Delaware “occurrence” and exclusions j(5) and j(6)
June 10, 2011 —
CDCoverage.comIn Goodville Mut. Cas. Co. v. Baldo, No. 09-338 (D. Del. June 2, 2011), claimants condominium association and unit owners sued project developer Rehoboth and general contractor Capano seeking damages because of moisture penetration property damage to common elements and individual units resulting from construction defects. Rehoboth and Capano filed a third party complaint against insured property manager Baldo alleging that, if Rehoboth and Capano were liable to claimants, Baldo was also liable because of Baldo’s failure to properly manage, maintain, and repair the property
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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
Naughty or Nice. Contractor Receives Two Lumps of Coal in Administrative Dispute
January 21, 2019 —
Garret Murai - California Construction Law BlogSo, how were your holidays? Hopefully you were good and didn’t receive a lump of coal from Santa. For one contractor, 2018, wasn’t such a good year. And as its name, Black Diamond, suggests, it did indeed receive a black diamond from the courts. Actually, two of them.
Contractors’ State License Board v. Superior Court (Black Diamond No. 1)
In Contractors’ State License Board v. Superior Court, Court of Appeals for the First District, Case No. 1154476 (October 11, 2018), the Contractors State License Board (“CSLB”) brought disciplinary proceedings against Black Diamond Electric, Inc. (“Black Diamond”), a C-10 Electrical Contractor, for violating: (1) Labor Code section 108.2, which requires individuals performing work as electricians to be certified; and (2) Labor Code section 108.4, which permits uncertified persons seeking on-the-job experience to perform electrical work so long as they are under the direct supervision of a certified electrician.
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Garret Murai, Wendel RosenMr. Murai may be contacted at
gmurai@wendel.com
First Trump Agenda Nuggets Hit Construction
January 26, 2017 —
Pam Radtke Russell, Mary B. Powers & Debra K. Rubin - Engineering News-RecordPresident Donald J. Trump began making good on campaign promises to put Americans back to work and reduce the size of government, as he signed orders and memoranda setting in motion approval of the Obama administration-halted Keystone XL and Dakota Access pipelines and streamlining of infrastructure and manufacturing permitting processes. But firms and watchdog groups are concerned how an announced freezing of government hiring and contracting will play out, as well as the future of environmental protection.
Reprinted courtesy of Engineering News-Record staff
Pam Radtke Russell,
Mary B. Powers and
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Ms. Rubin may be contacted at
rubind@enr.com
Developers Celebrate Arizona’s Opportunity Zones
May 24, 2018 —
Patrick J. Paul - Snell & Wilmer Real Estate Litigation BlogPresident Trump’s Tax Cuts and Jobs Act passed by Congress in December included a new community development program designed to promote investment in low income urban and rural communities. These “Opportunity Zones” provide that every Governor may nominate up to 25% of qualifying low-income Census tracts for consideration in the program which provides substantial reductions on capital gains taxes with the greatest benefits to those holding their investments for a period of at least 10 years.
States were required by March 21st to submit nominations or request a 30 day extension to subsequently submit. The Treasury Department in turn has 30 days from the date of submission to designate the nominated zones. On April 9, 2018, the Treasury Department and the IRS formally dedicated opportunity zones in 18 states including Arizona. The Department will make future designations as submissions by the states that have requested an extension are received and certified.
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Patrick J. Paul, Snell & WilmerMr. Paul may be contacted at
ppaul@swlaw.com
The G2G Year in Review: 2021
January 24, 2022 —
Pillsbury's Construction & Real Estate Law Team - Gravel2Gavel Construction & Real Estate Law BlogWith 2021 now behind us, we wanted to share our top five most-read articles of 2021 from Gravel2Gavel. The most-read blog posts covered real estate and construction industry trends ranging from Proptech, smart construction, COVID-eviction moratoriums, and blockchain tokenization.
Throughout the year, G2G posts provided deep industry insight and summarized hot topics addressing the legal implications and disruptions that affected the market, and we will continue to expand on these insights in 2022. Our 2021 roundup:
- Blockchain Innovations and Real Estate: NFTs, DeFis and dApps by Craig A. de Ridder
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Home Prices in 20 U.S. Cities Kept Climbing in January
April 06, 2016 —
Victoria Stilwell – BloombergHome values in 20 U.S. cities kept climbing in January, a sign the limited supply of available properties may push prices out of reach for some buyers.
The S&P/Case-Shiller index of property values increased 5.7 percent from January 2015, following a 5.6 percent gain in the year ended in December, the group said Tuesday in New York. That matched the median projection of 26 economists surveyed by Bloomberg. Nationally, prices rose 5.4 percent year-over-year.
Home values that are rising more quickly than incomes could pose a problem for the housing recovery, as they put purchases out of reach for first-time and low-income buyers. A wider selection of available homes will be needed to help keep price increases in an accessible range.
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Victoria Stilwell, Bloomberg
Approaches in the Absence of a Differing Site Conditions Clause
April 10, 2019 —
Parker A. Lewton - Smith CurrieA contractor who has encountered unforeseen conditions will typically rely on the contract’s differing site conditions clause as a means to recovery. Most construction contracts address those issues directly. In ConsensusDocs Standard Agreement and General Conditions between Owner and Constructor, the starting point is § 3.16.2. But what if the contract does not contain a differing site conditions clause? Or, what if the contract does contain such a clause, but the contractor failed to provide adequate notice or satisfy other conditions or requirements of the contract? When reliance on a differing site conditions clause is impractical, a contractor still may seek recovery in certain instances under one or more of the following legal theories: misrepresentation; fraud; duty to disclose; breach of implied warranty; and mutual mistake.
Misrepresentation
Misrepresentation occurs when an owner “misleads a contractor by a negligently untrue representation of fact[.]” John Massman Contracting Co. v. United States, 23 Cl. Ct. 24, 31 (1991) (citing Morrison–Knudsen Co. v. United States, 170 Ct. Cl. 712, 718–19, 345 F.2d 535, 539 (1965)). A contractor may be able to recover extra costs incurred, under a theory of misrepresentation, if it can show that (1) the owner made an erroneous representation, (2) the erroneous representation went to a material fact, (3) the contractor honestly and reasonably relied on that representation, and (4) the contractor’s reliance on the erroneous representation was to the contractor’s detriment. See T. Brown Constructors, Inc. v. Pena, 132 F.3d 724, 728–29 (Fed. Cir. 1997). These four requirements can be satisfied, for example, through the use of deposition testimony detailing the owner’s representations and the contractor’s reliance thereon. See, e.g., C & H Commercial Contractors, Inc. v. United States, 35 Fed. Cl. 246, 256–57 (1996).
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Parker A. Lewton, Smith CurrieMr. Parker may be contacted at
palewton@smithcurrie.com
