Insurer Has Duty to Defend Despite Construction Defects
January 06, 2012 —
CDJ STAFFIn a case the judge attributed to “shoddy masonry work,” the US District Court of Illinois has rendered a decision in AMCO Insurance Company v. Northern Heritage Builders. Northern Heritage built a home in Chicago for Michael McGrath (who joined Northern Heritage as a defendant). According to the decision, “seven months after he moved into the house, McGrath noticed water coming in the house and warped millwork.” This was attributed to porous block, installed by the mason with Northern Heritage’s knowledge.
McGrath sued National Heritage for both the damage to his house and its contents. The court rejected his claim for the contents. For the damages to his house, he was awarded $601,570.50 in damages. He also sued his homeowner’s insurance carrier for damages not covered in his suit against National Heritage. There he was awarded $1,130,680.16.
AMCO informed National Heritage that it had neither duty to defend nor duty to indemnify. The judge considered whether AMCO had a duty to defend. Under Illinois law, “damage to a construction project resulting from construction defects is not an ‘accident’ or ‘occurrence’ because it represents the natural and ordinary consequence of faulty construction.” However, it is noted that while if the defects lead only to damage to the project itself, there is no occurrence, “if the building owner asserts damages to other property besides the construction itself, there is an ‘occurrence’ and ‘property damage.’” The judge further noted that were construction defects an occurrence, “shoddy work” would be rewarded by double pay, once by the homeowner and a second time by the insurer. Judge Kendall concluded that as McGrath had alleged damage to the contents of his house, AMCO had a duty to defend National Heritage.
She then looked at the issue of whether AMCO had a duty to indemnify. Should they pay the $601,570.50? Judge Kendall noted that “the duty to indemnify is narrower than the duty to defend.” The key point here was that once McGrath’s insurance carrier covered him for the damage to the contents of his house, “AMCO’s duty to defend ended.” Once McGrath “only sought damages for the natural consequences of faulty workmanship” there was no occurrence, hence nothing for AMCO to cover.
Judge Kendall granted a summary dismissal of AMCO’s claim that they had no duty to defend while upholding their claim that they had no duty to indemnify.
Read the court’s decision…
Read the court decisionRead the full story...Reprinted courtesy of
Ohio Court of Appeals: Absolution Pollution Exclusion Bars Coverage for Workplace Coal-Tar Pitch Exposure Claims
January 10, 2018 —
Complex Insurance Coverage ReporterOn December 28, 2017, the Ohio Court of Appeals (Eighth District) held in GrafTech International, Ltd., et al. v. Pacific Employers Ins. Co., et al., No. 105258 that coverage for alleged injurious exposures to coal tar pitch was barred by a liability insurance policy’s absolute pollution exclusion. Applying Ohio law, the court concluded that Pacific Employers had no duty to defend GrafTech or pay defense costs in connection with claims by dozens of workers at Alcoa smelting plants that they were exposed to hazardous substances in GrafTech products supplied to Alcoa as early as 1942.
Read the court decisionRead the full story...Reprinted courtesy of
White and Williams LLP
SDNY Vacates Arbitration Award for Party-Arbitrator’s Nondisclosures
April 13, 2017 —
Justin K. Fortescue & Ciaran B. Way - White and Williams LLPThe US District Court for the Southern District of New York recently vacated an arbitration award finding that a party-appointed arbitrator’s undisclosed relationship with the party appointing him was significant enough to demonstrate evident partiality. Certain Underwriting Members at Lloyd’s of London, et. al. v. Ins. Companies of America, Inc., Nos. 16-cv-232 and 16-cv-374 (S.D.N.Y. March 31, 2017).
In the arbitration, the panel was asked to determine whether the reinsurance contracts, covering workers’ compensation policies, only applied when multiple claimants were injured as the result of the same loss occurrence. After a three-day hearing, the arbitration panel issued an award in favor of the ceding company, Insurance Companies of America (ICA). After the award was issued, Lloyd’s discovered that ICA’s arbitrator had significant undisclosed relationships with principals at ICA and moved to vacate the award in federal court.
Reprinted courtesy of
Justin K. Fortescue, White and Williams LLP and
Ciaran B. Way, White and Williams LLP
Mr. Fortescue may be contacted at fortescuej@whiteandwilliams.com
Ms. Way may be contacted at wayc@whiteandwilliams.com
Read the court decisionRead the full story...Reprinted courtesy of
Panthers Withdraw City, County Deal Over Abandoned Facility
September 19, 2022 —
The Associated Press (Jeffrey Collins) - BloombergColumbia, S.C. (AP) -- Carolina Panthers owner David Tepper’s real estate company wants to revoke a bankruptcy settlement it negotiated with the city and county where its abandoned South Carolina practice facility was supposed to be built because it says the governments are making exorbitant and unreasonable demands.
GT Real Estate Holdings had offered $21 million to York County. It suggested giving the proceeds from selling part of its site in Rock Hill so the city would get at least $20 million.
But the county and city have filed separate lawsuits and court papers. York County said it is entitled to more than $80 million in part to get back money from a special penny sales tax that was supposed to expand a road but Tepper’s company used for the proposed practice facility.
Read the court decisionRead the full story...Reprinted courtesy of
Bloomberg
Residential Contractors, Be Sure to Have these Clauses in Your Contracts
December 23, 2023 —
Christopher G. Hill - Construction Law MusingsI have often “mused” on the need to have a good solid construction contract at the beginning of a project. While this is always true, it is particularly true in residential contracting where a homeowner may or may not know the construction process or have experience with large scale construction. Often you, as a construction general contractor, are providing the first large scale construction that the homeowner has experienced. For this reason, through meetings and the construction contract, setting expectations early and often is key.
As a side note to this need to set expectations, the Virginia Department of Professional and Occupational Regulation (DPOR) and the Virginia General Assembly require certain clauses to be in every residential construction contract. DPOR strictly enforces these contractual items and failure to put them in your contracts can lead to fines, penalties and possibly even revocation of a contractor’s license.
Read the court decisionRead the full story...Reprinted courtesy of
The Law Office of Christopher G. HillMr. Hill may be contacted at
chrisghill@constructionlawva.com
Apple to Open Steve Jobs-Inspired Ring-Shaped Campus in April
February 23, 2017 —
Adam Satariano - BloombergApple Inc. co-founder Steve Jobs’ last public event in 2011 was a city council meeting in Cupertino, California, where he presented plans for a sprawling new campus with a spaceship-shaped building and tree-filled park. Apple announced Wednesday that it will begin moving employees into the 2.9 million-square-foot facility in April.
Apple said a new 1,000-seat auditorium at the facility will be named the Steve Jobs Theater in honor of its co-founder, who died four months after his city council presentation and would have turned 62 on Feb. 24.
As with many large-scale construction projects, Apple faced budget overruns and delays. The building cost an estimated $5 billion (though Apple has never said how much), and the opening date had initially been set for 2015.
Read the court decisionRead the full story...Reprinted courtesy of
Adam Satariano, BloombergMr. Satariano may be followed on Twitter @satariano
Formal Request for Time Extension Not Always Required to Support Constructive Acceleration
April 25, 2022 —
David Adelstein - Florida Construction Legal UpdatesDoes a constructive acceleration claim require the contractor to always request an extension of time which is then denied by the owner? While this is certainly the preference and the contractor should be requesting an extension of time as a matter of course for an excusable delay, the answer is NO! in certain circumstances. This is conveyed in the factually detailed case discussed below where a formal request for an extension of time was not required for the contractor to support its constructive acceleration claim.
But first, what is constructive acceleration:
Constructive acceleration “occurs when the government demands compliance with an original contract deadline, despite excusable delay by the contractor.” The Federal Circuit in Fraser defined the elements of constructive acceleration as follows:
(1) that the contractor encountered a delay that is excusable under the contract; (2) that the contractor made a timely and sufficient request for an extension of the contract schedule; (3) that the government denied the contractor’s request for an extension or failed to act on it within a reasonable time; (4) that the government insisted on completion of the contract within a period shorter than the period to which the contractor would be entitled by taking into account the period of excusable delay, after which the contractor notified the government that it regarded the alleged order to accelerate as a constructive change in the contract; and (5) that the contractor was required to expend extra resources to compensate for the lost time and remain on schedule.
Nova Group/Tutor-Saliba v. U.S., 2022 WL 815826, *42 (Fed.Cl. 2022) quoting Fraser Constr. Co. v. U.S., 384 F.3d 1354, 1361 (Fed. Cir. 2004) (internal citations omitted).
Read the court decisionRead the full story...Reprinted courtesy of
David Adelstein, Kirwin Norris, P.A.Mr. Adelstein may be contacted at
dma@kirwinnorris.com
How Small Mistakes Can Have Serious Consequences Under California's Contractor Licensing Laws.
February 15, 2018 —
Eric Reed - Myers, Widders, Gibson, Jones & Feingold, LLPIn construction, some risks have nothing to do with how well a contractor executes a project. Licensing problems is one of these risks. Even a brief lapse caused by an unintentional administrative error can give the CSLB grounds to discipline a contractor, or enable a customer to seek disgorgement and other remedies provided by Business and Professions Code section 7031. This article discusses five tips for mitigating the liabilities associated with licensing problems.
Tip 1: Take workers' compensation insurance very seriously. Workers’ compensation insurance problems can trigger license suspension in California. Business and Professions Code section 7125.4 calls for automatic suspension if a contractor cannot provide proof of workers’ compensation insurance for any period of time. This is particularly serious for residential remodelers who claim exemption for workers’ compensation but are later discovered – usually during litigation with a homeowner – to have “off the books” workers helping them. Courts can declare the contractor retroactively unlicensed under these circumstances and order it to disgorge,
i.e., to pay back, every penny paid by the customer for the entire project (even for materials). (Bus. & Prof. Code, § 7031, subd. (b);
Wright v. Issak (2007) 149 Cal.App.4th 1116.) The contractor will also find itself unable to collect any amounts owed to it by the customer. (Bus. & Prof. Code, § 7031, subd. (a).)
Tip 2: Watch out for licensing confusion after a merger or acquisition. The economic downturn of 2008 and 2009 resulted in consolidation throughout the building industry. The newly merged or acquired entities often allowed redundant licenses to expire, assuming they could complete all pending projects under the umbrella of the acquiring company's license. Many learned this was a mistake the hard way. Armed with the California Supreme Court's opinion in
MW Erectors, Inc. v. Niederhauser Ornamental & Metal Works Co., Inc. (2005) 36 Cal.4th 412, customers began refusing to pay invoices and demanding disgorgement under Business and Professions Code section 7031 because the original contractor did not maintain licensure “at all times.” Many of these customers succeeded.
Tip 3: If a license suspension has occurred or is imminent, prepare to prove substantial compliance. Section 7031(a) and (b) give a disgruntled or indebted customer every incentive to capitalize on a contractor's licensing problems. Subdivision (e) is where a contractor must turn to protect its interests if this happens. It allows the contractor to prove “substantial compliance” with licensing requirements and avoid (a)’s and (b)’s sharp edges if it can show the following:
(1) The contractor “had been duly licensed as a contractor in this state prior to the performance of the act or contract”;
(2) It “acted reasonably and in good faith to maintain proper licensure”; and
(3) It “acted promptly and in good faith to remedy the failure to comply with the licensure requirements upon learning of the failure.”
The Court of Appeal confirmed in
Judicial Council of California v. Jacobs Facilities, Inc. (2015) 239 Cal.App.4th 882 that a contractor, upon request, is entitled to a hearing on these three factors before it is subjected to disgorgement under Section 7031(b). The legislature amended Section 7031 shortly after the Court of Appeal published this case. The Assembly’s floor analysis went so far as to directly quote the opinion’s observation that penalizing a construction firm for “technical transgressions only indirectly serves the Contractors Law’s larger purpose of preventing the delivery of services by unqualified contractors.” (Assem. Com. on Bus. and Prof., Off. of Assem. Floor Analyses, analysis of Sen. Holden's No. 1793 (2015-2016 Reg. Sess.) as amended August 2, 2016, p. 2.) This echoed an industry consensus that clarifying the law was needed to ensure that properly licensed and law-abiding construction firms were not “placed at fatal monetary risk by malicious lawsuits motivated by personal gain rather than consumer protection.” (Assem. Com. on Judiciary, com. on Assem. Bill No. 1793 (2015-2016 Reg. Sess.), pp. 6-7.)
Unfortunately, existing law does not give many examples of what it means to act “reasonably and in good faith to maintain proper licensure” or to act “promptly and in good faith” to fix license problems. A practical approach is for a contractor to work backwards by assuming it will need to prove substantial compliance at some point in the future. Designated individuals within the organization should have clear responsibility over obtaining and renewing the proper licenses and should keep good records. If necessary, these designees can testify about the contractor's internal policies and their efforts to fix licensing problems when they arose. For example, if the suspension resulted from not providing the CSLB proof of workers’ compensation insurance, the designee can testify about the cause (a broker miscommunication, transmission error,
etc.) and produce documents showing how he or she worked promptly to procure a certificate of insurance to send CSLB. Saved letters, emails, and notes from telephone calls will provide designees and their successors with an important resource months or years down the line if a dispute arises and the contractor is required to reconstruct the chronology of a licensing glitch and prove its due diligence.
Tip 4: Don't sign new contracts unless all necessary licenses are active and any problems are resolved. A recently-formed contractor should not begin soliciting and signing contracts until all required licenses are confirmed as “active.” The first requirement of substantial compliance – being “duly licensed as a contractor in this state prior to the performance of the act or contract” – cannot be met by a contractor that first obtains its license mid-project. (Bus. & Prof. Code, § 7031, subd. (e)(1);
Alatriste v. Cesar’s Exterior Designs (2010) 183 Cal.App.4th 656.) A licensed contractor should also consider refraining from signing new contracts if there is any reason to believe its license might be suspended in the near future – especially if the suspension will be retroactive. Having a suspension on record at the time of contracting may complicate the question of whether the contractor was “duly licensed . . . prior to performance” for the purposes of substantial compliance.
Tip 5: Any judgment against a contractor can cause license suspension if not handled promptly and correctly. The Business and Professions Code authorizes the CSLB to suspend the license of a contractor that does not pay a construction related court judgment within 90 days. The term “construction related” is interpreted to include nearly all types of disputes involving a contractor. (16 Cal. Code Reg. 868;
Pacific Caisson & Shoring, Inc. v. Bernards Bros. Inc. (2015) 236 Cal.App.4th 1246, 1254-1255.) This means a contractor should treat a judgment against it for unpaid office rent, for example, as one carrying the same consequences as one arising from a construction defect or subcontractor claim. The contractor should also not assume that filing an appeal, or agreeing with the other side to stay enforcement, automatically excuses the 90-day deadline in the eyes of the CSLB. It does not. A contractor must notify the CSLB in writing before this period expires, then post bond for the amount of judgment, if it wishes to delay payment for any reason. (Bus. & Prof. Code, § 7071.17, subd. (d).) A suspension may result if it does not. This applies even to small claims judgments.
Recent case law and the 2016 amendments to Business and Professions Code section 7031 provide some solace to those caught in the dragnet of California's licensing laws. But avoiding these problems altogether is preferable. Consider licensing the foundation of a successful business and deserving of the same attention as the structures a contractor builds.
Eric R. Reed is a business and insurance litigator in the Ventura office of Myers, Widders, Gibson, Jones & Feingold, LLP.
Read the court decisionRead the full story...Reprinted courtesy of
Eric Reed, Myers, Widders, Gibson, Jones & Feingold, LLPMr. Reed may be contacted at
ereed@mwgjlaw.com
