How To Lock Disputes Out Of Your Project In Construction

Anastasios Koutsogiannis | Lets Build | July 22, 2019

Disputes are seen as one of the main threats for the successful completion of a project in construction. There is a plethora of factors which could lead to a construction dispute (e.g. contracts, behavior, environment) but, strangely enough, the industry seems to invest more attention on the resolution of a conflict instead of its prevention.

Thanks to the progress that digital technologies have witnessed during the last few years, there is a good chance that things in construction will change for the better soon. The ability to exchange crucial updates in real time, while keeping a detailed record of everything that happens on the field adds an extra level of protection to your project and ensures that all agents are on the same page.

In an effort to shed some light on the issue of construction disputes, we present below four tips that could help your team to lock conflicts out of your project:

1. Standardize your processes
Before you kickstart your project, it is of paramount importance that you standardize all your systems and processes. In that way, you will be able to add extra clarity to your workflow and eliminate misunderstandings.

Once you have achieved that, you can replicate the same process to your future projects. The more you manage to repeat the same project structure the better your team will become in completing their tasks without ending up in any kind of conflict.

In that sense, standardization could be a long-term investment for your organization.

2. Go digital
As soon as your processes are defined, it is time for the digital journey to begin. Finding the right tool for your project will result in a streamlined construction process where all the members of the team are on the same page without any room for costly mistakes or disagreements.

Furthermore, with the help of digital solutions it becomes easier for project managers to measure the performance on site and monitor the completion of the set benchmarks. Like that, all payments will be on time and the program of the project will reflect reality.

3. Be extra careful with the contracts

A poorly-written contract can have a big impact on the effort to lock disputes out of your construction project. While putting together a new contract, you should always make sure that you have taken into account all the different scenarios for your project.

Either that is a delay due to weather conditions or an accident on site everything should be described in detail in the contracts and be well understood by those in charge.

In any other case, things can get a bit risky and a costly dispute might wait to happen.

4. Hold regular meetings with all stakeholders

Last but certainly not least, meet regularly with all project stakeholders. The frequent contact with the different members of your team will allow you to discuss and resolve any problematic situations before they grow out of proportion.

What is more, regular meetings will help both your field teams and the people in the office to remain aligned and will eliminate the possibility of having people working on outdated versions of the program.

Of course, these meetings don’t need to be time-consuming or even in person. With the help of technology, you can keep these meetings short and to the point. In that manner, everybody involved will be able to get the most out of them.

Final word
All in all, it becomes clear that locking disputes out of your project in construction requires continuous work and a carefully-elaborated plan. Thankfully, the emergence and progress of digital solutions have made this process much easier contributing significantly to the development of the industry far from disputes and project misunderstandings.

Don’t Jump Without A Parachute! Understanding Community Association Insurance Needs

Adam Beaudoin | Ward and Smith | July 22, 2019

In the aftermath of Hurricane Florence, many Community Associations located in the Eastern part of the state had a rude awakening when they discovered they didn’t have the right amount and/or proper type of insurance coverage. 

More often than not, such lessons were very expensive, and the purpose of this article is to educate Community Association Board members regarding the types of insurance their Community Associations should consider carrying, and which gaps in insurance coverage they should be wary of when evaluating and selecting the right insurance coverages for their Community Associations.

Types of Insurance Coverages Community Associations Should Consider

  • General Liability Insurance
  • Property Insurance
  • Directors and Officer Liability Insurance
  • Crime and Fidelity Insurance
  • Umbrella Policy
  • Worker’s Compensation Insurance

General Liability Insurance

General liability insurance coverage protects Community Associations against third-party claims of bodily injury or damage to someone else’s property but does not protect the Association’s own property.

Both the North Carolina Condominium Act (“Chapter 47C”) and the North Carolina Planned Community Act (“Chapter 47F) require all Community Associations in North Carolina, regardless of when formed, to carry liability insurance in reasonable amounts, but leaves the actual particulars of the coverage (i.e., amounts, deductible, exclusions, etc.) up to each Association’s Board of Directors.

Typical liability insurance coverage gaps to be aware of are:

  • Coverage for automobiles hired under contract on behalf of or loaned to the Association.
  • Low MedPay coverage. MedPay coverage pays medical expenses on behalf of the Association for individuals who are injured during an accident on Association property, regardless of who caused the accident.
  • Community Manager not covered as additional insured.
  • Name of the Association is incorrect on the policy.
  • Low limits, especially when the Community Association owns amenities such as a pool, pond, playground, and/or park.

Property Insurance

Property insurance provides protection against most risks to property, such as fire, earthquakes, hurricanes, tornadoes, mudslides, and vandalism.  All Community Associations in North Carolina are required to carry property insurance on common elements equal to at least 80% of the replacement cost after the deductible is applied, exclusive of land, excavations, and foundations.  In the case of condominiums with horizontal boundaries, property insurance must include the units.

Property insurance coverage gaps to be mindful of include:

  • Address of property incorrect on the policy.
  • No blanket coverage. Blanket coverage provides multiple types of coverage on one property (i.e., contents and the actual structure), or groups multiple properties together under a single policy.
  • No water and sewer backup insurance coverage. This coverage is different from flood insurance in that it covers water or water-borne materials backing up into a unit or residence. This typically happens through sewers, drains, a sump pump, or related equipment.  This coverage is very important in condominium and townhome communities.
  • No ordinance or law coverage. This covers loss caused by enforcement of ordinance or laws regulating construction and repair of damaged buildings and is particularly important for older condominium and townhome communities to carry.
  • Understanding whether flood insurance coverage is warranted.
  • Property is grossly over or underinsured.
  • Insured to value report has not been conducted every 24 months.
  • Not all properties owned by the Association are listed on the policy.

Directors and Officers Liability Insurance

This insurance is payable to directors and officers of the Association, or to the Association itself, as indemnification for losses or advancement of defense costs in the event the Association suffers a loss as a result of legal action brought for alleged wrongful acts in their capacity as directors and/or officers of the Association.  Currently, neither Chapter 47C nor Chapter 47F makes this type of coverage mandatory.  For a detailed understanding of the importance of carrying director and officer liability insurance, please click here.

Crime and Fidelity Insurance

Crime and fidelity insurance helps Associations manage the loss exposures resulting from criminal acts such as robbery, burglary, fraud, forgery, and other crimes committed by an Association’s own directors, officers, committee members, and managers. Community Associations are not currently required to carry this coverage, but the NC legislature has been flirting with the idea over the last several years, and there is currently another opportunity this year for the legislature to enact mandatory crime and fidelity coverage.

Common gaps in insurance coverage filled by crime and fidelity insurance coverage:

  • Coverage over both operating and reserve accounts of the Association.
  • Reliance on the property manager’s crime and fidelity insurance coverage, because the majority of “money crimes” are not the manager.
  • Coverage of Board members, committee members, volunteers, spouses, bookkeepers, accountants, and cleaning staff

Umbrella Policy

This is liability insurance that is in excess of specified other policies and also potentially primary insurance for losses not covered by the Association’s other policies.

Typical gaps include:

  • “Excess Insurance” vs. true “Umbrella.” Excess insurance is subject to all of the terms and conditions of the policy beneath it. In the event of a conflict, it is the underlying policy provisions that take precedence. There are no such limitations with an umbrella policy.
  • Association has an umbrella policy, but the policy does not cover directors and officer liability or general liability.

Also, it is a good idea to purchase an umbrella policy if your community has a pool, playground, park, or is a condominium.

Workers’ Compensation Insurance

This type of insurance coverage provides replacement and medical benefits to employees injured in the course of employment.  Any Association in North Carolina with three (3) or more employees is required to carry this type of insurance, and if the Association has even one (1) single employee, the Board members are considered to be employees of the Association despite being volunteers.

There are many Associations that believe they do not have any employees, so they do not purchase workers compensation insurance, but remember, just because the Association classifies the person as an independent contractor does not mean the State of North Carolina will not consider them an employee.  This type of insurance is generally very affordable, and it protects the Association against uninsured contractors and Association volunteers when they are injured working/volunteering on behalf of the Association.  There simply is no reason not to purchase this type of insurance coverage for your Community Association.

Make Sure Your Chute is Packed Properly

Accordingly, we strongly recommend that every Community Association deliberately review their insurance policies on an annual basis and obtain Insurance to Value reports every 24 months to make sure the Association is not self-insuring any of the gaps in coverage listed in this article.  Ultimately, there is no one-size-fits-all, but all Community Associations should use their insurance professionals as a resource to get the right types and amounts of insurance coverages in place each year.  Most importantly, remember that getting the right insurance coverage in place for your community is more than simply focusing on the cost of the policy, its coverage limits, and the amount of the deductible.

Remand From Federal Court After Passage of the “Hail Bill:” Section 542A.006 and the Election of Legal Responsibility

Kay Morgan | Property Insurance Coverage Law Blog | July 28, 2019

The infamous “Hail Bill” will be celebrating its second birthday this September 1, 2019. Whether there will be any celebrations is another question. The “Hail Bill” – the Chapter 542A amendment to the Texas Insurance Code—covers first-party claims arising from “forces of nature.”1 Within that chapter, one notably section is 542A.006, which allows an insurer to elect to assume its agent’s civil liability for the agent’s conduct related to the handling of a claim. This section has been seeing a lot of litigation of late.

On February 18, 2019, I authored a piece entitled, It’s a Brand-New Ballgame, which discusses the first four decisions out of the Texas federal courts regarding remand after insurers had taken Texas Insurance Code Section 542A.006 elections of responsibility for their agents. At that time, the score was tied–two wins for insureds who were remanded to state court, and two wins for insurers in which remands were denied allowing insurers to stay in federal court. Since February there have been more than a dozen decisions—the number increases weekly. Although, the Texas federal district courts remain in conflict, at the moment, remands appear to be in the majority. It does not take a crystal ball to perceive that the Fifth Circuit may weigh in at some point.

The statute allows an insurer to make an election to accept liability after a policyholder files a damage claim and before a policyholder files a suit (pre-suit) on that claim or after a policyholder files a lawsuit in state court (post-suit). If an election is taken pre-suit, insurers have a straight path to federal court when suit is filed, because, as a result of the election, there is diversity of the parties (plaintiffs from a different state than defendants) which makes federal court jurisdiction proper and a remand unavailable.

The cases that are in conflict presently concern post-suit elections. Two theories have evolved thus far which have resulted in the split of authorities in Texas federal district courts regarding the granting or denying of remands. One approach holds that as an insurer’s election under Section 542A.006 and the accompanying dismissal of the Texas defendant agent, results in improper joinder. This boot-strapping argument reasons that because the Texas defendant was improperly joined (as a result of the election), the plaintiff would not be able to recover against him/her in state court, so the suit should remain in federal court. Remand is denied.

The second approach focuses on the propriety of the “joinder” when the suit was filed in state court. These courts have remanded cases and concluded that when an insurer makes an election post-suit, joinder is not improper at that point even if the plaintiff can no longer recover against the Texas defendant. In following this second approach, one court explained its reasoning:

The Court cannot accept this argument [the first approach described above] as reasonable under the law or logic. Whether a non-diverse defendant is improperly joined is a binary question; the defendant is either a proper party when joined to suit or the defendant is an improper party when joined to the suit…. It does not follow that a non-diverse defendant [a Texas defendant in Texas state court] that is initially properly joined may become initially improperly joined. Again, the focus must be on the joinder.2

In another recent order, River of Life Assembly of God v. Church Mutual Insurance Company,3Judge Pitman ruled that the improperly joined argument based solely on a Section 542A.006 election “misunderstands the doctrine of improper joinder, which is fundamentally about joinder.” Judge Pitman wrote that it would not deny remand based on the Defendant’s Section 542A.006 election alone, noting that the election was made was over two months after the Texas defendant was joined initially. The trial court reasoned that the Defendant’s “election of responsibility therefore did not render Harris’ [the Texas Defendant] joinder improper because it did not preclude recovery against Harris until months after his joinder. If Harris is improperly joined, it must be for a reason that predated his joinder.”.

One of the most interesting parts of this River of Life order is in a footnote following the last statement above in which Judge Pitman writes:

Had the Court taken this approach in Jiang, it would not have denied remand solely based on the insurer’s election, which was made after the plaintiff joined the adjuster in her original petition. The Court now rejects the approach taken in Jiang in favor of the approach taken in this decision.4

This admission by a federal judge is telling.
1 Tex. Ins. Code §542A.001(2) includes earthquakes, earth tremors, a wildfire, a tornado, lightning, a hurricane, hail, wind, snowstorms or rainstorms.
2 See Stephens v. Safeco Ins. Co., of Indiana, No. 18-595, 2019 WL 109395 (E.D. Tex. Jan. 4, 2019).
3 River of Life Assembly of God v. Church Mutual Ins. Co., 2019 WL 1767339, at *3 (W.D. Tex. April 22, 2019).
4 Id. at fn 2 (citation omitted, emphasis added). See Jiang v. The Travelers Home and Marine Ins. Co., No. 18-758, 2018 WL 6201954 (W.D. Tex. Nov. 11, 2018).

Consequential Damages can be Recovered Against Insurer in Breach of Contract

David Adelstein | Florida Construction Legal Updates | June 1, 2019

In a favorable case for insureds, the Fifth District Court of Appeal maintained that “when an insurer breaches an insurance contract, the insured is entitled to recover more than the pecuniary loss involved in the balance of the payments due under the policy in consequential damages, provided the damages were in contemplation of the parties at the inception of the [insurance] contract.”  Manor House, LLC v. Citizens Property Insurance Corp., 44 Fla. L. Weekly D1403b (Fla. 5thDCA 2019) (internal citations and quotation omitted).   Thus, consequential damages can be recovered against an insurer in a breach of contract action (e.g., breach of the insurance policy) if the damages can be proven and were in contemplation of the parties at the inception of the insurance contract.

In Manor House, the trial court entered summary judgment against the insured holding the insured could not seek lost rental income in its breach of contract action against Citizens Property Insurance because the property insurance policy did not provide coverage for lost rent.  However, the Fifth District reversed this ruling because the trial court denied the insured the opportunity to prove whether the parties contemplated that the insured, an apartment complex owner, would suffer lost rental income (consequential damages) if the insurer breached its contractual duties.

This ruling is valuable to insureds because Citizens Property Insurance, a creature of statute, cannot be sued for first-party bad faith.  However, the Fifth District found that the consequential damages in the form of lost rental income did not require the insured to prove the insurer acted in bad faith, but merely, breached the terms of the policy.   This holding can be extended to other breach of contract actions against an insurer when the insured suffered and can prove consequential-type damages caused by the breach. 

Evolving Collapse Coverage in Florida is Not Defined by the Prominent Hip-Hop/Rap Artist Eminem

Chip Merlin | Property Insurance Coverage Law Blog | July 26, 2019

As a younger member of the Merlin Law Group team, my generation is more likely to appreciate the lyrical ingenuity of the Eminem song, ’Till I Collapse. Homeowners of all generations, however, should appreciate how collapse coverage is defined in Florida.

Your homeowner’s insurance policy may include an additional coverage for “collapse.” Collapse may be covered for a variety of causes depending on the policy, such as hidden decay, insect/vermin damage, weight of rain, weight of contents, defective material/construction and others. But what does “collapse” even mean? Does my house need to be reduced to an unrecognizable pile of rubble to allow insurance coverage?

Defining “collapse” and whether your home insurance policy will cover a loss is something that the courts, policyholders, and insurance companies often grapple with. For an excellent background on collapse coverage, see previous MLG blog post, Court Defines “Collapse” by Shane Smith, or for how collapse coverage is applied under California law, see, What Constitutes an “Abrupt Collapse”? by Edward Eshoo.

In Florida, collapse coverage has evolved due to changes in policy language and judicial interpretation. If no definition is provided in the policy language, courts since 1978 have defined “collapse” quite liberally as “a material and substantial impairment of the basic structure of a building or part of a building.”1 However, since contract law allows parties to determine their own definitions, insurance companies soon began to write more precise definitions into the policy language to constrict their collapse coverage.

For example, one policy I recently read covers only losses of an “abrupt collapse,” defined more specifically 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.”2However, a policy like this one still leaves words such as “abrupt,” “cave-in,”3 and “fall down”4open to interpretation.

Luckily, an ambiguous provision is construed in favor of the insured and strictly against the drafter. In Kings Ridge Community Association, Inc. v. Sagamore Insurance Company,5 the court picked up a Merriam–Webster’s dictionary to settle the ambiguity. Here “abrupt” was defined as an “action or change without preparation or warning: unexpected.” Thus, the court held a clubhouse roof that suddenly buckled when the trusses failed, leaving it sagging inward about 12-inches, may constitute an “abrupt collapse” under the policy.6

Last year, the Southern District of Florida decided another “abrupt collapse” case under Florida law.7 Despite a similar structural “sagging” as the caved-in roof in Kings Ridge, this collapse seemed to be less “abrupt.” Often a factor is whether the owner knew or should have known the damage was threatening the structural integrity of the property prior to the collapse. The property owner here likely knew the building was steadily collapsing over time, since the structural defects had existed for years and the building admittedly had “gradually deteriorated.” In fact, the property owner submitted several conflicting dates as to when the building actually “collapsed.” The case therefore did not make it to the jury to determine the factual issues. However, this case is currently on appeal to the U.S. Court of Appeals for the Eleventh Circuit.

In the words of rap artist Eminem, no collapse occurs “’till the roof comes off, ’till the lights go out.” Insurance companies and Florida courts have clearly taken a different approach to define collapse and determine whether a loss is covered under your homeowner’s policy.

(Note: This guest blog is by Sean Cornell, a law student clerking in our Tampa, Florida, office)
1 Auto Owners Ins. Co. v. Allen, 362 So.2d 176 (Fla. 2d DCA 1978).
2 For a different policy language example, see Sandalwood Condominium Ass’n at Wildwood, Inc. v. Allstate Ins. Co., 294 F.Supp.2d 1315, 1319 (M.D.Fla.2003) (involving a policy that mandates a collapse be “direct, sudden and accidental physical damage”).
3 Kings Ridge Cmty. Ass’n, Inc. v. Sagamore Ins. Co., 98 So.3d 74, 78 (Fla. 5th DCA 2012)(defining “Cave-in” as “to fall down or inward…”).
4 Kings Ridge, 294 F.Supp.2d at 78 (defining “Fall” as “to descend freely by the force of gravity … to hang freely … to drop oneself to a lower position … to become lower in degree or level.”).
5 Id.
6 Id.
7 S.O. Beach Corp., et al. v. Great American Ins. Co., 305 F.Supp.3d 1359 (S.D.Fla.2018).