Insurance Law Hawaii

No Coverage for Counterclaim Arising from Insured's Faulty Workmanship

    The Eighth Circuit found there was no coverage for the insured's faulty workmanship. Am. Family Mut. Ins. Co., S.I. v. Mid-American Grain Distributors, LLC, 958 F.3d 748 (8th Cir. 2020).

    Mid-American contracted with Lehenbauer to design and construct a grain storage and distribution facility for Lehenbauer. Before the work was competed, Lehenbauer terminated Mid-American's services. Mid-American then sued Lehenbauer for breach of contract. Lehenbauer counterclaimed against Mid-American, alleged breach of "implied duties of workmanlike performance and fitness for a particular purpose" and negligence. Mid-American tendered the counterclaim to American Family. American Family accepted the tender under a reservation of rights, but sued Mid-American for a declaratory judgment.

    The district court granted American Family's motion for summary judgment, concluding that the counterclaims did not allege an occurrence. 

    On appeal, the Eighth Circuit noted that under Missouri law, an "accident" did not include acts that resulted in expected or foreseeable damage. But must the accident be foreseeable to the actual insured, subjectively speaking, or to a reasonable insured, objectively speaking? Here, foreseeability could be inferred as a matter of law given the nature of the act and they type of damages at issue even under the subjective standard.

    The damages in question were the inherent results of shoddy workmanship. Therefore, Mid-American's alleged defective construction work was not an "occurrence." Lehenbauer's damages were the normal, expected consequence of Mid-American's work. They were foreseeable as a matter of law, so Mid-American's work was not an "accident," and thus not an "occurrence." The district court decision was affirmed. 

Georgia's Cause Theory Means One Occurrence in Multi-Car Accident

    The Eleventh Circuit, following Georgia law, found the cause theory meant there was a single occurrence in a multi-car accident. Grange Mut. Cas. Co. v Slaughter, 2020 U.S. App LEXIS 14057 (11th Cir. May 1, 2020).

    Driving a truck owned by Four Seasons Trucking (FST), Mark Lucas crossed the center lane and collided with two vehicles, one right after the other. Grange insured the truck. Grange sued for declaratory relief, asking the district court to establish its obligations under the policy. 

    The district court concluded there was a single accident. Georgia used the cause theory to define the word "accident" in the policy. Under this theory, the number of accidents was determined by the number of causes of the injuries, with the court asking if there was but one proximate, uninterrupted, and continuing cause which resulted in all of the injuries and damage.

    The policy defined "accident" to incur continuous or repeated exposure to the same conditions resulting in "body injury" or "property damage." Further, the limit of insurance clause in the policy applied "regardless of the number of . . . vehicles involved in the 'accident'." The district court concluded that FST's argument that any time separate collisions occurred, there were different "conditions" would read that language out of the policy. The court also rejected FST's suggestion that any time there was a multi-auto collision, there were multiple accidents.

    The Eleventh Circuit agreed. Under the cause theory adopted in Georgia, courts looked to whether, after the cause of the initial collision, the driver regained control of the vehicle before a subsequent collision, so that it could be said there was a second intervening cause and therefore a second accident. 

    Here, there was no evidence that Lucas regained control of the truck as he crossed the centre line and collided with the two vehicles. The policy's limit of insurance clause also contemplated that multiple vehicles could be involved in a single accident. 

 

Dispute Over Number of Occurrences Remanded by Alaska Supreme Court

    The Alaska Supreme Court remanded to the trial court to determine whether the parties reached agreement in their settlement on the number of occurrences. McCormick v. Chippewa, Inc., 2020 Alaska LEXIS 20 (Alaska March 20, 2020).

    Brent McCormick was injured while working aboard the vessel owned by Chippewa, Inc. McCormick sued Chippewa. 

    Chippewa had a policy with a $500,000 per-occurrence limit less defense costs. McCormick's attorney, Gerald Markham, sent Chippewa an offer to settle the lawsuit "for any and all injuries occurring or arising out of Mr. McCormick's employment on the vessel in exchange for the policy limits" of Chippewa's insurance policy. The offer described two accidents McCormick suffered during this time. Chippewa accepted the "demand for payment of the remaining policy limits."

    Thereafter, Markham called Chippewa's attorney, Laura Farley, to discuss the settlement. The next day, he sent a letter to Farley indicating a dispute existed regarding the number of occurrences under the policy. The letter suggested that Farley had stated that  the insurer accepted McCormick's policy limits offer to pay limits "whatever they might be." Markham attached a signed settlement agreement, releasing Chippewa from liability "in consideration of the remaining policy limits available." Markham dismissed the lawsuit.

    Chippewa sent McCormick a letter stating that the remaining policy limit after deduction of defense costs was $424,040.05, which would be paid to McCormick. McCormick did not respond to the letter.

    McCormick then filed a new lawsuit, seeking enforcement of the purported settlement agreement. In a motion for partial summary judgment, McCormick clarified that he believed there had been three "occurrences," under the policy, which would triple the available policy limits. The trial court granted Chippewa's motion for summary judgment, concluding the parties had entered into a binding settlement agreement, leaving only an issue of interpreting the phrase "remaining policy limits" in the agreement,. The court concluded that "remaining policy limits" referred to the remainder of a single limit of $500,000, not the sum of multiple occurrences with each having a $500,000 limit.

    The Alaska Supreme Court reversed. The record indicated that the expressed intent of the parties regarding an essential term of the purported settlement agreement was in dispute. Markham submitted an affidavit detailing the phone call between the attorneys. He stated his belief that there was more than one occurrence, but the attorneys agreed to settle while leaving the number of occurrences unresolved. In light of this account, when McCormick signed the purported settlement agreement, it could have been with the understanding that the parties had not yet decided on the limits. Markham's account was contradicted by Farley, who testified in an affidavit and deposition that the parties never discussed the number of occurrences during the call.

    Given the interplay between the number of occurrences and policy limits, the conflicting evidence abut the phone call presented a genuine issue of material fact. The case was remanded to allow the trier of fact to determine whether the parties reached an agreement and, if so, what terms they agreed to. 

    

    

Insurer's Motion for Summary Judgment on Faulty Workmanship Claims Denied

    The insurer unsuccessfully sought summary judgment based upon the underlying complaint's allegations of damage caused by faulty workmanship. Barton v. Nationwide Mut. Fire Ins. Co., 2020 U.S. District. LEXIS 25943 (D. Ala. Feb. 14, 2020). 

    The Bartons contracted with Stacy Alliston Design and Building, Inc. (Stacy) to build their home, Stacy acted as the general contractor and hired subcontractors to perform work in building the home. After plaintiffs moved into the house, they noticed water issues, particularly a window in the foyer and dormer windows in the attic. Stacy repaired the dormer windows, suggesting that the water leakage from the foyer window was actually due to the dormer windows. After the repairs, water remained in the attic, however.

    The Bartons eventually had to replace their roof which was rotting due to unfixed toe board nail holes, and had to cut into sheetrock to evaluate water damage from the issues with the dormer windows. 

    Thereafter, the Bartons had a home inspection done. It revealed several construction defects and failures to adhere to code requirements by Stacy as well as resulting damages. Stacy failed to correct the deficiencies and the Bartons claimed they incurred significant expense to remedy the problems.

    The Bartons filed suit. Nationwide defended Stacy, but later withdrew its defense. Thereafter, Stacy failed to participate in the case. Summary judgment was issued to the Bartons. Judgment was entered for $900,000.

    The Bartons sued Nationwide to satisfy the $900,000 judgment. Nationwide moved for summary judgment, arguing defective work was not an "occurrence" under Alabama law. The Bartons contended that Stacy performed faulty work that caused additional damage to their newly-built home, including water damage that was so severe as to require them to add a new roof.

    Under Alabama law, faulty workmanship itself was not generally an "occurrence," but faulty workmanship could cause an occurrence. Here, it was undisputed that at least some of the resulting property damage caused by the faulty work could be considered an occurrence under the policy. Therefore, Nationwide was not entitled to summary judgment on lack of an "occurrence."

    Nor was the "your work" exclusion applicable. Under the exclusion, property damage to your work arising out of it or any part of it and not included in the "products-completed operations hazard" was excluded. Property damage under the "products-completed operations hazard" was covered if such damages occurred away from premises the insured owned and arose out of the insured's work, except when the work had not been completed or abandoned. But an endorsement provided that damage to your work caused by subcontractors was not excluded. Therefore, the subcontractor exception could provide coverage for damages which would otherwise be excluded by the "your work" exclusion. Factual issues regarding damages had to be determined by a jury. 

    Finally, the policy included $2,000,000 in "products-completed operations" coverage. The "your work" exclusion applied only if the policy's declarations failed to show any coverage for "products-completed operations." This was not the case here, as Stacy bargained and paid for $2,000,000 in coverage for its "products-completed operations," which nullified the "your work" exclusion. 

    

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.