Prudent Owner/Developers should continually review their approach to risk management. In particular, changes to the always-evolving construction insurance coverage forms require Owner/Developers to rely more than ever on their insurance brokers to obtain the broadest form of coverage available in the marketplace. One construction insurance coverage issue that often falls through the cracks is commonly referred to as “horizontal exhaustion.” Horizontal exhaustion, which has been endorsed by New York courts, requires that in the event of a claim, primary liability coverage available to each impacted trade contractor(s), construction manager, and perhaps, the Owner’s primary layer of general liability coverage, be exhausted before any excess or umbrella liability policy held by the impacted trade contractor(s) be subject to exposure.
Our construction agreements have been adapted based on New York courts’ approach to horizontal exhaustion. For example, agreements may now be written to require that all trade contractors’ umbrella or excess policies be endorsed to afford primary and non-contributory coverage, without contribution from any other party, to all additional insureds where required by contract. It is not enough, however, to merely rely on the terms of a contract. Owner/Developers should work with their construction managers or general contractors to obtain evidence that the endorsements are actually obtained from subcontractors of all tiers, and these policies, in addition to the construction manager’s or general contractor’s, also should be reviewed to ensure there are no other exclusions which would render coverage unavailable.
The careful review of trade contractors’ and construction managers’ or general contractors’ general liability and excess or umbrella policies, including those endorsements obtained to assist Owner in managing its project risk, is an important component to an Owner/Developer’s efforts to mitigate its liability on construction projects. For further information and/or assistance, please contact us at Greenberg, Trager & Herbst, LLP.