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Preview: LexisNexis® Mealey's™ Construction Defects Insurance Legal News

LexisNexis® Mealey's™ Construction Defects Insurance Legal News

Headline Construction Defects Insurance Legal News from LexisNexis®


Defect Notice May Trigger Insurer's Defense Coverage, Florida High Court Rules
TALLAHASSEE, Fla. - A Florida Statutes Chapter 558 proceeding for resolving construction defect disputes prior to litigation constitutes a "suit" under commercial general liability insurance policies that may trigger a duty to defend provided that an insurer consents to an insured's participation, a majority of the Florida Supreme Court held Dec. 14 (Altman Contractors Inc. v. Crum & Forster Specialty Insurance Co., No. SC16-1420, Fla. Sup., 2017 Fla. LEXIS 2492).

11th Circuit: Insured's Faulty Work Triggered Insurer's Duty To Defend
ATLANTA - Alleged damage to railing post pockets and balcony concrete slabs caused by an insured's faulty workmanship triggered an insurer's duty to defend, the 11th Circuit U.S. Court of Appeals ruled Dec. 28 (Addison Insurance Co. v. 4000 Island Boulevard Condominium Association Inc., et al., No. 17-11504, 11th Cir., 2017 U.S. App. LEXIS 26870).

Insurer Has No Duty On Claims From Sale Of Home With Defects, Judge Finds
BRIDGEPORT, Conn. - An insurer has no duty to defend or to indemnify, based on a homeowners insurance policy or a personal umbrella policy, insureds against claims arising from defects in a home they sold, a Connecticut federal judge ruled Dec. 27 (Allstate Insurance Co. v. Sudha Swaminathan, et al., No. 16-1708, D. Conn., 2017 U.S. Dist. LEXIS 211931).

Texas High Court Denies Rehearing On Insurers' Liability For $2.4M Defects Award
AUSTIN, Texas - The Texas Supreme Court on Dec. 1 refused to rehear petitions to review a lower court's ruling that a trial court erred in finding two commercial general liability insurers are jointly and severally liable for a $2.4 million construction defects arbitration award despite both having a duty to indemnify (Great American Lloyds Insurance Co. and Mid-Continent Casualty Co. v. Vines-Herrin Custom LLC, et al., No. 16-0795, Texas Sup.; 2017 Tex. LEXIS 1089).

5th Circuit: Additional Insured Owed A Defense In Construction Defects Case
NEW ORLEANS - A subcontractor's insurer had a duty to defend an additional insured in a construction defects lawsuit, the Fifth Circuit U.S. Courts of Appeals ruled Dec. 12, affirming in part and reversing in part awards issued in favor of the additional insured (Lyda Swinerton Builders Inc. v. Oklahoma Surety Co., No. 16-20195, 5th Cir., 2017 U.S. App. LEXIS 25048).

Panel: Insurer Had Duty To Defend Additional Insured Against Defects Claims
SALEM, Ore. - An insurer had a duty to defend an additional insured general contractor in an underlying construction defects case, an Oregon appeals panel ruled Dec. 6, reversing a trial court's entry of summary judgment in favor of the insurer (Security National Insurance Co. v. Sunset Presbyterian Church, No. 588, Ore. App., 2017 Ore. App. LEXIS 1501).

California Appeals Panel: Change To Arbitration Terms Means State Farm May Sue
LOS ANGELES - While water damage occurred at an insured's home during a time when the arbitration agreement signed by the insurer and the supply line manufacturer being accused of providing a defective product covered product liability claims, a change to the agreement after the damage and before the insurer filed suit means that the claim is not subject to arbitration, a California appeals panel ruled Nov. 30 (State Farm General Insurance Co. v. Watts Regulator Co., No. B271236, Calif. App., 2nd Dist., Div. 8, 2017 Cal. App. LEXIS 1059).

Judge: Fact Issues Exist On Whether Repairs Fixed Insureds' Sinkhole Losses
TAMPA, Fla. - Genuine issues of material fact remain as to whether repairs resolved sinkhole activity in an insured home, a Florida federal judge ruled Jan. 2, denying summary judgment to an insurer on a breach of contract claim (Gerald Gagliardi, et al. v. Liberty Mutual Fire Insurance Co., No. 16-3354, M.D. Fla., 2018 U.S. Dist. LEXIS 267).

Judge Finds Fact Issues Exist On Whether Foundation Damage Was Covered By Policy
NEW HAVEN, Conn.- A Connecticut federal judge on Dec. 29 refused to grant summary judgment on a breach of contract claim asserted by insureds, finding that genuine issues of fact exist on when damage to a property's foundation occurred, but the judge found no evidence to support their claims for violation of Connecticut law or to show that the insurer acted in bad faith (Raymond G. Gabriel v. Liberty Mutual Fire Insurance Co., No. No. 3:14-cv-01435, D. Conn., 2017 U.S. Dist. LEXIS 213202).

Judge Finds Insurer's Claims Against Subcontractors Did Not Support Default
DENVER - A Colorado federal judge on Dec. 7 refused to enter a default judgment in a breach of contract action filed by an insurer against numerous subcontractors sued in an underlying construction defects case, finding that the court lacked jurisdiction and that the insurer's allegations were conclusory (Association Insurance Co. v. McSwain Metal Fabrication, Inc., et al., No. 17-cv-01550, D. Colo., 2017 U.S. Dist. LEXIS 201678).

Insured Asks 8th Circuit To Find Coverage Exists For Construction Defects Suit
CINCINNATI - A developer and general contractor recently asked the Eighth Circuit U.S. Court of Appeals to reverse a lower federal court's finding that its insurer has no duty to defend it against a homeowners association's claims in an underlying defective construction lawsuit, contending that there was a "rational possibility" that the homeowners association sought damages that were covered by the policy (Clarke Company Limited v. American Family Mutual Insurance Co., No. 17-2418, 8th Cir.).

Judge Finds Product Defect Insurers Entitled To Pre-, Post-Judgment Interest
MINNEAPOLIS - A federal judge in Minnesota on Dec. 6 held that two plaintiff insurance companies are entitled to pre-and post-judgment interest after successfully litigating how much they should contribute to a $6 million settlement of a products liability suit over defective plastic air-intake ducts (National Union Fire Insurance Company of Pittsburgh, et al. v. Donaldson Company Inc., No. 10-4948, D. Minn., 2017 U.S. Dist. LEXIS 201328).

Default Judgment Entered Against Insureds In Mold Damages Coverage Suit
ALEXANDRIA, Va. - A Virginia federal judge on Dec. 15 entered a default judgment against insureds who failed to answer an insurer's complaint after agreeing with a magistrate judge's determination that no coverage is owed for underlying suits alleging that the insureds' decking product developed mold, rot and decay because the policies' exclusions for fungi and bacteria and for damages to "your product" bar coverage (Indiana Lumbermens Mutual Insurance Co. v. Timber Treatment Technologies LLC, et al., No. 16-692, E.D. Va., 2017 U.S. Dist. LEXIS 206868).

No Jurisdiction Under CAFA's 'Mass Action' Provision, Panel Says, Affirms Remand
PASADENA, Calif. - The Ninth Circuit U.S. Court of Appeals on Dec. 14 affirmed a lower federal court's remand of a lawsuit arising from claims over defective water supply lines, finding that 26 insurers, acting as subrogees of 145 insureds, are the only plaintiffs and therefore fail to satisfy the numerosity requirement under the Class Action Fairness Act (CAFA) to retain federal jurisdiction (Liberty Mutual Fire Insurance Co., et al. v. EZ-Flo International, Inc., No. 17-56523, 9th Cir., 2017 U.S. App. LEXIS 25306).

Connecticut Federal Judge: Cracks In Foundation Are Not Sudden And Accidental Loss
BRIDGEPORT, Conn. - No coverage is owed to insureds seeking coverage for cracks discovered in their basement walls and caused by the presence of a mineral used in the concrete because the insureds' loss was not sudden and accidental as required under the policy, a Connecticut federal judge said Nov. 30 (Alan D. Lees, et al. v. Allstate Insurance Co., No. 15-1050, D. Conn., 2017 U.S. Dist. LEXIS 196728).

Judge Denies Reconsideration On Finding That Policy Does Not Bar 'Faulty Construction'
SEATTLE - Noting that exclusionary clauses are to be construed strictly against an insurer, a Washington federal judge on Nov. 28 declined to disturb his ruling granting in part summary judgment to an insured on the basis that an insurance policy does not exclude and, thus, covers the perils "faulty construction," "faulty maintenance" and "wet or dry rot" (Westridge Townhomes Owners Association v. Great American Assurance Co., et al., No. 16-1011, W.D. Wash., 2017 U.S. Dist. LEXIS 195341).

Construction Defect Claims: A 2017 Update - Part One
By Thomas F. Segalla, William J. Edwins, Michael T. Glascott, Michael F. Lettiero and Brandon D. Zeller While decisional authority addressing potential coverage for construction defect claims under commercial general liability policies continues to evolve, many decisions in 2017 relied upon-long recognized doctrine to decide contested matters. While such decisions allow the construction industry a reasonable basis to anticipate what might fall within the coverage of their policies, a few decisions offer a reminder to practitioners to monitor developing case law. For example, a South Carolina court considered a case involving building code violations, structural deficiencies, and significant water-intrusion problems observed shortly after purchasers occupied their newly built condominium units. In the ensuing declaratory judgment action, the insurer alleged it had no duty to indemnify, but the court held that the insurer's reservation of rights letter was inadequate. The court explained that "an insured must be provided sufficient information to understand the reasons the insurer believes the policy may not provide coverage." The court added that "generic denials of coverage coupled with furnishing the insured with a copy of all or most of the policy provisions (through a cut-and-paste method) is not sufficient." The plaintiff's failure to properly reserve prevented the plaintiff from disputing coverage as to actual damages. Similarly, the Florida Supreme Court recently reviewed the following question of law certified by the United States Court of Appeals for the Eleventh Circuit: "Is the notice and repair process set forth in Chapter 558, Florida Statutes, a "suit" within the meaning of the commercial general liability policy issued by C & F to Altman?" The court concluded that "alternative dispute resolution" means "[a] procedure for settling a dispute by means other than litigation" and, therefore, Chapter 558 falls within this definition as a statutorily required pre-suit process intended to encourage a claimant and insured to settle claims for construction defects without resorting to litigation.

S.D. High Court: Professional Services Exclusion Bars Coverage For Surveying Error
PIERRE, S.D. - A designated professional services endorsement excludes all potential insurance coverage for any property damage caused by a land-surveying error, the South Dakota Supreme Court ruled Nov. 8, finding that a trial judge erred in granting summary judgment to a project architect (Western National Mutual Insurance Co. v. TSP Inc., No. 27798, S.D. Sup.).

Insurer Must Cover Damage By Wind, Not Construction Defects, Appeals Panel Says
DETROIT - An insurer is responsible to cover damage from wind-driven rain to condominium units but is not responsible for damage caused by construction defects, a Michigan appeals panel held Nov. 16, reversing summary disposition to the insurer (Walters Beach Condominium Association v. Home-Owners Insurance Co., No. 335172, Mich. App., 2017 Mich. App. LEXIS 1810).

Known Defects Relieve Insurer Of Duty To Pay For Repairs, Panel Finds
LOS ANGELES - A homeowner "who is aware, long before a rainstorm occurs and causes damage, of possible leakage" caused by construction defects cannot reasonably expect an insurer to pay for repairs on the theory that rainwater, and not the defects, caused the damage, a California appeals panel affirmed Nov. 14 (Simon Cohen, et al. v. Pacific Specialty Insurance Co., No. B276060, Calif. App., 2nd Dist., Div. 8, 2017 Cal. App. Unpub. LEXIS 7779).

Panel Reverses Summary Judgment On Insurer's Duty To Defend Defect Claims
SAN DIEGO - A California appeals panel on Nov. 14 reversed an entry of summary judgment to an insurer on its duty to defend construction defect claims under subcontractors' policies but affirmed summary judgment to a second insurer, finding that it has no duty to defend (McMillin Management Services L.P., et al. v. Financial Pacific Insurance Co., et al., No. D069814, Calif. App., 4th Dist., Div. 1, 2017 Cal. App. LEXIS 1000).

Faulty Work Claims Against Insured Are Not Covered, Georgia Federal Judge Says
ATLANTA - A homeowner's negligence claims arising out of an insured contractor's faulty workmanship are not covered under a commercial general liability insurance policy, a Georgia federal judge ruled Nov. 17, granting summary judgment to an insurer (Allstate Insurance Co. v. Adrianna Luu, et al., No. 17-312, N.D. Ga., 2017 U.S. Dist. LEXIS 190983).

Judge: Policy Does Not Exclude Contractors' Work As Home Builder, Not Roofer
OKLAHOMA CITY - An insurance company must provide coverage for two contractors under two commercial general liability policies because the language in the policies does not exclude coverage for their work as home builders rather than as roofers, a federal judge in Oklahoma ruled Nov. 9 in denying the insurer's motion for summary judgment (James River Insurance Company v. 5 Star Integrity Roofing & Exteriors, LLC, et al., No. CIV-16-950-M, W.D. Okla., 2017 U.S. Dist. LEXIS 185945).

Insurer Proves No Duty To Defend Absent 'Suit,' But Duty To Indemnify Remains
CHICAGO - Although the absence of a "suit" means that an insurer has no duty to defend a general contractor, an Illinois federal judge ruled Oct. 31 that the insurer failed to identify a limitation or exclusion that would preclude its duty to indemnify (Old Republic Insurance Co. v. Kenny Construction Co., No. 15-03524, N.D. Ill., 2017 U.S. Dist. LEXIS 180412).

Magistrate Judge Denies Deadline Extension In Defects Insurance Coverage Dispute
ORLANDO, Fla. - In an insurance coverage dispute over construction defects, a Florida federal magistrate judge on Nov. 13 denied a developer's request for an extension of deadline on the serving of expert disclosures (WaterMark Construction L.P. v. Southern-Owners Insurance Co., et al., No. 17-1814, M.D. Fla., 2017 U.S. Dist. LEXIS 186765).

Insurer Fails To Establish 3rd Party Is Subject To Personal Jurisdiction, Judge Says
OAKLAND, Calif. - A California federal judge on Nov. 3 granted a material supplier's insurer's motion to dismiss a third-party complaint brought by another insurer seeking contribution for underlying defenses costs in a construction defects lawsuit (Webcor Construction, LP, et al. vs. Zurich American Insurance Co., et al., No. 17-02220, N.D. Calif., 2017 U.S. Dist. LEXIS 182928).

No Coverage Owed For Mold Contamination Caused By Faulty Workmanship
CONCORD, N.H. - An insurer owes no coverage to its insureds for a loss-of-use claim arising out of mold contamination because the mold contamination was caused by faulty workmanship, an excluded cause of loss under the policy's mold endorsement, the New Hampshire Supreme Court said Nov. 15 (Michelle Russell, et al. v. NGM Insurance Co., No. 2016-054, N.H. Sup., 2017 N.H. LEXIS 218).

Fungi, Bacteria Exclusion Does Not Bar Insured's Defects, Panel Concludes
ELGIN, Ill. - A fungi and bacteria exclusion does not apply to preclude otherwise covered property damage from construction defects, an Illinois appeals panel affirmed Nov. 2, finding that an insurer had a duty to defend an underlying action (Pekin Insurance Co. v. JB Architecture Group Inc., et al., No. 15-MR-1755, Ill. App., 2nd Dist., 2017 Ill. App. Unpub. LEXIS 2236).

Washington Federal Judge Says Questions Of Fact Exist In Water Damages Suit
SEATTLE - A Washington federal judge on Nov. 16 determined that questions of material fact exist regarding the application of an insurer's exclusions for deterioration and rot to an insured condominium association's claim for water intrusion damages that occurred over time to the exterior cladding of two of the association's buildings (Sunwood Condominium Association v. Travelers Casualty Insurance Company of America, et al., No. 16-1012, W.D. Wash., 2017 U.S. Dist. LEXIS 189892).

Federal Judge Says Assertion Of Reservation Of Rights Is Not Affirmative Defense
MIAMI - A Florida federal judge on Nov. 7 partially granted an insured's motion to strike its insurer's affirmative defenses as they pertained to the insurer's reservation of rights because the assertion of a reservation of rights is not an affirmative defense (Kapow of Boca Raton Inc. et al. v. Aspen Specialty Insurance Co., No. 17-80972, S.D. Fla., 2017 U.S. Dist. LEXIS 184224).

Indiana Appeals Court Finds Contracts Waived Insurer's Right To Subrogation
INDIANAPOLIS - An Indiana appeals court panel on Oct. 31 reversed a trial court judge's ruling denying a motion for summary judgment, finding that an insurance company suing the contractors to recover the amount it paid to cover a school district's property damage claim waived its right to subrogation (Performance Services, Inc. v. Hanover Insurance Company, No. 19A01-1607-CT-1743, Ind. App., 2017 Ind. App. LEXIS 582).

Insurance Policy Does Not Bar 'Faulty Construction,' Federal Judge Concludes
SEATTLE - An insurance policy does not exclude and, thus, covers the perils "faulty construction," "faulty maintenance" and "wet or dry rot," a Washington federal judge ruled Oct. 31, granting in part summary judgment to an insured (Westridge Townhomes Owners Association v. Great American Assurance Co., et al., No. 16-1011, W.D. Wash., 2017 U.S. Dist. LEXIS 180373).

Insurer Owes No Defense For Faulty Work Claims, N.H. Federal Judge Says
CONCORD, N.H. - A commercial general liability insurer has no duty to defend an insured in an underlying breach of contract lawsuit seeking damages only for uncovered defective workmanship, a New Hampshire federal judge ruled Oct. 24 (Patriot Insurance Co. v. Holmes Carpet Center LLC, et al., No. 17-73, D. N.H., 2017 U.S. Dist. LEXIS 175643).

New Jersey Panel Says Continuous Trigger Applies In Defects Coverage Dispute
TRENTON, N.J. - A New Jersey appeals panel on Oct. 10 agreed with a subcontractor that the continuous trigger theory applies to a dispute over whether coverage is owed by one of its insurers but remanded to the trial court the issue of when the manifestation began (Air Master & Cooling Inc. v. Selective Insurance Company of America, et al., No. A-5415-15T3, N.J. Super, App. Div., 2017 N.J. Super. LEXIS 144).

Judge Dismisses Insurer's Duty To Indemnify Case Over Defects Coverage
FORT MYERS, Fla. - A commercial general liability insurer filed its declaratory judgment action on its duty to indemnify an underlying construction defects case prematurely, a Florida federal judge ruled Oct. 5, dismissing the case (Mid-Continent Casualty Co. v. G.R. Construction Management Inc., et al., No. 17-55, M.D. Fla., 2017 U.S. Dist. LEXIS 165245).

Connecticut Federal Judge Clarifies Prior Ruling In Suit Over Water, Ice Damage
BRIDGEPORT, Conn. - A Connecticut federal judge on Oct. 20 issued a ruling adhering to his May ruling in a lawsuit regarding whether damage to a freezer floor is barred by the policy's earth movement exclusion, but including clarifications (Thurston Foods Inc. v. Wausau Business Insurance Co., No. 15-14, D. Conn., 2017 U.S. Dist. LEXIS 173922).

Additional Insured's Bad Faith, Breach Of Contract Claims Survive Dismissal
LAS VEGAS - An additional insured sufficiently alleged breach of contract and bad faith claims against an insurer for improperly denying a construction defects claim, a Nevada federal judge ruled Sept. 29, declining to dismiss the claims (Centex Homes v. Everest National Insurance Co., et al., No. 16-01275, D. Nev., 2017 U.S. Dist. LEXIS 162687).

Home Developer Seeks Independent Counsel From Subcontractor's Insurer
SACRAMENTO, Calif. - A subcontractor's insurer must provide a home developer with independent counsel in an action brought by homeowners suing for defects because the insurer is defending two sides in the action, the home developer argues in a reply brief filed Aug. 9 in the Third District California Court of Appeal (Centex Homes, et al. v. St. Paul Fire and Marine Insurance Company, No. C081266, Calif. App., 3rd Dist.).

Judge Awards Summary Judgment To Insurer On Bad Faith Claim
HUNTSVILLE, Ala. - A federal judge in Alabama on Oct. 25 awarded summary judgment to an insurer on a man's cause of action for bad faith, holding that the company had a legitimate reason for denying his claim for wind and water damage because the leak occurred due to the deterioration of his roof (Roger Walker v. Auto-Owners Insurance Company, No. 16-cv-448-CLS, N.D. Ala., 2017 U.S. Dist. LEXIS 176703).

4th Circuit Finds Coverage For Wall Collapse Was Excluded Under Policy
RICHMOND, Va. - The Fourth Circuit U.S. Court of Appeals on Oct. 11 affirmed a district court's decision to grant summary judgment for an insurer, finding that a construction company's claims for coverage of damages caused by a wall collapse were excluded under construction defect and movement of earth's surface exclusions (Taja Investments LLC, et al. v. Peerless Insurance Co., No. 16-1854, 4th Cir., 2017 U.S. App. LEXIS 19855).

Judge Finds Fact Issues Exist Over Knowledge Of Claim Under Performance Bond
CHICAGO - Material fact issues remain as to when a contractor knew of a construction defects claim under a performance bond, an Illinois federal judge ruled Oct. 10, denying summary judgment on a surety's statute of limitations defense (James McHugh Construction Co. v. International Fidelity Insurance Co., No. 14-02399, N.D. Ill., 2017 U.S. Dist. LEXIS 166729).

Federal Judge Allows UCL Claim Against Liberty Mutual To Proceed
SAN DIEGO - After finding that development firms sufficiently pleaded the elements of a claim for violation of California's unfair competition law (UCL) in relation to the alleged overcharging of deductible fees, a California federal judge on Oct. 26 denied an insurer's motion to dismiss the claim (Bosa Development California Inc., et al. v. Liberty Mutual Fire Insurance Co., No. 3:17-cv-00945, S.D. Calif., 2017 U.S. Dist. LEXIS 177870).

Insured Asks Florida High Court To Reverse Ruling In Dispute Over Water Damage
TALLAHASSEE, Fla. - An insured has asked the Florida Supreme Court to reverse an appeals court's finding that an insurer was wrongfully denied an opportunity to argue that it could repair an insured's water damaged kitchen and that hiring a general contractor was unnecessary (David Gal v. Prepared Insurance Co., No. 16-2190, Fla. Sup.).

Judge Orders Insurer To Pay Its Contribution On Defense, Indemnity Of Defects Claims
LAS VEGAS - Having found that a commercial general liability insurer has a duty to defend and indemnify insureds in 16 underlying construction defect lawsuits, a Nevada federal judge on Oct 12 ordered the insurer to pay $488,233 in contribution to defending insurers (Assurance Company of America, et al. v. Ironshore Specialty Insurance Co., No. 13-2191, D. Nev.; 2017 U.S. Dist. LEXIS 170453).