SUBQ0409

THE OFFICIAL EDUCATIONAL JOURNAL OF THE AMERICAN SUBCONTRACTORS ASSOCIATION

RISK:

FOURTH QUARTER 2009

Now

Manage It or Pay for it

Later

+

• Wrap-Up Insurance: Questions to Ask Before the Project • Update on Subcontractor Default Insurance

Presorted Std. U.S. Postage PAID FARGO, ND PERMIT 43

• Killer Contract Clauses • Best Practices for Providing Warranties

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XXX $POTFOTVT%0$4 PSH Use partner code ASA and promo code 100 when ordering for your member discount.

FOURTH QUARTER 2009

Features Introducing the ConsensusDOCS 725 Sub-Subcontract. . . . . . . . . . . . .

by Donald Gregory, Esq

12

New Study Co-Sponsored by FASA Reveals Concerns About Subcontractor Default Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . 14

by David Mendes, ASA Senior Director of Communications and Education Subcontractors: Prevent Bond Fraud! . . . . . . . . . . . . . . . . . . . . . . . . . . . .

by Russell O’Rourke and Richard Usher Wrap-Up Insurance: Understand the Benefits and Address Potential Coverage Gaps. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

by Michael Ahern

16

19

Departments Taking Measure Knowledge Is Power — Thanks to You! . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

by Rick Wanner, 2008-2009 President Contractor Community . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Legally Speaking Understanding Your Completed Operations Coverage and Obligations (Part I) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

by David R. Hendrick, Esq., and Jared W. Heald, Esq

Quick Reference Coming Up Next Issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 ASA/FASA Calendar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Advertisers’ Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Published by

Advertising Manager Rick Sauers

Naylor, LLC 5950 NW 1st Place Gainesville, Florida 32607 (800) 369-6220 Fax: (352) 331-3525 www.naylor.com

Marketing Associate Patti Callahan

Publisher Jill Andreu

Layout and Design Catharine Snell

Editor Shani Lyon

Sales Representatives Lou Brandow, Jeff Bunkin, Mike Hisey, Diane Markey, Mark Tumarkin

Advertising Art Reanne Dawson

©2009 Naylor, LLC and the Foundation of the American Subcontractors Association, Inc. All rights reserved. The contents of this publication may not be reproduced by any means, in whole or in part, without the prior written consent of the publisher and FASA.

Editorial Purpose The Contractor’s Compass is the quarterly educational journal of the Foundation of the American Subcontractors Association, Inc., (FASA) and part of FASA’s Contractors’ Knowledge Network. The journal is designed to equip construction subcontractors and specialty trade contractors with the ideas, tools and tactics they need to thrive.

The views expressed by contributors to The Contractor’s Compass do not necessarily represent the opinions of FASA or the American Subcontractors Association, Inc. (ASA).

Publication Staff Managing Editor, David Mendes Communications Manager, Franklin Davis Mission The Foundation of the American Subcontractors Association (FASA) was established in 1987 as a 501(c) (3) tax-exempt entity to support research, education and public awareness. Through its Contractors’ Knowledge Network, FASA is committed to forging and exploring the critical issues shaping subcontractors and specialty trade contractors in the construction industry. FASA provides subcontractors and specialty trade contractors with the tools, techniques, practices, attitude and confidence they need to thrive and excel in the construction industry.

FASA Board of Directors, 2008-09 Richard Wanner, President David H. Bradbury, Vice President Kerrick Whisenant, Secretary-Treasurer Walter Bazan Jr. Yilmaz H. Karasulu, Ph.D. Timmy McLaughlin E. Colette Nelson Anne Bigane Wilson, PE, CPC Advertising For information about advertising, call Tom Schell at 1-800-369-6220.

Subscriptions The cost to subscribe to The Contractor’s Compass is $55 annually. Subscribe online at www.fasaonline.com. Or, call toll-free 1-888-374-3133 or send an e-mail message to fasa@asa-hq.com. All subscriptions must be prepaid.

Editorial Submissions Letters to the editor must be previously unpublished, typewritten and double-spaced on company letterhead and signed. Unsolicited manuscripts and letters become the property of FASA and cannot be returned. The editor reserves the right to edit all letters for length, style, clarity, spelling and punctuation. Mail submissions to The Contractor’s Compass, 1004 Duke Street, Alexandria, VA 22314-3588, or e-mail them to: fasa@asa-hq.com.

About ASA ASA is a non-profit trade association of union and non-union subcontractors and suppliers. Through a nationwide network of local and state chapters, members receive information and education on relevant business issues and work together to protect their rights as an integral part of the construction team. For more information about becoming a member, contact ASA at 1004 Duke Street, Alexandria, VA 22314-3588; telephone: (703) 684-3450; fax: (703) 836-3482; e-mail: ASAOffice@asa-hq.com.

POSTMASTER: Send address changes to FASA, 1004 Duke St., Alexandria, VA 22314-3588, United States of America.

PUBLISHED AUGUST 2009/SUB-Q0409/8590 Vol. 8 No. 4

ASSOCIATIONS ADVANCE AMERICA

Project Manager Tom Schell

The Contractor’s Compass • Fourth Quarter 2009 3

ASA Business Forum and Convention 2010 Don’t miss the premiere national learning and networking event for construction subcontractors!

March 4-6, 2010 San Diego Marriott La Jolla San Diego, Calif.

SAVE THE DATE!

REGISTRATION FEE: $875 for ASA members Take $100 off by registering by Feb. 2!

CONVENTION REGISTRATION: www.asaonline.com or (703) 684-3450, Ext. 1304 HOTEL RESERVATIONS: 1-800-228-9290

The Business Forum and Convention’s workshops will help you: run projects smoothly, including documenting your work to preserve claims; identify, evaluate and effectively bid new work; stay on top of project management trends; streamline for the new construction economy; and much more. Also, enjoy networking and golf, and learn about the latest money-saving and productivityimproving products/ services for specialty contractors.

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Taking Measure

Knowledge Is Power — Thanks to You!

by Rick Wanner, 2009–10 FASA President

S

ometimes, when you hear a saying like “knowledge is power,” it seems so general and vague that it doesn’t really mean much. People throw around sayings like that all the time without much thought.

But other times, such sayings really ring true. The Foundation of ASA has a knack for bringing knowledge that is powerful into our industry. The recent release of the study on subcontractor default insurance commissioned by FASA and the National Association of Surety Bond Producers (see related story page 14) is just the latest example of research initiated through FASA’s Contractors’ Knowledge Quest program that speaks directly to our businesses’ needs.

Should you bid a project that requires enrollment in SDI? What are the possible advantages? What are the potential costs and risks? These are the kinds of questions that this study will help answer for many subcontractors. For example, many of the surveyed subcontractors reported that enrollment in a prime contractor’s SDI program imposes administrative burdens, and could lead to the misuse of financial information that they are required to provide. At the same time, many of the subcontractors did not feel that sureties necessarily do a better job of judging the capabilities of subcontractors compared to prime contractors.

These kinds of insights that reverberate with many subcontractors were made possible thanks to the donors to FASA’s Knowledge Quest program.

These research results will make a very real and very powerful difference not just to many subcontractors, but also to many suppliers, prime contractors, owners, and even insurers and public officials as they make risk-management decisions.

Who knows what the greater ripple effects will be? While it’s impossible to predict the study’s full impact, we know that ASA and FASA can use research results like these to get the ear of decision-makers. That’s what happened with the Knowledge Quest study, “Retainage Practice in the Construction Industry,” published in November 2004. That study put on paper (so to speak) many of the perceptions and assumptions about retainage in the industry. It unearthed valuable information with

provocative questions like “Would your price be lower if no retainage was held?” and “Are you more likely to pursue contracts where no retainage is held?” (The answer of most subs, general contractors, and at-risk CMs was yes to both questions.)

Since FASA released its retainage study nearly five years ago, the movement to reform retainage has accelerated. ASA cited the study’s results to many legislators in arguing for reform, and since 2005, 13 states have reformed their retainage laws, including New Mexico, which became the first state to effectively eliminate retainage. The other states that reformed their laws are: California, Florida, Hawaii, Iowa, Kansas, Kentucky, Maryland, Montana, North Carolina, Oklahoma, South Carolina and Tennessee.

In light of these changes, it would be impossible to deny that knowledge is power.

It would be overly optimistic to expect results on such a grand scale to follow from the publication of the SDI study, especially considering that only one insurer writes SDI policies. However, the SDI study’s analysis of the difference between SDI and subcontractor performance bonds may change some core opinions about the value of SDI as an alternative to bonds.

The study may cast SDI as too risky in the current economic climate, because it reveals how much SDI relies on the financial resources of prime contractors to cure subcontractor performance defaults. It may even prompt legislation to address the concerns that subcontractors and others raised during the course of the research. Only time will tell.

One thing I do know is that this study will make a positive difference because the knowledge it created is powerful. Get your copy and support the future research of FASA’s Contractors’ Knowledge Quest program online at www.fasaonline.com.

■ Sincerely,

These research results will make a very real and very powerful difference not just to many subcontractors, but also to many suppliers, prime contractors, owners, and even insurers and public officials as they make risk-management decisions.

Richard Wanner President, 2009-10 President, Wanner Metal Worx Inc., Delaware, Ohio FASA welcomes your thoughts at fasa@asa-hq.com

The Contractor’s Compass • Fourth Quarter 2009 5

Contractor Community Get New Strategies for Your Business at ASA’s 2010 Convention in San Diego

D

on’t miss ASA’s national education and networking event for subcontractors, the ASA Business Forum and Convention 2010, on March 4, 5 and 6 at the San Diego Marriott La Jolla in San Diego, Calif. At this once-a-year event featuring dozens of workshops/sessions dedicated to arming subcontractors with tips to effectively manage their businesses, learn how to document your work to preserve claims, and how to identify, evaluate and effectively bid new work. Learn about project management trends, streamlining for the new construction economy, and much more!

Registration Take $100 off the regular member

registration rate of $875 by registering for the convention by Feb. 2, 2010. Once registered, others from your company can register at the further-reduced rate of $700. Register securely online at www.asaonline.com.

Accommodations Take advantage of ASA’s room block at the San Diego Marriott La Jolla by making your reservation no later than 4:00 p.m.

PST on Feb. 2, 2010. To make reservations at the discounted nightly room rate of $179 (single/double) plus taxes and fees, call the hotel at 1-800-228-9290 and mention you want to book in the American Subcontractors Association room block.

Stay informed of the latest convention news and schedule, and start networking with other registrants, through ASA’s Facebook and LinkedIn Web pages.

For more information, call (703) 684-3450, Ext. 1304, or e-mail meetings@asa-hq.com.

ASA Defeats Court Rulings Undermining Payment Assurances!

T

hrough its Subcontractors Legal Defense Fund, ASA helped defeat court rulings in Arizona and Texas that threatened to diminish the remedies available to subcontractors when they are not paid for their completed work. ASA won a victory in the Arizona case Galeb-Miller Development v. Markham Contracting Company, Inc. on May 19, 2009, when the Arizona Court of Appeals, District One, reversed a lower court’s decision that would have discouraged subcontractors from filing liens by greatly increasing their risk of facing and paying unfounded false claims penalties. The Texas Supreme Court handed down a decision on July 3, 2009, in Dealers Electrical Supply Co. v. Scoggins agreeing with ASA’s position that Texas law affords subcontractors more than one option for recovering funds when they are not paid on public work.

In the Arizona case, developer Galeb-Miller failed to timely pay Markham Contracting for its work on a multi-lot project, and did not provide the subcontractor with the required notice that its liens were bonded off. A trial court nevertheless found Markham Contracting’s filing of five lis pendens (lien notices) “groundless,” and required the subcontractor to pay damages for filing unnecessary notices, citing Arizona’s False Documents Act. On appeal, ASA, ASA of Arizona, the Arizona Builders’ Alliance, and the Arizona chapter of the Associated General Contractors of America, filed an amici curiae, or “friends of the court,” brief supporting the specialty trade contractor, urging the court to reverse the lower court’s judgment because “in short, the ruling … tips the balance of

6 The Contractor’s Compass • Fourth Quarter 2009

power between developers and contractors sharply — and unfairly — in favor of developers.” The court agreed with this argument and vacated all damages, offsets and interest in favor of the specialty trade contractor.

In the Texas case, supplier Dealers Electrical argued that it could use the state’s Trust Funds Act to recover $80,000 it was owed for electrical parts after missing payment bond filing deadlines on a school project. A lower court sided with Dealers Electrical, but the 13th Court of Appeals consequently denied Dealers’ claim on the grounds that the statutorily required McGregor Act payment bond provided on the project was Dealers’ exclusive remedy, and that the Trust Funds Act did not apply when a corporate surety bond was in place. ASA filed two “friend of the court” briefs asking the Texas Supreme Court to overturn the appeals court decision. The Houston Hispanic Chamber of Commerce joined in filing ASA’s second brief. In the briefs, ASA argued that the two remedies were not exclusive, and the high court agreed, stating that “Interpreting the McGregor Act to provide an exclusive remedy for unpaid claims would contravene, rather than further, the purpose of both the McGregor Act and the Trust Fund Act.” The SLDF is funded entirely by voluntary contributions, and is earmarked for cases where ASA determines that important legal precedents affecting subcontractor rights are at stake.

For more information on these cases and on the SLDF, visit the advocacy section of the ASA Web site at www.asaonline.com.

Stimulus Dollars Flow for Construction Projects — Get Your Share!

A

s more American Recovery and Reinvestment Act (federal stimulus) projects break ground, construction subcontractors have a unique, once-in-a-generation opportunity to position their companies for a competitive advantage on bidding and winning federally funded projects.

According the U.S. House Committee on Transportation and Infrastructure, which is tasked with congressional oversight of about $135 billion in construction-related stimulus funds, spending of stimulus funds is accelerating. Only a limited number of projects started immediately after the law was signed on Feb. 17, 2009, but by the end of the law’s first 120 days, 4,098 highway and transit projects in all 50 states, three territories, and the District of Columbia representing $15.9 billion were put out to bid, and work had started on 1,243 projects in 47 states and D.C. Stimulus-related construction spending will continue to increase, including billions of dollars in new spending by federal, state and local agencies on non-transportation construction programs. Construction

subcontractors can get a quick summary of the construction funding that the stimulus law provides in the “ASA Special Report: American Recovery and Reinvestment Act of 2009 — The Stimulus Package” on the ASA home page at www. asaonline.com. The Obama administration also reports stimulus spending on the federal recovery Web site at www. recovery.gov and lists specific contracting opportunities on the Federal Business Opportunities Web site at www.fbo. gov. On Sept. 15, the 90-minute ASA/FASA webinar, “Where the Projects Are: Finding and Getting Federal Projects,” will offer subcontractors help with finding and bidding federal and stimulus projects. The webinar, scheduled for 12:00-1:30 p.m. EST, will include a review of how the new ASA-endorsed ConsensusDOCS 752 Subcontract for Use on Federal Construction Projects can help subcontractors and prime contractors quickly reach agreement on contract terms for federal projects.

To register for the webinar, visit www.asaonline.com.

ASA-Greater Kansas City Shines With First Law Regulating Wrap-Up Insurance!

O

n May 21, 2009, Kansas Gov. Mark Parkinson (D) signed into law H.B. 2214, making Kansas the first state in the nation to mandate specific guidelines for coverage and participant rights under owner- and contractor-controlled insurance programs, commonly referred to as “wrap-up” programs. ASA – Greater Kansas City worked tirelessly to pass the bill and to secure the governor’s signature.

“We hope that others can learn from our experience and work toward fair treatment under wrap-up insurance programs,” said ASA-GKC Government Relations Chairman Bill Miller, Building Erection Services, Olathe, Kan., who spearheaded the chapter’s effort.

As defined in the new law, a controlled insurance program is “a program of liability or workers’ compensation insurance coverage, or both, that is established by an owner or contractor who contractually requires participation by contractors or subcontractors who are engaged in work required by a construction project.” The law establishes requirements for wrap-up programs generally, as well as for general liability and workers’ compensation coverage included in the programs. It says OCIPs and CCIPs shall: • Make quarterly reports on claims and losses.

• Replace or pay to replace participants’ coverage should the program be cancelled.

• Set a deductible maximum of $2,500 per claim and no per claim assessment.

• Disclose specific requirements for safety or equipment prior to accepting bids from contractors and subcontractors on a construction project.

• Allow monetary fines for alleged safety violations to be assessed only by government agencies.

General liability coverage included in wrap-up programs must include: • Mandatory completed operations coverage through the life of the statute of limitations for claims.

• Protection from requirements for purchasing duplicative coverage for participants.

• Severability of interest (each company covered under the policy as if it were covered separately).

• Equal shared limits of liability between program sponsors and participants.

• No requirement that participants waive rights of recovery for claims covered under the controlled insurance program.

The law also mandates that workers’ compensation coverage included in an OCIP or CCIP must cover all workers on the payroll. In the event that a worker is injured on the job, the worker cannot be required to return to work unless he/ she is certified as fit for work by a health care provider, or the employer has modified work available.

The state is required to adopt all rules and regulations needed to implement the new law by Jan. 1, 2010.

Learn more about wrap-up insurance in the FASA multimedia CD-ROM, “Evaluating and Bidding Wrap-Up Projects” (Item #8027) available online ($65 for members/$95 for nonmembers) at www.contractorsknowledgenetwork.org.

The Contractor’s Compass • Fourth Quarter 2009 7

Stay Sharp With New ASA/FASA Webinars and Podcasts

T

his September, ASA and FASA kick off a one-year series of eight webinars titled “Putting Change to Work for You,” as well as the second year of their “Essentials of Contract Evaluation” podcast series. The webinar series focuses on timely topics such as how to find and get federal stimulus projects, and what the growing use of subcontractor default insurance means for subcontractors. Each podcast focuses on a particular aspect of contract evaluation, such as how to identify excessive lien waivers and how a contract can affect your costs should a collections effort become necessary.

ASA/FASA webinars are live, 90-minute audio-visual programs that a registrant can watch and listen to with a computer and a telephone, whether at an individual workstation or in a group learning setting like a conference room. The programs are scheduled for 12:00 to 1:30 p.m. EST on the following days: • Sept. 15, 2009: Where the Projects Are: Finding and Getting Federal Projects (Item #WEB032) • Oct. 13, 2009: Managing Sub-Subcontractors Made Easier!

(Item #WEB033) • Nov. 10, 2009: Protecting Against Client Bankruptcy (Item #WEB034) • Dec. 8, 2009: Subcontractor Default Insurance: Risk Management Swan or Ugly Duckling? (Item #WEB035) • Jan. 12, 2010: Boom or Bust? Predicting Your Business’s Future (Item # WEB036) • Feb. 9, 2010: Managing Your Completed Operations Risk (Item # WEB037) • April 13, 2010: Preserving Your Claims With Project Documentation (Item #WEB038) • May 11, 2010: Dispute Resolution: Strategies That Work (Item #WEB039) After each program, registrants receive a recording of the webinar on CD-ROM and access to an online, printable ASA/ FASA Certificate of Completion to customize and print out for each person who participated. For a complete listing of webinars, including presenters, visit www.asaonline.com and click on “Register for a Meeting.”

If an audio learning format is more your style, then purchase the Year 2 subscription to “Essential of Contract Evaluation” podcasts, which includes access to a new podcast each

month for 12 months. Each month when a new podcast is ready, ASA and FASA will send subscribers a notice and instructions for downloading the .mp3 file, as well as a white paper explaining the topic and a learning assessment that subscribers can take to earn a Certificate of Achievement after listening to the podcast. Listening to the podcast requires a free media player such as Windows Media® Player, RealPlayer®, or iTunes®, but does not require an iPod® or other portable .mp3 player. Each podcast is about 20 minutes long and is presented by an attorney with the law firm of Kegler, Brown, Hill and Ritter. The Year 2 annual subscription is $300 for members and $400 for nonmembers, and includes: • Protecting Against Payment Default (listen starting Sept. 25, 2009).

• Curbing the Risks of Lien Waivers (listen starting Oct. 25, 2009).

• Defending Your — Not Others’ — Mistakes (listen starting Nov. 25, 2009).

• Addressing the Additional Insured Problem (listen starting Dec. 25, 2009).

• Understanding Termination for Default (listen starting Jan. 25, 2010).

• Limiting Termination for Convenience (listen starting Feb. 25, 2010).

• Evaluating Dispute Resolution Alternatives (listen starting March 25, 2010).

• Keeping Collections Affordable (listen starting April 25, 2010).

• Guarding Against Frivolous Backcharges (listen starting May 25, 2010).

• Checking Performance Bond Requirements (listen starting June 25, 2010).

• Preserving Your Rights When the Contract Is Re-assigned (listen starting July 25, 2010).

• Accounting for Technology Change (listen starting Aug. 25, 2010).

The podcasts are also available for purchase individually.

Subscribe online at www.contractorsknowledgenetwork.org.

For more information, contact ASA at meetings@asa-hq.com or (703) 684-3450, Ext. 1304.

Reduce Your Worries About Final Payment

P

rotecting your payment rights is an ongoing process.

It begins before you submit the bid and continues throughout performance. Don’t let inequitable, flowed-down prime contract terms delay payment, or allow customers to use unresolved claims, punch list work and retainage as open-ended excuses for nonpayment. Know your rights and how the appropriate contract language can ensure your client pays the full amount owed, in a timely manner.

In the two-hour program “Getting Final Payment: Strategies That Work,” available exclusively through FASA on CD-ROM, explore strategies to get the final payment owed to you on a project. David Hendrick, Esq., of the Atlanta, Ga.-based

8 The Contractor’s Compass • Fourth Quarter 2009

law firm of Hendrick, Phillips, Salzman and Flatt, examines the steps subcontractors can take before, during and after projects to ensure that clients timely pay what they owe. Learn how to monitor and police payment, the measures available to preserve lien and bond rights, and more!

The “Final Payment” CD-ROM (Item #8031) contains an audio-visual recording and a media player to install on your computer, and comes with installation instructions. The cost is $65 for ASA members and $95 for nonmembers.

Order securely online at www.contractorsknowledgenetwork. org or call toll-free 1-888-374-3133.

Legally Speaking

Understanding Your Completed Operations Coverage and Obligations (Part I)

by David R. Hendrick, Esq., and Jared W. Heald, Esq.

O

ne of the many mysteries of insurance coverage relates to the treatment of claims arising out of what is commonly referred to as a contractor’s “completed operations.” Questions include: What is it? Do I need it? Do I have it? And, where can I find it?

The uncertainty and confusion about such coverage results from confusing, and seemingly contradictory, language employed by insurers in their insurance policy forms. The confusion is compounded by contractual requirements contained within many construction contracts and subcontracts that require contractors to maintain insurance coverage for claims arising out of “completed operations.” Moreover, contractors are often contractually required to afford coverage to the owner, architect and other designated third parties as “additional insured” parties under the contractors’ CGL insurance policies, including “completed operations” coverage for at least some period of time after completing work.

The answers to questions about completed-operations insurance coverage generally will include discussion of commercial general liability (CGL) insurance policies. Such policies, which contractors typically procure or renew on an annual basis, afford coverage for claims made by third parties for damages due to “bodily injury” or “property damage” occurring during a specified policy period. Injury or damage covered by a CGL policy may occur long after work is complete.

Therefore, a general knowledge and understanding of the CGL policy, and its treatment of completed operations, is vital for contractors to ensure both that they receive the benefits of the insurance coverage for which they have paid and comply with their contractual insurance obligations.

Standard CGL Policies Include Completed-Operations Coverage Typically, a contractor procures CGL insurance coverage under a single policy that extends liability coverage for a one-year period, and the contractor renews or obtains new policies for subsequent one-year periods. During each policy period, the insurance affords coverage for personal injury and property damage claims relating to the contractor’s operations, regardless of whether those operations are active and ongoing or whether they were completed before the injury/damage occurred. In some sense, then, one might say that references to and requirements for completed-operations insurance coverage are “much ado about nothing.” Completed-operations

coverage is inherent in the basic CGL policy coverage without distinction between the claims arising out of the ongoing and the claims arising out of the completed operations of the insured. If the insured contractor maintains current and continuous CGL insurance coverage, its coverage extends to claims for injuries and damages arising out of its ongoing operations during the performance of work on a particular project, and out of its prior involvement on projects on which work had been completed when the damage or injury occurred. In fact, insurance for completed-operations claims is treated differently from ongoing-operations claims in only a few contexts under typical CGL insurance policies.

Understanding the coverage for completed operations begins with understanding that the standard CGL policy does not explicitly provide for or extend coverage for claims arising out of the insured contractor’s completed operations. Instead, damage resulting from completed operations typically is included by default within a CGL policy’s standard coverages.

A standard, “occurrence-based” CGL policy provides for liability coverage for claims asserted against the named insured for bodily injury or property damage that “occurs” during the policy period. This definition does not distinguish between claims arising out of the ongoing operations and performance of the insured contractor and claims arising out of the previously completed operations and work it performed on earlier projects.

The only requirement is that the injury or damage must “occur” during the policy period. Whether the work ultimately causing the injury or damage happened during the policy period may or may not matter. In some states, courts have concluded that an The Contractor’s Compass • Fourth Quarter 2009 9

insured “occurrence” results at the time of actual performance of defective workmanship, even if that is years before the resulting injury or damage occurs. In other states, the courts have ruled that an insured “occurrence” results when the defect actually causes the damage or injury giving rise to the claim. In either case, this keying of CGL coverage to when the damage or injury “occurs” does not differentiate claims resulting from the previously completed operations of the insured from claims arising out of current project performance.

An Example The following hypothetical example helps to illustrate the operation of the standard CGL policy. XYZ Roofing, Inc. performed certain re-roofing work in 2006 on an existing commercial shopping center and maintained a current, occurrence-based CGL policy with a policy period extending through the 2006 calendar year. While performing work on the project in 2006, one of XYZ’s employees, using a cutting torch, accidentally caused a fire to a portion of the project resulting in damage to its own work as well as to the existing aspects of the shopping center in the amount of $150,000. The project was completed in 2006, and in 2007 the owner filed suit against the contractor to recover for the property damage suffered; of course, 2007 was a different CGL policy year. Disregarding facts and issues not addressed for simplicity’s sake and possible exclusions or limitations, the claims made by the owner against the contractor for the property damage to the existing building likely fall within the coverages provided by XYZ’s prior 2006 CGL policy, the year the damage was caused. As the fire occurred while XYZ was performing its work in ongoing operations at the project, the coverage would be extended under the 2006 CGL policy coverage for these ongoing operations and would not involve completed operations coverage issues under the 2007 or any subsequent annual CGL policies.

However, in 2008, more than two years after XYZ completed its work on the project, and beyond the one-year warranty period, the owner first discovered that the roofing system was originally installed improperly in 2006 and that, as a result, water had infiltrated the building during an indeterminable period after completion of the work, causing extensive interior damage requiring remediation costing in excess of $500,000. The owner then asserted a claim in a lawsuit filed in 2009 against XYZ to recover such for damages. Having continuously maintained its CGL coverage by renewing its 2006 coverage with the same carrier in 2007 and then procuring comparable CGL coverage from a new carrier for the ensuing 2008 and 2009 policy periods, what happens when XYZ seeks insurance coverage (including a defense of such claims)?

Since the water damage to the interior of the building began at some unknown time after the work was finished, this would necessarily involve completed-operations coverage. And, while the suit was filed in 2009, after discovery of the interior building damage in 2008, it is unknown as to when the damage actually occurred. The damage may have started anytime after XYZ completed its work in 2006 and continued until discovery in 2008. When the property damage actually commenced or occurred is often a factually complex issue, but it is a key factor in 10 The Contractor’s Compass • Fourth Quarter 2009

determining which of the subsequent CGL policies should cover the cumulative injury or progressive damage resulting from years of exposure to a continuous harmful condition. This coverage issue is quite complicated, factually and legally. However, the crucial fact is that the property damage is alleged to have resulted after XYZ completed its work. Any coverage for such claim will be under the completed-operations hazard under one or more of the later CGL policies and, depending upon the trigger analysis, this loss may be covered by XYZ’s 2006, 2007, 2008, or 2009 CGL policies, or a combination thereof.

Apart from any applicable exclusions or limitations, the typical CGL coverage will generally be available for this claim resulting from previously completed operations of the insured contractor, as long as the contractor has maintained CGL coverage after completion of the work. In other words, subsequent CGL policies will extend coverage for completed operations of the insured even if those operations are performed in a prior policy period.

Exclusions and Limitations So, what is the big deal regarding requirements that the contractor have such completed-operations coverage? The significance is not in the existence of CGL coverage for such claims, which is inherent in the coverage of the CGL policy, but rather in the policy limitations and exclusions that may be applied separately to such completed-operations coverage but not to coverages for ongoing operations. The devil is in the details.

First, one of the normal CGL coverage limits stated in the declarations of a policy deals specifically with completed-operations coverage. This stated limit is referred to as the “Products-Completed Operations Aggregate Limit.” This limit applies to “products-completed operations hazard” claims, as the CGL policy defines that hazard. The limit is separate and apart from the stated “General Aggregate Limit” that applies to all coverages. It limits the total aggregate amount of liability coverage that the CGL policy extends for claims arising out of completed operations. Once the stated completed-operations aggregate limit is exhausted (whether by claims asserted against the named insured contractor or its additional insureds), then the CGL policy provides no coverage for claims involving completed operations.

Accordingly, it is crucial to understand which losses fall within this limit to assure that the stated limit is sufficient to meet the contractor’s risk control objectives, as well as its contractual obligations to have such completed-operations coverage in place.

Second, some exclusions may apply depending on whether a claimed loss involves a completed-operations hazard. The definition of “products-completed operations hazard” under the standard CGL policy language essentially defines such hazard by elimination, stating that the “products-completed operations hazard” coverage includes all “bodily injury” and “property damage” arising out of “your work” except “[w]ork that has not yet been completed”. (Emphasis added.) Thus, any coverage of claims for damage or injury occurring prior to such completion of the work would fall under the CGL policy coverage for ongoing operations of the insured contractor; coverage for claims for later-accruing damage or injuries would only be under the completed-operations coverage. Whether the injury or property damage occurs before or after any of these events defining

“completion� of the insured’s work determines whether the claims relate to completed or to ongoing operations.

In this context, consider standard exclusion j(6), one of the standard business risk exclusions for CGL policies, which generally excludes from coverage property damage to “that particular part of any property that must be restored, repaired or replaced because ‘your work’ was incorrectly performed on it.�

The exclusion expressly does not apply to “‘property damage’ included in the ‘products-completed operations hazard’.� Thus, this exclusion would not preclude a claim for water damage to the interior of the building occurring after completion of the insured’s work in the example explored earlier, but it would exclude coverage for similar damage if it occurred during the insured’s ongoing performance of work on the project. Conversely, standard exclusion (l), often called the “completed operations exclusion,� pertains to coverage for claims for “Damages to Your Work� and states that the coverage excludes “‘[p]roperty damage’ to ‘your work’ arising out of it or any part of it and included in the ‘products-completed operations hazard’.� (Emphasis added.) Thus, in the earlier example, where water damage to components of the existing building due to defects in the insured’s work would be covered under the completed-operations coverage, any resulting property damage to the insured’s own work would not be.

Third, an endorsement to the CGL coverage may modify or even eliminate completed-operations coverage. For example, Insurance Services Office standard form Endorsement CG 21 04 11 85 provides that “[t]his insurance does not apply to “bodily injury� or “property damage� included within the “products-completed operations hazard�.� If such an endorsement is in place, the policy simply does not provide coverage for completed operations. Accordingly, in the foregoing example, if XYZ’s CGL policy included this endorsement, the owner’s claim for water damage to the interior of the building at the project would not be covered under the CGL policy and XYZ would be exposed to the $500,000 in damages — not to mention, XYZ might be in violation of its contractual requirement to insure its completed operations for a proscribed period of time.

Finally and perhaps most consequential for contractors, the distinction between claims for injury/damage occurring during ongoing operations vs. completed operations is extremely critical where a contractor is contractually required to procure additional CGL insurance coverage for the benefit of the owner and other third parties. Basic CGL policy language does not confer such “additional insured� coverage. Only specific endorsement(s) add coverage for “additional insureds.� Those endorsements also further define the nature and extent of completed-operations coverage. ■The second and final part of this article will run in the 1st Quarter 2010 issue of The Contractor’s Compass.

David Hendrick and Jared Heald are attorneys with the Atlanta, Ga., law firm of Hendrick, Phillips, Salzman & Flatt, PC. They will present the ASA/FASA webinar “Managing Your Completed Operations Risk� on Feb. 9, 2010. They can be reached, respectively, at drh@hpsf-law.com and jwh@hpsf-law.com.

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J. Ben Shapiro

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Tel 404.870.2200 Fax 404.870.2222 bshapiro@shapiroFussell.com

The Contractor’s Compass • Fourth Quarter 2009 11 7/22/09 11:03:08 PM

436964_Shapiro.indd 1

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Introducing the ConsensusDOCS 725 Sub-Subcontract

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Construction Contracts Built by Consensus

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he ConsensusDOCS coalition has published another standard agreement, continuing its promotion of contract documents designed in the best interests of the entire project. With this latest release, ConsensusDOCS set out to craft a document appropriate to an increasingly specialized construction industry, which uses sub-subcontractors more frequently. The agreement, the ASA-endorsed ConsensusDOCS 725 Standard Agreement Between Subcontractor and Sub-Subcontractor, represents the industry’s first form contract between a subcontractor and a sub-subcontractor. The document features streamlined provisions and vocabulary to reflect the unique relationship between the parties. Though not perfect, the ConsensusDOCS 725 signifies a marked improvement over two widespread business practices: (1) adapting an existing form subcontract or purchase order as a sub-subcontract; and (2) entering into a sub-subcontract relationship without any formal agreement at all.

The ConsensusDOCS 725 provides a simpler alternative to using an adapted subcontract. Until now, sophisticated parties have adapted subcontracts to try to fit the “sub-sub� relationship.

Subcontract documents, such as the ConsensusDOCS 750, are well over 20 pages long with dozens of provisions that may not be needed in a limited scope sub-subcontract. ConsensusDOCS 725 offers a brief six-page sub-subcontract alternative designed for use with a sub-subcontractor with a limited scope of work. Many subcontractors believe that it will be easier to get a short form

sub-subcontract signed with their sub-subs.

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Learn More About the ConsensusDOCS 725 on Oct. 13 Learn more about how managing your sub-subcontractors can be easier and more effective with the ASA-endorsed ConsensusDOCS 725.

On Oct. 13, 2009, Donald Gregory will present the webinar, “Managing Sub-Subcontractors Made Easier!� from 12:00 p.m. to 1:30 p.m. EDT (9:00 a.m.-10:30 a.m. PDT). This program is $199 for members/$279 for nonmembers.

12 The Contractor’s Compass • Fourth Quarter 2009

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orders and suspension of the work. The subcontractor, in turn, gets the benefit of having downstream parties integrated into the project fairly, sharing responsibility for the completion and quality of the work.

The ConsensusDOCS 725 contains many of the key provisions one would expect in a ConsensusDOCS form agreement. Change orders must be in writing. Sub-subcontractors will get a time extension if the work is somehow delayed. Sub-subcontractors may also collect delay damages where appropriate. The subcontractor will pay the sub-subcontractor on a “pay-when-paid� basis, and payments must be made within seven days after receipt from the contractor. If the contractor fails to pay, the subcontractor still must pay within a reasonable time. The sub-subcontractor can stop working on seven days’ written notice if payment is not timely. The sub-subcontractor must indemnify the subcontractor, but only to the extent of its own negligence. The parties can mutually agree upon a retainage percentage, and the funds will be released as the upstream retainage is released.

The ConsensusDOCS 725 generally will work well with upstream agreements.

Provisions governing time for payment and stop work rights are very similar to

provisions in the ConsensusDOCS 750 and American Institute of Architects A401-2007 model subcontract agreements. Likewise, termination rights in the new sub-subcontract are very similar to what exists in form subcontracts.

Like the ConsensusDOCS 750, the sub-subcontract channels dispute resolution through direct discussions, followed by mediation, and terminating in the parties’ check-box choice between litigation and arbitration. Also like the 750, the sub-subcontract strongly encourages multi-party dispute resolution.

The ConsensusDOCS 725 requires no specific lien waivers or other documentation from the sub-subcontractor in order to receive payment. Most upstream agreements require a subcontract to submit both lien waivers and itemized applications for payment in order to be paid. Because of these differences, the subcontractor may face payment risks that are not shared with the sub-subcontractor, unless an exhibit is attached setting forth the proof of payment required.

ConsensusDOCS 725 does not require the sub-subcontractor to warrant the quality of the work. It does not address correction of non-conforming work. It also does not address contractor-requested uncovering of the work for inspection. In other words, the subcontractor’s burden to ensure the quality of the work is not directly shared with the sub-subcontractor.

There are other upstream provisions not covered by the sub-subcontract, but many of them are minor. Still, parties that need more detail from their agreements have options. The ConsensusDOCS 750 provides a more comprehensive agreement, and minor changes will convert it into a sub-subcontract as well.

And the ConsensusDOCS 725 is flexible

— parties can add detailed exhibits to address complex issues like payment risk and work quality on a customized basis.

On the whole, the ConsensusDOCS 725 fills a need and represents a step forward for industry form agreements.

Like other ConsensusDOCS agreements, it includes consensus language designed to be fair to all. The agreement better

integrates sub-subcontractors into the broader project, and it does so in a concise and simple manner. For more information about the ConsensusDOCS 725, or other ConsensusDOCS agreements, go to www.consensusdocs. org. (Editor’s note: Use partner code ASA and promotion code 100 when ordering to receive your ASA-member discount.) ■

Donald W. Gregory, Esq., Kegler, Brown, Hill & Ritter Co. LPA, Columbus, Ohio, is general counsel to ASA. He can be reached at dgregory@keglerbrown.com.

Glenn M. Gelman & Associates 1940 East 17th Street, Santa Ana, CA 92705 (714) 667-2600 | Fax: (714) 667-2636 glenn@gmgcpa.com | www.gmgcpa.com Glenn M. Gelman & Associates specializes in the tax and accounting needs of contractors. We understand the unique requirements and time constraints of the construction industry. Our philosophy is to provide clients with unparalleled timely, professional services bearing in mind that the value of our services must outweigh the cost.

385863_Allstate.indd 1

The Contractor’s Compass • Fourth Quarter7/3/08 200910:17:52 13 PM

Feature

New Study Co-Sponsored by FASA Reveals Concerns About Subcontractor Default Insurance

by David Mendes, ASA Senior Director of Communications and Education

I

n the mid-1990s, insurance companies had an idea for a product that would be an alternative to traditional subcontractor performance bonds. A prime contractor, the insurers reasoned, could get the same kinds of assurances that subcontractor performance bonds offered, but from an insurance policy that cost less than a bond. For a prime contractor to benefit from this cheaper insurance product, they further reasoned, there had to be a trade-off: The prime had to agree to assume some of the financial risk if a subcontractor defaulted on its performance, and had to assume all of the administrative costs of pre-qualifying its subcontractors. Once the details were worked out, subcontractor default insurance was born.

Since the inception of SDI, little has been known about it use on an industry-wide scale. Zurich North America, the sole insurer offering SDI policies (under the brand SubGuard®), does not share detailed information about SubGuard claims, losses or the satisfaction of construction owners, prime contractors, subcontractors, suppliers and others who have a stake in the resolution of SubGuard claims. More than 150 prime contractors have purchased SDI policies, enrolling hundreds, even thousands, in their SDI programs, and now, the Foundation of the American Subcontractors Association and the National Association of Surety Bond Producers have taken a significant step toward filling the void regarding the costs and consequences of this emerging trend.

FASA and NASBP commissioned Dennis Bausman, Ph.D., CPC, of Clemson University’s Department of Construction Science and Management, to perform a rigorous research project surveying subcontractors, owners, prime

contractors, and surety bond producers to: • Define and identify the features of SDI, including policy coverage and exclusions.

• Identify the current use of SDI, including the number of contractors and approximate premium volume.

• Differentiate SDI from subcontract surety bonds.

• Identify the advantages and disadvantages of SDI as compared to subcontractor surety bonds.

• Identify the direct and indirect costs associated with SDI. • Investigate the loss history associated with SDI. • Identify the issues and impacts that the use of SDI has on owners, contractors and subcontractors.

• Identify direct or indirect constraints on SDI in public vs. private construction markets.

The research project is now complete and Dr. Bausman’s report summarizing its findings, “Subcontractor Default Insurance (SDI): Its Use, Costs, Advantages, Disadvantages and Impact on Project Participants” is available online at www.fasaonline.com.

Research Findings Both subcontractors that have participated in SDI projects, and subcontractors that have not, will take away valuable insights from Dr. Bausman’s research.

For example, the research revealed a high level of satisfaction with SDI among prime contractors that are currently using it. Only 2 percent of prime contractors participating in the survey indicated dissatisfaction with the product.

The study found that one of the reasons prime contractors like SDI is, unlike surety bonds, SDI policies

14 The Contractor’s Compass • Fourth Quarter 2009

usually offer coverage limits greater than the value of any individual subcontract.

For example, a subcontractor with a contract valued at $400,000 could be enrolled in an SDI program with a policy covering up to $25 million in default-related claims. If a defaulting subcontractor caused delays or damage to the project, the SDI policy might pay not just the dollar balance up to $400,000 to complete the subcontractor’s work, but also the additional expenses to correct the work. Eighty percent of surveyed prime contractors saw the expanded limits as an important consideration in using SDI. The study suggests that another reason prime contractors like SDI is they pay significantly less for an SDI policy compared to comparable subcontractor performance and payment bonds.

The premium that bonding companies collect from prime contractors for subcontractor bonds “generally ranges from .6% to 2.5% of contract volume,” Bausman writes. Meanwhile, “The risk transfer premium [for SDI] paid the insurer generally approximates $3.50/$1000 (or .35%) of

subcontract/purchase order enrollment value.”

While administering SDI enrollment and claims creates extra costs for prime contractors that they would not have with a subcontractor surety bond, prime contractors see cost savings as a significant incentive influencing their use of SDI. That view may be reinforced by prime contractors’ belief, reflected in the study and shared by subcontractors, that they can perform many of the functions normally performed by sureties, including assessing subcontractors’ capability and capacity to perform work and managing default-related claims. Whatever the total bottom-line impact of SDI is for prime contractors, the contractors (both prime and sub) participating in the study agreed that SDI is normally priced to the construction owner at or below the cost of a subcontractor surety bond.

One clear result of the study is that subcontractors are concerned about the costs and burdens of enrolling in SDI programs. SDI programs require subcontractors to share financial information with a prime contractor, much the same way that a bond pre-qualification would require sharing such information with a surety. The difference is that, compared to a prime contractor, a surety has an arm’s-length financial interest in a subcontractor. The study also found that prime contractors usually require subcontractors to provide “sunshine,” “good guy” or “bondability” letters to qualify for SDI enrollment. Subcontractors that participated in the study “view the contractor’s prequalification process as invasive (73%) and an administrative burden (87%). Respondents believe the process requires them to share sensitive financial information that the contractor may misinterpret and misuse (84%), or use to adversely impact their competitive position (70%).” This is a major point of difference compared to surveyed prime contractors, who “do not judge the prequalification

process as invasive or an administrative burden on the subcontractor.”

Another major difference between SDI and subcontractor surety bonds is the SDI deductible, typically ranging from $350,000 to $2 million per loss. Until a prime contractor reaches the deductible limit, it has to fully cover the costs of correcting a default. The insurance company does not cover the initial financial losses. Further, the contractor could still have to pay default-related expenses after it exhausts the deductible because SDI policies have a co-payment requirement. By contrast, subcontractor surety bonds have no deductible and provide coverage from the “first dollar” of a loss. Subcontractors that participated in the study saw this “first dollar” coverage as an advantage of surety bonds. Prime contractors did not.

Indeed, under SDI, a prime contractor can start completing or correcting work that it expects to file claims for before it is certain that the SDI insurer will accept its declaration that a subcontractor is in default. With SDI, the contractor can unilaterally declare a subcontractor in default. Prime contractors, bond producers and owners that participated in the study saw the prime contractor’s flexibility to quickly respond to subcontractor performance defaults as an advantage of SDI over bonds. Subcontractors, however, saw some downsides in the prime contractor’s ability to unilaterally declare a subcontractor in default, including increasing the prime contractor’s leverage over subcontractors.

Unlike prime contractors, many of the surveyed subcontractors also felt that the prime contractor’s ability to unilaterally declare a default could give it a false sense of security. Perhaps that’s because a prime contractor could declare a default, but the SDI insurer could reject the claim. In that scenario, the whole cost of the default could become the prime contractor’s financial responsibility, and not all prime contractors set aside adequate financial resources to take care of performance defaults. Dr. Bausman found that 18 percent of the prime contractors that use SDI “set aside less than 0.3% of enrolled value to cover future claims.”

The prospect of a prime contractor that doesn’t have adequate financial

resources to cover claims raises even more concerns because SDI does not provide second-tier subcontractors and suppliers with payment protections.

Subcontractors that participated in the study saw this lack of payment protections as a disadvantage compared to payment bonds. They also reported that SDI does not satisfy claim rights and payment protections mandated by the Miller Act and may pose legal problems on public construction projects if used in lieu of the statutorily required prime contractor surety bonds.

“SubGuard® is not appropriate for use on every project or with every subcontractor,” Dr. Bausman concludes. “Subcontractor enrollment for contractors with SubGuard® programs ranges from 5% to 100% of annual subcontractor value with an average enrollment of 56%. Only 14% of the SDI contractors participating in this study had subcontractor enrollment of 90% or more. SubGuard® use depends upon perceived risk. Program use is often predicated on four primary considerations: a) contractor selection, b) contract type, c) project type, and d) owner acceptance. Most SDI contractors prefer to use SubGuard in a project environment where the contractor is selected based on qualifi cations, and not just price. These tend to be negotiated projects in the private sector where the contractor has the fl exibility to select and control subcontractor participation.”

FASA’s ability to co-commission this research project was made possible by donations to the FASA Contractors’ Knowledge Quest research program.

Learn more about these research results, and tips for evaluating and working with contractors that use SDI, from Dr. Bausman and ASA Past President (2007-08) David Bradbury, Precision Concrete Construction Inc., Alpharetta, Ga., in the Dec. 8, 2009, ASA/ FASA webinar, “Subcontractor Default Insurance: Risk Management Swan or Ugly Duckling?” Register online at www.asaonline.com.

■ David Mendes can be reached at communications@asa-hq.com.

The Contractor’s Compass • Fourth Quarter 2009 15

Feature

Subcontractors: Prevent Bond Fraud!

by Russell O’Rourke and Richard Usher

C

onstruction operates on credit and on faith in the system. One of the financial pillars of this system is surety bonds, which provide performance and payment assurances on a vast quantity of public work, and some private work.

Unfortunately, bonds, like all financial instruments, can be subject to abuse and fraud. Surety bond fraud is estimated to cause as much as $800 million a year in losses. Any subcontractor that relies on bonds for assurances needs to be aware of the risks.

Bonds: Meant to Assure At the dawn of our nation, Thomas Jefferson and James Madison realized that, to afford project owners the best price for construction work, the risk of non-payment had to be removed.

This gave rise to our first mechanic’s lien laws, and eventually, to bonds. Congress enacted the federal Miller Act in 1935, and states widely adopted similar laws on public projects to protect public interests as well as subcontractors’ and suppliers’ rights to be paid.

Bonds of various types are used for risk management in the construction industry. While they are used in both public and private work, they are more frequently used in public construction because they are required by statute.

Whether a bond is required on a particular public project will depend on a number of factors, which varies from jurisdiction to jurisdiction. Check your local laws instead of assuming that the law requires a bond to protect you!

A common public project bonding structure is to require a bid bond, which is submitted with the bid. Then, if the bid is accepted and a contract is signed, the bid bond is replaced with a performance and a payment bond.

The bid bond is designed to protect the public authority and the taxpayer from a bidder that fails to enter into the contract. The performance bond is there to protect the public if the contractor does not finish the project, and the payment bond is there to protect

16 The Contractor’s Compass • Fourth Quarter 20 2 2009 009

subcontractors and suppliers if they are not paid.

While payment bonds are helpful on all construction jobs, on public projects, the payment bond is additional security for subs and suppliers because their mechanic’s lien rights have either been completely eliminated or are considered to be substandard. This is because, if it is available at all, the public project lien is only against unpaid balance, if any, due to the contractor.

Surety bonds for construction are three-party agreements among a principal (which has the obligation to perform/pay), an obligee (which is the beneficiary of the performance/ payment), and a surety. With a prime contractor’s payment bond, for example, the prime contractor (principal) has the obligation to pay its bills, and assure that all subcontractors and suppliers (obligees) are paid. (Check your local laws to determine if bond rights extend to your level of participation; distant-tier participants are often excluded.) If the subcontractors and suppliers are not paid as agreed, the surety is obligated to make the payment.

Growing Risks Over the past couple of decades and before the current economic downturn, some sureties became lax in their investigation of the financial well-being of the principals. As sureties took more risks, they bonded principals that in other times might have been unbondable, i.e., principals that may not have had the financial wherewithal to complete the projects. As a result, unqualified contractors bid against qualified contractors. In a short-sighted way, this seemed to be a good deal for the public because these unqualified contractors were able to compete with the advantage of lower costs.

They frequently did not have the overhead of better-qualified contractors, including the equipment, well-paid employees and the depth of staff to assure a successful project. Less qualified contractors were winning bids, more contractors were defaulting, and the surety business found itself in trouble.

Sureties, many of which were not well capitalized to begin with, went out of business or merged. It became more difficult to get a bond, and many contractors had their bonding

capacity reduced. Some contractors were forced to require “back bonds” (payment and performance bonds from their subcontractors), spreading the risk for the sureties by permitting the contractors to add those amounts back into their own bonding capacity.

This created renewed interest in “alternative” bonding methods and individual sureties. It also opened the door to more fraudulent bonds. A case in point is William Raymond Miller, who, at age 37, managed

Checklist: Preventing Bond Fraud ❏ Check whether the surety is on the U.S. Department of the Treasury’s list of companies certified to provide bonds on federal projects (http://fms. treas.gov/c570/c570_a-z.html), or on the list of certified reinsurers (http:// fms.treas.gov/c570/c570-certified-reinsur-comp.html). If not, it could be excluded from federal work, or could be an individual surety. ❏ If not Treasury-certified, investigate whether the surety (individual or corporate) appears on the General Services Administration’s “Excluded Parties List” at www.epls.gov, which “includes information regarding entities debarred, suspended, proposed for debarment, excluded or disqualified … from receiving Federal contracts, certain subcontracts, and certain Federal assistance and benefits.” ❏ Independently verify the surety’s and the bond producer’s or the bond representative’s name, address and phone number. Many surety names look similar. Do not simply assume that bond materials supplied to you are accurate or legitimate. ❏ Report any bond or bond form that appears to be altered or illegitimate to the surety or association that appears to have issued it. It could be fraudulent. ❏ Verify that the surety is licensed to do business in its home state (state of incorporation) and the state in which the project is located. Find state licensing information through the National Association of Insurance Commissioners’ online map at www.naic.org/state_web_map.htm. ❏ Investigate the surety’s solvency, and capital and surplus requirements and abilities, through ratings agencies such as A.M. Best Company, Dun & Bradstreet, Fitch Ratings, Moody’s Investors Service, Standard & Poor’s, or Weiss Ratings Inc. ❏ If you cannot independently confirm the surety’s assets, obtain direct proof of adequate capitalization and liquidity. ❏ Obtain and retain a copy of the bond. ❏ Verify the name and address of the bond principal (including all names if the principal is a joint venture). ❏ Check the name of the obligee (that is, the bond claimant). ❏ Check the amount of the bond.

Learn how the federal government determines minimum acceptable surety assets and imposes asset disclosure requirements on corporate and individual sureties. See Federal Acquisition Regulation Subpart 28.2 — Sureties and Other Security for Bonds (http://www.arnet. gov/far/current/html/Subpart%2028_2.html).

a surety bond fraud scheme from 2005 through April 2008 in which he collected premium payments of over $22.5 million on fake bonds purporting a face value of over $535 million. He used the names of legitimate sureties, such as Fidelity National Property and Casualty Company.

Fraudulent bonds appear on their face to be real bonds, but are fictitious documents presented as bonds with no financial backing or authority from the surety named in the document. These are far more insidious than actual bonds issues by under-capitalized or individual sureties because, on their face, they appear to comply with all governmental requirements meant to safeguard the rights of subcontractors and suppliers.

Individual bonds are issued by people or rather than insurance or other companies; they are essentially personal guarantees. These may or may not have sufficient capitalization and/or liquidity if a contractor defaults in either performance or payment and may put you at a greater risk of not being paid.

To protect yourself, know the contractor before you bid, and condition your bid on a valid and sufficient payment bond, issued by a well-capitalized surety.

If you are bidding to a subcontractor, your risk increases. Your customer may have bid to both adequately and inadequately bonded contractors. Here again, you should condition your bid on good bonding. Once your bid is accepted, check the surety’s authority to issue bonds and its solvency, before you sign the contract.

Bonds are intended to provide assurances. Don’t let those assurances be undermined by carelessly accepting fraudulent bonds or bond forms, or accepting bonds from undercapitalized or illiquid sureties. Prevent bond fraud starting now!

■ Russell O’Rourke, Esq., is principal of O’Rourke and Associates LPA, Cleveland, Ohio. He can be reached at rorourke@orourke-law.com.

Richard Usher is agency principal of Hill & Usher Inc., Phoenix, Ariz. He can be reached at rbu@hillusher. com.

The Contractor’s Compass • Fourth Quarter 2009 17

Thank You, ASA/FASA Circle Club 2008-09 Members!

When times are tough for businesses, the fight for subcontractor rights becomes even more important.

ASA would like to take this opportunity to thank the following companies and individuals for their generosity from July 1, 2008, through June 30, 2009.

For determining Circle contribution levels, corporate and individual contributions are combined.

For more information on joining the Circle Club and the most current list of contributors, visit www.asaonline.com/Web/about_asa/Circle_Club.aspx Platinum - $10,000 and above D & F Industries, Inc. Diamond Excavating, Inc. Gold - $5,000 to $9,999 Diversified Builders Bigane Paving Company Dywidag Systems Wilson, Anne Bigane; International USA, Inc. Wilson, James Eastern Steel Constructors CNA Insurance Company Electrical Corporation of America, Inc. Wanner Metal Worx, Inc. Fedco Construction Olmo, Bill Palladium - $2,500 to $4,999 Finishes, Inc. Associated Steel Erectors Industry Freestate Electrical Construction Promotional Fund Company HACI Mechanical Contractors Front Range Plumbing Company, Inc. Nevell Group, Inc. Fyffe Masonry & Plastering, Inc. Oil Capital Electric, LLC George McDonnell & Sons Walters & Wolf Tuckpointing Gibbons Erectors, Inc. Silver - $500 to $2,499 Gibson-Lewis of Indianapolis, Inc. Acoustic Ceiling & Partition Grant Contracting Company, Inc. Company of Ohio Griesenbeck Architectural Allied Electric, Inc. Products, Inc. American Steel Fabrication Guarantee Electrical Thomas, Tim Hallmark Iron Works, Inc. ASA of Arizona Holes Incorporated Floco, Carol East, Darlene Bazan Painting Company Hulm Construction Bazan, Walter J. M. Maly, Inc. Berich Masonry, Inc. Jerry Thompson & Sons Painting Bonitz of Georgia, Inc. Johnston Industries, Inc. Boss Glass Company, Inc. Kimmel Mechanical, Inc. Buist Electric, Inc. M.L. Jones Acoustics, Inc. Clunn Acoustical Systems Jones, Mike Cobra Stucco, LLC Component Assembly Systems, Inc. Meyer & Lundahl Manufacturing, Inc. Midwest Mole, Inc. Corbins Service Electric, LLC Nelson-Holland, Inc. Baxter, Susan Cornerstone Detention Products, Inc. Oxford Builders, Inc. Whisenant, Kerrick Partitions & Accessories Company

Pavex, Inc. Pel-Bern Electric, Inc. Precision Concrete Construction, Inc. Bradbury, Dave Priceless Industries, Inc. Response Fire Protection Company Rocky Mountain Prestress Sentry Steel Service Company, Inc. Simpson Plastering, Inc. Kennedy, Michael Snyder Roofing of WA, L.L.C. Sobie Company, Inc. Austhof, Jack Steele Foundations, Inc. Striland Construction, Inc. T. H. Willis Company, Inc. Thompson Masonry Contracting Company Valenti, Trobec & Woody Walker Electric Company Wisenbaker Builder Services, Inc.

Bronze - $500 and below Alamo Concrete Pavers Allstar Electrical Services, L.L.C. A-O Painting, Inc. ASA - Houston Chapter Farris, Anna ASA of Colorado Austin Construction Company, Inc. McLaughlin, Timmy Baker Concrete Construction, Inc. McNames, Douglas Behlman Builders, Inc. Camarata Masonry Systems Caston Plastering & Drywall, Inc. Concord Fabricators, Inc.

Consolidated Electrical & Mechanical Crafco Texas, Inc. Dynamic Pre-Cast, Inc. Fincher Fire Protection Goldleaf Financial, Ltd. HBF Group, LLC Hess Sweitzer, Inc. Lucas, Linda Hill & Usher Insurance and Surety Usher, Richard B. Integrated Interiors, Inc. Jarco Builders Les File Drywall Lowery Masonry, LLC MA Steel Erectors, Inc. Mark One Electric Company Migliazzo, Vince Martin Painting & Coating Company Martin Plastering Contractors McGuire, Inc. McGuire, Tim MEMCO O’Rourke & Associates Company, L.P.A. O’Rourke, Russell Overberg Masonry, Inc. Petty’s Tile Company, Inc. Robert A. Aird, Inc. T. E. Reilly, Inc. TDIndustries, Inc. Reeve, Ed Tri-State Drilling, Inc. UpTime Electric Company, Inc. W. Frazier Construction, Inc. Weir Welding Company, Inc. Weir, Charles Windsor Electric Company, Inc. Yavapai Plumbing & Electrical, Inc.

Feature

Wrap-Up Insurance: Understand the Benefits and Address Potential Coverage Gaps

by Michael Ahern

A

s one of the largest insurers of subcontractors in the industry today, CNA has followed the ongoing debate on the merits of controlled insurance programs with a high level of interest. Also referred to as “wrap-ups” or “wraps,” these alternatives to a traditional insurance approach are often designed to provide a single source of coverage to multiple interests that have been brought together for a single project.

Wrap-ups typically cover the project owner, project manager, contractor(s) and subcontractors.

Prior to the recession, the use of wrap-ups steadily increased over time.

That trend is likely to continue under two general approaches as the economy recovers: • The most common will remain the owner- or contractor-controlled insurance program centered on the workers’ compensation line of business. In states that allow the wrap-up approach for WC coverage, the WC can be combined under a single premium program. The general liability and excess liability policies are usually combined as well. While you might encounter wrap-ups on smaller projects, this approach makes the most economic sense on projects in excess of $100 million or a series of projects for the same owner or contractor that are generally in excess of $100 million when combined. These are referred to as “rolling wraps.”

• The second approach is one that gained momentum in more recent years: the GL-only wrap. You might see these wrap-ups in states that either prohibit the combination of WC policies under a wrap-up approach, or on higher-exposure projects in

states where adequate GL coverage is difficult to obtain. An example of the latter is new construction or renovation on residential projects where adequate completed operations coverage is problematic because of construction defect concerns. The GL-only wrap approach can sometimes be put together on smaller projects, sometimes as low as $5 million.

Sponsors of the wrap-up insurance approach praise the advantages of these programs. The perceived benefits can be debatable and have often been questioned from the perspective of subcontractors.

However, under a program that is executed professionally by knowledgeable sponsors and program administrators, these would be areas where the wrap-up approach might benefit all parties, even the interests of a subcontractor: • Cost savings due to the scale of most projects and the ability to more effectively manage insurance costs. This is done typically via a large deductible or other loss-sensitive program.

Although these savings usually inure directly to the benefit of the owner or general contractor, they could be a general benefit to all participants as insurance costs

are factored for the overall primary program.

• Coordinated risk control to assure the highest level of safety standards on a project for all contractors, as well as more effective claim management to reduce litigation between the participants.

• The ability to provide GL coverage that might not be readily available in the traditional insured market. An example would be projects that are higher-risk for construction defect litigation.

•Finally, an effective program

The Contractor’s Compass • Fourth Quarter 2009 19

administrator will work to provide as comprehensive a coverage program as is available in the market, with a limited number of exclusions.

These can all be valuable advantages.

On the other hand, the potential pitfalls to subcontractors can also be significant and have been well-documented

by ASA (Editor’s note: See the “Risk Transfer” resources on the ASA Member Resources page in the members-only section of the ASA Web site). One of the major areas of concern to subcontractors should be that last bullet point on coverage. You need to be absolutely certain that coverage is as comprehensive as is available in the market, or at least as comprehensive as your own program.

Subcontractors need to recognize that work performed by a subcontractor under a wrap-up program is usually excluded under its own insurance program. Typically, the reason for the exclusion is simply to avoid duplicating coverage and making an unnecessary charge for coverage that is already in place. However, the presence of this exclusion under a subcontractor’s policy could create an unintended coverage gap if the wrap-up failed to respond to the subcontractor’s exposure on a particular claim.

Identifying and closing those gaps can take place only via a thorough understanding of how wrap-ups provide coverage and, to the extent possible, obtaining excess coverage elsewhere.

“Excess” coverage usually means that the limits under your own policy will be excess if the wrap-up’s limits prove to be inadequate. However, it also can extend to what is often called “difference in conditions” or “DIC” coverage. If the coverage under the wrap-up does not turn out to be as broad as what’s available under your own insurance program, a DIC endorsement will assure you are not penalized by the exclusion.

Sometimes this excess coverage might be available to you under your own primary insurance program. Under some programs, that is not the case and a subcontractor would need to purchase specialty coverage. The underlying message, though, is that a subcontractor can ill afford to overlook its vulnerability.

The following are a few coverage issues that a subcontractor must assess.

Completed Operations Completed operations exposure may be the most significant. This is the coverage where your work comes into play. Many states have enacted statutes of repose that establish time limits on a contractor’s

liability for its work. Some of those statutes can extend up to 10 years and beyond. At one time, it was typical for a wrap-up insurance program to provide coverage for a more limited time frame, usually three to five years. Now, it’s more common for the programs to extend coverage through a state’s statute of repose.

However, many wrap-up programs continue to have time limitations that mean a subcontractor could have an exposure for future completed operations claims. If it turns out that your own policy in future years excludes all jobs that were once covered under a wrap-up, you may not have coverage for completed operations claims brought directly against you for future completed operations occurrences.

Depending on the type of project, it may be possible to go to your own insurance carrier to provide coverage that is excess over what might be available to you under the wrap. This option is usually more viable for jobs that were covered under commercial wrap-ups than those that were covered under residential wrap-ups.

For residential wraps where your own carrier is unwilling to provide the excess coverage, it may be possible to purchase coverage through some specialty markets.

Other Potential Coverage Gaps Learn More About Evaluating and Bidding Wrap-Ups Turn to ASA and the Foundation of ASA for resources on wrap-up insurance, including: • ASA Addendum to Subcontract – Project-Specific Insurance (2008), available to members only under “Contract Terms” on the ASA Member Resources page.

• ASA Contract Offers Terms for Projects Using Wrap-up Insurance (2008), available to members only under “Contract Terms” on the ASA Member Resources page.

• ASAToday January 2007 Special Report “Faith Lost in the Wrap-Up Miracle,” available to members only under “Risk Transfer” on the ASA Member Resources page.

• ASAToday January 2008 Special Report “Respond to Wrap-Up Risks With New and Updated ASA Resources,” available to members only under “Risk Transfer” on the ASA Member Resources page.

• FASA’s multimedia CD-ROM, “Evaluating and Bidding Wrap-Up Projects” (Item #8027) available for purchase ($65 for members/$95 for nonmembers) online at www.contractorsknowledgenetwork.org.

20 The Contractor’s Compass • Fourth Quarter 2009

While completed operations may be the most critical potential gap in coverage, it’s not the only one. The first step should be to have a summary of the coverage extended under a wrap-up, if not a copy of the policy itself.

Subcontractors participating on a project are actual insureds under the program and are entitled to have a complete understanding of the coverage available to them, along with all exclusions that will apply. At a minimum, professional wrap-up administrators will quickly and completely summarize both areas. These are often the key coverage questions: • Is “your work” defined in a way that appropriately addresses all covered contractors in the project?

• Are any of your critical exposures excluded where you have coverage under your current policy?

• Some wrap-ups will exclude high-hazard operations such as exterior insulating finishing systems or the tower crane operations entirely. Is that the case here?

• Many construction underwriters offer a portfolio of automatic GL coverage enhancements. Are the coverages available to you under the wrap-up at least as comprehensive as what you currently have under your own policy?

• Are there any deductible obligations that extend to you under the wrap-up?

• The location of the wrap-up is usually very carefully defined. What locations are specifically excluded?

Particularly for commercial wrap-up projects, your own policy may offer you an adequate measure of protection.

Some policies have automatic enhancements that assure excess

or “DIC” coverage over commercial wrap-ups. Some carriers will negotiate coverage excess that might be available under a wrap-up on a case-by-case basis. These endorsements will provide additional limits (provided there is no exclusion for the loss) under your own primary policy. If it turns out that your own coverage was broader than what was available to you under the wrap-up, these endorsements will sometimes “drop-down” to assure that you are covered.

It’s impossible to put together an exhaustive list of the alternative ways to address these pitfalls but ASA has made a good start with its “30 Questions for Consolidated Insurance Programs” document (Editor’s note: This resource is available in the previously referenced “Risk Transfer”

area of the ASA Web site). From a coverage perspective, however, it’s important to discuss past, current and future wrap-ups with your underwriter or broker. Make sure your carrier is notified that you are now, or have in the past been, covered under a wrap-up.

Finally, checking how your current policy excludes these projects, and checking how future policies exclude them, is essential.

There can be critical coverage gaps when participating in these programs; but having the right insurance provider increases the likelihood that your own insurance program will effectively align with the protection offered under the wrap. CNA’s construction segment provides a complete array of coverages for thousands of contractors and construction firms across the country. ■

Mike Ahern is assistant vice president of underwriting for CNA’s construction segment. He can be reached at michael.ahern@cna. com. For a complete list of CNA insurance solutions or to find an independent agent near you, call 1-800-CNA-6241 or visit www. cna.com. The information in this article is intended to present a general overview for illustrative purposes only. Please remember that only the relevant insurance policy can provide the actual terms, coverages, amounts, conditions and exclusions for an insured.

Copyright 2009 CNA. All rights reserved.

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The Contractor’s Compass • Fourth Quarter 2009 21 7/21/09 10:51:19 PM

Coming Up Next Issue

ASA/FASA Calendar

in the 1st Quarter 2010 Issue of

Theme: Running a Tight Ship • Strategies for Preserving Your Claims • Choosing the Right Overhead Allocation Method • New Research Reveals Subcontractors’ BIM Usage and Perceptions • Understanding Your Completed Operations Coverage and Obligations • ASA Champions Academy 2009 Coverage • ASA Business Forum and Convention 2010 Preview ASA Members: Look for your issue in the mail after Dec. 1.

Nonmembers: Subscribe online at www.contractorscompass.org

Portable Sanitation Association International 1-800-822-3020 / 952-854-8300 E-mail: portsan@aol.com Web Site: www.psai.org All Construction Sites Require the Essential Service of Clean Portable Restrooms.

INTERNATIONAL PLUMBING CODE (IPC) SECTION 311 UNIFORM PLUMBING CODE (UPC) SECTION 412.7 AMERICAN NATIONAL STANDARD INSTITUTE (ANSI) Z4.3 The First Article of the ASA Contractors Bill of Rights states that a Safe and Healthy Workplace will be provided.

Protect the Health & Dignity of the Subcontractor.

Ensure that Clean Portable Restrooms are provided in accordance with ANSI Z4.3 1 Portable Restroom per 10 workers.

22 The Contractor’s Compass • Fourth Quarter8/7/08 20091:54:25 PM

395441_PSAI.indd 1

Sept. 15 ASA/FASA Webinar: Where the Projects Are: Finding and Getting Federal Projects Sept. 19 ASA Executive Committee Meeting Arlington, Va. Sept. 19 ASA Board of Directors Meeting Arlington, Va. Sept. 19-22 ASA Champions Academy 2009 Arlington, Va. Sept. 25 Release of ASA/FASA Podcast: Protecting Against Payment Default Oct. 13 ASA/FASA Webinar: Managing Sub-Subcontractors Made Easier Oct. 25 Release of ASA/FASA Podcast: Curbing the Risks of Lien Waivers Nov. 10 ASA/FASA Webinar: Protecting Against Client Bankruptcy Nov. 12 ASA Task Force on Government Advocacy – Federa Alexandria, Va. Nov. 12 ASA Task Force on Government Advocacy – State Alexandria, Va. Nov. 12 ASA Task Force on the Subcontractors Legal Defense Fund Alexandria, Va.

Nov. 13 ASA Task Force on Contract Documents Alexandria, Va. Nov. 13 ASA Attorneys’ Council Alexandria, Va. Nov. 25 Release of ASA/FASA Podcast: Defending Your – Not Others’ – Mistakes Dec. 8 ASA/FASA Webinar: Subcontractor Default Insurance: Risk Management Swan or Ugly Duckling?

Dec. 25 Release of ASA/FASA Podcast: Addressing the Additional Insured Problem 2010 Jan. 12 ASA/FASA Webinar: Boom or Bust? Predicting Your Business’s Future Jan. 14 ASA Executive Committee Meeting Dallas, Texas Jan. 15-16 ASA Finance Committee Meeting Dallas, Texas Jan. 17-18 ASA Rap Council Meeting Dallas Texas Jan. 25 Release of ASA/FASA Podcast: Understanding Termination for Default

Contact information for all ASA and FASA events/programs: (703) 684-3450, Ext. 1304 www.asaonline.com | meetings@asa-hq.com

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CONCRETE CONTRACTORS Knutson Construction Services ............ 4 www.knutsonconstruction.com DEMOLITION CONTRACTORS Knutson Construction Services ............ 4 www.knutsonconstruction.com INSURANCE & BONDING Allstate Insurance Company............... 13 www.allstate.com CNA Insurance .......... outside back cover www.cna.com MASONRY CONTRACTORS Knutson Construction Services ............ 4 www.knutsonconstruction.com SOFTWARE Project DocControl ............................ 11 www.projectdoccontrol.com

The American Subcontractors Association, Inc., and the Foundation of ASA, Inc., Present…

The Kickoff of the 2009-10 “Putting Change To Work for You” Webinar Series Access these 90-minute, live Web-based programs using a computer and a phone to learn how to put change to work for your subcontracting business. Save on travel costs and minimize time out of the office. View and listen to these programs from 12:00 p.m. to 1:30 p.m. (Eastern Time) from an individual workstation, or as a group in a conference or training room. After each program, you’ll receive the recorded program on multimedia CD-ROM for viewing and listening later. Great for training! You’ll also receive instructions for printing out an ASA/FASA Certificate of Completion recognizing your participation in this professional development opportunity. You’ll be able to print a customizable certificate for each person who participated in the program at your location.

Dec. 8, 2009: Subcontractor Default Insurance: Risk Management Swan or Ugly Duckling?

Webinar Pricing:

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$279 each ($199 for ASA members)

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Sept. 15, 2009: Where the Projects Are: Finding and Getting Federal Projects Item #WEB032 Presenters: David Hendrick, Esq., and Bart Reed, Esq., Hendrick, Phillips, Salzman and Flatt, Atlanta, Ga.

Oct. 13, 2009: Managing Sub-Subcontractors Made Easier!

Item #WEB033 Presenter: Donald Gregory, Esq., Kegler, Brown, Hill and Ritter, Columbus, Ohio

Item #WEB035 Presenters: Dennis Bausman, Ph.D., CPC, Department of Construction Science and Management, Clemson University, Clemson, S.C., and David Bradbury, Vice President, Precision Concrete Construction Inc., Alpharetta, Ga.

Jan. 12, 2010: Boom or Bust? Predicting Your Business’s Future Item # WEB036 Presenter: Brad Dawson, LTV Dynamics, Catharpin, Va.

Feb. 9, 2010: Managing Your Completed Operations Risk

April 13, 2010: Preserving Your Claims With Project Documentation Item #WEB038 Presenter: Jason Ebe, Esq., Snell & Wilmer LLP, Phoenix, Ariz.

May 11, 2010: Dispute Resolution: Strategies That Work Item #WEB039 Presenter: Donald Gregory, Esq., Kegler, Brown, Hill and Ritter, Columbus, Ohio

Nov. 10, 2009: Protecting Against Client Bankruptcy

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Item #WEB034 Presenter: William L. Norton III, Esq., Bradley, Arant, Boult, Cummings LLP, Nashville, Tenn.

Register online at www.asaonline.com or call (703) 684-3450, Ext. 1304!

LIKE COMPETENT FOREMEN AND SKILLED WORKERS GOOD PARTNERS ARE STRONGER TOGETHER.

www.cna.com

CNA helps manage the unique risks of contractors and offers critical coverages that aren’t readily offered by other carriers. We provide risk control programs that help identify and reduce loss exposures. Our claim adjusters process claims quickly and fairly, and help injured workers return to work sooner. With CNA, you benefit from the strength of an A-rated national carrier with local industry expertise. If you’re looking for a partner who can help handle your toughest claims … we can show you more.SM For more information, contact your independent insurance agent or visit www.cna.com.

Use of the term "partnership" and/or "partner" should not be construed to represent a legally binding partnership.

CNA is a registered trademark of CNA Financial Corporation. Copyright © 2009 CNA. All rights reserved.