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

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

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

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

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

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

Claim Preclusion: The Doctrine Everyone Thinks They Know But No One Really Knows What it Means in Practice

Garret Murai | California Construction Law Blog

Generally, I think restraint in litigation is a good thing. Don’t go crazy on your claims, don’t go nut-so in your discovery, and don’t present your case at trial in a way that causes the judge and/or jury to raise their eyebrows or shake their heads in disbelief. But, as with nearly everything, there’s always an exception. One of which is: don’t hold back on a claim because you “think” you might be able to bring it later, because you might not be able to as the next case, 5th and LA v. Western Waterproofing Company, Inc., 87 Cal.App.5th 781 (2023), demonstrates. 

The 5th and LA Case

At the outset, let me first say how much I enjoyed reading this case based on the writing alone. The case, as the 2nd District Court of Appeals states, involves “a second lawsuit about an increasingly leaky roof.”

In 2012, property owner 5th and LA hired roofing contractor Western Waterproofing Company, Inc. to remove and recoat a parking lot that served also served as the roof over retail and office space below. Western completed its work in July 2012 and almost immediately 5th and LA noticed water that the coating was failing causing water leaks to the interior of the building.

In October 2013, 5th and LA filed suit against Western alleging breach of express and implied warranties. The case went to trial in 2015, by which time, the roof had about ten leaks. At trial, Western admitted errors in its work, including improper ordering and timing of material applications, but argued that 5th and LA had not shown that the leaks were the result of these errors.

One would think that Western would have lost, guilt by claim association or something along those blurry lines, but it didn’t. Rather, the jury found that: (1) Western provided a warranty for its work; (2) the coating did not perform as promised within the warranty period; (3) 5th and LA took reasonable steps to notify Western that the coating was not performing as promised; and (4) 5th and LA was harmed; BUT (5) the coating failure was not a substantial factor in causing the harm.

5th and LA appealed but the verdict was upheld in an unpublished decision by the 2nd District Court of Appeals which held that 5th and LA had never explicitly said that issues with the coating caused the leaks and Western’s expert identified possible sources of leaks other than the coating such as gaps in door frames and cracks in masonry and stucco. End of Act 1.

In January 2020, 5th and LA filed a second lawsuit against Western claiming that the roof now had about 50 leaks “all due to failures of labor (workmanship) by [Western].” Western in turn filed a motion for summary judgment claiming that 5th and LA’s second lawsuit was barred under the doctrine of claim preclusion . The trial court agreed, finding that 5th and LA was suing on the same primary right: “for [Western} to honor its warranty for the work it did in 2012.” 5th and LA appealed again.

The Appeal

On appeal, the 2nd District Court of Appeal held that “claim preclusion bars the owner’s second suit” explaining that:

Claim preclusion bars a new lawsuit if the first case had (1) the same cause of action; (2) between the same parties, or parties in privity; and (3) a final judgment on the merits. Following our Supreme Court’s lead, we refer to this doctrine as “claim preclusion,” not “res judicata.” The doctrine promotes judicial economy by preventing claim splitting. It requires all claims based on the same cause of action, which were or could have been raised, to be decided in a single suit.

But, explained the Court of Appeal, “[t]his issue can be knotty.” “Reigning doctrine tells us that, in applying th[e] first element, courts must discern whether the lawsuits involve the same ‘primary right’ — the plaintiff’s right to be free from the injury suffered — and breach of duty.”

Here, held the Court of Appeal, the claimed harm involved the same “primary right” in both the first and second lawsuit, namely, 5th and LA’s right to be free of harm from Western’s materials and labor. “The first suit,” explained the Court, “found [Western’s] installation did not harm [5th and LA]. [Western] has not performed new work since that single transaction. There is no new breach. [5th and LA] litigated problems with [Western’s] workmanship in the first suit, which resolved the issue.”

Further, explained the Court of Appeal, “changed conditions or new facts are not, by themselves, enough”:

New leaks are pertinent only if the owner asserts they are from a cause the owner did not know about and could not have known about in its first lawsuit. The complaint does not make this allegation. . . . “We can conceive of no logical reason’ why the first suit should encompass the first leaks but not the later ones. That is, whatever physical cause accounted for the first leaks apparently is still at work, but the first suit settled the liability for that physical cause. The second suit simply tried to relitigate a resolution the owner disliked and would prefer to escape. Claim preclusion bars this repetitive attack on finality.”

(emphasis in original).

Finally, noted the Court of Appeal, while the Supreme Court has written that “the primary right theory is notoriously uncertain in application” and legal scholars have stated that “no one knows what it means in practice,” lower courts (i.e., the Courts of Appeal) must follow the guidance of the Supreme Court, and that analyses “buttresses the conclusion that the first judgment bars this second suit.”


So there you have it folks. Or, perhaps, there you don’t have it. If a subsequent claim is based on a “primary right” previously adjudicated, the subsequent suit will be barred under the doctrine of claim preclusion, although no one really knows how to apply it in practice, until of course, you have to.

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

Willful or Wanton Conduct Not Enough to Overcome Economic Loss Rule Says Colorado Court

Amandeep S. Kahlon and Carly Miller | BuildSmart

In Mid-Century Insurance Co., v. HIVE Construction, Inc., a Colorado court of appeals recently reversed the decision of a lower court that had refused to apply the economic loss rule to a negligence claim alleging wanton or willful misconduct. The appellate court determined that, where the negligence claim was based solely on the breach of a contractual duty, it was barred by the economic loss rule regardless of whether the negligence was willful or wanton.

The project at issue involved the buildout of a restaurant in Denver, Colorado. The general contractor substituted a layer of fire-resistant plywood in place of a layer of drywall used to separate the kitchen and dining room of the restaurant. Although fire-resistant, the plywood was combustible, and the broiler selected for the kitchen required eight inches of clearance from combustible materials. The parties disputed whether the owner was on notice of the substitution. The owner installed the broiler only an inch from the plywood layered wall. Despite that, the kitchen passed inspection.

Two years later, a fire broke out in the wall next to the broiler, and the owner’s expert opined that the ignition of the plywood due to heat radiated from the broiler caused the fire. The owner asserted a single negligence claim against the contractor alleging, in part, that the contractor’s installation of the combustible plywood demonstrated a careless and reckless disregard for the rights and safety of others, which constituted willful and wanton conduct.

The contractor answered the complaint by arguing the economic loss rule barred recovery on the negligence claim. After the jury returned a verdict in favor of the owner, the contractor moved for a directed verdict based on the economic loss rule. The trial court denied the motion, relying primarily on prior Colorado precedent that the “economic loss rule does not apply to intentional conduct.” The contractor appealed.

Per the appellate court, the “economic loss rule generally provides that a party suffering only economic loss from the breach of an express or implied contractual duty may not assert a tort claim for such breach absent an independent duty of care under tort law.” The rule is intended to maintain a distinction between breaches of contractual obligations/promises and breaches of duties imposed by law without agreement or contract (tort). “Even if the duty allegedly breached is separately recognized under tort law, it is not ‘independent’ of the contract for the purposes of the economic loss rule if it addresses the same obligations created by the contract.

The parties agreed that the relief sought by the owner under the negligence claim was identical to the relief it could have sought under a breach of contract claim — purely economic damages. The appellate court concluded the duty allegedly breached under the negligence claim was indistinguishable from the duty the contractor owed under the parties’ contract. In other words, no independent duty existed.

In rejecting the trial court’s application of existing Colorado precedent, the appellate court noted that there was no allegation of  an intentional tort. Specifically, the court wrote “willful and wanton conduct is that which approaches but does not include an intentional tort nor can it be classified as such.” The court further noted that there was no need for an exception from the economic loss rule for wanton or willful misconduct. That sort of conduct cannot be abrogated or limited by contract in Colorado, so the wronged party maintains a remedy under the contract. Per the court, application of the economic loss rule depends more on the nature of the duty owed and not on the nature of the defendant’s conduct. The appellate court reversed the trial judge’s denial and remanded with instructions to grant the directed verdict.

The Colorado appellate court’s opinion is instructive in describing the basis for and application of the economic loss rule. Inexplicably, the owner in Mid-Century did not file a corresponding breach of contract claim, which resulted in a particularly harsh outcome in this case. Parties to a contract may want to be careful to pursue tort claims in the alternative to or in addition to contract claims to prevent this sort of result. Parties sometimes pursue tort claims to avoid contractual limitations on remedies, and there may be exceptions to the economic loss rule that permit this approach. But, relying solely on those exceptions to pursue a claim may result in an unfavorable or unexpected ruling.

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