Construction Defect Cases and CGL Insurance

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CGL Coverage and Construction Defects. CGL insurance policies and construction defect allegations interact in any number of ways as to bodily injury and property damage as to the policy period at issue. Some CGL construction defect fact patterns are relatively straight forward as to coverage. Take the example of an insured contractor who defectively builds a set of stairs in a building, in which, after competition, the railing gives way and a guest falls and is injured. Third party bodily injury is an occurrence under the policy at the point in time when the injury occurs. In this instance, occurrence is not much of an issue, assuming the injury occurred during the related policy period.

Other coverage issues raise more complicated coverage questions. Take for example the exclusion for “your work”. Here, the defective work product of the insured and/or the insured’s subcontractors, as the case may be, comes to bear on the facts of the case. By way of example, a subcontractor installs a defective window and after the passage of time, that defect causes subsequent damage to the building, other than that of the window. Both the policy language and exclusions and endorsements (as to the insureds and as applicable, the insured’s subcontractors) must be examined to determine the issue of coverage.

A second issue that follows the discussion immediately above, is when in time coverage under the occurrence language of the CGL policy – attaches to construction defect cases in connection with the policy period. The issue is whether the CGL policy was in effect at the time of occurrence. Courts have applied triggers when they cannot determine when in time the occurrence at issue took place. In Florida, the issue is addressed through the application of so-called “triggers” which can apply to latent damages. Currently in Florida, two triggers are discussed in the cases, the “injury in fact” trigger and the “manifestation” trigger.

Throughout the U.S., the range of triggers discussed and applied is as follows: (1) the exposure trigger, which is the point in time when the defective work or product first caused injury or harmful conditions, such as in asbestos cases; (2) the continuous trigger, applied when the resultant damage occurs across an extended period of time; (3) the injury in fact trigger, which determines that an occurrence is when the damage actually occurred; and (4) the manifestation trigger, which sets the point in time of the occurrence when the damage is discovered or could have been discovered.

In any event, I have testified a number of times in open court and in deposition as to the CGL policy and coverage matters, including those within construction defects. As an expert as to CGL construction defect cases, I draw on my expertise: (1) as summarized immediately below and (2) as set forth in my Curriculum Vitae at https://expertinsurancewitness.com/wp-content/uploads/2018/04/William-D-Hager-Appendix-A-September-13-2013.pdf, as read together with these websites:

CGL construction defect cases often call for expertise as to, among other things, the following matters: (i) commercial general liability insurance policies (sometimes, “CGL policies” or just “policies”) and the regulations of such policies, (ii) an insurer’s claim settlement obligations and responsibilities (inclusive of issues of bad faith refusal to pay) in construction defect cases, (iii) an insurer’s related coverage obligations and responsibilities under such policies and (iv) an insured’s obligations under such policies.1

CGL Expertise: as to Construction Defect Issues: State Insurance Regulation. My expertise as to these matters can be found as follows: I am a former:

  • Commissioner of Insurance (Iowa), as appointed by the Governor of Iowa;

  • First Deputy Commissioner of Insurance, as appointed by the Commissioner of Insurance;

  • Administrative Law Judge (“ALJ”)2 to the Department of Insurance; as appointed by the Commissioner of Insurance; and

  • Assistant Attorney General assigned on a full-time basis to the Department of Insurance, as appointed by the Attorney General of the State.

In those capacities, on a daily basis, I had full regulatory oversight and responsibility for and I dealt directly with commercial general liability insurers and their policies and their obligations and responsibilities to insureds and insureds’ obligations as to CGL construction defect matters – under such policies.3

As a regulator for eight years in four positions ((i) Administrative Law Judge to the Department of Insurance (Iowa), (ii) Assistant Attorney General assigned to the Department of Insurance, (iii) First Deputy Commissioner of Insurance and (iv) Commissioner of Insurance, along with my staff, I approved (or disapproved) of the language of commercial general liability insurance policies used by each of the 1,000 property casualty insurance companies doing business in the state,4 selling among other coverages, commercial general liability insurance policies, including the type of policies at issue in this case.

This regulatory action also included the approval of most all policy application forms and policy forms themselves in use today. These responsibilities also included oversight over the insurers claim handling obligations including issues like that here., including construction defect cases. In addition, I regularly served as an Administrative Law Judge5 in matters relating directly to commercial general liability insurance policies.

CGL Expertise as to Construction Defects: National Insurance Regulation. My expertise as to these matters can be found as follows: I am a former:

  • Member of the National Association of Insurance Commissioners (“NAIC”);

  • Elected Member of the NAIC Executive Committee.

In those capacities, on a regular basis, I had national regulatory oversight and responsibility for and I dealt directly with commercial general liability insurers and their policies and their obligations and responsibilities to insureds and insureds’ obligations under such policies as to construction defect issues – as set out above. This is so because the NAIC “C” Committee, the committee dealing with property casualty issues, reported directly to the Executive Committee. Included in the “C” Committee’s jurisdiction are CGL matters, including policy forms and insurer obligations.

  • NAIC Property Casualty Insurance (C) Committee. As a member of the NAIC and more to the point as a Member of the Executive Committee, I had oversight responsibility over the so –called NAIC “C” Committee, which was responsible for most all property casualty issues, including as here, CGL construction defect issues. The responsibilities and mission of the “C” Committee are as follows6

Mission: “to monitor and respond to problems associated with the products, delivery and cost in the property/casualty insurance market and the surplus lines market as they operate with respect to individual persons and businesses. The Committee also is to monitor and respond to problems associated with financial reporting matters for property/casualty insurers that are of interest to regulatory actuaries and analysts and to monitor and respond to problems associated with the financial aspects of the surplus lines market.”

CGL Expertise as to Construction Defects: Legislative: Current.7 In addition to my state and national insurance regulatory background, I am serving in the following capacities, each of which includes daily knowledge of and interaction with commercial general liability insurers and their obligations and responsibilities to their insureds under such policies as to CGL polices as to construction defect matters:

  • Elected Member of the Florida House of Representatives (currently – I was first elected in 2010 and re-elected in 2012 and 2014 and 2016) where I serve or have served as a Member and Vice Chairman of the Insurance Committee and its upstream parent committee, the Commerce Committee (among other committees), which has legislative oversight over all insurance operations in the state (as administered by the Florida Office of Insurance Regulation) including those relating to commercial general liability insurance and related insurer and insured obligations as to construction defect cases.

  • In addition, I have sat as Vice Chairman of the Civil Justice Subcommittee of the Florida House, which has responsibilities as to Florida laws that establish (among other things) liability,

CGL Expertise as to Construction Defects: Legislative: Prior – Continued. In addition to my state and national insurance regulatory background and my current legislative work as set out above, I also have previously served in the following legislative capacities, each of which included ongoing knowledge of and interaction with commercial general liability insurers and their obligations and responsibilities to their insureds under such policies, including issues of construction defect matters:

  • Legal Counsel to the Iowa House of Representatives;

  • Chief of Staff at the U.S. House of Representatives,

  • Elected Member of the Boca Raton City Council, where I served as an elected Member and as Deputy Mayor, in circumstances where I was the Council’s lead Member as to all insurance matters.

CGL Expertise as to Construction Defects: Industry. In addition to my state and national insurance regulatory background and my current and prior legislative background as to CGL matters and construction defect matters, I have served or am serving in the following capacities, each of which included daily knowledge of and interaction with CGL insurers and their obligations and responsibilities to their insureds under such policies.

  • President and Chief Executive Officer of the National Council on Compensation Insurance (NCCI), a major U.S. property casualty insurance company doing business throughout the United States;

  • After serving as a regulator, I served as President and Chief Executive Officer for the National Council on Compensation Insurance (“NCCI”), which has and is conducting business throughout the U.S, including Florida. NCCI is a nationwide industry owned organization with about 1,500 employees with annual revenues of about $150 million.

  • This means while CEO, NCCI was subject to the full regulatory authority of the various Stated Departments of Insurance as well as to each such state’s Insurance Code as well as the jurisdiction of all of that state’s courts, state and federal.

  • Among my responsibilities at NCCI was (together with my staff) to formulate all workers compensation insurance policy forms as used in our 40 states of operation. This work included drafting all policy language (tailored to the specific state’s insurance code) as well as drafting all endorsements and all other policy forms. In addition, my responsibilities included gaining state insurance department approval of all such policy forms as a condition precedent to their use as submitted by some 600 insurance companies. I am very familiar with the meaning and relevance of specific state approval of policy forms, endorsements and applications and related documents and matters and related insurer and insured obligations under policy forms.

CGL Expertise as to Construction Defects: Actuarial. In addition to my state and national insurance regulatory background and my current and prior legislative background and my industry background as to CGL construction defect matters, I have served or am serving in the following actuarial/ industry capacities, each of which included daily knowledge of and interaction with CGL insurers and their obligations and responsibilities to their insureds under such policies.

  • American Academy of Actuaries, Washington D.C. I served as general counsel and chief lobbyist to the Academy, whose role to actuaries is parallel to that of the AMA to physicians and the ABA to lawyers. Academy members determine pricing for CGL matters at issue in this matter.

  • Actuarial Standards Board (ASB). I served as well as counsel to the Interim Actuarial Standards Board, the forerunner to ASB. ASB, which is to the actuarial profession as to what the Financial Accounting Standards Board (FASB) is to the accounting profession, promulgates and enforces professional standards upon the work product of actuaries. Those standards include rate making standards that apply to the pricing of CGL matters at issue in this matter.

  • Commissioner of Insurance; First Deputy Commissioner of Insurance/ Actuarial. In these two positions, in which I served for a total of six years, I had full regulatory responsibility over the pricing of CGL policies.

CGL Expertise as to Construction Defect Matters: Insurance Arbitration. In addition to my state and national insurance regulatory background and my prior and current legislative and my industry background and my actuarial background as to CGL construction defect matters, I have served or am serving in the following capacities, each of which included daily knowledge of and interaction with CGL insurers and their obligations and responsibilities to their insureds under such policies.

  • Nationally Certified Insurance Arbitrator (ARIAS-US), where I sit as an insurance arbitrator on disputes between (among others) commercial general liability insurers and other insurers, including as to issues of construction defects.

CGL Expertise as to Construction Defects: Reinsurance Arbitration. In addition to my state and national insurance regulatory background and my prior and current legislative and my industry background and my actuarial background and my insurance arbitration background as to CGL construction defect matters, I have served or am serving in the following capacities, each of which included daily knowledge of and interaction with CGL insurers and their obligations and responsibilities to their insureds under such policies.

  • Nationally Certified Reinsurance Arbitrator (ARIAS-US), where I sit as a reinsurance arbitrator on disputes between (among others) commercial general liability insurers and their reinsurers, some cases of which relate to construction defects;

CGL Expertise: Insurance Lawyer: Previous Positions. In addition to my state and national insurance regulatory background and my current and prior legislative background and my industry background and my actuarial background and my reinsurance arbitration background as to CGL construction defect matters, I have served in the following legal capacities, each of which included current and ongoing knowledge of and interaction with CGL insurers and their obligations and responsibilities to their insureds under such policies.

  • As stated, I am an insurance lawyer admitted to practice, all by examination in Iowa, Illinois8 and Florida.

  • Legal Counsel to the Iowa House of Representatives;

  • Iowa Assistant Attorney General;

  • Counsel to the Professional Insurance Agents Association (IA), whose members sell CGL as retail insurance agents;

  • Counsel to the Property Casualty Insurance Association of America (PCA – IA), smaller stock insurance company, many of whose members are CGL insurers;

  • Insurance lawyer with the firm of Hager and Schachterle;

  • General Counsel to the American Academy of Actuaries, Washington D.C.;

CGL Expertise as to Construction Defect Issues: Insurance Lawyer: Current Position. In addition to my state and national insurance regulatory background and my current and prior legislative background and my industry background and my actuarial background and my reinsurance arbitration background as to CGL construction defect matters and my prior legal positions, I have served or am serving in the following current legal capacities, each of which included current and ongoing knowledge of and interaction with CGL insurers and their obligations and responsibilities to their insureds under such policies as to construction defect matters.

  • Hager Law Firm, Boca Raton, Florida, with a practice limited to insurance and reinsurance;

CGL Construction Defect Expertise: Undergraduate Educational Background. In addition to my state and national insurance regulatory background and my current and prior legislative background and my industry background and my actuarial background and my reinsurance arbitration background and my legal background as to CGL construction defect matters, the following formal undergraduate educational background was helpful in this matter:

  • Bachelor’s degree (B.A.) in mathematics (University of Northern Iowa);

CGL Construction Defect Expertise: Graduate Educational Background. In addition to my state and national insurance regulatory background and my current and prior legislative background and my industry background and my actuarial background and my reinsurance arbitration background and my legal background and undergraduate background as to CGL construction defect matters, the following formal graduate education was helpful in this matter:

  • Master’s degree (M.Ed.) in education (University of Hawaii);

  • Juris Doctorate: (J.D.) University of Illinois, Champaign Urbana;

CGL Construction Defect Expertise: Insurance Certifications. In addition to all of the above, the following certifications were helpful to me in connection with this assignment:

  • Certified Insurance Arbitrator by ARIAS-US;

  • Certified Reinsurance Arbitrator (one of about 400 such arbitrators in the U.S) by ARIAS-US;

CGL Construction Defects Expertise: Licensure. In addition to all of the above, the following licensures were helpful to me in connection with this assignment:

  • Members of the following bars, all by examination: Illinois, Iowa and Florida;

  • Admitted to practice before the U.S. Supreme Court;

1 I do not enter legal opinions. My opinions are based on custom and practice in the industry that come to bear on these matters. At the same time, insurance is perhaps one of the most highly regulated areas of commerce in the U.S. and as such, it is not possible to review an insurer’s handling of a claim/defense without reference to rules and regulations that apply to the insurer and the transactions at issue.

2 Then known as a hearing officer.

3 Because the insurance business is conducted across state lines and more specifically, nationally, the Insurance Codes and Department of Insurance rules and regulations (by whatever name) are substantially similar state over state. This is so because much of insurance regulation, though conducted primarily at the state level, is a result of adoption of national model statutes and administrative regulations as promulgated by the nation’s Insurance Commissioners through the National Association of Insurance Commissioners so as to assure uniformity state over state. By way of example, most every state has the unfair claims practices act, by whatever formal name. I enforced this act as a regulator in Iowa. The act is substantially similar to that throughout the U.S. because it is based on the NAIC Model Act, the statutory equivalent of which I enforced in Iowa. My point is that my regulatory experience is substantially similar to parallel experience and positions throughout the U.S. (e.g., the position of Commissioner of Insurance or its titled equivalent in each of the other 49 states). This experience is bolstered by my 44 years of direct insurance experience, including that of being a CEO of a major property casualty entity doing business throughout most of the U.S. and my eight years of experience as an elected Member of the Florida House of Representatives where I currently serve or have served a Member and as Vice Chairman of the Insurance Committee and its upstream parent committee, the Commerce Committee, with statutory oversight over CGL insurance.

4 Some, but not all of whom sold CGL policies.

5 Then known as a Hearing Officer.

6 As set forth by the NAIC itself on its website.

7 My background at both the U.S. Congress and with the Florida House of Representatives could be construed as regulatory in nature but I include it here under my non-regulatory experience because it seems to be a better fit. In addition to these legislative positions, I have also served as Deputy Mayor and Member of the City Council of the City of Boca Raton, Florida, where I headed up the Council’s insurance oversight function.

8 This license is currently in inactive status at my request and is eligible for reactivation at any time upon my request. This is so because I continue to be in good standing with the Illinois Bar.

Contact Bill Hager at 561-306-5072 or via email to discuss your case.