Resuming Construction: Don’t Forget About Stormwater

Dianne R. Phillips | Holland & Knight

As the construction industry prepares to reopen, contractors are making detailed plans to comply with state and municipal safety requirements related to the coronavirus (COVID-19) pandemic. Among the plans that needs careful review (and likely updating) is the site-specific Stormwater Pollution Prevention Plan (SWPPP). Construction sites disturbing 1 acre or greater in size eligible to obtain coverage under the U.S. Environmental Protection Agency (EPA) Construction General Permit (CGP) must do so. In addition, to the required SWPPP, the CGP imposes a number of obligations that may have been neglected during the COVID-19 pandemic shutdown including required inspections, material management, perimeter controls, soil stabilization, stockpile protection and corrective actions as members of the site “Stormwater Team” worked from home.

For example, the CGP requires a site inspection either 1) every seven calendar days or 2) once every 14 calendar days plus after every storm event of 0.25 inches or greater with written inspection reports completed (and filed with the SWPPP) within 24 hours of each inspection. Additionally, the CGP requires permittees to initiate soil stabilization whenever earth-disturbing activities have temporarily or permanently ceased, with “temporary” defined as being idle for 14 or more calendar days (or seven days if the site is 5 acres or greater in size). Given the speed in which construction shutdown occurred in only a manner of days, it’s possible not every requirement was satisfied and properly documented. Therefore, it is important that permittees focus on stormwater compliance promptly upon work resumption.

Now is the time for permittees to review the SWPPP and update it to conform to the current situation, including any changes in the description of the construction sequencing and schedule required by Section 2.4 of the CGP. Each section of the SWPPP should be reviewed and updated, and SWPPP modifications must be properly certified by a responsible corporate official (or a duly authorized official so long as the authorization is in writing). Paying attention to the paperwork now will smooth reentry and provide a basis for training once site activities resume (and don’t forget to document who was trained and when).

Once back in the field, prompt attention should be given to inspecting all of the site features and stormwater controls identified in the updated SWPPP (and site plan) including sediment basins, perimeter controls (silt fences, filter berms, temporary diversion dikes, fiber rolls), material storage areas, stockpiles, vehicle entrances/exits (sediment track-out), storm drain inlets (catch-basins), stockpiles and natural buffer areas, among others. Permittees also should not forget to complete the required inspection report (with photos). If anything requires attention or maintenance, it is recommended to initiate the required corrective action “immediately” and if the problem is significant and requires new or modified controls, install them no later than seven calendar days from time of discovery, where feasible.

Lastly, permittees must remember that noncompliance reporting is required under the CGP Standard Conditions, Appendix I, Part I.12.6.1 for any instance of noncompliance that might endanger public health or the environment. EPA has issued guidance on its exercise of enforcement discretion. (See Holland & Knight’s previous alert, “EPA’s Enforcement Guidance for Noncompliance During the COVID-19 Pandemic,” March 30, 2020.) Key among the factors is a prompt return to compliance.

Restriction on the Use of Failure to Cooperate Defense in First-Party Claims

Dave McLain | Colorado Construction Litigation

On February 7th, Representative Garnett, with Senator Fenberg as the Senate sponsor, introduced HB 20-1290, concerning the ability of an insurer to use a failure-to-cooperate defense in an action in which the insured has made a claim for insurance coverage.

If the bill were to pass, in order to plead or prove a failure-to-cooperate defense in any action concerning first-party insurance benefits, the following conditions must be met:

  1. The carrier has submitted a written request for information the carrier seeks to the insured or the insured’s representative, by certified mail;
  2. The written request provides the insured 60 days to respond;
  3. The information sought would be discoverable in litigation;
  4. The written request provides citations to the specific policy language entitling the carrier to the information requested.  A general statement of a duty to cooperate would be deemed insufficient.
  5. The insured’s failure to cooperate had made the carrier’s performance under the policy impossible;
  6. The carrier has given the insured an opportunity to cure, which must:

House Bill 1290 also states that the existence of a duty to cooperate in a policy does not relieve an insurer of its duty to investigate or to comply with C.R.S. § 10-3-1104.  Finally, the Bill states that any language in a first-party insurance policy that conflicts with the Bill’s language is void as against public Policy.  If enacted, the new law would apply to any litigation that occurs on or after the applicable effective date of this act, estimated to be August 5, 2020, if the Legislative adjournment sine die is on May 6, 2020.  HB 20-1290 has been assigned to the House Judiciary Committee and but is not yet scheduled for its first hearing in committee.

Vermont Supreme Court Reverses, Finding No Coverage for Collapse

Tred R. Eyerly | Insurance Law Hawaii

    The Vermont Supreme Court reversed the trial court’s decision for collapse coverage. Commercial Constr. Endeavors, Inc. v. Ohio Sec. Ins. Co., 2019 Vt. LEXIS 173 (Vt. Sup. Ct. Dec. 13,2019).

    Commercial Construction Endeavors, Inc. (CCE) built a livestock barn. By late December 2014, the barn was partially complete, with the foundation laid, wood framing erected, and roof trusses installed. In late December, strong winds caused the structure to collapse. CCE started clearing debris and rebuilding the barn, incurring additional labor and material costs.

    CCE reported the collapse to Ohio Security. The policy covered loss to “Covered Property.” Ohio Security determined that the loss was covered for “Off-Premises Property Damage Including Care, Custody or Control.” This endorsement provided coverage for damage to real property upon which CCE was performing operations where the damage resulted from those operations. Ohio Security paid CCE $24,750, the full amount available under the endorsement, less a $250 deductible.

    CCE asserted that coverage was also available under the “Property Floater Coverage Form.” The floater provided additional coverage for collapse, including loss caused by:

a. Windstorm . . . as covered in this Coverage Form

. . . 

f. Use of defective materials or methods in construction . . . if the collapse occurs during the course of the construction. . .

Ohio Security determined there was no coverage under the floater, advising that “the poClicy does not provide coverage for materials after they have been installed into the building project under the Property Floater Coverage.” CCE sued Ohio Security for breach of contract, contending additional coverage was due. 

    The trial court found the barn was real property, not business personal property, but denied Ohio Security’s summary judgment motion because the policy was ambiguous. The court, however, did grant summary judgment to Ohio Security on the debris removal coverage.

    The Supreme Court considered whether the use of the term “Covered Property” in some portions of the floater – but not in the additional collapse coverage subsection – created an ambiguity, requiring the conclusion that additional collapse coverage was not limited to “Covered Property,” i.e., business personal property. There was no dispute that “covered Property,” as defined in the floater, was limited to business personal property. Nor was there a dispute that the collapsed barn was not business personal property. 

    Because elsewhere in the policy it stated that Ohio Security would pay only for “loss to Covered Property,” the collapse coverage section was unambiguous. The only reasonable interpretation of the floater was that the limitation expressed as to “Covered Property” applied equally to all subsections, including the Additional Coverage-Collapse section. The additional collapse coverage applied only to “Covered Property,” which was business personal property. CCE did not dispute that the barn was not business personal property and thus was not “Covered Property.” Therefore, the court’s summary judgment ruling was reversed. 

    Further the debris removal was also not a loss involving business personal property. Therefore, it was not a loss to “Covered Property.” The lower court’s ruling that there was no coverage for debris removal was affirmed. 

Recent Court Order Excluding Expert Testimony Offers Useful Reminders and Lessons for Construction Litigants

Amandeep S. Kahlon | Bradley Arant Boult Cummings

Construction claims often feature supporting testimony from design and/or scheduling experts, and exclusion of that testimony either by disqualification of the expert or a finding that the testimony is otherwise inadmissible can prove fatal to your claim or defense. States may vary in their requirements for admissibility of expert evidence, but most states follow some variant of Federal Rule of Evidence 702. Rule 702 provides that an expert may testify in the form of an opinion or otherwise if:

(a) The expert’s scientific, technical, or other specialized knowledge will help the trier of fact to understand the evidence or to determine a fact in issue;
(b) The testimony is based on sufficient facts or data;
(c) The testimony is the product of reliable principles and methods; and
(d) The expert has reliably applied the principles and methods to the facts of the case.

The recent district court order in American Contractors Indemnity Co. v. Reflectech, Inc. granting a motion to strike an expert demonstrates the importance of satisfying the requirements for admission of expert evidence under Rule 702 and other like statutes. In that case, a surety sought indemnity for payment on bonds issued to a subcontractor that defaulted on a roofing subcontract. The surety investigated the general contractor’s claim for default against the subcontractor, settled with the general contractor for approximately $400,000, and then filed suit against the subcontractor for breach of their general indemnity agreement.

The defendant subcontractor proffered an expert to opine on the adequacy of the surety’s investigation and the appropriateness of payment of the general contractor’s bond claims. In moving to strike this expert, the surety argued (1) the expert should be disqualified due to lack of experience, and (2) the expert testimony was inadmissible because it was not based on sufficient facts or data as required under Rule 702(b). The court focused on the second prong of the surety’s argument in granting the motion to strike.  The court found that the expert’s opinion was not based on sufficient facts or data because of several admissions from the expert during his deposition. Specifically, the surety persuaded the court with the following facts derived from the expert’s deposition testimony:

  • The expert admitted he never visited the project site and interviewed only one individual, the owner of the subcontractor, before drafting his expert report;
  • The expert admitted he never reviewed the surety’s records regarding the general contractor’s claim and did not know what information the surety’s investigation uncovered because that information was never provided to him;
  • The expert testified that the surety’s records would have been helpful in forming his expert opinion (the subcontractor was unable to provide any explanation for failure to provide this material to the expert when it had been produced by the surety); and
  • The expert stated that he did not review the settlement portion of the general indemnity agreement, which he had opined was unconscionable.

The facts relied upon by the court highlight the importance of selecting and managing experts in construction disputes. When selecting an expert, a party should be mindful of the expert’s prior testifying experience and his or her approach to investigating a claim or subject area for which an opinion is required. A party should also ensure its expert receives and reviews all the documents and information necessary to formulate his or her opinion. To be successful, this process requires an active dialogue with the expert throughout the course of a matter.  For example, document productions from other parties and deposition testimony from witnesses will uncover additional information an expert may need to support his or her opinions. Consistent engagement with an expert will help avoid outcomes such as that encountered by the roofing subcontractor in this case and should help a party better develop its claims or defenses as a matter proceeds.

Your CGL Policy May Cover More Than You Think – Damages “because of’ Property Damage or Bodily Injury for Construction Projects

Stella Szantova Giordano | Saxe Doernberger & Vita

Construction projects are susceptible to injuries and property damage – which is why the stakeholders involved rely heavily on commercial general liability (“CGL”) insurance policies when such losses occur. While many insureds are familiar with pursuing insurance coverage for bodily injury and property damage, a CGL policy can also cover certain consequential damages if they can be characterized as damages “because of” property damage or bodily injury.

Imagine the following scenario: An employee falls from scaffolding at the project site. OSHA shuts down the site for investigation of safety issues, and no trades are allowed to return to work for a month. Because of this, the project schedule falls behind, and the owner and the GC suffer extensive delay damages. The question is: can these (and similar) consequential damages be covered as “because of” damages under a CGL policy.

How does “because of” coverage work?

The key language to access the “because of” damages coverage is in the insuring agreement of every CGL policy written on the post-1973 ISO coverage form CG 00 01. Section I.A(1) reads:

(a) We will pay those sums that the insured becomes legally obligated to pay as damages because of “bodily injury” or “property damage” to which this insurance applies.2

Because the highlighted phrase can be interpreted very broadly, many courts have concluded that a CGL policy covers certain damages flowing from a bodily injury and property damage if the following is true: 1) there is a bodily injury or property damage for which the CGL policy provides coverage; 2) the sought damages were incurred “because of” such bodily injury or property damage; and 3) the connection between the bodily injury or property damage and the “because of” damages sought is not too attenuated.3

As for the third element, any degree of “but for” causation can be construed to provide coverage, since “because of” damages can (and very often are) far broader than property damage or bodily injury itself. Exactly how closely related the losses for which coverage is sought must be related to the underlying bodily injury or property damage will vary from case to case, but a good rule of thumb is the closer related to the underlying bodily injury or property damage, the better.

What types of damages can be covered?

Theoretically, any damages which can be described as damages “because of” bodily injury or property damage could be covered. However, case law on this type of coverage is limited so a creative argument, matching your particular circumstances, may be needed. Courts found “because of” coverage for these types of damages stemming from underlying property damage: 1) delay costs (California, Illinois, Michigan, Texas, Washington and Wisconsin); 2) liquidated damages (Texas and Pennsylvania); and 3) diminution of value (Missouri and Texas).

Delay Costs. If construction is halted and delayed “because of” property damage, associated costs can be very expensive. Examples of covered losses include: a 131-day delay in completion of a California residential project because of water intrusion property damage4; and delay costs associated with re-engineering and rip-and-tear damages stemming from a subcontractor’s failure to construct concrete piles to their required strength in Washington.5

Liquidated Damages. Because liquidated damages are considered to be contract-based, obtaining coverage for them under the “because of” theory can be more difficult. The key distinction is whether the damages are a result of the insured’s negligence (in which case they are covered), or whether the damages arise from a contractual obligation (in which case they are not). A federal court applying Texas law allowed coverage for liquidated damages of $5,400 per day resulting from damage to an oil pipeline.6 A court in Pennsylvania found that liquidated damages “because of” a subcontractor accidentally cutting structural parts of a bridge were covered.7 Finally, a Tennessee court explained that if the insurers wanted to protect themselves from coverage for liquidated damages as “because of” damages, they could specifically endorse their policies to exclude liquidated damages.8

Diminution of Value. In and of itself, diminution in value is a purely economic loss not considered property damage. However, if it stems from underlying property damage, “because of” coverage is available. One court, applying Missouri law, allowed “because of” coverage to a supermarket for diminution in value to its building because of improperly installed and cracking terrazzo floor.9 Another court in Texas allowed coverage for diminution in value caused by water leakage from developer-made lakes to individual homes.10

NOTE: Many states also allow coverage for ensuing damage arising out of defective construction. While some cases characterize this as “because of” coverage, seeking defective construction coverage usually involves a different analysis which is beyond the scope of this article.11

Damages “because of” bodily inury may be more limited

Very few cases address coverage for consequential damages “because of” bodily injury on a construction project, but the argument should be the same as with damages flowing from property damage. One notable New York case allowed “because of” damages coverage for a project owner whose employees slipped and fell on water which came from an improperly installed (and leaking) roof.12 In addition, cases from non-construction settings can be used as guidance when seeking damages “because of” bodily injury. For example, a Maryland case allowed compensatory damages (including purchase of a cell phone head set) to individuals injured by cell phones emitting dangerous levels of radiation.13 In any case, the argument that damages “because of” bodily injury (such as the delay costs in the hypothetical scenario mentioned earlier) should be covered by a CGL policy is often worth making.


If you find yourself faced with consequential damages on a construction project caused by property damage or bodily injury, you should consider whether the “because of” argument could get you additional recovery under a CGL policy. Coverage counsel can help you evaluate whether damages such as delay in completion, repair costs, liquidated damages or diminution in value could be covered.