Duty to Defend Broadly Applies to Entire Action; Insured Need Not Apportion Defense Costs, Says Maryland Appeals Court
January 27, 2020 —
Michael S. Levine & Kevin V. Small - Hunton Insurance Recovery BlogIn a recent decision, the Maryland Court of Special Appeals reiterated that the duty to defend broadly requires a liability insurer to defend an entire lawsuit against its insured, even where only some of the allegations are potentially covered. The court further held that the insured has no obligation to apportion defense costs among multiple implicated policies. The decision, Selective Way Insurance Company v. Nationwide Property and Casualty Insurance Company, et al., can be found here.
The coverage litigation arose out of a construction defect case against a general contractor. The general contractor tendered the action to its insurer, Nationwide, which, in turn, filed a declaratory judgment action against the various insurers of construction project subcontractors that had named the general contractor as an additional insured. Ultimately, the court granted a summary judgment motion declaring that all of the subcontractors’ insurers had a duty to defend the general contractor “because the allegations in the underlying lawsuit raised claims that potentially arose from the [s]ubcontractors’ work at the [construction site].” All of the subcontractors’ insurers settled with Nationwide except for one, Selective Way; and the parties proceeded to a jury trial on various issues. The jury found for Nationwide on all issues. Selective Way appealed.
Selective Way argued on appeal that even if some of the allegations were covered under its policy, it had no obligation to defend the general contractor because its insureds, the subcontractors, could not have been responsible for all of the losses given the nature of their work. Further, Selective Way contended that if it was responsible for defending the general contractor, it was not responsible for the entire defense, and the general contractor was responsible for apportioning the costs among the various subcontractors. The panel disagreed on both points.
Reprinted courtesy of
Michael S. Levine, Hunton Andrews Kurth and
Kevin V. Small, Hunton Andrews Kurth
Mr. Levine may be contacted at mlevine@HuntonAK.com
Mr. Small may be contacted at ksmall@HuntonAK.com
Read the court decisionRead the full story...Reprinted courtesy of
Subcontractor Strikes Out in its Claims Against Federal Government
July 08, 2024 —
David Adelstein - Florida Construction Legal UpdatesIs it a good idea for a subcontractor to sue the federal government? A recent case would suggest NO–way too many huge hurdles for the subcontractor to overcome. No matter how creative the arguments may be, it’s a high mountain to climb.
In Fox Logistics & Construction Co. v. U.S., 2024 WL 2807677 (Fed.Cl. 2024), a subcontractor sued the federal government when it was not paid by the prime contractor. The subcontractor claimed it was a third-party beneficiary under the government’s modifications to the prime contractor’s payment procedure, or alternatively it had an implied-in-fact contract with the government. The Court of Federal Claims granted summary judgment in favor of the government. The subcontractor, while creative, struck out in its claims based on the hurdles in a subcontractor suing the federal government.
This case involved upgrading an air force base. The subcontractor performed most of the work. The prime contractor had cash flow problems and did not pay the subcontractor. The government got involved to enforce provisions of its contract to force the prime contractor to pay subcontractors and even modified the payment procedure by having future payments to the prime contractor deposited into a new bank account that government could monitor. This ultimately did not work, and the prime contractor filed for bankruptcy. The subcontractor claimed it was owed millions–apparently, it was not able to recover the money through the prime contractor’s bankruptcy—and pursued claims against the federal government in an effort to recover money it was owed.
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
Pennsylvania Federal Court Confirms: Construction Defect Claims Not Covered by CGL Policies
March 06, 2022 —
Nathan A. Cazier & Scott S. Thomas - Payne & FearsThe construction industry operates under the constant spectre of claims seeking damages for defective or faulty workmanship. Fortunately, the law in most states treats these claims as covered under commercial general liability (“CGL”) policies. A small minority of states take a much stingier view. In a newly decided case, a Pennsylvania federal court confirmed that Pennsylvania belongs to this small group of states that regard construction claims as not worthy of liability insurance coverage. Main St. Am. Assurance Co. v. Howard Lynch Plastering, Inc., No. CV 21-3977, 2022 WL 445768, (E.D. Pa. Feb. 14, 2022).
Main St. involves a typical construction defect case: W.B. Homes (“W.B.”) developed a residential community, contracting with various trades to build the homes. W.B. required these subcontractors to obtain liability insurance covering their work and, when homeowners sued W.B. for damages due to allegedly faulty work, W.B. tendered the claim to these insurers. One of them, Main Street Assurance Co. (“Main Street”) then sued W.B. for declaratory relief, arguing that under Pennsylvania law, it had no duty to defend W.B.
Reprinted courtesy of
Nathan A. Cazier, Payne & Fears and
Scott S. Thomas, Payne & Fears
Mr. Cazier may be contacted at nac@paynefears.com
Mr. Thomas may be contacted at sst@paynefears.com
Read the court decisionRead the full story...Reprinted courtesy of
No Damage for Delay? No Problem: Exceptions to the Enforceability of No Damage for Delay Clauses
October 18, 2021 —
Chris Broughton, Jones Walker LLP - ConsensusDocsIntroduction:
Under a no-damage-for-delay clause, the owner is not liable for any monetary damages resulting from delays on the project. In lieu of monetary recovery, the contractor’s remaining remedy is a non-compensatory time extension. These clauses are common at the contractor-subcontractor interface as well.
While no-damage-for-delay clauses are enforced in most jurisdictions, some states, either by statute or case law, have limited the enforceability of no-damage-for-delay clauses. Other states have also limited the enforceability of these clauses on state government contracts, and a select few have outlawed them on all projects regardless if they are publicly or privately owned. Additionally, for subcontractors on federal projects, the Miller Act may provide a way to avoid no-damage-for-delay and recover against the general contractor’s payment bond.
This article provides an overview of no-damage-for-delay clauses and the exceptions to enforcement of these clauses. However, due to the consequences of a no-damage-for-delay clause, it is important to know the terms of your contract and the law that governs your project.
Read the court decisionRead the full story...Reprinted courtesy of
Chris Broughton, Jones Walker LLPMr. Broughton may be contacted at
cbroughton@joneswalker.com
Before Celebrating the Market Rebound, Builders Need to Read the Fine Print: New Changes in Construction Law Coming Out of the Recession
November 26, 2014 —
Alan H. Packer - Newmeyer & Dillion, LLPAs the homebuilding market continues to improve, many builders find themselves maneuvering familiar roads. That said, important new realities have taken hold since the market collapse. Navigating these changes requires extra thought for practical and legal reasons.
Using Old Designs “Off the Shelf”?
The adoption of the California Building Standards Code in 2010, with an updated schedule to go into effect January 1, may complicate the use of older designs. In addition, some builders are contemplating building on pads constructed five or more years ago, temporarily shelved until market conditions improved. Because of changes in both the applicable Code and due to possible changes in the underlying soils and drainage, these projects require additional scrutiny before starting construction.
Mechanic’s Lien Law Changes
Not too long ago, the California Legislature recently overhauled the entire mechanic’s lien law system in California. New forms, new statutory references, new rules and deadlines are all applicable to projects under construction now. Make sure your documents are up to date, as the use of older forms (particularly for liens, progress payments, and final payments) could create legal problems in the future.
Indemnity Law Changes
Since 2006, California lawmakers have passed four rounds of legislation aimed at limiting indemnity provisions in construction contracts. The laws are aimed at two aspects of indemnity law: “Type 1” indemnity provisions, and liability for the costs of defending a claim.
Type 1 Indemnity. California law previously permitted a builder to obtain “Type 1” indemnity from its subcontractors for all claims. Under a Type 1 provision, if a claim arose out of the trade’s work, the trade was fully responsible to defend and indemnify the builder – even if other trades or the Builder were partially at fault. Some cases even allowed, typically in a commercial context, the builder to obtain Type 1 indemnity even if the trade was not negligent, as long as the claim involved its work.
Defense Obligation. In 2008, California’s highest court issued an opinion in Crawford v. Weather Shield, evaluating an indemnity provision requiring trade (a window supplier/manufacturer) to defend the builder in claims involving allegations of damages arising out of the trade’s work. Because the trade had contractually agreed to defend the builder, the Court held it responsible for the builder’s defense costs -- even though, ultimately, the trade was found
not liable for the actual damages claimed.
Recent legislation after Crawford has dramatically shifted how indemnity provisions will be enforced. Builders may no longer obtain Type 1 indemnity for residential construction defect claims covered by SB800; instead, indemnity is limited to the extent a claim arises out of the trade’s work. Even more recent legislation applied these changes to claims arising out of commercial construction projects. The recent legislation allows the trades “options” on how to defend the builder, with an eye toward requiring that they pay only a “reasonably allocated” portion for the builder’s defense costs.
Smart builders are refining their contract documents to take into account these new limitations on indemnity provisions.
Insurance Market Changes
Due to uncertainties in subcontractor insurance and other factors, many builders have also converted their liability insurance from a “bring your own” model to “wrap-up” insurance, where the builder’s policy also covers their trades. Builders should carefully examine their subcontracts in light of this change as well.
Trade Partner Changes
On a practical level, many trade partners, particularly in the residential sector, have gone out of business or moved on to greener pastures. Builders need to find and negotiate contracts with new trade partners on the fly, and educate them on the builders’ procedures for payment and construction.
SB800 documentation
A decade ago, most builders updated their purchase documents and subcontracts for California’s “Right to Repair Law” (also known as SB800), which set forth functionality standards for construction defects in residential housing, and procedures for resolving claims prior to litigation. Builders ramping up to meet market demand should examine how they implemented SB800 changes in contract documents. Issues to consider:
- Whether to opt out of -- or back into -- statutory procedures.
- Whether to include arbitration or judicial reference provisions to control where claims are litigated after the SB800 process.
- Re-training personnel to preserve SB800 rights, including sign-offs on purchase documentation and recordation of key documents.
- Recent Court of Appeal decisions have complicated the SB800 landscape, potentially opening the door to “common law” tort claims in at least subrogation contexts. Strategic planning at the document stage may be a good way to mitigate this risk as the cases wind their way through the judicial process.
The continuing surge in building activity is a welcome sign for builders who have weathered the storm. Before taking too many steps, builders should consult with counsel, their designers, and their insurance advisors to take into account the new realities of this recovering housing market.
About the Author
Alan H. Packer is a partner in the expanding Walnut Creek, CA, office of the law firm of
Newmeyer & Dillion LLP whose specialties include real estate, insurance, and construction litigation. To reach Alan, call 925.988.3200 or email him at alan.packer@ndlf.com.
Read the court decisionRead the full story...Reprinted courtesy of
Illinois Supreme Court Holds that Constructions Defects May Constitute “Property Damage” Caused By An “Occurrence” Under Standard CGL Policy, Overruling Prior Appellate Court Precedent
January 08, 2024 —
Jason Taylor - Traub Lieberman Insurance Law BlogOn November 30, 2023, the Illinois Supreme Court issued an opinion that overturned precedent in Illinois regarding whether faulty workmanship that only caused damage to the insured’s own work constituted “property damage” caused by an “occurrence” under Illinois law. In Acuity v. M/I Homes of Chicago, LLC, 2023 IL 129087, the Illinois Supreme Court considered whether Acuity, a mutual insurance company, had a duty to defend its additional insured, M/I Homes of Chicago, LLC (M/I Homes), under a subcontractor’s commercial general liability (CGL) policy in connection with an underlying lawsuit brought by a townhome owners’ association for breach of contract and breach of an implied warranty of habitability. The Cook County Circuit Court granted summary judgment in favor of Acuity finding no duty to defend because the underlying complaint did not allege “property damage” caused by an “occurrence” under the initial grant of coverage of the insurance policy. The appellate court reversed and remanded, finding that Acuity owed M/I Homes a duty to defend. The Illinois Supreme Court affirmed, in part, holding construction defects to the general contractor’s own work may constitute “property damage” caused by an “occurrence” under the standard CGL Policy. This is significant as it overrules prior Illinois precedent finding that repair or replacement of the insured’s defective work does not satisfy the initial grant of coverage of a CGL Policy.
By way of background, the underlying litigation stems from alleged construction defects in a residential townhome development in the village of Hanover Park, Illinois. The townhome owners’ association, through its board of directors (the Association) subsequently filed an action on behalf of the townhome owners for breach of contract and breach of the implied warranty of habitability against M/I Homes as the general contractor and successor developer/seller of the townhomes. The Association alleged that M/I Homes’ subcontractors caused construction defects by using defective materials, conducting faulty workmanship, and failing to comply with applicable building codes. As a result, “[t]he [d]efects caused physical injury to the [t]ownhomes (i.e. altered the exterior’s appearance, shape, color or other material dimension) after construction of the [t]ownhome[ ] was completed from repeated exposure to substantially the same general conditions.” The defects included “leakage and/or uncontrolled water and/or moisture in locations in the buildings where it was not intended or expected.” The Association alleged that the “[d]efects have caused substantial damage to the [t]ownhomes and damage to other property.”
Read the court decisionRead the full story...Reprinted courtesy of
Jason Taylor, Traub LiebermanMr. Taylor may be contacted at
jtaylor@tlsslaw.com
‘The Ground Just Gave Out’: How a Storm’s Fury Ravaged Asheville
October 07, 2024 —
Michael Smith, Devon Pendleton, Claire Ballentine & Michael Sasso - BloombergEric Becker was at his vacation home in western North Carolina, in a community bordering the Pisgah National Forest and Blue Ridge Parkway, when the rain began to pour.
Becker, co-founder of the private wealth management firm Cresset, lives in Florida for most of the year. He had lived through a hurricane — but nothing like what he saw during Helene.
“Mud was liquefying around tree bases. You could see the root systems,” said Becker, who first began visiting the Asheville area 20 years ago and was smitten by its natural scenery, excellent food and lively arts and music scene. “The ground just gave out.”
Becker is part of a wave of affluent homebuyers who have flocked to the southern Appalachian region. Transplants from wealth managers and retirees to artists and young outdoors enthusiasts have helped create a real estate goldrush in cities including Asheville, where home prices have climbed 69% in the past five years.
Reprinted courtesy of
Michael Smith, Bloomberg,
Devon Pendleton, Bloomberg,
Claire Ballentine, Bloomberg and
Michael Sasso, Bloomberg Read the court decisionRead the full story...Reprinted courtesy of
Professor Stempel's Excpert Testimony for Insurer Excluded
October 07, 2019 —
Tred R. Eyerly - Insurance Law HawaiiThe court denied Daubert motions for several experts with the exception of Professor Stempel's expert testimony opining that the insurer did not act in bad faith Adell Plastics, Inc. v. Mt. Hawley Ins. Co., 2019 U.S. Dist. LEXIS 102942 (D. Md. June 19, 2019).
A fire demolished several buildings at Adell's facility. Adell was insured under a commercial property policy issued by Mt. Hawley. Mt. Hawley sued Adell, seeking a declaration that it owed no coverage, and requesting recoupment of a substantial advance payment. Adell filed a counterclaim, alleging that Mt. Hawley had breached the policy and had acted with a lack of good faith. Before the court were several pretrial motions, including motions to exclude testimony of eight expert witnesses.
The court denied Adell's motion to exclude several experts to be called by Mt. Hawley. The accountant's testimony was relevant. Adell had to prove damages on its breach of contract claim, and the accountant's testimony would aid the jury in evaluating Adell's documentation and calculating documented damages. Mt. Hawley's fire safety expert investigated the Adell fire. Mt. Hawley had shown that his expert opinion would be sufficiently reliable for admissibility. Further, three fire protection engineers offered by Mt. Hawley and two fire protection engineers to be called by Adell were allowed to testify. Each expert based his investigation and conclusions on the standards of fire investigation as set out in the NEPA Guide for Fire and Explosion Investigations. This was a fire insurance case, and fire protection engineers would be allowed to testify and illuminate the circumstances of the fire.
Read the court decisionRead the full story...Reprinted courtesy of
Tred R. Eyerly, Damon Key Leong Kupchak HastertMr. Eyerly may be contacted at
te@hawaiilawyer.com
