Construction Manager’s Win in Michigan after Michigan Supreme Court Finds a Subcontractor’s Unintended Faulty Work is an ‘Occurrence’ Under CGL
August 03, 2020 —
Gabrielle Szlachta-McGinn - Newmeyer DillionOn June 29, 2020, the Michigan Supreme Court overturned a longstanding precedent that commercial general liability (“CGL”) insurers have historically relied upon to deny insurance coverage for claims involving pre-1986 CGL policies. See Hawkeye-Security Ins. Co. v. Vector Const. Co., 185 Mich. App. 369, 372, 460 N.W.2d 329, 331 (1990). In its recent ruling, the state Supreme Court unanimously agreed that an Insurance Services Office, Inc. (“ISO”) 1986 standard CGL policy, which is sold to construction contractors across the United States, provides coverage for property damage to a policyholder’s work product that resulted from a subcontractor’s unintended faulty workmanship. Skanska USA Bldg. Inc. v. M.A.P. Mech. Contractors, Inc., No. 159510, 2020 WL 3527909 (Mich. June 29, 2020).
In 2008, Skanska USA Building, Inc., the construction manager on a renovation project for Mid-Michigan Medical Center, signed a subcontract with defendant M.A.P. Mechanical Contractors (“MAP”) to install a new heating and cooling (“HVAC”) system. Id. During the renovation, MAP installed some of the expansion joints in the new HVAC system backwards. Id. The defective installation caused approximately $1.4 million in property damage to concrete, steel and the heating system, which Skanska discovered nearly two years after MAP completed the project. Id. After performing the repairs and replacing the damaged property, Skanska sought repayment for the repair costs from MAP and also submitted a claim to Amerisure seeking coverage as an insured under the CGL policy. Id. When Amerisure rejected Skanska’s claim, Skanska sued both parties. Id. Amerisure relied on the holding in Hawkeye and argued that MAP’s defective workmanship was not a covered “occurrence” under the CGL policy, which the policy defined as an accident. Id. at *4.
The Michigan Court of Appeals ignored the express language contained in the CGL policy and applied a prior appellate court precedent from Hawkeye, finding that MAP’s faulty work was not an “occurrence” and thus, did not trigger CGL coverage. Id. at *4. The Court of Appeals further reasoned that Skanska was an Amerisure policyholder and that the only property damage was to Skanska’s own work, which was not covered under the CGL policy. Id. at *5.
In a landmark decision, the Michigan Supreme Court reversed, holding unanimously that the Court of Appeals incorrectly applied the holding of Hawkeye because it failed to consider the impact of the 1986 revisions to standard CGL insurance policies. Id. at *10. Chief Justice Bridget M. McCormack explained that the Hawkeye decision rested on the 1973 version of the ISO form insurance policy, which specifically excluded certain business risks from coverage such as property damage to a policyholder’s own work. Id. The Supreme Court agreed that while Hawkeye was correctly decided, it did not apply here because the 1986 revised ISO policy includes an exception for property damage caused by a subcontractor’s unintentional faulty work. Id.
The Supreme Court said that under the plain reading of the current CGL policy language, an “accident” could include a subcontractor’s unintentional defective work that damaged a policyholder’s work product and thus, may qualify as an “occurrence” covered under the policy. Id. at *9. The Supreme Court defined an “accident” (which was not defined in the Amerisure policy) as “an undefined contingency, a casualty, a happening by chance, something out of the usual course of things, unusual, fortuitous, not anticipated, and not naturally to be expected.” Id. at *5; see Allstate Ins. Co. v. McCarn, 466 Mich. 277, 281, 645 N.W.2d 20, 23 (2002). The Supreme Court noted that there was no evidence suggesting that MAP purposefully installed the expansion joints backwards, nor was there evidence indicating that the parties affected by MAP’s negligence anticipated, foresaw, or expected MAP’s defective installation or property damage. Skanska, 2020 WL 3527909, at *4. Therefore, the Supreme Court concluded that an “occurrence” may have happened, which would trigger coverage under the CGL policy. Id. at *10.
Although this landmark decision changes Michigan law, the decision is limited to cases involving the 1986 ISO policy language revisions to CGL insurance policies. Id. The Supreme Court's decision does not overturn Hawkeye, but rather limits Hawkeye’s authority to cases involving the 1973 ISO form. Id.
Gabrielle Szlachta-McGinn was a summer associate at Newmeyer Dillion as part of the firm's 2020 summer class. You may learn more about Newmeyer Dillion's construction litigation services and find the group's key contacts at https://www.newmeyerdillion.com/construction-litigation/.
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Structural Problems May Cause Year-Long Delay Opening New Orleans School
January 29, 2014 —
Beverley BevenFlorez-CDJ STAFFAccording to the Uptown Messenger, structural issues found at Audubon Charter School’s Broadway campus in New Orleans, Louisiana, will require “selective demolition” and “could delay students’ return by as much as a full year.”
Late September of last year, “officials discovered that some of the steel supports around the stair towers were not level—some of the steel beams lean out several inches, so that the floors are not parallel.” Discovering the problem will require some demolition, according to Chris Young of Blitch Knevel architects as quoted in the Uptown Messenger: “…we’re going to have to tear down a lot of this construction to expose that steel frame to make sure that every steel beam is straight and true and not deformed.”
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Biden Unveils $2.3 Trillion American Jobs Plan
May 10, 2021 —
Garret Murai - California Construction Law BlogThis past week, President Biden unveiled his American Jobs Plan, a $2.3 trillion dollar plan to upgrade the nation’s infrastructure over 8 years.
As we wrote about this past month, the American Society of Civil Engineers recently issued its 2021 Infrastructure Report Card which gave the country’s infrastructure a cumulative grade point average across several areas including roads, public transportations and schools of a disappointing C-. According to a White House fact sheet on the American Jobs Plan, while the United States is the wealthiest county in the world it currently ranks 13th when it comes to the overall quality of its infrastructure.
Infrastructure spending at the federal level has historically been paid for through the gas tax. Currently, that tax is 18.4 cents per gallon for gasoline and 24.4 cents per gallon for diesel. The last time the federal gas tax was increased, however, was nearly 30 years ago in 1993. The reason for this long hiatus? Voter backlash and backlash by big businesses whose fleets still primarily rely on fossil fuels and diminishing returns as the number of electrical and hybrid vehicles increasingly hit the streets.
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Garret Murai, Nomos LLPMr. Murai may be contacted at
gmurai@nomosllp.com
Illinois Court Determines Insurer Must Defend Negligent Misrepresentation Claim
December 09, 2011 —
Tred R. Eyerly - Insurance Law HawaiiAlthough the insureds disclosed flooding problems in the basement, the buyers purchased their home. USAA Cas. Ins. Co. v. McInerney, 2011 Ill. App. LEXIS 1130 (Ill Ct. App. Oct. 31, 2011). In a supplemental disclosure, the insureds reported that during heavy rains light seepage occurred in the basement.
After moving in, the buyers experienced significant water infiltration and flooding in the basement. The buyers and their children also began to experience mold-related illnesses.
The buyers sued for rescission of the contract or, in the alternative, damages. They alleged breach of contract, fraudulent misrepresentation and negligent misrepresentation. In the claim for negligent misrepresentation, the buyers alleged that the insureds carelessly omitted the fact that there were material defects in the basement and foundation when they should have known of such defects.
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Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
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Reminder: Quantum Meruit and Breach of Construction Contract Don’t Mix
July 30, 2015 —
Christopher G. Hill – Construction Law MusingsConstruction contracts (preferably written ones) are near and dear to my heart here at Construction Law Musings. In a world where the contract is king, having a written construction agreement is a key component of any properly run construction project. However, even with the best construction contract there are claims (Murphy was an optimist after all).
When making these claims, we construction lawyers tend to plead both the breach of contract and quantum meruit (or in non lawyer speak- unjust enrichment) when drafting a complaint in a construction dispute. A recent case out of the Western District of Virginia federal district court reminds us all that these two counts must be plead alternatively because they simply cannot exist in a lawsuit from beginning to end.
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Christopher G. Hill, Law Office of Christopher G. Hill, PCMr. Hill may be contacted at
chrisghill@constructionlawva.com
New Research Shows Engineering Firms' Impact on Economy, Continued Optimism on Business Climate
October 28, 2024 —
The ACEC Research InstituteWASHINGTON – The ACEC Research Institute – the leading source of original research for the business of engineering – released the results of two important studies on the current and future state of the engineering industry, and its role in the overall U.S. economy.
The reports, the
2024 Economic Assessment of the Engineering & Design Services Industry and the
Engineering Business Sentiment Report for 2024 Q4, both point to continued optimism for the industry and its firms, though somewhat softened compared to previous quarters.
"This research shows the outsized impact the engineering industry has on the American economy," said ACEC Research Institute Chair Mike Carragher. "As the engineering industry's contributions grow year over year, the Institute's research helps firm executives position their businesses for a successful future."
All told, the industry added $656 billion to the U.S. GDP in 2023, supported well over five million jobs directly or indirectly, and contributed $92 billion to federal tax coffers, with an additional $44 billion in state and local taxes.
Overall, the report found that the engineering and design services industry has continued to build on its year-over-year post-COVID gains, growing 5.5% in 2023 to $436 billion, with much of that growth driven by infrastructure projects. Non-residential and non-building construction, flush with government funding through the IIJA and Inflation Reduction Act, remained on an upward trajectory.
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Home Buyer May Be Third Party Beneficiary of Property Policy
July 19, 2017 —
Tred R. Eyerly - Insurance Law HawaiiThe Oklahoma Supreme Court reversed the trial court's grant of summary judgment to the insurer, finding that the purchaser may have third party beneficiary rights under the seller's property policy. Hensley v. State Farm Fire & Cas. Co., 2017 Okla. LEXIS 59 (June 20, 2017).
In May 2000, Hensley sold his property and a mobile home located thereon to Douglas using a contract for deed. The contract for deed required Douglas to keep the premises insured, and the monthly payments made by Douglas to Hensley included the premiums. Hensley had a policy with State Farm on the property. Hensley continued to make the premium payments and the policy continued to be renewed. Further, State Farm was informed of the change in the property's status.
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Tred R. Eyerly - Insurance Law HawaiiMr. Eyerly may be contacted at
te@hawaiilawyer.com
$24 Million Verdict Against Material Supplier Overturned Where Plaintiff Failed to Prove Supplier’s Negligence or Breach of Contract Caused an SB800 Violation
November 21, 2017 —
Jon A. Turigliatto, Esq. & Chelsea L. Zwart, Esq. – Chapman Glucksman Dean Roeb & Barger BulletinOriginally published by CDJ on March 16, 2017
Acqua Vista Homeowners Assoc. v. MWL Inc. (2017) 2017 WL 371379
COURT OF APPEAL EXTENDS GREYSTONE HOMES, INC. v. MIDTEC, INC., HOLDING THAT CIVIL CODE §936 CREATES A NEGLIGENCE STANDARD FOR CLAIMS AGAINST MATERIAL SUPPLIERS BROUGHT UNDER SB800.
The Fourth District California Court of Appeal recently published its decision Acqua Vista Homeowners Assoc. v. MWI, Inc. (2017) 2017 WL 371379, holding that claims against a material supplier under SB800 (Civil Code §895 and §936) require proof that the SB800 violation was caused by the supplier's negligence or breach of contract.
Civil Code §936 states in relevant part, that it applies "to general contractors, subcontractors, material suppliers, individual product manufacturers, and design professionals to the extent that the general contractors, subcontractors, material suppliers, individual product manufacturers, and design professionals caused, in whole or in part, a violation of a particular standard as the result of a negligent act or omission or a breach of contract .... [T]he negligence standard in this section does not apply to any general contractor, subcontractor, material supplier, individual product manufacturer, or design professional with respect to claims for which strict liability would apply."
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Jon A. Turigliatto, Esq., Chapman Glucksman Dean Roeb & Barger and
Chelsea L. Zwart, Esq., Chapman Glucksman Dean Roeb & Barger
Mr. Turigliatto may be contacted at jturigliatto@cgdrblaw.com
Ms. Zwart may be contacted at czwart@cgdrblaw.com
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