The Need to Be Specific and Precise in Drafting Settling Agreements
December 30, 2013 —
W. Berkeley Mann, Jr. — Higgins, Hopkins, McLain & Roswell, LLCThe case of Bituminous Casualty Corp. v. Hartford Casualty Insurance Corp., 2013 WL 452374 (D. Colo. February 6, 2013) is instructive as an example of both the confusion and resulting escalation of litigation that can result from a lack of clarity in settlement negotiations. This is particularly true where parties settle outside of their insurance coverage, and/or without notifying their insurer(s), which have denied coverage.
The case involved coverage litigation following settlement of a multi-party construction defect case involving the Rivergate multi-family residential development in Durango, Colorado. The condominium owners association sued, among others, the developer (Rivergate Lofts Partners, hereafter “RLP”) and the general contractor (Genex Construction, LLC, hereafter “Genex”). This follow-on case involved the insurers for RLP (“Hartford”) and Genex (“Bituminous”). The coverage dispute was complicated by the Bituminous allegations that Hartford insured Genex in its alleged role as a manager for RLP, as part of Hartford’s insurance of RLP more generally.
The underlying facts were that Hartford denied insurance coverage and defense to Genex/Bituminous. The underlying construction defect case went to mediation, with the COA, RLP, and Genex all in attendance with their respective insurer representatives, and coverage counsel. While the evolving facts of that mediation were later disputed as to their motives, intentions, and the contemporaneous knowledge of the parties, the facts reflected in documents were fairly clear.
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W. Berkeley Mann, Jr.W. Berkeley Mann, Jr. can be contacted at
mann@hhmrlaw.com
Ruling Closes the Loop on Restrictive Additional Insured Endorsement – Reasonable Expectations of Insured Builder Prevails Over Intent of Insurer
July 31, 2019 —
Theodore L. Senet, Esq., Jason M. Adams, Esq. and Clayton Calvin - Gibbs GiddenOn June 5, 2019, the Court of Appeal in
McMillin Homes Construction, Inc. v. National Fire & Marine Insurance Company, 35 Cal. App. 5th 1042 (Cal. Ct. App. 2019) issued an important opinion on the scope of additional insured insurance coverage for developers and general contractors in California. Specifically, the “care, custody and control” (“CCC”) exclusion will be read to only exclude coverage for additional insureds who exercised exclusive control over the damaged property. Thus, general contractors who share control of the property with their subcontractors, as is typical on most projects, will not be denied coverage under this exclusion.
I. Facts & Procedural History
McMillin Homes Construction, Inc. was a Southern California developer and general contractor. In 2014, homeowners sued McMillin for roofing defects in a case called
Galvan v. McMillin Auburn Lane II, LLC. Pursuant to a subcontract, the roofer, Martin Roofing Company, Inc., provided McMillin with additional insured coverage under Martin’s general liability insurance policy. The insurer, National Fire and Marine Insurance Company, covered McMillin under an ISO Form CG 20 09 03 97 Additional Insured (“AI”) endorsement. After McMillin tendered its defense of the Galvan lawsuit under the AI endorsement, National Fire declined to provide McMillin with a defense to the homeowners’ lawsuit, relying on a CCC exclusion contained in the AI endorsement for property in the care, custody or control of the additional insured. McMillin then sued National Fire for breach of the policy, bad faith and declaratory relief in
McMillin Homes Construction, Inc. v. National Fire & Marine Insurance Company.
In
McMillin Homes, the trial court found the CCC exclusion in the AI endorsement applied and held in favor of the insurer, National Fire. The trial court found the exclusion for damage to property in McMillin’s “care, custody, or control” precluded coverage for the roofing defect claims, as well as any duty on the part of the insurer to defend the home builder, McMillin. McMillin filed an appeal from the trial court’s ruling.
II. Case Holding
The Court of Appeal reversed to hold in favor of McMillin, interpreting the CCC exclusion narrowly and finding a duty on the part of the insurer to defend the general contractor pursuant to the AI endorsement on the roofer’s insurance policy. It held that for the CCC exclusion to attach, it would require the general contractor’s exclusive control over the damaged property, but here, the general contractor shared control with the roofer. The Court of Appeal noted that where there is ambiguity as to whether a duty to defend exists, the court favors the reasonable belief of the insured over the intent of the insurer. Here, that reasonable belief was that the coverage applied and the exclusion was narrow.
The Court of Appeal relied upon
Home Indemnity Co. v. Leo L. Davis, Inc., 79 Cal. App. 3d 863 (Ct. App. 1978) (“Davis”), as a judicial interpretation of the CCC exclusion. That case synthesized a string of case law into a single conclusion: that courts may hold the exclusion inapplicable where the insured’s control is not exclusive. In the opinion in McMillin Homes, coverage turned upon whether control was exclusive: “[t]he exclusion is inapplicable where the facts at best suggest shared control.” The Court of Appeal stated the “need for painstaking evaluation of the specific facts of each case. Here, McMillin coordinated the project’s scheduling, but Martin furnished the materials and labor and oversaw the work; they therefore shared control.
Even if the rule in Davis did not apply and the exclusion was found to be ambiguous, the court stated that “control” requires a higher threshold than merely acting as a general contractor. Liability policies are presumed to include defense duties and exclusions must be “conspicuous, plain, and clear.” Furthermore, because “construction defect litigation is typically complex and expensive, a key motivation [for the endorsement] is to offset the cost of defending lawsuits where the general contractor’s liability is claimed to be derivative.” This is especially true because the duty to defend is triggered by a mere potential of coverage. Under the insurer’s construction of the exclusion, coverage would be so restrictive under the AI endorsement that it was nearly worthless to the additional insured.
III. Reasonable Expectation of the Insured Prevails over the Intent of the Insurer
Like most commercial general liability policies, National Fire’s policy excluded coverage for property damage Martin was contractually obliged to pay, with an exception for “insured contracts.” Typically, “insured contracts” include prospective indemnification agreements for third party claims. The National Fire policy contained a form CG 21 39 Contractual Liability Limitation endorsement, which deleted indemnity agreements from the definition of “insured contracts” to effectively preclude coverage for the indemnity provision between McMillin and Martin. National Fire argued that this endorsement demonstrated its intent to exclude coverage to McMillin for the homeowners’ defect lawsuit. The Court of Appeal stated that the insurer’s intent is not controlling and that the insureds reasonable expectation under the AI endorsement would control. As a result of its ruling, the Court also dealt a significant blow to the argument that the CG 21 39 endorsement is effective as a total bar to additional insured coverage for all construction defect claims.
IV. Conclusion
The decision is good news for developers and general contractors who rely on subcontractors to provide additional insured coverage. Unless the general contractor exercises exclusive control over a given project, the CCC exclusion in the CG 20 09 03 97 additional insured endorsement may not preclude the duty to defend. Demonstrating that a general contractor exercised exclusive control over the project would be extremely difficult to show under normal project circumstances because the any subcontractor participation appears to eliminate the general contractor’s exclusive control.
The case also highlights the need for construction professionals to regularly review their insurance programs with their risk management team (lawyers, brokers, and risk managers). As is often the case, a basic insurance policy review at the outset of the McMillin project could likely have avoided the entire dispute. For owners and general contractors, CG 20 10 (ongoing operations) and CG 20 37 (completed operations) additional insured forms are preferable to the CG 20 09 form at issue in the McMillin case because they do not contain the CCC exclusion. The CG 20 10 and 20 37 forms are readily available in the marketplace and are commonly added to most policies upon request. Had those forms been added, AI coverage likely would have been extended to McMillin without the need for litigation. Similarly, carriers will routinely delete the CG 21 39 Contractual Liability Limitation endorsement upon request. Deletion of the CG 21 39 would have circumvented National Fire’s second argument in its entirety.
Additionally, insurance policies, endorsements, and exclusions are subject to revision and are not always issued on standard forms. As a result, it is incumbent upon developers, contractors, and subcontractors to specify the precise overage requirements for construction projects and to review all endorsements, certificates, and policies carefully. Due to the difficulty in monitoring compliance with insurance requirements, project owners and general contractors are finding that it is better to insure projects under project specific wrap-up insurance programs which eliminate many of the issues pertaining to additional insured coverage. Wrap-up programs vary greatly as to their terms and conditions, so however a project is insured, insurance requirements and evidence of coverage should be carefully reviewed by experienced and qualified risk managers, brokers, and legal counsel to assure that projects and parties are sufficiently covered.
Gibbs Giden is nationally and locally recognized by U. S. News and Best Lawyers as among the “Best Law Firms” in both Construction Law and Construction Litigation. Chambers USA Directory of Leading Lawyers has consistently recognized Gibbs Giden as among California’s elite construction law firms. The authors can be reached at tsenet@gibbsgiden.com (Theodore Senet); jadams@gibbsgiden.com (Jason Adams) and ccalvin@gibbsgiden.com (Clayton Calvin). Read the court decisionRead the full story...Reprinted courtesy of
Nevada Senate Minority Leader Gets Construction Defect Bill to Committee
April 03, 2013 —
CDJ STAFFThe Las Vegas Sun reports that Michael Roberson, the lead Republican in the Nevada Senate, managed to get his construction defect reform bill scheduled for a hearing. Previously, the Senate Democrats had determined that all bills pertaining to construction defect legislation would be heard by the Senate Judiciary Committee. However, Roberson managed to convince Kelvin Atkinson, the chair of the Senate Commerce and Labor Committee, to add his bill to the text a mortgage lending measure under consideration by that committee.
Roberson had previously submitted his bill to the Judiciary Committee. Senator Tick Segerblom has not scheduled the bill for a hearing and is reported to be an opponent of the bill. While Roberson characterizes the bill as making things better for homebuilders, Segerblom sees it as making things worse for homeowners. “That’s not going to happen,” Seberblom told the Las Vegas Sun.
Although the senate voted to send the bill to the Commerce and Labor committee, it still may not get a hearing. Segerblom said he did not know if the bill would be heard in his committee. “We’ve got 60 or more bills to hear and if there’s nothing new in there to change the world, I don’t know why we would hear it.” Atkinson said he has “no appetite to hear the bill.”
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The Business of Engineering: An Interview with Matthew Loos
July 15, 2019 —
Aarni Heiskanen - AEC BusinessMatthew Loos is an experienced project manager in the civil engineering industry. He works as a project engineer at Jones|Carter in Fort Worth, Texas. In this interview, we discuss Matt’s new book, The Business of Engineering.
It is not very common that an engineer writes a non-technical book. What inspired you to do so?
Have you ever gotten an idea stuck in your head that you just couldn’t let go of? A time when you couldn’t go to sleep because the idea was consistently begging for your attention?
That’s what happened to me. The idea for this book hits me right before bed, as most good ideas do. I couldn’t go to sleep after the idea struck me. I spent half of the night writing the chapters of this book in my mind. I had been thinking about the idea of engineering and how it relates to other career fields, even the non-technical ones. I was disenchanted with the trifling number of classes I took that prepared me for the business world. These were the initial thoughts that eventually led me down the road into thinking about engineering as a profession going forward.
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Aarni Heiskanen, AEC BusinessMr. Heiskanen may be contacted at
aec-business@aepartners.fi
Over 70 Lewis Brisbois Attorneys Recognized in 4th Edition of Best Lawyers: Ones to Watch in America
September 25, 2023 —
Lewis Brisbois(August 17, 2023) – 75 Lewis Brisbois attorneys across 25 offices have been named to the 4th edition of
"Best Lawyers: Ones to Watch in America." Congratulations to the following attorneys on this recognition!
You can see the full list of Lewis Brisbois attorneys named to Best Lawyers' 30th edition of
The Best Lawyers in America here.
Akron, OH
- Associate Meleah M. Skillern – Commercial Litigation
Atlanta, GA
- Partner Candis R. Jones - Insurance Law, Medical Malpractice Law – Defendants, and Personal Injury Litigation – Defendants
Boston, MA
- Partner Amanda Mathieu - Labor and Employment Law – Management
Charleston, WV
- Partner Sophie L. Johns - Product Liability Litigation - Defendants
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Lewis Brisbois
Court of Appeals Finds Arbitration Provision Incorporated by Reference Unenforceable
September 20, 2021 —
Garret Murai - California Construction Law BlogSubcontractors have gotten accustomed to incorporation clauses in their contracts. While an incorporation clause can incorporate any document, most typically, it’s the prime contract between the general contractor and the project owner. Subcontractors will sometimes even accept these documents sight unseen which can be a recipe for disaster. But not in the next case.
In Remedial Construction Services, LP v. AECOM, Inc., Case No. B303797 (June 15, 2021), the 2nd District Court of Appeal examined whether a subcontractor was bound to an arbitration provision contained in a prime contract that was incorporated by reference into the subcontractor’s contract. In this case, it was the prime contractor who was in for a surprise.
The Remedial Construction Case
In 2015, Shell Oil Products US, LLC entered into a prime contract with AECOM Technical Services, Inc. for the demolition, remediation and restoration of the Gaviota oil terminal in Goleta, California. AECOM in turn entered into a subcontract with Remedial Construction Services, LP to perform portions of the work. When AECOM refused to pay Remedial for delay costs asserted by Remedial, Remedial filed suit.
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Garret Murai, Nomos LLPMr. Murai may be contacted at
gmurai@nomosllp.com
Colorado Senate Bill 13-052 Dies in Committee
May 10, 2013 —
David M. McLainOn April 17, 2013, the Colorado Senate Judiciary Committee voted, along party lines, to postpone indefinitely SB 52. Here is a link to the Denver Business Journal's story regarding the bill and its untimely demise: "Lawmakers kill lawsuit limits on condo defects."
Unfortunately, it will be at least another year before the legislature will have the ability to provide some much needed relief to the Colorado construction industry.
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David M. McLainMr. McLain can be contacted at
mclain@hhmrlaw.com
David M. McLain to Speak at the CLM Claims College - School of Construction - Scholarships Available
July 28, 2016 —
David M. McLain – Colorado Construction LitigationI am happy to have been asked to serve as an instructor at this year's CLM Claims College – School of Construction, to be held at the Marriott Baltimore Waterfront in Baltimore, Maryland on Wednesday, September 7, 2016 through Saturday, September 10, 2016.
Overview of the 2016 School of Construction
Construction claims present myriad complexities in claim handling. Construction defect lawsuits are often multi-party cases with cross claims and third-party claims between and among the numerous defendants. Insurance coverage is intertwined and complex due to the interplay of primary, excess, wrap, and additional insurers for the numerous defendants. All this is further complicated by statutes and regulations, inconsistent case law and procedural peculiarities throughout the United States. The economic stakes are high as the damages claims can be in the multi-millions.
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David M. McLain, Higgins, Hopkins, McLain & Roswell, LLCMr. McLain may be contacted at
mclain@hhmrlaw.com
