Who is the Insured? Dealing with Joint Ventures and Limited Liability Companies
This topic has always created a dilemma for contractors, design professionals and their insurance agents. The reason is that when you look at the vast majority of Commercial General Liability policies and the section entitled…”Who is an Insured”, there is a very specific exclusion which relates to: Joint Ventures and Limited Liability Companies.
In view of this, it would seem to be prudent to review your insurance coverages and ascertain how they covered you for past, present and possible future Joint Venture activities and/or Limited Liability Companies .
If you have plans to use this approach in the future. review your contract with the owner and make sure that you can obtain the needed coverages well in advance of the actual operations. I recommend this as I doubt if this is going to be a “slam-dunk”.
The Joint Venture and Limited Liability Companies will be another alternative in the future, particularly when dealing with Design/Build and Construction Management Delivery Systems . As a result, you will want to consider this approach with circumspection as it does have some serious potential problems that must be addressed and it could create big problems…if not handled properly. Many people believe they can take care of the JV/LLC operations by adding them to their existing liability policies. If this approach is allowed by your carrier…most likely only one party’s interest will be covered and the other JV/LLC partner(s) interest will not be covered. Hence, the other JV/LLC partner(s) would have to modify each of their coverages to cover the JV/LLC entity…if possible. Would you or your partner want to have to pay higher premiums for losses on your insurance programs long after the JV/LLC entity is dissolved?
The Better Approach to Limited Liability Companies and/or Joint Venture activities
A better approach would be to have a separate set of policies issued for the JV/LLC entity itself. Once the JV/LLC project is over, you can deal with it through your JV/LLC Agreement ; i.e., each party covers their interest in the dissolved JV/LLC . Or else the JV/LLC can purchase Discontinued Completed Operations to cover the past operations of the dissolved JV/LLC entity.
Problems That Might Arise With JV/LLC
Another problem…is that you cannot add the JV/LLC to your Worker’s Compensation policy unless one partner owns more than 50% of the JV/LLC entity. This is because of the combinability requirements of the Worker’s Compensation rules. If you could again…would you really want to have the JV/LLC losses on your ongoing Worker’s Compensation insurance program once the project is completed.
You also have the same issues/exposures in the Umbrella policy area, so you will have to address this issue with your Umbrella carrier to prevent gaps in coverage. I suggest you review the “Contractor’s Limitation Endorsement” very carefully. If you do nothing and your insurance program does not have a JV/LLC type exclusion…remember…your coverages only respond to claims arising from entities that are named insureds on the policy. So even if you feel the JV/LLC is covered…beware if the Joint Venture is not a “named insured” on your policies…as you will have problems in the event of claims. We suggest that you view the JV/LLC alternative very carefully and take the necessary steps to correct and/or prevent problems from any past, present of future JV/LLCs . In closing …please remember… in Florida… you may be dealing with our infamous 15-year Statute of repose.