Category Archives: Insurance

BE COGNIZANT OF THE POLLUTION EXCLUSION IN YOUR CGL POLICY

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Be cognizant of the pollution exclusion in your commercial general liability (CGL) policy. 

 

The non-construction decision in Evanston Insurance Co. v. Haven South Beach, LLC, 2015 WL 9459979 (S.D.Fla. 2015) illustrates the affect of the pollution exclusion.

 

In this case, the plaintiff was at a catered event and suffered injuries consuming a liquid nitrogen infused alcoholic beverage.  The plaintiff sued the vendor.   The vendor’s CGL policy contained the pollution exclusion and further defined pollutants as follows:

 

f. Pollution

(1) “Bodily injury” or “property damage” which would not have occurred in whole or part but for the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of “pollutants” at any time.

 ***

 “Pollutants” mean any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditions or reclaimed.

 

The vendor’s CGL insurer argued that the liquid nitrogen constituted a pollutant; thus, there was no coverage under the vendor’s policy for plaintiff’s injuries.  The Southern District Court of Florida agreed. The Court held that liquid nitrogen is an irritant (a substance causing irritation) falling into the definition of a pollutant.  The Court further held that the irritant liquid nitrogen was discharged by the vendor into the plaintiff’s alcoholic beverage falling into the pollution exclusion, i.e., injury or damage which would not have occurred but for the actual discharge of a pollutant / irritant.

 

If you are working with products that could potentially fall within the definition of a pollutant and the pollution exclusion within your CGL policy, consider procuring pollution liability insurance to cover you for damages / injuries caused by that product.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

 

COBLENTZ AGREEMENT AND ALLOCATION OF DAMAGES IN CONSENT JUDGMENT

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I previously discussed Coblentz agreements.  A Coblentz agreement is an agreement between a claimant (e.g., property owner) and a third-party (e.g., general contractor that caused construction defects and damage) when the third-party’s liability insurer denies a defense (and coverage) to the third-party.  The claimant and third-party enter into an agreement where a) the claimant obtains a consent judgment against the third-party, b) the third-party assigns its rights under its liability policy to the claimant based on the insurer’s refusal to defend and indemnify the third-party, and c) the claimant releases the third-party from any individual liability irrespective of whether the claimant recovers from the third-party’s liability insurer. (Check here for a presentation on Coblentz agreements.)

 

One of the key components of the Coblentz agreement is the consent judgment given by the third-party to the claimant.  It is always a good idea to allocate between damages covered by insurance and damages not covered by insurance.  The reason is that liability insurance is not designed to cover defective workmanship.  Rather, it is designed to cover damages resulting from defective workmanship.  In a construction defect dispute, the consent judgment should reasonably allocate the covered damage (damage caused by defective workmanship) and uncovered damage (the cost solely to repair defective workmanship).  These amounts should not be arbitrarily decided but should be supported with expert opinions since this point would be litigated against the liability insurer when the claimant tries to recover from the third-party’s liability insurer. 

 

For example, in the recent opinion of Bradfield v. Mid-Continent Casualty Company, 2015 WL 6956543 (M.D.Fla. 2015), an aspect of the opinion dealt with the lack of an allocation of damages in a consent judgment given in consideration of a Coblentz agreement.  The contractor gave the owner a consent judgment in the amount of $671,050.  But, there was no allocation of this lump sum amount for covered and uncovered damage or what this lump sum was designated for.   The consent judgment was based on an estimate prepared by an expert but the estimate included costs to repair defective work, or work that was not covered by the liability insurance policy.  The Middle District of Florida found that this failure to appropriately allocate covered verses uncovered damage was fatal to the owner’s claim against the third-party contractor’s liability insurer to recover the amount of the consent judgment. The court explained: “Florida law clearly requires the party seeking recovery…to allocate any settlement amount between covered and noncovered claims.” Bradfield, supra, at *24.

 

Even if damages were allocated, the consent judgment still needs to be reasonable and entered in good faith. The court discussed this aspect of the Coblentz agreement despite finding that the failure to allocate was fatal to the owner’s claims against the contractor’s liability insurer.  As to the reasonableness of a consent judgment, the court importantly maintained:

 

When an injured party wishes to recover under a Coblentz agreement, [t]he claimant must assume the burden of initially going forward with the production of evidence sufficient to make a prima facie showing of reasonableness and lack of bad faith, even though the ultimate burden of proof will rest with the carrier. The courts impose good faith and reasonableness requirements in these cases due to the risk that the settlement of liability and damages in a settlement agreement may have little relationship to the strength of a plaintiff’s claim where the insured may never be obligated to pay and has little to lose if he stipulates to a large sum with the plaintiff.

 

In Florida, the test as to whether a settlement is reasonable and prudent is what a reasonably prudent person in the position of the defendant [the insurer] would have settled for on the merits of plaintiff’s claim. Objective and subjective factors are considered, including the degree of certainty of the tortfeasor’s subjection to liability, the risks of going to trial and the chances that the jury verdict might exceed the settlement offer. [P]roof of reasonableness is ordinarily established through use of expert witnesses to testify about such matters as the extent of the defendant’s liability, the reasonableness of the damages amount in comparison with compensatory awards in other cases, and the expenses which have been required for the settling defendants to settle the suit. Bad faith also may be established by evidence of the absence of any effort to minimize liability.

Bradfield, supra, at 27 (internal quotations and citations omitted).

When considering a Coblentz agreement on behalf of a claimant, make sure the judgment allocates between covered and noncovered claims / damages and is reasonable.  The same experts utilized to support the allocation can be utilized to support the reasonableness of the allocation for covered claims / damages.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

 

INTERACTION BETWEEN CGL INSURANCE, OCIP, AND SUBCONTRACTOR DEFAULT INSURANCE

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Here is a great opinion and insurance coverage dispute about the interaction between a CGL policy, and particularly one provided under an Owner’s Controlled Insurance Program, and a subcontractor default insurance policy / subguard policy. 

 

In Pavarani Construction Co. v. Ace American Insurance Co., 2015 WL 6555434 (S.D.Fla. 2015), a general contractor constructed a high-rise condominium project.  The general contractor and subcontractors were enrolled in the Owner’s Controlled Insurance Program (“OCIP”).  This meant the general contractor and the subcontractors had the same CGL insurer.   In addition, and outside of OCIP, the general contractor had subcontractor default insurance which is insurance a general contractor maintains to insure the risk of subcontractor default (and, really, catastrophic subcontractor default).

 

Post-construction, it was discovered that that the structural shell subcontractors the general contractor hired to (a) install the concrete masonry units and (b) the cast-in-place concrete, performed their work defectively.  Specifically, reinforcing steel required to be installed within the concrete masonry units or cast-in-place concrete was omitted or improperly installed.    These deficiencies resulted in excessive movement of building components.  This movement caused stucco to debond, cracking in the walls, cracking of cast-in-place columns, beams, and shearwalls, and cracking in the mechanical penthouse enclosure on the roof that then resulted in water intrusion.

 

Upon discovering the deficiencies and/or resulting damage, the owner of the Project put the general contractor on notice.  The general contractor notified its subcontractors.  The general contractor (and subcontractors) sought indemnification under the CGL policy within OCIP. (Remember, with an OCIP policy, it is the same CGL insurer that covers all enrolled entities.)  The CGL carrier, however, denied coverage.  This resulted, applicable to the case, in the concrete masonry unit subcontractor defaulting on its subcontract because it was unable to perform repairs to its deficient work and cover the resulting damage without the CGL insurance proceeds.  As a consequence, the general contractor submitted a claim to its subcontractor default insurance policy to recover money to fund the repairs that were in excess of $25 Million.  The general contractor also worked out a deal with its subcontractor default insurance policy that it would pursue the CGL carrier for reimbursement.

 

The general contractor then sued the CGL insurer for indemnification by asserting a breach of contract claim and a declaratory relief claim against the insurer. 

 

RESULTING DAMAGE

 

The insurer argued that there was no coverage because there is no coverage under the CGL policy for the general contractor repairing defective work.   This is true, BUT “if the defective work causes damage to otherwise nondefective completed product, i.e., if the inadequate subcontractor work caused cracking in the stucco, collapse of the [mechanical] penthouse enclosure, and cracking in the critical concrete structural elements…[the general contractor] is entitled to coverage for the repair of that non-defective work.”  Pavarani, supra, at *4.   In other words, while repairing the defective work would NOT be covered, repairing damage resulting from the defective work WOULD be covered.

 

In discussing coverage for resulting damage, the court relied on a recent Eleventh Circuit Court of Appeals case, Carithers v. Mid-Continent Casualty Co., 782 F.3d 1240 (11th Cir. 2015).   This case is actually a very important case because it held “the complete replacement of defective subcontractor work may be covered when necessary to effective repair ongoing damage to otherwise non-defective work.”  Pavarani, supra, at *4.   (Please review the specifics of this case here).  Basically, if replacement of potentially defective work is necessary to repair resulting damage, then such replacement of the defective work would be covered under the policy. For instance, if you had to remove (or rip-and-tear out) defective work in order to fix the resulting damage, then such removal would be covered.

 

Here, it was clear that the defective work caused resulting damage triggering the CGL policy’s obligation to indemnify the general contractor and applicable subcontractors.

 

“OTHER INSURANCE” PROVISION

 

The CGL policy contained an “Other Insurance” provision.  This provision means that the policy will operate as excess (not primary) insurance over any other available insurance.  This provision is in virtually every CGL policy and in many other types of insurance policies such as a subcontractor default insurance policy.  The “Other Insurance” provision applies “when two or more insurance policies are on the same subject matter, risk and interest.”  Pavarani, supra, at *5.

 

The CGL insurer argued that based on this “Other Insurance” provision, the general contractor’s subcontractor default insurance should operate as the primary insurance with it serving as any excess insurance.  The court correctly dismissed this argument since a CGL policy and subcontractor default insurance policy insure completely different business risks.   Besides, the subcontractor default insurance policy insures the general contractor for a subcontractor default and does not insure a subcontractor for its default. 

 

Furthermore, the court held:

 

Courts disregard ‘Other Insurance’ provisions where, as here, there is a contractual right of indemnification between the parties insured by the relevant policy.  Here, AWS [concrete masonry subcontractor] contracted to indemnify Plaintiff [general contractor] for damages resulting from its work and Defendant [CGL insurer] insured AWS [per OCIP] for claims of property damage.  Therefore, Defendant cannot utilize the ‘Other Insurance’ provision to shift the loss.

Pavarani, supra, at *5 (internal citation omitted).

 

ATTORNEY’S FEES

 

Florida Statute s. 627.428 authorizes attorney’s fees against an insurer in an insurance coverage case.  Since the general contractor (insured) prevailed, it was entitled to its reasonable attorney’s fees.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

ENSUING LOSS EXCEPTION IN PROPERTY INSURANCE POLICIES

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Property insurance policies such as builder’s risk policies contain a design defect / faulty workmanship exclusion (as well as other exclusions for excluded risks or perils).  But, certain exclusions such as the design defect / faulty workmanship exclusion may contain what is referred to as the “ensuing loss exception.”   Stated differently, a design defect / faulty work is excluded from the insurance policy BUT losses ensuing (or separately resulting) from the design defect / faulty work are excepted from this exclusion and covered under the policy.  If your initial reaction as to the application of the ensuing loss exception is “huh?!?,” then that exact sentiment is shared by others.  Trust me! 

 

The Florida Supreme Court decision in Swire Pacific Holdings, Inc. v. Zurich Ins. Co., 845 So.2d 161 (Fla. 2003) dealt with a design defect exclusion that read:

 

Loss or damage caused by fault, defect, error or omission in design, plan or specification, but this exclusion shall not apply to physical loss or damage resulting from such fault, defect, error or omission in design, plan or specification.

 

This initial part of this exclusion is a design defect exclusion.  The underlined part is the ensuing loss exception to this exclusion.

 

In Swire, errors and omissions with the structural design and, therefore, structural work, of a condominium project halted the issuance of the certificate of occupancy for the condominium.  The developer incurred $4.5 million to retain a new structural engineer to modify the plans as well as corrective structural work in the field.  The developer then submitted a builder’s risk insurance claim.  The builder’s risk insurance carrier denied coverage based on the foregoing design defect exclusion arguing that the developer incurred money to correct a design defect, but there were no covered losses or damages ensuing from the design defect.  The Florida Supreme Court agreed with the builder’s risk insurer:

 

Swire’s [developer’s] sole claim here is an attempt to recover the expenses incurred in repairing a design defect. No ensuing loss resulted [from the design defect] to invoke the exception to the exclusionary provision…. No loss separate from, or as a result of, the design defect occurred. Therefore, we conclude…Swire is not entitled to recover the expenses associated with repairing the design defect. To hold otherwise would be to allow the ensuing loss provision to completely eviscerate and consume the design defect exclusion….This [builder’s risk insurance] contract does not operate as a warranty for faulty workmanship and should not be transformed into a guarantee against design and construction defects.

 

Swire, 845 So.2d at 167-68.

 

In a more recent case, Peek v. American Integrity Ins. Co. of Florida, 2015 WL 5616294 (Fla. 2d DCA 2015), a property insurance policy contained the following ensuing loss exception:

 

“We do not insure loss to property described in Coverages A and B caused by any of the following. However, any ensuing loss to property described in Coverages A and B not excluded or excepted in this policy is covered.”

 

Coverages A and B contained exclusions for latent defects, corrosion, faulty workmanship and pollution.  Thus, the property insurance policy did not cover these items but it did cover “any ensuing loss…not excluded or excepted in this policy.” 

 

Peek dealt with homeowners moving into a house with Chinese drywall.  The homeowners contended that the Chinese drywall resulted in a noxious smell and corroded air conditioning coils.  The homeowners contended that the defective drywall (exclusion) resulted in (a) the loss of use of their house due to the noxious smell and (b) damage in the form of corrosion to air conditioning coils, and that such items should be covered under the ensuing loss exception.

 

The Second District Court of Appeal disagreed with the homeowners regarding the application of the ensuing loss provision. The court explained:

 

An ensuing loss follows as a consequence of an excluded loss, and the crux of the ensuing loss provision is that there must be a covered cause of loss that ensues from the excluded cause of loss….Given that American Integrity [property insurer] proved that the Chinese drywall was an excluded defective construction material, it was the Peeks’ [homeowners] burden to demonstrate that the policy covered a loss that occurred subsequent to and as a result of that excluded peril.

 

First, the evidence below demonstrated that the odor present in the Peeks’ home was a manifestation of the sulfur gases emanating from the Chinese drywall and that the corrosion was caused by the chemicals released by the sulfur gases, which emanated from the Chinese drywall. As such, the losses were not “ensuing.” …

 

Additionally, both of the claimed ensuing losses are specifically excluded under the policy because an excluded cause of loss—defective Chinese drywall—led directly to another set of exclusions—pollution and corrosion….. Here, the damage to the Peeks’ home and consequently the odors and corrosion of metals and electronics were directly related to the defective Chinese drywall and thus directly stemmed from an excluded risk. Thus coverage was excluded under the express terms of the insurance contract.

 

Peeks, supra, at *4.

 

Recovering losses or damage under an insurance policy can be challenging in light of the various exclusions in the policy.  Even the ensuing loss exception to exclusions, as demonstrated above, does not except from policy exclusions the types of losses that an insured may seek to recoup.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

NEED TO BE A “CONTRACTOR” TO BE PROTECTED BY WORKERS COMPENSATION IMMUNITY

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Previously, I discussed the concept of “statutory employer” in the framework of workers compensation. Again, this concept is based on language in Florida Statute s. 440.10(1)(b) that provides:

 

In case a contractor sublets any part or parts of his or her contract work to a subcontractor or subcontractors, all of the employees of such contractor and subcontractor or subcontractors engaged on such contract work shall be deemed to be employed in one and the same business or establishment, and the contractor shall be liable for, and shall secure, the payment of compensation to all such employees, except to employees of a subcontractor who has secured such payment.

 

 

The recent case of Slora v. Sun ‘N Fun Fly-In, Inc., 40 Fla. L. Weekly D 1966a (Fla.2d DCA 2015) discussed the meanings of the term “contractor” and “contract work” as used in this section:

 

The statutory terms “contractor” and “contract work” plainly and unambiguously posit a party performing work pursuant to a contract with another. Thus, to be immune from tort liability as a contractor, a defendant’s primary obligation in performing a job or providing a service must arise out of a contract.

Slora, supra (quotation and citation omitted).

 

In this case, a company operated airshows for the general public.  To put on these airshows, the company had to fill out various forms and get approval from the Federal Aviation Authority. The Federal Aviation Authority required security to be provided at airshow events.  The company put on an airshow and hired a security company to provide the security services for the event.  During the airshow, however, an employee of the security company got hurt.  This employee sued the company that put on the airshow for her injuries.  The company argued it should be immune from such claim under workers compensation immunity that provides that contractors that comply with Florida Statute 440.10 are immune from tort liability (absent an intentional tort). 

 

The trial court agreed with the company and granted summary judgment in its favor finding it was immune from liability and could not be properly sued by the injured employee of the security company. The appellate court reversed based on the meanings of “contractor” and “contract” as used in Florida Statute s. 440.10.  Particularly, the appellate court held that there was no evidence that the Federal Aviation Authority contracted the company to put on the airshow event (or that the company undertook an implied obligation to the Federal Aviation Authority).  Thus, if the company was not contracted by the Federal Aviation Authority, it could not be a “contractor” as used in the statute since it was not performing work pursuant to a contract with another.  And, if the company was not a contractor per the statute, the company could not be immune from tort liability under workers compensation law.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

THE (j)(5) and (j)(6) DAMAGE TO PROPERTY EXCLUSIONS IN CGL POLICY

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The case of Essex Ins. Co. v. Kart Const., Inc., 2015 WL 4730540 (M.D.Fla. 2015) is an insurance coverage dispute.  In this case, a fire started after a contractor’s welding operations to the metal exterior of a tower that damaged components of the tower.  (In addition to the welding, the contractor was responsible for fire prevention measures to, among other things, monitor the welding during the welding and for a couple of hours after the welding.)

 

The contractor had a CGL policy.  The CGL carrier denied coverage.

 

The policy contained the (j)(5) and (j)(6) exclusions:

 

j. Damage To Property

“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.

The Middle District of Florida gave a great explanation regarding the application of the (j)(5) and (j)(6) exclusions in a CGL policy:

(j)(5)

In sum, Section (j)(5) excludes from coverage damage to “that particular part” of the real property on which the insured [contractor] is operating at the time of the accident [the moment of the accident]…..

Kart Const., supra, at *6.

 

(j)(6)

Unlike the “operations” under Section (j)(5), the “work” under Section (j)(6) need not occur at a specific time (e.g., the moment of the accident) for the exclusion to apply. Section (j)6) excludes damage to a “particular part of … property” if the insured [contractor] “incorrectly performed” work (at any time) on that part and the “incorrectly performed” work caused, or contributed to, damage to that part.

 

In sum, under Section (j)(6), the policy might exclude the damage to the tower if Kart [the contractor] incorrectly performed fire-prevention work on the tower (that is, incorrectly removed debris from the tower or incorrectly wet the tower) and that incorrect work caused, or contributed to, the tower’s damage.

Kart Const., supra, at *6, 7.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

CONTRACTUAL LIABILITY EXCLUSION IN CGL POLICIES AND “INSURED CONTRACT” EXCEPTION

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Commercial General Liability (CGL) policies contain a CONTRACTUAL LIABILITY EXCLUSION (see adjacent picture). The contractual liability exclusion operates to BAR personal injury and property damage claims “which the insured is obligated to pay by reason of the assumption of liability in a contract or agreement.”  Think indemnification claims which are assumption of liability claims and common in construction. 

But, and this is an important but, there are two exceptions to this exclusion.

First, the contractual liability exclusion does not apply to liability for damages “that the insured would have in the absence of the contract or agreement.”   Think tort claims.

Second, the contractual liability exclusion does not apply to liability for damages “assumed in a contract or agreement that is an ‘insured contract’.”  The key to this exception is the definition of an “insured contract.” 

Applicable to construction, a key definition of an “insured contract” is “that part of any contract…pertaining to your business…under which you assume the tort liability of another party to pay for bodily injury or property damage to a third person or organization.”  This portion of the “insured contract” definition should ideally bring contractual indemnification claims back into play so that contractual indemnification claims are not barred by the contractual liability exclusion.

Be careful, though.  There are endorsements to CGL policies that have modified the definition of “insured contract” to either remove the aforementioned definition all together, meaning contractual indemnification claims would be excluded.  This is a bad endorsement to the definition of “insured contract” if you are involved in construction.

Or, this key definition of “insured contract” has been narrowed to include the following underlined language “that part of any contract…pertaining to your business…under which you assume the tort liability of another party to pay for bodily injury or property damage to a third person or organization, provided the bodily injury or property damage is caused, in whole or in part, by you or those acting on your behalf.”  This means that if you contractually agree to indemnify another for that person’s negligence, this would not meet the definition of “insured contract” since you are agreeing to indemnify another for negligence not caused in whole or in part by you. 

For example, the opinion in Mid-Continent Casualty Co. v. Royal Crane, LLC, 2015 WL 3609062 (Fla. 4th DCA 2015), discusses this narrowed definition of “insured contract” with the underlined language above.  In this case, a subcontractor leased a crane and crane operator from a rental company.  The rental agreement between the subcontractor and rental company contained the following contractual indemnification language:

“Lessee [subcontractor] agrees to indemnify, defend and hold harmless Lessor [rental company], its employees, operators and agents from any and all claims for damage to property, damage to the work or bodily injury (including death) resulting from the use, operation, or possession of the crane and operator whether or not it be claimed or found that such damage or injury resulted in whole or in part from Lessor’s negligence, from a defective condition of the crane or operator or from any act, omission or default of Lessor.”

In other words, the subcontractor was agreeing to indemnify the rental company for the rental company’s negligence.  This is known as a broad form indemnification provision.

 

During construction, a worker was hurt when a truss fell from the crane.  The worker sued the rental company and the crane operator for negligence.  The rental company and operator third-partied in the subcontractor based on the contractual indemnification provision in the rental agreement. However, the subcontractor’s CGL insurer denied coverage (and, thus, a defense in the lawsuit) based on the contractual liability exclusion.

As a consequence of the CGL insurer’s immediate denial of coverage, the subcontractor entered into a Coblentz settlement agreement with the rental company that allowed the rental company to sue the subcontractor’s CGL’s insurer for its wrongful refusal to deny the subcontractor a defense and for coverage under the subcontractor’s policy.  

Coblentz Settlement Agreement

In a nutshell, a Coblentz settlement agreement is an agreement between an insured and a third-party claimant where the insurer denied coverage and, thus, the duty to defend its insured in an underlying lawsuit.  The insured agrees to give the claimant a consent judgment to resolve the lawsuit and an assignment of its rights under its CGL policy to the claimant in exchange for the claimant not enforcing the consent judgment against the insured.  This allows the claimant to now sue the insured’s CGL insurer directly to enforce the consent judgment.  In doing so, the claimant must still prove: (a) the insurer wrongly refused to defend its insured, (b) there is coverage under the policy, and (3) the negotiated consent judgment was made in good faith and is reasonable. But, the consent judgment prevents the insurer from trying to argue the liability of the insured since that could have been argued in the underlying lawsuit that the insurer refused to defend its insured in.  See Royal Crane, supra, at *4-5. (For more information on Coblentz settlement agreements, check out this presentation that discusses this in detail.)

“Insured Contract”

But, the heart of the case really pertained to the contractual liability exclusion and the definition of an “insured contract” as narrowed by endorsement. With respect to the definition of “insured contract” in the policy (see above language), the Fourth District Court of Appeals importantly held:

“[A]n indemnity agreement can be an ‘insured contract’ under the policy where the injury is caused by the indemnitee’s negligence, so long as the named insured ‘caused’ some part of the injuries or damages or is otherwise vicariously liable.”

Royal Crane, supra, at *7. 

In other words, taking the above fact pattern, the indemnity agreement could constitute an “insured contract” to be excepted from the contractual liability exclusion if the worker’s injury was caused by the rental company’s (indemnitee) negligence, so long as the subcontractor (named insured in the CGL policy) caused some part of the injuries or was otherwise vicariously liable to the rental company for the injuries.

 Unfortunately for the rental company, even under this favorable definition of an “insured contract”, the rental company’s third-party complaint against the subcontractor still did not trigger a duty of subcontractor’s CGL insurer to defend and cover the subcontractor:

“Hunter Crane’s [indemnitee-rental company] third party complaint did not assert a legal theory under which Cloutier [insured-subcontractor] can be said to have ‘caused’ the injury in whole or in part.  No allegation described how Cloutier contributed to causing the accident.  No allegation attempted to invoke the borrowed servant doctrine, which dictates that ‘one who borrows and exercises control over the servant or worker of another in effect assumes all liability for the activities of the borrowed servant or worker.’ Nor did the third party complaint cast Cloutier as the employer of an independent contractor who actively participated in or interfered with the job to the extent that it directly influenced the manner in which the work was performed.”

Royal Crane, supra, at *7 (internal quotations omitted).

For this reason, the Fourth District sided with the CGL insurer finding that the contractual liability exclusion barred coverage to the subcontractor such that the CGL insurer had no duty to defend or cover the subcontractor in the underlying litigation.  This also meant that the rental company’s Coblentz settlement agreement provided it no value because it already agreed to give up rights to collect against the subcontractor and it could no longer collect against the subcontractor’s CGL insurer.  What this case does exemplify, however, is the importance of pleading allegations to maximize insurance coverage as well as a more relaxed definition of an “insured contract”  to hopefully prevent the application of the contractual liability exclusion.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

RENTAL EQUIPMENT SUPPLIER NOT PROTECTED BY WORKERS COMPENSATION (HORIZONTAL) IMMUNITY

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Oh boy! When it comes to workers compensation immunity, suppliers, particularly rental equipment suppliers, better watch out as they are not entitled to the same safeguards as subcontractors when it comes to injuries on a construction project!

 

The Fourth District Court of Appeals in Ciceron v. Sunbelt Rentals, Inc., 40 Fla. L. Weekly D897a (Fla. 4th DCA 2015) rendered an opinion that is not favorable to suppliers when it comes to the protection of workers compensation immunity on a construction project.   In this case, an employee of the demolition subcontractor was injured from a scissor list that was utilized and rented by other subcontractors at the project. The employee sued the rental equipment supplier of the scissor list for negligence.  The supplier moved for summary judgment arguing that it has immunity from such tort claims.  The ultimate issue was whether workers compensation horizontal immunity barred the injured employee’s claim against the rental equipment supplier.

 

Horizontal Workers Compensation Immunity

 

I have previously written about workers compensation immunity on a construction project. Regarding what is commonly referred to as horizontal immunity: “Workers’ compensation immunity has been broadly expanded by the legislature to include subcontractors and sub-subcontractors working at a construction site, precluding an employee of one contracting entity injured on the job from suing another contracting entity working at the same construction site in tort.”  Ciceron, supra. 

To this point, Florida Statute s. 440.10(1)(e) states:

  

A subcontractor providing services in conjunction with a contractor on the same project or contract work is not liable for the payment of compensation to the employees of another subcontractor or the contractor on such contract work and is protected by the exclusiveness-of-liability provisions of s. 440.11 from any action at law or in admiralty on account of injury to an employee of another subcontractor, or of the contractor, provided that:

1. The subcontractor has secured workers’ compensation insurance for its employees or the contractor has secured such insurance on behalf of the subcontractor and its employees in accordance with paragraph (b); and

2. The subcontractor’s own gross negligence was not the major contributing cause of the injury.

 

This is referred to as horizontal immunity because one subcontractor is entitled to immunity for injuries caused to employees of another subcontractor.

 

In this case, however, because the supplier of the scissor list was not a “subcontractor,” the supplier was NOT entitled to immunity.  This meant that the injured demolition subcontractor’s employee was entitled to pursue its negligence claim against the supplier of the scissor lift and the supplier did not have immunity under the law.   If, on the other hand, the supplier was a “subcontractor,” then more than likely workers compensation horizontal immunity would have applied to bar the injured employee’s tort claim.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

CGL INSURANCE AND CONSTRUCTION DEFECTS (DUTY TO DEFEND; TRIGGERING OF CGL POLICY; COVERED RESULTING DAMAGE)

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I previously wrote about insurance coverage issues in a construction defect dispute, specifically in the context of the insurer denying coverage outright and refusing to defend its insured.

 

As a sequel to this posting, a noteworthy opinion was issued by the Eleventh Circuit Court of Appeals in Carithers v. Mid-Continent Cas. Co., 2015 WL 1529038 (11th Cir. 2015) in a commercial general liability (CGL) insurance coverage dispute dealing with construction defects to a house.   This opinion discusses central issues to an insurance coverage dispute in a construction defect context: the triggering of a CGL policy, the duty to defend, the duty to indemnify, covered resulting damage stemming from construction defects, and a claimant resolving a dispute with an insured in order to pursue rights against the insured’s CGL carrier (also known as a Coblentz agreement).

 

In this case, the owners hired a general contractor to build their house.  The general contractor had CGL insurance with products completed operations coverage.  Upon discovering construction defects, the owners sued the general contractor.  The general contractor’s insurer refused to defend the general contractor, meaning the insurer denied coverage (which is the last thing the general contractor ever wants to hear).  The insurer denied coverage because the complaint alleged that the damages were not discovered until 2010; however, the general contractor did not have any CGL coverage after 2008.  Thus, if the manifestation theory applied to trigger coverage (discussed below), there would be no coverage under the CGL policy.

 

The general contractor and insurer then entered into a consent judgment in the action for $90,000 in favor of the owners that assigned to the owners the general contractor’s rights under its CGL policy.  (This forms the framework for what is known as a Coblentz agreement.)  The owners then sued the general contractor’s CGL insurer.

 

The issues in this case were (a) the insurer’s duty to defend its general contractor-insured, (b) the triggering of an occurrence under a CGL policy, and (c) resulting damage covered under the CGL policy.

 

(A) Duty to Defend

 

The insurer’s duty to defend is triggered by the allegations in the complaint.  Here, the Eleventh Circuit held that the insurer had a duty to defend because the duty to defend is broader than the insurer’s duty to indemnify and “all doubts as to whether a duty to defend exists in a particular case must be resolved against the insurer and in favor of the insured.” Carithers, supra, at *4 (quotation and citation omitted). “An insurance company must defend an action where the facts alleged against the insured would give rise to coverage, even if those facts are not ultimately proven at trial.”  Id. 

 

(B) Triggering of an Occurrence Under CGL Policy

 

The insurer wanted the manifestation theory to trigger CGL coverage.  Under this theory, the CGL policy is triggered if the damage is discovered (manifests itself) during the policy period.  

 

The reason the insurer wanted this theory to apply is because the owners admitted that they discovered the damage / defects in 2010 when the general contractor’s CGL policy was no longer in effect.

 

Conversely, the owners wanted the injury-in-fact theory to apply to trigger coverage.  Under this theory, the policy is triggered when the damage occurs even if the damage is not discovered until sometime later.  Here, the trial court found that the damage occurred in 2005 when the general contractor’s CGL carrier was in effect (although the damage was not discovered until 2010).  Because there was evidence and a finding as to when the damage occurred, the Eleventh Circuit held that the injury-in-fact theory was the correct theory to trigger CGL coverage.

 

(C) Resulting Damage Covered Under a CGL Policy

 

The cost of repairing damage to other work resulting from faulty workmanship would be covered under the CGL policy.  In other words, repairing damage to another trade’s work would be covered but repairing / replacing damage to the trade’s own work would not be covered.  The Eleventh Circuit analyzed this application to determine whether the trial court appropriately determined that certain items were resulting damage.

 

(1)  Brick

 

The trial could found that the defective application of exterior brick coating caused resulting damage to the brick itself.  If the exterior brick coating was applied by the subcontractor that installed the brick, then the brick should not be covered since the brick was the subcontractor’s own work as opposed to other work.  However, there was no evidence at the trial level whether the brick coating and installation of the brick was done by the same subcontractor or different subcontractors.  Because the plaintiff owners (who were assigned rights under the policy by the general contractor insured) had the burden of proof on this issue, which they failed to meet, the Eleventh Circuit reversed any damage awarded associated with the brick.

 

(2)  The Tile and Mud Base

 

The trial court found that defective adhesive and an inadequate base caused damage to the tile.  The trial court awarded damage to replace the tile and mud base. Similar to the brick, the issue turned on whether the installation of the tile and mud base was done by the same subcontractor or different subcontractors.  And, similar to the brick, no evidence was offered on this point so the Eleventh Circuit reversed any damage awarded associated with the tile and mud base.

 

(3)  Balcony

 

The trial court found that defects in the construction of the balcony resulted in damage to the garage. However, because the balcony had to be rebuilt in order to repair the garage, the trial court held that this work was resulting damage covered by the CGL policy.  The Eleventh Circuit agreed with the trial court holding that the cost of repairing damage resulting from defective work is covered and since repairing the balcony was part of repairing the garage, these costs would be covered.

 

Important take-aways:

  • This case provides strong arguments to an insured when its CGL carrier denies coverage, specifically based on the argument that its policy was never triggered.  Remember, the duty to defend is broader than the duty to indemnify so any doubts must be resolved in favor of the insured.
  • Don’t forget about the injury-in-fact theory to trigger CGL coverage.  If you have evidence, such as an expert opinion, as to when the damage started to occur, this theory can be valuable if the owner discovered the latent defects after the expiration of your CGL policy.  This helps an owner maximize CGL coverage and a general contractor maximize coverage under its CGL policy.
  • Make sure to meet your burden of proof to establish resulting damage or other damage caused by faulty workmanship.  Make sure to prove that the resulting damage was work performed by a different subcontractor and not the subcontractor that performed the faulty workmanship. And, to this point, make sure to include appropriate language in the consent judgment.
  • Make sure you know how to couch your coverage arguments to an insurer in order to maximize insurance coverage.
  • If your insurer denies coverage, consider entering into what is known as a Coblentz agreement with the claimant where a consent judgment is entered against you and rights under your policy are assigned to the claimant.  The benefit is that in consideration of the consent judgment and assignment of rights, the claimant gives up any rights to collect that judgment against you. 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

REQUESTING LIABILITY INSURANCE INFORMATION FROM RESPONSIBLE PARTIES FOR CONSTRUCTION OR DESIGN DEFECTS (FLA. STAT. s. 627.4137)

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If you are an owner and discover construction or design defects, you are going to want consult with a lawyer to make sure you know your rights under Florida Statutes Chapter 558.  This includes sending a written notice of the construction or design defects identifying the defects with sufficient detail to the potentially responsible parties.  Likewise, if you are a contractor and receive this written notice, you are going to want to make sure you forward that letter to potentially responsible parties (subcontractors or suppliers). 

 

Coupled with this written notice of defects letter should be a written request on the parties and their known insurance agents and insurers for their liability insurance information.  Start with culling Certificates of Insurance you have on these parties to obtain (some) of this information as to whom to send the request to.  This request can be in a separate letter or the same letter (as the notice of defects letter) and should reference Florida Statute s. 627.4137 and request the information in the below statutory language:

 

(1) Each insurer which does or may provide liability insurance coverage to pay all or a portion of any claim which might be made shall provide, within 30 days of the written request of the claimant, a statement, under oath, of a corporate officer or the insurer’s claims manager or superintendent setting forth the following information with regard to each known policy of insurance, including excess or umbrella insurance:

(a) The name of the insurer.

(b) The name of each insured.

(c) The limits of the liability coverage.

(d) A statement of any policy or coverage defense which such insurer reasonably believes is available to such insurer at the time of filing such statement.

(e) A copy of the policy.

In addition, the insured, or her or his insurance agent, upon written request of the claimant or the claimant’s attorney, shall disclose the name and coverage of each known insurer to the claimant and shall forward such request for information as required by this subsection to all affected insurers. The insurer shall then supply the information required in this subsection to the claimant within 30 days of receipt of such request.

 

As discussed in prior articles, insurance is an important aspect of construction and design defect disputes. 

 

If you are an owner, you want to understand potential insurance coverage so that you know how to best maximize any claim for insurance coverage against potentially liable parties.  This includes knowing the limits of liability in any commercial general liability (CGL) or professional liability / errors & omissions policy, as applicable, and whether there is any umbrella / excess policy.  This also includes understanding the exclusions in the policies and whether there are endorsements that add or modify exclusions in the policy.

 

If you are a general contractor, you also want to understand potential insurance coverage from subcontractors and other entities you are looking to flow-down an owner’s defect claims (ideally, through contractual indemnification language in your subcontract).  Also, you are going to want to make sure you have additional insured status under these parties’ liability policies so that they contribute to the fees and costs incurred in your defense.  For this reason, you also want to obtain copies of subcontractor insurance polices including all endorsements.  Besides the limits of liability, you want to see the additional insured endorsement in the policy, and any endorsements that add or modify exclusions in the policy. 

 

If you are a subcontractor, if you subcontracted aspects of your scope of work or there is a claim associated with deficient material you furnished, you also want to obtain this insurance information from these potentially liable entities because you are also going to try to flow-down liability (ideally, through contractual indemnification language in your subcontract).

And, if you are a manufacturer, if a claim is asserted against you arising out of the installation of that product, you also want to obtain insurance information from any authorized dealer or installer (perhaps through any agreement you have with that dealer or installer that would require this entity to indemnify you and name you as an additional insured).  

 

One of the underlying reasons for s. 627.4137 is so that parties can obtain insurance coverage information and make reasonably informed decisions about settling a matter.  In other words, you don’t want to settle a dispute for policy limits if you have damages that may exceed policy limits and find out the responsible party has additional or excess insurance to cover the excess damages. See, e.g., Schlosser v. Perez, 832 So.2d 179 (Fla. 2d DCA 2002) (in non-construction case, noncompliance with s. 627.4137 rendered settlement unenforceable). But, this statute does not create a private cause of action by a third-party if an insurer fails to timely provide this information. Any potential recourse the third-party would have, if any, against the insurer would have to be after the third-party obtains a judgment against the underlying insured. Lucente v. State Farm Mut. Auto. Ins. Co., 591 So.2d 1126, 1127-28 (4th DCA 1992) (“[T]he statute does not contain an implicit cause of action for a third-party against an insurance company.”);  see also Brannan v. Geico Indemnity Co., 569 Fed.Appx. 724, 728 (11th Cir. 2014)  (“But Brannan fails to point to any legal authority to show that s. 627.4137 creates a first-party private cause of action against an insurer [for failure to comply with the statute.]”).

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.