Insurance Law Hawaii

Contruction Manager Has Defense As Additional Insured

   The court found that the construction manager was an additional insured under the contractor's policy. Turner Constr. Co. v. Navigators Ins. Co., 2015 N.Y. Misc. LEXIS 2704 (N.Y. Sup. Ct. July 23, 2015).

   The owner hired two contractors, Enclos Corp. and Five Star Electric Corp. In their separate contracts with the owner, each contractor agreed to procure a CGL policy naming the owner and a person identified as the construction manager as additional insureds. Travelers was Enclos's insurer, and Navigators Insurance Company was Five Star's insurer.

   Turner was hired to "provide pre-construction services and construction management services for the Project." 

   Plaintiff in the underlying suit, Edward Walls, was an Enclos employee who was injured at the job site. He sued Turner and others for injuries. Turner claimed it was an additional insured under Travelers' policy. Travelers argued Turner was not an additional insured because it was not named in the policy and was nowhere identified as the construction manager. Travelers further contended that Turner was not entitled to a defense because its costs in the underlying action did not equal the deductible in the Travelers' policy. 

   On Turner's motion for summary judgment, the court found that Turner was the construction manager and Enclos' promise in the contract with the project owner to provide additional insured coverage for the construction manager applied to Turner. Additional insured status was conferred under Travelers' policy for any entity that the insured was required by a written contract to name as an additional insured. Enclos's contract with the owner fulfilled this requirement. It did not matter that Turner was not named in the contract or policy. Therefore, Travelers had a duty to defend Turner.

   The Travelers policy had a deductible of $150,000, and the Walls action costs had reached about $58,000 at the time the motion was filed. As an insured, the deductible applied to Turner. When the costs exceeded $150,000, Travelers was responsible for the costs of defending Turner in the Walls action.

   

   

General Partner Is Not Additional Insured For Construction Defect Claim

   The court determined that the project owner's general partner was not an additional insured entitled to a defense and indemnity against claims for construction defects. St. Paul Fire & Marine Ins. Co. v,. Cypress Fairway Condo. Ass'n, 2015 U.S. Dist. LEXIS 94012 (M.D. Fla. July 20, 2015).

   Construction of the Cypress Fairway Condominium project took place in 1999 and 2000. Cypress Fairway Ltd. ("Cypress") was the owner and Vineland Partners , LLC ("Vineland") was its general partner. The general contractor was Winter Park Construction Company ("WPC"). Water intrusion and property damage occurred, but it was unclear when or whether the damage was known. Cypress' expert indicated that the damage began shortly after the end of construction.

    In 2004, the complex was sold to Cypress Madison Ownership Company. In 2010, the Cypress Fairway Condominium Association sued Cypress and Vineland. Count V of the underlying complaint asserted there were construction defects that Cypress and Vineland were responsible for when they owned and managed the project. Count VI alleged that Cypress and Vineland negligently supplied information which the Association relied on for the purchase of the condominiums. 

   Cypress and Vineland entered a settlement with the Association that included a consent judgment for $2.5 million. Policy rights were also assigned to the Association.

   St. Paul had issued three policies to WPC, which named Cypress and Vineland as additional insureds. The policies ran from December 31, 1999 to the end of 2002. While it conceded a duty to defend Cypress, St. Paul argued on summary judgment the policies did not include Vineland as an additional insured because it was not an owner of the property. The policies covered, "[a]ll owners, contractors . . . who require that you add them as an Additional Protected Person in a specific written contract entered into by you." The construction contract required WPC to indemnify the owner, officers, directors, shareholders, partners and many others. This broad and general indemnification provision did not convert all the indemnitees into additional insureds. Therefore, St. Paul had no duty to defend or indemnify Vineland.

    St. Paul also sought a ruling on summary judgment that it had no duty to indemnify because the insureds could not show that the damages occurred during the policy periods. The court determined that the injury-in-fact rule was applicable. The relevant question, therefore, was whether there was evidence that showed damage occurred during the policy period. Defendants' expert testified that damages could have occurred soon after construction was complete. Construction was completed sometime in the year 2000. The policy periods ran from late 1999 to late 2002. The testimony indicated that damage could have happened within the policy periods. 

    As to Count VI, St. Paul argued it had no duty to defend or indemnify because the negligent supply of information did not cause property damage. The court agreed. Representations about the state of the buildings did not cause water intrusion and the resultant property damage. Further, representations were not accidents and could not be "events" within the meaning of the policies. While the Association may have suffered economic damage based on Cypress and Vineland's representations,  it did not suffer property damage caused by an event as defined in the policy.

Additional Insured Status Survives Summary Judgment Stage

   The court determined that the insurer was not entitled to summary judgment in seeking a determination that a hotel was not the additional insured under its elevator repair company's policy. Aspen Spec. Ins. Co. v. Ironshore Indem. Inc., 2015 N.Y. Misc. LEXIS 2413 (N.Y. Sup. Ct. July 7, 2015). 

   Michael Patalano was an elevator repairman employed by Transel Elevator Inc. Transel had a contract to maintain the elevators at Alphonse Hotel. The contract required Transel to name Alphonse as an additional insured on Transel's CGL policy. 

   Patalano was injured while working at the hotel. He sued Alphonse, alleging that while performing work for the hotel, the stairs he was on which he was descending collapsed, causing him to fall and sustain injuries. Alphonse tendered to Ironshore, Transel's CGL carrier.

   The Ironshore policy defined an additional insured as:

. . . any . . . organization for whom you are performing operations when you and such organization have agreed in writing . . . that such person or organization be added as an additional insured on your policy. Such person or organization is an additional insured only with respect to liability for "bodily injury" . . . caused in whole or in part, by:

1. Your acts or omissions; or

2. The acts or omissions of those acting on your behalf;

in the performance of your ongoing operations for the additional insured.

    Ironshore denied additional insured status to Alphonse because: (1) Patalano's accident occurred when he was descending the interior stairway, and therefore the incident was "unrelated to" Transel's work and did not arise out of any Transel's "acts or omissions"; and (2) the complaint in the Patalano action alleged that Alphonse was solely negligent. 

   Alphonse's insurer, Aspen, sued for a declaratory judgment against Ironshore. Ironshore moved to dismiss the complaint. Aspen opposed the motion and moved for summary judgment.

   The court determined that Ironshore failed to meet its burden of establishing, prima face, that Alphonse was not an additional insured. Under New York case law, the phrase "caused by" in an additional insured endorsement did not materially differ from the phrase "arising out of." Where an employee was insured while performing the named insured's work pursuant to a written contract between the named insured and additional insured, there was a sufficient connection to trigger additional insured coverage and fault was immaterial. 

No Bad Faith In Filing Interpleader

   The Eighth Circuit determined that filing an interpleader action in the face of multiple claims against the policy holder did not constitute bad faith. Purscell v. Tico Ins. Co., 2015 U.S. App. LEXIS 10438 (8th Cir. June 22, 2015).

   Ben Purscell's vehicle collided with another vehicle, in which Tim and Amy Carr were riding. The Carrs were injured, and Purscell's passenger, Amy Priesendorf, was killed. Before the accident, Priesendorf had stretched her leg over and put her foot on the accelerator, on top of Purscell's foot. As the other car approached, Purscell swerved to avoid an accident, but the two vehicles collided. 

   Purscell had a policy with Infinity Assurance Insurance Company. The policy limited liability to $25,000 per person and $50,000 per accident for bodily injury. Infinity put the full $50,000 per accident limits on reserve, with $25,000 designated to Priesendorf's fatality and $25,000 designated to the Carrs.

   The Carrs demanded policy limits. Infinity wrote that it needed to complete its investigation to determine whether there was coverage due to Priesendorf's conduct. The Carrs then withdrew their settlement offer before the investigation could be completed. Infinity then learned that Priesendorf's parents intended to pursue a wrongful death claim against Purscell.

   Purscell requested Infinity to settle the Carrs' claims within policy limits. The letter from Purscell's attorney did not reference the wrongful death claim by Priesendorf. Infinity responded by explaining that Priesendorf's parents were also asserting a claim, and the claimants were in negotiations over dividing the full policy limits. Purscell's attorney did not respond. The Priesendorfs subsequently made a formal settlement offer.

   Less than a month later, Infinity filed a petition for interpleader. Meanwhile, the Carrs' suit proceeded to trial and the jury found Purscell and Priesendorf were equally guilty, assessing fifty percent responsibility to each. The jury awarded Tim Carr $830,000 in damages and Amy Carr $75,000 in damages.

   In the interpleader action, the court approved settlement of the Priesendorf wrongful death claim for $7,764.50 in exchange for a full release. The court then apportioned Infinity's $50,000 limits among the parties as follows: $7,764.50 for Priesendorf's parents, $25,000 to Tim Carr, and $17,235.50 to Amy Carr. This left a substantial judgment against Purscell and in favor of the Carrs in excess of his policy limits.

   Purscell sued Infinity for bad faith. The district court granted summary judgment against Purscell, concluding that Infinity did not act in bad faith when it failed to accept the Carrs' early settlement offer for a number of reasons, including: (1) knowing of the fatality and Purscell's potential liability in the wrongful death suit independent of the Carrs' claims for policy limits; (2) Infinity's need to complete a full investigation on coverage issues; and (3) lack of a specific deadline from the Carrs for when the offer would be withdrawn if not accepted.

   The Eighth Circuit affirmed. Infinity's focus on settling all three claims was not evidence of bad faith. It was in Purscell's interest to have all three claims against him settled within the policy limits. When a global settlement could not be reached, Infinity appropriately filed an interpleader action. Further, Infinity did not have a reasonable opportunity to settle Tim Carr's individual claim within policy limits. The Carrs unexpectedly withdrew their only settlement offer shortly after making it, without giving Infinity a reasonable opportunity to investigate and evaluate their claims. 

Ninth Circuit Construes Known Loss Provision

   The Ninth Circuit reversed the district court's award of summary judgment to the insurer after analyzing the known loss provision in the insured subcontractor's policy. Kaady v. Mid-Continent Cas. Co., 2015 U.S. App. LEXIS 10754 (9th Cir. June 25, 2015). 

   The insured was awarded a subcontract to install manufactured stone at the residential project. The stone was affixed to the wall sheathing. The insured also wrapped deck posts with manufactured stone and installed masonry caps on the toe of the stone that was wrapped around the deck posts. 

    After construction was completed, the insured was called back to the project to inspect cracks in the manufactured stone and masonry caps he installed. The insured told the general contractor that the cracks were likely due to settling. Three months after inspecting the cracks, the insured purchased a CGL policy from Mid-Continent.

   The subcontractor was sued by the homeowners. He settled the claims and tendered for indemnification from Mid-Continent. The claim was denied, and the insured sued.

   The insured claimed that the damage to the structures for which he was sued - deterioration of the deck posts and wall sheathing behind the manufactured stone - was "property damage" covered by the policy. The district court, however, awarded summary judgment to Mid-Continent based upon the known-loss provision. This provision stated the policy applied to "'property damage' . . . only if not insured knew that the 'property damage' had occurred." 

   On appeal, the insured admitted that he was aware of cracks in the manufactured stone and masonry caps he installed before he purchased the policy, but he did not know about any of the damage for which he sought indemnity - the damage to the deck posts and wall sheathing behind the masonry. 

   Mid-Continent argued that, so long as the insured knew about any damage to a structure, the known-loss provision barred coverage of any other damage to the same structure. The Ninth Circuit was unpersuaded, however, that it should not treat components the insured provided and components provided by others as separate"property." Once the insured's work was complete, the policy covered damage to property provided by others, including property that the insured's work was "performed on," but it did not cover damage to the insured's own work product. Mid-Continent offered no reason to treat the insured's work and the work of others as different property in every provision of the policy except the known-loss provision. Therefore, the court ruled that the known-loss provision also distinguished between them. The insured's knowledge of damage to his own work did not automatically constitute knowledge of damage to the components of the structure furnished by others.

   Therefore, the insured's knowledge of cracks in the masonry before he bought the policy did not constitute knowledge of the claimed "property damage" as to the structural components. Not only were the wooden deck posts and wall sheathing different "property" than the manufactured stone and masonry caps, the claimed damage was of a different type. If the cracks in the masonry allowed water to seep in and damage the wood beneath, then the claimed damage might be considered a "continuation, change or resumption" of the cracks. But the evidence in the record did not include any evidence connecting the cracks in the masonry that the insured observed before he purchased the policy to the damage to the wooden components for which the insured claimed coverage.

Appraisal Process Analyzed

   The California Court of Appeal offered a primer in the appraisal process in reversing the trial court's confirmation of the appraisal award. Lee v. California Capital Ins. Co., 2015 Cal. App. LEXIS 530 (Cal. Ct. App. June 18, 2015).

   A fire damaged an apartment building owned by the insured. The fire started in unit 3 on the ground floor. The insurer argued the fire did not extend beyond unit 3. The insured claimed that the fire damaged six of the 12 apartments with fire or smoke.

   The insured's public adjuster submitted a claim to the insurer that exceeded $800,000. The statement of loss included costs for cleaning, asbestos abatement, reconstruction of affected apartments, and loss of rent. The public adjuster said the loss consisted of burn damage to unit 3 and some damage to the "common" walls located between the apartments on the two floors above unit 3. All of the interior rooms of five apartments other than unit 3 would need to be completely dismantled and then replaced. 

   When the statement of loss was questioned, the insured filed a petition to compel arbitration. The petition was eventually granted. The appraisal panel was instructed to value: (a) items of loss agreed by the parties to have been damaged by the fire; and (b) items of loss asserted by the insured to have been damaged by the fire but where the insurer disputed coverage. 

   The appraisal panel issued a unanimous appraisal award setting forth the replacement cost loss and actual cash value for each claimed item based upon Exhibits A and B. Exhibit A consisted of items in the insurer's scope of loss:

    Exhibit A replacement cost loss: $190,505.21

    Exhibit A actual cash value loss: $186,041.74

Exhibit B consisted of items in the insured's scope of loss:

    Exhibit B replacement cost loss: $813,844.89

    Exhibit B actual cash value loss: $$788,057.02

The appraisal award stated it took no position on the appropriate scope of construction or method of repair. Further, it made no determination of coverage under the insurance policy.

   The insurer filed a petition to vacate the appraisal award. It argued the panel exceeded is authority by failing to value the loss and instead issuing two vastly different valuations of the same fire loss. It also asserted that the panel valued a theoretical loss, including items that were not damaged or that never existed at the property. The trial court denied the petition. 

   On appeal, the court decided the trial court erred because it directed the appraisal panel to assign loss values to items without regard to whether they were actually damaged. An appraisal panel could assign a value to items as to which coverage was disputed with the disclaimer that the award did not establish coverage or the insurer's liability to pay. The issue of coverage was a separate, legal issue that had to be resolved outside the appraisal process. Nor was it proper for the trial court to order the panel to assign loss values to items that inspection revealed were not damaged or plainly never existed. 

   Therefore, the trial court's order compelling the appraisal for two categories of items, including items claimed by the insured to have been damaged in the fire, was improper. Directing the appraisal panel to assign loss values to items that were undamaged or never existed was improper. 

   Finally, the appraisal award was deficient because it did not provide a single valuation of the loss suffered by the insured. Instead, it presented two competing valuations with an express disclaimer that the appraisal did not determine the appropriate scope and method of repair or whether the submitted items were damaged or ever existed. It was the responsibility of the appraisal panel to resolve factual disputes and arrive at a valuation of the loss. An appraisal should not ordinarily contain two competing valuations for the same items. If one side claimed a room had one window and the other side claimed there were two windows, it was the appraisal panel's obligation to resolve the dispute to arrive at a single value for the loss.

   

   

No Additional Insured Coverage for Subcontractor's Work Outside Policy Period

   In a dispute between two insurers, the district court determined that the contractor was not an additional insured under the subcontractor's policy. Navigators Spec. Ins. Co. v. St. Paul Surplus Lines Ins. Co., 2015 U.S. Dist. LEXIS 79338 (N. D. Cal. June 17, 2015). 

   McDevitt & McDevitt Construction Corporation was the general contractor for construction of a condominium complex. McDevitt was insured by Navigators Specialty Insurance Company. F&M was a subcontractor for the project for providing structural steel components. F&M's subcontract required it to obtain liability insurance and name McDevitt as an additional insured under a policy that was to be primary. F&M secured a policy with North American Capacity Insurance Company (NAC) which included an endorsement for additional insureds. The endorsement provided that an entity could be an additional insured only with respect to "occurrences resulting from work performed by you during the policy period, or occurrences resulting from the conduct of your business during the policy period."

    McDevitt and F&M were sued for construct defect claims. Navigators defended McDevitt and NAC defended F&M. Navigators tendered McDevitt's defense to NAC because McDevitt was an additional insured under NAC's policy. NAC disclaimed coverage.

   Navigators filed an action for declaratory judgment and both parties moved for summary judgment. It was undisputed that F&M completed the work that was the subject of the underlying lawsuits by June 2005, several months prior to the start of the NAC policy period. The only additional work that was completed by F&M during the policy period was the installation of a sink bracket in November 2005. But this work did not cause the property damage alleged in the underlying complaints. Navigators argued that because some of F&M's work was completed during the policy period, all of F&M's work should be considered to be within the policy period.

   The court found, however, that the phrases "resulting from work" and "resulting from the conduct of your business" meant that the "occurrence" must have been caused by F&M's "work" or "conduct." Further "during the policy period" modified "work" and "conduct of your business." Specifically, the work under the subcontract or other business "conduct" that caused the "occurrence" must have been performed during the policy period. 

   Because there was no evidence that F&M's work or business conduct during the policy period caused the occurrence that gave rise to the liabilities in the underlying actions, McDevitt was not an additional insured under the NAC policy. 

Roof's "Cosmetic" Damage From Hail Storm Covered

   The Seventh Circuit affirmed the district court's determination that cosmetic damage to the insured's roof was covered. Advance Cable Co., LLC v. Cincinnati Ins. Co., 788 F. 3d 743 (7th Cir. 2015).

   The insured submitted a claim to its insurer, Cincinnati, for damage to the metal roof of its building caused by a hail storm. The insured inspected the roof with a claims representative for Cincinnati. Dents were spotted, but there was little other evidence of damage. The loss was estimated at $1,894.74. A check for this amount was sent to the insured.

   Six months later, the insured considered selling the building. A potential buyer inspected the roof and found hail damage. At the request of the insured, Cincinnati conducted another inspection of the roof. Again, dents of approximately 1 inch in diameter were found. The inspector noted that the denting would not affect the performance of the roof panels or detract from their life expectancy. 

   The insured sued Cincinnati for breach of contract and bad faith. On cross-motions for summary judgment, the district court held the policy covered the hail damage, but that Cincinnati's refusal to acknowledge this was not in bad faith.

   The Seventh Circuit affirmed. The policy promised to pay for "direct physical 'loss' to Covered Property." The dispute centered on the meaning of "physical," which was not defined by the policy. Cincinnati contended that "physical" meant "material." But the insured was claiming that the hail caused visible indentations to the surface of the roof. This denting changed the physical characteristics of the roof and satisfied the language of the policy. 

   Next, the court considered what "loss" meant. The policy covered loss or damage. This indicated that even without a measurable "loss" in value or in function, the policy expressly contemplated the possibility of there still being "damage," which gave it a different meaning from "loss." Cincinnati argued that "loss or damage" meant "harm." It then assumed that dents in the roof did not harm the roof enough to diminish its function or value. But this analysis bore no relation to the language of the policy. There was no exception to the definition of "loss" for cosmetic damage, or any other kind of particular damage. Had Cincinnati wished to exclude cosmetic damage from coverage, it should have written the policy that way. Granting summary judgment to the insured on the breach of contract issue was correct.

   The Seventh Circuit also affirmed the denial of summary judgment on the bad faith issue. It was reasonable, even if incorrect, for Cincinnati to refuse to pay the insured's claim because it did not believe the insured suffered "loss or damage" from the hail damage. Cincinnati's reading of the policy was wrong, but was not unreasonable. There was some dispute over the meaning of the terms in the policy. Further, Cincinnati worked with the insured, making multiple visits to the property to inspect the roof and made a payment, even if it was less than what the insured believed was proper. 

Remediation Work Caused by Installation of Defective Tiles Not Covered

   The federal district court applied California law to find there was no coverage when the subcontractor was sued for broken tiles on a project. Am. Home Assur. Co. v. SMG Stone Co., 2015 U.S. Dist. LEXIS 75910 (N. D. Cal. June 11, 2015).

   The subcontractor installed stone floor tiles at the project. The developer discovered fractures in some of the tiles. The fractured tiles were removed and replaced.  This remediation process required the removal and replacement of portions of drywall and concrete subfloor installed by other subcontractors. The developer sued the subcontractor, who tendered the defense to its insurer.

   The insurer denied coverage and filed for a declaratory judgment that there was no coverage for the floor tile fracture claims. 

   On cross-motions for summary judgment, the court first found that the fracturing of the stone floor tiles caused by the subcontractor's defective installation was the result of an "occurrence." There was no evidence that the subcontractor knew that its tile installation work was defective before the tiles fractured. Instead, the fracturing was an unexpected consequence of the defective installation. 

   But there was no "property damage." For the subcontractor to prevail, the defective installation work had to be considered separate and distinct from the physical manifestation of the defective work. Under California law, coverage resulted from construction defects that involved physical injuries to other parts of the construction project. Here, damage to the subfloor and the drywall did not result from the defective floor tile work, but from the remediation of the defective floor tile work. Remediation work did not constitute property damage under California law. 

   Nor did loss of use create property damage. The case law indicated that a mere delay in the completion of the project and sale of the residences did not constitute "loss of use." 

   Finally, even if the costs arising from the fractured floor tiles constituted "property damage," Exclusions J (5), J (6) and (l) would bar coverage. Exclusion j (5) did not apply when faulty workmanship directly caused damage to other parts of the property that were not being worked on by the subcontractor. Such was not the case here. Exclusion j (6) did not apply when the subcontractor had to replace the tile because its "work" was "incorrectly performed on it." Moreover, the products-completed operations hazard exception was not applicable because the units had not yet been put to their intended use when the fractured tiles were discovered.

   Finally, Exclusion l, barring coverage for "your work" that is defective or actively malfunctions, applied because the tiles fractured when they were not installed properly. The "malfunction" of the tiles in the form of fracturing could not be separated from the subcontractor's defective tile installation work. 

   Because there were no genuine issues of material fact as to the potential for coverage, there was no duty to defend.