Insured’s Leaky “Abrupt” Interpretation of All-Risk Insurance Collapses Under Eleventh Circuit Scrutiny

D. Barret Broussard | Property Casualty Focus

In S.O. Beach Corp. v. Great American Insurance Company of New York, No. 18-1967 (11th Cir. Oct. 31, 2019), the Eleventh Circuit affirmed the district court’s grant of summary judgment in full to the insurer, finding there was no ambiguity in the all-risk policy’s definition of a “collapse” as “an abrupt falling down or caving in of a building or any part of a building with the result that the building or part of the building cannot be occupied for its intended purpose” (emphasis added).

The case involved the caving in of several floors of the insured’s building, which the insured claimed was caused by water damage from a leaking pipe that deteriorated the floors’ sill plates, causing a “collapse.”

Under the all-risk policy, all fortuitous loss or damage would be covered unless there is fraud, willful misconduct, or a delineated exception. One such exception was for a “collapse,” which, as set forth in the policy, would only be covered when caused by a specified cause of loss, including hidden decay.

The district court granted summary judgment in full to the insurer on the basis that the insurer produced evidence that the collapse of the three floors was gradual, rather than abrupt, and therefore the loss was excluded under the policy. On appeal, the insured argued that the collapse provisions were ambiguous and should be construed against the insurer — specifically, the policy allegedly defined a collapse as abrupt while also providing that gradual decay may qualify as a collapse.

The Eleventh Circuit disagreed with the insured, finding that “collapse” was not ambiguous because causation and occurrence are not the same. While a collapse’s causation may be something gradual or abrupt, the question is whether the collapse (i.e., the event of occurrence) itself is abrupt. Therefore, because the insured failed to produce any evidence that the collapse was abrupt, the Eleventh Circuit affirmed the district court’s decision, effectively ending this campaign to carve out extra-contractual caving coverage.

Find Your Footing: Don’t Stumble When it Comes to Slip-and-Fall Claims

Carie Hall | Rumberger Kirk

Some regard slip-and-fall claims as nuisance litigation and often make billboard plaintiffs’ lawyers the butt of jokes. But, occasionally, these claims represent catastrophic injuries with verdicts to match, and even garden variety slip-and-fall claims expose companies to expense and aggravation.

Slip-and-fall accidents are by far the most prevalent accidents for both guests and employees in the hospitality industry. It is surprising how many restaurants, hotels, resorts, and other businesses have high foot traffic but have not exercised vigilance in protecting themselves from this common claim.

When it comes to slip-and-fall claims, prevention is the first step. Make sure your flooring meets industry standards when dry or wet. This starts with looking at the coefficient of friction, a mathematical expression of the ratio between the force necessary to move an object horizontally over another surface and the pressure between the two surfaces. Results can range from near zero (think of ice skates on ice) to greater than one (rubber on rubber).

It can be more complex to assess the real-world slip potential of a floor. Most experts will testify that flooring testing at .5 or better is reasonably safe. Do not depend on your own judgment or that of a floor-material salesperson, or even a product specification sheet. Get an expert opinion when selecting new flooring. Additional consideration is needed if a finish is added to the flooring material after installation. Is it worth having a glossy finish for aesthetic reasons if it reduces the coefficient of friction and increases the potential for accidents?

Another recent trend involves claims that involve a transition between surface materials (e.g., from carpet to tile). Plaintiffs’ attorneys may argue that going from the sure-footed grip of an office carpet to the smooth lobby marble creates a hazard. Aesthetic considerations come into play here, but consider whether the change is too abrupt for the particular use of the area. There may be engineering fixes for such transitions, or perhaps a contrasting color or intermediate surface that prepares people for the change. In some cases, signage may be appropriate.

Prevention protocols should also include how to maintain and monitor a floor that is expected to get wet, such as a lobby when it rains outside. Wet floor signs have become ubiquitous, but many businesses go a step further and have mats available to roll out and absorb water tracked in by guests. Of course, these mats will need to be in good condition to prevent trip hazards or slippage of the mats themselves.

Many slips in restaurants and hotels result from spills, so the first step in prevention is to pay attention and promptly clean them up. Having a timely inspection regimen and documentation that proves it was followed will bolster a defense.

This gets to the legal principle of “knew or should have known,” which closely correlates with the legal determination of what is reasonable. If someone slips on beer that was spilled an hour ago, then that scenario would likely fall into the “should have known” category. However, most courts and jurors would not expect you to detect a spilled beer within seconds or even a few minutes. The reasonableness standard is also affected by the venue. The dining room in a senior center will have a different standard of reasonableness compared to that of a restroom adjacent to a pool or splash park.

After the Fall

The welfare of customers or employees should be your first concern. Once an appropriate party has attended to their needs and, if necessary, called for aid, your staff must do its best to document everything. Take photos from every angle, both close up and broad views for context. Document anything the person said after the incident. (“I wasn’t paying attention,” will not be something a claimant remembers saying by the time you start taking depositions.) Because people scatter quickly, an important, often overlooked step is taking statements from witnesses. The guest who was skipping across the lobby with a beer in each hand or who created the spill that caused her own fall will not remember it that way, making witness statements vital. Document their statements and remember to get contact information for the witnesses.

Documentation should always include the type of shoes the person wore and details about what they were doing at the time. If a claimant was wearing high heels or $1 flip flops from a discount store, talking on a cell phone, and carrying six packages, then it is important information. Most falls are affected by both human behavior and floor conditions, and many states allow for comparative-negligence verdicts in which damages are apportioned accordingly. For example, a careless plaintiff may have been 50 percent at fault for an accident, which means a jury award is reduced by 50 percent. Another guest who carelessly dropped a drink on the floor, even if the person cannot be identified, may be assigned part of the fault, again reducing the amount of potential damages.

Preserve any video evidence. Most public venues have cameras, but many record on a loop that erases everything on a 24-hour or 48-hour cycle. In some states, the evidence you gather during an investigation, such as witness statements and photographs, may be privileged as work product, but that is not the case everywhere. An attorney or insurance carrier can advise on how a state’s law will affect a specific response to accidents. Surveillance video capturing the accident is not likely privileged, but it is better to preserve the video than risk an allegation of spoliation of evidence, which could result in sanctions including an instruction to the jury that they can assume the evidence was not favorable to the party that lost or destroyed it.

If the accident results in a claim, bring in an expert right away to assess the floor surface. Given that litigation may take years to develop, it is imperative that you analyze and document the condition of the surface. Also, be aware that replacing flooring, even for reasons unrelated to the accident, can be detrimental to the claim without proper analysis. Never make any changes to the floor after a claim is made without the advice of your attorney. If a claimant is not offered an opportunity to inspect the floor, that may also give rise to a claim of spoliation of evidence.

Finally, designate someone on staff as the internal slip-and-fall expert. This person should constantly be on the lookout for hazards, keep up with new technology in floor surfaces, execute inspections, and train others in both prevention and response to hazards. With vigilance, you can reduce your exposure to slip-and-fall claims and ensure the safety of guests and employees.

Illinois Appellate Court Clarifies What Is and Is Not an “Occurrence” in the Construction Defect Context

Marianne Bradley and Anthony Miscioscia | White and Williams LLP

On December 31, 2019, the First District Illinois Appellate Court issued its decision in Owners Insurance Company v. Precision Painting & Decorating Corporation, clarifying what does and does not constitute “property damage” caused by an “occurrence” in the construction defect context. 2019 IL App. (1st) 190926-U, 2019 Ill. App. Unpub. Lexis 2425.

The underlying case involved allegations of negligence, consumer fraud and breach of contract. In particular, the underlying homeowner claimants alleged that Precision Painting & Decorating Corporation (Precision), whom the homeowners had hired to perform certain exterior paintwork at their home, failed to conform to U.S. Environmental Protection Agency (EPA) regulations with respect to the presence of lead-based paint. In its contract, Precision had agreed to take special care with respect to containing lead dust while working on the homeowners’ property. Despite having agreed to do so, Precision (allegedly) took almost no precautions, resulting in significant contamination to the interior of the home.

Owners Insurance Company (Owners) had issued Precision a CGL policy, providing coverage for “property damage” caused by an “occurrence,” defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.”

Precision tendered its defense to Owners. Owners filed a DJ Action arguing that it owed no duty to defend as the homeowners had failed to allege any “property damage” caused by an “occurrence.” Specifically, Owners argued that, under Illinois law, damages resulting from an insured’s breach of contract are not recoverable under a CGL policy.

The trial court agreed, finding that no “accident” or “occurrence” was alleged. The trial court observed that the homeowners’ contract with Precision had specifically provided for various EPA-required precautions with respect to the use of lead-based paint. The trial court concluded that Precision’s failure to implement those precautions was not an “accident,” which in the trial court’s view, referred to something “unforeseen or untoward or disastrous.” Instead, the trial court characterized Precision’s conduct as nothing more than a foreseeable breach of contract.

Precision appealed, and the Appellate Court reversed and remanded. The Appellate Court found that the trial court’s focus on foreseeability was misplaced. It observed that: “[i]nstead of focusing on the foreseeability of the event itself (the release of lead-based particles), or even generally the damages (lead contamination),” Illinois case law instructs courts “to focus on what, specifically, was damaged, and whether the remediation of that damage fits within the general purpose of a CGL policy.” Id. at *12 (emphasis added). The Appellate Court emphasized that: “when the underlying lawsuit against the insured contractor alleges damages beyond repair and replacement, and beyond damage to other parts of the same project over which that contractor was responsible, those additional damages are deemed to be the result of an ‘accident.’” Id. at *14.

The Appellate Court was careful to contrast these so-called “beyond” damages with damages arising out of faulty workmanship, alone. It reiterated that it is well-settled under Illinois law that “there is no occurrence when a [contractor’s] defective workmanship necessitates removing and repairing work.” Id. at *14. This is true even when a contractor’s faulty workmanship results in consequential damages to any other part of the project for which the contractor has responsibility, as it remains part of the contractor’s work product. However, where damages extend beyond the scope of a contractor’s work product, the court concluded that those damages are more properly classified as unforeseeable accidents, and thus “occurrences.”

The Appellate Court found that Precision’s “work product” was limited to the exterior of plaintiffs’ house. Thus, any damage to the interior of the home, as well as to the surrounding land, was outside the scope of Precision’s project. Because plaintiffs had alleged damages “beyond repair and replacement, and beyond damage to other parts of the same project over which [Precision] was responsible,” plaintiffs had satisfactorily alleged “property damage” caused by an “occurrence.” The Appellate Court reversed and remanded in accordance with those findings.

Ohio Appellate Court Rejects Policyholder’s Notice-Prejudice and Continuity of Coverage Arguments

Andrew Daechsel | Property Casualty Focus

Claims-made liability insurance policies typically require the policyholder to notify the insurer of a claim within a set amount of time — typically during the policy period, or within a specific period of time after the end of the policy period — to obtain coverage. When policyholders fail to do so, they often argue that the “notice-prejudice rule” should apply, such that the insurer can only deny coverage if it was prejudiced by the policyholder’s untimely notice. Additionally, policyholders sometimes argue that their failure to provide timely notice should be excused if they renewed the subject policy and thus had an expectation of continuous coverage. In ISCO Industries, Inc. v. Great American Insurance Co., Ohio’s First District Court of Appeals, applying Ohio law, rejected both of these arguments.

Great American’s Claims-Made Liability Policy

The case involved a claims-made liability insurance policy that Great American issued to ISCO for the policy period from March 19, 2013, to March 19, 2014. The policy provided defense and indemnity coverage for certain “claims,” including lawsuits, first made against ISCO during the policy period and reported to Great American “as soon as practicable from the date the General Counsel, Risk Manager, or person with equivalent responsibility has knowledge of the Claim, and in no event later than ninety (90) days after the end of the Policy Period.”

Underlying Lawsuit Filed Against ISCO

In February 2014, during the policy period, a third-party company filed a lawsuit against ISCO, but ISCO did not provide notice of the lawsuit to Great American until August 2015, well after the notice deadline set forth in the policy. Great American subsequently denied coverage for the lawsuit due to ISCO’s failure to provide timely notice. Following this denial of coverage, ISCO settled the underlying lawsuit.

ISCO’s Coverage Lawsuit Against Great American Is Dismissed With Prejudice

After settling the underlying lawsuit, ISCO sued Great American for breach of contract, alleging that Great American had breached its duty to defend ISCO against the underlying lawsuit and to indemnify ISCO for the amount it paid to settle the underlying lawsuit. Great American moved to dismiss the lawsuit with prejudice, arguing that it was not obligated to provide coverage because ISCO failed to provide notice of the underlying lawsuit within 90 days after the end of the policy period, as required by the policy. The trial court granted the motion and dismissed the lawsuit with prejudice.

Appellate Court Affirms Dismissal With Prejudice

ISCO appealed the trial court’s dismissal with prejudice, and the appellate court affirmed.

On appeal, ISCO argued that the dismissal was improper because the “notice-prejudice rule” applied to the policy such that Great American could only deny coverage based on late notice if it was prejudice by the late notice. The appellate court rejected this argument, holding that the notice-prejudice rule was inapplicable to Great American’s policy. The appellate court acknowledged that, in Ferrando v. Auto-Owners Mutual Insurance Co., 781 N.E.2d 927 (Ohio 2002), the Ohio Supreme Court held that the notice-prejudice rule applied to an uninsured motorist policy that required the insured to provide “prompt notice” of claims. However, the appellate court found that Ferrando was inapplicable because Great American’s policy was a directors and officers liability policy (not an uninsured motorist policy like in Ferrando) and Great American’s policy required the insured to provide notice of claims by a specific deadline, within 90 days after the policy period (not just “prompt notice” like the policy in Ferrando).

ISCO also argued that the trial court’s dismissal was improper because ISCO had renewed the policy and thus had an expectation of continuous and seamless coverage, so long as it provided notice of the underlying lawsuit within a reasonable time. The appellate court rejected this argument because the plain language of the policy required ISCO to report a claim within 90 days after the end of the policy period, not just within a reasonable time. The appellate court noted, “It is well-established in Ohio, and indeed universally, that contracts, including insurance policies, ‘are to be interpreted so as to carry out the intent of the parties, as that intent is evidenced by the contractual language.’”

Certificates Of Insurance May Confer Coverage

Brett M. Hill | Construction News and Notes

Certificates of insurance are a common tool used in the construction industry to provide proof of insurance coverage. The legal effect of certificates of insurance has been a source of debate in Washington. Insurance companies have argued that certificates of insurance are “informational only” and do not alter the terms of the applicable insurance policy. Insurance companies have taken the position that if a certificate of insurance provides for coverage that is different than what the policy provides, the insurance company is only bound to provide what the policy provides.

The Washington State Supreme Court weighed in on this issue in an opinion issued on October 10, 2019, and held that an insurance company is bound by the terms of its certificate of insurance – even if it conflicts with the policy. In T-Mobile USA, Inc. v. Selective Insurance Company of America, Selective’s agent issued a certificate of insurance to “T-Mobile USA, Inc., its subsidiaries and affiliates” and stated that those entities were “included as additional insured” under the policy. The certificate of insurance was issued by Selective’s agent when T-Mobile’s contractor purchased an insurance policy from Selective for a cell tower project. The contractor’s agreement for the project was with T-Mobile Northeast – not T-Mobile USA. The contract between T-Mobile Northeast and the contractor stated that T-Mobile Northeast would be an additional insured. The Selective insurance policy stated that any third party would automatically be an additional insured if the contractor was required to name the third party as an additional insured. The contract did not provide that T-Mobile USA would be an additional insured.

A property owner damaged by the cell tower project sued T-Mobile USA. T-Mobile USA tendered the claim to Selective. Selective denied the claim because the contract between the contractor and T-Mobile Northeast did not require the contractor to name T-Mobile USA as an additional insured.

T-Mobile USA sued Selective and argued that Selective was bound by the terms of its certificate of insurance issued by its agent, which stated that T-Mobile USA was an additional insured. Selective argued that the certificate of insurance did not confer coverage and it was only bound to provide coverage as required under the policy. Selective also pointed to various general disclaimers in the certificate of insurance that the certificate does not amend, extend, or alter coverage under the policy and that the certificate does not confer rights to any certificate holder that is contrary to the policy.

The Washington State Supreme Court held that Selective was bound by the actions of its authorized agent. Its agent had apparent authority to issue the certificate of insurance. The general disclaimers in the certificate of insurance did not supersede the specific language in the certificate that conferred additional insured coverage to T-Mobile USA specifically.

Comment: This case is a victory for contractors and owners in Washington. Most contractors and owners have been relying upon certificates of insurance as proof of insurance. This case provides some certainty to owners and contractors – based on the facts presented in this case – that the insurance company may be bound to provide coverages provided in the certificate of insurance even if it is different than the terms of the insurance policy.  It is important to note that in this case the agent was delegated authority by Selective to execute “policies” and “certificates of insurance.”  Contractors and Owners should still, in best practices, confirm coverage under the applicable insurance policy.