Why You Make A Better Wall Than A Window: Why Policyholders Can Rest Assured That Insurers Should Pay Legal Bills for Claims with Potential Coverage
March 14, 2018 —
Alan Packer and Graham Mills - Newmeyer & Dillion, LLPUnfortunately, policyholders, such as manufacturers and contractors, routinely face the unnecessary challenge of how to access all of the insurance coverage which they have purchased. Frequently, the most pressing need is to get the insurance company to pay the legal bills when the policyholders have been sued. The recent Iowa federal district court opinion in
Pella Corporation v. Liberty Mutual Insurance Company should help a policyholder in a dispute to require its insurance company to pay those legal bills sooner rather than later by highlighting that the duty to defend arises from the potential for coverage, and the insurer may not force the policyholder to prove the damage to obtain a defense.
In
Pella, a window manufacturer purchased several years of insurance coverage from Liberty Mutual. Similar to many companies, Pella had many “layers” of insurance coverage in any given year. These layers collectively function like a tower. The general idea is that each layer provides a certain amount of coverage after the insurance policy below it had paid its money. The Liberty Mutual insurance policies provided excess coverage.
After the
Pella window manufacturer made and sold its windows, it was sued in numerous lawsuits alleging that its windows were defective and that those defective windows caused a wide variety of damage to the structures in which they were installed. The window manufacturer tendered those lawsuits to its insurance companies in its tower of coverage, asking that the insurance companies pay its legal bills incurred in its defense. As to Liberty Mutual, the window manufacturer argued that the Liberty Mutual insurance policies were triggered, and so obligated to reimburse it, if a window was installed during the years that those policies provided coverage or if there was a mere allegation that a window was installed during the years that those policies provided coverage. Liberty Mutual opposed, arguing that the date of installation of the windows was insufficient to trigger the policies, and that the manufacturer was required to demonstrate the date that damage actually occurred to trigger a defense.
The key issue before the
Pella Court in this decision was a simple one: which insurance policies, if any, issued by Liberty Mutual had an obligation to pay the window manufacturer’s legal bills? The answer to that question is critical and financially significant. Getting an insurance company to honor its obligations and start paying the legal bills as soon as possible is very important for a policyholder because of the cost of defending oneself in a lawsuit; often the key reason why an insurance policy is even purchased is to provide the policyholder with the right to call upon the insurance company’s financial resources to defend it should it be sued.
In a ruling that will be welcomed by policyholders, the
Pella Court held that Liberty Mutual’s multiple insurance policies were triggered, and so obligated to pay for the window manufacturer’s defense, if one of two events occurred during the years in which those insurance policies provided coverage: (1) a window was actually installed during a year when the insurance policy provided coverage or (2) the window was alleged to be installed in the year that the insurance policy provided coverage. The Court agreed with the policyholder that once the windows were installed, property damage was alleged and “may
potentially have occurred” from that point on, thus the policies on the risk from that point forward. The practical effect of this ruling meant that Liberty Mutual had to reimburse the window manufacturer for the defense fees and costs that it had paid.
While
Pella was decided under Iowa law, the principles upon which it relied are similar to those applied under California law. Importantly, both California and Iowa law hold that an insurance company must provide a defense in response to a claim that is, or could be, covered by the insurance policy. The mere potential that the claim might be covered is enough for the insurance company to be obligated to pay for policyholder’s legal fees and costs.
Establishing that an insurance company must pay legal fees and costs as soon as possible allows a policyholder to save its own money. Why should a policyholder pay legal bills when it purchased an insurance policy as protection to ensure that it did not have to pay those bills? The answer is that a policyholder should not and, under
Pella, the policyholder does not have to. Rather, the insurance company must start paying for that defense from a very early date. Pella confirms for policyholders the position that their insurance companies should pay legal bills earlier rather than later.
Alan Packer is a partner in the Walnut Creek office for Newmeyer & Dillion, LLP, representing homebuilders, property owners, and business clients on a broad range of legal matters, including risk management, insurance matters, wrap consultation and documentation, efforts to counter solicitation of homeowners, subcontract documentation, as well as complex litigation matters. Alan can be reached at alan.packer@ndlf.com.
Graham Mills is a partner in the Walnut Creek offce of Newmeyer & Dillion, LLP, representing clients in the area of complex insurance law with an emphasis on insurance recovery, construction litigation, real estate litigation, and business litigation. He regularly examines and analyzes a wide variety of insurance policies. Graham can be reached at graham.mills@ndlf.com.
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Real Estate & Construction News Roundup (08/15/23) – Manufacturing Soars with CHIPS Act, New Threats to U.S. Infrastructure and AI Innovation for One Company
September 25, 2023 —
Pillsbury's Construction & Real Estate Law Team - Gravel2Gavel Construction & Real Estate Law BlogIn our latest roundup, wildfires wreak havoc in Maui, JLL unveils an AI specifically for commercial real estate, the lasting effects of the CHIPS ACT, and more!
- So far, 11,000 JLL employees have used the company’s new proprietary large language model that has generative AI capabilities specifically for the commercial real estate industry. (Lindsey Wilkinson, Construction Dive)
- Since the enactment of the CHIPS Act, manufacturing activity has boomed with a nearly 80% increase from June 2022. (Sebastian Obando and Julia Himmel, Construction Dive)
- Construction-tech-focused investors among others have poured $35 million into an Israeli startup that develops leakage detection technology using artificial intelligence to prevent water damage. (Sharon Wrobel, Times of Israel)
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Pillsbury's Construction & Real Estate Law Team
No Duty To Defend Additional Insured When Bodily Injury Not Caused by Insured
July 26, 2017 —
Tred R. Eyerly - Insurance Law HawaiiThe court found there was no duty to defend a suit for bodily injury against the additional insured where the injury was not caused by the insured. Consigli Constr. Co. v. Travelers Indem. Co., 2017 U.S. Dist. LEXIS 95339 (D. Mass. June 21, 2017).
Consigli was the general contractor for a renovation project at a high school. Among the subcontractors was American Environmental, Inc., who was responsible for demolishing concrete floors within the existing structures, and Costa Brothers, who did the masonry work. Wellington M. Ely was an employee of Costa Brothers and worked as a mason on the project.
Costa Brothers had a CGL policy with Travelers. As a subcontractor, Costa Brothers agreed to name Consigli as an additional insured on its policy.
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Tred R. Eyerly - Insurance Law HawaiiMr. Eyerly may be contacted at
te@hawaiilawyer.com
Real Protection for Real Estate Assets: Court Ruling Reinforces Importance of D&O Insurance
October 01, 2024 —
Hunton Insurance Recovery BlogEarlier this month, an Illinois federal district court held that a liability insurer had no duty to defend or indemnify a property management company or its owner in lawsuits that included allegations of intentional conduct. The suits accused the owner of concealing financial information from and engaging in a scheme to increase tax liability and decrease profit distributions to a minority owner. This case reinforces the importance of maintaining D&O insurance as part of a comprehensive liability insurance program to protect against potential gaps in coverage that could result from allegations of intentional or knowing acts.
Background
The court in Old Guard Insurance Company v. Riverway Property Management, LLC et al., No. 1:23-cv-01098 (C.D. Ill. Sep. 6, 2024) was asked to determine whether Old Guard Insurance Co. was required to defend or indemnify Riverway Property Management LLC or its owner under two commercial general liability policies in relation to state court lawsuits. The lawsuits alleged that Riverway’s owner intentionally and improperly misappropriated funds and that the property management company knowingly and substantially assisted with this wrongful scheme.
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Hunton Andrews Kurth LLP
Library to Open with Roof Defect Lawsuit Pending
December 04, 2013 —
CDJ STAFFRepairs to the Medina County District Library in Lodi, Ohio should be complete next spring. The library’s lawsuit over the roof is just beginning. The library building was a $3 million project in 2005, but the building had to close in 2011 when it was determined that the roof was not structurally sound.
The lawsuit names six defendants, including the contractor, the framing subcontractor, and the engineering firm. The library seeking damages, legal expenses, and attorney fees. The cost of replacing the roof was $1.5 million.
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The “Builder’s Remedy” Looms Over Bay Area Cities
February 20, 2023 —
Allan C. Van Vliet, Cara M. MacDonald, Robert G. Howard & Robert C. Herr - Gravel2Gavel Construction & Real Estate Law BlogCities in the San Francisco Bay Area are frantically working to finalize their state-mandated “housing elements” in their General Plans by the January 31, 2023, deadline imposed by the California Department of Housing and Community Development (HCD). For Bay Area cities like San Francisco, Oakland, San Jose and Berkeley, the plans must be approved by HCD
on or before January 31, 2023. California municipalities have extra incentive to get their housing elements approved this year, because the failure to meet the deadline may subject them to a remedy known as
the “builder’s remedy.”
The failure of cities in California to adopt and implement adequate housing elements as part of their General Plans has contributed to the state’s serious housing affordability crisis. The “builder’s remedy” incentivizes cities to meet housing element deadlines, because failure to do so could cause cities to lose control over certain land use entitlement decisions for projects that include housing under the state’s Housing Accountability Act (HAA).
Reprinted courtesy of
Allan C. Van Vliet, Pillsbury,
Cara M. MacDonald, Pillsbury,
Robert G. Howard, Pillsbury and
Robert C. Herr, Pillsbury
Mr. Van Vliet may be contacted at allan.vanvliet@pillsburylaw.com
Ms. MacDonald may be contacted at cara.macdonald@pillsburylaw.com
Mr. Howard may be contacted at robert.howard@pillsburylaw.com
Mr. Herr may be contacted at robert.herr@pillsburylaw.com
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Call Me Maybe? . . . Don’t Waive Your Rights Under the Right to Repair Act’s Prelitigation Procedures
March 22, 2017 —
Garret Murai – California Construction Law BlogWe’ve written before about the Right to Repair Act (Civil Code Sections 895 et seq.). The Act, also commonly known as SB 800 after the bill that established it, applies to newly constructed residential units including single-family homes and condominiums (but not condominium conversions) sold after January 1, 2003.
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Garret Murai, Wendel Rosen Black & Dean LLPMr. Murai may be contacted at
gmurai@wendel.com
Affordable Housing should not be Filled with Defects
November 26, 2014 —
Jesse Howard Witt – Acerbic WittPrime Time for Condos: Today’s Denver Business Journal presents a feature on Colorado’s hot market for condominiums and other forms of affordable housing. In several stories, reporter Molly Armbrister discusses how high demand for apartments and low construction of new condominium projects have put a premium on existing property.
Addressing the argument that lawsuits have made builders reluctant to develop multifamily housing, she quotes The Witt Law Firm’s Jesse Witt, who said that both homeowner and builder advocates would like to see changes to Colorado’s existing statutes. Current laws do little to prevent defective work and often leave consumers no choice but to pursue claims in court or binding arbitration if they want a builder to correct code violations and other mistakes.
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Jesse Howard Witt, The Witt Law FirmMr. Witt welcomes comments at www.wittlawfirm.net
