Insurance policy

December 30, 2013

Sixth Circuit holds construction defect is not an occurrence

Source:, December 20, 2013
By: Brian Bassett, Traub Lieberman Straus & Shrewsberry LLP

In its recent decision in Liberty Mutual Fire Ins. Co. v. Kay & Kay Contracting LLC, 2013 U.S. Dist. LEXIS 23587 (6th Cir. Nov. 19, 2013), the United States Court of Appeals for the Sixth Circuit, applying Kentucky law, had occasion to consider whether a subcontractor’s allegedly faulty preparation of a building pad, and the resulting settling and structural damages to the building constructed on the building pad, constitutes an “occurrence.”

Liberty Mutual issued a CGL insurance policy to Kay & Kay as the named insured and included MW Builders as an additional insured (“the contractors”). Wal-Mart contracted with MW Builders as a general contractor to build a new Wal-Mart store. MW Builders in turn subcontracted with Kay & Kay to perform site preparation work and construct the building pad for the new store. After Kay & Kay completed the building pad and constructed the building, Wal-Mart notified MW Builders that there were cracks in the building’s wall. Wal-Mart demanded that MW Builders remedy these issues and fix the resulting damage. MW Builders in turn demanded that Kay & Kay remedy these issues and indemnify MW Builders from Wal-Mart’s claim. MW Builders and Kay & Kay reached an agreement and executed a new and separate contract under which Kay & Kay agreed to perform the remedial work demanded by Wal-Mart. Meanwhile, Liberty Mutual filed a complaint seeking a declaratory judgment against the contractors alleging that their claims were not covered under the CGL policy, in relevant part, because there was no “occurrence” alleged.…

December 17, 2013

AIA contracts help effectively allocate risks and result in predictable interpretations

Source:, December 6, 2013
By: Cade J. Laverty and C. Michael Shull III, Frost Brown Todd LLC

It is sometimes difficult to tell whose insurer will be liable for certain occurrences on a construction project. The whole purpose of contracting is to allocate risk—hopefully to the party that is better situated to deal with that risk. In allocating that risk, all parties need to know which party is ultimately responsible for insuring against certain risks. While some court opinions can leave a reader unsure of the ultimate holding and its application, the Indiana Court of Appeals recently issued a clear and concise opinion regarding issues of insurer liability in the context of interpreting an American Institute of Architects (AIA) standard form agreement.

In Allen Cnty. Pub. Library v. Shambaugh & Son, L.P., the court considered issues of liability related to environmental remediation costs incurred as a result of a diesel spill under a standard AIA contract form. The spill was allegedly caused when a line connecting a back-up generator tank to its generator was struck by a certain contractor involved in the renovation of a library. The resultant leak allowed approximately 3,000 gallons of fuel to leak into the ground under the library. This ground was not a part of the scope of Work as defined in the contract. This was a key fact in the Court’s decision.

Both the library and the contractors on the job obtained multiple insurance policies. The library obtained a builders risk policy which contained a specific “coverage extension” for environmental remediation. When the library sued to recover the costs it incurred in cleaning up the diesel spill, the defendant contractors asserted that the library had waived its ability to seek compensation due to one of the provisions contained in the AIA agreement which provides for a waiver of subrogation, as well as the library having obtained its own pollution cleanup insurance.…

October 28, 2013

Policyholders: Beware of Choice of Law Provisions

Source: Saxe Doernberger & Vita, P.C., October 2013

New York District Court Applies “No Prejudice” Rule to Late Notice Claim for Policy “Issued and Delivered” Outside the State with NY Choice of Law Provision

A New York federal district court applied the antiquated “no prejudice” rule to an insured’s late notice claim in Indian Harbor Insurance Co. v. City of San Diego, 2013 WL 5340380 (S.D.N.Y. Sept. 25, 2013). The insurance policy in question was issued in Pennsylvania, delivered to the policyholder in California, and insured risks located in California. The policy contained both New York choice of law and forum selection clauses. In holding that the insurer had no duty to indemnify, the court held that only those policies “issued and delivered” in New York are entitled to take advantage of New York’s statutory “notice-prejudice” standard, which requires that an insurer show prejudice resulting from the policyholder’s late notice in order to deny coverage on that basis. Rather, the court held that foreign insurance policies with New York choice of law provisions are subject to the draconian common law “no prejudice” standard, under which an insurer does not have to show that it was prejudiced by late notice in order to deny coverage.

The Indian Harbor case involved three underlying pollution claims made against the California State Association of Counties and the City of San Diego (collectively “the City”). For each claim, the City failed to give timely notice to the insurer after receiving the claim. The insurer disclaimed coverage and sought a declaration that it had no duty to indemnify the City due to the late notice.…

October 4, 2013

Act professional

Source:, September 30, 2013
By: Jay Sturhahn, Sherman & Howard LLC

A recurring risk for licensed professionals remains the threat of liability claims arising from their work. Given the nature of the professional’s practice, the claims are complex and costly, regardless of their merit. Therefore, professional liability insurance is a critical component of any professional’s practice.

Professional liability insurance continues to be a significant expense. Consequently, it has been our experience that the premium is often the biggest driver in policy selection. But selecting professional liability insurance based on cost, to the exclusion of an analysis of coverage, has its own negative economic consequences. Securing the best coverage, at the best price, requires examination of certain critical factors.

Insure the Right Risk.

Don’t assume insurers will voluntarily cover every claim arising from the professional’s performance of a compensated act for a client. Many professionals provide a blend of professional services, whereas liability policies are designed to cover risk arising from the traditional practice of the profession. For example, lawyers often give operational advice to their business clients and architects are asked to provide construction advice. Whether claims arising from the performance of these “non-traditional” acts are covered will depend on the policy in question, so review the policy before binding. Also, if you are a professional that regularly engages in “non-traditional” acts – e.g., a lawyer that prepares clients’ tax returns – confirm that undertaking is covered.…

September 27, 2013

United States: Allocating Insurance For Environmental Contamination Claims

Source:, September 25, 2013
By: Mark C. Rouvalis and Kenton Villano, The McLane Law Firm

Environmental claims brought by governments or private parties against owners or operators of property inevitably raise the question of whether insurance coverage is available to pay for all or some of the costs associated with such liabilities. In many cases the answer is yes, but properly assessing coverage prospects in cases of environmental damages claims can be a daunting prospect. This type of insurance claim often involves interpreting numerous historical policies, different layers of coverage, time periods that may span decades, uncertain facts, and competing court decisions interpreting similar policy language. Allocating responsibility among insurers is a task so complex, it has been labeled, in one case, as “both scientifically and administratively impossible.” Boston Gas Co. v. Century Indem. Co., 454 Mass. 337, 351 (2009). Yet, it is an issue that policyholders are wise to pursue, with competent counsel, in light of the large potential liabilities such cases present, and the prospect of significant recovery from insurers.

A recent First Circuit decision in Boston Gas Co. v. Century Indem. Co., 708 F.3d 254 (2013), applying Massachusetts law, presents an opportunity to compare the approach of the New Hampshire Supreme Court and the Massachusetts Supreme Judicial Court in addressing the complexities presented by so-called long-tail environmental claims. Making this comparison also will demonstrate some of the difficulties insureds and their insurers confront in this area of the law.…

September 20, 2013

No Coverage for Claim Expenses Where Insured Did Not Obtain Prior Written Consent of Insurer

Source:, September 18, 2013

The United States District Court for the District of New Jersey, applying New Jersey law, has held that a policy provision requiring written consent of the insurer in order for claims expenses incurred by the policyholder to be reimbursed is unambiguous. Paulus Sokolowski & Sartor, LLC v. Cont’l Cas. Co., No. 12-7172 (D.N.J. Aug. 30, 2013). Wiley Rein represented the insurer.

The insured, a design and engineering firm, was retained during the construction of a residential townhouse community. The developer of the community and the community’s condominium association later sued the firm for professional negligence, seeking damages for construction defects at the site. The firm sought coverage under its architects and engineers professional liability policy. The insurer provided a defense and ultimately settled the claims against the firm. The firm later sought reimbursement for claim expenses it incurred when its employees assisted the insurer and its engineering expert. The insurer denied the request for reimbursement on the grounds that the firm had not obtained written consent prior to incurring the expenses and that the firm had a duty to assist in the defense. The firm filed suit in New Jersey state court, which the insurer removed to federal court.

The court dismissed the firm’s breach of contract claims, determining that the policy provision requiring the insurer’s written consent prior to the policyholder incurring claim expenses was unambiguous, and that the firm’s complaint had conceded that there had been no explicit consent from the insurer. In reaching this conclusion, the court noted that interpretive principles calling for insurance policies to be interpreted against the insurer are less applicable where the policyholder is a large business with the resources to bargain for particular policy provisions, as was the case with the insured. The court additionally dismissed the firm’s claims for unjust enrichment and quantum meruit because the express written contract covered the issues in dispute.

The court also dismissed the firm’s claims for breach of the duty of good faith and fair dealing, breach of fiduciary duty, and bad faith. The court concluded that the firm had failed to allege facts demonstrating that the insurer had bad motive or intention and that the implied covenant of good faith and fair dealing could not override the express terms of a contract. The court further held that the insurer did not owe the firm a fiduciary duty in the context of reimbursing claim expenses.

The opinion is available here.


August 9, 2013

Seven things about professional liability coverage—part 2

Source:, August 3, 2013
By: Andrew B. Downs, Bullivant Houser Bailey PC

This is the second in a series of posts on issues arising under professional liability policies. The aim of this series is to provide sufficient background information to allow the defense attorney to identify relevant issues frequently raised by professional liability policies and to formulate a plan for addressing them. This is not a treatise on how different jurisdictions view professional liability issues. For that, the reader should review the DRI’s 2012 publication Professional Liability Insurance: A Compendium of State Law. There are, of course, other issues of importance not discussed here.

Professional Liability Insurance is Commonly Written on a Claims Made and Reported Basis

Many, although not all, professional liability policies are issued on a claims made and reported basis, as opposed to being issued on an occurrence basis. This means that in order for there to be coverage, the claim against the insured must first be made during the policy period and it must also be reported to the insurer during or immediately after the policy period. This differs from commonly available occurrence-based general liability and automobile policies, which cover any injury or damage occurring during the policy period without regard to when the insured was negligent or when the claimant files suit. Some policies are written only on a claims made basis, with no requirement that the claim must also be reported during the policy period. While those policies permit reporting outside the policy period, they often require that notice be given within a specified period of time after policy expiration.…

August 8, 2013

Georgia recognizes defective construction as an "occurrence" for liability insurance purposes

Source:, July 23, 2013
By: William R. Wildman and Kent W. Collier, Sutherland Asbill & Brennan LLP

The highest court in Georgia has recently added that jurisdiction to the growing list that considers defective construction, including defects in the work of a general contractor, to be an “occurrence” under the general contractor’s commercial general liability (CGL) insurance policy. The key takeaways are:

  • Defective construction can be an “occurrence” under a CGL insurance policy.
  • Property damage resulting from an occurrence (caused by defective work or otherwise) must be to other nondefective work or property (or loss of use).
  • Business risk exclusions (such as the “Your Work” exclusion) may still apply.
  • The entire insuring agreement (occurrence, property damage, and no exclusions) must be met for an insurer to have the obligation to indemnify and defend.

In Taylor Morrison Services, Inc. v. HDI-Gerling America Insurance Company, — S.E.2d —, 2013 WL 3481555 (Ga. 2013), the Supreme Court of Georgia ruled that damage to the insured’s completed work constitutes an “occurrence” under a standard CGL policy. The case involved a class action by homeowners in California against Taylor Morrison, a residential homebuilder, regarding improper construction of concrete foundations, including lack of a gravel base, failure to use adequate moisture barriers, and building foundations with water-to-cement ratios that were too high. HDI-Gerling, Taylor Morrison’s CGL carrier, sought a declaratory judgment in federal court in Atlanta that the defective construction could not constitute an “occurrence” under the policy. The District Court issued such a declaration, Taylor Morrison appealed, and the U.S. Court of Appeals for the Eleventh Circuit certified the question to the highest court in Georgia.…

July 26, 2013

Georgia Supreme Court rules on insurance coverage for construction defects

Source:, July 19, 2013
By: John L. Watkins and Russ Rogers, Thompson Hine LLP


On July 18, 2013, in Taylor Morrison Services, Inc. v. HDI-Gerling Ins. Co., the Supreme Court of Georgia decided two important certified questions from the United States Court of Appeals for the Eleventh Circuit that affirm and expand the rights of property owners and policyholders seeking insurance coverage for construction defects under standard commercial general liability (CGL) insurance policies. Specifically, the Court held:

  • To constitute an “occurrence” under a CGL policy, it is not necessary that there be damage to property other than the insured’s work itself.
  • Claims for breach of warranty, but typically not for fraud, may constitute an occurrence and may be covered.

In so ruling, the Court specifically reaffirmed its recent holding in American Empire Surplus Lines Ins. Co. v. Hathaway Dev. Co., 707 S.E.2d 369 (Ga. 2011) that construction defects may constitute an occurrence under CGL policies. The Court also clarified and expanded the ruling in Hathaway.…

July 9, 2013

Second Circuit affirms application of policy exclusion in crane collapse coverage case

Source:, June 28, 2013
By: James T. Killelea

The Second Circuit recently affirmed a lower court decision holding that an insurance policy exclusion barred coverage for claims against a construction company relating to a March 2008 crane collapse in Manhattan. A copy of the decision can be found here.

According to the lower court decision, the construction company, RCG Group, sought coverage from RSUI Indemnity for dozens of lawsuits over the crane collapse at 303 E. 51 St., a high-rise apartment that was then under construction. The incident was allegedly caused by the failure of slings and collars used to hold the crane to the building, which, as explained by the lower court, resulted in the death of seven people.

RSUI Indemnity filed its coverage suit against RCG Group in 2008, seeking a declaration that it did not have to indemnify the construction group based on a policy exclusion that precluded coverage for work relating to residential projects and mixed use buildings. U.S. District Judge Paul Engelmayer ruled in the insurer’s favor in August 2012.

On appeal, RCG Group argued that the exclusion did not unambiguously exclude coverage because the building where the accident occurred was intended to include community space. RCG Group asserted that because there was planned community space, the project did not fall under the policy’s definition for mixed-use buildings, which the policy specified as structures that “contain” both residential units and commercial space.

The Second Circuit, however, determined that regardless of whether the building project contemplated the inclusion of community space, the projected contained both residential uses and commercial space and therefore should be deemed mixed-use and no ambiguity as to that issue was demonstrated. The Court thus found that the lower court properly determined that the policy exclusion applied and coverage was barred for the claims against RCG Group relating to the crane collapse.