LARSON’S LESSONS
THE PRISON CASE
WHAT WENT
WRONG?
BY: WILL LARSON
Many years ago, I had a case involving the renovation of
cellblock C of Leavenworth Penitentiary. This case was
a very large project. Cellblock C constitutes the entire
east wing of the Penitentiary. Part of the renovation was
to replace the refrigeration unit for air conditioning the
cellblock.
The contractor had a blanket builder’s risk policy. Before
starting the renovation, a competing insurance agent
reviewed the contractor’s coverages and recommended
replacing the builder’s risk policy with an installation
floater. One of the significant differences between a
builder’s risk and installation floater is a builder’s risk
covers the project until the owner accepts it while an
installation floater only provides coverage until equipment
is installed. The competing agent recognized the problem
and told the contractor he would get an endorsement
extending coverage under the installation floater until
the owner accepted the project. The agent explained the
installation floater with the endorsement would provide the
same coverage as the builder’s risk and cost a lot less. The
contractor agreed to switch to the installation floater and to
switch agents.
During installation, the refrigeration unit was filled with
water prematurely and froze. It cost several hundred
thousand dollars to replace. It turned out the installation
floater had an exclusion for freezing. The company denied
coverage. The builder’s risk policy didn’t have a freezing
exclusion. Ultimately the E&O carrier for the new agency
paid the claim.
LESSONS
1. If you tell a customer you are going to duplicate
coverage; you’d better make sure you are truly
duplicating coverage. That means not only comparing
the coverage language of the two policies but also
the exclusions and conditions. Companies often
modify even ISO-based forms, so you can’t be sure
any two companies are using the same form. This
is especially true when a non-admitted company is
involved. Non-admitted companies are not required
to file their forms for approval so they can say
virtually anything.
2. It may be a good idea to use a disclaimer when
moving coverage from one company to another.
The disclaimer should generally provide while the
basic types of coverage may be the same; there may
be differences in how coverages apply to specific
claims. Insureds should read the policy carefully
and contact their agent if they have any questions.
Disclaimers are not a silver bullet but can help in
defending E&O claims.
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