Insurer’s Summary Judgment Motion to Reject Claim for Construction Defects Upheld

Tred R. Eyerly | Insurance Law Hawaii | July 23, 2018

The Third Circuit upheld the district court’s order granting summary judgment in favor of the insurer on a claim seeking coverage for construction defects. Lenick Constr. v. Selective Way Ins. Co., 2018 U.S. App. LEXIS 15197 (3d Cir. June 6, 2018).

Westrum was the general contractor for a 92 unit development, and it subcontracted with Lenick to perform rough and finish carpentry and to install paneling, windows, and doors provided by the developer. After the project was completed, it was discovered that some units experienced water infiltration, leaks and cracked drywall.

The condominium development sued Westrum, alleging contract and warranty claims. Westrum impleaded Lenick, asserting claims for breach of contract and indemnification. Lenick sought a defense from its insurer, Selective. Selective defended under a reservation of rights.

Lenick then sued for a declaratory judgment that Selective was obligated to defend and indemnify. The parties filed cross-motions for summary judgment. The district court found that the allegations in the underlying case against Lenick were not covered and Selective had no duty to defend or indemnify.

On appeal, Lenick argued that under Pennsylvania law, the damage occurred to areas of the property on which Lenick did not work, invoking coverage. The court disagreed. Damages that were a reasonably foreseeable result of faulty workmanship were not covered, even when damages occurred to areas outside the work provided by the insured.

Lenick also argued that the property damage was caused by defects in the materials provided to it by the developer. But this theory was not supported by the underlying pleadings, only by extrinsic evidence. Because the pleadings did not contain allegations sufficient to support a claim that the windows, doors, and/or panels used by Lenick malfunctioned, causing the property damage to the project, the argument for coverage failed.

The district court’s granting of summary judgment to Selective was affirmed.

Battle of Experts Cannot Be Decided on Summary Judgment

Tred R. Eyerly | Insurance Law Hawaii | June 6, 2018

When two competing experts disagreed on the cause of the loss, the trial court erred in granting summary judgment to the insurer. Garcia v. Firs Community Ins. Co., Fla. App. LEXIS 4237 (Fla. Ct. App. March 28, 2018).

Garcia, the homeowner, discovered water damage in his home, allegedly due to a roof leak. Garcia notified his insurer, First Community Insurance Company. A forensic engineer, Ivette Acosta, was retained by First Community to inspect the property. After the inspection, coverage was denied.

The homeowner’s policy covered direct loss to property only if the loss was a physical loss. Loss caused by “”rain snow, sleet, sand or dust to the interior of a building was excluded unless a covered peril first damaged the building causing an opening in a roof or wall and the rain, snow, sleet, sand or dust enters through this opening.” Loss caused by wear and tear, marring, or deterioration was also excluded.

Garcia filed a complaint against First Community. The insurer moved for summary judgment arguing that the cause of the water intrusion through the roof was a combination of deterioration, tree branch abrasions, and construction defects. Acosta also found that the nails observed in the roof’s shingles created a direct path for water to penetrate the shingles, which was considered a construction defect.

Garcia opposed the motion for summary judgment and submitted a report by a professional engineer, Alfredo Brizuela, who also inspected the property. Brizuela found there was insufficient evidence to rule out that the damages were caused by hail impact or wind uplift damage caused by a one-time occurrence. He also opined the damage was not age-related or long term in nature. Instead, there was evidence that the damage was caused by high rain and/or wind. The trial court granted First Community’s motion and entered final judgment.

On appeal, it was noted that in ruling on summary judgment, the trial court may neither adjudge the credibility of the witnesses nor weigh the evidence. The court agreed with Garcia that the trial court erred in granting summary judgment in favor of First Community where the conflicting reports of the parties’ experts established that there was a genuine issue of material fact as to the cause of the loss. Given the conflict in the material evidence as to the cause of the loss, the trial erred in entering final judgment in favor of First Community.

Insurer Must Defend Contractor Against Claims of Faulty Workmanship

Tred R. Eyerly | Insurance Law Hawaii | May 21, 2018

The magistrate judge recommended that the insurer’s motion for summary judgment seeking to determine there was no coverage for claims of faulty workmanship be denied. Greystone Multi-Family Builders v. Gemini Ins. Co., 2018 U.S. Dist. LEXIS 56770 (S.D. Tex. Feb. 26, 2018).

TPG (Post Oak) purchased an OCIP policy to cover construction of an apartment complex. TPG was sued by the contractor, Greystone, after TPG cancelled the construction contract. TPG filed a counterclaim against the contractor, alleging that Greystone had failed to properly perform in building a luxury apartment complex which resulted in monetary damages to TPG. The complaint further alleged that the project was nine months behind its substantial completion date, far from complete, and over budget when TPG cancelled the contract. The cost to fix the mismanagement caused by Greystone was $18.9 million.

The insurer denied coverage for the counterclaim against Greystone. Greystone then sued for a declaration judgment and the insurer cross-moved for summary judgment.

The insurer argued there was no occurrence because Greystone’s actions were not an accident. The court, however, found no allegations in the underlying complaint that Greystone intended its work to cause the damage or that the damage was the natural and expected result of Greystone’s actions. Simply because Greystone paid its subcontractors upfront did not mean Greystone intended the result to be shoddy workmanship. The up-front payments may have been a management failure, but not intentional conduct to cause poor construction of the project. Therefore, the allegations included actions meeting the definition of “occurrence.”

Next, the insurer agreed that there was property damage, but argued most of the complaints were of increased costs of construction due to duplication of effort, purchasing gaps, use of wrong materials, deviations from plans and specifications, code violations, and delays. The court agreed that the counterclaim alleged that Greystone’s shoddy work caused property damage. But there were also allegations that fell within the definition of property damage.

Finally, the court determined that the exclusions did not bar coverage. The insurer relied upon exclusion j (5) which barred coverage to “that particular part of real property on which you . . . are performing operations, if the ‘property damage’ arises out of those operations.” The court noted that it must look not to when the construction defect occurred, but when the property damage itself occurred. Greystone argued that some of the damage could only have occurred after it was no longer working on its particular part of the project. There was no clear allegation in the counterclaim tying the property damage to a particular date. Therefore, exclusion j(5) did not allow the insurer to escape its duty to defend.

Exclusion j (6) was also not applicable. The exclusion barred coverage for “property damage” to “that particular part of any property that must be restored, repaired or replaced because ‘your work’ was incorrectly performed on it.” The exclusion did not apply to property damage included in the products-completed operations hazard, i.e., when all of the work called for in the contract had been completed. The exclusion barred coverage only for property damage to parts of a property that were themselves the subject of defective work by the insured. The exclusion did not apply, however, for damage to parts of a property that were the subject of only nondefective work by the insured and were damaged as a result of defective work by the insured on other parts of the property.

The counterclaim alleged that some of Greystone’s work that was non-defective was damaged by defective work. For example, the counterclaim alleged that due to defective structural work, “the floor of the structure began to sag and critical plumbing elements were damaged.” The counterclaim further alleged that the roof was installed defectively, which caused water leaks on the property. The allegations also established that not all of Greystone’s work was completed because the contract was never completed. Therefore, the products-completed operations hazard was inapplicable. Exclusion j (6) did not apply to the extent that the counterclaim alleged that non-defective work was damaged by defective work.

Consequently, the insurer had a duty to defend.

Appellate Court Reverses Summary Judgment Where Battle of Experts Created a Jury Question

Erin Dunnavant | Property Insurance Coverage Law Blog | May 7, 2018

Generally, in Florida, when there is a difference of opinions between each party’s expert, the jury gets to decide who’s right, not the judge. But there has been a trend by insurance companies in the first-party property context of taking their expert’s report before the judge and arguing, in essence, “our expert’s right, the insured’s is wrong, so find in favor of the insurance company as a matter of law.”

These insurance companies and their experts have even convinced a few trial courts into believing this is the case. Fortunately for policyholders, Florida’s Second District Court of Appeal reminded those trial courts that battles of experts are to be hashed out before a jury.1

The Third District Court of Appeal recently followed the Second District in Garcia v. First Community Insurance Company,2 finding it was a fact question as to whose expert was correct.

On March 29, 2014, Rita Garcia (“Garcia”) noticed water damage to her home in Miami insured by a homeowner policy with First Community Insurance Company, (“First Community”). She reported her claim and it was ultimately investigated by an engineer, Ivette Acosta, (“Acosta”). First Community denied coverage based on Acosta’s engineering conclusions.

After being unable to resolve her claim on her own, Garcia hired attorneys and filed suit. In the complaint, Garcia claimed that on March 29, 2014, she and her husband discovered water damage at their home as a result of a roof leak, that the policy provided coverage for any direct physical loss that resulted from the roof leak, and that prior to suit they had provided First Community with an estimate for $22,986.66.

In response to the complaint, First Community filed an answer and affirmative defenses, where they claimed that the damages were caused by the “age and wear and tear of the roof.”

First Community filed a motion for summary judgment, arguing that the claimed damages were not covered under Garcia’s policy. To support its argument, First Community cited to the finding’s in Acosta’s expert report. It was Acosta’s opinion that the water intrusion through the roof resulted from “a combination of age-related deterioration, tree branch abrasions, and construction defects” and that “face nails observed on the shingles create a direct path for water to penetrate the structure…” which was also considered a construction defect.

Meanwhile, Garcia hired her own expert, Alfredo Brizuela (“Brizeula”) who inspected the home March 28, 2017, and reviewed Acosta’s engineering report, prepared on behalf of First Community. In response to First Community’s summary judgment motion, Garcia filed the affidavit and report of Brizuela who found, contrary to Acosta, that there was “insufficient evidence to rule out that the damages were caused by hail impact or wind uplift damage caused by a one-time occurrence.” He also found that ‘“no evidence to support any contention that the damages reported by the insured in this claim are age-related or long term in nature.” Brizuela further opined in his engineering report:

[T]he damages observed are systematic of high rain and/or wind events that occurred in the days leading up to and on the [date of loss]. The dynamic force of the winds caused an opening in the roofing system by uplifting and debonding the shingles (causing damage to the underlayment) through which rain water was able to enter, causing water damage to the interior of the building.

Despite the stark differences in Acosta and Bruzuela’s opinions, the trial court granted First Community’s motion for summary judgment. Garcia timely appealed.

In analyzing the evidence, the Third District Court of Appeal (“Third DCA”) recognized that under Florida law, the appellate court may not take the role of judging the credibility of witnesses or weighing the evidence. Apparently one of the key points that the trial court had relied upon in granting summary judgment against Garcia was that while First Community’s expert had inspected the property just months after the date of loss, Garcia’s expert did not observe the damage until three years later.

Ultimately, the Third DCA reversed the trial court’s finding and found:

The conclusions reached by the opposing engineers are clearly at odds. Given this conflict in the material evidence as to the cause of loss, the trial court erred in entering final judgment in favor of First Community…The consideration of the timing of Brizuela’s inspection [three years after the date of loss] in relation to that of First Community’s engineer…goes to the credibility and weight of Brizuela’s opinion regarding the cause of loss. It is well-established that issues of credibility and weight of the evidence are not appropriate in a summary judgment determination. Indeed, a “trial court may not determine factual issues nor consider either the weight of the conflicting evidence or the credibility of witnesses in determining whether a genuine issue of material fact exists in a summary judgment proceeding. Juno Indus., Inc. v. Heery Int’l, 646 So.2d 818, 822 (Fla. 5th DCA 1994).

Because a genuine issue of material fact exists as to the cause of the loss to the property, entry of final summary judgment in favor of First Community was improper. Accordingly, we reverse the final summary judgment entered in favor of First Community and remand the cause to the trial court for further proceedings.

This case is important because it helps keep policyholders on equal footing with their insurance companies. First Community’s expert may not be right—a jury in Miami will eventually let us know. This case also emphasizes the importance of proving up your case if you represent policyholders as either an attorney or public adjuster. It is very important to make sure that you have retained the appropriate professionals to evaluate the insurance company’s findings and render reports and affidavits, especially in the face of a summary judgment motion.
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1 See Roker v. Tower Hill Preferred Ins. Co., 164 So.3d 690 (Fla. 2d DCA 2015)(Jury question as to which expert was correct regarding sinkhole repair method); see alsoSanchez v. Royal Palm Ins. Co., 166 So.3d 212 (Fla. 2d DCA 2015)(same), Estrada v. Tower Hill Select Ins. Co., 179 So.3d 348 (Fla. 2d DCA 2015)(same); Case v. Tower Hill Prime Ins. Co., 191 So. 3d 526, 527 (Fla. 2d DCA 2016)(same).
2 Garcia v. First Cmty. Ins. Co., No. 3D17-968, 2018 WL 1513153 (Fla. 3d DCA Mar. 28, 2018).

Disputed Facts on Cause of Collapse Results in Denied Cross-Motions for Summary Judgment

Tred R. Eyerly | Insurance Law Hawaii | January 22, 2018

Although the court concluded that the policy covered a loss caused by the weight of snow, disputed facts as to the cause of the collapse led to the denial of cross-motions for summary judgment. Freeway Drive Inv., LLC v Employers Mut. Cas. Co., 2017 U.S Dist. LEXIS 207165 (E.D Mich. Dec. 18, 2017).

Freeway Drive owned a single story commercial building insured by Employers Mutual Casualty Company (EMCC). The building sustained damage when trusses within the roof shifted and dropped, causing visible sagging. EMCC denied Freeway Drive’s claim.

Freeway Drive hired structural engineer Abdul Brinjikji to inspect the damage. He visited the building three times. On the first visit, he saw snow on the roof but could not estimate how much. Nevertheless, he opined that the collapse was caused by an overload of snow. He developed a plan to shore up the roof and repairs commenced.

After repairs were completed, Brinjikji visited the property a second time. He sill opined that the collapse was caused by snow load. His opinion did not change after this third visit.

EMCC retained an engineer, Richard Hamann, who also investigated the cause of the collapse. After the inspection, EMCC stated in a letter to Freeway Drive that the damage to the roof trusses was a result of fire retardant applied to the roofing structure when it was built. Over time, the fire retardant, along with moisture in the attic, resulted in structural failure of the trusses. EMCC concluded that the loss did not fall within the policy’s collapse coverage, that the damage was not caused by a “specified cause of loss” as defined by the policy, and that the loss was subject to the policy’s collapse exclusion.

After receiving EMCC’s denial letter, Freeway Drive tested a sample of the truss lumber for the presence of fire retardant. The test indicated the presence of small amounts of Boron, which was one of three major fire retardant tracer elements. But the amount of total fire retardant that permeated into the wood was minimal. Brinjikji later testified that Boron did not affect wood like earlier used fire retardants in older buildings did.

Freeway Drive sued EMCC and cross-motions for summary judgment were filed. The court first determined that the policy was “all-risk,” meaning the loss was covered unless the particular damage was specifically excluded.

Next, the court noted that “weight of snow” was a specified cause of loss” under the policy. While EMCC did not dispute that damage caused by weight of snow was covered under the policy, it contended that the plain language of the “Collapse Exclusion” barred coverage for collapse due only to the weight of snow. EMCC said that coverage could only be extended if a snow-load collapse occurred after construction, remodeling, or renovation was complete, and because of the use of defective materials or methods.

The court disagreed with EMCC’s attempt to limit the analysis to the “Additional Coverage – Collapse” provision of the policy. Although collapse was excluded from the policy, the exclusion did not apply if coverage was provided under the Additional Coverage-Collapse provision or if the collapse was caused by a “specified cause of loss.”

EMCC argued that the collapse exclusion exception had to be read in harmony with the Additional Coverage – Collapse provision. Interpreting the policy to provide collapse coverage for collapse solely due to a specified cause of loss rendered as surplusage the unambiguous language of the Additional Coverage-Collapse provision.

Freeway Drive argued that the plain language provided that collapse coverage was restored under the exclusion when the collapse was due to the weight of snow. The Additional Coverage – Collapse clause and the “specified causes of loss” provision were distinct exceptions to the collapse exclusion that had to be applied separately.

The court agreed with Freeway Drive. The policy provided coverage for collapse due only to a “specified cause of loss,” i.e., the weight of snow, regardless of the Additional Coverage – Collapse provision.

Nevertheless, the experts disagreed on the cause of the loss, creating a factual dispute as to whether the weight of snow, or deterioration due to fire retardant, caused the collapse. Hamann said that further testing was needed on the roof trusses. In the first test, traces of fire retardant were found. Brinjikji could not say for certain that the conditions in which the retardant could have affected the trusses did not occur. Neither party could demonstrate the absence of a dispute of material fact that either the weight of snow, degradation, or both, caused the loss. Therefore, summary judgment could not be granted to either party.