Insurance Law Hawaii

Claims of Contamination by Lead Paint Must be Defended

    In an unpublished decision, the Illinois Appellate Court determined that claims against the insured painting contractor had to be defended by the CGL carrier. Owners Ins. Co. v. Precision Painting & Decorating Corp., 2019 Ill. App. Unpub. LEXIS 2425 (Ill. App. Ct. Dec. 31, 2019).

    The homeowners hired Precision to paint the exterior of their home. Portions of the home were pointed with lead-based paint. Prior to the work, there were no visible paint chips or dust on the interior or exterior of the property. 

    The contract required that all preparation work be done according to EPA regulations for lead-based paint. The regulations required  Precision to take special care to contain lead dust while working on the home. The underlying complaint alleged that Precision failed to abide by the safety requirements. Precision did not clean up lead-based paint dust and debris on and around the home at the end of the work day.

    Testing after completion of the scrapping job showed interior dust in 16 of 20 samples exceeded the limits for lead in dust set by the Illinois Department of Public Health. Even the land around the home showed lead in the soil that exceeded the Department of Health limits. Consequently, the homeowners were required to pay for contamination clean-up. 

    The homeowners sued Precision, who tendered the defense to Owners. Owners then filed a complaint for declaratory judgment seeking a declaration that it had no duty to defend because no property damage caused by an occurred was alleged in the underlying complaint. Precision counter-claimed for breach of contract. The parties filed cross-motions for judgment on the pleadings.

    The circuit court granted Owners' motion, finding no duty to defend. There was no "occurrence" because the contract specifically contemplated that there would be lead in the paint and provided for various EPA-required precautions that Precision would take. Precision's failure to properly contain the lead, resulting in the contamination, was thus not an "accident." 

    The appellate court noted that instead of focusing on the foreseeability of the event (the release of lead-based particles), or even generally the damages (lead contamination), the case law instructed the focus be on what, specifically, was damaged, and whether the remediation of that damage fit within the general purpose of a CGL policy. When the underlying lawsuit alleged damages beyond repair and replacement, and beyond damage to other parties of the same project over which the contractor was responsible, those additional damages were deemed to be the result of an "accident." 

    There was no question that the allegations here constituted an "accident" and thus an "occurrence." Precision was hired to work on the exterior of the home. The "work product" - the scope of Precision's project - was the exterior of the house. The underlying complaint alleged that Precision's negligence caused damage well beyond that. In great detail, the homeowners alleged that the lead dust infiltrated the interior of their home, as well as the surrounding land. The homeowners were not claiming that the exterior walls were painted defectively and must be repaired or repainted; they alleged other parties of their property - the interior and surround land- were damaged. Therefore, the underlying complaint alleged damages caused by an "occurrence." Owners was not entitled to judgment on the pleadings on this ground. 

    The case law also held that damage to property that extended beyond the work product of the contractor was "property damage." The underlying complaint alleged damage beyond the exterior of the home, to which Precision's work product was limited. The underlying complaint alleged damage to the interior of the home and its surrounding land These allegations constituted "property damage" under the policy. 

    Therefore, Owners had a duty to defend.

    

"Your Work" Exclusion Bars Coverage

    Although the appellate court agreed there was property damage caused by an occurrence, the "your work" exclusion barred the insured contractor's claim. King's Cove Marina, LLC v. Lambert Commercial Construction. LLC, 2019 Minn. App. LEXIS 389 (Minn. Ct. App. Dec. 16, 2019).

    King's Cover Marina sought to expand and remodel its main building. The marina hired Lambert to perform the remodeling project. Lambert hired Roehl Construction, Inc. as a subcontractor to install new concrete footings on the main level of the building and to provide concrete for the second-level mezzanine floor.

    After completion, the marina sued Lambert for breach of contract and negligence. The marina alleged that the concrete floors on the first and second levels were not constructed in accordance with industry standards or with project plans and specifications, resulting in excessive movement and cracking of the new concrete floors. Lambert tendered its defense to its insurer, United Fire & Casualty Company. United Fire defended under a reservation of rights and later sued Lambert for declaratory judgment. 

    While the declaratory judgment action was pending, Lambert and the marina settled the underlying lawsuit. Lambert confessed judgment in the marina's favor in the amount of $2 million. Judgment was entered against Lambert. The marina filed a supplemental complaint for garnishment against Untied Fire. United Fire answered, asserting that the settlement was unreasonable because it failed to allocate between covered and non-covered damages. The trial court determined on summary judgment there was coverage for the claims and damages asserted by the marina against Lambert. United Fire appealed.

    The appellate court agreed with the trial court's determination that there was property damage caused by an occurrence. However, Exclusion (l) applied to bar coverage. The provision excluded coverage for:

"Property damage" to "your work" arising out off it or any part of it and included in the "products-completed operations hazard."

This exclusion does not apply if the damaged work or the work out of which the damage arises was performed on your behalf by a subcontractor.

The products-completed operations hazard included "all 'bodily injury' and 'property damage' occurring away from premises you own or rent and arising out of 'your product' or 'your work.''"

    Here, any costs associated with repairing or replacing Lambert's faulty work were barred by Exclusion l. The marina's claimed damages arose at least in part out of Lambert's work and any damages associated with repairing such work were excluded from coverage by Exclusion l. 

    The exception for subcontractors under Exclusion l was not applicable because the settlement agreement between the marina and Lambert was limited to roofing and siding performed by Lambert and excluded the concrete work performed by Roehl. Thus, the subcontractor exception to Exclusion l did not apply to the claims at issue in the settlement agreement. 

    The settlement agreement was also unreasonable as a matter of law because it did not allocate between covered and non-covered damages. The trial court failed to distinguish between repair-and-replacement damages caused by work Lambert was hired to perform - to which Exclusion l applied - and damages to adjacent structures that were not caused by, though arising from, Lambert's construction work. 

Insurer Must Defend Vague Allegations in Underlying Complaint

    The Ninth Circuit reversed the District Court's denial of a defense based upon ambiguous allegations in the underlying complaint. Pulte Home Corp. v. TIG Ins. Co., 2019 U.S. App. LEXIS 35988 (9th Cir. Dec. 4, 2019).

    Pulte Home Corporation sued TIG for failing to defend in two lawsuits brought by homeowners alleging construction defects. The district court granted summary judgment to TIG. 

    The underling allegations at least arguably brought the occurrence within the policy's coverage. The complaints' allegations were so ambiguous or incomplete that the property damage could have arisen out of ongoing operations, thus triggering the duty to defend. The underlying allegations did not specify when or how the property damage occurred, other than to say that it a rose out the original construction. 

    The policies did not require property damage to "manifest" during the policy period. Rather, the property damage had to simply occur during the policy period, no matter when it became apparent to the homeowners. Nor did the policies provide that coverage for occurrences during ongoing operations would cease after a subcontractor completed its operations. Given the vagueness of the underling complaints, TIG failed to meet its burden to prove without dispute that the business-risk exclusions applied. 

    Therefore, the case was reversed and remanded for further proceedings 

Accident Outside of Insured Location Not Covered

    The federal district court found there was no coverage for injury caused by an explosion at a recycling facility. Mountain West Farm Bur. Mut. Ins. Co. v. Jackson, et al., 2019 U.S. Dist. LEXIS 202319 (E.D. Wash. Nov. 21, 2019).

    Tim and Roberta Jackson owned Ibex Construction, located in Spokane, Washington. The Jacksons contracted with Reinland Auctioneers to clear the Ibex Construction property of scrap metal and old equipment. Reinland contracted with Gordon Beck to remove certain pieces of scrap metal from the property. Beck loaded the bigger pieces of scrap metal, including a 55-gallon unmarked metal tank, into a dump truck. After the truck was driven to the recycling facility, the metal, including the unmarked tank, was loaded into a crusher. When the tank was crushed, it exploded and chlorine gas was released, causing considerable injuries and death to nearby persons working at the recycling facility. 

    Suit was filed by an individual injured in the explosion against many defendants, including the Jacksons. The Jacksons had a policy from Mountain West for insured locations. The policy defined "insured locations" as all locations shown in the Declarations where a farm or residence premises was maintained. 

    Mountain West filed a declaratory judgment action against the Jacksons and moved for summary judgment. The court found that "insured location" required that the covered locations be shown in the Declarations. The only location shown in the Declarations was a residence of the Jacksons in Montana. The Spokane property was not covered because it met the definitions of "locations not Insured," i.e., any location that the insured owned, rented, leased or controlled, other than the "insured location." While the Jackson's owned the Spokane property where the tank was located, that property was not an "insured location" and the exclusion applied. 

    Consequently, there was no coverage for any claim against the Jacksons as a result of the explosion that occurred in Spokane, Washington. 

    

Some Insurers Dismissed, Others Are Not in Claims for Faulty Workmanship

    The insured Developer survived a motion to dismiss by one of several carriers who were asked to defend against claims for faulty workmanship. East 111 Assoc. LLC v. RLI Ins. Co., 2019 N.Y. Misc. LEXIS 5331 (Oct. 4, 2019).

    Developers sponsored a residential condominium project and sold all units. The owners subsequently sought damages for $881,450 for alleged design and construction defects, and asserting causes of action for, among other things, breach of contract, specific performance and negligence. The underlying action settled for $350,000. Developers sought coverage from its insurers. 

    The Developers sued the carriers for a declaratory judgment that they were entitled to a defense. Developers had a CGL policy issued by Mt. Hawley. Developers were also additional insureds in policies issued to subcontractors by James River, Admiral and Selective. The insurers moved to dismiss. 

    The insurers' breach of contract exclusion precluded coverage for "property damage . . . arising directly or indirectly out of . . . (a) Breach of express or implied contract; (b) Breach of express or implied warranty . . ." Developers argued that the owners' cause of action for negligence did not fall within this exclusion. However, the negligence cause of action alleged - as did the breach of contract - that Developers constructed the building with design and construction defects and not in accordance with the offering plan. Since all of the alleged "property damage arose directly or indirectly" from Developers' alleged breach of express or implied contract by their failure to deliver a building free of defects, the underlying action fell within the breach of contract exclusions. Therefore, motions to dismiss by James River, Admiral, and Mt. Hawley were granted.

    The Developers were additional insureds under the Selective policy issued to Walsh, a subcontractor. The underlying complaint carried the possibility that Walsh's allegedly fault workmanship damaged other parts of the building - which was not, as a whole, Walsh's work - an "occurrence" giving rise to "property damage" could exist under the Selective policy. Accordingly, the alleged water damage triggered Selective's duty to defend Developers. 

Third Circuit Remands Denial of Coverage Based on Expected and Intended Definition of Occurrence

    While affirming the district court's denial of coverage under policies that defined occurrence as an accident, the Third Circuit remanded for further consideration of the policies containing an expected and intended definition of occurrence. Sapa Extrusions, Inc. v. Liberty Mut. Ins. Co., 2019 U.S. App. LEXIS 27668 (Sept. 13, 2019).

    Sapa manufactured aluminum extruded profiles which were used for door and window frames. A pretreatment coating process was used in several aluminum clad windows and doors. Several stages were involved including cleaning and degreasing to remove organic and inorganic materials, chemical etching, and chemical coating to assist with paint adherence. For decades, Sapa supplied profiles to Marvin Lumber and Cedar Company. Marvin incorporated these extrusions with other materials to manufacture aluminum doors and windows. If an extrusion was defective, the whole window or door would have to be replaced. Between 2000 and 2010, Sapa sold 28 million windows and doors.

    Marvin sometimes received complaints from customers that the aluminum parts of windows or doors would corrode. At first, Sapa tried to determine the nature of the problems and fix them. In 2010, Marvin sued Sapa, alleging Sapa made specific warranties to Marvin about its extrusions. Marvin sought monetary damages for economic losses stemming from investigating and responding to consumer complaints, identifying and qualifying alternative extrusion suppliers, replacing the failed extrusions, and experiencing lost sales and profits.  On the eve of trial, the parties settled for a large sum.

    Sapa held 28 CGL policies through eight carriers, covering the relevant period during which Sapa did business with Marvin. Only one carrier, Zurich, accepted the defense under a reservation of rights. Sapa sued the remaining carriers, asserting breach of contract under the 28 policies and seeking a declaratory judgment to recover the cost of the underlying settlement.

    The district court found there was no occurrence under any of the policies and there was no duty to indemnify. 

    The Third Circuit analyzed the policies under Pennsylvania law. Nineteen of the policies defined an "occurrence" as an accident. Under these policies, faulty workmanship did not constitute an accident as required to set forth an occurrence under the CGL policies.  A degree of fortuity was not present in a claim for faulty workmanship.

    Seven policies defined "occurrence" as "an accident, including continuous or repeated exposure to conditions, which results in . . . property damage neither expected nor intended from the standpoint of the Insured." The district court considered these policies together with the "accident" policies. The Third Circuit held the district court should have considered these poliies separately. The expected and intended definition of "occurrence" in these policies was ambiguous. Under the expected and intended definition, an "occurrence' included those conditions not of the same general type which the insured intended to cause.

    Two policies contained the injurious exposure definition of "occurrence."  The definition in these policies was identical to the expected and intended definition, except that it used the term "injurious exposure" instead of "accident. The district court did not analyze these policies separately, despite their unique wording. Therefore, the district court's decision was vacated as it related to these two policies and remanded for further individualized consideration. 

    

Insurer Granted Summary Judgment on Denial of Construction Defect Claim

    The court granted the insurer's motion for summary judgment, confirming there was no duty to defend or indemnify a construction defect claim against the insured. Fontaine Bros. v. Acadia Ins. Co., 2019 U.S. Dist. LEXIS 148056 (D. Mass. Aug. 29, 2019). 

    The City of Worcester contracted with Fontaine Brothers, Inc. to install a new ice refrigeration system at the City's indoor ice rink. After construction, the condensers in two chiller units eroded and stopped operating. 

    The City sued Fontaine for the costs of leasing temporary chillers and installing new ones. The City alleged that Fontaine installed condensers with carbon steel tubes instead of contractually required stainless stell tubes.Further, Fontaine and its subcontractors did not adequately maintain the condensers, in breach of the contract.

    Fontaine's insurer, Acadia Insurance Company, denied coverage. Fontaine sued Acadia. The court noted that the City's complaint plainly alleged faulty workmanship by Fontaine. However, the City's complaint did not allege that Fontaine intended the condensers to corrode and left open the possibility that Fontaine was unaware of any potential problem or did not foresee the corrosion likely to result from the use of carbon steel components or the maintenance work being done by its subcontractor. Therefore, the Cit's complaint did not foreclose the possibility that the corrosion resulting from Fontaine's alleged faulty workmanship and maintenance might be shown to be an unforeseen or unintended consequence of reckless or negligent conduct. Accordingly, it was possible that there was an occurrence under the policy language. 

    But the court found that a  business risk exclusion applied to relieve Acadia of any duty to defend or indemnify. The Impaired Property Exclusion, subsection (m), excluded "property damage to impaired property or property that has not been physically injured, arising out of (1) A defect, deficiency, inadequacy or dangerous condition in 'your product' or 'your work'; or (2) A delay or failure by you or anyone acting on your behalf to perform a contract or agreement in accordance with its terms." The damage and resulting loss arose from Fontaine's work in the form of faulty parts or equipment and Fontaine's failure to perform an agreement in accordance with its terms. Further, the property was "restored to use" by the removal and repair of Fontaine's product and work. The faulty condensers were equipment furnished in connection with work or operations performed by Fontaine or on its behalf, and the condensers impaired the operations of the ice rink. 

    Because the complaint left open no question that the Impaired Property exclusion applied, Acadia had no duty to defend or indemnify. 

Injury Caused by Drunk Driver is "Accident" Covered by Policy

    Noting that only an insurance company could suggest no coverage for an injury caused by a drunk driver, the Fifth Circuit rejected the insurer's argument. Frederking v. Cincinnati Ins. Co., 2019 U.S. App. LEXIS 19796 (5th Cir. July 2, 2019).

    Carlos Sanchez was driving under the influence of alcohol when he failed to yield the right of way, and collided with a car driving by Richard Frederking. Sanchez was driving a truck while working for Advantage Plumbing Services, who was insured by Cincinnati. 

    Frederking sued both Sanchez and Advantage. The jury held Sanchez and Advantage jointly and severally liable for $137,025 in compensatory damages. It further awarded $207,500 in exemplary damages for Sanchez's gross negligence. 

    Cincinnati agreed to pay Frederking the compensatory damage award, thereby discharging Advantage's liability. But Cincinnati refused to pay Sanchez's exemplary damages. Frederking sued Cincinnati, arguing Sanchez's actions were intentional.

    The policy issued to Advantage covered damages resulting from "accidents." The policy did not define accident. As a matter of plain meaning and common usage, "accident" included the drunk driving collision that gave rise to the dispute. 

    The Supreme Court of Texas defined the term "accident" as a "fortuitous, unexpected and unintended event." Further, "accident" was defined by what it excluded - intentional acts. Automobile collisions were commonly described as "accidents." There was no reason to describe the automobile collision in this case as anything other than an "accident." No one contended that Sanchez intended his vehicle to collide with Frederking's vehicle. Nor did anyone suggest that Sanchez drank in hopes of causing an automobile collision. Therefore, this case fell well within the common understanding of the term "accident." 

    If Cincinnati's contention was correct, a collision caused by texting while driving would not be an accident. The driver made an intentional decision that contributed to the accident. But this was implausible on its face. 

    The court reversed the grant of summary judgment to Cincinnati and remanded the case for further consideration. 

"Occurrence," "Bodily Injury" Adequately Alleged, Triggering Defense

    The court determined that there was a duty to defend despite the insurer's contention that no "occurrence"  or "bodily injury" had been alleged. Zurich Am. Ins. Co. v. Electricity Main, LLC, 2019 U.S. App LEXIS 18074 (1st Cir. June 17, 2019).

    Electricity Maine, LLC had a D&O policy with Zurich. In November 2015, a class action was brought against Electricity Maine. Two customers sought to represent a class of nearly 200,000 of the company's customers. The complaint alleged that Electricity Maine had engaged in misconduct that resulted in customers receiving higher bills than Electricity Maine had represented they would be. 

    Electricity Maine tendered notice of the suit to Zurich. Zurich filed for a declaratory judgment that it had no duty to defend because the underlying action failed to allege that Electricity Maine engaged in conduct that qualified as an "occurrence" or that caused any "bodily injury." The parties cross-moved for summary judgment and the district court ruled for Electricity Maine.

    The First Circuit noted that the complaint in the underlying case set forth a number of claims for intentional torts, but also included a claim for "negligence" and a claim for "negligent misrepresentation." Zurich argued that the facts alleged in the complaint made it impossible to sustain the fiction that Electricity Maine was "negligent" and expected no harm to its customers. When the complaint incorporated by reference the same factual allegations into its claims for for negligence and negligent misrepresentation, they were not necessarily read as alleging that Electricity Maine acted intentionally rather than inadvertently. Such claims did not require proof of intentional conduct. The court acknowledged that the negligent misrepresentation claim or the negligence claim may not have merit. But even a broad, conclusory allegation, such as negligence that is legally insufficient to withstand a motion to dismiss will trigger an insurer's duty to defend whenever the allegations showed a potential that liability would be established under the policy. 

    Regarding "bodily injury," the policy's definition included "mental injury, shock or fright resulting from bodily injury." The definition did not state that it excluded coverage for "bodily injury" caused by those markers of emotional distress. Because Maine law required the court to construe ambiguous language in favor the the insured, the court rejected Zurich's restrictive construction of the policy. 

    Therefore, the district court's granting of summary judgment to Electricity Maine was affirmed. 

Insurer's Motion for Judgment on the Pleadings Over Construction Defect Claims Denied

    The insurer was unable to escape coverage obligation over claims for construction defects when its motion for judgment on the pleadings was denied. Jei Solutions v. Burlington Ins. Co., 2019 U.S. Dist. LEXIS 95068 (E.D. La. June 4, 2019). 

    JEI was hired as a contractor to renovate a building. JEI subcontracted the entire scope of work to Ja'Lia Construction, LLC. Before the project was completed, the owner unilaterally terminated the contract and filed an arbitration demand against JEI, seeking damages for faulty workmanship. Burlington denied coverage and a defense on the ground that an alleged breach of contract did not constitute an "occurrence." 

    Ultimately, an adverse judgment was rendered against JEI for $89,239.25. JEI then sought to recover this amount from Burlington. Burlington moved for judgment on the pleadings or summary judgment. 

    The court found that JEI's failure to perform the work called for in the contract did not constitute "property damage" caused by an "occurrence," and Burlington correctly noted that defects in construction, alone, did not trigger coverage under a CGL policy. However, coverage was triggered when the defect caused physical injury to tangible property. Here, the arbitrator awarded damages against JEI for inadequate and incomplete work. The list of damage in the arbitration included damage resulting from poor workmanship, such as:

• inside/outside wall showed signs of water damage from roof leak
• Places where outside could be seen form inside
• stud integrity weakened by excess cutouts. 

    Nevertheless, Burlington argued that coverage was barred by exclusions j (5) and (6), which excluded:

"Property damage" to:

(5) that particular part of real property on which you or any contractors or subcontractors working directly or indirectly on your behalf are performing operations, if the "property damage" arises out of those operations; or

(6) that particular part of any property that must be restored, repaired, or replaced because "your work" was incorrectly performed on it. 

Paragraph (6) of this exclusion does not apply to "property damage" included in the "products-completed operations hazard."

. . . 

16. Products-completed operations hazard

a. Includes all "bodily injury" and "property damage" occurring away from premises you own or rent and arising out "your product" or "your work" except:

(1) Products that are still in your physical possession; or

(2) Work that has not yet been completed or abandoned . . .

    The "work product" exclusions reflected the insurer's intent to avoid the possibility that coverage under a CGL policy would be used to repair and replace the insured's defective products and faulty workmanship. Importantly, exclusions j (5) and j (6) applied only while the insured's work was in progress. When the work was complete, the products complete operations hazard provision provided coverage for property damage arising out of faulty work. 

    If the damage considered in the arbitration occurred while JEI's work was ongoing, exclusions J (5) and j (6) barred coverage. But if the damage occurred after the owner terminated the contract, they would not. There was a genuine question of fact as to when the covered property damage occurred and, therefore, whether coverage was barred by j (5) and j (6). Accordingly, the motion was denied.