Illinois Appellate Court Addresses Professional Services Exclusion in Homeowners Policy
August 03, 2022 —
James M. Eastham - Traub LiebermanIn Stonegate Ins. Co. v. Smith, 2022 IL App (1st) 210931, the Insured was performing plumbing work at a multi-story townhouse when a fire ensued causing damage to the second story unit. Although a carpenter by trade, the Insured was performing plumbing work consisting of the replacement of a shower valve as a favor for a friend. To accomplish the task, the Insured utilized a small propane torch to attempt to remove the old water piping to the shower. In doing so, the insulation behind the bathroom wall caught fire and the flame spread upward to the neighboring unit. Stonegate had issued a homeowner’s policy to the Insured during the relevant time period. The homeowner's policy excluded coverage for property damage "[a]rising out of the rendering of or failure to render professional services." Subsequent to tender of the loss, Stonegate initiated a declaratory judgment action seeking a declaration that it owned no duty to defend or indemnity pursuant to the professional services exclusions.
In finding in favor of the Insured, the Court began its analysis by noting that the homeowner's policy did not define the term "professional services" such that it was the Court’s task to determine whether the Insured’s work qualified as a "professional service" for purposes of the exclusion. The Court further prefaced its holding by stating that for an exclusionary clause to effectively deny coverage, its applicability must be clear and free from doubt because any doubts as to coverage will be resolved in favor of the insured. Looking to Illinois case precedent, the Court found that the term "professional service" is not limited to services for which the person performing them must be licensed by a governmental authority. Rather, "professional services" encompass any business activity conducted by an insured that (1) involves specialized knowledge, labor, or skill, and (2) is predominantly mental or intellectual as opposed to physical or manual in nature.
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James M. Eastham, Traub LiebermanMr. Eastham may be contacted at
jeastham@tlsslaw.com
How AB5 has Changed the Employment Landscape
March 16, 2020 —
Jason Morris – Newmeyer DillionAs a result of California's Assembly Bill 5, effective January 1, 2020, the California Supreme Court's ABC test is now the standard for evaluating independent contractor classifications for purposes of the Industrial Welfare Commission Wage Orders, California Labor Code, and the California Unemployment Insurance Code. That dramatically ups the ante for companies that rely on independent contractors, particularly those that have not re-evaluated such classifications under the ABC test.
Misclassification cases can be devastating, especially for misclassified non-exempt employees, and can result in minimum wage violations, missed meal and rest periods, unpaid overtime, unreimbursed business expenses, record-keeping violations, steep penalties, attorneys' fees, and even criminal liability, among other consequences. Misclassifying workers creates enormous risks for companies and is fertile ground for class actions and representative actions under the Private Attorneys General Act (PAGA).
The Costs Of Misclassification Are Expensive, And Hope Is Not A Strategy
Many business owners I speak to understand AB5 has caused the ground to shift beneath their feet and recognize the resulting risks of misclassifying workers. Despite these risks, companies often balk at taking the necessary steps to evaluate their classifications and mitigate the risk of an adverse classification finding.
The most common reason I hear from resistant companies is the worker does not want to be reclassified as an employee and the company trusts the worker ("I've worked with her for years; she won't sue me because she wants to be a contractor"). I get it. Making the change from contractor to employee results in less flexibility and greater administrative burden for everyone involved. While I'm sympathetic, the government is not. Reluctance to change while acknowledging the associated risks amounts to a strategy based on hope. As we say in the Marine Corps, however, "hope is not a strategy."
Aside from the sometimes foolhardy belief that a misclassified worker can be trusted to not file suit after a business breakup (when the deposits stop and mortgage bill comes due, guess who's a prime target), companies often fail to recognize the numerous ways in which their classification decisions can be challenged even when they are in agreement with their (misclassified) contractors. Here are just three examples of how your classifications can be scrutinized despite the lack of a challenge by the worker:
- Auto Accidents: Whether delivering products, making sales calls, or traveling between job sites, independent contractors often perform work that requires driving. Of course, sometimes drivers are involved in automobile accidents. When accidents happen, insurance companies step in and look for sources of money to fund claims, attorneys' fees, costs, and settlements. One potential source is your insurance. "But the driver isn't my employee!," you say. You better buckle up because the other motorist's insurance carrier is about to challenge your classification in an attempt to access your insurance policies.
- EDD Audits: During the course of the last several years, the California Employment Development Department (EDD) has increased the number of verification (random) audits it performs in search of additional tax revenue. One reason government agencies prefer hiring entities classifying workers as employees rather than independent contractors is it's a more efficient tax collection method; employers collect employees' taxes on the government's behalf, which increases collection rates and reduces government collection costs. The consequences of misclassification include pricey fines, penalties, and interest.
- Unemployment Insurance, Workers' Compensation, and Disability Claims: In addition to verification audits, the EDD performs request (targeted) audits. Targeted audits may result when a contractor files an unemployment insurance, workers' compensation, or disability claim because independent contractors are ineligible for such benefits. Request audits, like verification audits, can result in costly fines, penalties, and interest if the EDD concludes you have misclassified your workers. Even so, that may not be the worst of it: the EDD often shares its findings with the Internal Revenue Service.
Your Action Plan
AB5 has changed the measuring stick, misclassification costs are high, and you do not have complete control of when the government or others can challenge your classifications. So what can you do? Here are several steps all prudent companies should take if they are using independent contractors:
- Conduct an audit of current classification practices;
- Review written independent contractor agreements;
- Implement written independent contractor agreements;
- Update workplace policies;
- Update organizational charts;
- Reclassify independent contractors as employees if necessary.
Jason Morris is a partner in the Newport Beach office of Newmeyer Dillion. Jason's practice concentrates on the areas of labor and employment and business litigation. He advises employers and business owners in employment litigation, as well as advice and counsel related to employment policies and investigations. You can reach him at jason.morris@ndlf.com.
About Newmeyer Dillion
For 35 years, Newmeyer Dillion has delivered creative and outstanding legal solutions and trial results that achieve client objectives in diverse industries. With over 70 attorneys working as a cohesive team to represent clients in all aspects of business, employment, real estate, environmental/land use, privacy & data security and insurance law, Newmeyer Dillion delivers holistic and integrated legal services tailored to propel each client's success and bottom line. Headquartered in Newport Beach, California, with offices in Walnut Creek, California and Las Vegas, Nevada, Newmeyer Dillion attorneys are recognized by The Best Lawyers in America©, and Super Lawyers as top tier and some of the best lawyers in California and Nevada, and have been given Martindale-Hubbell Peer Review's AV Preeminent® highest rating. For additional information, call 949.854.7000 or visit www.newmeyerdillion.com.
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Insurer Must Defend and Indemnify Construction Defect Claims Under Iowa Law
February 23, 2017 —
Tred R. Eyerly – Insurance Law HawaiiApplying Iowa law, the federal district court found that the insurer had to defend and indemnify construction defect claims for damage to property caused by the insured's subcontractors. Van Der Weide v. Cincinnati Ins., 2017 U.S. Dist. LEXIS 4469 (N.D. Iowa Jan. 12, 2017).
Van Der Weide contracted with Bouma & Company, Inc. to construct a house in 1996. Before construction began, Bouma purchased a CGL policy and a separate umbrella policy from Cincinnati, which were in effect from January 30, 1996 to January 30, 1999.
Bouma used various subcontractors to build the home, including Elkato Masonry, which did the brick veneer and masonry work. The house was completed in February 1998 and Van Der Weide moved in during August 1998.
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Tred R. Eyerly, Insurance Law HawaiiMr. Eyerly may be contacted at
te@hawaiilawyer.com
Sixth Circuit Affirms Liability Insurer's Broad Duty to Defend and Binds Insurer to Judgment Against Landlord
September 07, 2020 —
Michael V. Pepe & Janie Reilly Eddy - Saxe Doernberger & VitaIn a victory for policyholders, the Sixth Circuit affirmed that a landlord’s insurer owed a duty to defend the landlord in a bodily injury claim arising out of a fire that killed three and injured one. The Court held that the insurer breached its duty to defend and was bound to the insured’s $3 million consented judgment.
Transition Investments LLC, an owner of three properties in the Detroit area, purchased a general liability insurance policy with Hamilton Specialty Insurance Company to insure its properties. At one of the properties, a faulty stove started a fire, destroying the building, injuring one person and killing three others. The estates of the deceased and the injured party sued Transition in Michigan state court. In their complaint, the plaintiffs contended that Transition failed to provide a habitable premise and neglected to maintain the property’s stove, which allegedly caused the fire. The plaintiffs argued that Transition’s negligent maintenance of the property led to the fire and the resulting injuries. Transition subsequently tendered the claim to Hamilton. Hamilton claimed that the insurance policy did not cover the fire’s damages and refused to participate in the state court litigation. Ultimately, Transitions entered into a consent judgment with the plaintiffs for $3 million.
Reprinted courtesy of
Michael V. Pepe, Saxe Doernberger & Vita and
Janie Reilly Eddy, Saxe Doernberger & Vita
Mr. Pepe may be contacted at mvp@sdvlaw.com
Ms. Eddy may be contacted at jre@sdvlaw.com
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While Construction Permits Slowly Rise, Construction Starts and Completions in California Are Stagnant
December 05, 2022 —
John Kazanovicz & Jason Feld - Kahana FeldThere is an interesting phenomenon happening in the California construction market since the Summer of 2022. There is a steady but slow rise in the construction building permits being issued throughout California. According to the U.S. Census and the U.S. Department of Housing and Urban Development’s joint announcement (https://www.census.gov/construction/nrc/pdf/newresconst.pdf) of new residential construction statistics for September 2022, privately‐owned housing units authorized by building permits in September were at a seasonally adjusted annual rate of 1,564,000. This is 1.4 percent above the revised August rate of 1,542,000. While this is slightly lower than a year ago (3.2 percent below the September 2021 rate of 1,615,000), the trend for obtaining new home permits was reportedly ahead of the projected rates given the market conditions and inflation throughout the country. Interestingly, single‐family authorizations in September were at a rate of 872,000 which was also 3.1 percent below the revised August 2022 figure of 900,000. Authorizations of units in buildings with five units or more were at a rate of 644,000 in September. Overall, while slowly recovering from the record lows during the height of the pandemic, the economic forecast for new home construction in California is positive, but cautious.
The flip side of this coin is the construction starts in California, which continue to remain stagnant despite additional building permits being issued. Privately‐owned housing starts in September were at a seasonally adjusted annual rate of 1,439,000. This is 8.1 percent (±14.9 percent) below the revised August estimate of 1,566,000 and is 7.7 percent (±11.5 percent) below the September 2021 rate of 1,559,000. Single‐family housing starts in September were at a rate of 892,000; this is 4.7 percent (±10.7 percent) below the revised August figure of 936,000. The September rate for units in buildings with five units or more was 530,000.
Reprinted courtesy of
John Kazanovicz, Kahana Feld and
Jason Feld, Kahana Feld
Mr. Kazanovicz may be contacted at jkazanovicz@kahanafeld.com
Mr. Feld may be contacted at jfeld@kahanafeld.com
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Construction Law Alert: Appellate Court Rules General Contractors Can Contractually Subordinate Mechanics Lien Rights
November 26, 2014 —
Steven M. Cvitanovic, Jessica M. Lassere Ryland, & Colin T. Murphy - Haight Brown & Bonesteel LLPIn Moorefield Construction, Inc. v. Intervest-Mortgage Investment Co., 230 Cal. App. 4th 146 (4th Dist. 2014), a California appellate court upheld an agreement executed by a general contractor which subordinated its mechanic’s lien to a construction lender’s deed of trust.
In 2006, developer DBN Parkside LLC ("DBN") purchased land in San Jacinto, California (the "property") to build a medical complex (the "project"). DBN hired Moorefield Construction, Inc. (“Moorefield”) to act as general contractor and sought funding for the project from Intervest-Mortgage Investment Company (“Intervest”). Prior to the recordation of the construction loan, and unbeknownst to Intervest, Moorefield cleared and grubbed the project site. Pursuant to the construction loan agreement, Intervest required DBN to assign its rights and remedies under the construction contract to Intervest. Under its construction contract, Moorefield agreed to subordinate its lien rights to the construction loan.
Reprinted courtesy of Haight Brown & Bonesteel LLP attorneys
Steven M. Cvitanovic,
Jessica M. Lassere Ryland and
Colin T. Murphy
Mr. Cvitanovic may be contacted at scvitanovic@hbblaw.com; Ms. Lassere Ryland may be contacted at jlassere@hbblaw.com; and Mr. Murphy may be contacted at cmurphy@hbblaw.com
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Whose Employee is it Anyway?: Federal Court Finds No Coverage for Injured Subcontractor's Claim Based on Modified Employer's Liability Exclusion
September 28, 2020 —
Jeffrey J. Vita & Kerianne E. Kane - Saxe Doernberger & VitaIn Nagog Real Estate Consulting Corp. v. Nautilus Insurance Co.,1 the United States District Court for the District of Massachusetts held that an insurer had no duty to defend its insureds against claims brought by an injured subcontractor, based on an overbroad employer’s liability exclusion in the policy.
Nautilus Insurance Company issued a commercial general liability policy to developer Nagog Homes LLC and its related construction company, Nagog Real Estate. The policy was endorsed with an Employer’s Liability Exclusion (the L205 Endorsement) that expanded the scope of the standard exclusion in the coverage form to include bodily injury claims of employees of “any” insured and their contractors or subcontractors, as opposed to simply the employees of the named insured.
Nagog Homes was the developer, and Nagog Real Estate was the general contractor for a residential construction project. An employee of the framing subcontractor hired by Nagog Real Estate was injured while working on the project and sued both Nagog entities for his injuries. Nautilus, relying on the modified employer’s liability exclusion, denied coverage for the lawsuit based on allegations that the Nagog entities hired the framing subcontractor to perform work, which effectively made the plaintiff an employee of one or both of the Nagog entities.
Reprinted courtesy of
Jeffrey J. Vita , Saxe Doernberger & Vita and
Kerianne E. Kane, Saxe Doernberger & Vita
Mr. Vita may be contacted at jjv@sdvlaw.com
Ms. Kane may be contacted at kek@sdvlaw.com
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Wilke Fleury Attorney Featured in 2022 Best Lawyers in America and Best Lawyers: Ones To Watch!
September 13, 2021 —
Wilke Fleury LLPWilke Fleury congratulates attorneys David Frenznick, Adriana Cervantes, Matthew Powell and Dan Egan on their inclusion in the 2022 Edition of Best Lawyers in America!
Since it was first published in 1983, Best Lawyers® has become universally regarded as the definitive guide to legal excellence. Best Lawyers lists are compiled based on an exhaustive peer-review evaluation. Almost 108,000 industry-leading lawyers are eligible to vote (from around the world), and they have received over 13 million evaluations on the legal abilities of other lawyers based on their specific practice areas around the world. For the 2021 Edition of The Best Lawyers in America©, 9.4 million votes were analyzed.
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Wilke Fleury LLP
