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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Homeowner's Mold Claim Denied Due to Spoilation
April 20, 2016 —
Tred R. Eyerly – Insurance Law HawaiiThe trial court's issuance of summary judgment to the insurer for mold and water damage was upheld on appeal. Schwartz v. Encompass Indem. Co., 2016 Mich. App. LEXIS 551 (Mich. Ct. App. March 15, 2016).
The contractor was demolishing a portion of the insured's home when he discovered water damage and what appeared to be mold. The contractor believed this damage was due to improper roof installation and leaks around the windows. Further demolition was done to water-damaged portions of the home.
The insured filed a claim with Encompass for mold and "over-demolition." When Encompass's adjuster inspected the home, none of the alleged mold-affected material was present because it had been removed from the site by the contractor. The claims were denied.
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Tred R. Eyerly, Insurance Law HawaiiMr. Eyerly may be contacted at
te@hawaiilawyer.com
White and Williams LLP Secures Affirmation of Denial to Change Trial Settings Based on Plaintiffs’ Failure to Meet the Texas Causation Standard for Asbestos Cases
July 06, 2020 —
Christian Singewald & Rochelle Gumapac - White and Williams LLPThe Delaware Supreme Court, in a rare split opinion, affirmed the trial court’s denial of Plaintiffs’ Request to Change Trial Settings in favor of all defendants, including a major automotive manufacturer represented by White and Williams LLP, in a mesothelioma case with a young decedent who had an alleged economic loss claim exceeding $9,000,000, in Shaw v. American Friction, Inc. et al., No. 86, 2019. This decision operates to dismiss all of Plaintiffs’ claims based on their failure to meet Delaware’s strict expert deadlines and establish a prima facie case under Texas law.
Plaintiffs’ Complaint invoked the application of Texas substantive law and alleged that multiple manufacturers were negligent and strictly liable for failing to warn the decedent of the alleged dangers posed by the use of asbestos-containing products. Plaintiffs’ alleged asbestos exposures from defendants’ products caused Mr. Shaw’s disease and subsequent death.
In 2007, Texas instituted its now well-known causation requirement, which requires the “dose” of asbestos exposure from each defendant’s products to be quantified by an expert. Borg-Warner Corp. v. Flores, 232 S.W.3d 765, 773 (Tex. 2007). Prior to decedent’s death, Plaintiffs’ counsel deposed decedent and his father for product identification purposes. During the depositions, Plaintiffs’ counsel failed to obtain the necessary factual information from his clients for an expert to be able to opine as to alleged exposure doses from any defendant’s product. Despite lacking the requisite information for a prima facie case under Texas law, Plaintiffs sought and were given placement in an expedited trial setting, which had strict, defined deadlines.
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Christian Singewald, White and Williams LLP and
Rochelle Gumapac, White and Williams LLP
Mr. Singewald may be contacted at singewaldc@whiteandwilliams.com
Ms. Gumapac may be contacted at gumapacr@whiteandwilliams.com
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Late Filing Contractor Barred from Involving Subcontractors in Construction Defect Claim
March 01, 2012 —
CDJ STAFFThe Colorado Court of Appeals looked at that state’s Construction Defect Action Reform Act in determining if a general contractor could add subcontractors as third-party defendants to a construction defect lawsuit. Shaw Construction, LLC was the general contraction of the Roslyn Court condominium complex, and was sued by the homeowners’ association in a construction defect case. United Builder Services was the drywall subcontractor on the project. MB Roofing had installed roofs, gutters, and downspouts. The certificate of occupancy for the last building was issued on March 10, 2004. The project architect certified completion of all known remaining architectural items in June, 2004.
The HOA filed a claim against the developers of the property on January, 21, 2009. A week later, the HOA amended its complaint to add Shaw, the general contractor. Shaw did not file its answer and third-party complaint until March 29, 2010, sending its notice of claim under the CDARA on March 30.
The subcontractors claimed that the six-year statute of limitations had ended twenty days prior. Shaw claimed that the statute of limitations ran until six years after the architect’s certification, or that the HOA’s suit had tolled all claims.
The trial court granted summary judgment to the subcontractors, determining that “substantial completion occurs ‘when an improvement to real property achieves a degree of completion at which the owner can conveniently utilize the improvement of the purpose it was intended.’”
The appeals court noted that “Shaw correctly points out that the CDARA does not define ‘substantial completion.’” The court argued that Shaw’s interpretation went against the history and intent of the measure. “Historically, a construction professional who received a complaint responded by ‘cross-nam[ing] or add[ing] everybody and anybody who had a part to play in the construction chain.’” The court concluded that the intent of the act was to prevent unnamed subcontractors from being tolled.
The court further rejected Shaw’s reliance on the date of the architect’s certification as the time of “substantial completion,” instead agreeing with the trial court that “the architect’s letter on which Shaw relies certified total completion.”
The appeals court upheld the trial court’s determination that the statute of limitation began to run no later than March 10, 2004 and that Shaw’s complaint of March 29, 2010 was therefore barred. The summary judgment was upheld.
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Protect Projects From Higher Repair Costs and Property Damage
March 04, 2024 —
Michael Teng - Construction ExecutiveEvery aspect of a jobsite costs more today, from materials and labor to tools and equipment.
Take construction input costs for example. While relatively flat in 2023, they
remain almost 40% higher than they were pre-pandemic. With borrowing costs still high in the face of a stubbornly strong economy, project financing will remain a challenge.
Still, contractors are expected to break more ground in 2024, fueled in part by the CHIPS Act, the Inflation Reduction Act and the Infrastructure Investment and Jobs Act.
Despite wages growing and the labor market remaining tight, many businesses are expected to dive deeper into their backlogs. Meanwhile, the economy is
expected to grow with a chance for a short and mild recession. As industry leaders gauge economic pressures, it’s clear businesses must manage their costs—and financial risks in 2024. It’s a year where insurance and safety should take priority. Below are economic trends to monitor, and insurance strategies to help protect this year’s bottom line.
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Michael Teng, Construction Executive, a publication of Associated Builders and Contractors. All rights reserved.
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Is It Time to Digitize Safety?
October 24, 2022 —
Peter Grant - Construction ExecutiveIt’s valid to ask whether digitizing a safety program actually makes companies safer. Here is what the data says.
All contractors face unique risks that call for custom safety measures. But they also face a handful of similar challenges in this area—including time-consuming paperwork, scattered documentation, as well as a lack of visibility into safety performance.
A new report from Foresight Commercial Insurance, “The State of Safety in High Hazard Work Environments,” offers insights into companies’ safety struggles and points to possible solutions. Based on a survey of workers from high-risk industries like construction, the report outlines challenges that are painfully familiar. For example, four out of 10 respondents reported that they have felt pressured to work unsafely in order to complete tasks more quickly or to meet upcoming deadlines.
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Peter Grant, Construction Executive, a publication of Associated Builders and Contractors. All rights reserved.
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To Bee or Not to Bee - CA Court Finds Denial of Coverage Based on Exclusion was Premature Where Facts had not been Judicially Determined
November 28, 2018 —
Philip B. Wilusz - Saxe Doernberger & Vita, P.C.While I typically discuss cases concerning pollution, today I will change a few letters around and discuss pollination. The case, Unigard Insurance Co. et al. v. George Perry and Sons Inc. et al., asks whether there is coverage for a lawsuit brought against a commercial farm that is alleged to have killed off bee colonies used for pollination. The farm, owned by George Perry & Sons Inc. (“Perry”), allegedly used a pesticide that killed off the bee colonies that Perry had hired from Gary Mattes (“Mattes”) pursuant to an oral agreement. The bees, operating well outside of their weight class, were hired to pollinate Perry’s crops of watermelons and pumpkins. Interestingly, the bees would be brought to the farm in either large hives or “nukes,” which are smaller versions of hives.
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Philip B. Wilusz, Saxe Doernberger & Vita, P.C.Mr. Wilusz may be contacted at
pbw@sdvlaw.com
Labor Code § 2708 Presumption of Employer Negligence is Not Applicable Against Homeowners Who Hired Unlicensed Painting Company
December 02, 2015 —
Kristian B. Moriarty & Yvette Davis – Haight Brown & Bonesteel LLPIn Vebr v. Culp (Filed 10/28/2015, No. G050730), the Fourth District Court of Appeal affirmed a trial court’s grant of summary judgment in favor of homeowners, where an employee of an unlicensed painting company was injured on the premises. Despite the fact that the painting company was deemed unlicensed for failure to acquire workers’ compensation insurance, the negligence presumption of Labor Code § 2708 was inapplicable to the homeowners as de facto “employers" of the plaintiff.
Plaintiff, Tomas Vebr, was employed by OC Wide Painting, a licensed painting contractor. OC Wide Painting had a license issued by the California Contractors State License Board, but had filed for an exemption from the requirement that it maintain workers’ compensation insurance. The exemption was granted on the basis OC Wide Painting “did not have any employees.” However, OC Wide Painting actually had multiple employees, including Vebr. Therefore, by operation of law, the license was deemed void.
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Kristian B. Moriarty, Haight Brown & Bonesteel LLP and
Yvette Davis, Haight Brown & Bonesteel LLP
Mr. Moriarty may be contacted at kmoriarty@hbblaw.com
Ms. Davis may be contacted at ydavis@hbblaw.com
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