Claims for Negligence? Duty to Defend Triggered

Michael S. Levine | Hunton Andrews Kurth | June 19, 2019

On June 17, 2019, the First Circuit held that an insurer’s duty to defend was triggered because the underlying complaint set forth claims that required a showing of intent as well as claims that sought recovery for conduct that “fits comfortably within the definition of an ‘accident.’” In Zurich American Ins. Co v. Electricity Maine, LLC, Zurich sought declaratory judgment that, under a D&O policy, it had no duty to defend the insured, Electricity Maine, an electrical utility company being sued in the underlying class action. Zurich argued it had no duty to defend because the underlying complaint failed to allege that Electricity Maine engaged in conduct that qualified as an “occurrence” or that caused “bodily injury” under the terms of the policy. The First Circuit disagreed.

The D&O policy stated that Zurich “has a duty to defend Electricity Maine against any lawsuit that seeks damages for ‘bodily injury’ caused by an ‘occurrence.’” The policy defined an “occurrence” as “an accident . . .” and under Maine law an accident is “commonly understood to mean . . . an event that takes place without one’s forethought or expectation . . . .” The Court held that, because the underlying complaint asserted claims for negligence and negligent misrepresentation, in addition to intentional torts, the conduct upon which recovery was sought fell within the definition of an “accident” and therefore qualified as an “occurrence” triggering the duty to defend. Second, the Court held that, although the underlying complaint did not allege that Electricity Maine’s conduct caused “bodily injury,” the complaint did not need to do so to fall within the risk insured and trigger a duty to defend. Instead, because the alleged conduct could result in bodily injury due to emotional distress, the allegations fell within the risk insured and Zurich has a duty to defend.

Alarm Cries Wolf in California Case Involving Privette Doctrine

Garret Murai | California Construction Law Blog | April 17, 2019

It’s one of the most quoted phrases in legal history: “Shouting fire in a [crowded] theater.”

It comes from the U.S. Supreme Court’s landmark 1919 decision in Schenck v. U.S. and has come to stand for the proposition that not all speech, in particular dangerous speech, is protected by the First Amendment.

The next case also involves a false alarm. But not of the First Amendment kind.

In Johnson v. The Raytheon Company, Inc., California Court of Appeal for the Second District, Case No. B281411 (March 8, 2019), a false alarm investigated by maintenance engineering staff led to a Privette Doctrine claim against a property owner when a ladder on which the maintenance staff was standing slipped on wet flooring.

Johnson v. Raytheon

Lawrence Johnson worked as a maintenance engineer for ABM Facilities Services, Inc. ABM was hired by Raytheon Company, Inc. to staff the control room at one of Raytheon’s facilities in Southern California. Among other things, control room staff monitored water cooling towers owned by Raytheon to ensure that the water in the cooling towers were maintained at minimum levels.

Johnson worked the graveyard shift. At 2:50 a.m. on February 20, 2013, Johnson received a low water level alarm. He called his supervisor who, as one might expect someone to do when awakened at 3:00 a.m. in the morning,  told Johnson to do whatever he thought he should do.  In other words, Johnson was alone.

At the time, Raytheon was undergoing a renovation project involving the removal and replacement of its water towers. System XT was the general contractor on the project, and two of its subcontractors, Brownco Construction Company, Inc. and Power Edge Solutions, Inc., were responsible for concrete work and the installation of electronic monitoring, respectively.

Johnson, unable to resolve the alarm, walked outside to the water tower in question where he saw an extension ladder left by Brownco leaning against the cooling tower wall. The cooling tower used to have a platform ladder for access but it had been removed during the renovations. Oh, and also, it had been raining, so the ground was wet.

I know what you’re thinking. It’s like the scene in pretty much any horror movie where the creepy music cues and you’re nearly yelling at the screen, “don’t open that door!,” or in this case, “don’t climb that ladder!” Well, we all know what happens next.

Johnson climbed the ladder even though (camera pan in) there was a sign on the ladder in all capital letters stating “CAUTION” and “THIS LADDER SECTION IS NOT DESIGNED FOR SEPARATE USE.” Because it was dark, Johnson didn’t see the warning.

Johnson made his way up the ladder. When he took a look over the 8-foot wall of the cooling tower … wait for it … there was no problem with the water level. However, as he made his way down the ladder, it slid, causing Johnson to come tumbling down on top of the ladder where he sustained serious injuries.

An investigation conducted after the accident revealed that the water level sensor installed by Power Edge had corroded and had to be replaced. That’s luck for you.

Johnson later sued Raytheon and Systems XT, alleging that Raytheon was liable because it retained control of the premises and that Systems XT ,as the general contractor, was liable for: (1) Power Edge’s failure to properly install the water level sensor to prevent it from becoming corroded; and (2) Brownco’s negligence in leaving its ladder out rather than putting it away.  Both Raytheon and Systems XT filed motions for summary judgment, which were granted by the trial court, and Johnson appealed.

The Appeal

On appeal, the 2nd District Court of Appeal noted that the Privette Doctrine, named after the case in which it was first elucidated, Privette v. Superior Court (1993) 5 Cal.4th 689, stands for the general principal that “a hirer of an independent contractor was not liable for the negligence of the independent contractor.”

However, also noted the Court, the Privette Doctrine has given way to several exceptions including the following:

  1. Negligent Exercise of Retained Control: Under the negligent exercise of retained control exception, a hirer is liable for injuries sustained by an employee of an independent contractor if: (1) the hirer retains control over any part of the work; (2) the hirer negligently exercises that control; and (3) the hirer does so in a manner that affirmatively contributes to the employee’s injury.” Hooker v. Department of Transportation (2002) 27 Cal.4th 198.
  2. Hazardous Conditions on Property: Under the hazardous conditions on property exception, a hirer is liable for injuries sustained by an employee of an independent contractor if: ” [(1)] the landowner knew, or should have known, of a latent or concealed preexisting hazardous condition on its property, [(2)] the contractor did not know and could not have reasonably discovered this hazardous condition, and [(3)] the landowner failed to warn the contractor about this condition.” Kinsman v. Unocal Corp. (2005) 37 Cal.4th 659.

Raytheon Was Not Liable Under Hooker

The Court of Appeal, focusing on the third factor of the negligent exercise of retained control exception, whether the hirer “affirmatively contribute[d]” to the employee’s injury, held that Johnson had failed to show that Raytheon affirmatively contributed to his injuries because the evidence presented to the trial court was that Raytheon provided ABM employees with access to numerous other safe ladders that Johnson did not choose to use on the night in question:

After Raytheon pointed out the availability of other ladders in its respondent’s brief, Johnson argued, in reply, that he had believed the ladder he found at the wall had been left by Raytheon, so had assumed it was safe, and that the area was not sufficiently well lit for him to have appreciated the danger posed by the partial extension ladder. While these arguments go some way to explaining why Johnson chose to use the partial extension ladder he discovered at the wall, they do not raise a triable issue of fact as to Raytheon’s affirmative contribution to his injury. Raytheon did not represent that the partial extension ladder was a safe replacement for the platform ladder, nor did Raytheon promise to provide ABM employees with light fixtures at the water cooling tower – and Johnson cannot suggest for the first time in its reply brief on appeal that it did.

Raytheon Was Not Liable Under Kinsman

The Court of Appeal, focusing on the second factor of the hazardous conditions on property exception, that the contractor did not know and could not have “reasonably discovered” the hazardous condition, held that Johnson could have reasonably discovered the hazard posed by the partial extension ladder by simply inspecting the ladder, and, once discovered, could have avoided the injury by using a different and safer ladder:

As we have discussed above in connection with the Hooker exception, it is undisputed that there were A-frame ladders available to Johnson. Thus, if the Brownco partial extension ladder were to be considered an obvious hazard, it cannot give rise to Raytheon’s liability because knowledge of the hazard is not inadequate to prevent injury. Anyone with actual knowledge of the hazardous could have avoided it by obtaining an A-frame ladder instead.

In other words, Johnson should have read the warning signs on the ladder.

Systems XT Was Not Liable For Negligence

Johnson’s claim against Systems XT was for negligence rather than an exception to the Privette Doctrine. Negligence, explained the Court of Appeals, involves the following: “(1) a legal duty to use due care; (2) a breach of that duty; and (3) the breach as the proximate or legal cause of the resulting injury.”

Johnson alleged that Systems XT breached two duties, namely, that Systems XT failed to ensure that Power Edge installed a water level sensor that would not create false alarms and  that System XT failed to ensure that Brownco safely secure its equipment including the partial extension ladder.

However, explained the Court of Appeals, while Johnson supported his allegation with contractual provisions contained in the various contracts and subcontracts between the parties, including a statement of work stating that the water cooling plant “must be a 24 x 7 ‘Fail-Safe’ operation,” general provisions providing that “contractors are responsible for keeping their work areas orderly and neat . . and free of . . . hazardous,” as well as specific provisions concerning ladders, which provided that “[w]hen not in use, store the ladder in an appropriate storage place,” Johnson had not shown that any of these contractual provisions created a duty owed by Systems XT to Johnson as a third-party beneficiary under these contractual provisions.

Conclusion

Johnson is an interesting case for reasons I think might surprise you. I believe the facts and law could have been interpreted and applied differently, fairly easily, by a different court. Instead of “Johnson should have just read the dang warning signs on the ladder,” I could see another court finding that the ladder shouldn’t have been there in the first place, and because the cooling towers were still “on line” Raytheon should have provided some means to provide safe access to them (after all, they had a platform ladder at one time, ostensibly for this very purpose). I could also see another court finding that  Systems XT did in fact breach a duty to Johnson because the safety provisions in the contracts was not intended to benefit some amorphous entity (i.e., Raytheon),  but among others, the employees of Raytheon who were working alongside an ongoing construction project.

But here’s the thing. It wasn’t another court. It was the 2nd District Court of Appeals. And in the last few years, the 2nd District Court of Appeals has come out with decisions scaling back exceptions to the Privette Doctrine, including last year’s Delgadillo v. Television Center, Inc. (2018) 20 Cal.App.5th 1078 case, and Khosh v. Staples Construction Company, Inc. (2016) 4 Cal.App.5th 712 case decided two years earlier.

Perhaps we have an appellate court split in the making?

Sox Are ‘Slippery When Wet’: Contractor May be Liable for Injury Caused by Work Installed According to Customer Specifications

Amandeep S. Kahlon | Bradley Arant Boult Cummings LLP | March 21, 2019

An Illinois appellate court recently addressed the scope of negligence liability for a slip and fall injury on a newly installed roof at the Chicago White Sox Stadium. In 2013, a maintenance employee slipped on the roof at the stadium and suffered severe muscle tears. The employee filed suit alleging negligence and strict liability against the White Sox, the roofing contractor, and the manufacturer of the roofing product. All three defendants moved for and were granted summary judgment by the trial court, and the employee appealed.

On appeal, the manufacturer argued that it owed no duty of care to the employee and, regardless, had provided sufficient warning to its immediate vendee, the contractor, so as to relieve the manufacturer of any liability. The contractor argued that it owed no duty of care to the plaintiff because it relied on the customer’s specifications and performed the work in accordance with the specifications.

After reviewing the manufacturer warnings, the appellate court agreed that the manufacturer had provided adequate warnings to the contractor regarding use of its roofing product and affirmed summary judgment in favor of the manufacturer. However, the appellate court reversed the trial court’s grant of summary judgment with respect to the White Sox and the contractor. Although the contractor cited past Illinois rulings that relieved contractors from liability to third parties when contractors followed the plans, specifications and instructions provided by an owner, the appellate court here found that the contractor still owed a duty of care to third parties. The court reasoned that, because the White Sox sought the contractor’s “expertise, advice, and direction” to make recommendations regarding roofing materials and necessary safety equipment, the contractor was not just “blindly replicat[ing]” specifications and plans.

The court was particularly persuaded by evidence that the White Sox and contractor negotiated the contract over several iterations and meetings. Unlike a traditional design-bid-build work scenario, the contractor had input on the specifications, plans and materials to be used in the construction of the roof, not unlike a design-build project.

The court’s decision places the contractor in a precarious position, where it may be held accountable for an injury to a third party, despite following its customer’s plans and specifications. Contractors, especially those involved in negotiated private work and, in particular, those performing construction manager roles with input into design and constructability decisions, should be mindful of the Illinois court’s decision and the implications the decision may have on future claims. A careful contractor can do several things to mitigate the risk of liability to third-party plaintiffs such as the White Sox employee in this case:

  1. pass on any manufacturer warnings explicitly to the owner;
  2. expressly disclaim liability for defective specifications or plans and seek indemnity from the owner for the same; and
  3. evaluate, during negotiations, the potential unintended consequences of recommending different materials, equipment or systems, especially if the recommended alternatives are to satisfy a demanding customer’s price concerns.

Minnesota Court Allows Punitive Damages Claim Against Contractor

Nicholas A. Loyal | Stinson Leonard Street | February 21, 2019

Punitive damages in construction cases are rare, but the Minnesota Court of Appeals recently allowed a driver to seek punitive damages after he was injured by debris falling from a construction company’s truck. The court’s decision provides a framework for punitive damage claims to proceed against contractors and serves as a cautionary tale for those who are involved in the construction industry.

In Carney Lien v. Casper Construction Inc., et al., a driver was hurt when a rock fell off of a dump truck hauling gravel from a pit to a construction site, broke through his windshield, and caused major injuries. After settling with the trucking company and the gravel pit, the driver went to trial against Veit & Company, which was responsible for supplying the gravel being hauled.

At trial, Veit argued that the injury was the result of a “freak accident,” while the driver argued that Veit was filling dump trucks dangerously full—so much so that rocks were falling off the top and sides of its trucks as they drove away. The injured driver produced testimony from eyewitnesses to the accident, as well as truck drivers on the project who testified that the trucks were being consistently overloaded. The jury found for the driver, and awarded $4,754,973.67 in compensatory damages.

Generally, in order to obtain punitive damages under Minnesota law, the party seeking damages must provide evidence that clearly and convincingly shows a “deliberate disregard for the rights or safety of others.” Minn. Stat. § 549.191 et seq. That standard is met if the evidence shows that the offending party “has knowledge of facts or intentionally disregards facts that create a high probability of injury to the rights or safety of others” and either deliberately proceeds to act with indifference or conscious disregard of that probability for injury. Id. at subd. 1(b). If awarded, punitive damages can greatly exceed the actual damages sought by a plaintiff in a lawsuit, as they are designed to punish an offending party to such a degree that the wrongdoing is not repeated.

In Carney Lien, the injured driver sought punitive damages after the verdict based on affidavits from five truck drivers working on the project asserting that Veit not only overloaded its dump trucks, but that it continued to do so despite complaints about the safety of this practice. While the district court denied the motion and struck the claim for punitive damages, the court of appeals reversed, finding that the district court abused its discretion by improperly weighing the evidence presented. As a result, the court of appeals remanded the case to the district court for further consideration of whether punitive damages were proper.

While it remains to be seen what the ultimate resolution of the punitive damages issue will be at the district court level, the court of appeals opened the door for claims seeking punitive damages by providing a framework for the type of damages needed to support such a claim. Specifically, if an injured party can present evidence establishing that a contractor is knowingly acting in a manner that could be detrimental to public safety, the contractor could face punitive damages for any injuries resulting from that action.

Obviously, construction companies should not knowingly act in a dangerous manner or disregard potential harm to public safety. However, in this case, the truck driver himself had a responsibility to secure his load and not allow his truck to be overfilled. To hold the excavator responsible for enormous damages resulting from such an accident creates the potential for extending punitive damages beyond their traditional limits.

Pennsylvania Federal Court Addresses Recurring Asbestos Coverage Issues

Craig O’Neill and Laura Rossi | Complex Insurance Coverage Reporter | January 18, 2019

In a pair of recent asbestos coverage decisions, a Pennsylvania federal court issued rulings addressing expedited funding orders, number of “occurrences,” and the applicability of aggregate limits under the Fourth Circuit’s Wallace & Gale approach.

Zurn Industries, LLC v. Allstate Insurance Company, 2018 U.S. Dist. LEXIS 197481 (W.D. Pa. Nov. 20, 2018)

Policyholder Zurn, a manufacturer and distributor of boilers, was named as a defendant in thousands of underlying asbestos-related bodily injury suits. After its primary insurers claimed exhaustion, Zurn moved on an expedited basis to require two of its excess insurers to each assume fifty percent of its defense and indemnity costs until they reached a permanent cost-sharing agreement. In denying Zurn’s expedited request for interim funding, the court held that the record was insufficient “in the opening stages of litigation, before discovery has occurred” to determine whether the underlying coverage had been properly exhausted but left the door open for Zurn to refile its motion on a more developed record.

Relying on J.H. France and Koppers, Zurn argued that it had properly “selected” the excess insurers’ policies and, therefore, they were obligated to share its defense and indemnity costs subject only to their right “to redistribute the burden among themselves.” Zurn also argued that, under Pennsylvania’s “four corners” rule, it only needed to make a prima facie showing that the underlying asbestos claims fell within the scope of coverage based on proof of exhaustion from a prior insurer. Zurn’s excess insurer countered that the relief sought was premature due to a dispute over the accuracy of the primary insurer’s representations concerning exhaustion that must be resolved following discovery and motion practice.

The district court noted that “extenuating circumstances” complicated the application of the usual “four corners” rule because the case involved (1) thousands of underlying asbestos claims rather than a single claim; and (2) excess insurance coverage, meaning that the policyholder must also establish that the insurer’s policies were triggered by the exhaustion of underlying coverage. The court further observed that exhaustion is “inherently a factual issue, and the record before the Court [was] both limited and underdeveloped.” Ultimately, the court concluded that it was premature to make any determination concerning exhaustion since the insurer who provided representations of exhaustion had yet to answer the complaint or file cross-claims against it. As the court explained:

To the extent that Zurn cites [cases] for the proposition that it has satisfied its prima facie evidentiary burden by supplying loss runs, . . . does not necessarily mean that the Court can or should determine whether that burden has been met in the opening stages of litigation, before discovery has occurred…. Notably, none of the cases cited by [Zurn] involved the type of interim relief being sought here in the opening stage of litigation, and this Court has been unable to find any Pennsylvania case in which such relief has been requested or granted at the outset (emphasis added).

The court therefore denied Zurn’s motion without prejudice. Because the court deemed Zurn’s defense of thousands of asbestos lawsuits a “serious matter that deserve[d] prompt attention,” it directed the parties to confer and submit a proposal for expedited discovery on the issue of exhaustion.

Ohio Valley Insulating Company, Inc. v. Maryland Casualty Company, 2018 U.S. Dist. LEXIS 216393 (W.D. Pa. Dec. 27, 2018)

Policyholder Ohio Valley Insulating Company (OVI), an installer of steam pipes and boiler insulation, brought a coverage action against its insurer in a dispute over numerous asbestos bodily injury claims. The district court held on summary judgment that (1) each site where the insured conducted operations was a separate “occurrence”; and (2) the aggregate limits of the “completed operations” hazard applied.

First, the district court considered whether the claims brought against OVI were one or multiple occurrences. The policies at issue provided that “all bodily injury . . . arising out of continuous or repeated exposure to substantially the same general conditions shall be considered as arising out of one occurrence.” The court was persuaded by Kvaerner v. OneBeacon, 74 Pa. D. & C.4th 32 (Pa. Ct. Com. Pl. Phila. Cty. 2005), which held that each construction site where the insured used asbestos constituted a separate “occurrence” because “the claimants that were exposed to asbestos at the same location and at the same time were exposed to substantially the same general condition.” The court distinguished between products and operations claims and concluded that the activities that “triggered the underlying claims did not arise from a single, negligent practice that could be considered one cause such as distributing a uniformly defective product from a single manufacturer or selling a product containing asbestos from one location.”

In following Kvaerner, the court emphasized that (1) the policies restricted coverage to OVI’s specified operations—i.e., “Steam Pipe or Boiler Insulation”—at various sites; (2) the policies provided coverage for “completed operations” hazards but were silent on “products” hazards coverage; (3) the asbestos suits derived from multiple contract, operations, and job sites; and (4) the insurers’ determination of OVI’s liability in the asbestos suits was based on a “contract book” match, i.e., whether a particular claimant’s work history coincides with the list of OVI’s contemporaneously recorded operations. According to the court, these facts “demonstrate[d] that claimants in the Asbestos Suits who were exposed to asbestos during the same time and at the same site where OVI was conducting one of its operations were subjected to continuous or repeated exposure to substantially the same general condition.”

Second, the court rejected OVI’s contention that the asbestos suits fell solely within the policies’ “operations” coverage. Instead, the court followed the rule announced by the Fourth Circuit Court in In re Wallace & Gale Co., 385 F.3d 820, 830 (4th Cir. 2004) (establishing that “where the injury that triggers coverage occurs subsequent to exposure to an operation, that claim is subject to the aggregate limits of the ‘completed operations’ hazard” which “encompass any bodily injury claim in which the claimant was injured by asbestos exposure attributable to an operation that the insured completed prior to the start of the policy period.”). The court found that the approach in Wallace & Gale “comports with Pennsylvania ‘trigger’ theory of coverage in asbestos cases”—specifically noting that, under J.H. France, a claimant’s exposure to asbestos, as well as all phases of an ensuing disease, independently “trigger” coverage. Thus, the court concluded that multiple policies were triggered and “the aggregate limits associated with the ‘completed operations’ hazard [were] applicable.”