Insurance Law Hawaii

Insurer Not Entitled to Summary Judgment on Construction Defect Claims

   The insurer unsuccessfully moved for summary judgment, contending it had no obligation to defend two related underlying construction defect cases. Amerisure Ins. Co. v. R.L.Lantana Boatyard, Ltd., 2012 U.S. Dist. LEXIS 2466 (S.D. Fla. Jan. 9, 2012).

    An engineering report noted design construction defects and deficiencies in visible, physical improvements at The Moorings at Lantana Condominium. In two lawsuits, The Moorings sued the developer,R.L. Lantana Boatyard ("RLLB"), and the contractor, Current Builders of Florida.

    Current Builders was insured by Amerisure. RLLB was named as an additional insured under the Amerisure policy. Amerisure defended both suits, but sued for declaratory judgment to establish it had no duty to indemnify RLLB for claims in the underlying actions.

    Amerisure moved for summary judgment. Through discovery, Current Builders admitted that no construction that could have given rise to the damages alleged in the underlying complaints began before November 16, 2003, the date on which Amerisure's policy expired. In its opposition, RLLB attached an affidavit stating that Current Builders commenced work, including structural work, several months prior to November 15, 2003.

   Amerisure contended that because neither of the underlying complaints alleged damages sustained to the building's structural foundation, but only to visible, physical improvements, there was no genuine issue of material fact which would preclude summary judgment. The court disagreed. It was possible that a defect in the structural foundation from work performed during the policy period caused some of the defects outlined in the complaints. For example, a defectively constructed foundation could result in foundational movement which could have caused some of the cracks in stucco outlined in the engineer's report.

   Therefore, a genuine question of fact existed with regard to whether the defects alleged in the underlying complaints were caused by potential structural defects arising from work completed during the policy period.

Contractor's Coverage For Additional Insured Established by Unilateral Contract

   The contractor was covered as an additional insured under the subcontractor's policy even though the parties had never actually signed an agreement to add the contractor to the policy. Evanston Ins. Co. v. Westchester Surplus Lines Ins. Co., 2011 U.S. App. LEXIS 20081 (9th Cir. Oct. 3, 2011).

    The policies held by Bellevue Master, the general contractor, required it to be an additional insured under any subcontractor's liability policy. Northwest Tower Crane Services was a subcontractor. Bellevue Master LLC, faxed a message that Northwest could continue to be a subcontractor on the project if it complied with Bellevue Master's insurance requirements. Northwest contacted its insurance broker and requested an insurance certificate be issued to Bellevue Master so that it would be an additional insured under Northwest's policy. 

   When a loss occurred, Bellevue Master's insurers denied coverage, contending Bellevue Master had failed to contract with Northwest to became an additional insured under Northwest's policy. The district court agreed.

   The Ninth Circuit reversed. A unilateral contract existed when one party offered to do a certain thing in exchange for the other's performance and the other party performed, constituting acceptance. Bellevue Master's fax was an offer: Northwest could continue as a subcontractor if it complied with Bellevue Master's insurance requirements. Northwest accepted the unilateral contract when it added Bellevue Master to its policy. Therefore, the policy covered Bellevue Master as an additional insured, and Bellevue Master's insurers were obligated to provide coverage.

Broad Interpretation of Additional Insured Endorsement Allows Coverage

   The interpretation of the additional insured endorsement was key to determining coverage in Lancaster v. Ferrell Paving, Inc., 2011 Tenn. App. LEXIS 507 (Tenn. Ct. App. Sept. 20, 2011).

   Ferrell Paving, Inc. used a warehouse to store its construction materials. Ferrell employed Imperial Guard Service, Inc. to provide security services for the warehouse. One evening, an Imperial Guard employee was shot by intruders while he was on duty. The guard sued Ferrell, alleging negligence in failing to protect him.

   Ferrell believed it was an additional insured under Imperial Guard's policy, so it tendered its defense to Everest Indemnity Insurance Company. Everest denied coverage, contending Ferrell was not an additional insured under an endorsement reading,

Who is An Insured 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.

The Schedule did not name a person or organization, but stated, "BLANKET WHERE REQUIRED BY CONTRACT."

   Imperial Guard and Ferrell had entered a written contract, but it did not mention additional insured status. Pursuant to an oral agreement, however, Imperial Guard had added Ferrell as an additional insured under the endorsement. The trial court concluded that Ferrell was an additional insured, but that it was not covered because it was allegedly negligent.

   The appellate court reversed. Everest argued the endorsement only provided coverage to the purported additional insured for vicarious liability that arose out of the ongoing operations of the insured. Therefore, the additional insured was not covered for its own negligence. The court, however, agreed with the majority view.Coverage for an additional insured "with respect to liability arising out of [the named insured's] ongoing operations performed for [the additional] insured" meant the additional insured's coverage was not limited to instances of vicarious liability for the negligence of the named insured.

   Here, Ferrell's alleged liability for the employee's injury arose out of Imperial Guard's ongoing operations performed for Ferrell. Therefore, Ferrell was covered by the additional insured endorsement.

No Coverage Under Ensuing Loss Provision

   The cost of removing and replacing cracked flanges to prevent future leakage was not covered as an ensuing loss under a builder's risk policy in RK Mechanical, Inc. v. Travelers Prop. Casualty Co. of Am., 2011 U.S. Dist. LEXIS 83958 (D. Colo. Aug. 1, 2011).

   The insured, RK Mechanical Inc., was a subcontractor hired to install plumbing for a residential construction project. RK was an additional insured on the general contractor's policy with Travelers. RK installed approximately 170 CPVC flanges on the project. Subsequently, two of the flanges cracked, allowing water to overflow and causing water damage to the project. Travelers was notified of the flange failure and resulting water damage.

   RK subsequently removed and replaced the two cracked flanges and began water remediation. Travelers paid for the cost of the water damage due to the cracked flanges.

   RK then examined all of the flanges installed in the project and discovered many were cracked and/or showed signs of potential failure. RK removed and replaced the cracked flanges. RK tendered a claim and demand for indemnity to Travelers for these repair costs. Travelers denied the claim. RK then sued for breach of contract and declaratory relief. The parties filed cross motions for summary judgment.

   The court first determined that coverage for faulty and defective materials, workmanship, and maintenance were excluded. The court then turned to the ensuing loss provision, which read:

3. We will not pay for "loss" caused by or resulting form any of the following. But if "loss" by a Covered Cause of Loss results, we will pay for the resulting "loss."

. . .

d. faulty, inadequate or defective . . . materials, workmanship or maintenance.

   The court agreed that the costs to remediate and repair property damaged by the water and caused by the cracked flanges fell within the ensuing loss provision. The court disagreed, however, that each of the remaining flanges posed a risk of loss that was covered as an ensuing loss.

   An ensuing loss provision did not cover loss caused by the excluded peril; it covered loss caused to the property wholly separate from the defective property itself. Here, it covered the escaping water, not the cracked flange. Therefore, the cost of correcting the defect was not an ensuing loss.

Competing "Other Insurance" Provisions Considered to Determine Coverage Obligations

    Wright-Ryan was hired as the general contractor to construct a building at the University of Southern Maine.  Wright-Ryan Constr., Inc. v. AIG Ins. Co. of Canada, 2011 U.S. App. LEXIS 15502 (1st Cir. July 27, 2010).  Wright-Ryan subcontracted with Norgate Metal, Inc. for the fabrication and erection of structural steel for the project.  Norgate obtained a CGL policy from AIG which named Wright-Ryan as an additional insured.

   An employee of a company hired by Norgate was seriously injured at the construction site.  The employee sued Wright-Ryan and Norgate for negligence.  Wright-Ryan tendered the suit to AIG.  When AIG failed to respond,  Wright-Ryan's insurer, Acadia, agreed to defend. The underlying case eventually settle for $150,000.

   Wright-Ryan and Acadia sued AIG for a declaratory judgment. The parties each moved for summary judgment.  A magistrate judge decided the AIG policy was excess to the Acadia policy and granted AIG's motion for summary judgment.

      The First Circuit reversed. The court focused on the nearly identical "other insurance" provisions in both policies.  Each policy said it was excess over "any other primary insurance available to you . . . ." Such provisions were a standard element of liability insurance policies, intended to govern the relationship between and obligations of insurers whose policies provide overlapping coverage for the same loss.  Here, Wright-Ryan had coverage for the underlying claim under both the AIG and Acadia policies.

      The meaning of "you" in each policy was critical.  Wright-Ryan and Acadia argued that "you" meant only the "Named Insured" identified in each policy.  Read in this manner, the Acadia policy would be excess to AIG's, and the AIG policy would be primary.  AIG, on the other hand, argued "you" equated with the Named Insured as well as any Additional Insureds added to the respective policies.

   Reviewing various provisions in the policies, the court determined that the definition of "you" was unambiguous.  It referred solely to a person or organization listed as a Named Insured in the policy Declarations. 

   Accordingly, "you" meant solely Norgate in the AIG policy and Wright-Ryan in the Acadia policy.  The Acadia policy could thus be read as follows: "This insurance is excess over . . . any other primary insurance available to [Wright-Ryan] . . . ."  The AIG policy could be read as, "This insurance is excess over . . . any other primary insurance available to [Norgate] . . . ."  The AIG provision had no application because Norgate was not an additional insured on the Acadia policy.  Reading the two policies together, the AIG policy was treated as primary and the Acadia policy as excess.

"Other Insurance" and Indemnity Provisions Determine Which Insurer Must Cover

   A policy's "other insurance" clause and a contractual indemnity provision were at the root for determining which of two insurers had to cover for injuries at a construction site. Valley Forge Ins. Co. v. Zurich Am. Ins. Co., 2011 U.S.Dist. LEXIS 76061 (N.D. Calif. July 14, 2011).

   Hathaway was the general contractor at a demolition and construction project. Hathaway was insured by Zurich. Reinhardt Roofing was the roofing subcontractor. Reinhardt was insured by Valley Forge under a policy which named Hathaway as an additional insured. The subcontract also required Reinhardt to indemnify Hathaway for acts or omissions arising from Reinhardt's work unless Hathaway was solely negligent.

   Four of Reinhardt's workers were injured when a canopy roof on which they were working collapsed. At the time of the accident, Hathaway's on-site supervisor was inspecting a gap in the canopy roof, but did not order Reinhardt's workers to stop working. 

   The four injured workers sued Hathaway. Valley Forge defended and paid for the settlement. The Zurich policy stated if any other policy covered Hathaway as an additional insured, then Zurich's policy would be excess over the other insurance. Therefore, Zurich refused to participate in the defense or settlement of the underlying case.

   Valley Forge filed suit against Zurich seeking reimbursement.  Cross motions for summary judgment were denied.

   When Zurich moved for reconsideration, Valley Forge contended Zurich's policy was not a true excess policy, but a primary policy with an excess only "other insurance clause." The Court agreed.  An "other insurance" clause attempted to reduce the insurer's liability under the policy to the extent another policy covered the same risk.  A policy with an excess only "other insurance clause" was a primary policy, not a true excess or secondary insurance.

   Genuine issues of fact remained, however, with regard to whether Reinhardt was solely negligent and therefore whether Zurich's "other insurance clause" would contractually preclude recovery by Valley Forge. If the terms of the indemnification provision were satisfied, then the indemnification, not the insurance policies, would determine whether Valley Forge could recover from Zurich.  Genuine issues of fact existed with regard to the negligence of Hathaway as general contractor, Reinhardt as roofing subcontractor, and a third party, the architect of the project.

   In summary, if Zurich established that the indemnification agreement applied, Valley Forge could not recover from Zurich. If Zurich was unable to show the accident was connected with Reinhardt's work, the indemnification provision would not apply and the insurance policies would take effect.

Defense for Additional Insured Not Barred By Sole Negligence Provision

   A general contractor was entitled to a defense as an additional insured when the underlying complaint did not allege it was solely negligent. A-1 Roofing Co. v. Navigators Ins. Co., 2011 Ill. App. LEXIS 656 (Ill. Ct. App. June 24, 2011).

   A-1 was the general contractor for a roof resurfacing job at a high school. Jack Frost Iron Works Inc. ("Frost") was one of A-1's subcontractors. Frost had a CGL policy with Navigators Insurance Company under which A-1 was an additional insured.

   An employee of Frost's subcontractor Midwest Sheet Metal Inc. was killed at the job site when a boom-lift he was operating flipped over. The boom-lift had been leased by another Frost subcontractor, Bakes Steel Erectors, Inc. (BSE). The deceased's estate filed suit against A-1, BSE and two other defendants.

   A-1 then filed a declaratory judgment action against Navigators, seeking a judgment that the insurer had a duty to defend and indemnify A-1. The trial court found Navigators had no duty to defend or indemnify A-1 because the underlying complaint did not state a cause of action against the insured, Frost.

   On appeal, the court noted that the policy stated that an additional insured was covered "with respect to liability arising out of 'your work' for that insured by or for you." "Your work" was defined as "work or operations performed by you or on your behalf." The underlying complaint alleged the decedent's death occurred while BSE was performing its work on Frost's behalf, in furtherance of work Frost was contractually obligated to perform for A-1. A-1's liability in the underlying suit arose out of work performed for A-1 on behalf of Frost by BSE. Therefore, the claim against A-1 was within the scope of the additional insured endorsement.

   Next, the court considered whether the policy's "sole negligence clause" negated Navigator's obligation to provide coverage to A-1. The sole negligence provision stated coverage did not apply "to any claim arising out of the sole negligence of any additional insured or any of their agents/employees." The underlying complaint did not allege that the decedent's injuries arose solely from A-1's negligence. Instead, the complaint alleged negligence on the part of BSE and two other parties. Because the negligence allegations were not exclusively directed at A-1, the sole negligence exclusion was not triggered to negate coverage as to A-1.

   Therefore the trial court's decision was reversed.

Lack of Coverage for Named Insured Does Not Negate Coverage for Additional Insured

   Although the commercial auto policy excluded coverage for the named insured, coverage was still possible for the additional insured.  Great West Casualty Co. v. Terminal Trucking Col., LLC, 2011 U.S. Dist. LEXIS 30356 (D. S.C. March 22, 2011).

   Wellman, Inc. sold bales of polyester fiber to Milliken & Company.  Wellman contracted with Terminal Trucking Company to deliver the bales of fabric to Milliken.  In August 2007, Wellman loaded a trailer with bales of fabric and a Terminal driver delivered the loaded trailer to Milliken.  Before leaving, the driver unhitched the trailer from his truck and left the trailer on Milliken's property, as instructed by a Milliken employee. 

   The next morning, Sutton, a Milliken employee, approached the trailer to unload the fabric.  A bale inside the trailer fell through the door, hit Sutton, and caused serious injury.

   Sutton sued Terminal and Wellman.  Terminal had a commercial general liability policy and a commercial auto insurance policy with Great West Casualty Company.  Wellman was an additional insured on both policies.  Great West sued for a declaratory judgment, contending there was no coverage for either Terminal or Wellman.

   On motions for summary judgment, the court found there was no coverage under the CGL policy.  An exclusion for aircraft, auto or watercraft provided there was no insurance for bodily injury arising out of the loading or unloading of a trailer.  This exclusion applied not only to the named insured, Terminal, but also to the additional insured, Wellman.  An endorsement stated that coverage provided to the additional insured was subject to all exclusions in the policy.

   Nor was Terminal covered under the commercial auto policy.  The Completed Operations exclusion provided when all work was completed at a site, there was no coverage.  The additional insured endorsement for the auto policy provided coverage for liability based on "the conduct of an 'insured' . . . and only to the extent of that liability."  Unlike the CGL policy, however, the additional insured endorsement did not incorporate all of the exclusions.  Therefore, the Completed Operations exclusion did not apply to Wellman.

   Nevertheless, coverage was available only if Wellman was ultimately found liable for damages resulting from Terminal's conduct.  Sutton alleged the bales of fiber were improperly loaded,the bales shifted during transit,Terminal failed to train its driver to understand the cargo may shift during transit, and Wellman and Terminal had no procedure by which to make sure the load was safe for unloading.  The determination as to whether Wellman's liability was based on Terminal's conduct had to be determined in the underlying litigation.

 

General Contractor Covered As Additional Insured in Personal Injury Suit

   The extent of coverage for a General Contractor as an additional insured was the issue in Kummer Enter., Inc. v. Valley Forge Ins. Co., 2011 U.S.Dist. LEXIS 17726 (W.D. Mich. Feb. 23, 2011).

   The General Contractor contracted to build an addition to a medical center.  One subcontractor, Total Foundations LLC., was required to drill three-foot diameter caisson holes, fill the holes with concrete to within two to three feet below the surface, and install rebar in each hole.  Total also agreed to indemnify, defend, and save the General Contractor harmless from any loss resulting from Total's negligence or intentional acts.  Finally, Total was required to obtain a CGL policy naming the General Contractor as an additional insured.  Total secured a policy from Cincinnati. 

   An employee of another subcontractor was injured when he stepped into one of Total's caisson holes.  He sued the General Contractor, Total and others in state court.  The General Contractor filed a third-party claim for indemnification against Total.  The state court dismissed Total as a direct defendant because Total did not owe a duty to the underlying plaintiff.

   The General Contractor tendered its defense to Cincinnati, but Cincinnati rejected the tender.  The General Contractor then sought a declaration from the federal district court that it was an additional insured under the policy.  Cincinnati did not dispute that the General Contractor was an additional insured.  Nevertheless, Cincinnati argued that the General Contractor was barred under the "sole negligence" exclusion which barred coverage for damages arising out of the sole negligence of the additional insured.  Cincinnati argued that the state court determined that the other defendants in the underlying suit were not liable to plaintiff.  Thus, the General Contractor had to be solely negligent, thereby barring coverage under both the policy and the subcontract. 

   The district court disagreed. Simply because Total had no duty to the underlying plaintiff did not mean that Total was not negligent or that its negligence did not contribute to the plaintiff's injury.  There was a possibility that the jury could find any number of parities, including Total, to be at fault. 

   Consequently, the court granted the General Contractor's motion for summary judgment, declaring that it was an additional insured and that Cincinnati had breached its duty to defend.  Cincinnati's motion to conduct further discovery under Rule 56 (f) was denied because the duty to defend was determined solely on the allegations in the underlying complaint.  Thus, nothing beyond the underlying complaint was necessary to invoke the duty to defend.

Policy Language Provides No Coverage for Additional Insured

   The plaintiff was a developer of a subdivision.  See Standard Pacific of the Carolinas, LLC v. Amerisure Ins. Co., 2011 U.S. Dist. LEXIS 963 (D. S.C. Jan. 5, 2011).  Pursuant to a contract, it hired Matthews Construction as general contractor to build the subdivision.  Matthews agreed to providea general liability policy from Amerisure naming plaintiff as an additional insured.  

   Plaintiff, Matthews and others were sued by Terry Shortt for injuries suffered when he fell off a bike while riding over a deteriorated section of an asphalt path in the subdivision.  The complaint alleged defendants were jointly and severally liable for Shortt's injuries because of their negligence in the design, development, construction, management, and maintenance of the asphalt path.

   Amerisure refused to defend plaintiff, arguing the Shortt claim did not arise out of Matthew's ongoing operations.  The injury occurred several years after Matthews had completed work on the subdivision.  Amerisure argued the policy covered the plaintiff for Matthews' ongoing operations only, not finished and completed work. 

   The policy limited coverage to the ongoing operations of the contractor performed for the additional insured.  The policy allowed for "your work" coverage only if the written contract required "your work" coverage or wording to the same effect.  Nowhere in the written agreement did Matthews agree to provide the equivalent to "your work" coverage.  The plain language of the agreement didnot amount to wording to the same effect of "your work."  Therefore, Amerisure had no duty to defend.