Insurance Defense Attorney - Insurance Defense Attorneys

Pitfalls and Problems with Additional Insured Coverage

cadmin — Mon, 30 Jan 2012 17:31:10 +0000

By Daniel P. Costello, Esq.

Illinois is one of the few states that allows a defendant, sued by an employee of another entity, to bring a third-party action against the plaintiff’s employer for contribution. See 820 Ill. Comp. Stat. 305/5(b). The employer’s potential liability, however, is limited to an amount not greater than the benefits payable under workers’ compensation. Kotecki v. Cyclops Welding Corp. , 146 Ill.2d 155, 165, 585 N.E.2d 1023, 1027-28 (1992).

This limitation is known as the ” Kotecki cap.” Its purpose is to strike a balance between the competing interests of the employer in limiting liability through participation in workers’ compensation and the third-party plaintiff in not paying more than its established fault. Id.

When necessary to obtain a work contract, an employer may agree to indemnify the person with whom it is contracting against liability relating to the employer’s job performance. In the construction industry, such an indemnification provision may be construed as a waiver of the Kotecki cap. See Virginia Surety Co. v. N. Ins. Co. of NY , 224 Ill.2d 550, 569, 866 N.E.2d 149, 161 (2007).

If enforced as a waiver, the agreement exposes the employer to liability for its full share of fault in causing the plaintiff-employee’s injuries, even if that amount exceeds the amount of the employer’s workers’ compensation obligation. Id.at 558-59, 866 N.E.2d at 155. An employer in these circumstances must be cognizant of the ramifications associated with waiver of the Kotecki cap, including heightened exposure and potential gaps in coverage that may exist under the employer’s liability, workers’ compensation and contractual liability exclusions found in most CGL policies.

One way the construction employer can limit or eliminate contribution claims once the Kotecki cap has been waived is through “additional insured” coverage for its contracting partner. The employer might agree to provide such coverage under its CGL policy pursuant to the same contract containing its indemnification obligation.

Illinois courts have interpreted these types of provisions as “mutual exculpation” clauses that protect the employer from individual liability to the upper-tiered contractor-owner up to the limits of the policy. See Briseno v. Chicago Union Station Co. , 197 Ill.App.3d 902, 905, 557 N.E.2d 192, 197 (1st Dist. 1990).

The additional insured coverage may be regarded as the contracting parties’ only recourse against each other, at least to the extent that the upper-tiered contractor-owner has been fully defended and indemnified by the employer’s CGL carrier. Id. See also Monical v. State Farm Ins. Co , 211 Ill.App.3d 215, 223, 569 N.E.2d 1230, 1235 (4th Dist. 1991) (court held that “when parties to a business transaction agree that insurance will be provided as a part of the bargain, the agreement must be interpreted as providing mutual exculpation to the bargaining parties. The parties are thus deemed to have agreed to look solely to the insurance in the event of loss and not to impose liability on the other”). The additional insured coverage thus substitutes for the Kotecki cap.

Outside the construction industry, an indemnification clause is more likely to be construed as such and not as a waiver of the Kotecki cap. Depending on the wording of the clause, coverage for the employer’s indemnification obligation may survive both the “employer’s liability” and “contractual liability” exclusions in the employer’s CGL policy, since those exclusions typically contain exceptions for “insured contracts” and the obligation may qualify as such a contract. If so, the CGL policy may cover the employer for such obligation.

Additional insured coverage for the employer’s contractual indemnitee may nevertheless prove advantageous. The employer’s CGL insurer typically owes no defense directly to the indemnitee, even if the insurer, by virtue of the employer’s indemnification contract, ultimately is responsible for paying the indemnitee’s defense costs. Additional insured coverage for the indemnitee will help to assure that the insurer responds immediately on behalf of both the employer and indemnitee in providing and coordinating their defense. In addition, defense costs for the indemnitee, if it also qualifies as an insured, will be paid as “supplementary payments” under the policy and will not reduce the policy’s limits.

This can be a trap for the wary. These provisions can be set forth either in the body of the coverage form or in an endorsement to the policy. Specific additional insured provisions in an employer-contractor’s policy typically limit additional insured coverage to liabilities in some way relating to the conduct of the employer.

Other issues that may affect the scope and availability of additional insured coverage include:

•The necessity of a written contract being in place between the named insured and additional insured prior to the employee’s injury.

•What pleadings or extraneous information should be relied upon in determining the insurer’s duty to defend the additional insured.

•The relevance of the named insured’s contractual obligation to the additional insured, which may be inconsistent with the policy’s additional insured provisions.

Alternative Fee Arrangements

cadmin — Mon, 30 Jan 2012 16:51:32 +0000

By Daniel P. Costello, Esq.

While readers of this newsletter may know that alternative fee arrangements (AFA) are nothing new, interest in AFAs has dramatically increased. In the current economic climate, providing financial certainty and value to a client is more important than ever. An April 2009 survey conducted by the Association of Corporate Counsel found that 77 percent of its members would like to consider alternative billing arrangements in work handled by outside counsel.

The upcoming Counsel on Litigation Management meeting, at which I will present, has made the “The Defense Dollar”-Enhancing Efficiencies and Cost the center piece. There are no fewer than five separate presentations touching on AFAs and measuring the true value of services provided.

I have been a huge proponent of AFA for the last several years and view them as necessary solution to companies to reduce their legal costs, while simultaneously aligning the goals of counsel and carrier. The key to why AFAs have quickly moved to the front is that they shift financial risk from clients to attorneys. Attorneys have “skin in the game” and now share some of the burden for insuring cost and time effective solutions.

The most popular AFAs are risk collars, flat fees, fee caps, and holdbacks, but there are virtually no limits on ways to structure fees. Although I won’t cover all of these types of AFAs in this newsletter I did want to target one specific model which makes the transition from a billable hour to alternative fees easier for those that are weary that the new model will actually cost them more. This solution is known as a “risk collar”. With a risk collar, an attorney and client agree on a fixed fee for a matter and, over the course of the representation, compare the actual hourly time expended to the fixed fee. If the hourly time is less than the fixed fee, the client is provided a discount, but the firm is still compensated more than the actual hourly expenditure. If the billable work exceeds the fixed fee, the attorney may absorb the first 20 percent in excess and then the client and attorney split the remaining hours.

The benefits to this model are that both the client and attorney track the hours expended on the files and there is transparency to the actual time expended. It also rewards the attorneys even if they spend less time on the file than what is set out in the fixed fee, based upon an agreed upon sliding scale for payment. However, the agreement also provides the client with a pad of 20 percent over the fixed fee a “collars” the risk, thus providing some certainty to what the final bill will be. This model does not act as a complete guarantee like a fixed or fair fee, and provides less of an incentive to hit the mark, it does provide much more protection that a billable hour rate.

The key to all of these solutions is defining success radically differently than the current model which creates an adversarial relationship. Bill review programs under the current model only feed the monster as they address the symptoms but not the underlying root cause of the problem. As 77 percent of clients are demanding these types of arrangements it seems like that carriers will continue to come up with new models that work for both them and counsel. My experience tells me that firms that have data to mine from both objective quantified data, and their own firm will become the most successful moving forward. Due to our experience with over six years collecting this date we believe that we are well position to take chances and reward our clients with willingness to do so.

Challenge to Extrinsic Evidence Filed before Illinois Supreme Court

cadmin — Fri, 27 Jan 2012 21:21:24 +0000

By Daniel P. Costello, Esq.

What can be considered when evaluating whether an insurance company owes a duty to defend? Our firm recently asked this question to the Illinois Supreme Court in an appeal submitted this month.

Unfortunately, the answer to that question just became a lot murkier. Historically, a carrier’s duty to defend was triggered by allegations within the plaintiff’s complaint and the four corners of the policy, which determined whether this was a covered loss or if the insured’s conduct fell outside the policy’s coverage. However, in the aftermath of Pekin v. Wilson, it is now unclear what a court “may” consider when evaluating a carrier’s duty to defend.

In Pekin v. Wilson, Pekin denied its duty to defend because the underlying complaint against Wilson did not bring Wilson’s coverage within the policy. Wilson challenged Pekin on the basis that he had filed a counterclaim in the underlying action that brought the case within Pekin’s policy. The dispute ascended all the way to the Illinois Supreme Court, where the Court held in favor of Wilson, finding that “a circuit court may, under certain circumstances, look beyond the underlying complaint in order to determine an insurer’s duty to defend.”

Now, carriers face the ambiguity of determining what “certain circumstances” potentially bind them to their duty to defend. The Court in Pekin v. Wilson pointed to two appellate court decisions that properly considered evidence beyond the underlying complaint. First, in Pekin v. Holabird & Root, the court permitted consideration of relevant facts from all pleadings, including third-party complaints. However, the Holabird & Root decision had very limited application and the decision emphasized a court’s discretion in reviewing the additional evidence by stating that it “may look beyond the complaint.”

Second, Fidelity & Casualty Co. of New York v. Envirodyne Engineers, Inc. extended the permissible evidence considerations even further. The Envirodyne Engineers court noted that the duty to defend initially flows from the underlying complaint’s allegations. But once a declaratory proceeding is initiated, the parties may offer evidence to prove whether the insured’s actions fell within the policy. The court seemingly makes the additional consideration mandatory, stating that “[t]he only time such evidence should not be permitted” is when it tends to determine a crucial issue in the underlying case.

The inconsistencies created by Pekin v. Wilson are already appearing within the Illinois districts. For example, in addressing very similar factual situations, the First District arrived at divergent opinions in Pekin v. Roszak/LLC and Pekin v. Pulte Home because the former case relied solely on the pleadings, whereas the latter considered additional evidence including the contracts and discovery responses.

To date, carriers have little to no guidance as to the limitations of this policy. Most notably, carriers are left in dark as to what types of additional evidence can be considered—is it limited to underlying pleadings, or does it extend to contracts, affidavits, and other discoverable information? Furthermore, is it the court’s discretion to consider the additional evidence, or is it mandated to review all offered evidence? Are Chancery Courts now going to become fact finders on the underlying case?

We aim to have these questions answered and the confusion alleviated with our recent appeal. But until the Illinois Supreme Court considers the issue, we expect the inconsistent results to remain.

Defendants Can Argue Liability Against Settled Defendants

admin — Mon, 14 Nov 2011 23:58:30 +0000

Illinois Supreme Court Finds That Defendants Can Argue Liability Against Settled Defendants.
by Daniel P. Costello, Esq.

Shortly before the end of 2008, the Illinois Supreme Court in Ready v. United issued what at the time was the most significant change to the law on jury instructions in Illinois. Terry E. Ready v. United/Goedecke Services Inc., et al., No. 103474.

We have been following this case since the cold months of December, and in the days just before the July 4th holiday, the 1st District Illinois Appellate court has again heated up the debate on the state of the law in Illinois on contribution among joint tortfeasors.

As I originally wrote in my January 2009 edition of this e-letter, Section 2-1117 of the Illinois Code of Civil Procedure has long been a troublesome statue. Originally crafted as a modified form of contributory negligence, the statute had meant to serve as a protection for minimally culpable defendants in Illinois.

However, the Illinois Supreme Court held in Ready that the legislature did not intend fault to be apportioned to defendants who had settled prior to trial. This decision appeared to be a blow to joint and several liability for those defendants found to be at least 25 percent responsible for the plaintiff’s injury.

Many plaintiff’s attorneys called the court’s decision a win at that time. Prior to the high court’s decision, many plaintiff’s lawyers stated that they were reluctant to engage in partial settlements. They often cited to the concern of the empty chair at trial and a name on the verdict form that wasn’t part of the story they were putting on.

But in two recent decisions the courts have swung back to a middle ground again. The Illinois Supreme Court in its latest ruling on the sole proximate cause argument, in Nolan v. Weil-McLain, No. 103137, 2009 Ill. LEXIS 381 (April 16, 2009), and the Illinois 1st District Court in the rehearing of the Ready v. United, 2009 Ill. App. LEXIS 589(1st Dist, June 30, 2009), both have ruled that despite the fact that settling defendants do not go on the verdict form, the remaining defendants can still argue that those settling were the sole proximate case of the plaintiff’s injuries.

In the Nolan case, all of the defendants but one settled prior to trial in an asbestos litigation case. The trial court in that case barred via a motion in limine that the lone remaining defendant was able to argue any liability on the settling defendants. However, the Illinois Supreme Court in Nolan reversed and found that it was error to exclude this evidence when proximate cause was disputed and the defendant pursued a sole proximate cause defense, following its prior decision in Leonardi v. Loyola University of Chicago, 168 Ill. 2d 83, 93(1995), Nolan, 2009 Ill. LEXIS 381, at *42.

Following the Nolan decision, the Ready 1st District Appeals Court also found United’s denial of liability was sufficient to permit it to present evidence that Ready’s death was the result of another entity’s conduct. Thus, the court erred by excluding this evidence and the case is set for a new trial.

This is obviously a positive development for defense counsel. Prior to these rulings the courts were barring any evidence of negligence on behalf of settled defendants in motions in limine. Thus, the jury was not hearing any evidence that they were the cause of the plaintiff’s injuries. The court’s new decision will allow defendant’s to argue that it was “not the sole proximate cause” and that the plaintiff’s injuries were a result of the conduct of others.

However, this issue does not appear to be completely settled. The Ready case is being appealed again to the Illinois Supreme Court, and the issue of whether defendants are entitled to a specific jury instruction on sole proximate cause has not been decided. But for the short term it appears that “some” balance has been restored to Illinois law allowing defendants to argue the true responsible parties liability before a jury. We will continue to follow this matter and provide updates as they become available.

Reducing your Exposure on a Construction Project

admin — Fri, 19 Aug 2011 05:23:07 +0000

Contracting and the Importance of Hazard Identification

By Daniel P. Costello

The construction industry is one of the most challenging in the United States economic landscape. Successful developers, general contractors, artisans, and trades have to balance the scheduling of projects, safety, costs, labor demands, and potential lawsuits. In today’s world of litigation and eye popping jury verdicts managers, superintendents, and owners need to be cognizant of the importance of legal contracts, the risk transfer clauses contained with in the contracts, and their remedies for non-performance. In this article we will discuss the challenges facing the industry by examining the top hazards including the often overlooked hazard of the legal contract process.

Safety in the industry has moved to the front of industry for all contractors. Most risk managers and safety experts agree on the top ten “10 hazard’s” of the industry. We believe that if property identified and controlled, the elimination of these hazards will reduce the company’s exposure, lead to better performance on the job, and will reduce operational costs, including your growing insurance premium.

THE TOP TEN

1. Safety and Work at Heights: The lack of proper scaffolding and fall protection are OSHA’s top two leading causes of citations in 2006. As a general rule, the higher the contractor works, the higher the chance to experience large losses to accidents related to scaffolding and falls. However, the best way to eliminate contracting risks is to work on a level surface, have proper controls regarding scaffolding and fall protection, and conduct regular training. Its always in your best interests to have someone with a 10 hour OSHA certificate on the site or to provide training to your company. Many insurance companies will provide this training for your company, for a nominal fee, if you simply ask.

2. Trench Safety: Excavation, grading, water, sewer main construction and other risks that dig trenches, work in confined spaces, work in and around heavy digging equipment that have deadly potential. The safest contractors use trench boxes on any project where they are below 2 feet to prevent serious injuries. Significant injuries can occur to workers working below 2 feet do to the pressure and weight of over 2 feet of dirt. Although plumbers encounter these hazards on the most frequent basis, sprinkler installation, and those working below ground also face these hazards.

3. Proper Supervision with Designated Competent Person at Each Work Site: This is an important hazard that should not be overlooked. Most large construction related accidents occur where there is not a designated competent person supervising the work. It is important to note that although you may have the proper person in place who is OSHA competent to prevent injuries, it is important to insist that your subcontractors have the same persons in place. Paper Contractors who hire all subcontractors to do the work can put your company at risk. We strongly feel that paper contractors like this cannot provide adequate on job supervision to control work quality and/or job site safety.

4. Adequate Risk Transfer Controls for Subcontractors: General Contractors and any other trade contractors that hire subcontractors much have proper subcontracting controls such as:

Construction Contract with a fair and reasonable indemnification agreement
Proper Insurance Requirements that includes Additional Insured status
Adequate Limits of Insurance

Third Party Over losses are one of the critical causes of severe losses where an injured employee collects workers compensation and then directs litigation to the Owner, General Contractor or Trade Contractor who hired the subcontractor of the injured employee usually on the basis of failure to provide a safe work site. The proper implementation of subcontracting controls can protect the Owner, General Contractor or Trade Contractor who hired the subcontractor of the injured employee from this type of Third Party Over litigation. At Daniel P. Costello & Associates, we have worked with clients across the country to address these issues.

5. Unskilled Labor, Inadequate Training, Improper Communication of Hazards and Lack of Bi-Lingual Skills: The overwhelming demand for new housing combined with an increase in demand for commercial related construction has caused a shortage of skilled and unskilled labor in the market place. In view of this, there has been an increase in loss severity relating to inexperienced and untrained workers such as falls from heights, trench collapses and injuries while operating heavy equipment.

Companies that stress the importance of proper training and communication at the work site, are the companies that will prosper in this industry. The best method to avoid these potential hazards is to insist on supervisors with at least the minimum requirements mandated by OSHA regarding proper supervision. Additionally, companies need to communicate job site safety with signage in Spanish and English, and the need for effective bi-lingual skills with those on the jobsite.

6. Employer/Employee Relationship: An emerging issue of concern is the common attempt of some employers to hire independent contractors to do the work and pay these workers on a 10 99 basis. This is becoming very prevalent as employers attempt to avoid the increasing expense of taxes and benefits associated in hiring true employees.

However, most independent contractors are often uninsured or carry just General Liability coverage but rarely Workers Compensation. This is an issue because many courts deem these 1099 independent contractors to be employees. If the court determines that legally these are your employees who are working at the direction of the employer, you are subject to liability.

These so called independent contractors who become severely injured can pick and choose how to direct litigation to their employer and our ability to exclude coverage via the Commercial General Liability’s Employee Exclusion is imperiled. The employers General Liability coverage can become an unintended sole remedy for independent contractors who are severely injured.

This is a very complex issue and an issue that does not have an easy solution especially in view that most contracting risks will at least occasionally hire casual labor and pay them on a 10 99 basis as independent contractors. Contractors should mandate that all independent contractors carry General Liability including Additional Insured status for the contractors they are performing work upon behalf of, and Workers Compensation coverage or a signed opt of worker’s Compensation if applicable. All coverage should be verified via Certificate of Insurance with either updates on a yearly basis, or coverage for a specific project without a limitation in the dates of coverage.

7. Business Automobile Accidents: The largest most significant accidents for most Companies is related to Business autos for the company. Common sense and repetition to stress the importance of proper driver selection standards regarding acceptable MVR’s, training, experience and meeting any required DOT standards. In addition, fleets should be well maintained and contracting risks should implement personal use limitations. Again most insurance carriers will work with your company to help reduce these risks. An effective program is also the “How’s My Driving”, can cut poor driving significantly.

8. Contractor’s Equipment Lack of Security: Theft of expensive contractors equipment due to lack of implementing proper security to protect equipment is a major concern for contractors. Clearly theft is an enticement for equipment of this nature because of the potential significant value and disposable. This is particularly true in certain areas of the country such as Texas, Arizona, and Florida where equipment may be disposed across the border and is more difficult to trace.

Losses of this nature are controlled by properly securing the job site. This is accomplished via lighted and fenced job sites, watchmen, immobilizing the equipment when not in use (remove battery, distributor, etc.), identification of serial numbers on all equipment, installation of anti-theft device, and proper inventory control.

9. Proper Storage and disposal of Flammable Liquids and Soiled Rags: Those with any chemistry training recognize that fire losses can be caused by improper storage and disposal of flammable liquids and soiled rags that spontaneously catch fire. Painting and floor staining operations using oil based paints, stains, finishes, and solvents should use proper Loss Control methods to properly dispose and store these products. These products should be stored in metal cans with water for both the unused and left over flammable liquids and also soiled rags.

10. Proper Legal Advice: Contractors who do not have a plan to deal with the above losses or to at least take the time to seek advice put themselves in an extreme disadvantage in the marketplace. No longer is it enough to be a great tradesmen in your industry. Business planning and legal safeguards are essential to making your company successful.

Contact our office to speak to us about eliminating your potential hazards, and safeguarding your company.

Solid Contracts Makes for Solid Business

admin — Fri, 19 Aug 2011 05:22:42 +0000

The Importance of Solid Contracts
By Daniel P. Costello, Esq.
If you are an employer, a business that deals with companies as vendors, if you act as a vendor or service provider to large companies, or maybe all of the the above, then you are likely already aware of the importance of solid contracts. You may have spent a great deal of time honing your contracts to reach a point where you are satisfied with the results. The bad news is that even with all of the time and effort that you have put into your contract writing, there are likely to be weaknesses. A solid contract leaves no room for interpretation. It defines the agreement between two parties to the letter. It covers every important situation that you as an employer, service provider, or vendor that you are likely to find yourself in. How can you ensure that you have a contract that works within Illinois and Federal contract law? Take your contract to a business litigation attorney.

In employment situations, the trouble that most employers have when it comes to creating contracts is simply that they are not aware of the intricacies of contract law. It is easy to make mistakes if you are unaware of the letter of the law. It can be a very positive experience to produce your own contracts. Before you can begin, however, a few considerations need to be made.

When it comes to contracts, one size does not fit all. Within any organization, you will find that there are key employees and non-key employees. Key employees may have access to valuable business information and trade secrets. While they may have earned your trust and may have proven themselves to be a valuable asset to your company, should they decide to leave your company, they become a business liability. For an employee that has access to vital information, it is reasonable and pertinent to protect that information with your contract. Should they decide to leave your company at some stage in the future, your business secrets will have a significant level of protection. We will be able to advise you of both the language that you should use and the clauses that you should include to create a contract that is acceptable under Fair Labor Standards Act under Federal Law and also state contract law.

With non-key personnel, your contract is just as important. Your contract should cover their obligations to your business in language that is easy to follow. In the same way, the contract should explain your own obligations.
We have a great deal of experience at putting together solid contracts. A contract that covers all pitfalls is a great way to avoid misunderstandings between managers and staff. In the event that a well written contract is called into question, the misunderstanding is most likely to be resolved in favor of the employer. A poorly worded contract that is open to interpretation leaves your business vulnerable.

Talking to us is perhaps the simplest and most effective way to ensure that you get the contract that you want.
Daniel P. Costello & Associates LLC has an experienced and effective contract lawyer ready to help you produce the solid business contracts that you require.

What Type of Entity is Best for Your Business?

admin — Fri, 19 Aug 2011 05:22:22 +0000

What Type of Entity is Best for Your Business?

By Daniel P. Costello, Esq.

Starting a new business can be a very exciting time. As a fellow entrepreneur and businessman, I have felt the butterflies of excitement in opening my own business. There are countless things to consider when opening your own business, your location, staffing, leases, acquisition of property, getting clients, and the list goes on and on. I have worked with many companies during their formation stages and have found that only by going through the checklists of starting a new business are the budding entrepreneurs or even the experienced businesses going to be successful in choosing all of the best options for their new company. Legally speaking one of the most important decisions a business can make is what type of entity will best protect the legal liability of the company, provide the best tax consequences, and also allow the most solid framework for growth. The following article is not a checklist. Rather it is a very brief overview in the choices available for new businesses in the start up phase. If you are considering a new business you should contact our office or your own attorney to ask them which business vehicle would be right for you.

There are many business entities that can serve a new business. Depending on the size of the business, the number of owners involved, and the expectation of growth, a different choice may emerge for everyone. In this article I do not discuss the more basic entities such as a sole proprietorship, a partnership, or cover in depth the complicated Series LLC or full C Corporation. To keep things simple, we will discuss the advantages of forming an Limited Liability Company or LLC and the main differences between a LLC from a “S” Corporation.