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Are you in good hands? The myth that insurance equals protection

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Insurance is a risk transference tool. To get value out of your insurance purchases, you must know your risk exposure, decide what risks to transfer and, lastly, know that your insurance covers the risk.

Your risk exposure constantly changes and insurers constantly change their policies. These truths apply to people and businesses in real estate and construction businesses. Whether a developer, general contractor, subcontractor or professional, the failure to understand your risk exposure and your insurance coverage means you do not know what your future holds.

OCIPS and WRAPS have become commonplace. Besides developers and contractors, these policies may cover service providers, construction managers and design professionals.

If you are an insured on a WRAP or OCIP, you may assume you are protected from suits that arise from the project. However, OCIP and WRAP policies usually exclude professional and CM services. OCIPS & WRAPS are general liability policies, not E&O policies. Even if a professional services endorsement is included in a OCIP or WRAP, they typically do not cover all of the professional's risk. WRAPS and OCIPS cover bodily injury and property damage, not professional liability. Another WRAP/OCIP issue is whether a serious accident during construction wipes out most of the limits you thought would be available to address construction defect claims.

Converters of shelf condominiums or true apartments often do not understand their risk exposure. Many converters do not know whether the policy they bought covers them for defects in the original construction. Will their policy provide protection from suits alleging inadequate investigation and disclosure about the project's major systems? Does your policy cover failure to investigate or disclose claims? Is insurance available to cover those claims? Do you know what risks converters are exposed to? Did you buy the coverage converters need? Without knowing these answers, your insurance may be wasted money.

Did you know that you make warranties and guarantees in some CGL policies? Some policies contain a contractor's warranty endorsement. It states that you represent and warrant that you "will be named as an additional insured" for the duration of construction on your contractors' and subcontractors' insurance policies. Some of the warranties require minimum limits and some make your policy excess over the very policy you bought to protect yourself. Some even state your carrier has no duty to defend or indemnify you for claims that should be covered by your subcontractors' policies. Who decides what should be covered under someone else's policy? Are you positive your subcontractor named you as an additional insured for the duration of your project? Will your carrier defend you after you are sued?

Your attorney needs to be involved in your insurance purchases, know what lawsuits and risks you face, and what coverage your insurance policies provide.

Submitted by Drew Fiorica, a partner of Eppsteiner & Smith LLP

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