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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The Almost-Collapse of a Sarasota, Florida Condo Building
July 11, 2021 —
Beverley BevenFlorez – CDJ StaffFive years ago, residents of the Dolphin Tower in Sarasota, Florida were forced to evacuate after cracks appeared in their fourth-floor condominium units.
“My assistant calls me and says, ‘[Kris] thinks the building is falling down,’” David Karins of Karins Engineering told Sarasota Magazine. “I said, ‘I doubt that.’ Then I got there and saw what was going on and I said, ‘You know, the building may be falling down.’”
In July of 2010, city officials ordered all residents to evacuate. Five years and $11 million dollars in rehabilitation and residents were finally able to move back in last month.
The Herald-Tribune had previously interviewed John Bonacci, an engineer at Sarasota’s Karins Engineering: “I’d say yes, there was grave danger. It was luck that it didn’t come all the way down. Getting shoring in there quickly was instrumental in preventing it from collapsing.”
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Coverage Denied for Faulty Blasting and Improper Fill
October 08, 2014 —
Tred R. Eyerly – Insurance Law HawaiiThe court found coverage was properly denied based on the subcontractor's failure to follow contract specifications in blasting at the job site. Westfield Ins. Co. v. Carpenter Reclamation, Inc., 2014 U.S. Dist. LEXIS 130752 (S.D. W. Va. Sept. 18, 2014).
Carpenter was hired by the Board of Education (BOE) to perform preliminary site clearing, demolition, rock excavation, and establishment of sub-grade for a building. Carpenter was to excavate to 3.5 feet below the floor subgrade so that plumbing and other utilities could be installed.
Carpenter, however, blasted to depths deeper than required, including some areas that were up to nine feet. The BOE sued, alleging over-blasting and having to pay the cost of remediating the problem, along with breach of contract issues.
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Tred R. Eyerly, Insurance Law HawaiiMr. Eyerly may be contacted at
te@hawaiilawyer.com
Californians Swarm Few Listings Cuts to Affordable Homes
September 24, 2014 —
John Gittelsohn and Nadja Brandt – BloombergThe 160 units at Santa Monica, California’s Belmar Apartments received 4,600 applications ahead of the project’s July opening, a measure of the competition for scarce affordable housing.
The Related Cos. project, where two-bedroom units rent for $946 a month, is among the last built with financing from redevelopment agencies, the taxpayer-backed programs that Governor Jerry Brown eliminated three years ago to help balance California’s budget. Without that source of $1 billion a year, the state’s supply of funds for building low- and moderate-income housing is running dry as real estate prices surge.
“The abolishment of the redevelopment agencies by Governor Brown is the single biggest problem” for affordable housing, said William Witte, president of Related’s California division, which also is seeking buyers for condominiums next to Belmar with an average price of $2.4 million. “Since there’s little to no help from the federal government, the loss of redevelopment funds is devastating.”
Mr. Gittelsohn may be contacted at johngitt@bloomberg.net; Ms. Brandt may be contacted at nbrandt@bloomberg.net
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John Gittelsohn and Nadja Brandt, Bloomberg
Fargo Shows Record Home Building
October 01, 2013 —
CDJ STAFFHome builders in the area of Fargo, North Dakota are describing growth in the area as “enormous.” Darrick Guthmiller, the president of the Home Builders Association of Fargo-Moorhead noted that in sixteen years of building homes, this was the best he’d seen. The Home Builders Association expects that next year might even be better.
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Suppliers of Inherently Dangerous Raw Materials Remain Excluded from the Protections of the Component Parts Doctrine
December 02, 2015 —
Leah B. Mason & Michael J. Worth – Haight Brown & Bonesteel, LLPIn Brady v. Calsol, Inc. 2015 No. B262028, the California Court of Appeal, Second District, reversed summary judgment for a raw materials supplier where there was a triable issue of fact as to whether the benzene levels contained in the supplier’s mineral spirits could have caused plaintiffs’ leukemia.
Plaintiffs were mechanics Ernest Brady and David Gibbs, who used Safety-Kleen solvent to degrease automotive parts. Brady and Gibbs were diagnosed with leukemia allegedly caused by exposure to Safety-Kleen solvent during the course of their employment. In 2008, Plaintiffs sued Calsol, Inc., a distributor of mineral spirits for the ultimate manufacturer, Safety-Kleen Systems, Inc. Plaintiffs asserted negligence and strict products liability claims. Specifically, plaintiffs alleged that benzene, a carcinogen found in mineral spirits, caused their leukemia. Benzene is only carcinogenic to humans at certain levels. The parties dispute the levels of benzene found in the mineral spirits supplied to Safety-Kleen. Calsol contended the benzene levels were present only in low concentrations. Plaintiffs alleged the benzene levels were capable of causing injury.
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Leah B. Mason, Haight Brown & Bonesteel LLP and
Michael J. Worth, Haight Brown & Bonesteel LLP
Ms. Mason may be contacted at lmason@hbblaw.com
Mr. Worth may be contacted at mworth@hbblaw.com
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Colorado statutory “property damage” caused by an “occurrence”
August 04, 2011 —
CDCoverage.comColorado General Assembly House Bill 10-1394 was signed into law by the Governor on May 21, 2010, codified at Colo. Rev. Stat. § 13-20-808 (2010)
13-20-808. Insurance policies issued to construction professionals
(1) (a) The general assembly finds and determines that:
(I) The interpretation of insurance policies issued to construction professionals is of vital importance to the economic and social welfare of the citizens of Colorado and in furthering the purposes of this part 8.
(II) Insurance policies issued to construction professionals have become increasingly complex, often containing multiple, lengthy endorsements and exclusions conflicting with the reasonable expectations of the insured.
(III) The correct interpretation of coverage for damages arising out of construction defects is in the best interest of insurers, construction professionals, and property owners.
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Liability Coverage For Construction Claims May Turn On Narrow Factual Distinctions
March 25, 2024 —
Scott S. Thomas - Payne & FearsIn a recent trial court decision, a Montana federal court reminds us how fragile insurance coverage can be for construction-related insurance claims. Specifically, this case illustrates how seemingly small factual nuances can make or break coverage. The case turned on the application of policy provisions familiar to all who deal with these kinds of cases. (See Nautilus Ins. Co. v. Farrens, No. CV 22-193-M-DWM, 2024 WL 885109 (D. Mont. Mar. 1, 2024))
First, the court rebuffed the insurer’s argument that damage resulting from defective workmanship (in this case, the flawed design and installation of an elaborate floating-floor pool system) is not “caused by an occurrence.” The court correctly applied the test followed by most states: if either act causing injury is unintentional or the resulting injury is unexpected or unintended, the “occurrence” requirement is met. Fortunately, the court distinguished sloppy language from earlier Montana federal court decisions suggesting otherwise.
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Scott S. Thomas, Payne & FearsMr. Thomas may be contacted at
sst@paynefears.com
