Claims And Issues

HAPPY INDEPENDENCE DAY! CONTRACTORS' FIRE COVERAGE IN HOMES UNDER CONSTRUCTION!

A contractor brought suit against its builder's risk insurer after the carrier denied coverage for damage to parts of a home under construction and to certain personal property.  The damage was caused by a fire, and the resulting damage from the fire was partly covered under a homeowner's insurance policy bought by the prospective home-purchasers who had not yet closed on the house.

A jury returned a verdict in favor of the builder's risk insurer and against the insured contractor.  The trial court entered judgment on the verdict, which was affirmed on appeal.

The contractor and the mortgagee both appealed to the Wisconsin Supreme Court.  The Supreme Court granted their petitions for review, reversed, and remanded.

The Wisconsin Supreme Court held that the existence of the homeowners' policy did not nullify all coverage under the builder's risk policy in this case, despite a condition in the builder's risk policy that effectively terminated its coverage if "permanent property coverage applied" to the interests in the damaged property.  Whether and when "permanent property coverage applied" so as to trigger the condition is ambiguous, in the eyes of the Wisconsin Supreme Court, and therefore must be interpreted in favor of coverage.

Further, although the prospective purchasers in this case bought homeowner's insurance while their home was under construction, builders are entitled to a reasonable expectation that their builder's risk policies will apply to homes under construction and before closing.  The homeowner's policy in this case was therefore not "permanent property coverage [that] applied" to foreclose the contractor's coverage under its builder's risk policy.  Fontana Bldrs., Inc. v. Assur. Co. of Am., No. 2014AP821, ___ N.W.2d ___, 2016 WL 3526408, ¶ 69 at *16 (Wis. 2016).

HAPPY FOURTH OF  JULY!  Please Read The Disclaimer.  ©2016 by Dennis J. Wall, author of "Insurance Claims and Issues" (forthcoming Thomson Reuters 2016).  All rights reserved.

WHEN DEFECTS IN THE CONSTRUCTION PROCESS, NO RESULTING MOLD COVERAGE.

          When is there insurance coverage for mold under a residential tenant insurance policy?  Not when the mold is caused by defects in the construction process, it was pretty clear in Abraham v. Universal Ins. Co. of N. Am., 120 So. 3d 114, 115 (Fla. 4th DCA 2013)(also explaining succinctly that "the policy did not cover mold unconnected to a peril covered by the policy.").

          Every so often, as in this case, the insurance coverage question is not nearly as complicated as insurance coverage questions raised by other cases.

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One No Coverage Reason Proven, Enough: Affirm Carrier's Summary DJA.

          In Abraham v. Universal Ins. Co. of N. Am., 2013 WL 4081030 (Fla. 4th DCA August 14, 2013)(STATED NOT FINAL), the appellate court applied what is often called "the tipsy coachman rule" of appellate jurisprudence:  Where there is even one ground to affirm the trial court's judgment, even though the trial court entered judgment for the wrong reason, affirm the judgment.

          In that case, the carrier contended in pertinent part that the insured came within an exclusion for operating the premises for commercial purposes, and that coverage was excluded anyway because there is no coverage for construction defects and mold damage resulting from them.

          The appellate court noted that there was no record evidence of a commercial enterprise being operated by the policyholder.  However, the record evidence concerning the excluded construction defects and resulting mold damage, presented different stories:

The insurance company presented undisputed evidence that there was no water leak, and the policy did not cover mold unconnected to a peril covered by the policy. Defects in the construction process, as the expert testified was how the mold occurred, are not covered by the policy. Therefore, the summary judgment was appropriately entered.

Abraham v. Universal Ins. Co. of N. Am., 2013 WL 4081030 *1 (Fla. 4th DCA August 14, 2013).  The tipsy coachman rules again.

 

Please Read The Disclaimer.  Copyright © 2013 Dennis J. Wall.  No claim to original U.S. Government works.

"ADDITIONAL INSURED," Priorities of Coverage Issues: General's Carrier vs. Subcontractor's Carrier ...

 ... Plus Bad Faith Issues Too.

           Insurance Coverage issues were exhaustively addressed by a Federal Court in Pennsylvania in Mega Construction Corp. v. Quincy Mutual Fire Insurance Co., 2012 WL 3994473 (E.D. Pa. September 12, 2012), Download Mega Construction v. Quincy Mut. Fire Ins. Co. (E.D. Pa. No. 09.01728, Memorandum Opinion Filed September 12, 2012) PUBLIC ACCESS.  The Insurance Coverage issues surrounded a General Contractor, its Subcontractor, the Subcontractor's CGL carrier, the G.C.'s CGL carrier, and an injured claimant.  The Court resolved those issues with the same result, it ruled, under both Pennsylvania and New Jersey law.

          The case also involved jury issues of Bad Faith under New Jersey law, the Court ruled.

          First, the significant Coverage issues included the Subcontractor's Carrier's "Additional Insured" endorsement extending Coverage to the General Contractor, and the priority of Coverages as between the General's Insurance carrier and the Sub's Insurance carrier.  As noted, the issues of Insurance Coverage were resolved under both Pennsylvania and New Jersey law in this case, with the same result.

 

The "Additional Insured" Insurance Coverage Issues.

            In accordance with Dobek's Subcontract, Dobek asked and Quincy added Mega to Dobek's G.L. as an "Additional Insured" by an endorsement with this standard language:

Who Is An Insured (Section II) is amended to include as an insured the person or organization shown in the Schedule, but only with respect to liability arising out of your ongoing operations performed for that insured.

Mega Constr. Co. v. Quincy Mut. Fire Ins. Co., 2012 WL 3994473 *1 (E.D. Pa. September 12, 2012).  [Boldfaced in the Policy; italics by the Court.]

          Under both Pennsylvania and New Jersey law, according to the Federal Court in this case, "additional insured endorsements with language similar to this one may cover liability arising out of the additional insured's own negligence."  Mega Constr. Co. v. Quincy Mut. Fire Ins. Co., 2012 WL 3994473 *6 (E.D. Pa. September 12, 2012).  Further, both States interpret "arising out of" language like that quoted above to mean "either 'but-for' causation or 'substantial nexus.'"  Mega Constr. Co. v. Quincy Mut. Fire Ins. Co., 2012 WL 3994473 *7 (E.D. Pa. September 12, 2012).  The Federal Court also found as a fact that Mr. Tavares's injury "plainly arose out of Dobek's 'ongoing operations.'"  Mega Constr. Co. v. Quincy Mut. Fire Ins. Co., 2012 WL 3994473 *9 (E.D. Pa. September 12, 2012).  Thus, there was no doubt in the mind of the Judge that for all these reasons, Quincy extended Coverage to Mega under the quoted "Additional Insured" endorsement in this case.  Quincy therefore owed Mega duties to defend and to indemnify Mega in the underlying case.  Since Quincy neither defended Mega nor attempted to settle on Mega's behalf when the underlying case settled, Quincy breached its duties to Mega, the Court held.

 

The Consequences of Quincy's Breach of its Duty to Defend Mega.

         As consequences of Quincy's breach of its duty to defend Mega, the Court held that (1) Harleysville (which intervened against Quincy) is entitled to be reimbursed in full by Quincy for the costs Harleysville incurred in defending Mega in the underlying case against Mega, and that (2) under New Jersey law, Harleysville is also entitled to recover its attorney's fees and costs in prosecuting "this declaratory judgment action" against Quincy.  Mega Constr. Co. v. Quincy Mut. Fire Ins. Co., 2012 WL 3994473 *9 (E.D. Pa. September 12, 2012).

 

The Competing "Other Insurance" Clauses.

            Both the G.L. Policies, the one issued by Harleysville to Mega the General, and the one issued by Quincy to Dobek the Sub, contained identical "Other Insurance" clauses   They would have cancelled each other out accordingly, except that the Harleysville clause was given effect to the extent that it provided that Harleysville's Policy would be excess over a Policy, like Quincy's, which extended "Additional Insured" Coverage to Harleysville's Named Insured.  Accordingly, Quincy provided Primary G.L. Coverage to Mega while Harleysville provided Excess G.L. Coverage to Mega here.  Mega Constr. Co. v. Quincy Mut. Fire Ins. Co., 2012 WL 3994473 *12-*13 (E.D. Pa. September 12, 2012).

 

Liability for the Underlying Settlement, and Proof.

            Harleysville also claimed reimbursement from Quincy of the "$1.1 million [paid by Harleysville] in settlement of  Mr. Tavares's claims against Mega."  Mega Constr. Co. v. Quincy Mut. Fire Ins. Co., 2012 WL 3994473 *11 (E.D. Pa. September 12, 2012).  Harleysville put on evidence sufficient to satisfy the laws of both Pennsylvania and New Jersey, that Harleysville's settlement with Tavares on behalf of Mega was reasonable and in Good Faith.  Without quoting all the evidence referenced in the Court's opinion, Harleysville put on evidence of:

• The injuries suffered by the claimant, which in this case were "catastrophic".
• The claimant's settlement demands.
• The experience and expertise of the Plaintiff's Attorney in the underlying case.
• The venue where the underlying case was going to be tried to a Jury.
• The legal rules governing liability in the underlying case.

Harleysville did not even attempt to put on any evidence at all of its defense costs, it appears, or to prove that its "settlement decisions" were reasonable, only that the amount of the settlement was reasonable and that Harleysville negotiated the settlement in Good Faith once Quincy denied all Coverage to Mega.

            Under the evidence of record in this case, Harleysville met its burden of proving that its settlement on behalf of Mega in the underlying case was both reasonable in amount, and negotiated in Good Faith.  This has the legal effect of rendering the Defendant Liability Insurance Company, here Quincy, liable up to its policy limits for the amount of the settlement in a case like this one.  Mega Constr. Co. v. Quincy Mut. Fire Ins. Co., 2012 WL 3994473 *11 (E.D. Pa. September 12, 2012)(applying both Pennsylvania and New Jersey law in this regard).

 

Last But Not Least, Mega's Bad Faith Claim Against Quincy Goes To A Jury.

            Finally, under both New Jersey and Pennsylvania law, Mega's Bad Faith claim against Quincy presented questions of fact which would be resolved by a Jury.  Mega Constr. Co. v. Quincy Mut. Fire Ins. Co., 2012 WL 3994473 *13 (E.D. Pa. September 12, 2012).

Conclusion.

            Faced with a cornucopia of exhausting factual and legal issues, the Court in this case exhaustively addressed each issue, often under the law of two States.  With respect to the duty to defend under Liability Insurance Policy, in any case, this decision once again shows that it is often if not always and everywhere a good practice to provide the Policyholder or other Insured with a defense under a Reservation of Rights while simultaneously pursuing a judicial resolution of important Coverage issues.

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Condominium Carrier's Negligence Claims, Owner's Subro Rights Waiver No Bar.

    Waverly Woods owned a plot of land it wanted developed for condominiums.  Waverly Woods retained Rhodes Development Group as the general contractor for the project.  The owner-contractor construction contract contained a waiver of subrogation against the contractor and all subcontractors for damages caused by fire.

    Waverly Woods formed a condominium association, Park View, sometime after the construction contract was reached.  Waverly Woods turned the condominiums over to Park View, which purchased an unspecified "insurance policy" from Community Association Underwriters of America or "CAUA".

    Then a fire broke out while a drywall contractor was putting up drywall.  Park View made a claim for fire damage to the condominium units.  CAUA paid the claim.  CAUA filed suit, as Park View's subrogee, against the drywall contractor and others it claimed were negligent and caused the fire which caused the damage which caused CAUA to pay Park View's insurance claim.  Community Ass'n Underwriters of Am. v. Rhodes Dev. Grp., 2012 WL 2861272 *1 (3d Cir. July 12, 2012)(Pennsylvania substantive law), Download Community Assn Underwriters of Am. v. Rhodes Dev. Grp. (3d Cir. July 12, 2012) PUBLIC ACCESS.

    The Defendants raised the waiver of subrogation as a defense to CAUA's negligence claim against them.  The District Judge granted their Motion for Summary Judgment on that ground.  On appeal, the Third Circuit reversed.  Under Pennsylvania law, the Third Circuit held, if Park View was an intended third party beneficiary of the construction contract (and two judges were pretty clearly convinced that it was), still Park View and thus its subrogee, CAUA, were not barred from pursuing negligence claims, only claims under the construction contract:

It is established law in this Circuit that “a third party beneficiary will only be bound by the terms of the underlying contract where the claims asserted by that beneficiary arise from its third party beneficiary status.” E.I. DuPont de Nemours & Co. v. Rhone Poulenc Fiber & Resin Intermediates, S.A.S., 269 F.3d 187, 197 (3d Cir.2001). As a consequence, the waiver of subrogation clause only applies to CAUA (a non-party to the contract) to the extent that it asserts claims arising under that contract.

 

Id. at *2.

 

The decision drew a strong concurrence from Judge Rendell, based on the Restatement of Contracts (Third)'s treatment of intended third party beneficiaries.  The Restatement has been adopted in Pennsylvania.

 

Please Read The Disclaimer.

 

No Subrogation For Surety Against CGL For Defense, Expert Expenses.

    In the case of Hartford Accident & Indemnity Co. v. Crum & Forster Specialty Ins. Co., 2012 WL 2260915 (S.D. Fla. June 15, 2012), Download Hartford v. Crum and Forster (S.D. Fla. June 15, 2012) PUBLIC ACCESS, a Federal Judge decided that a Performance Bond Surety could not claim equitable subrogation for certain defense expenses against a General Contractor's Commercial General Liability Insurance Carrier.

    The bond contained no duty to defend.  Hartford, the Surety, sued Westchester, a CGL Carrier for a General Contractor for defense expenses.  Hartford retained Carlton Fields to defend the g.c. and Hartford also retained Expert Witnesses on behalf of the g.c. which was sued for Damages allegedly resulting from the construction of a condominium in South Florida.  Hartford alleged its right to recover $762,753.23 "in costs and fees incurred by the law firm" and bills submitted by two Expert Witnesses which totaled, respectively, $93,271.29 and $67,147.98.  Id. at *1.

    Hartford based its claims on equitable subrogation.  The Federal Court denied Hartford's claims, denied Hartford's Motion for Summary Judgment, and granted the CGL Carrier's, Westchester's, Motion for Summary Judgment.  Hartford failed in its claim to equitable subrogation, the Court ruled, for several reasons.  In part, Hartford could not claim equitable subrogation in this case because it made its payments as a volunteer.  Hartford had no duty to defend under the Performance Bond it issued.  Id. at *5.

    Please Read The Disclaimer.   

CGL Completed Operations Coverage Construed in California Construction Dispute.

   In Download Clarendon America Insurance Co. v. General Security Insurance Co. (Cal. 2d DCA Opinion 03.02.11, ordered officially published 03.30.11) PUBLIC ACCESS, also published as 2011 WL 711856 (Cal. 2d DCA, Div. 2, March 2, 2011)(authorized password required to access Westlaw), California's Second District Court of Appeal approved the Trial Court's resolution of a Construction Dispute by Summary Judgment.

   The Construction Dispute arose in a lawsuit against Hilmor Development ("Hilmor").  Hilmor purchased two consecutive Commercial General Liability Policies from two different Liability carriers, which is a common practice.  The first carrier on the CGL risk was Clarendon, which issued Hilmor a Policy for the period of July 1, 2000 to July 1, 2001, and the next was General Security, which issued Hilmor a Policy for the period of July 1, 2001 to July 1, 2002.

   Hilmor entered into a general contract on or about September 30, 1999 to build what the Court called a "custom single family home" in Beverly Hills, California.  The home was to have 14,000 square feet.   Slipsheet at 2; 2011 WL at *1.  On May 18, 2001, the homeowners fired Hilmor and threw it off the job.  Thereafter they sued Hilmor because, they alleged after the house was completed, that Hilmor was responsible for construction defects in it.

   Clarendon defended Hilmor in the underlying lawsuit.  It settled that lawsuit, paying its Policy Limit of $1,000,000.00.  Clarendon allegedly also paid other costs and expenses including the stated sum of "$473,463.29" in "defense fees" to one of two law firms mentioned in the opinion.  Slipsheet at 3-4; 2011 WL at *2.  Clarendon then sued General Security for declaratory relief, equitable contribution, and equitable indemnity.

   As noted, the Trial Court entered Summary Judgment, in General Security's favor.  The Trial Court was of the opinion that there was absolutely no Insurance Coverage under General Security's CGL Policy for Hilmor with respect to the underlying claim in suit, and the California Appellate Court agreed.

   Here, there simply was no "Products-Completed Operations" Coverage under General Security's CGL Policy.  Completed Operations Coverage requires that work on the project was completed or that the insured abandoned the work.  It "does not apply to work that has not yet been completed or abandoned....  Hilmor's work had not been completed, nor had it been abandoned.  Instead, Hilmor was terminated from the job before it completed its work."  Slipsheet at 7-8, 2011 WL 711856 at *4-*5.

   To put it bluntly:  "Because the insured was fired, it never completed its work."  Slipsheet at 14, 2011 WL 711856 at *8.  As a matter of law, therefore, there could not be any Completed Operations Coverage under the General Security CGL Policy in this case.

   Further, the General Security Policy contained a "Claim(s) in Progress Exclusion".  "Under the terms of this exclusion, the General Security policy does not apply to property damage which began or took place before July 1, 2001, the date that General Security's policy became effective. There was evidence that the continuing and progressive property damage of which the Revahs [i.e., the underlying Plaintiffs-homeowners] complained began prior to the inception of the General Security policy."  Slipsheet at 17, 2011 WL 711856 at *10.

   Accordingly, the California Appellate Court affirmed the Trial Court's grant of Summary Judgment to General Security against the claims of Clarendon in this peculiar case.

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Investigation, Evaluation "Standard Protocol" Held Irrelevant in Action for First-Party ...

... Insurance Coverage for Construction Defects, Because the Only Claims in that Case are for Coverage, Not for Alleged Bad Faith.

    The case of Download Bartram, LLC v. Landmark American Insurance Co. (N.D. Fla. Case No. 1.10.28, Order of USMJ Filed February 4, 2011) PUBLIC ACCESS also published as 2011 WL 528206 (N.D. Fla. February 4, 2011)(authorized password required to access Westlaw) involves high stakes.  "This case is a first-party insurance coverage dispute in which Plaintiff seeks a declaration that the damage to its apartment project was covered by each of the builder's risk policies issued by Defendants."  Id. at *3.  The Plaintiff also claimed Damages for alleged Breach of Contract.  Id.  The Plaintiff has not alleged any First-Party Bad Faith Claims under Florida substantive law.  That is crucial to the outcome of one piece of the parties' discovery disputes addressed by a U.S. Magistrate-Judge in this decision.

   The Plaintiffs requested production of each of the Defendants' "standard protocol and time frame" in which they investigate and evaluate builder's risk claims, and following which they ultimately make a decision whether to accept coverage, reserve rights, or deny all coverage, in basic and simple terms.  The Court held that this particular request for production is "irrelevant in this action because the claims and defenses in this case depend upon the language of the individual policies issued by Defendants and whether these policies cover Plaintiff's losses.  Whether Defendants' failure to pay the claims constitutes bad faith is simply not an issue at this stage."  Id. at *4.

   This significant ruling was an achievement for the defense in a decision which otherwise recorded holdings and stipulations that allow discovery on every other contested request for production and interrogatory in the case, which involves four collective layers of builder's risk insurance totaling $25,000,000.00.  See id. at *1 - *3.

Discovery issues addressed in reported decisions in First-Party Bad Faith Cases, and in First-Party Coverage Cases, are analyzed in Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" Chapter 12 (Shepard's/McGraw-Hill Second Edition; West Publishing Company 2010 Supplement; Third Edition in progress for publication in Spring, 2011).

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Work Product, EMails, Construction Defects: Insurance Consultant, Fact Witness or Expert?

   In Download Bartram, LLC v. Landmark American Insurance Co. (N.D. Fla. Case No. 1.10.28, Order of USMJ Filed January 24, 2011) PUBLIC ACCESS,  also published as 2011 WL 284448 (N.D. Fla. Order of Magistrate Judge January 24, 2011)(authorized password required to access Westlaw), a Policyholder under Builder's Risk Insurance Policies claimed Coverage for Damages which resulted from Construction Defects.  "This case is a first-party insurance coverage dispute in which Plaintiff seeks a declaration that the damages suffered to its apartment project are covered by each of the builder's risk policies issued by Defendants."  Id. at *2.

   The Policyholder-Plaintiff was apparently the Builder-Owner of the apartment complex.  It engaged the Foram Group, Inc. to manage the apartment project, and it consulted with one Margaret Spence of Douglas Claims & Risk Consultants, Inc. about its Coverage Questions and Claims, eventually retaining Ms. Spence for her services.

   Ms. Spence was "formally retained" by the Plaintiff in September, 2009.  The Federal Magistrate Judge wrote the outlines of Work Product Qualified Immunity for certain EMails she wrote to, and received from Foram, between August 29, 2009 and September, 2009:

 During the time period prior to her retention Ms. Spence was assisting Plaintiff with understanding its rights under the insurance policies issued by the Defendants. Ms. Spence's involvement prior to her retention as an expert in the claims submission process on Plaintiff's behalf was in her role of assisting Plaintiff in its business of submitting claims and not in the role of a retained expert assisting in preparing for litigation. Once Ms. Spence was formally retained, she became a non-testifying expert and her communications with Plaintiff after that date were protected.

Id. at *3.

Please Read The Disclaimer.

  

Damage to "Work" Caused by Subcontractors: No Arkansas CGL "Occurrence".

   In a decision which has confronted many Courts in recent cases, the Eighth Circuit Court of Appeals has held that damage to the Insured's "Work" that is caused by a subcontractor is not a covered "Occurrence" under a CGL Policy under Arkansas Law.  However, so-called consequential damage or "collateral damage" -- i.e., damage to property of others -- can be a covered CGL "Occurrence" under Arkansas Law.  Download Lexicon, Inc. v. Ace American Ins. Co. (8th Cir. Case No. 10.1100, Opinion Filed Dec. 28, 2010) PUBLIC ACCESS, also published as 2010 WL 5293808 *3 (8th Cir. Dec. 28, 2010)(authorized password required to access Westlaw).

   As noted, this precise Insurance Coverage issue has been presented in many recent cases.  Many cases are collected in Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" § 3:107 (West Publishing Company 2010 Supplement).

Please Read The Disclaimer.

  

Expert's Post-Report Affidavit Evidences Florida Property Damage Inaccessible Manifestation.

   Held:  Insurance Company's Motion for Summary Judgment Denied.

   The case of United Nat'l Insurance Co. v. Best Truss Co., Download United Nat'l Insurance Co. v. Best Truss Co. (S.D. Fla. Case No. 09.22897, Order Filed December 3, 2010) PUBLIC ACCESS, also published as 2010 WL 5014012 (S.D. Fla. December 3, 2010)(authorized Westlaw password required to access Westlaw) has presented an Order which is important to both Federal Evidence and Florida Insurance Law.

   First, the Federal Court held that it was proper to consider an Affidavit of the Policyholder's Expert Witness which was filed after the Expert's Report.  In the Affidavit, the Expert "clarifies his position regarding the manifestation of the damage," a key issue in the quest to determine whether there was Insurance Coverage for alleged Property Damage because of trusses that were used in the construction of a new bank building.  See United Nat'l Insurance Co. v. Best Truss Co., 2010 WL 5014012 at *1, *5.

   The Federal Court considered the Expert's post-Report Affidavit in that Case because the Affidavit and the Report "are not inconsistent."  Id.  Nor was the Affidavit a "sham.  The Court can properly consider the Affidavit in the disposition of the Motion."  Id.

   Second, the Affidavit evidenced manifestation of Property Damage within the Policy Period of at least one of the Insurance Policies issued by United to Best Truss.  The Policies required an "Occurrence" which results in "Property Damage" during the policy term, in pertinent part.  As the Federal Court put it:

In Florida, the accident or injury triggering coverage is deemed to have occurred "when property damage manifests itself, not when the negligent act or omission giving rise to the damage occurs."  [Citations omitted.]  However, proof of discovery of the damage is not required to trigger coverage if the damage was visible and capable of being discovered.

Id. at *4.  [Emphasis added.]

   The Expert's Affidavit provided evidence of manifestation during the policy term.  However, the Property Damage addressed by the Expert's Affidavit Testimony was not readily visible.  Instead, it was physically obstructed.  It was capable of being discovered if a drop ceiling were removed.  The Federal Court held that this was admissible evidence of Property Damage manifestation:

Contrary to United's assertion, visibility from within the enclosed and inaccessible attic does constitute manifestation.

Id. at *5.  [Emphasis added.]

   Parenthetically, the Online Docket of this Case on Pacer, the electronic docket of the Federal Courts, reflects that the Case was dismissed without prejudice on December 13, 2010 by an Order of Court entered upon a Joint Stipulation for Dismissal Without Prejudice which was filed the same day.

   With these two holdings in this Order, the Federal Court provided important rulings for both Federal Evidence and Florida Insurance Law.

The Federal Court in this Case explicitly did not, however, address "whether the duty to defend is implicated" nor did the Court draw any distinctions between the Insurance Company's Duty to Defend and its Duty if any to Indemnify.  Considerations particular to determining a Liability Insurance Company's Duty to Defend in Cases involving Insurance Policies similar to those in the United National Insurance Co. v. Best Truss Co. Case are addressed in Section 3:48 by Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" (Shepard's/McGraw-Hill Second Edition; West Publishing Co. 2010 Supplement).

Please Read The Disclaimer.

 

If Commercial Construction Loans Default, Insurance and Bond Claims May Follow.

    Fears continue of possible mass defaults on many Commercial Construction Loans.  Fear of Default has been embedded in the Commercial Construction Loan Market for months.  See generally Floyd Norris, "Off the Charts/Construction Loans Falter, a Bad Omen for Banks" p. B3, col. 1 (New York Times Nat'l ed., "Business" Section, Saturday, September 5, 2009).  As compared with the woes of loans for the construction of single-family homes, reportedly "[i]t is in commercial real estate construction -- be it stores or office buildings -- that the pain seems likely to rise."  Id.

    In particular, a research firm cited in the linked article predicts that "the biggest problems are in loans for condominium construction, with 38 percent of all construction loans troubled."  Id.  [Emphasis added.]

    If Commercial Construction Loans go into Default in large numbers, Insurance and Bond Claims will not be far behind.

Please Read The Disclaimer. 

Construction Defect Claims and "Occurrrences" in Florida: Chinese Drywall Next.

This is PART TWO of a post begun on August 5, 2009.

Things changed in Florida Insurance Law in December, 2007, mirroring a change in Insurance Law across the nation.

 

That is at least partly because the relevant CGL Exclusion for Damage to Property changed.  The post-1986 standard CGL Coverage Form presently in use provides in relevant part that although there is still an Exclusion for Property Damage to the insured's work arising out of it or any part of it, this Exclusion does not apply if the work in question was performed on the insured's behalf by a subcontractor.

 

With this change in language, Insurance Coverage was extended in Florida to general contractors under their CGL Policies in cases presenting facts which earlier resulted in judgments of no coverage.  E.g., Auto-Owners Insurance Co. v. Pozzi Window Co. (Fla. Dec. 20, 2007, withdrawn and revised opinion substituted on June 12, 2008); United States Fire Insurance Co. v. J.S.U.B., Inc. (Fla. Dec. 20, 2007).  Other Courts in other jurisdictions have disagreed with parts of the Florida experience.

 

NEXT:  Applying these and other rules of Insurance Law to CHINESE DRYWALL CLAIMS.

 

THIS IS PART TWO.  Please Read The Disclaimer.

Construction Defect Claims and an Occurrence in Florida ....

    THIS IS THE FIRST OF TWO PARTS.

   Florida Insurance Law is an example of Comprehensive General Liability Insurance Issues arising from Construction Defect Claims.  Specifically, it is an example of how things have changed in that arena.

    This example begins at the beginning:  with cases involving pre-1986 standard-form Commercial General Liability Insurance Policies.  Looking at the language in those forms and endorsements, and also looking beyond the contract language to the avowed purpose of CGL Coverage, the Florida courts rejected CGL Coverage for many construction defect claims arising from a contractor's faulty workmanship.  Most if not all of these holdings involved damages claims against an insured general contractor for the replacement of its own defective materials and work.  See, e.g., Download LaMarche v. Shelby Mut. Ins. Co. (Fla. 1980).

    Once a construction project was completed, of course, even if the particular CGL Policy contained Coverage for a "Products - Completed Operations Hazard" still such Coverage was specifically excluded under these early forms for property damage to work performed by the named insured arising out of such work or any portion thereof.  Thus, where the named insured was also the defendant general contractor, all work on the construction project was deemed to be the work of the general contractor.  Under these forms, then, there was no Coverage under the general contractor's CGL.  Download Tucker Construction Co. v. Michigan Mut. Ins. Co. (Fla. 5th DCA 1982).

  THIS IS THE FIRST OF TWO PARTS.  Please Read The Disclaimer.

Property Insurers' Agenda Increases Premiums of Florida House.

    Property Insurance Companies' proposed legislation passed the Florida House.  The bill awaits the Florida Senate and the Governor.  Among other long-sought features, the Property bill would:

• Increase Citizens Property Insurance Company Premiums by 10% per year.
• Enable a Commission to recommend elimination of all or most of the Premium discounts for Hurricane Mitigation measures recently enacted into Florida Law -- measures to strengthen the construction of Florida Homes that were recently demanded by Property Insurance Companies.
• Increase Property Insurance Premiums including Homeowner's Insurance Premiums apparently, by 10% per year.
• Restrict Policyholders and other Insureds on adjusters they hire for assistance on their Homeowner's and other Property Insurance Claims, and enable another Commission to recommend more restrictions.

The potentially biggest feature of this bill even when it is put alongside these other very big features?  "Gradually reduce the $29 billion Florida Hurricane Catastrophe Fund by $12 billion."  Julie Patel, "Rates Would Rise Under Legislation/Florida House Passes Sweeping Property Insurance Bill" (South Florida Sun-Sentinel.com, Friday, May 1, 2009).

Please Read The Disclaimer.

Property Insurers Dovetail With Environmentally Concerned Coalitions.

     The Travelers and Fireman's Fund Insurance Companies are reportedly pressing for innovations to meet climate changes that would alter forever the face of Property Insurance Coverage in the United States.  See, e.g., Cornelia Dean, "Groups See Added Risks From Change in Climate" (New York Times Online, Friday, April 24, 2009);   NU Online News Service, "Group Unveils Blueprint to Save Billions From Hurricanes" published by P & C/National Underwriter, Thursday, April 23, 2009.

    Among the innovations backed by an increasingly broader array of supporters:

• Adopting local land-use policies that deter people from construction in high-risk flood-prone areas.  An example is reportedly provided by City and County officials working together in or about Charleston, South Carolina to restrict development on Johns Island to its interior.
• Enacting more realistic Construction Codes and, at the same time, encouraging existing homeowners and commercial property owners to make their buildings more resistant to storms in storm-prone areas. 

While the members of the coalition were apparently reluctant to endorse the use of Property Insurance Premiums as a planning tool, clearly where Property Insurance in such areas is available at all the Premiums will be very high -- and the Property values are likely to increasingly become lower than they are even now.  See generally John K. DiMugno, Steven Plitt & Dennis J. Wall, "CAT Claims:  Insurance Coverage for Natural and Man-Made Disasters" (Thomson-West Publishing 2008).

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Texas Court Answers "Injury in Fact" Property Damage, Occurrence Questions.

    In a ground-breaking answer in a Construction Insurance Coverage case, the Texas Supreme Court recently adopted an "Injury in Fact" test under a standard "occurrence-based commercial general liability [CGL] insurance policy":  Download 07-0639 Don's Building Supply, Inc_ v_ Onebeacon Ins_ Co.

    The Court unanimously answered certified questions from the Federal Fifth Circuit Court of Appeals in this case.  The first of the certified questions is addressed in this post.  In it, the Fifth Circuit basically asked how Texas Insurance Coverage Law would determine whether and when there was "Property Damage" and an "Occurrence" within the policy period, or not, for alleged damages resulting from installation of a synthetic stucco product called an "Exterior Insulation and Finish System (EIFS)."

    The Texas Court's answer is instructive in how the Texas Justices unanimously read seemingly different provisions of the CGL Policy together, before reaching a conclusion about any one or more of those Policy provisions.  As a result, their answers to the certified questions in that case affect Texas Insurance Law issues that go way beyond "Property Damage" and "Occurrence" definitions.  Their answers also reach out toward how, in determining when and whether there was an "Occurrence" of "Property Damage" within the Policy period, Texas Courts would simultaneoulsy be forced to thereby address other provisions in the Insurance Policy including "per occurrence" and "aggregate" limits of the Insurance Company's liability under the Policy.

    The Texas Supreme Court's answer in this regard is worth reading, repeated below without footnotes:

    The policy defines an "occurrence" as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions."  We recently noted, in construing the same CGL language, that "[a]n accident is generally understood to be a fortuitious, unexpected, and unintended event."  The policy's requirement that property damage be caused by an "occurrence" limits coverage in at least two respects.  First, because the occurrence must be an "accident," coverage for intentional torts is excluded.  Second, because a single occurrence can be "an accident" and consist of "continuous or repeated exposure to substantially the same general harmful conditions," the definition of occurrence serves to limit the number of occurrences an insured can claim for what the policy deems to be a single accident.  This limitation is sometimes important because the dollar limits of the policy include an aggregate limit and also a lower dollar llimit per occurrence.

Following the language which has just been quoted, the Texas Supreme Court examined the Policy's brief "Property Damage" definition, stated that it had construed all these Policy provisions together, and answered the question by stating that, under Texas Insurance Law at least, "property damage under the policy occurred when actual physical damage to the property occurred."

    The possibility that damage to property might not be discovered did not give the Texas Court much pause:  "So in this case, property damage occurred when a home that is the subject of an underlying suit suffered wood rot or other physical damage.  The date that the physical damage is or could have been discovered is irrelevant under the policy."  However, the Court carefully limited its answers to, among other things, the duty to defend in this particular case:

    Today's decision rests upon the specific language of these parties' CGL policies regarding property damage in the construction-defect context, and it is directed only to the specific questions posed by the Fifth Circuit.

The Texas Court in answering the certified questions in this case was careful to note that there is a split in authority on the question of whether and when "Property Damage" takes place, i.e., is an "Occurrence" within the Policy period, with many Courts lining up behind an alternative point of view that there is an "Occurrence" when "Property Damage" manifests itself.  Judges, lawyers, Insurance Companies, and Policyholders in any given jurisdiction should consult the Insurance Law of their own jurisdiction to determine where their chosen jurisdiction lines up on this question.

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Bond Insurance on Auction-Rate Bonds, Too?

   Among the revelations emerging from the financial fiasco is that Insurance Companies reportedly have "issued policies guaranteeing so-called auction-rate bonds."  Mike Boehm, "Mortgage Crisis Hits Cultural Institutions" (Los Angeles Times Online, Friday, March 21, 2008).   Issuers of auction-rate bonds for construction projects in particular, are listed in the linked newspaper report as including the Los Angeles County Museum of Art, the Orange County [California] Performing Artscenter, and the Natural History Museum of Los Angeles County.

   One of the Insurance Companies that used to issue Bond Insurance Policies for "auction-rate bonds" is reportedly the now imperiled Financial Guaranty Insurance Company.  "With the bond insurance no longer ironclad, investors are demanding higher interest -- if they are willing to bid at all," it is reported in the newspaper article.

   These troubles are leading Bond Issuers "to restructure the bonds or find bankers to vouch for them in lieu of the now-suspect bond insurers."  One restructuring method currently being explored is negotiating with banks to back these construction Bonds with letters of credit.

   Another financial alternative reportedly is to seek out County, State and other Government bodies which may have an interest in investing in these outstanding construction Bonds.  For example, Los Angeles County is reportedly in such negotiations right now with the  Los Angeles County Museum of Art and the Natural History Museum of Los Angeles County, both of which are governed separately from the Government of Los Angeles County.

   In the meantime, other "cultural institutions" are moving forward with construction projects for which funding was obtained by issuing "unaffected fixed-rate bonds."

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"Review Insurance Policies Now" Says Orlando Newspaper.

   Good advice with related links in this newspaper article published in the Orlando Sentinel, February 22, 2008, by Greg Groeller, "Review Insurance Policies Now".  Every Policyholder and their Agents and Brokers holding every kind of Insurance Policy can benefit from following the good advice published by this linked newspaper article.

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Late Loan Payments, Fewer Jobs And ... Insurance Claims More Likely.

    Late loan payments and as a result, an increasing number of defaults on all sorts of loans in the future, are major problems spreading from home payments and the prospect of ever-increasing mortgage foreclosures, to automobile loans and home equity loans.  See Jeannine Aversa, "Late Loan Payments Jump" p. C3, col. 1 (Associated Press Report published in The Orlando Sentinel, Central Florida Business, Fri., January 4, 2008).  Claims on Mortgage Insurance Policies are very likely to become increasingly greater as real estate foreclosures increase.   Credit Insurance Policies of all types increasingly seem subject to the same likely fate.

    The United States economy is also producing fewer jobs of any kind than in recent months, while the unemployment rate is increasing.  These twin factors have a potentially huge impact on future Insurance Claims.  The latest jobs numbers at the time of this post are for the month just past which at this time is December, 2007 and those numbers are, respectively, 18,000 newly made jobs of any kind, with a simultaneous unemployment rate reported at 5%.  See Peter S. Goodman & Michael M. Grynbaum, "Unemployment Sounds Warning About Economy" p. A1, col. 6 (New York Times Nat'l Ed., Sat., January 5, 2008):

As fewer jobs are created, spending power could dry up.  Faced with declining business, employers could further trim payrolls.  As unemployment grows, more homeowners could fall behind on mortgages, leading to more losses at banks, and more layoffs.

The overall figure of 18,000 newly made jobs masks a major increase of 93,000 jobs in the service industries, including the Insurance industry.  See "U.S. Economy:  Job Growth at Weakest Pace Since 2003 (Update 3)" by Bob Willis & Joe Richter (Bloomberg.com, Fri., January 4, 2008).  (Payroll counts are apparently decreased by job losses, such as a reported December decrease of 31,000 in factory payrolls reported in the same article, thus leading to an overall payroll increase of 18,000 in December.)      

    Take out the take by the American Bankers Association on these developments.  That ABA (not referring to the American Bar Association, the other ABA if you will) sponsors insurance products for its members, including automatic mutual ownership of a Reinsurance Corporation for various Lines of Insurance including Directors and Officers Liability Insurance, Financial Bond Insurance, and Employment Practices Liability Insurance.  Its views on these developments are thus instructive on Insurance implications.

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Hurricane Insurance Coverage Fears Set Florida Roof Costs Soaring.

     By October 1, 2007, the Florida Building Commission was required by the Florida Legislature to adopt and develop a couple of sets of requirements by rule, "which take immediate effect" and which shall be incorporated into the next edition of the Florida Building Code.  At least one purpose, and likely the dominant if not the only purpose, was to encourage mitigation or prevention of future Hurricane Damages and resulting Catastrophe Claims.  More solid structures, particularly homes, should reduce Hurricane Claims and in turn, Homeowners Insurance premiums and Property Insurance premiums -- where such Coverage is available.  See previous posts on this Web Log for information about developments which affect both premiums and availability of Coverage for Hurricane and other Catastrophe Claims.

     Here are some of the important new requirements imposed by the Legislature in Florida Statute Section 553.844, entitled, "Windstorm Loss Mitigation; Requirements for Roofs and Opening Protection."                  

     Single-family residential structures, unlimited by value of the structure, are in one group.  Not all single-family residential structures are addressed by the legislation, however.  The requirements apply to (1) single-family residential structures that are (2) built on site, (3) "constructed prior to the implementation of the Florida Building Code [Fla. Stat. § 553.73, 'Florida Building Code', was first enacted in 1974]", and (4) undergoing a "roof replacement".  When those things come together, then the new roof has to incorporate and comply with:

"Secondary water barriers for roofs and standards relating to secondary water barriers." 
                                       * * *
"Strengthening or correcting roof-decking attachments and fasteners during reroofing".

         

     Another set of requirements applies to certain -- but not all -- buildings with "an insured value of $300,000 or more" or that have "a just valuation for the structure for purposes of ad valorem taxation of $300,000 or more," and which receive a "roof replacement".  Such buildings must add "[p]rescriptive techniques for improvement of roof-to-wall connections" when the roof is replaced.

     The executive director of the Florida Roofing, Sheet Metal & Air Conditioning Contractors Association, Inc. is quoted as the source in a newspaper report for an estimate that water-barrier requirements applicable to the first group of site-built single-family homes above, would add between $1,600.00 and $4,000.00 to reroof a home with a 4,000-square-foot roof.

     Additional costs to reroof a single-family residential building on the coast, i.e., in the second group above, would according to the same source add at least about $5,000.00 to a three-bedroom home, for example, in Volusia or Brevard County, Florida.  (The second group above does not appear to be limited to single-family residential buildings under the statute.)  Here is a link to the newspaper report published in the Orlando Sentinel on Friday, October 5, 2007:  Robin Benedick, "New Hurricane-Safety Law is Raising the Roof on Costs"  Page A1, Col. 3 (Orlando Sentinel, Friday, October 5, 2007).  The newspaper report was originally published in the South Florida (Ft. Lauderdale) Sun-Sentinel:  Robin Benedick, "Cost of Replacing Roof Goes Sky High Under New Law" (Sun-Sentinel.com, Thursday, October 4, 2007).

     The next Hurricane Damage Claims in Florida will tell the tale of whether Insurance Coverage will be more widely available, or at a higher or lower premium, as a result of these "mitigation" or damage-prevention efforts.  Until then, roofing contractors are apparently not happy as a result of these efforts.

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