Lawyers are Only Billing a Fraction of their Time; How can they be More Efficient?

Victor Li | ABA Journal | September 20, 2016

The folks at Clio dropped a bombshell that stunned attendees at the fourth annual Clio Cloud Conference to silence. And no, it wasn’t the Clio employee that did “The Worm” on stage during the obligatory kickoff dance party.

During his opening address Monday at the Radisson Blu Aqua Hotel in Chicago, Clio CEO Jack Newton unveiled the “Legal Trends Report,” which delivers benchmark data on subjects like average hourly rates among the company’s users. He shocked many in the audience after revealing that, among Clio’s 150,000 daily active users, lawyers were only billing 28 percent of their available work hours (approximately 2.24 hours of an 8-hour work day). That number, according to Newton, was closer to 22 percent for solo practices.

“Holy crap,” Victoria Giambra, an immigration attorney from Texas, tweeted during Newton’s speech. “For average solo [practitioner’s] 8 hour workday—2 hours are utilized for work, 1.6 of that is billed and 1.4 collected. Explains a lot.”

“WOW!?!? Lawyers only collecting on 1.4 hours of their 8 hour workday… law firms are dead if they don’t reinvent themselves,” tweeted David Leary, a small business ecosystem evangelist at Intuit who led a session entitled What Lawyers Can Learn From Accountants and their Journey to the Cloud.

Among the report’s other findings: average hourly billing rate across the U.S. among Clio users is $232. The report also found that Washington, D.C. lawyers on average have the most costly billable hour ($281) while lawyers in Iowa have the least costly ($145). But George Psiharis, Clio’s vice president for business development, noted in a later presentation that along with D.C’s high hourly rate was one of the lowest realization rates.

Having all of this data could only help lawyers make better decisions, Newton said. “The practice of law today is not data driven in any way, shape or form,” said Newton. “We’ve seen how data can transform industries and we hope to drive that.”

For one thing, data can help lawyers be more efficient and “get the missing six hours per day back,” according to Newton. To help attendees do this, the conference provided sessions and speakers designed to help them choose the right tech tools and keep track of the right metrics.

Mary Redzic, co-founder of Shape the Law, had slightly different numbers but came to same conclusion as Newton: Lawyers only bill a fraction of their available time. “Technology can help minimize your own risk; bill more, work less; and get more clients,” she said during a session entitled 3 Reasons to be Excited About the Future of Technology.

Redzic suggested using customer relationship management software, automated client intake and predictive analytics programs to allow lawyers to expend less time on routine, wasteful or futile tasks. Product names mentioned included Clio (of course), Concord, Lexicata, Les Machina, Ravel Law, Casetext and even Google Voice and Google Scholar.

But don’t just use tech for tech’s sake, Redzic and co-presenter Zach Abramowitz warned attendees. For one thing, they said, companies that promise they can do everything short of winning the case for you should not be trusted. For another, they argued, it is vital for the right people at a firm or office to make the decision as to what software or tool to use.

“It’s important to figure out who will use the tech and have them test it,” said Redzic.

Another session emphasized the need to see law firms as businesses and keep track of key performance indicators the way most industries do. New York-based lawyer Anthony Marrone II used popular TV show Shark Tank as a reference point and pointed out that the investors on that show always asked about sales, as well as the true costs of services—questions that lawyers rarely have the answer to.

“Until you can replace yourself in the role of doing routine, minor stuff, you won’t be able to scale and grow,” Marrone said.

It’s also vital for lawyers to differentiate themselves from their competition. To that end, he suggested providing superior customer service, tying into last year’s Clio Cloud Conference theme of providing consumers with an effortless experience.

Short of that, freebies are always a good idea.

“One thing I do is send pies to my clients,” said Marrone. “That’s because I like pies and hope, maybe, my clients will send me some.”

New Jersey Supreme Court Issue Important Decision for Homeowners and Contractors

Wally Zimolong | Supplemental Conditions | August 23, 2016

The lack of insurance coverage for a contractor’s faulty workmanship is the bane of both homeowners looking to recover damage for defective work and contractors seeking to defend against such claims.  In many states, like Pennsylvania, courts hold that faulty workmanship is not an “occurrence” that is covered by a standard commercial general liability insurance policy.  In other words, courts hold that CGL policies cover damage to other property not part of the construction project itself.

This is problematic for both the homeowner and the insured.  For the homeowner, the lack of a policy providing indemnification sometimes means the homeowner is left trying to collect against a defendant, who is otherwise but has little to no assets against which to collect a judgment.  For the contractor, the lack of a policy providing coverage means that assets are at risk and it could be forced to spend significant sums in attorneys fees defending the case.

In Cypress Point Condominium Association, Inc. v. Adria Towers, LLC, the New Jersey Supreme Court held that a contractors standard CGL policy covers consequential damages caused by defective workmanship, even if the consequential damages are to the project itself.  At issue in Cypress Point Condominium Association, was language contained in a standard ISO CGL policy that is used in as the standard language in a majority of policies.  The case arose out of a dispute between the insured contractor and its insurer over whether damage caused by leaking windows and facades was covered under the contractor’s CGL policy.  The Court held that such damages are covered holding:

“because the result of the subcontractors’ faulty workmanship here—consequential water damage to the completed and nondefective portions of Cypress Point—was an “accident,” it is an “occurrence” under the policies and is therefore covered so long as the other parameters set by the policies are met.”

The importance of this holding is significant.  First, homeowners stand a much better chance of collecting on a damage claim against a contractor found liable for defective work.  Second, contractor’s can expect coverage from their carriers in almost all defective construction claims.

When Choice of Law Made a Difference

Stan Martin | Commonsense Construction Law LLC | August 22, 2016

Choice of law clauses are not usually the subject of intense negotiation, in part as there is substantial consistency among the laws of the various states. But not always, as parties on a New Jersey project learned. A difference in the New Jersey and Pennsylvania workers’ compensation laws meant that the liability of the general contractor to an injured worker claim would depend on which state’s law governed.

A New Jersey contractor performing a public project in New Jersey hired a Pennsylvania roofing sub. A subcontract clause called for New Jersey law to govern. An employee of the sub was injured, and sued the GC in Pennsylvania. The GC then sought dismissal of the claim, arguing that the Pennsylvania workers’ comp statute provides immunity to the GC as a “secondary employer” who has liability for payment of workers’ comp benefits if the direct employer fails to do so. Despite the subcontract clause calling for application of New Jersey law, the GC apparently hoped the Pennsylvania judge would willingly apply Pennsylvania law. The judge didn’t take the bait.

Applying a choice of law analysis, the court reasoned that Pennsylvania had an interest in ensuring that one of its citizens would be properly compensated for an injury. And that interest could be discharged by applying New Jersey law, as called for in the subcontract. And since New Jersey law does not provide the GC in this setting with immunity from the sub’s employee’s claim, the GC’s motion to have the claim dismissed was denied.

A nuance in the workers’ compensation laws from one state to another may not dictate negotiations over a choice of law clause. But this case serves as a reminder that at least a few risks may be allocated differently, under particular circumstances, from one state to another. Think about that the next time you consider whether to argue over the choice of law clause when negotiating a contract. The case is Acker v. Ray Angelini, Inc., 2016 U.S. Dist. LEXIS 108956 (Aug. 16, 2016), available here (LEXIS subscription required).

Subcontractor Exception Torpedoes Insurers’ Defense To Faulty Workmanship Claim

Daniel G. Enriquez and Robert D. Helfand | PropertyCasualtyFocus | September 16, 2016

As this blog has reported, a line of cases deciding coverage disputes over faulty workmanship runs against (or, at least, around) a basic rule for interpreting insurance policies.  Under that rule, the scope of coverage is determined by a policy’s insuring clause, which may be narrowed by one or more exclusionsExceptions to the exclusions can add back coverage that the exclusions remove, but they cannot create coverage beyond the ambit of the insuring clause.  E.g., West Bend Mut. Ins. Co. v. MacDougall Pierce Const., Inc., 11 N.E.3d 531, 538 (Ind. Ct. App. 2014).  This summer, in Cypress Point Condominium Ass’n, Inc. v. Adria Towers, L.L.C., 226 N.J. 403 (N.J. Aug. 4, 2016), the Supreme Court of New Jersey joined the ranks of courts that honor this principle in the breach.  The court did not hold that a subcontractor exception to a “Your Work” exclusion created coverage; but it did find that the presence of the exception required it to construe the insuring clause more broadly than substantially identical clauses found in policies from which the exception was absent.

Workmanship Is Hard

The long war over coverage for faulty workmanship is fought in a number of different theaters.  There’s the insuring clause, which forces courts to ask whether mistakes on the job are “accidents,” or just a predictable cost of doing business.  There’s the “Your Work” exclusion and the question of whether the insured is being asked to do anything more than deliver the work he was paid for.  And there’s the underlying complaint—which might appear to sound in “negligence,” but really allege a breach of contract.  See Columbia Ins. Grp., Inc. v. Cenark Project Mgmt. Servs., 2016 Ark. 185 (2016).

The battle in Cypress Point ranged over several of these terrains.  After a luxury condominium complex in Hoboken, New Jersey was completed in 2004, residents complained of roof leaks and water infiltration at interior window jambs and sills.  Water infiltration that occurred after the building had been completed and occupied also caused mold growth and other damage to the buildings’ common areas and interior structures.  The leaks and infiltration were ultimately traced to the defective work of a subcontractor on the project.  The condominium association sued the building’s developers, which sought coverage under two Commercial General Liability policies.  After the insurers denied coverage, the association asserted a claim for a declaratory judgment that the developer was entitled to coverage.

The policies at issue were written on an ISO form created in 1986, providing coverage for “those sums that the insured becomes legally obligated to pay as damages because of … ‘property damage’caused by an ‘occurrence.’” “Property damage” is defined to include “[p]hysical injury to tangible property including all resulting loss of use of that property.”  An “occurrence” is defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.”

The ISO form also excludes coverage for “‘[p]roperty damage’ to ‘your work’ arising out of it or any part of it and included in the ‘products-completed operations hazard.’” But the form differs from an earlier, 1973 version, in that the exclusion is subject to an exception, which applies “if the damaged work or the work out of which the damage arises was performed on [the insured’s] behalf by a subcontractor.”

The trial court awarded summary judgment to the insurers, relying on two earlier appellate cases, Weedo v. Stone-E-Brick, Inc., 81 N.J. 233, 405 A. 2d 788 (N.J. 1979), and Firemen’s Insurance Co. of Newark v. National Union Fire Insurance Co., 387 N.J. Super. 434, 904 A. 2d 754 (App. Div. 2006).

In Weedo, the New Jersey Supreme Court held that CGL policies do not provide coverage “where the damages claimed are the cost of correcting the [insured’s allegedly defective] work itself”—as opposed to consequential damages to other structures.  In Firemen’s, an intermediate appellate court went further, holding that an insured’s installation of defective firewalls did not constitute an “occurrence” within the meaning of the policy’s insuring clause.  The court explained that issuers of CGL policies did not assume “‘the risk that the contractor’s work may be faulty and may breach express or implied warranties.”

“[T]he key distinction is the predictability of the harm: damage for breach of contractual warranty is limited and is an expected cost of doing business; liability for injury or damage to a person or property is potentially ‘almost limitless’ and is ‘entirely unpredictable.’ The policy is designed to ensure against the latter risk.

The Appellate Division reversed this decision, finding that the damage claimed by the condominium association fell within the plain meaning of “property damage” and “occurrence.”  Cypress Point Condo. Ass’n, Inc. v. Adria Towers, L.L.C., 441 N.J. Super. 369 (App. Div. 2015).  In reaching that conclusion, the appellate court distinguished Weedo and Firemen’s, on the ground that those cases interpreted the 1973 version of the ISO CGL policy, rather than the 1986 version that was before the court.  The insurers appealed.

Occurrences Change

The Supreme Court’s analysis began with the question of whether the association had alleged “property damage” within the meaning of the policy.  The court found that the mold growth and other damage to building interiors and common areas, which occurred after the buildings had been completed and turned over to the residents, were “[p]hysical injury to tangible property” within the scope of the policy’s coverage.

The next issue was whether this damage constituted an “occurrence,” which the policies define as an “accident.”  On this point, the insurers invoked  the classic argument that faulty workmanship is not “accidental,” because “it is one of the normal, frequent, and predictable consequences of the construction business.”  They contended that the rule of Firemen’s was still valid, asserting:

“a developer’s failure to ensure that a subcontractor’s work is sound results in a breach of contract, not a covered “accident” (or “occurrence”) under the terms of the policies.

To dispatch this argument, the Supreme Court had to explain why earlier cases interpreting “occurrence” were not controlling.  It did so in two stages.  The first was to note that its own prior decision, Weedo, had not interpreted the term “occurrence” in the 1973 ISO form; that step had been taken only by later cases, such as Firemen’s, that were decided by intermediate appellate courts.

Having declared itself free to interpret the insuring clause of the ISO form as a matter of first impression, the court proceeded to do so.  It found that the common definition of the word “accident” is broad enough to “encompass[] unintended and unexpected harm caused by negligent conduct”—including the conduct of a building contractor.  Perhaps more importantly, however, the court had, by that point in its opinion, already made the following observations about the 1986 form:

[T]he 1986 ISO [policy] includes a significant exception to an exclusion not contained in the 1973 ISO [policy].

“In creating the subcontractor exception to the ‘your work’ exclusion, it has been noted that the ISO was motivated by an agreement between policy holders and insurers

that the CGL policy should provide coverage for defective construction claims so long as the allegedly defective work had been performed by a subcontractor rather than the policyholder itself. This resulted both because of the demands of the policyholder community … and the view of insurers that the CGL was a more attractive product that could be better sold if it contained this coverage. …

“Moreover, the ISO itself ‘confirm[ed] that the 1986 revisions to the standard CGL policy . . . specifically “cover[ed] … damage to, or caused by, a subcontractor’s work after the insured’s operations are completed.”

In short, although the court did not find that the subcontractor exception created coverage, it tacitly followed other courts in finding that the presence of the exception justified a new, broader interpretation of the terms that appeared in the insuring clause.  (The 1973 form contained a slightly different definition of “occurrence” from the 1986 form, but, in Cypress Point, neither the Appellate Division nor the Supreme Court explained how that difference might be relevant to the outcome of the case.)

Not Your Work

The final step in the analysis was to determine whether an exclusion applied.  The court found that the “Your Work” exclusion facially applied to bar coverage.  However, because the subcontractor exception also applied, and because the claim was based on a subcontractor’s faulty workmanship, the Court found that this exception to the exclusion had the effect of restoring coverage.

Thus, the Supreme Court of New Jersey is now marching in step with what the court called “a strong recent trend … interpet[ing] the term ‘occurrence’ to encompass unanticipated damage to nondefective property resulting from poor workmanship.”  Greystone Constr. v. Nat’l Fire & Marine Ins. Co., 661 F. 3d 1272, 1282-82, 1286 (10th Cir. 2011); Sheehan Constr. Co. v. Cont’l Cas. Co., 935 N.E. 2d 160, 169-71 (Ind. 2010), modified on other grounds, 938 N.E. 2d 685 (Ind. 2010); Architex Ass’n v. Scottsdale Ins. Co., 27 So. 3d 1148, 1162 (Miss. 2010); Travelers Indem. Co. of Am. v. Moore & Assocs., Inc., 216 S.W. 3d 302, 309 (Tenn. 2007); Lamar Homes, Inc. v. Mid-Continent Cas. Co., 242 S.W. 3d 1, 16 (Tex. 2007); Am. Family Mut. Ins. Co. v. Am. Girl, Inc., 268 Wis. 2d 16, 673 N.W. 2d 65, 70 (2004).

Florida District Court Decision on “Your Work” Exclusion in CGL Policy Is At Odds With Law of Numerous Jurisdictions

Kevin Pollack | Property Insurance Coverage Law Blog | September 23, 2016

In Essex Insurance Co. v. DiMucci Development Corp. of Ponce Inlet Inc., U.S. District Judge Roy B. Dalton Jr. recently held that Evanston Insurance Company has no duty to defend a builder in a lawsuit alleging construction defects at one of its Florida condominium complexes based on an exclusion in the policy for damage to the developer’s own work.1

The lawsuit arose when DiMucci Development Corp. of Ponce Inlet Inc. (“DiMucci”) was sued by the homeowners’ association at the Towers Grande high-rise in Daytona Beach Shores, Florida, for various construction defect related issues.

The construction defect lawsuit alleged that DiMucci ‘s work was defective on a portion of the high rise condominium complex and that the defective work caused property damage to other portions of the building that DiMucci also had constructed. More specifically, the Towers Grande Condominium Association alleged that DiMucci ‘s defective work resulted in damage to the roof and HVAC systems, as well as multiple water intrusion issues purportedly tied to poor waterproofing.

DiMucci had held three consecutive CGL policies with Evanston predecessor Essex Insurance Company between 2003 and 2005. During that time, DiMucci constructed Towers Grande, a 132-unit condominium building, with subcontractor Wayne’s Roofing and Sheet Metal handling the roofing work.

After DiMucci tendered a claim for defense and indemnity to its general liability insurance company (Evanston), Evanston filed suit in Florida federal court in September 2014, seeking a ruling that its policy excluded coverage and therefore it had no obligation to defend or indemnify DiMucci.

After the parties filed cross motions for summary judgment, the trial court ruled that the so-called “your work” exclusion in DiMucci’s CGL policy with Evanston precluded coverage because the underlying construction defect complaint only alleged damage to the builder’s own work. The court found that the Your Work exclusion barred coverage, and that Evanston had no duty to defend or indemnify DiMucci.

This decision is notable because it takes the interesting position that because DiMucci constructed the entire high-rise—even though the defective construction caused damage to other parts of the high-rise—the exclusion applied not only to the portions of the high-rise where the defective work appeared, but even to the consequential damage to other parts of the high-rise caused by the defective construction work.

This decision is at odds with the law of numerous jurisdictions including (1) California (see Blackfield v. Underwriters at Lloyd’s, London, 245 Cal. App. 2d 271, 273, 276 (1st Dist. 1966) – where defective construction is at issue, the “your work” exclusion only applies to the defective work itself, not the consequential damage caused by the defective work. [insured builder of tract home constructed home with defective fill/foundation; this caused the remainder of the house to suffer cracking, slanting, windows and doors could not be opened. Coverage for damages to the “other parts” of the house covered, i.e., not excluded]) (2) New Jersey (see Cypress Point Condominium Assoc. Inc. v. Adria Towers, 226 N.J. 403 (N.J. August 4, 2016), and even (3) Florida (United States Fire Insurance Co. v. J.S.U.B., Inc., 979 So.2d 871 (Fla.2007), and Auto–Owners Insurance Co. v. Pozzi Window Co., 984 So.2d 1241 (Fla.2008) both hold that faulty workmanship or defective work that has damaged the otherwise non defective completed project has caused ‘physical injury to tangible property’ within the plain meaning of the definition in the policy)) to name a few.

Policyholder advocates need to be aware of the authority interpreting and applying the so called “work product” exclusions as well as the fact that numerous jurisdictions permit coverage for consequential damage caused by defective workmanship even when coverage for the defective workmanship itself might otherwise be excluded.


1 Essex Insurance Co. v. DiMucci Development Corp. of Ponce Inlet Inc., No. 6:15-cv-00486 (M.D. Fla. Sept. 13, 2016).