Federal Court Certifies Question Regarding Collapse to Connecticut Supreme Court

Jason Cleri | Property Insurance Coverage Law Blog | June 6, 2018

Last year I wrote a blogpost about the large class action lawsuit in Connecticut centered on the crumbling foundations due to pyrrhotite in the concrete poured by the J.J. Mottes Company in approximately 20,000 buildings across Connecticut.

Recently, a federal judge has asked the Connecticut Supreme Court for a better definition of the word collapse,1 that was given in Beach v. Middlesex Mutual Assurance Co., 205 Conn. 246 (1987). In Beach, the Connecticut Supreme Court determined that collapse was not limited to a sudden and catastrophic nature, but, included substantial impairment of structural integrity of a building.

Many of the insureds’ lawsuits brought against insurance carriers due to the structural integrity of the concrete used the Beach definition of collapse in their defense. The trial court noted that although highly instructive, the Beach decision provides insufficient guidance and no appellate decision has squarely applied Beach and arrived at a definition of “substantial impairment of structural integrity.”

Three questions were presented for certification:

  1. Is “substantial impairment of structural integrity” the applicable standard for “collapse” under the provision at issue?
  2. If the answer to question one is yes, then what constitutes “substantial impairment of structural integrity” for purposes of applying the “collapse” provision of this homeowners’ insurance policy.
  3. Under Connecticut law, do the terms “foundation” and/or “retaining wall” in a homeowner insurance policy unambiguously include basement walls? If not, and if those terms are ambiguous, should extrinsic evidence as to the meaning of “foundation” and/or “retaining wall” be considered?

The Connecticut Supreme Court chose to certify only the second question, noting that if the term collapse is not defined, then Beach is the applicable standard. With respect to the third question, Connecticut courts have “consistently rejected” insurers’ arguments concerning the term foundation, having “determined that those policy terms were ambiguous,” and have “construed them against” the insurers.2

Stay tuned for updates.

I leave you with a relevant quote from former country music singer David Allan Coe:

“It is not the beauty of a building you should look at; it’s the construction of the foundation that will stand the test of time.”
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1 Karas v. Liberty Insurance Corp., No. 13-1836 (D. Conn. April 30, 2018).
2 Jang v. Liberty Mut. Fire Ins. Co., 2018 WL 1505574, at *3 (D. Conn. Mar. 27, 2018); see also, e.g.Gabriel v. Liberty Mut. Fire Ins. Co., 2017 WL 6731713, at *2 (D. Conn. Dec. 29, 2017) (noting prior determination “that the terms ‘foundation’ and ‘retaining wall,’ as used in the policy, were ambiguous.”); Belz v. Peerless Ins. Co., 46 F. Supp. 3d 157, 164 (D. Conn. 2014); Karas v. Liberty Ins. Corp., 33 F. Supp. 3d 110, 115 (D. Conn. 2014) (“Each party thus has a reasonable but different interpretation of the phrases [‘foundation’ and ‘retaining wall’] supported by dictionaries and case law, so the phrases are ambiguous, and the insurance policy should be construed against Liberty Mutual.”); Bacewicz v. NGM Ins. Co., 2010 WL 3023882, at *4 (D. Conn. Aug. 2, 2010) (“[A] reasonab[e] jury could find that the basement walls of the Bacewiczes’ house did not constitute the ‘foundation’ of the house.”)

What is a Collapse? Crumbling Concrete Case is Catalyst for Coverage Query Certified to State Supreme Court

Verne Pedro | Property Insurance Coverage Law Blog | May 29, 2018

Recognizing the public policy implications of an unsettled, recurring coverage issue involving crumbling concrete foundations in thousands of Connecticut homes, U.S. District Court Judge Stefan Underhill recently certified the following insurance coverage question to the Supreme Court of Connecticut:

What constitutes a “substantial impairment of structural integrity” for purposes of applying the “collapse” provision of this homeowners’ insurance policy?1

The situation in Karas is one shared by approximately 34,000 homeowners whose foundations were built with concrete from the J.J. Mottes Concrete Co. (“Mottes”). Mottes concrete contains a mineral called pyrrhotite. Over time the iron sulfide in the pyrrhotite reacts with oxygen and water, causing the concrete to expand, crack and turn into rubble.

In October 2013, the Karases discovered their basement walls were deteriorating in the manner typical of Mottes concrete. On November 15, 2013, they reported a claim to their homeowners’ insurer. The insurer denied the claim the same day, asserting the loss described was “deterioration” and therefore not ocvered under the policy.

On December 11, 2013, the Karases sued the insurer, seeking coverage for their foundation as a covered “collapse” under Connecticut law. They alleged it was only a question of time until their basement walls fell in due to exterior pressure from the surrounding soil.

The Karases’ policy contains familiar language pertaining to collapse events:

Collapse. We insure for direct physical loss to covered property involving collapse of a building or any part of a building caused only by one or more of the following:

* * * * *

b. Hidden decay;

c. Hidden insect or vermin damage;

d. Weight of contents, equipment, animals or people;

e. Weight of rain which collects on a roof; or

f. Use of defective material or methods in construction, remodeling or renovation.

* * * * *

Collapse does not include settling, cracking, shrinking, bulging or expansion.

The Karases relied on the material-impairment standard articulated in an earlier Connecticut Supreme Court case, which held that the term collapse in a homeowners’ policy was ambiguous if not defined, and any “substantial impairment of structural integrity” of a building was covered.2While the Beach decision rejected the argument that “collapse” requires a sudden and complete falling in of a structure,” it did not define the parameters of “substantial impairment of structural integrity.”3

Judge Underhill explained in the Karas Certification Order that he applied the Beach standard in other rulings on concrete-collapse cases. For instance, in Roberts v. Liberty Mutual Insurance Company, Underhill interpreted Beach to require that a ‘collapse’ (i.e., a substantial impairment of structural integrity) must be proved by evidence that a building “would have caved in had the plaintiffs not acted to repair the damage.”4

Judge Underhill also noted his belief that the standard enunciated in Beach is relatively clear. Nevertheless, on these facts, and because this “unsettled question of state law raises important issues of public policy,” and is “likely—indeed, almost certain—to recur,” Judge Underhill decided at this juncture to seek further guidance from the Connecticut Supreme Court.

The Judge further wrote:

Connecticut’s highest court should have the opportunity to decide whether my interpretation of Beach was correct …. Determining the extent to which the substantial loss should fall on homeowners or on their insurers entails value judgments and important public policy choices that the Connecticut Supreme Court is better situated to make.

There are currently a dozen or more federal lawsuits pending along with over forty crumbling concrete cases in state court. It will be interesting to see how the Connecticut Supreme Court resolves this unsettled issue of policy construction and insurance law.
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1 Karas v. Liberty Mutual Ins. Co., No. 3:13-cv-01836, 2018 WL 2002480 (D. Conn. April 30, 2018).
2 Beach v. Middlesex Mutual Assurance Co., 205 Conn. 246, 252 (1987).
3 Id.
4 Roberts v. Liberty Mutual Ins. Co., 264 F. Supp. 3d 394, 410 (D. Conn. 2017); see Sansone v. Nationwide Mut. Fire Ins. Co., 47 Conn. Supp. 35, 39 (Conn. Super. Ct. 1999)(observing that whether a plaintiff has proven a substantial impairment is a question of fact).

Terminating a Contract? Dot the i’s and Cross the t’s!

Stan Martin | Commonsense Construction Law LLC | October 24, 2017

From a Connecticut trial court comes a reminder to follow the contract process when terminating a contract. Failure to do so could constitute a breach by the one issuing the termination letter.

A sub and general contractor had many changes, claims and disputes on a complex hospital project. Semac, the sub, had overbilled for its work, and was facing the prospect of losing a lot of money to get to the finish line. When it couldn’t resolve multiple claims, Semac got so fed up that it started to pack up its tools and leave the site. Skanska, the GC, in the face of an unjustified abandonment by Semac, issued a termination letter effectively immediately. Except that the termination clause called for a 48-hour notice period and opportunity to cure.

Semac’s claim that the number and scope of changes amounted to a cardinal change in the contract was analyzed by the court, but turned down. The trial court concluded that Semac had been in financial distress, had front-loaded its billing, had disguised half a million dollars’ worth of payments to a company owner as payments for materials, and had failed to turn over a specific $250,000 payment that was supposed to go to a lower-tier sub.

Thus, Semac was in breach for abandoning the project. But Skanska then breached by failing to follow the subcontract provisions for terminating the contract for cause. Possibly because it wanted to seize Semac’s equipment, as it was entitled to under a default termination, Skanska did not allow Semac any opportunity to change its mind:

Under the contract, Skanska had the right to terminate Semac anytime it wanted with cause or without. But for Skanska to terminate Semac for cause as it said it was and grab Semac’s equipment, the contract provides that it had to give Semac 48 hours to cure its breach and get back on the job. The contract doesn’t name any exception or qualify this rule in any way. It doesn’t say that the provision doesn’t apply when the other party breaches first. It doesn’t say it doesn’t apply when the other party isn’t likely to make use of the 48-hour period to cure. Elsewhere in the contract it does say that Skanska may seek any other remedies available at law outside the contract, but it doesn’t say anything about rewriting explicit provisions already contained in the contract to make them easier on Skanska. So the 48-hour notice that was not given had to be given for Skanska to terminate Semac for cause.

The effect of this breach by both sides? Semac was not entitled to any further payment, and in fact had to reimburse Skanska for amounts overbilled. Skanska was not entitled to recover its considerable costs of completion of Semac’s work.

The lesson is this: if you are going to terminate a contract for cause, take steps to ensure that the contract terms for the termination are being followed. Even if you believe it would be futile or unnecessary to do so. The case is Semac Elec. Co. v. Skanska U.S. Bldg., Inc., 2017 Conn. Super. LEXIS 4320 (Aug. 23, 2017) (Lexis subscription required).

Tic Toc Tic Toc: The Clock Is Running on Construction and Design Claims by the State of Connecticut Beginning October 1, 2017

Niel Franzese | Robinson & Cole | October 11, 2017

Our readers may recall that Public Act No. 15-28 was signed by the Governor back in 2015, subjecting the State of Connecticut and its political subdivisions to a statute of limitations for asserting actions and claims arising out of “construction-related work.” The law became effective as of October 1, 2017. “Construction-related work” is defined in the Act to include the design, construction, construction management, planning, construction administration, surveying, supervision, inspection or observation of construction of improvements to real property. Notably, it applies not only to the State, but also its subdivisions such as cities, towns, and other entities like school districts.

The limitations period set forth in the Act is 10 years from the date of substantial completion of a given improvement. The 10 year limitations period applies going forward to improvements to real property substantially completed on or after October 1, 2017. For improvements substantially completed before October 1, the limitations period runs to October 1, 2027. Prior to the Act, the State and its political subdivisions were generally not subject to any statutes of limitations for such claims due to the legal doctrine of nullum tempus occurrit regi, which provides that a state is not subject to statutes of limitations unless it specifically consents to be. Literally translated, it means that “no time runs against the king.”

For purposes of the Act, substantial completion is defined as the time that the real property at issue is first used by the public owner or first available for use after having been completed in accordance with the agreement covering the improvement, including any agreed changes to the agreement, whichever occurs first. However, any public highway, bridge improvement or improvement to a railroad right-of-way, ferry, port or airport infrastructure is considered substantially complete upon the issuance of a certificate of acceptance of the work relieving the contractor of maintenance responsibility.

The Act provides that the limitation does not bar actions or claims (1) on written warranties or guarantees which expressly provide for a longer effective period, including tolling agreements, (2)  based on willful misconduct in connection with the performance or furnishing of construction-related work, (3) arising under any environmental remediation law or pursuant to any contract entered into by the State or any political subdivision of the State in carrying out its responsibilities under any environmental remediation law, or (4) pursuant to any contract for enclosure, removal or encapsulation of asbestos.

As we wrote previously, this new development is largely in response to the Connecticut Supreme Court decision, State of Connecticut v. Lombardo Brothers Mason Contractors, Inc., et al., 307 Conn. 106 (2012), in which the Court held that the State was not subject to any statute of limitations for initiating claims for defective construction with respect to the University of Connecticut Law Library in Hartford. The coming of the effective date for Public Act No. 15-28 will undoubtedly bring some stability and predictability to the often uncertain arena of defective construction and design claims by public owners.

Connecticut Notice of Claim Requirements

Jennifer Van Voorhis | Property Insurance Coverage Law Blog | September 30, 2017

Contrary to most New York policies which require notice to be given “promptly”, Connecticut policies tend to require notice “as soon as practical.”

Prior to the Second Circuit Court of Appeals ruling in Arrowood Indemnity Co. v. King,1Connecticut law held that an insurer could be entirely discharged from its duty regarding liability on an insurance contract when the insured failed to provide proper notification of a loss, and the delay was either unexcused or unreasonable. Contrary to New York, which does not care if the insurer is prejudiced by the delay, Connecticut would allow the case to proceed if the insured could show the insurer was not prejudiced by the delay of notice. The insurer had a continuing duty to provide coverage absent a showing of “material prejudice,” even if the literal terms of the notice provision were not met.”2 The burden of establishing timely notice or lack of delay was on the insured.

The Second Circuit Court of Appeals asked the Connecticut Supreme Court to address the questions regarding fact circumstances that can be considered in determining whether there has been compliance with the duty to notify an insurer of an incident/accident for which coverage is claimed.

The Connecticut Supreme Court overruled Aetna Cas. & Sur. Co. v. Murphy, holding that the insurer now must prove it has been prejudiced by the insured’s alleged failure to comply with a notice provision.3

Just because the insurer now has the burden to show it was prejudiced to disclaim coverage for late notice of claim, if an insured makes multiple repairs prior to the insurer’s ability to inspect the loss (as is often required in a policy to ‘mitigate further damage’), the insurer will have a much stronger argument if they are not afforded the chance to view the property prior to repair or replacement of damaged components.

As always, read your policy for exact language contained, but notify your carrier immediately if any damage is seen.
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1 Arrowood Indem. Co. v. King et al., 605 F.3d 62 (2d Cir. 2010).
2 Aetna Cas. & Sur. Co. v. Murphy, 206 Conn. 409, 418, 538 A.2d at 223.
3 Arrowood Indem. Co. v. King, 39 A.3d 712, (Conn. 2012).