Category Archives: Insurance Claims

A Recent Oregon Court of Appeals Decision Bears on Insurance Coverage for Repair of Construction Defects

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Laurie Hager | Snell & Wilmer

In a February 15, 2023 decision in Twigg v. Admiral Insurance Company, the Oregon Court of Appeals held that an insurance company was not required to indemnify its insured based on a claim for breach of a repair agreement that settled underlying construction defect claims.

As background, the Twiggs hired a contractor, Rainier Pacific, to construct a new home. The Twiggs then filed their first arbitration against Rainier Pacific alleging, among other things, that a portion of the work was defective. The first arbitration was resolved through a settlement agreement which the parties referred to as the “Repair Agreement.” Under the Repair Agreement, Rainier Pacific was required to repair certain alleged construction defects.

The Twiggs then filed a second arbitration alleging that Rainier Pacific had breached the Repair Agreement by failing to perform the repairs required under the Repair Agreement. The arbitrator awarded $604,594.80 to the Twiggs for the total cost to perform the repairs that Rainier Pacific had failed to adequately complete under the Repair Agreement.

Rainier Pacific had a commercial general liability insurance policy from Admiral Insurance Company, under which Admiral agreed to cover Rainier Pacific’s liability arising from property damage caused by an occurrence. An occurrence is defined in the policy as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” After Admiral denied indemnity coverage, the Twiggs sought to collect on their arbitration award by asserting a claim against Admiral for breach of the general liability insurance policy.

The trial court dismissed the Twiggs’ coverage claim against Admiral, and the Twiggs appealed. The Court of Appeals (“the Court”) affirmed the trial court’s dismissal ruling on appeal.

In its decision, the Court notes that the Twiggs’ written arbitration claim was informal and did not set forth numbered allegations or labeled claims, but was generally framed as a breach of the Repair Agreement. With respect to the arbitrator’s ruling, the Court found that the

“arbitrator concluded that [certain] repairs had been completed, but that the installation was ‘defective’ and contrary to the manufacturer’s specifications. … The arbitrator concluded that Rainier Pacific, ‘through its consistent failure to diligently prosecute the work, and through its defective efforts to repair the garage slab, materially and substantially breached the [Repair] Agreement.’ The arbitrator finally concluded that the Twiggs’ ‘relief is based upon common-law principles of breach of contract.’”

The Court concluded that the claim asserted by the Twiggs in the second arbitration did not allege property damage based on an “occurrence.” Rather, the Court held that the claim was for breach of Rainier Pacific’s contractual obligations under the Repair Agreement, which is not a claim covered under the insurance policy. The Court relied heavily on the fact that the Twiggs’ arbitration claim was presented, defended, and ruled on by the arbitrator as a single claim for breach of contract.

All that being said, the Court acknowledged that “[t]here is no doubt that a repair contractor’s negligent work that accidentally caused damage to physical property could give rise to an occurrence under the policy.”

The Court’s decision allows for different outcomes under distinguishable facts. For example, the Court’s decision suggests that it might have ruled differently had the arbitration claim clearly alleged a distinct claim for negligence that caused resulting property damage. Additionally, if the performance under the Repair Agreement had led to new resulting property damage that was not already required to be repaired under the Repair Agreement, that might have also led the Court to a different conclusion. Additionally, it appears that the Admiral policy did not cover the underlying defects that led to the first arbitration that was resolved through the Repair Agreement and, therefore, the Twiggs could not argue that the underlying defects from the first arbitration constituted resulting property damage that Admiral was required to cover under the policy.

A contractor that enters into separate contract to repair originally defective work should be aware of the Admiral coverage case ruling, as it may affect the contractor’s ability to receive indemnity coverage for related property damage.

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.

No Coverage For Claims Made Outside Of Claims-Made Policy Period

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Thomas Benjamin Boley | Wiley Rein

The United States District Court for the Northern District of Illinois, applying Illinois law, has granted a legal professional liability insurer’s motion for summary judgment, holding that its claims-made policy did not apply to various claims that were first made either before or after the policy period. Twin City Fire Ins. Co. v. Law Office of John S. Xydakis, P.C., 2023 WL 2572468 (N.D. Ill. Mar. 20, 2023).

The insured attorney bought a claims-made legal malpractice insurance policy that had a policy period of January 26, 2017, to January 26, 2018, and a retroactive date of January 26, 2016. The policy, which the insured did not renew, had a 60-day automatic extended reporting period. The policy gave the insured the right to purchase a longer extended reporting period, but the insured did not exercise the option.

Three claims were made against the attorney: (1) a lawsuit alleging failure to pay expert witness fees in 2012, (2) judicial sanctions levied in 2019 against the attorney and his client, and (3) a 2019 lawsuit by one of the law firm’s former employees alleging legal malpractice, breach of contract, and breach of fiduciary duty. The attorney sought coverage for these claims. The insurer denied coverage because the suits were made outside the policy period and/or involved acts before the retroactive date.

The court granted the insurer’s motion for summary judgment. The court declared that the insurer owed no coverage because the first lawsuit involved acts occurring prior to the retroactive date, and because the 2019 sanctions and lawsuit occurred after the policy period and automatic extended reporting period expired.

The insured raised a peripheral issue, arguing that a genuine issue of material fact existed as to whether the insurer was estopped from denying coverage. The attorney argued that, by regulation, the insurer should have offered at least a 12-month extended reporting period and that the insurer failed to notify him that the policy would be non-renewed. The court rejected both arguments, noting that the policy offered the insured the right to purchase a longer extended reporting period and that the insurer provided a nonrenewal notice to the insured’s broker. The court also rejected the argument on a legal basis, observing that “estoppel may not be used to create or extend coverage where none exists.”

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.

The American Rule Stands? Appellate Court Remands for Prevailing Party to Segregate Between Recoverable and Non-Recoverable Fees

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John Mark Goodman | BuildSmart

Another week, another fee-shifting case. This ones involves a 28-unit condo project in the Houston Heights neighborhood of Houston (see 2017 Yale Development, LLC v. Steadfast Funding, LLC, 2023 WL 3184028 (Tex. App. May 2, 2023)). The project failed after the developer defaulted on its loans and several contractors filed liens on the property. Litigation ensued.  The developer asserted numerous claims including fraud and breach of contract against the lenders and others, and the lenders countersued for fraud and breach of contract. The trial court rendered summary judgment against the developer on its claims and in favor of the lenders on their breach of contract counterclaim. The case proceeded to a trial on the issue of the lenders’ breach of contract damages.  The trial court awarded the lenders a total of $8.3 million, including $765,000 in attorneys’ fees, which were recoverable under a fee-shifting provision in the promissory note.

On appeal, the developer raised 33 issues. The appellate court rejected all but one: the appropriateness of the fee award. On that issue, the appellate court held that the lenders had failed to properly segregate their attorneys’ fees between recoverable and non-recoverable claims as required under Texas law. For example, while the lenders could be entitled to attorneys’ fees on their breach of contract claim, they would not be entitled to recover fees incurred in pursuit of fraud claims. The court therefore remanded the case to the trial court to allow the lenders to properly prove up their recoverable attorneys’ fees. As to what proof would be required on remand, the court cited the following cases as guidance: Tony Gullo Motors I, L.P. v. Chapa, 212 S.W.3d 299, 311, 314 (Tex. 2006) (noting that standard for segregation of attorney’s fees “does not require more precise proof for attorney’s fees than for any other claims or expenses” and stating that attorney’s opinion that a certain percentage “of their drafting time would have been necessary even if there had been no fraud claim” would have sufficed); Hillegeist Fam. Enters., LLP v. Hillegeist, 2022 WL 3162367, at *5 (Tex. App. Aug. 9, 2022) (stating that when segregation is required, attorneys do not have to keep separate time records for each claim).

The Yale Development case serves as another useful lesson on the recoverability of attorneys’ fees. Understanding the requirements and limits to fee awards in a specific state can be important. In this case, early recognition of the requirement to segregate fees incurred on different claims may have allowed lenders the ability to more easily prove up their attorneys’ fees claims at trial and on remand.

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.

An Insurance Company’s Generic Reservation of Right can Lead to a Waiver of a Late Notice Defense

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Anthony Crawford | Red Smith

For insurance recovery attorneys, one of the more frustrating ways for a policyholder to lose coverage for a property loss is on the basis of late notice. Property insurance policies generally require the policyholder to give the insurance company “prompt notice” of claims and potential claims. Property policies may specify a timeframe in which the policyholder must give notice, but in many cases do not. New York courts routinely hold that short delays, even as little as one to two months, suffice as a basis to deny coverage where the policy has “prompt notice” requirements. Under New York law, however, an insurance company can waive its late notice defense by not raising it explicitly when it finally disclaims coverage. Indeed, recently, a federal court in New York court rejected the insurance company’s late notice defense, even where the policyholder conceded that it did not provide prompt notice as a matter of law, because the insurance company failed to explicitly deny coverage on that ground.

Summary of recent New York federal court decision

In Mave Hotel Investors LLC v. Certain Underwriters at Lloyd’s London, the plaintiffs (“Mave”) sought coverage for property damage at its hotel following the termination of its contract with a human services organization housing formerly homeless families with children at the hotel. No. 21-cv-08743 (JSR), 2023 U.S. Dist. LEXIS 62718 (S.D.N.Y. Apr. 10, 2023). Mave alleged that its rooms were damaged while the families were living there. The insurer, Certain Underwriters at Lloyd’s London (“Lloyds”), ultimately denied coverage the ground that any damage was caused by ordinary wear and tear, an excluded cause of loss. At trial, however, Lloyd’s moved for summary judgment, arguing among other things, late notice.

Notably, Mave conceded that it failed to provide “prompt notice” because it waited a little over three months to give notice. Mave argued, however, that Lloyd’s waived its late notice defense by not raising it explicitly in its final denial letter. The letter denied Mave’s claim on the basis the policy’s “wear and tear” exclusion, but only included additional general reservation of rights language. The court agreed that Lloyd’s had waived its late notice defense by denying coverage on the basis of wear-and-tear but not late-notice, even at a point in time when Lloyd’s likely could have known all the facts that might have led it to disclaim coverage on late notice grounds.

Lloyd’s argued that its denial letter “reserv[ed] each and every right [it] ha[d] under the policy and at law.” The court acknowledged that some cases do permit an insurance company to rely on such generic reservations of rights. The court distinguished those cases because they involved reservations of rights in the insurance company’s communications with the policyholder during the course of its investigation, rather than in the ultimate denial of coverage letter. The court reasoned that “by the time the [insurance company] denies coverage, there should already be a full record and a complete investigation, and there is much less reason why [insurance companies] should be allowed to reserve generic unnamed defenses in the event of later court challenge.”

What should policyholders take away?

Give timely notice. Forfeiture of coverage for failure to give prompt notice under a property policy is a draconian penalty, but one that New York courts will impose. That said, policyholders are entitled to know all grounds on which their insurance company is denying coverage. Policyholders should challenge the insurance company when it attempts to raise additional defenses, such as late notice, that the insurance company failed to raise when denying coverage.

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.

YOLO: CBCA Finds that a Contractor Cannot Revive Its Expired Appeal Rights by Resubmitting a Claim

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Stephen J. McBrady, Michelle D. Coleman, Amanda H. McDowell and Zariah T. Altman | Crowell & Moring

On April 6, 2023, the Civilian Board of Contract Appeals (CBCA), in BES Design/Build, LLC, CBCA 7585, dismissed a contractor’s appeal for lack of jurisdiction, finding the appeal untimely, and underscoring that a contractor cannot reset the 90-day appeal window by resubmitting its original claim.

On February 24, 2021, BES Design/Build, LLC (BES) submitted a certified claim for non-payment under a task order to replace two exterior stairs at a courthouse. The contracting officer denied the claim in a final decision (COFD) on April 23, 2021. BES did not appeal that denial. More than a year later, on June 8, 2022, BES submitted a nearly identical certified claim. The contracting officer responded on August 22, 2022, stating that a COFD had already been issued on the matter. On November 18, 2022, BES appealed what it cited as the August 22, 2022 COFD to the CBCA. The GSA then filed a motion to dismiss for lack of jurisdiction, citing BES’s appeal as untimely.

The CBCA granted the GSA’s motion to dismiss, noting that there are three jurisdictional prerequisites for it to hear a contractor’s claim under the Contract Disputes Act (CDA): (1) the contractor’s submission of a claim to the contracting officer; (2) the issuance of a COFD or occurrence of a deemed denial; and (3) a timely appeal. Under the CDA, a contractor has 90 days from the date of receiving a COFD to appeal the decision to the relevant agency board. BES argued that, because the agency responded to its second claim on August 22, 2022, it should be entitled to 90 days from that date to appeal the agency’s denial. The CBCA disagreed, explaining that claims based on a common or related set of operative facts will be considered the same claim for the purposes of an appeal if “a court will have to review the same or related evidence to make its decision.” Here, because the contractor’s allegations and the relief sought in each claim were substantially the same, the CBCA found both of BES’s submissions were for the same claim, and the relevant date for calculating the 90-day appeal window was the issuance of the first COFD, on April 23, 2021.

This decision underscores the importance of timely appealing a claim upon the receipt of a COFD, as a contractor cannot revive its appeal rights by simply re-submitting an old claim it failed to timely appeal.

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.