Prospective Additional Insureds May Be Obligated to Arbitrate Coverage Disputes
September 07, 2020 —
Danielle S. Ward - Balestreri Potocki & HolmesThe Court of Appeal closed out 2019 by ruling that an additional insured can be bound to the arbitration clause in a policy when a coverage dispute arises between that additional insured and the carrier. (Philadelphia Indemnity Ins. Co. v. SMG Holdings, Inc. (2019) 44 Cal. App. 5th 834, 837.)
In 2009, Future Farmers of America (“Future Farmers”) entered into a license agreement with SMG Holdings Incorporated (“SMG”) to use the Fresno Convention Center. As part of the agreement, Future Farmers was required to secure comprehensive general liability (“CGL”) coverage and name SMG and the City of Fresno as additional insureds (“AI”) on its policies.
Future Farmers purchased a general liability policy from Plaintiff Philadelphia Indemnity Insurance Company (“Philadelphia”). Neither SMG nor the City of Fresno were added as AIs, but the policy contained a “deluxe endorsement” which extended coverage to lessors of premises for “liability arising out of the ownership, maintenance or use of that part of the premises leased or rented” to the named insured. The policy also contained an endorsement that extended coverage where required by a written contract for liability due to the negligence of the named insured. Philadelphia’s policy also stated that if the insurance company and insured “do not agree whether coverage is provided . . . for a claim made against the insured, then either party may make a written demand for arbitration.”
A patron to Future Farmer’s event at the Fresno Convention Center was seriously injured after he tripped over a pothole in the parking lot and hit his head. He sued both Fresno and SMG. In turn, Fresno and SMG tendered their defense to Philadelphia. Philadelphia denied coverage finding that the incident did not arise out of Future Farmer’s negligence, and that SMG had the sole responsibility for maintaining the parking lot. Consequently, Philadelphia concluded that neither Fresno nor SMG qualified “as an additional insured under the policy” for the injury in the parking lot.
The coverage dispute continued, and in 2016, Philadelphia issued a demand for arbitration which was rejected by SMG. Philadelphia then petitioned the state court to compel arbitration arguing that SMG could not avoid the burdens of the policy while seeking to obtain policy benefits. SMG used Philadelphia’s conclusion that it did not qualify as an AI under the policy to argue that Philadelphia was “estopped from demanding arbitration”. In other words, SMG argued that it could not be held to the burdens of the policy without being provided with the benefits of the policy.
The trial court sided with SMG finding that there was no arbitration agreement between the parties. The court noted that while third party beneficiaries can be compelled to arbitration there was no evidence that applied here, and Philadelphia could not maintain its inconsistent positions on the policy as its respects SMG.
Disagreeing with the trial court, the Court of Appeal concluded that SMG was a third-party beneficiary of the policy. The AI obligations in the license agreement and the deluxe endorsement in the Philadelphia policy collectively establish an intended beneficiary status. The Court saw SMG’s tender to Philadelphia as an acknowledgement of that status.
Relatedly, the Court found that SMG’s tender to Philadelphia – its demand for policy benefits – equitably estopped them from avoiding the burdens of the policy. The Court stated it defied logic to require a named insured to arbitrate coverage disputes but free an unnamed insured demanding policy coverage from the same requirement. Conversely, the Court found no inconsistency in Philadelphia’s denial of coverage to SMG and its subsequent demand for arbitration. Philadelphia did not outright reject SMG’s status as a potential insured, but rather concluded that there was no coverage because the injury occurred in the parking lot. In other words, the coverage determination turned on the circumstances of the injury not SMG’s status under the policy.
In short, the Court concluded that the potential insured takes the good with the bad. If one seeks to claim coverage as an additional insured, they can be subject to the restrictions of the policy including arbitration clauses even if they did not purchase the policy.
Securing additional insurance has become increasingly more difficult and limited over the years, and this holding presents yet another hurdle to attaining AI coverage. For those seeking coverage, it is important to note that the Court’s ruling may have turned out differently had the carrier outright denied SMG’s AI status, rather than concluding that the injury was not covered.
Your insurance scenario may vary from the case discussed above. Please contact legal counsel before making any decisions. BPH’s attorneys can be reached via email to answer your questions.
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Danielle S. Ward, Balestreri Potocki & HolmesMs. Ward may be contacted at
dward@bph-law.com
Let it Shine: California Mandates Rooftop Solar for New Residential Construction
May 16, 2018 —
Garret Murai - California Construction Law BlogCalifornia. Birthplace of the Frisbee, skateboard, television, canned tuna and (yup) fortune cookies has added another first to the list: California has become the first state in the nation to mandate the use of solar panels for new residential construction.
On May 9, 2018, the California Energy Commission (CEC) unanimously approved the state’s 2019 Building Energy Efficiency Standards. The 2019 Energy Efficiency Standards update the California Building Standards Codes found at Title 24 of the California Code of Regulations which are updated every three years. The 2019 Energy Efficiency Standards go into effect on January 1, 2020.
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Garret Murai, Wendel Rosen Black & Dean LLPMr. Murai may be contacted at
gmurai@wendel.com
Is it the End of the Lease-Leaseback Shootouts? Maybe.
September 07, 2020 —
Garret Murai - California Construction Law BlogIt’s the case that has turned into a modern day Hatfield versus McCoy – McGee v. Torrance Unified School District, Case No. 8298122, 2nd District Court of Appeals (May 29, 2020) – a series of cases challenging the validity of certain lease-leaseback construction contracts in California.
In shootout number one, James McGee sued the Torrance Unified School District challenging the validity of lease-leaseback contracts the District had entered into with general contractor Balfour Beatty Construction, LLC. Under California’s lease-leaseback statute, a school district can lease property it owns to a developer, who in turns builds a school facility on the property and leases the facility back to the school district. The primary benefit of the lease-leaseback method of project delivery is that a school district does not need to come up with money to build the facility because the district pays for the facility over time through lease payments to the developer. In shootout number one, McGee argued that Torrance Unified School District was required to competitively bid the lease-leasebacks projects. The 2nd District Court of Appeals disagreed.
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Garret Murai, Nomos LLPMr. Murai may be contacted at
gmurai@nomosllp.com
Hunton Offers Amicus Support in First Circuit Review of “Surface Water” Under Massachusetts Law
August 01, 2023 —
Michael S. Levine, Lorelie S. Masters & Janine A. Hanrahan - Hunton Insurance Recovery BlogHunton’s insurance team has offered its support on behalf of amicus curie United Policyholders in a brief to the
First Circuit concerning the meaning of “surface water” in the context of a broad, all-risk property insurance policy?
This important question arose in a dispute between Medical Properties Trust (“MPT”), a real estate investment trust, and Zurich American Insurance Company (“Zurich”), its insurer, after water entered and destroyed Norwood Hospital. The water at issue entered the building after collecting on the surface of the building’s flat parapet roof. Zurich argued that because the water collected on the surface of the roof, the water met the meaning of the term “surface water,” as that term was used in the policy’s definition of “flood.” Flood coverage is subject to a $100 million sublimit, whereas the policy’s general limit is $750 million.
Reprinted courtesy of
Michael S. Levine, Hunton Andrews Kurth and
Lorelie S. Masters, Hunton Andrews Kurth
Mr. Levine may be contacted at mlevine@HuntonAK.com
Ms. Masters may be contacted at lmasters@HuntonAK.com
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#6 CDJ Topic: Construction Defect Legislative Developments
December 30, 2015 —
Beverley BevenFlorez-CDJ STAFFRichard H. Glucksman,
Jon A. Turigliatto, and
David A. Napper of
Chapman Glucksman Dean Roeb & Barger discussed Right to Repair developments occurring in Nevada, Arizona, Florida, and Colorado in their article, “Right to Repair Reform: Revisions and Proposals to State’s ‘Right to Repair Statutes.”
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Texas also had changes that affected construction defect claims, as covered by
David H. Fisk of
Coleman & Logan PC: “Before filing a lawsuit or initiating an arbitration proceeding pertaining to a construction defect, a condominium association in Texas with eight or more units must now comply with the newly added Section 82.119 to Chapter 82 of the Texas Property Code. This is in addition to compliance with the Texas Residential Construction Liability Act (RCLA) and any preconditions included in the condominium association’s declarations.”
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Orchestrating Bias: Arbitrator’s Undisclosed Membership in Philharmonic Group with Pauly Shore’s Attorney Not Grounds to Reverse Award in Real Estate Dispute
June 21, 2017 —
Lyndsey Torp - Snell & Wilmer Real Estate Litigation BlogThe California court of appeal recently issued an unpublished decision in Knispel v. Shore, 2017 WL 2492535, affirming a judgment confirming an arbitration award in a real estate dispute involving Pauly Shore. The court of appeal held that the arbitrator’s failure to disclose her membership in the Los Angeles Lawyers Philharmonic Group with the attorney representing Pauly was not grounds to overturn the judgment.
The underlying arbitration involved a dispute between Michael Scott Shore, on the one hand, and his brother, Pauly, among others, on the other hand, regarding certain residential property located on Sunset Boulevard near The Comedy Store in West Hollywood (owned and operated by their mother, Mitzi Shore). The parties agreed to arbitrate their dispute before Judge Aviva K. Bobb (Ret.) of the Alternative Resolution Center. Judge Bobb issued an award in favor of Pauly, and he petitioned the trial court to affirm the award. Michael opposed, contending the arbitrator failed to disclose that she and Pauly’s attorney had both been members of the Lawyers Philharmonic, for which they had been practicing and performing together since November 2010.
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Lyndsey Torp, Snell & WilmerMs. Torp may be contacted at
ltorp@swlaw.com
Alleged Serious Defects at Hanford Nuclear Waste Treatment Plant
August 26, 2015 —
Beverley BevenFlorez-CDJ STAFFAccording to the Los Angeles Times, “A team of nuclear waste experts has found hundreds of serious defects at an Energy Department plant designed to turn millions of gallons of highly radioactive sludge into more stable solid glass at the former weapons facility in Hanford, Wash.” The report from 2014 was leaked, and stated that the “partially built facility is riddled with 362 ‘significant design vulnerabilities’ that could affect safety and future operations.” Thirty-seven experts led by two senior managers created the report.
The Los Angeles Times reported that the report findings “are significant because the plant is part of the Energy Department’s 2013 initiative to fix earlier problems that stalled construction of other parts of the treatment system at Hanford, the site of the nation’s worst radioactive contamination.”
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Construction Defect Lawsuits Hinted for Dublin, California
February 07, 2013 —
CDJ STAFFWithout naming the community, the blog Around Dublin says that a condo community in Dublin, California may be prepping for a construction defect lawsuit. According to the article, the problems include a façade peeling away from the building, cracks in walls and granite countertops, and issues with both the HVAC systems and the plumbing. The homeowners association is said to have insufficient reserve funds to address the problems.
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