Construction Litigation—Battles on Many Fronts

Craig Martin | Construction Contractor Advisor | April 27, 2015

When you are involved in construction litigation, you have battles on several fronts, including those against subcontractors, owners, insurers and the court.  Shoring up your defenses on each of these fronts is imperative, or you may lose the battle or, worse yet, the war.

A recent opinion out of the Eleventh Circuit Court of Appeals (overseeing federal courts in Alabama, Florida and Georgia) Carithers v. Mid-Continent Casualty Company, illustrates the various battle fronts involved in a construction case.  In this case, the Carithers (Home Owner) sued their homebuilder, Cronk Duch Miller & Associates (Contractor) in state court after discovering multiple defects with their home.

Battle Front #1—Claim Against Contractor

The Contractor and Home Owner entered into a consent judgment for approximately $90,000.00 and the Contractor assigned its claim against its insurer to the Home Owner.  It is unlikely that the Contractor paid the $90,000.00 judgment.  The Home Owner likely agreed not to collect on the $90,000.00 in exchange for the chance to pursue the Contractor’s claim against its insurer.

Scorecard:  Home Owner wins hollow victory against Contractor, but gets a chance to pursue the Contractor’s Insurer.

Battle Front #2—Where Are You Litigating?

The Home Owner files suit against the Contractor’s insurer, Mid-Continent Casualty Company (Insurance Company), in state court.  The Insurance Company removes the case to federal court.  This is not a big deal, but you are no longer in front of your local district judge, but the federal judge.  If you were litigating near your home office, say in North Platte, you would not be litigating in Lincoln or Omaha.

Scorecard:  No winner here, just litigating in a different court.

Battle Front # 3—Claim Against Insurance Company, Part I

The Home Owner filed suit in 2010, over 4 years after the home was completed.  The Home Owner claimed that there was dry rot in the framing, electrical problems, and improperly installed brick and tile.  The Home Owner claimed that he did not discover the defective construction until 2010.

The Insurance Company insured the Contractor from 2005 through 2008.  The Insurance Company claimed that it had no duty to defend the Contactor because the property damage “occurred” after the policy period ended.  In essence, the Insurance Company claimed that the defective construction did not occur until it was discovered, and because it was discovered after the insurance ended, there was no duty to defend the Contractor.

The Court disagreed and required the Insurance Company to defend.

Scorecard:  Home Owner wins, and insurer must defend claim against Contractor.  Importantly, this does not put money in the Home Owner’s pocket.

Battle Front #4—Claim Against Insurance Company, Part II

The Insurance Company also argued that it did not have to pay the Home Owner because the claim “occurred” after the Contractor’s insurance coverage ended.  The Court again disagreed, finding that the Insurance Company must pay the claim against the Contractor arising out of defective construction.

Scorecard:  Win for Home Owner, but still no dollars in Home Owner’s pocket.

Battle Front #5—Damages

The Home Owner wants to be paid for the damage to his home.  The Insurance Company argues that the “Your Work” exclusion limits its obligation to pay for damage to the house.  In essence, the insurance company argues that the defective work performed by the subcontractors, which did not damage anything else in the house, is not covered.  There is only coverage, and an obligation to pay, when the subcontractor’s work caused damage to parts of the house beyond the subcontractor’s work.  For example, the brick on the house was improperly installed and a sealant was improperly applied, requiring the brick to be replaced.  The court found in favor of the Insurance Company because the brick subcontractor’s work did not damage any other part of the house.

Scorecard:  The Home Owner won some portions of its claim, but not all.

Take Away: There are challenges to a construction claim at every turn.  You not only have to marshal the resources to fight the battle, but you need sound counsel in pursuing each of the claims.  Having experienced construction counsel on your side is crucial to victory.

via Construction Litigation—Battles on Many Fronts – Construction Contractor AdvisorConstruction Contractor Advisor.

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