4th Annual Midwest Construction Defect & Dispute Conference Agenda Announced

Jeff Childs | Construction Defect & Dispute Conference | January 31, 2019

The 4th Annual Midwest Construction Defect & Dispute Conference will be one that should intrigue legal and insurance professionals across the country. Set in the center of our nation in Chicago, IL and will be held at the highly recognized Loyola University Chicago.

Top professionals and experts from across the country will be presenters and in attendance. The cost of $297 will include a continental breakfast, lunch, a post conference networking reception. Attendees will be able to earn up to 6.5 CLE/CE credits through a number of interesting and anticipated topics.

Here is a look at our presenters and course descriptions:

Grant Austin is President of American Valuation in Florida. He will be speaking on Forget Stigma Damage for Your Next Construction Defect Case: Switch to “Impaired Marketability”.

This course addresses the typical roles and valuation methods of real property appraisers in construction defects litigation plus the addition of new analytical methods that will strengthen the construction litigator’s case. While appraisers are regularly retained to provide opinions on the damage or impairment to a property, their timely retention can also assist with an evaluation of many other critical elements in the construction litigator’s case. The author discusses each potential real property value impact of a construction defect (cost to remediate, delay damages, diminution in market value, marketability, stigma) and the available valuation methods. Experienced construction litigators will find new valuation methods that may prove to be valuable tools in their practice.

Les Robertson, a founding partner of Robertson & Associates in San Diego and Dermot Leech with Allianz Insurance Company in Chicago will cover Reservation of Rights in Property Damage/Construction Defect Claims.

Insurers frequently issue Reservation of Rights letters to their insureds who tender construction defect/property damage claims. Claims such as these seem to overlap and impinge on many portions of a typical CGL insurance policy. A tender of these claims commonly results in a long, verbose, overly inclusive Reservation of Rights letter. However, as can be seen from recent court rulings from around the country the “everything but the kitchen sink” approach is being questioned. In addition, the American Law Institute has recently issued a Restatement of Law, Liability Insurance which provides additional guidance for proper use of Reservation of Rights letters.

This topic will be addressed from the perspective of outside coverage counsel, claims professional, appointed defense counsel and policyholder counsel.

Reservation of Rights letters require a carrier to fairly inform its insured(s) as to why or on what basis it will be reserving its rights. From a carrier perspective a properly written reservation of rights letter will prevent waiver of coverage defenses, preserve the carrier’s right to control the defense and settlement of the tendered claim and finally to preserve the right to intervene to protect its own interests.

James Wideikis and Andrew Witik are highly regarded Chicago insurance coverage and construction defect attorneys. Their topic will be Litigating Complex Construction Defect Case When Your Client No Longer Exists.

What do you do?  How do you defend your client?  Key litigation decisions and Implementation of Defense Strategy.  First and foremost, who exactly is your designated corporate representative? These questions will be answered through real life case experience.

Alex Niederman is a Complex Claim Specialist, Casualty Claims at Ironshore Insurance, where he supervises and handles professional liability and casualty claims, with a focus on architect and engineer (A&E), design-build (DCPL), and construction defect claims. Design-Build Trends: Big Projects, Big Insurance Claims.

Design-build is becoming an increasingly utilized project delivery method.  The system continues to grow in popularity because when a single entity is contracted to provide both design and construction services on a project, the result is a streamlined delivery to the project owner, with benefits in the form of cost and time efficiency.  However, as design-build continues to become more common and prolific in the construction world, so are insurance claims arising from such projects.

This presentation will address the types of insurance policies available to design-builders, including practice-based and project-specific policies, as well as unique endorsements to those policies.  We will also discuss the typical disputes that arise on design-build projects, and how such disputes can lead to allegations against the design-builder and an ensuing insurance claim.  Then we will present a detailed overview of the design-build claims process – when and how such matters are reported to insurance carriers, the information that carriers require in order to analyze coverage on design-build claims, a carrier’s coverage analysis process, and how such claims are handled at the adjuster level.  We will also discuss recent coverage and claims trends in the design-build world.

Robert Franco is a Chicago litigator and Eugene Peterson is a construction defect expert witness and Xactimate expert who will be covering a Construction Defect Resolution Template. 

With their many years of experience they will guide you through the litigation of construction non-conformance claims. They will break down the process through understanding the trolling process, claim triage and issue identification, experts, leadership, litigation, document discovery, depositions, and trial. You will have some key takeaways to help you in your next construction defect case.

The final course will be an insightful panel of three Circuit Court of Cook County judges: Judge Jean Golden, Judge Brigid Mary McGrath, and Judge Lynn M. Egan where they will lead a unique discussion on a judges view of Complex Construction Defect Litigation – What Does It Look Like.  

They will cover aspects involving – owner/developer, architect, gc, subs, and condo associations. Frequent issues that arise could include legal issues, coverage issues, risk transfer/contractual indemnity and settlement, arbitration and mediation. Finally they will cover case management with its discovery issues, experts, dispositive motions and key trial issues – jury instruction, witnesses and exhibits. This should prove to be an excellent discussion.

The conference will then end with a networking reception where attendees and presenters will be able to mingle, ask questions, enjoy food and drink, etc.

We look forward to seeing you at the conference. Mark your calendar and get registered today!

Court Addresses Damages Under Homeowners Insurance Policy

David R. Cook, Jr. | Autry, Hall & Cook, LLP | December 29, 2018

During a storm, a tree landed on a homeowners house causing damage to the home’s foundation.  Homeowners filed a claim on their homeowners insurance policy to recover the resulting damages.  After homeowners and insurance company could not come to an agreement on value of the loss, homeowners filed a lawsuit.  

Homeowners presented the testimony of a contractor as an expert witness regarding the damage and the resulting loss of value.  Contractor testified that the home value was reduced in half as a direct result of the damage to the home’s foundation.  Insurance company sought to exclude the contractor’s testimony, arguing he was not qualified as an expert and did not apply appropriate methodology to reach his opinions.  

The trial court agreed with the insurance company and excluded the testimony of the contractor.  Homeowners appealed to the Georgia Court of Appeals. The Court of Appeals agreed that contractor did not use appropriate methodology to present expert opinion as to diminution in value.  However, the trial court erred in excluding contractor’s testimony as a lay witness.  The court explained that under O.C.G.A. § 24-7-701(b), lay witness testimony is permitted concerning value.  In other words, one need not be an expert to give an opinion on the value or demonization in value.

Under O.C.G.A. § 24-7-701(a), lay witness testimony is permitted if it is rationally based on the perception of the witness; helpful to the determination of a fact in issue; and not based on scientific, technical, or other specialized knowledge requiring expert testimony.  With respect to lay testimony of value, the court agreed that the witness need not be an expert or dealer to form a reasonable opinion.  

The court concluded that contractor’s lay option was admissible based on a number of factors.  These included, for example, the contractor was licensed, he had experience in home building and remodeling, he had constructed and repaired many homes, he was familiar with the cost of construction and the valuation of homes based on his professional experience, he reviewed the specific damage in this case, he witnessed the structural damage in damage to the slab foundation, he witnessed the impact of such damage to the structural integrity of the house, he was familiar with the impact of structural damage to the value of a home, and other important factors.

In short, the court agreed with the insurance company that the contractor could not testify as an expert on the value of the home.  However, based on his experience and observations, he was well suited to testify as a lay witness.  As a result, trial court should have allowed the contractor to present evidence about the diminution in value of the home. 

Eighth Circuit Affirms Judgment for Bad Faith after Insured’s Home Destroyed by Fire

Tred R. Eyerly | Insurance Law Hawaii | December 19, 2018

    The Eighth Circuit affirmed the district court’s judgment that the insurer acted in bad faith when it denied the insured’s claim based upon misrepresentations in the application after destruction of his house by fire. Hayes v. Metropolitan Pro. and Cas. Ins. Co., 2018 U.S. App. LEXIS 31813 (8th Cir. Nov. 9, 2018).

    Hayes’ home was insured by Met under a homeowner’s policy. Hayes used the detached garage as part of a home base for his plumbing business. He also rented out the second and third levels of the residence to a tenant and her two children. When Hayes applied for the policy in 2007, Met argues he indicated on the application that the premises were not used to conduct business, and were not used as rental property. 

    The application, however, was a confusing document. Hayes testified that he did not recall personally completing the application in 2007, that he worked with an independent insurance agent when it was filled out, and it was signed with his signature stamp used by his sister. With regard to the tenants, the form asked whether “the residence was held exclusively for rental?” The pre-printed “x” was marked out next to the letter “N” in answer to the question. Regarding the business, the form asked whether “any farming or other business was conducted on the premises?” Again, a box indicating “no” was marked with a preprinted x. Hayes testified that while he did maintain some plumbing supplies at the property, very little of the plumbing equipment was located in the detached garage due to limited space. Further, he had a separate commercial business policy to cover the plumbing business in the detached garage. 

    On January 24, 2013, the home was destroyed by a fire. Hayes filed a claim with Met. Met made a notation as of January 28, 2013 that it believed the fire was intentionally set. By January 29, 2013, Met knew that Hayes was operating part of his business at the detached garage near the premises, and that he leased the upper portion of the premises to tenants. 

    Yet, Met did not deny the claim until August 5, 2014. It cancelled the policy ab initio based upon material misrepresentations, and enclosed a check for all premiums Hayes had paid, with interest. Hayes returned the premium check. Met also sent a check to Hayes’ bank for $127,342.97 to satisfy the balance due on Hayes’s mortgage.  

    Hayes sued Met in October 2014 for breach of contract and bad faith denial/investigation. The district court dismissed the breach of contract claim as time-barred. The court, however, entered judgment in favor of Hayes on the bad faith claim. The court found that the insurance application was completed by the independent insurance agent and signature stamped by Hayes’s sister. Further, the application contained ambiguous questions. Accordingly, there was a lack of evidence that Hayes knowingly provided false answers on the application with the intent to deceive. Damages in the amount of $439,455, and attorneys’ fees of $86,160 were awarded to Hayes. 

    The Eighth Circuit affirmed. Met could not insulate itself from a bad faith claim by creating the fiction that a contrct never existed by voiding or rescinding it “ab initio.” Hayes met his burden of proving the elements of bad faith under Nebraska law – Met had no reasonable basis for denying the claim and did so with knowledge or with reckless disregard of that fact. 

    The damage award was affirmed. The district court properly calculated the economic damages Hayes suffered as a result of Met’s bad faith refusal to pay pursuant to the provisions of the improperly rescinded contract. Finally, the attorneys’ fees award was also affirmed. 

Inability to Confirm Coverage Supports Setting Aside Insured’s Default Judgment on Grounds of Extrinsic Mistake

Christopher Kendrick and Valerie A. Moore | Haight Brown & Bonesteel | December 17, 2018

In Mechling v. Asbestos Defendants (No. A150132, filed 12/11/18), a California appeals court affirmed the trial court’s grant of an insurer’s motion to set aside default judgments entered against its defunct insured pursuant to the trial court’s inherent, equitable power to set aside defaults on the ground of extrinsic mistake, thereby allowing the insurer to intervene and defend its own interests in the case.

In Mechling, Fireman’s Fund insured Associated Insulation of California, which was named as a defendant in asbestos litigation filed in 2009. Associated had ceased operating in 1974, but was somehow successfully served with the complaint and defaulted, leading to default judgments of several million dollars. Notice of the judgments was served on Associated but not Fireman’s Fund.

After entry of the default judgments, Fireman’s Fund located insurance policies it thought might cover Associated. Fireman’s Fund moved to set aside the defaults and default judgments on equitable grounds, arguing that the litigation presented a classic case of “extrinsic mistake” because service of the complaint on Associated did not provide notice to Fireman’s Fund, “resulting in a default judgment to a fault free party.” According to Fireman’s Fund, Associated was a suspended corporation and “could not and did not defend itself” and, as a result, Fireman’s Fund “never had the opportunity to participate in [the] lawsuit.”

Although the plaintiffs had given notice to Fireman’s Fund for two of the four lawsuits, they ignored the fact that Fireman’s Fund had responded by writing that it could not locate any policies covering Associated. Instead, the plaintiffs argued that Fireman’s Fund could not claim ignorance and seek equitable relief without any showing of extrinsic mistake or diligence.

The trial court granted Fireman’s Fund’s motion to set aside, and the appeals court agreed. The court said that a trial court has inherent power to vacate a default judgment on equitable grounds, including extrinsic mistake—which is when circumstances extrinsic to the litigation have unfairly cost a party a hearing on the merits. The court stated that:

“To qualify for equitable relief based on extrinsic mistake, the defendant must demonstrate: (1) a meritorious case; (2) a satisfactory excuse for not presenting a defense to the original action; and (3) diligence in seeking to set aside the default once the fraud or mistake had been discovered.” (Citing In re Marriage of Stevenot (1984) 154 Cal.App.3d 1051.)

The Mechling court said that a meritorious case does not require showing certainty of success, but only “facts indicating a sufficiently meritorious claim to entitle it to a fair adversary hearing.” And the court found that it was a reasonable inference from the facts that the plaintiffs’ damages award would have been impacted had Fireman’s Fund presented a defense and challenged plaintiffs’ proof of causation and damages.

The court rejected an argument that showing a meritorious case required attaching a proposed pleading in intervention or a declaration with “evidence” showing a meritorious defense. The court accepted Fireman’s Fund’s arguments as sufficient and stated that Fireman’s Fund would obviously file a responsive pleading if granted a set aside.

The Mechling court also found that Fireman’s Fund had articulated a satisfactory excuse for not presenting a defense to the lawsuits. It was not a named party and was not served with the complaints or other relevant pleadings. Although it had received notice, it had notified the plaintiffs that it had “searched all available records” and had “not located any reference or policies of insurance issued to Associated.” Fireman’s Fund had invited the plaintiffs to provide information showing Fireman’s Fund issued insurance policies to Associated, but they did not respond. The court found that Fireman’s Fund’s letter to the plaintiffs supported the conclusion that Fireman’s Fund had a satisfactory excuse for not defending the lawsuits: “It did not believe Associated was its insured.”

Thus, the court affirmed the order setting aside the default judgments, stating that: “In our view, this case presents exceptional circumstances warranting equitable relief. Fireman’s Fund was denied an opportunity to present its case in court because it was not served with any of the relevant pleadings, did not have notice of two of the lawsuits, and did not believe it had a duty to defend Associated. We conclude the trial court did not abuse its discretion by granting Fireman’s Fund’s motion for equitable relief.”

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Federal Court Clarifies When Idle Equipment Costs Are Recoverable Under the Miller Act

R. Zachary Torres-Fowler | Pepper Hamilton LLP | January 24, 2019

United States ex rel. Am. Civ. Constr., LLC v. Hirani Eng’g & Land Surveying, P.C., 2018 U.S. Dist. LEXIS 200829 (D.D.C. Nov 28, 2018).

The case involved the construction of a levee wall on the National Mall in Washington, D.C. In September 2010, the Army Corps of Engineers awarded Hirani Engineering & Land Surveying, P.C. (“Hirani”) the prime contract for the project. Hirani’s surety was Colonial Surety Company (“Colonial”). Hirani subcontracted the majority of the work to American Civil Construction, LLC (“ACC”). Following a series of disputes and project delays, the Army Corps terminated Hirani. ACC then filed suit in the United States District Court for the District of Columbia seeking over $2 million in damages under the Miller Act as well as state law for breach of contract. After a bench trial, the court entered judgment in favor of ACC.

As part of its claim, ACC sought damages for costs related to idle equipment at the project site. Although the claim was only a small part of ACC’s overall claim, the court’s approach was noteworthy. ACC asserted that all of the costs were recoverable under the Miller Act. Conversely, Hirani and Colonial argued that standby equipment expenses were per se unavailable under the Act. The court disagreed with both parties and held that, although the Miller Act permitted a contractor to recover for idle equipment, it could not do so in all instances.

As part of its analysis, the court first referred to the original language of the Miller Act which permits a contractor who “furnish[es] labor or materials in carrying out work provided for in a contract” to recover damages. The court then distinguished between two scenarios involving idle equipment. In the first scenario, the court described a case in which a contractor brought a piece of equipment to the work site and used it over a period of weeks, but not every day. In the second scenario, the court described an instance in which a contractor brought the same piece of equipment to the site, but the equipment remained idle for 60 days before it was used. According to the court, under the first scenario, “the equipment reasonably can be treated as ‘furnished’ ‘in carrying out the work’ even on those days it is in non-use” and, therefore, the contractor would be permitted to recover those idle equipment costs under the Miller Act. However, the same would not hold true for the second scenario because, according to the court:

If a contractor brings a piece of equipment to the job site and it sits unused for two months, absent some reasonable explanation for its non-use during such an extended period, the contractor cannot be said to have “furnished” the equipment “in carrying out work.”

In light of this analysis, and upon reviewing a summary of standby costs sought by ACC, the court concluded that only around 28% of ACC’s standby costs fell into the category of regularly used equipment to justify their recovery under the Miller Act.