file to be handed off to coverage counsel down the line. But providing some additional, basic information to carriers after they acknowledge the tender will expedite the participation of additional insured carriers.
Adjusters for the carriers generally need to confirm basic information about the project, such as the buildings where the named-insured subcontractor worked or the years the named-insured subcontractor was involved, to determine their duty to defend. The sooner defense counsel provides that information, the sooner the carrier can make a coverage determination.
5. Re-Tender Every Petition
As a carrier does not have a duty to defend until it is tendered with a petition alleging a potentially covered claim, new pleadings may mean new potentially covered claims. See Royal Ins. Co. of Am., 391 F.3d at 644. Therefore, counsel should re-tender each new pleading to every carrier to whom they originally tendered. Even if a carrier has previously denied coverage, new allegations can potentially change a carrier’s coverage position; thus, it is a best practice to re-tender even after a denial.
6. Re-Tender with Disclosures and Discovery
Often, in the early stages of litigation, there are still gaps in policy information for certain subcontractors and certain years. Under Rule 194 of the Texas Rules of Civil Procedure, parties are required to disclose the existence of any insurance agreement under which any person may be liable. Tex. R. Civ. P. 192.3(f), 194.2(b)(7). These disclosures could fill the remaining gaps from the original project documents and provide new avenues for coverage. If a subcontractor discloses a policy with a previously unknown carrier, defense counsel should tender the new carrier as soon as possible.
Do not assume that simply because a carrier is aware of the lawsuit and participating in the defense of the named-insured subcontractor that, absent a tender, the carrier has any duty to a separate, additional-insured builder or general contractor. “Mere awareness” of the suit does not impose a duty on a carrier to defend the additional insured. Nat’l Union Fire Ins. Co. of Pittsburgh, PA v. Crocker, 246 S.W.3d 603, 608 (Tex. 2008). The carrier has no duty to an additional insured “unless and until the additional insured requests a defense.” Id.
Tender letters can seem burdensome and repetitive; but, they offer a straightforward way to increase opportunities for insurance coverage in the later stages of litigation. With the significant expenses of defending large-scale construction litigation, each tender to a new carrier or with a new petition or discovery provides an additional opportunity for cost recovery.