Additional Insured Coverage: Unveiling Myths and Planning for Reality

November 3rd, 2010

Additional insured coverage: Every company involved in the construction of a building knows that such coverage is a required element for any contract. Sometimes a party is giving additional insured coverage; other times, the party is receiving the coverage.

Beyond this limited level of knowledge, most companies merely check the box to ensure that the words “insurance” and “additional insured” appear in the contract or lease, and then give no further thought to how much coverage has been conferred or whether the words in the contract are sufficient to confer any insurance rights at all.

Moreover, most companies fail to recognize that the words in the contract are crucially important in terms of setting the parameters for the additional insured coverage provided. Additional insured coverage can be a slippery slope depending on whether coverage is being given or received.

Before entering into your next agreement, consider the following myths about additional insured coverage and best practices for establishing reasonable expectations vis-Ã-vis additional insured coverage.

Myth 1: A Certificate of Insurance is Sufficient to Establish Additional Insured Status

This is a common misconception. A certificate of insurance is a pre-printed form that is usually prepared by the named insured’s insurance broker. A careful reading of the certificate reveals that, on its face, the certificate is being provided only for the purpose of demonstrating that the named insured has coverage with the insurance company identified, in the amounts identified, and during the policy period identified.

Some certificates of insurance even state (in the very fine print) that the recipient of the certificate has no rights at all under the policy. In order to obtain additional insured status, the certificate must explicitly identify the recipient’s company by name and designate it as an additional insured.
Alternatively, the company may have to review the named insured’s policy to determine whether it contains a broad form additional insured endorsement, which, in essence, establishes additional insured status for any party that has entered into an insured contract with the named insured. The broad form endorsement has become commonplace for companies engaged in construction activities.

Myth 2: Limits of Liability Identified in the Certificate Will Be Sufficient and Available to Cover Any Loss

Most contracting parties include minimum insurance limits that must be carried while the contract remains in effect. Thereafter, the party receiving the insurance assurance sometimes requires production of the certificate of insurance to demonstrate compliance with the contract provision. However, many parties overlook three critical issues that often arise.

1. First, the limits will be available to both the named insured and the additional insured. Therefore, depending on the size of the project and the ultimate ensuing loss, the limits may be eroded quickly and patently insufficient.

2. Second, the limits identified in the certificate will be available to the named insured (and any additional insureds with which the named insured may contract) for other losses that may take place during the policy period. In other words, regardless of the number of contracts that the named insured enters, regardless of the number of additional insureds which may have rights under the policy, and regardless of the number of losses that may be experienced, the insurance company has contracted to provide only one aggregate limit that will be available during the policy period to all potentially covered parties.

3. Third, in some policy forms, defense costs paid on behalf of an additional insured may erode the policy limit. Again, depending on the nature and size of the loss, this provision may have a severe negative impact on the availability of overall limits in today’s climate of scorched-earth, expensive litigation.

Myth 3: An Additional Insured Will Only Have Access to the Named Insured’s Policy for Vicarious Liability

One of the goals of any contract is to establish that each party should be responsible for its own negligence, even if a court of law may impose vicarious liability against the innocent contracting party.

For example, when a general contractor (GC) is bidding on the construction of a commercial building, the GC seeks to establish in its contract with each subcontractor that it will not be responsible for damages that are suffered as a result of the subcontractor’s work performed on the construction project.

One way for the GC to insulate itself from liability is to require the subcontractor to name the GC as an additional insured on its policies. However, as many subcontractors have learned, courts do not always limit the scope of insurance available to the GC to those scenarios where a GC is being held vicariously liable for the conduct of the subcontractor.

Rather, many courts have allowed GCs to recover under the subcontractor’s policy where the loss “arises from” the subcontractor’s work, even where the GC has, in whole or in part, caused the loss through its own negligence. Similar issues have arisen with respect to leases.

Importantly, when courts evaluate whether additional insured coverage should be limited to vicarious liability as opposed to contributory/sole negligence scenarios, the contract language establishing the insurance requirement becomes the linchpin of the analysis.

Courts routinely strive to fulfill the reasonable expectations of the contracting parties and, therefore, may broadly construe the insurance obligations unless the contract mandates a narrow scope of coverage.

The above article is reprinted with the permission of Lynda A. Bennett, Esq., Herold Law, P.A., Warren, New Jersey, email: lbennett@heroldlaw.com

Do-It-Yourself Home Energy Assessments

October 17th, 2010

You can easily conduct a do-it-yourself home energy assessment (also known as a home energy audit). With a simple but diligent walk-through, you can spot many problems in any type of house. When assessing your home, keep a checklist of areas you have inspected and problems you found. This list will help you prioritize your energy efficiency upgrades.

Locating Air Leaks:  First, make a list of obvious air leaks (drafts). The potential energy savings from reducing drafts in a home may range from 5% to 30% per year, and the home is generally much more comfortable afterward. Check for indoor air leaks, such as gaps along the baseboard or edge of the flooring and at junctures of the walls and ceiling. Check to see if air can flow through these places:

•Electrical outlets
•Switch plates
•Window frames
•Baseboards
•Weather stripping around doors
•Fireplace dampers
•Attic hatches
•Wall- or window-mounted air conditioners.

Also look for gaps around pipes and wires, electrical outlets, foundation seals, and mail slots. Check to see if the caulking and weather stripping are applied properly, leaving no gaps or cracks, and are in good condition.

Inspect windows and doors for air leaks. See if you can rattle them, since movement means possible air leaks. If you can see daylight around a door or window frame, then the door or window leaks. You can usually seal these leaks by caulking or weather stripping them. Check the storm windows to see if they fit and are not broken. You may also wish to consider replacing your old windows and doors with newer, high-performance ones. If new factory-made doors or windows are too costly, you can install low-cost plastic sheets over the windows.

If you are having difficulty locating leaks, you may want to conduct a basic building pressurization test:

1.  First, close all exterior doors, windows, and fireplace flues.
2.  Second, turn off all combustion appliances such as gas burning furnaces and water heaters.
3.  Then turn on all exhaust fans (generally located in the kitchen and bathrooms) or use a large window fan to suck the air out of the rooms.

This test increases infiltration through cracks and leaks, making them easier to detect. You can use incense sticks or your damp hand to locate these leaks. If you use incense sticks, moving air will cause the smoke to waver, and if you use your damp hand, any drafts will feel cool to your hand.

On the outside of your house, inspect all areas where two different building materials meet, including:

•All exterior corners
•Where siding and chimneys meet
•Areas where the foundation and the bottom of exterior brick or siding meet.

You should plug and caulk holes or penetrations for faucets, pipes, electric outlets, and wiring. Look for cracks and holes in the mortar, foundation, and siding, and seal them with the appropriate material. Check the exterior caulking around doors and windows, and see whether exterior storm doors and primary doors seal tightly.

When sealing any home, you must always be aware of the danger of indoor air pollution and combustion appliance “backdrafts.” Backdrafting is when the various combustion appliances and exhaust fans in the home compete for air. An exhaust fan may pull the combustion gases back into the living space. This can obviously create a very dangerous and unhealthy situation in the home.

In homes where a fuel is burned (i.e., natural gas, fuel oil, propane, or wood) for heating, be certain the appliance has an adequate air supply. Generally, one square inch of vent opening is required for each 1,000 Btu of appliance input heat. When in doubt, contact your local utility company, energy professional, or ventilation contractor.

Insulation:  Heat loss through the ceiling and walls in your home could be very large if the insulation levels are less than the recommended minimum. When your house was built, the builder likely installed the amount of insulation recommended at that time. Given today’s energy prices (and future prices that will probably be higher), the level of insulation might be inadequate, especially if you have an older home.

If the attic hatch is located above a conditioned space, check to see if it is at least as heavily insulated as the attic, is weather stripped, and closes tightly. In the attic, determine whether openings for items such as pipes, ductwork, and chimneys are sealed. Seal any gaps with an expanding foam caulk or some other permanent sealant.

While you are inspecting the attic, check to see if there is a vapor barrier under the attic insulation. The vapor barrier might be tarpaper, Kraft paper attached to fiberglass batts, or a plastic sheet. If there does not appear to be a vapor barrier, you might consider painting the interior ceilings with vapor barrier paint. This reduces the amount of water vapor that can pass through the ceiling. Large amounts of moisture can reduce the effectiveness of insulation and promote structural damage.

Make sure that the attic vents are not blocked by insulation. You also should seal any electrical boxes in the ceiling with flexible caulk (from the living room side or attic side) and cover the entire attic floor with at least the current recommended amount of insulation.

Checking a wall’s insulation level is more difficult. Select an exterior wall and turn off the circuit breaker or unscrew the fuse for any outlets in the wall. Be sure to test the outlets to make certain that they are not “hot.” Check the outlet by plugging in a functioning lamp or portable radio. Once you are sure your outlets are not getting any electricity, remove the cover plate from one of the outlets and gently probe into the wall with a thin, long stick or screwdriver. If you encounter a slight resistance, you have some insulation there. You could also make a small hole in a closet, behind a couch, or in some other unobtrusive place to see what, if anything, the wall cavity is filled with. Ideally, the wall cavity should be totally filled with some form of insulation material. Unfortunately, this method cannot tell you if the entire wall is insulated, or if the insulation has settled. Only a thermographic inspection can do this.

If your basement is unheated, determine whether there is insulation under the living area flooring. In most areas of the country, an R-value of 25 is the recommended minimum level of insulation. The insulation at the top of the foundation wall and first floor perimeter should have an R-value of 19 or greater. If the basement is heated, the foundation walls should be insulated to at least R-19. Your water heater, hot water pipes, and furnace ducts should all be insulated. For more information, see our insulation section.

Heating/Cooling Equipment:  Inspect heating and cooling equipment annually, or as recommended by the manufacturer. If you have a forced-air furnace, check your filters and replace them as needed. Generally, you should change them about once every month or two, especially during periods of high usage. Have a professional check and clean your equipment once a year.

If the unit is more than 15 years old, you should consider replacing your system with one of the newer, energy-efficient units. A new unit would greatly reduce your energy consumption, especially if the existing equipment is in poor condition. Check your ductwork for dirt streaks, especially near seams. These indicate air leaks, and they should be sealed with a duct mastic. Insulate any ducts or pipes that travel through unheated spaces. An insulation R-Value of 6 is the recommended minimum.

Lighting:  Energy for lighting accounts for about 10% of your electric bill. Examine the wattage size of the light bulbs in your house. You may have 100-watt (or larger) bulbs where 60 or 75 watts would do. You should also consider compact fluorescent lamps for areas where lights are on for hours at a time. Your electric utility may offer rebates or other incentives for purchasing energy-efficient lamps.

For assistance and consulting services in conjunction with energy assessments and audits, contact us at:   ArchCJC@aol.com or 609-654-2329 .

Keys to Securing Your Home: 5 Easy Ways to Help Protect Your Home

October 17th, 2010

Many high-tech, high-priced home security products are available today. Fortunately, there are less expensive – but no less effective – ways to protect your home, too. Check out these smart home security tips!

Eliminate Hiding Places. Keep all entry points to your house well lit. Trim shrubs and trees that could provide cover for an intruder. Trim tree limbs that could enable intruders to gain entry via an upper-floor window or balcony and keep items such as ladders locked inside the house.

Don’t be an easy target. Burglars want to hit the easiest target on the block so give them reasons to skip your house. Home-security decals or “Beware of Dog” signs are good deterrents. Home security alarms are also good. A subscription to a monitoring service isn’t always necessary. The sound of an alarm is often enough to scare off a thief.

Lock windows and doors. Department of Justice statistics report more than half of all burglaries occur with no sign of forced entry — meaning a robber was able to enter the housethrough an unlocked door or window. Use a heavy-duty deadbolt that is bolted to the door frame with three-inch screws.

Appear to be home. When you’re away, have someone pick up your mail and newspaper or have them stopped for the duration of your trip. In addition, have someone mow your lawn. Also, use timers to turn specific lights on and off in the house to make it seem as if someone is home.

Know your neighbors. Make sure neighbors know when you’re planning to be away and how they can reach you in an emergency. Leaving an extra key with a trusted neighbor is a good idea. It’s better than hiding one under a mat or in some other outdoor hiding place.

For assistance and consulting to implement these security measures, contact us at:  ArchCJC@aol.com or 609-654-2329.