05/01/2007
Relating to Consolidated Insurance Programs
SB 354 and HB 2014 impose new regulatory requirements on owner-controlled and contractor-controlled insurance programs used to provide coverage for large construction projects. These bills, while constructive and well intentioned in many respects, came out of committee with major flaws that threaten the continued use of these beneficial insurance programs.
Some of the serious problems in the bills are as follows:
- The bills create a new cause of action for damages and attorney’s fees arising from a “violation” of the Act. This new right of action would be in addition to existing common law remedies for breach of contract and would apply to simple inadvertent mistakes, such as sending a required notice one day late or accidentally omitting a minor detail on a report. The substantial liability threat under this provision will adversely impact the use of these programs.
- The bills impose a “fiduciary duty” on the administrator of a consolidated insurance program. This term is not defined in the bill, so the precise nature of this duty introduces significant uncertainty into these contracts. This provision dramatically expands the scope of an insurance contract and creates substantial liability for property owners and general contractors. Once again, the risk of unknown liabilities will deter the use of these programs.
- New liabilities imposed by the bills will increase the cost of providing consolidated coverage and will consequently reduce the viability of these insurance arrangements. The end result is likely to be the elimination of smaller subcontractors that benefit from the availability of owner or contractor-provided insurance.
- As currently proposed, SB 354 and HB 2014 will increase the cost of construction in Texas. These insurance programs are commonly used by local governments (cities and school districts), which means the costs will be borne by taxpayers.
As currently written, the bills will adversely affect property owners, contractors, construction workers, and taxpayers.
Please oppose SB 354 and HB 2014.