New York Considering Legislation That Would Create Statute of Repose For Construction

Richard W. Brown and Anna M. Perry | Saxe Doernberger & Vita

New York is considering legislation, which, if enacted, would create a statute of repose limiting the number of years after completion of a construction project that legal action may be asserted against a contractor. New York currently remains the only state without a statute of repose for construction. Earlier this year, however, the New York State Legislature introduced Bills S04127 and A01706 (the “Bill”) , which would impose a 10-year period of repose in which an injured party may bring suit against a design professional and/or a contractor for bodily injury or property damage resulting from a construction defect.

Currently, contractors and design professionals have exposure to bodily injury and property damage claims resulting from construction defects for an unlimited number of years after completion of a project. If enacted, the Bill would limit the period of repose to 10 years after the project is completed, which is deemed to occur upon substantial completion or acceptance by the owner. An additional 1-year grace period is provided for an injured party to file suit where bodily injury or property damage occurs in the tenth year after completion. The Bill notably limits the applicability of the 10-year statute of repose to third-party actions and thereby preserves the existing 3-year and 6-year statutes of limitation applicable to actions asserted by an owner or client for professional malpractice and breach of contract, respectively.

The New York Legislature cited the continued rise in the cost of insurance in New York as a primary driver of the proposed Bill. The Bill is also intended to bring further certainty to the scope of post-operational risk that design professionals and contractors are exposed to, and in turn, reduce the high cost of insurance for construction projects in New York. Although there is clear support in the New York Assembly and Senate for the enactment of such legislation, the Bill was only recently referred to Committee for further review and remains in the early stages of the legislative process.

New York Appellate Court Addresses “Trigger of Coverage” for Asbestos Claims and Other Coverage Issues

Paul A. Briganti | Complex Insurance Coverage Reporter

On October 9, 2020, the New York Supreme Court, Appellate Division, Fourth Department, decided an appeal from a trial court’s 2018 summary judgment ruling on a number of coverage issues arising out of asbestos-related bodily injury claims against plaintiffs Carrier Corporation (Carrier) and Elliott Company (Elliott). See Carrier Corp. v. Allstate Ins. Co., No. 396 CA 18-02292, Mem. & Order (N.Y. Sup. Ct. App. Div. 4th Dep’t Oct. 9, 2020).

The Fourth Department reversed the trial court’s ruling that, under New York’s “injury in fact trigger of coverage,” injury occurs from the first date of exposure to asbestos through death or the filing of suit as a matter of law. The parties agreed that, because the policy language at issue required personal injury to take place “during the policy period,” “the applicable test in determining what event constitutes personal injury sufficient to trigger coverage is injury-in-fact, ‘which rests on when the injury, sickness, disease or disability actually began.’” Id. at 3 (quoting Cont’l Cas. Co. v. Rapid-American Corp., 609 N.E.2d 506, 511 (N.Y. 1993)). The Fourth Department concluded that, in resolving the issue, the trial court erred by relying on inapposite decisions in other cases where: (1) the parties had stipulated or otherwise not disputed that first exposure triggered coverage[1]; or (2) the issue had not been resolved on summary judgment, but rather at trial based on expert medical evidence[2]. The Fourth Department further explained that, even if plaintiffs here had met their initial burden on summary judgment by submitting admissible evidence that asbestos-related injury actually begins upon first exposure, the defendant-insurer’s opposition – which included affidavits of medical experts contradicting that evidence and averring instead that “harm occurs only when a threshold level of asbestos fiber or particle burden is reached that overtakes the body’s defense mechanisms” – raised a triable issue of fact. Id. at 4. The Fourth Department also rejected plaintiffs’ argument that the defendant-insurer was collaterally estopped on the “trigger” issue by a California appellate court’s decision in Armstrong World Industries, Inc. v. Aetna Casualty & Surety Co., 52 Cal. Rptr. 2d 690 (Cal. Ct. App. 1996). The Fourth Department reasoned that the issues litigated in the two cases were not identical because, among other things, California and New York “apply different substantive law in determining when asbestos-related injury occurs.” Carrier, Mem. & Order at 4.

As to the other issues on appeal, the Fourth Department affirmed the trial court’s ruling:

  • Transfer of Rights to Coverage: The Fourth Department held that, pursuant to a corporate reorganization agreement that spun off Elliott’s predecessor business from Carrier, Elliott had rights to coverage under policies issued to Carrier for liabilities that arose before the spinoff. The court primarily reasoned that, despite an ambiguity in the agreement, there was no triable issue of fact that the rights were transferred to Elliott. See id. at 2.
  • Application of “All Sums” Allocation and Vertical Exhaustion: The Fourth Department concluded that, based on the language of the non-cumulation clauses contained in the excess policies at issue, “all sums” allocation and vertical exhaustion applied pursuant to In the Matter of Viking Pump, Inc., 52 N.E.3d 1144 (N.Y. 2016). See Carrier, Mem. & Order at 3.
  • Underlying Exhaustion: The Fourth Department disagreed with the defendant-insurer that its excess policies were not and could never be reached because plaintiffs had entered into settlements with underlying insurers that provided for pro rata time-on-the-risk allocation. The court explained that the excess policies incorporated a “loss payable” provision that, by its terms, “plainly contemplates payment by either the insured or the underlying insurer to exhaust the policy’s limits.” Id. at 5 (internal quotation marks and citations omitted). The court concluded that, therefore, the excess policies “attach when the amounts paid by plaintiffs and the underlying insurers reach the attachment point for” the excess policies. Id.
  • Settlement Credits: The Fourth Department found that, “pursuant to the narrow definition of ‘loss’ under the subject non-cumulation and prior insurance provisions,” the defendant-insurer was entitled to a reduction of its limits only for amounts actually paid on a particular claim (i.e., a pro-tanto settlement credit) under a prior excess policy and the defendant-insurer would have the burden of establishing the amount recovered on the claim. Id. at 5-6 (citing Olin Corp. v. OneBeacon Am. Ins. Co., 864 F.3d 130 (2d Cir. 2017); Olin Corp. v. Lamorak Ins. Co., 2018 U.S. Dist. LEXIS 65446 (S.D.N.Y. Apr. 17, 2018)).
  • Coverage for Defense Costs: According to the Fourth Department, the trial court properly interpreted the defendant-insurer’s excess policies to preclude an obligation to pay or reimburse defense costs incurred without the insurer’s consent, which had not been sought or given in this instance. Id. at 6 (citing AstenJohnson v. Columbia Cas. Co., 483 F. Supp. 2d 425 (E.D. Pa. 2007), aff’d in part and rev’d in part, 562 F.3d 213 (3d Cir. 2009, cert. denied, 558 U.S. 991 (2009)).

The Fourth Department’s decision is particularly notable because it rejects the suggestion that, under New York “trigger” law, asbestos-related injury presumptively occurs from first exposure through death or filing of suit. Instead, whether injury has occurred in a particular policy period must be determined based on the factual record established in a given case.

[1] Pac. Emplrs. Ins. Co. v. Troy Belting & Supply Co., 2015 U.S. Dist. LEXIS 130681 (N.D.N.Y. Sept. 28, 2015); U.S. Fid. & Guar. Co. v. Treadwell Corp., 58 F. Supp. 2d 77 (S.D.N.Y. 1999).

[2] Stonewall Ins. Co. v. Asbestos Claims Mgmt. Corp., 73 F.3d 1178 (2d Cir. 1995), op. modified on denial of reh’g, 85 F.3d 49 (2d Cir. 1996); Am. Home Prods. Corp. v. Liberty Mut. Ins. Co., 748 F.2d 760 (2d Cir. 1984); Fulton Boiler Works v. Am. Motorists Ins. Co., 828 F. Supp. 2d 481 (N.D.N.Y. 2011); In re Viking Pump, Inc., 148 A.3d 633 (Del. 2016); Borel v. Fibreboard Paper Prods. Corp., 493 F.2d 1076 (5th Cir. 1973).

Overstated Lien is Void; Contractor Thus Liable to Owner for Damages

Stanley A. Martin | Commonsense Construction Law

The New York lien law, similar to lien laws in some other states, calls for rejection of a lien if it has been “willfully exaggerated.” A New York Appellate Division court has upheld rejection of a contractor’s lien for that reason.

Contractor and homeowners signed a contract for renovation work. Homeowners terminated the contract when the project was only partially complete, and arranged for completion by another contractor. In the follow-on lawsuit, the trial judge determined that the contractor had been overpaid based on evidence that the homeowners had paid the contractor $45,865.48, but the value of work performed was only $36,350.

The contractor had also asserted a lien for $33,870. At trial, the contractor’s principal testified that he had records to support the claims for additional money, but he didn’t introduce any of the purported records. The trial judge did not find this testimony to be credible, and as noted above had decided the contractor was already overpaid.

Thus, the contractor had “willfully exaggerated” its lien claim. Under § 39 of the NY lien law, the contractor’s lien claim was void, and under § 39-a, the homeowners were entitled to recover damages from the contractor arising from the invalid lien claim.

The case is Lapenna Contr., Ltd. v Mullen, 2020 N.Y. App. Div. LEXIS 6393 (App. Div., 3rd Dept., Oct. 29, 2020) (subscription required).

The No Corners Rule? New York Federal Court Holds No Duty to Defend Where There Is No Possible Legal or Factual Basis for Indemnification of Insured

Chael Clark | PropertyCasualtyFocus

Under New York law, an insurer’s duty to defend ends if it establishes as a matter of law that there is no possible factual or legal basis on which it might eventually be obligated to indemnify its insured. This rule was recently applied by the Southern District of New York in Philadelphia Indemnity Insurance Co. v. Streb, Inc., No. 19 CIV. 366 (KPF), 2020 WL 5549316 (S.D.N.Y. Sept. 16, 2020).

In Streb, the Philadelphia Indemnity Insurance Company (“PIIC”) issued a commercial general liability policy in February 2018 to Streb, Inc., a not-for-profit performing arts company in Brooklyn, New York, that provides instruction in acrobatics for adults and children. The policy covered certain damages arising from “bodily injury” and required PIIC to defend against any “suit” seeking those damages even if the allegations of the suit are groundless, false, or fraudulent. Coverage under the policy was limited by one relevant exclusion, which excluded coverage for “any claims arising out of the use of any aerial equipment including but not limited to the use of a trapeze or trampoline.”

On April 2, 2018, one of Streb’s students was tragically injured while participating in an acrobatics class at Streb’s facility. Specifically, the student suffered severe injuries to her neck and back while attempting a forward tumble from a small trampoline. The student filed suit against Streb in New York State Supreme Court, Bronx County, on December 12, 2018, alleging in her complaint that she was injured “while attempting to do a forward flip while participating in an acrobatic class” at Streb. The complaint did not specifically mention that the student sustained her injury while using a trampoline, though Streb later learned of this through conversations with others, the relevant injury report, and deposition testimony in the underlying personal injury action.

PIIC issued a disclaimer of coverage to Streb on January 7, 2019, based on its determination that the student’s injury occurred while she was using a trampoline. The following week, PIIC brought an action against Streb in the Southern District of New York seeking a declaratory judgment that it was not obligated to defend or indemnify Streb in the underlying personal injury action. The parties thereafter cross-moved for summary judgment.

The parties agreed that, but for the relevant policy exclusion, PIIC would have had a duty to defend Streb in the underlying personal injury action. That action was clearly a “suit” seeking damages for “bodily injury” within the meaning of the policy. The relevant question, then, was whether the duty to defend existed in light of the exclusion, and whether the court may consider evidence extrinsic to the complaint in making that determination. Streb argued that PIIC owed a duty to defend because the underlying complaint did not expressly state that Streb’s student was injured on a trampoline, and thus the applicability of the exclusion was not clear from the four corners of the complaint.

The court rejected Streb’s argument, recognizing that “insurance policies are, in essence, creatures of contract” – they are subject to principles of contract interpretation, and unambiguous policy provisions must be interpreted in light of their plain and ordinary meaning. Here, the plain language of the policy exclusion was unambiguous. It excluded “any claims arising out of the use of any aerial equipment including but not limited to the use of a trapeze or trampoline.” Because Streb’s student was undisputedly injured while using a trampoline, thus triggering the policy exclusion, PIIC could establish as a matter of law that there was no possible factual or legal basis on which PIIC would be obligated to indemnify Streb. The court held that the use by PIIC of extrinsic evidence to determine whether the insurer had a duty to defend was appropriate, and granted PIIC’s motion for summary judgment.

It’s Not Over … Until The Panel Sings

Jonathan Bank and Matthew Murphy | Locke Lord | November 1, 2019

A federal court in New York recently held that an arbitration panel retained the right to resolve any dispute arising out of an arbitration award.  In Chicago Insurance Company v. General Reinsurance Corporation et al., no. 18-cv-10450, 2019 WL 5387819 (S.D.N.Y. Oct. 22, 2019), Chicago Insurance Company and its reinsurers disputed the reinsurers’ share of a settlement agreement that Chicago entered into with its insured with respect to the insured’s liability arising out of asbestos claims.

The panel rejected Chicago’s billing scheme and in 2017 it issued a final award for the reinsurers.  In the final award, the panel retained the right to resolve disputes arising out of the award.  In 2018, Chicago submitted a new bill to the reinsurers that it claimed was prepared in accordance with the 2017 final award.  The reinsurers rejected the allocation and submitted the issue to the panel to resolve the issue.  A majority of the panel agreed that the dispute arose out of the 2017 final award (Chicago’s party-appointed arbitrator wrote separately that the panel did not have a jurisdictional basis to address the dispute).

Chicago commenced a new, separate arbitration and filed a motion to compel the reinsurers to participate in the new arbitration.  In response, the reinsurers filed a cross-motion to stay the new arbitration seeking a declaration that the 2017 panel had the requisite jurisdiction to resolve the dispute.  The court observed that the issue of whether the 2017 panel’s retention of jurisdiction over disputes arising out of the 2017 final award was an issue for the court to decide.  The court, noting that Chicago claimed that the new bill was prepared in accordance with the protocols set forth in the 2017 final award, agreed with the reinsurers that the 2017 panel expressly retained jurisdiction to resolve dispute arising out of the final award.

The decision is a reminder that if a panel retains jurisdiction to resolve subsequent issues arising out of a final award, courts will not join the chorus, and will instead permit the panel to finish the song.