Property damage

September 19, 2013

A cautionary insurance tale for project owners

Source: http://www.lexology.com, September 4, 2013
By: Stanley A. Martin, Duane Morris LLP

The contractor’s excavator digging the foundation for a new building undermines the abutting building, which collapses, and a worker is injured. In the subsequent lawsuits, one by the abutter and one by the injured worker, the project owner tenders the defense to its GL carrier. The carrier eventually gets a court decision, that there is no coverage due to the subsurface soil movement exclusion. In the circumstances of a clear accident, and clear personal injury and damage to property, is this correct? Yes.

The appellate decision (subscription required) in this New Jersey case[1] does not explain why the owner had to defend itself and was not able to insist on a defense by the contractor or its subcontractor. But there was common ownership of the project owner entity and the contractor, and one can only surmise that the apparent absence of contractual indemnity or insurance obligations arose from this relationship.

The critical point is that standard exclusions in project owner policies – for damages arising from “movement of land or earth,” for personal injury claims of a contractor/subcontractor employee, and for property damage arising from work of a contractor/subcontractor – will be upheld. In the absence of a builder’s risk policy or other specific coverage or endorsement, project owners continue to rely on the indemnity and insurance requirements of standard form contracts. If there is no indemnity obligation, if the project owner is not an additional insured on the contractor’s policy, and if the owner is relying upon typical GL and property coverage, that owner will be defending itself with its own money from personal injury and property damage claims arising from construction.

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August 15, 2013

Three Things to Know about Occurrence-Based Insurance

Source: http://enewsletters.constructionexec.com, Vol No. 2, Issue 14

Until recently, North Dakota law stated faulty workmanship is never “accidental” and, therefore, a construction defect could never be a covered “occurrence” under Commercial General Liability (CGL) policies. In April, the North Dakota Supreme Court overturned that law, ruling that faulty construction can be accidental. On June 18, 2013, the West Virginia Supreme Court of Appeals did the same thing, overruling three prior cases on its way to holding that faulty workmanship can constitute a covered “occurrence.” On June 4, 2013, the Connecticut Supreme Court also found that CGL policies can cover damage from defective construction.

The clear trend nationwide is toward finding that claims of faulty workmanship can be covered under occurrence-based CGL policies. Judicial analysis of CGL policies in construction liability cases, which has at times been superficial and even sloppy, is becoming more careful and sound. Courts are now considering the impact of the 1986 revision of the CGL policy, which added a provision to broaden coverage of general contractors for the work of subcontractors. Judges are recognizing that nothing in the definition of “occurrence” in the CGL policy precludes coverage for construction defects. They are beginning to look at the drafting history of the 1986 CGL revision, which shows that the drafters intended to cover faulty workmanship.

Nevertheless, figuring out whether coverage exists for a particular claim can be tricky. Following are three things every contractor should know about coverage for construction defects. This discussion applies to the provisions in essentially all standard-form CGL policies.…

August 8, 2013

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

Source: http://www.lexology.com, 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.…

June 26, 2013

XL Group launches environmental insurance product for airports' fixed base operators

Source: http://commerciallines.insurance-business-review.com, June 19, 2013

Global insurance and reinsurance company XL Group’s Environmental business has rolled out a new pollution insurance protection policy for airports’ fixed base operators, which will addresses on-site pollution incidents, including incidents due to noise pollution.

Explaining the launch of new offering, XL Group North America environmental business president Matt O’Malley said that each industry has their own different environmental liability concerns.

“Fixed Base Operators face a number of environmental exposures specific to their work at an airfield,” Matt added.

“Our policy can be customized to recognize these exposures whether they are specific to hangers, fuel tanks, or aircraft fueling.”

The new policy offers protection for disaster response expense, including advisory costs, medical expenses, travel, temporary living, among other coverages and contractors pollution legal liability to provide coverage for contacting operations across the airport.

It also offers protection for financial responsibility for tanks and pollution and remediation legal liability to cover remediation and legal expenses as well as costs related to third-party bodily injury and property damage.

Designed to address environmental exposures of fixed base operators, the new policy can be customized to the individual needs of international, regional, municipal and privately-owned airports.

XL Group, through its subsidiaries, offers property, casualty and specialty products to industrial, commercial and professional firms, insurance companies and other enterprises across the globe.

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May 7, 2013

When does an "occurrence" occur?

Source: http://www.lexology.com, April 29, 2013
By: Jerome H. Sturhahn, Sherman & Howard LLC

Two federal courts in Denver recently addressed a fundamental question that exists in almost every construction defect case – when did the property damage that gives rise to liability, and the insurer’s obligation, occur? The answer to the question of when the damage occurred helps determine which policy is triggered and whether the insurer has a coverage obligation. The Courts’ resolution of this question in two different cases offers encouraging news for insureds.

The insurer in Bituminous v. Hartford Casualty Insurance Co. had argued that it had no obligation to defend a contractor from the HOA’s property damage allegations because its policy terminated before the project achieved completion and before the HOA’s formation. The Court rejected the HOA’s date of formation as determinative of when the property damage occurred. Instead, the Court looked to the specific allegations of property damage in the complaint. Based on the allegation that damage occurred as soon as “areas” of the project “were first put to their intended use,” the Court determined that the HOA had alleged property damage to various project areas that began before the project’s final completion. Although not expressly alleged, this could include the period prior to the termination of the insurer’s policy. Based on Colorado law that created a duty to defend anytime the allegations “could” give rise to covered liability, the Court found the insurer had a duty to defend.…

May 2, 2013

What do you call a contractor who provides an owner with an OCP Policy, additional insured status, and indemnification? Confused

Source: http://www.lexology.com, April 26, 2013
By: Jonathan A. Cass and Daniel E. Fierstein, Cohen, Seglias, Pallas, Greenhall & Furman PC

For most people, there is only one thing more excruciating than a discussion about insurance coverage: a blog post about it. So brace yourselves dear readers.

With all kidding aside, the importance for contractors and owners to understand the ins and outs of their insurance policies, and the risk transfer mechanisms that they are using, or are being subject to, cannot be overstated. Members of the construction industry should be generally familiar with the individual concepts of commercial general liability (“CGL”), additional insured status, and contractual indemnification, but few understand how they fit together and, worse, how their synergies can cause unintended and costly consequences. It gets even worse when a liability policy called an Owners and Contractors Protective Liability policy (“OCP Policy”) is thrown into the mix.

In recent years, we have seen owners increasingly requesting that our contractor clients purchase an OCP Policy. An OCP Policy is a policy that is specific to a construction project that insures the owner for personal and property damage arising out of the work of a designated contractor. It differs from the more commonly utilized additional insured concept in that the OCP Policy only covers the owner, instead of the contractor and owner together under the contractor’s CGL policy.…

May 2, 2013

Louisiana court finds settlement of environmental enforcement actions triggers insurance coverage

Source: http://www.lexology.com, April 26, 2013
By: David Erickson and Mark Anstoetter, Shook, Hardy & Bacon LLP

The Louisiana Court of Appeals has ruled that a commercial pollution legal liability policy covered at least some costs to be incurred in connection with the insured’s resolution of the state’s environmental enforcement actions. Bollinger Shipyards Lockport, L.L.C. v. Am. Int’l Specialty Lines Ins. Co., No. 2012 CW 0351 (La. Ct. App. 4/10/13) (unpublished).

Plaintiff Bollinger Shipyards instituted the lawsuit in 2003 seeking coverage under its policy, which was in effect from 2000-2005. The insurer responded, denying that the policy covered the costs and raising numerous affirmative defenses. As the litigation proceeded, Bollinger entered into a settlement agreement with the Louisiana Department of Environmental Quality (DEQ). The settlement involved multiple companies associated with Bollinger and called for a $500,000 payment to DEQ plus expenditures of more than $8 million to fund beneficial environmental projects. Those projects range from donating to a rural water association to funding new air monitoring equipment for DEQ, upgrading a company spray-painting system, installing a vapor-control flaring system, and adding wastewater treatment systems at two company locations.

Bollinger asserted that some or all of the settlement costs are covered losses under the insurance policy and moved for partial summary judgment. According to the appellate court, the insurance policy applies to “Loss that the insured is legally obligated to pay as a result of Claims made against the insured for Property Damage or Cleanup Costs resulting from Pollution Conditions.” Property damage is defined to include natural resource damages, but the policy treats cleanup costs as a separate type of loss, not as property damage.…

April 26, 2013

Faulty workmanship can be an accident

Source: http://www.lexology.com, April 22, 2013
By: John B. Berringer, Reed Smith LLP

After a spate of bad decisions for policyholders on whether general liability policies can ever provide coverage for construction liabilities, three courts, in the past few weeks, have done an about-face, holding that there is coverage in certain circumstances for such liabilities.

Relying on the subcontractor exception to the “your work” exclusion, the Second Circuit has ruled that a general liability policy provides coverage for liability sustained by a swimming pool installer on account of cracks that developed in the pools following installation. The appellate court reversed the district court, which had relied on an earlier Second Circuit decision in finding that defects in the insured’s workmanship could not be considered “accidents.”

On appeal, the policyholder argued that the language of the exception to the “own work” exclusion for work “performed on [the insured’s] behalf by a sub-contractor” demonstrated that in some circumstances the insured’s own work is covered. The Second Circuit agreed, “As coverage is limited by the policy to ‘occurrences’ and defects in the insured’s own work in some circumstances are covered, these policies . . . unmistakably include defects in the insured’s own work within the category of an ‘occurrence’.” Scottsdale Ins. v. R. I. Pools, 11-3529-cv (2d Cir. March 21, 2013). The Second Circuit remanded the case for a determination of whether the “sub-contractor” exception applied.

Following on the heels of the Scottsdale decision, the North Dakota Supreme Court overruled an earlier decision and held that property damage caused by faulty workmanship “may constitute an ‘occurrence’ if the faulty work was ‘unexpected’ and not intended by the insured, and the property damage was not anticipated or intentional, so that neither the cause nor the harm was anticipated, intended or expected. This is consistent with our definition of ‘accident’ for purposes of a CGL policy.” K&L Homes v. American Family Mutual Ins. Co., 2013 ND 57 (April 5, 2013).…

April 26, 2013

The Elusive "Pollution" Definition in the CGL Policy

Source: http://www.irmi.com, March 2013
By: Mark M. Bell, Waller Lansden Dortch & Davis LLP

Over the years, the pollution exclusion in commercial general liability (CGL) policies has provided something of a moving target for insureds, insurers, and underwriters.

CGL coverage for pollution-related losses has seen significant changes over the past 40 years. These changes have resulted both because of changes within the standard Insurance Services Office, Inc. (ISO), CGL policy and because of courts’ inconsistent application of the term “pollution” in the CGL policy.

Historical Background on the Grandfather Pollution Exclusion

Up until 1973, CGL policies did not have a specific pollution exclusion. The 1973 edition CGL form was the first form to incorporate a specific “pollution exclusion” in the CGL policy. The 1973 form excluded bodily injury or property damage:

(1) arising out of pollution or contamination caused by oil or (2) arising out of the discharge dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants into or upon the land, the atmosphere or any water course of body of water; but this exclusion does not apply if such discharge, dispersal, release or escape is sudden and accidental.1

While this clause spans nearly 100 words, the last 3 words in the clause proved to be a hotly contested area between insurers and policyholders. The term “sudden and accidental” created scores of court decisions throughout the United States and resulted in various interpretations. Interestingly, though this language was eventually changed, a myriad of cases still arise today over the scope of the term “sudden and accidental.”2

April 5, 2013

The Elusive "Pollution" Definition in the CGL Policy

Source: http://www.irmi.com, March 2013
By: Mark M. Bell, Waller Lansden Dortch & Davis LLP

CGL coverage for pollution-related losses has seen significant changes over the past 40 years. These changes have resulted both because of changes within the standard Insurance Services Office, Inc. (ISO), CGL policy and because of courts’ inconsistent application of the term “pollution” in the CGL policy.

Historical Background on the Grandfather Pollution Exclusion

Up until 1973, CGL policies did not have a specific pollution exclusion. The 1973 edition CGL form was the first form to incorporate a specific “pollution exclusion” in the CGL policy. The 1973 form excluded bodily injury or property damage:

(1) arising out of pollution or contamination caused by oil or (2) arising out of the discharge dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants into or upon the land, the atmosphere or any water course of body of water; but this exclusion does not apply if such discharge, dispersal, release or escape is sudden and accidental.1