Another Federal Judge Dismisses Lawsuit For Crumbling Foundation, But Some Relief May Be Forthcoming

Jason Cleri | Property Insurance Coverage Law Blog | January 9, 2019

I’ve previously written about the issues insureds are facing in Connecticut regarding crumbling foundations.

In a blow to insureds in Connecticut affected by crumbling foundations due to the infusion of pyrrhotite, a mineral which gradually deteriorates concrete when exposed to water and oxygen, the Federal District Court for Connecticut ruled that the insureds, Richard and Denise Hyde, did not prove their case to sufficiently to overcome Allstate’s motion to dismiss.1 The Hydes, who had been living at their property in Tolland for 18 years, decided it was time to sell. When they had an engineer inspect their property in anticipation of the sale, the pyrrhotite defect was discovered. The Hydes sued Allstate after the denial, claiming the policy language was ambiguous as to coverage.

The trial court dismissed the action on two grounds:

  1. The court noted that it did not believe an ambiguity existed in the policy language regarding what was considered “sudden and accidental.”
  2. Allstate argued, and the court agreed, that the gradual concrete decay was not sudden and accidental, nor did it qualify for coverage as an entire collapse. In addition, there were other policy exclusions, such as an exclusion for cracking walls, rust, and defective construction materials that precluded coverage.

As a silver lining to insureds, Gov. Dannel Malloy and State Attorney General George Jepsenannounced in a joint release that state had entered into a memorandum of understanding with Travelers Companies to assist current and former Travelers policyholders seeking financial assistance to remediate crumbling foundations.

Under the agreement, Travelers will establish and administer the voluntary Travelers Benefit Program and commit $5 million to the program in conjunction with an assistance program launching through the Connecticut Foundations Solutions Indemnity Company.

I leave you with a quote from author and life coach, Craig D. Lounsbrough, “[t]he thing that I’m most likely to collapse under is not the weight of the stresses that stand around me, but the ego that sits within me.”
_______________________
1 Hyde v. Allstate Ins. Co., No. 3:18-cv-00031 (D.Conn. Dec. 4, 2018).

Subsequent Claims for Items Not Considered by Appraisal Panel

Jonathan Bukowski | Property Insurance Coverage Law Blog | January 12, 2019

Appraisal provisions in property insurance policies are intended to provide an alternative dispute resolution process for resolving property insurance claim disputes involving the amount of loss. The amount awarded by the appraisal panel is, with limited exceptions, binding on both parties under the terms of the policy. While the appraisal process is intended to bring finality to a dispute, what happens when the appraisal panel fails to consider certain items due to limitations or restrictions on the scope of the appraisal or unanticipated factual issues not considered by the panel? Such a situation poses the question of whether Colorado appraisal awards preclude any further breach of contract claims for unanticipated circumstances.

Judge David Ebel of the United District Court for Colorado recently discussed such a situation in his 2016 order granting summary judgment in the case of Concept Restaurants, Inc. v. Travelers Indemnity Company.1 Located in Boulder, Colorado, Concept had suffered hail damage to its roof following a large hailstorm in the spring of 2011. Concept invoked the appraisal provision of the policy when the parties could not agree on the amount of loss caused by the hailstorm. Following the appraisal panel’s determination of the amount of loss, Concept alleged newly discovered costs (scaffolding, traffic control, and permitting). The carrier moved to dismiss, arguing that the appraisal award was binding and precluded litigation as to those matters within the scope of the appraisal.

While it was ultimately determined that Concept had offered nothing to demonstrate that the newly discovered costs had not been considered in the appraisal, Judge Ebel discussed an exception to the binding nature of appraisal awards for matters outside the scope of the appraisal. Judge Ebel first determined whether the additional items were appraisable, i.e., whether scaffolding, traffic control, and permitting were within the scope of the appraisal. Having determined these items were appraisable, the court next considered whether these items were actually appraised. In determining that the appraisal panel considered scaffolding, permitting, and traffic control costs, the trial court noted that Concept proposed no limitation on the scope of issues to be considered by the appraisers, exchanged notes on these costs, and finally, certification by the panel that they had heard and seen all of the evidence offered by both the insured and the insurance company and determined the amount of loss without offering qualifications, restrictions, or exceptions.

While appraisal awards in Colorado are typically binding on the parties as to the amount of loss,2appraisal awards do not necessarily preclude any further breach of contract claims in Colorado.3Judge Ebel’s order demonstrates the two-step analysis required to determine if an exception exists for matters outside the scope of appraisal such as unanticipated factual issues.
______________________________________
1 Concept Restaurants, Inc. v. Travelers Indemnity Co., No. 1:16-cv-450, 2016 WL 8737773 (D. Colo. Dec. 2, 2016).
2 Wagner v. Phoenix Ins. Co., 348 P.2d 150, 152 (Colo. 1960); Tae Hyung Lim v. Am. Econ. Ins. Co., No. 13-cv-02063, 2014 WL 1464400, at *3 (D. Colo. Apr. 14, 2014) (unreported).
3 Hometown Community Association, Inc. v. Philadelphia Indemnity Ins. Co., No. 17-cv-00777, 2017 WL 6335656, at *4 (D. Colo. Dec. 12, 2017).

Bill Would Impose Significant Apprenticeship Requirements on New Jersey Contractors

Russell McEwan | Littler Mendelson PC | January 7, 2019

On December 17, 2018, the New Jersey Legislature paved the way for a game-changing prerequisite for N.J. public works contractors. The State Assembly and Senate passed Assembly Bill A-3666 and forwarded it to Governor Murphy for his signature. If signed into law as is expected, the bill—which would impose new apprenticeship and training requirements on public works contractors—would be among the most restrictive of its kind in the country. Governor Murphy has until the end of January to sign the legislation, which would become effective 90 days thereafter.

What Are the New Contractor Obligations?

The bill, which blazed its way through the lawmaking process, would require a contractor to certify its participation in a U.S. Department of Labor (DOL)-approved apprenticeship program in order to obtain or renew its public works contractor registration certificate. Further, apprenticeship programs would have to include training for every classification of worker a contractor employs on a public works jobsite. Thus, if a contractor employs workers in a single job classification, participation in a program limited to just that one classification would suffice. If, however, a contractor employs workers in multiple classifications on a covered job site, the contractor would have to certify participation in an apprenticeship program that encompasses each and every such classification.

It is anticipated that many of the state’s 10,000+ registered contractors do not currently participate in a DOL-approved program, and would not therefore be able to register/renew their public works contractor registration certificates. Instead, only those contractors that participate in a DOL-approved program (whether through or in conjunction with a trade association or a labor union) or that maintain their own apprenticeship program will be able to obtain and/or renew their public works contractor registration certificates. It is important to note that there is nothing in the law to suggest that currently registered contractors will be precluded from continuing to perform prevailing wage work while their current registration is in effect. However, once the new law is in effect, contractors will not be able to obtain or renew their registration unless they are able to certify that they participate in an apprenticeship program.

What Are a Contractor’s Options?

Contractors that are not currently participating in an approved apprenticeship program but wish to remain eligible for prevailing wage work have several options. First, a contractor could sign with a building trades union. Most of the building trades unions operating in New Jersey maintain DOL-approved apprenticeship programs. There are, of course, implications beyond apprenticeship that accompany union relationships. Before signing with a union, contractors are advised to seek counsel to fully understand the obligations that go along with forming a collective bargaining relationship.

Second, contractors could team up with an association/industry group that maintains DOL-registered apprenticeship programs. These groups are currently few in number in New Jersey, although the pending law has spurred a flurry of activity. Existing groups like the Associated Builders & Contractors are reported to be awaiting final approval on an apprentice program covering multiple classifications, and new groups with similar plans are rumored to be on the horizon.

Third, contractors can create their own DOL-approved apprenticeship program. While maintaining an apprenticeship program is frequently the option offering the greatest flexibility for an individual contractor, those that opt to go this route must be prepared to navigate the process of designing and registering a program, and to comply with mandatory record-keeping and other requirements once their program is operating.

In the interim, contractors whose public works contractor registration certificates expire in the first quarter of 2019—before the law’s likely effective date—are encouraged to renew at the earliest possible time (i.e., 30 days prior to expiration). Where possible, contractors should consider renewing for a two-year period. By doing so, they may be able to buy time until their next renewal to address the apprenticeship issue.

Insurance Company’s Long Duration of Negotiations and Stalling Tactics Supports Plaintiff’s Claim for “Bad Faith”

Christina Phillips | Property Insurance Coverage Law Blog | December 22, 2018

Illinois’ solution to an insurance company’s delay, deny and defend tactics is section 155 of the Illinois Insurance Code, which provides an extra-contractual remedy to policyholders whose insurer’s refusal to recognize liability and pay a claim under a policy is vexatious and unreasonable.1 Section 155 of the Code is intended to aid the insured and to discourage insurers from profiting by their superior financial positions while delaying in the payment of contractual obligations.2

The Appellate Court of Illinois in Charter Properties, Inc. v. Rockford Mutual Insurance Company,3recently affirmed the trial court’s finding that the insurer’s delay in paying the insured’s claim supported an award of sanctions under section 155 of the Code.

Szechwan Garden was a tenant operating a restaurant within the building owned by Charter Properties. In August 2011, the building collapsed. Rockford stipulated that the policies of insurance covered the collapse, but the parties disagreed over the amount of the loss including the amount of lost rental income because Szechwan Gardens was closed for nearly 49 weeks. Five and a half years after the loss, a jury found that Rockford owed Charter Properties additional monies for lost rental income and building damage. A separate trial was held on Charter Properties’ claim for Section 155 (“bad faith”) relief.

While Rockford made two smaller payments within the first four months of the loss, it made no further payments until March 2012 when Charter Properties filed a complaint with the Illinois Department of Insurance. In June 2012, Rockford returned Charter Properties’ sworn statement in proof of loss. The basis for its rejection was twofold: first, it asserted that the proof was premature because the repairs had not been completed and directed plaintiff to give notice when the repairs were completed so it could conduct a final inspection and determine the costs incurred; and second, it alleged the proof was excessive. Following the rejection of the proof, Rockford’s adjuster admitted that he stopped working on the matter, without completing an inspection or estimate of the damages.

Ultimately, Rockford made its final payments in June 2013, which was seven months after suit was filed, 1 year and 10 months after the loss, and 11 months after Szechwan Garden reopened for business.

Charter Properties’ expert witness testified at trial that the adjuster’s job on behalf of Rockford was to prepare a damage estimate for the building and personal property, but that he failed to do so. Without a complete estimate, the defendant could not calculate its liability, which resulted in a breach of contract. In other words, the policy placed the burden of determining liability on Rockford, but Rockford improperly tried to shift that burden to plaintiff. Rockford presented no expert testimony to rebut Charter Properties’ expert. Instead, Rockford simply argued that the proof was excessive, and therefore a bona fide dispute existed.

The appellate court affirmed the trial court’s finding that the plaintiff encountered unnecessary difficulties from Rockford’s withholding of policy benefits. Specifically, the court pointed to the uncontroverted testimony from plaintiff’s expert who opined that Rockford should have completed the inspection and promptly adjusted the claims but did not do so. It also noted that section 919.50 of the Code required the insurer to either affirm or deny liability within a reasonable time and to offer payment within 30 days after affirmation of liability or offer a written explanation for the offer or denial. Rockford failed to offer a written explanation for the denial and failed to complete an investigation and determination of liability.

The appellate court agreed that Rockford’s long duration of negotiations, stalling tactics, and delayed payment supported the conclusion that Rockford’s conduct was unreasonable and vexatious. The court concluded that plaintiff’s expert opinion comported with common sense that an insurer owes a duty of good faith and fair dealing to provide an estimate, so the insured can proceed knowing the scope of coverage.
______________________________
1 Cramer v. Insurance Exchange Agency, 174 Ill. 2d 513, 519 (Ill. 1996).
2 Myrda v. Coronet Ins. Co., 221 Ill. App. 3d 482, 491 (Ill. App. 2d Dist. 1991).
3 Charter Properties, Inc. v. Rockford Mut. Ins. Co., 2018 IL (2d) 170637 (Ill. App. Nov. 8, 2018).

Florida Federal Court Finds Insurer Must Defend Contractor in Defective Condo Construction Suit

Michael S. Levine | Hunton Andrews Kurth LLP | December 27, 2018

The United States District Court for the Middle District of Florida recently granted summary judgment in favor of developer, KB Homes, ruling that Southern Owners Insurance Co. must defend KB Homes under various Commercial General Liability policies.

The action arises from the construction of the Willowbrook Condominium project, a 51-building, 270-unit condominium project located in Manatee County Florida. Gallo Building Services, Inc., a subcontractor, entered into a master subcontract with KB Home, the developer and contractor for the project. Following the completion of the project, the association retained an engineering firm who discovered several defects at the project. The association sued KB, which then sued multiple subcontractors, including Gallo, forming the underlying litigation.

Southern, Gallo’s insurer, then filed the coverage action seeking a declaration that it had no duty to defend or indemnify Gallo under its policies of insurance. After Gallo became insolvent, KB Home stepped in and moved for summary judgment on the duty to defend.

Southern opposed the motion, arguing that the “your work” exclusion and the Exterior Finishing and Stucco Exclusion barred coverage, and that the association’s underlying complaint failed to allege property damage. The Court rejected Southern’s arguments and held that the Southern’s duty to defend was triggered by the broad allegations of “damage to other building components,” “damage to other property,” “water intrusion,” and relocation of resident,” which encompassed damage besides the work completed by Gallo. Moreover, the Court rejected the application of the Exterior Finishing and Stucco Exclusion stating that “Southern does not describe how each defect relates to stucco or an exterior finishing system,” therefore, determining the exclusions did not do away with Sothern’s duty to defend.

Not only is the decision a substantive win for policyholders, the decision provides a firm example of the value that can be obtained from other people’s insurance. By obtaining insurance from Gallo’s insurers instead of its own, not only did KB Home secure a complete defense in the litigation, it did so without implicating coverage under its own insurance and potentially impairing its own policy limits and without impacting its own loss ratios. Policyholders should therefore consider all potentially applicable insurance and indemnity agreements when faced with a claim or potential liability.