Construction Defect Coverage Issues

Construction Defects Do Not Trigger a CGL Policy in Hawaii

August 5, 2013
CDJ STAFF

The Hawaii District Court has ruled that construction defects do not trigger a commercial general liability. Hillary Coombs Jarvis and John P. Swenson of Steptoe & Johnson LLP have written a discussion of the court’s decision, where they note that the court found that “substandard construction work was a foreseeable breach of contract.”

After 3Builders was sued over leaks in replacement roofs, their insurer, Nautilus, sought “a judicial determination that it had no duty to defend or indemnify 3Builders in either the state court lawsuit or the arbitration.” The court concurred, holding that “the relevant analysis was whether the origin of the underlying claims, including those sounding in tort, were premised on a contractual relationship or based on an independent tort claim under state law.” And this is what the court found, that “all claims in the building owners lawsuit and Project manager’s arbitration arose from the Project contract or from the contractual relationship.”


New York Considering Changing Scaffold Law

February 14, 2013
CDJ STAFF

Under current New York law, property owners, employers, and contractors are responsible for injuries that occur on scaffolding, even if the worker is found to be at fault. Now a coalition of construction and insurance firms and small business owners have gone to the state capital with hopes of changing the law. Mike Elmendord, president of the Associated General Contractors of New York State, said that the current law adds expense to every construction project in the state.


USI Purchases St. Louis Insurers

February 4, 2013
CDJ STAFF

For a combined purchase price of $20 million, USI Insurance Services has purchased two insurance providers in the St. Louis area. As part of the purchase, Dennis D. Flatness, CEO of Welsch Flatness, and John J. Campbell, president of Construction Insurance, will be retained as executives.


Will the Texas Supreme Court Get Construction Defect Coverage Right?

November 14, 2012
CDJ STAFF

Lee H. Shidlofsky, of the Shidlofsky Law Firm PLLC, has posted an informative presentation on the current state of construction defect coverage law in Texas. Mr. Shidlofsky practices in Austin, Texas, with a focus on corporate policyholders in disputes with insurance companies. Additionally, they provide risk-management consulatation. Mr. Shidlofsky starts by noting that CGL polices “are not performance bonds,” and that the risk of faulty workmanship is “assumed by the insured.”

In order to untangle the situation with Texas construction defect coverage law, Mr. Shidlofsky discusses three cases: Lamar Homes (2007), Gilbert (2010), and Ewing (2012), asking the question if legal views of the liability exclusion is moving away from Lamar Homes. He compares both Lamar Homes and Gilbert to Ewing. He concludes by noting that the next step is the Texas Supreme Court, asking “will they get it right?”


Inspector Liable for Construction Defects

November 14, 2012
CDJ STAFF

When construction rendered a home uninhabitable, a Pennsylvania court found that the inspectors were also liable. Bill Auxer, writing on the Kaplin Stewart blog, discusses the recent Pennsylvania case of Baker v. Reese Bros. Mr. Baker contracted with Reese Bros and Knieriem Construction. And while Mr. Baker did not hire Somerset County Building Inspection, he paid them $4,226.00. Their duties were, according to Mr. Auxer, “to perform plan review of construction documents, inspect construction, and enforce codes and regulations under Pennsylvania law.” When Mr. Baker’s home did not meet building code, he sued both the contractors and the inspectors.

SCBI claimed that Mr. Baker’s suit was barred under the economic loss doctrine, but lost this point at trial. They appealed and the judge in the Commonwealth Court affirmed, noting that as a certified third-party agency under the Pennsylvania Construction Code Act, they were required to hold insurance to cover “errors and omission liability.” Still left to be determined are whether the insurance covers Mr. Baker’s claims or if SCBI’s insurance carrier will be defending it.


Not All Property Damage Construction Disputes Are the Same

November 14, 2012
CDJ STAFF

A post on the Swanson Midgley, LLC blog looks at the limits of a commercial general insurance policy, arguing that the “seminal” case on the subject is Weedo v. Stone-E-Brick, Inc., decided by the New Jersey Courts in 1979. The Weedo decision gave the example of badly applied stucco, and if the problem is only the peeling and chipping “the poorly-performed work will perforce have to be replaced or repaired by the tradesman or a surety.” The more important point was “should the stucco peel and fall from the wall, and thereby cause injury to the homeowner or his neighbor standing below or to a passing automobile, an occurrence of harm arises which is the proper subject of risk-sharing as provided by the type of policy before us in this case.

Moving on from the 1970s, the post then examines the recent case of Big Construction v. Gemini Insurance, which was decided this year in the State of Washington. Here, more than thirty years later, the courts are considering “whether the alleged damages constitute ‘property damage,’” nothing that “a general liability policy is not intended to encompass the risk of an insured’s failure to adequately perform work.”


Ohio Supreme Court Finds Construction Defects Do Not Arise From An Occurrence

November 8, 2012
TRED EYERLY, INSURANCE LAW HAWAII

The Ohio Supreme Court recently determined that underlying obligations of defective workmanship are not claims for "property damage" caused by an "occurrence." Westfield Ins. Co. v. Custom Agri. Systems, Inc., 2012 Ohio LEXIS 2485 (Ohio Oct. 16 2012).

The case evolved from a certified question from the United States Court of Appeals for the Sixth Circuit. A property owner sustained damages from defects in a steel grain bin constructed by the insured, Custom Agri Systems, Inc. When the property owner sued, Custom tendered the suit to Westfield, its insurer. Westfield argued none of the claims against Custom for defective construction or consequential damages resulting from the defective construction were "property damage" caused by an "occurrence."

Mr. Eyerly can be contacted at te@hawaiilawyer.com


Governor’s Office Confirms Passage of HB 924 and Revised Definition of “Occurrence”

June 10, 2011
Tred R. Eyerly

Since late last week, we have heard rumors that HB 924 was signed by the Governor. Before today, there was no confirmation of this on either the Legislature's or the Governor’s websites. As you recall, HB 924 states that “occurrence” in a liability policy “shall be construed in accordance with the law as it existed at the time that the insurance policy was issued.” The bill was originally drafted to more aggressively overturn the Hawaii Court of Appeal’s decision in Group Builders v. Admiral Ins., 123 Haw. 142, 231 P.3d 67 (Haw. Ct. App. 2010). Read the full story… Read HB 924 Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com


Massachusetts exclusions j(5) and j(6) “that particular part.”

April 27, 2011
CDCoverage.com

In E.H. Spencer & Co., LLC v. Essex Ins. Co., No. 09-P-1812 (Mass. Ct. App. April 8, 2011)(unpublished), insured Spencer was the general contractor for a residence. During construction, the project suffered water penetration damage resulting from a window left open by a subcontractor and the puncture of a heating system pipe while Spencer was installing roof shingles. Spencer sought coverage under its CGL policy issued by Essex. Essex denied coverage and Spencer filed suit. Read the full story… Reprinted courtesy of CDCoverage.com


Wisconsin “property damage” and exclusion l.

April 4, 2011
CDCoverage.com

In General Casualty Co. of Wis. v. Rainbow Insulators, Inc., No. 2010AP347 (Wis. Ct. App. March 31, 2011), claimant condominium project general contractor KBS sued insured framing and drywall contractor E&A for breach of contract alleging that, as a result of E&A’s negligent installation of channels to the drywall resulting in noise problems, residents of the project suffered loss of use of their units and KBS incurred costs in repairing E&A’s work by demolishing E&A’s work and correctly reinstalling the channels.
Read the full story....
Reprinted courtesy of CDCoverage.com


California Appeals Court Rules For Insurer in Construction Defect Coverage Case

February 12, 2011
Roberto Ceniceros

In Forecast Homes Inc. et al. vs. Steadfast Insurance Co. California’s Fourth Appellate District Court found that only a named insured, as opposed to an additional insured can satisfy a general liability policy’s SIR. In its decision, certified for publication on February 11, 2011, the court ruled in favor of the respondent Steadfast Insurance Company. View Appellate Decision.Read Full Story


Will Your Insurance Help? The Coming Wave of Defects Litigation — Contractors should not accept insurer exclusions without taking a closer look

February 11, 2011
Linda D. Fornfeld and Marla H. Hanemitsu

In the January/February 2011 issue of AGC Constructor, Dickstein Shapiro LLP Insurance Coverage Partners Linda D. Kornfeld and Marla H. Kanemitsu wrote an article entitled, Will Your Insurance Help? The Coming Wave of Defects Litigation: Contractors, subcontractors and other companies involved in the construction boom of the early 2000s may soon find themselves the subject of expensive construction defects litigation. Many states, including California and Florida, have 10-year statutes of limitation for latent construction defects claims and lawsuits are often filed in the ninth year, just before the statute of limitations expires. This means that in the next five years, the construction industry may be flooded with construction defects suits.Insurance can be an invaluable resource for defendants caught in the flood. If sued, a company should immediately review all applicable insurance policies and promptly give notice of the suit to its insurers. But identifying the policies and giving notice is rarely the end of the story. Insurers frequently respond to construction defect lawsuits by denying coverage. Some common insurer arguments and potential policyholder counter-arguments are discussed in the complete article.Read the full story...Reprinted courtesy Linda D. Kornfeld and Marla H. Kanemitsu, Dickstein Shapiro LLP, in AGC Constructor. Ms. Kornfeld can be contacted at kornfeldl@dicksteinshapiro.com and Ms. Kanemitsu at kanemitsum@dicksteinshapiro.com.


Legislative Bill Seeks to Address Group Builders’ Decision on Construction Defects

February 7, 2011
Tred R. Eyerly

In Group Builders, Inc. v. Admiral Ins. Co., 123 Haw. 142, 231 P.3d 67 (Haw. Ct. App. 2010), the Hawaii Intermediate Court of Appeals determined that construction defects did not arise from an occurrence and therefore were not covered under a CGL policy. [See our Group Builders' post here]. Bills were recently submitted to the Hawaii State Legislature in an effort to rectify the Group Builders’ decision.The bills are identified as SB1192, HB939 and HB929. They are patterned after a Colorado statute, Colo. Rev. Stat. sec. 13-20-808, seeking to overturn an appellate court decision, General Security Indemnity Co. of Arizona v. Mountain States Mutual Cas. Co., 205 P.3d 529 (Colo. Ct..App. 2009). Similar to Group Builders, General Security held that damages from faulty workmanship did not arise from an occurrence. Ironically, Group Builders relied heavily upon the General Security”s outline of the majority/minority positions regarding construction defects.Read the full story...Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com


Seventh Circuit Remands Construction Defect Case in Light of Sheehan

January 26, 2011
Tred R. Eyerly - Insurance Law Hawaii

In a prior post, we noted the Indiana Supreme Court held that the CGL policy covers damage to a home structure resulting from shoddy subcontractor work unless the subcontractor work was intentionally faulty. See Sheehan Constr. Co. v. Cont’l Cas. Co., 935 N.E. 2d 160 (Ind. 2010). In a subsequent construction defect case, the Seventh Circuit reversed the district court’s decision in favor of the insurer and remanded for reconsideration in light of Sheehan. See Trinity Homes LLC v. Ohio Cas. Ins. Co., 2010 U.S. App. LEXIS 25983 (7th Cir. Dec. 22, 2010).The insured entered into thousands of contracts to build homes. Each contract provided the insured would be the general contractor and warranted that the homes would be free of defects caused by poor workmanship. The insured hired a number of subcontractors to do the actual home construction. Due to faulty work done by the subcontractors, a number of the homes were plagued with structural problems. These defects allowed water to enter the homes, which in turn resulted in physical damage to the residences and health problems for the occupants. In thirteen different suits, including multiple class actions, the homeowners sued the insured for the costs associated with remedying the subcontractor’s deficient work. The insured had multiple primary CGL policies and an umbrella policy with Cincinnati Insurance Company that covered liability in excess of or not covered by the CGL policies. None of the insurers would defend the insured. When the insured sued, most of the CGL carriers settled for at least 75% of the policy limit, with the insured being responsible for the remainder of the limit, functionally exhausting the CGL policy. Ohio Causality, however, claimed the damage arising from faulty subcontractor work was not "property damage" caused by an "occurrence" within the meaning of its CGL policy. Cincinnati Insurance also argued its umbrella policy was not triggered because a number of the CGL policies were neither completely exhausted nor otherwise unavailable. On cross motions for summary judgment, the district court ruled for the insurers. Ohio Casualty’s policy did not cover the underlying home damage. Read the Full Story...


Texas Supreme Court Revisits Workplace Injury Case

January 24, 2011
For Immediate Release

The Supreme Court of Texas recently held a rare rehearing of a unanimous decision listening to arguments about whether it erred last year in ruling that a contract employee who suffered on-the-job injuries couldn’t sue the company that owns the work site. The court’s decision to revisit the case involving John Summers vs. Entergy Gulf States came after a bipartisan group of Texas lawmakers - along with labor groups and accident victims protested the original ruling, saying the Texas justices got it “flat-out got it wrong.” "It’s a reckless deregulation of Texas workplaces," said Craig McDonald, the director of Texas for Public Justice. "If this ruling is allowed to stand, there will be more accidents, more injuries and more deaths."Briefly, turbine mechanic John Summers was a contractor when he suffered back, shoulder and arm injuries in a 2001 accident while repairing a leak on a hydrogen generator at an Entergy Gulf States plant in Bridge City. He sued Entergy, a power provider with regulated utilities in Louisiana, Mississippi, Arkansas and Texas.The court said Entergy was immune from the lawsuit because Summers was covered by a workers’ compensation policy purchased by the company. The ruling extended immunity provisions to work site owners when such provisions had previously shielded only employers sued by their direct employees.The court’s decision also means that a “property owner could act as its own general contractor and could provide workers’ compensation coverage to its subcontractors’ employees,” said Lee Parsley, an attorney for Texans for Lawsuit Reform. “That decision was correct.” In arguing before the court Entergy attorney Jacqueline Stroh told the justices that “nothing warrants any consideration of this original opinion.”But Summers’ attorney Collyn Peddie argued the ruling rendered the term general contractor “meaningless and absurd,” and opened loopholes for most Texas companies to claim immunity from workers’ lawsuits. Peddie also argued that the Legislature never intended work site owners to be immune from injury lawsuits from contractors, a point supported in a brief signed by two Democratic and two Republican lawmakers. The lawmakers said the Workers’ Compensation Act provides protection from liability to employers who have purchased workers compensation insurance for their direct employees but was not meant to extend to employers who hired independent contractors.“There is nothing in the legislative history that says they intended this result,” Peddie said. An unusual coalition that brought together union leaders, and both Republican and Democratic lawmakers, has criticized the ruling, albeit for different reasons. State Rep. Craig Eiland, a Democrat from Galveston, said the court overstepped its authority and “caused chills and shivers among legislators ... who do not want activist courts.”Other critics include relatives of the 15 workers killed in a 2005 BP plant explosion, who in April urged the Legislature to undo the court’s ruling. Some of those hurt in the explosion wouldn’t have been able to sue, said Eiland, whose district includes Texas City, site of the BP plant explosion. “If this law had been in place, people ... who were maimed, crippled and burned would have been limited to Texas workers’ compensation,” Eiland said. The hearing was held at Southern Methodist University’s Dedman School of Law. The Texas State Supreme Court routinely holds hearings at law schools and other sites around the state.Read the court’s full decision here.


Homebuilders Coverage Introduces New Easy Online Builders Risk Product — New online tools from Homebuilder’s Coverage

January 24, 2011
PR Newswire

Homebuilders Coverage Insurance Program, a national leader in the development and underwriting of residential and commercial construction, now offers a convenient tool for busy agents and brokers looking to write new business with speed and efficiency.The Builder’s Risk Single-Shot Worksheet is an online builder’s risk proposal form available at www.homebuilderscoverage.com. Agents simply download the electronic form and complete the required fields to auto-generate a Single-Shot Builder’s Risk Proposal for their clients or prospects.Program Director Clark Schryver says, “Our Builders Risk product is easy for independent agents to use, and since we have the pen, we can bind coverage faster than anybody.”Read Full Story...


SC High Court: Builders to Pay for Errors, Not Insurers

January 24, 2011
KATY STECH, postandcourier.com

Monday, January 24, 2011 — CHARLESTON — South Carolina’s high court issues ruling that promises to redefine risk management for the states builders, developers and subcontractors. Under the new ruling general contractors might be held solely liable for financial damages arising from construction defect litigation. Previously these claims and the attendant financial exposure to builders are handled through their (the contractors) commercial general liability policies.The S.C. Supreme Court’s decision shits the burden of responsibility substantially to the general contractor, causing a great deal of concern among the states general contractors.The court’s decision surprised the construction community and attorneys who represent the building industry. Both parties are asking state lawmakers for a bill that would protect contractors from paying out lawsuit settlements. “Even the most conscientious builders can get caught up in these things,” said Jenny Costa Honeycutt, an attorney with Haynsworth Sinkler Boyd in Charleston.Read Full Story...


Indiana Court Adopts Uniform, Not Site-Specific, Interpretation of Pollution Exclusion

January 24, 2011
Tred R. Eyerly, Insurance Law Hawaii

Where the insured faces environmental suits in several states, should the law governing the liability policy be “site-specific,” meaning the law of each state in which allegations of injury or property damage arise governs the policy’s interpretation, or “uniform,” whereby a single state’s law governs? In Nat’l Union Fire Ins. Co. of Pittsburgh, Pa. v. Standard Fusee Corp., No. 49S04-1006-CV-318 (Ind., Dec. 29, 2010) (opinion here), the court favored a uniform interpretation. Read Full Article...


No Coverage for Damages or Losses Resulting from Chinese Drywall

January 19, 2011
Tred R. Eyerly - Insurance Law Hawaii

In this multi-district litigation, the court considered the insurers’ motions to dismiss plaintiffs’ suits for alleged property damage caused by Chinese drywall. In Re: Chinese Manufacture Drywall Products Liability Litigation, 2010 U.S. Dist. LEXIS 133497 (E.D. La. Dec. 16, 2010). After determining there was coverage, the court considered several exclusions and the ensuing loss provisions in the various policies. Ultimately, the court found no coverage and granted the motions to dismiss. Plaintiffs filed suit against the manufacturers, distributors, sellers and installers of Chinese drywall and their insurers. Plaintiffs alleged the drywall emitted foul odors, and damaged metal and electronic elements and devices in their homes. Considering the insurers’ motions to dismiss and for judgment on the pleadings filed by several of the insurers, the court initially noted that the policies all defined "property damage" to include loss of use of tangible property. Therefore, the damage caused by the Chinese drywall constituted a covered physical loss since the drywall prevented the Plaintiffs from fully using and enjoying their homes. The Court then turned to the policies’ exclusions. First, the insurers failed to meet their burden to demonstrate that the damage caused by the Chinese drywall was a latent defect. Second, the pollution and/or contamination exclusion was not applicable. The Chinese drywall was not environmental pollution as contemplated by the Louisiana Supreme Court’s analysis of the Read Full Story...


Justice Alito’s Insurance Coverage Decisions

January 17, 2011
Tred R. Eyerly - Insurance Law Hawaii

United States Supreme Court Justice Samuel Alito will participate in the University of Hawaii law school’s Jurists-in-Residence Program the week of January 24, 2011. In honor Justice Alito’s visit, we offer a sampling of insurance coverage decisions he has authored. We did not locate any insurance coverage opinions Justice Alito has written while serving on the Supreme Court. He did write, however, several insurance coverage decisions will sitting on the Third Circuit Court of Appeals. The cases frequently tackled complex insurance coverage issues involving a variety of commercial and business transactions. From this sampling, Justice Alito’s pro-policy holder and pro-insurer decisions are fairly evenly divided. Special thanks to fellow Damon Key blogger, Mark Murakami (www.hawaiioceanlaw.com), for his help in locating these cases. Cases Favorable to Insureds: 1) MBIA Ins. Corp. v. Royal Indemn. Co., 426 F.3d 204 (3d Cir. 2005) The Student Finance Corporation ("SFC") made loans to vocational students. Wilmington Trust and Wells Fargo loaned money to SFC, and took a pool of student loans as security. To encourage these loans, SFC obtained policies with Royal to insure the repayment of interest and principal on the student loans. The policies stated Royal’s liability would be unaffected by fraud and expressly waived any defense it could otherwise raise to avoid payment. When it turned out SFC was running a ponzi scheme and unable to repay the loans, Wilmington and Wells Fargo sought indemnity from Royal. Read Full Story...


South Carolina Rules that Faulty Workmanship is not an “Occurrence” and not a covered event under a CGL policy

January 12, 2011
Clay Olsen - Olsen

Attorney Clay Olsen’s South Carolina Construction Defect Blog recently posted some analysis of recent decisions in South Carolina which promise far reaching implications to construction defect and claims litigation in the state. The analysis focuses on two South Carolina Decisions LJ v. Bituminous, as well as the Auto Owens v. Newman matters.“South Carolina’s Supreme Court has made a loud statement which will certainly cause controversy within our borders as homeowners and builders will be affected directly by this decision. In pertinent part, the court reasoned that the natural consequence of faulty construction is property damage and this is, therefore, not an accident. There is no ‘fortuitous event’ as property damage is a natural result of faulty workmanship.”Read full article...


New Hampshire property damage and occurrence

January 11, 2011
CDCoverage.com

In Concord Gen. Mut. Ins. Co. v. Green & Co. Building & Development Corp. , No. 2009-699 (N.H. Sept. 17, 2010), insured Green was the developer and general contractor for a residential development. Green subcontracted with Birch for construction of the chimneys. After completion and sale of the homes, several owners sued Green seeks damages for the repair of defective chimneys resulting in carbon monoxide leaking into the homes. Green s CGL insurer, Concord, defended the suits under a reservation of rights and filed a declaratory judgment action. Green resolved the underlying suits by either repairing the defective chimneys or reimbursing those homeowners who had repaired their chimney. Read the full story...


New Jersey occurrence

January 5, 2011
CDCoverage.com

In Pennsylvania Nat l Mut. Cas. Ins. Co. v. Parkshore Dev. Corp., No. 09-3821 (3rd Cir., Dec. 10, 2010)(unpublished), insured Parkshore was the developer and general contractor of a condominium project for which it used subcontractors to perform all of the work. Parkshore was sued post-completion by the homeowners association seeking damages for moisture penetration property damage to common elements, alleging breach of contract, negligence, breach of warranties, and statutory consumer fraud.Read the full story...


New Jersey’s 3rd Circuit Addresses Construction Defect Coverage Law

January 5, 2011
Lexis Nexis Torts and Personal Injury Law Community - Randy Maniloff, Partner, White and Williams LLP

“I could sit here and tell you that construction defect litigation (and the consequential coverage litigation) is spiraling out of control. But if I did, I couldn’t put it as well as the California Court of Appeals did in a case issued earlier this year. Characterizing a construction company’s view of the current state of construction defect affairs issue, the court stated:‘It is not too much of an exaggeration to say that as soon as the last nail in a project is hammered and the keys are handed over to the homeowners, the ink on the first lawsuit over the construction of the homes is starting to dry.’”Read full article......



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