Texas contractors should be aware of two recent changes in the insurance landscape that could affect the way they do business.

One of the changes came about as the result of a Texas Court of Appeals judgment in Erie v. Walsh & Albert. The other is a consequence of insurance carriers being spooked by what they consider to be excessive claims and defense costs on homeowner mold and EIFS claims.

In Erie v. Walsh & Albert, the court addressed a scenario in which Maryland-based Clark Construction Group Inc., the general contractor, bought a single worker's compensation policy that covered all workers on the Enron Building project in Houston. An employee of Way Engineering, a subcontractor hired by Clark, was injured on the project and tried to escape the limits imposed by the worker's compensation law by alleging that the injury was the result of the negligence of Walsh & Albert, a second-tier subcontractor.

The court granted summary judgment dismissing the employee's action on the basis that, by purchasing a single worker's compensation policy for all employees working on the project, Clark had precluded the employee of any tier subcontractor from suing the employer of any other tier subcontractor.

The Way employee was treated as a deemed employee of Walsh & Albert for the purposes of the worker's compensation act.

This holding confirms a preclusion on the exposure of subcontractors and general contractors to damages beyond worker's compensation recovery for their acts of negligence when the victim of the negligence is employed by the contractor or any subcontractor on the site.

The law that precludes employees from suing their own employer for negligence if worker's compensation coverage is in place has been around a long time, but it does not preclude suing other site employers for negligence. Moreover, extending that preclusion to all other contractors and subcontractors who have been wrapped up into a worker's compensation program for the site has not always been possible.

The change has resulted from a statutory change and holdings as in this case.

This holding affords a clear reason for wrapping up worker's compensation (preclusion of lawsuits by all of the classes of people most likely to be injured on a project). It should also provide an additional argument for wrapping up the general liability coverage of all tiers of employers on a site because the preclusion should result in a smaller commercial general liability risk and therefore a lower commercial general liability premium. Many of the arguments against wrapping up insurance coverage on a construction project remain viable (e.g. difficulty of negotiating proper credits, excessive administrative overlay on small projects). But this holding does encourage the use of wrap-ups because a real legal risk has been extinguished merely by the way the insurance program is structured.

Meanwhile, insurance carriers spooked by what they consider to be excessive claims and defense costs on homeowner mold and EIFS claims have developed some strategies that are having an impact on insurance costs and coverage for trade contractors.

For one, masons and other contractors with mold and EIFS exposure are now being required at renewal to disclose the amount of residential work they are doing. If the percentage is significant, they are often dropped, or rated at higher-than-normal premiums. One way to control this situation might be to isolate residential work in a separate company with separate insurance.

Another strategy involves placing limits in additional insured clauses that terminate the status of the owner as an additional insured at the time the primary insured's work on a project is complete. (Some such clauses even specifically exclude additional insured status during punch list and warranty periods.)

These clauses can be at odds with an insured's obligation under a prime contract to extend additional insured status to the owner. It is important to understand the form of additional insured status your carrier is willing to grant before becoming obligated to an owner for conferring that status.