Archive for the ‘Construction Defect Coverage’ Category

Washington Insurance Law: 2013 Year in Review

Tuesday, January 21st, 2014

2013 was a particularly eventful year in Washington insurance law. This paper, authored by Sedgwick Seattle’s Robert Meyers, summarizes the holdings of several notable Washington insurance decisions that were filed in 2013.  Download a copy of the paper here. 

In June 2013, Bob gave a webinar on The State of Bad Faith in Washington.   The WA program, and the others in our bad faith series, are are available for on demand viewing.  Please click here to request a link.

What’s in Store for New Jersey in 2014? Super Bowl XLVIII and Legislation Addressing the “Occurrence” Issue in the Construction Defect Context

Friday, January 3rd, 2014

By Stevi A. Siber-Sanderowitz, Sedgwick New York

The New Year might bring more to New Jersey than just the Super Bowl.  Indeed, on November 25, 2013, the legislature introduced a bill before the New Jersey State Assembly, which, if enacted, would require general liability policies (in policies issued, renewed, or delivered in New Jersey) to contain a definition of “occurrence” which includes damages resulting from faulty workmanship.  The introduction of A4510 is part of a growing trend in state legislatures that seek to resolve the “occurrence” issue by passing laws in a purported effort to clarify the term “occurrence” when determining coverage for construction defect claims.

A4510 provides that a commercial liability insurance policy delivered, issued, executed, or renewed in New Jersey must contain a definition of “occurrence” that includes: (1) an accident, including continuous or repeated exposure to substantially the same general harmful conditions; and (2) property damage or bodily injury resulting from faulty workmanship.

As we’ve previously explained (Is Defective Construction an “Occurrence”?  The Answer Isn’t So Concrete), the definition of “occurrence” in the construction defect context is a thorny issue.  Courts have varied in their holdings as to whether damage from faulty workmanship is accidental in nature and therefore an “occurrence.”  See, e.g., Penn. Nat’l Mut. Cas. Ins. Co. v. Parkshore Dev. Corp., 403 Fed. App’x. 770 (3d Cir. 2010) (holding that a subcontractor’s faulty work that resulted in damage to the insured general contractor’s work was not an “occurrence”); Westfield Ins. Co. v. Custom Agri Sys., Inc., 979 N.E.2d 269 (Ohio 2012) (holding that defective construction work itself is not covered because it is not the result of an “occurrence,” but that the resulting damage may be covered because it was fortuitous and unintended); Lamar Homes, Inc. v. Mid-Continent Cas. Co., 242 S.W.3d 1 (Tex. 2007) (finding coverage for damage to a building’s foundation, sheetrock, and stone veneer allegedly caused by the builder’s defective construction of a house’s foundation).  By requiring a definition of “occurrence” that addresses both accidents and faulty workmanship, A4510 intends to reduce confusion by resolving coverage issues arising from courts’ varying interpretations of those issues.

Keep in mind, however, that if enacted, A4510 would not necessarily obligate insurers to provide coverage for construction defects.  As the bill notes, it is not intended to restrict or limit the business risk exclusions commonly found in general liability policies (e.g., “your work” and “your product” exclusions), which might preclude coverage for faulty workmanship on other grounds.

West Virginia Reverses Course, Concludes that Faulty Workmanship is Covered Under a CGL Policy

Thursday, June 27th, 2013

By Aaron F. Mandel, Sedgwick New York

Last week, the Supreme Court of Appeals of West Virginia issued an opinion holding that faulty construction work qualifies as an “occurrence” under a CGL policy if it causes “bodily injury” or “property damage.” Cherrington v. Erie Insurance Property & Casualty Co., — S.E.2d —, 2013 WL 3156003 (W. Va. June 18, 2013). Cherrington reverses approximately 14-years’ worth of precedent concluding that CGL policies did not cover faulty workmanship.

For a full analysis of Cherrington and other recent case law addressing the “occurrence” issue in the context of faulty construction work, be sure to check out Sedgwick’s Construction Defect Coverage Quarterly when it drops next month.

Prior issues of the Construction Defect Coverage Quarterly can be found here.

  

Construction Defect Coverage Quarterly

Monday, April 29th, 2013

In honor of Earth Day, which recently celebrated its 43rd birthday, the lead article in the current issue of our Construction Defect Coverage Quarterly addresses potential coverage issues implicated by green construction. We also continue the analysis of how various states define “occurrence” under liability policies, and highlight a recent opinion from a Washington federal court enforcing a broad EIFS exclusion.

Please click here to read the CDCQ and let us know if you are intrested in being placed on the mailing list for this quarterly newsletter.

Introducing Construction Defect Coverage Quarterly, and an Analysis of “Occurrence” in Defect Coverage Actions

Thursday, February 7th, 2013

We are pleased to introduce the inaugural issue of Sedgwick’s Construction Defect Coverage Quarterly.  In our first issue, we discuss the definition of an “occurrence” in the construction defect action context, and analyze a recent Colorado case which applied the “business risk exclusion” to preclude coverage.

As we note in the newsletter, one of the largest issues litigated in today’s construction defect coverage actions is whether defective construction constitutes an “occurrence” (and, therefore, may be covered) under liability insurance policies.  In addition to the analysis in the newsletter, we thought our readers would be interested in this case from the Ohio Supreme Court which held that faulty construction work does not qualify as an “occurrence” within the meaning of a general liability policy.

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Through its recent opinion in Westfield Ins. Co. v. Custom Agri Systems, Inc., 2012 WL 4944305 (Ohio Oct. 16, 2012) (“Westfield”), the Ohio Supreme Court joined the majority of states in holding that faulty construction work does not qualify as an “occurrence” within the meaning of a general liability policy.  

In Westfield, Younglove Construction (“Younglove”) contracted with PSD Development (“PSD”) to construct a feed manufacturing plant.  After PSD withheld payment, Younglove sued PSD for breach of contract in Ohio federal court.  In its answer, PSD alleged that one of Younglove’s subcontractors, Custom Agri Systems, Inc. (“Custom”), defectively constructed a steel grain bin, but did not allege that Custom’s defective construction work damaged PSD’s other property.  Younglove then sued Custom for contribution and indemnity, and Custom sought a defense and indemnity from its general liability insurer, Westfield Insurance Company (“Westfield”).  Westfield intervened in the action, seeking a declaration it was not obligated to provide coverage to Custom because Younglove’s claim against Custom did not seek damages arising out of “property damage” caused by an “occurrence.”  Westfield and Custom cross-moved for summary judgment on the issue.

In deciding the motions, the court acknowledged that Ohio law did not address whether defective construction work qualifies as an “occurrence” within the meaning of a liability policy.  Rather than decide the issue, however, the court found that a contractual liability exclusion in Westfield’s policy precluded coverage and granted summary judgment to Westfield.  Custom appealed to the Sixth Circuit, and Westfield filed an unopposed motion to certify two questions of state law to the Ohio Supreme Court:  whether a property owner’s claims of defective construction allege “property damage” caused by an “occurrence” under a commercial general liability policy, and, if so, whether contractual liability exclusions nevertheless preclude coverage for such claims.  The Sixth Circuit granted Westfield’s motion, and the Ohio Supreme Court accepted certification.

Addressing only the first question because the court believed it was dispositive, the Ohio Supreme Court held that defective construction does not constitute an occurrence.  The court reasoned that general liability policies are “not intended to protect business owners against every risk of operating a business,” nor are they “intended to insure the risks of an insured causing damage to the insured’s own work.”  The court also looked at court decisions in other jurisdiction, and found the majority view is that claims of defective construction are not claims for “property damage” caused by an “occurrence” within the meaning of general liability policies.  The court then analyzed whether Custom’s defective construction of the grain bin was an “occurrence,” noting the policy defined “occurrence” as an “accident including continuous or repeated exposure to substantially the same general harmful conditions.”  Although the policy did not define “accident,” the court noted that the term has an inherent “fortuity principle” under which losses must be “unexpected, as well as unintended,” and concluded that Custom’s defective work on the steel grain bin was not an “occurrence.”

by Aaron F. Mandel and Stevi A. Raab

Pennsylvania Court Finds No Coverage for Construction Defect Claims Under General Liability Policies

Tuesday, December 11th, 2012

By Stevi Raab

In the case of American Home Assurance Co. v. Trumbull Corp., No. GD-11-006886 (Ct. Com. Pl. Allegheny County, Oct. 10, 2012), the court granted summary judgment in favor of two excess general liability insurers on a matter of first impression relating to coverage for damages caused by alleged faulty workmanship.  The court held that, under Pennsylvania law, general liability policies do not cover such claims.

In 2007, Trumbull Corporation completed construction of a reinforced soil slope and foundation pad for a new J.C. Penney store in southwestern Pennsylvania.  Shortly after the store opened, cracks began appearing in the J.C. Penney store and two additional buildings due to soil settlement.  Three commercial tenants moved out of the shopping center because of the cracks and sued Trumbull for faulty workmanship.  Trumbull submitted the claim to its primary and excess general liability insurers.

Trumbull’s primary insurer agreed to defend it under a reservation of rights, but Trumbull’s excess insurers filed an action against Trumbull seeking a declaration that they were not obligated to provide coverage.  The excess insurers moved for summary judgment, arguing that, under Pennsylvania law, damage to buildings resulting from faulty workmanship does not constitute an “occurrence” under general liability policies.

In considering the excess insurers’ summary judgment motion, the court noted that Pennsylvania courts had previously considered coverage for construction defect claims under three fact scenarios:  (1) where the work itself was damaged; (2) where there was damage to portions of the project and the work was performed under a contract between the insured and property owner; and (3) where there was damage to other portions of the project and there was no contract between the insured and property owner.

Although Pennsylvania courts had consistently agreed that an insurer may properly deny coverage for damage to the faulty work itself, the court noted that the last two situations could be analyzed under two inconsistent lines of reasoning:  the first finding coverage for ancillary damage, and the second concluding that damage resulting from faulty workmanship is never covered because “faulty workmanship can never constitute an accident.”  According to the court, Trumbull presented a fourth situation – i.e., where the faulty workmanship damages the property of a third party who was not involved in the project and had no relationship with the insured.  However, because it concluded that Pennsylvania’s appellate courts have adopted the second of the lines of reasoning described above, the court held that the excess insurers were not obligated to provide coverage to Trumbull.

Trumbull indicates that Pennsylvania courts have adopted a blanket rule that general liability policies do not cover damages resulting from faulty workmanship.  If appealed, the Trumbull decision will provide Pennsylvania’s appellate court with the opportunity to clarify Pennsylvania law regarding coverage for construction defect claims under general liability policies.

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