You Make A Better Wall Than A Window: Why Policyholders Can Rest Assured That Insurers Should Pay Legal Bills For Claims With Potential For Coverage

Graham Mills and Alan Packer | Newmeyer & Dillion LLP | March 7, 2018

Unfortunately, policyholders, such as manufacturers and contractors, routinely face the unnecessary challenge of how to access all of the insurance coverage which they have purchased. Frequently, the most pressing need is to get the insurance company to pay the legal bills when the policyholders have been sued. The recent Iowa federal district court opinion in Pella Corporation v. Liberty Mutual Insurance Company should help a policyholder in a dispute to require its insurance company to pay those legal bills sooner rather than later by highlighting that the duty to defend arises from the potential for coverage, and the insurer may not force the policyholder to prove the damage to obtain a defense.

In Pella, a window manufacturer purchased several years of insurance coverage from Liberty Mutual. Similar to many companies, Pella had many “layers” of insurance coverage in any given year. These layers collectively function like a tower. The general idea is that each layer provides a certain amount of coverage after the insurance policy below it had paid its money. The Liberty Mutual insurance policies provided excess coverage.

After the Pella window manufacturer made and sold its windows, it was sued in numerous lawsuits alleging that its windows were defective and that those defective windows caused a wide variety of damage to the structures in which they were installed. The window manufacturer tendered those lawsuits to its insurance companies in its tower of coverage, asking that the insurance companies pay its legal bills incurred in its defense. As to Liberty Mutual, the window manufacturer argued that the Liberty Mutual insurance policies were triggered, and so obligated to reimburse it, if a window was installed during the years that those policies provided coverage or if there was a mere allegation that a window was installed during the years that those policies provided coverage. Liberty Mutual opposed, arguing that the date of installation of the windows was insufficient to trigger the policies, and that the manufacturer was required to demonstrate the date that damage actually occurred to trigger a defense.

The key issue before the Pella Court in this decision was a simple one: which insurance policies, if any, issued by Liberty Mutual had an obligation to pay the window manufacturer’s legal bills? The answer to that question is critical and financially significant. Getting an insurance company to honor its obligations and start paying the legal bills as soon as possible is very important for a policyholder because of the cost of defending oneself in a lawsuit; often the key reason why an insurance policy is even purchased is to provide the policyholder with the right to call upon the insurance company’s financial resources to defend it should it be sued.

In a ruling that will be welcomed by policyholders, the Pella Court held that Liberty Mutual’s multiple insurance policies were triggered, and so obligated to pay for the window manufacturer’s defense, if one of two events occurred during the years in which those insurance policies provided coverage: (1) a window was actually installed during a year when the insurance policy provided coverage or (2) the window was alleged to be installed in the year that the insurance policy provided coverage. The Court agreed with the policyholder that once the windows were installed, property damage was alleged and “may potentially have occurred” from that point on, thus the policies on the risk from that point forward. The practical effect of this ruling meant that Liberty Mutual had to reimburse the window manufacturer for the defense fees and costs that it had paid.

While Pella was decided under Iowa law, the principles upon which it relied are similar to those applied under California law. Importantly, both California and Iowa law hold that an insurance company must provide a defense in response to a claim that is, or could be, covered by the insurance policy. The mere potential that the claim might be covered is enough for the insurance company to be obligated to pay for policyholder’s legal fees and costs.

Establishing that an insurance company must pay legal fees and costs as soon as possible allows a policyholder to save its own money. Why should a policyholder pay legal bills when it purchased an insurance policy as protection to ensure that it did not have to pay those bills? The answer is that a policyholder should not and, under Pella, the policyholder does not have to. Rather, the insurance company must start paying for that defense from a very early date. Pella confirms for policyholders the position that their insurance companies should pay legal bills earlier rather than later.

Attorney: Good Installation, Strong Insurance are Vital for Window Companies

DWM Magazine | June 22, 2017

On Tuesday, attendees at the American Architectural Manufacturers Association (AAMA) Summer Conference in Newport, R.I., heard a presentation from Chip Gentry, a founding member of the Call & Gentry Law Group, about the important role of proper installation and good insurance when it comes to avoiding litigation.

“Build it ‘cheaper and faster’ is a core cause of construction defects,” said Gentry. “It means an inferior final project, and it’s a chronic problem.”

Some of the biggest risks are lofts and apartment conversions and redevelopments, hotels, condos, centralized owners and high-volume products, he said.

“Bad building or design cases manage to become bad window cases,” said Gentry. “They’ll sue the general contractor, and water in a building is blamed on fenestration no matter where it shows up.”

Construction-defect litigation is time-consuming and draining, both financially and emotionally. And when more parties get involved, it can make it harder to reach a settlement. Often there are fights between insureds and insurers, and it can be difficult to get people on the same page, said Gentry.

Fenestration companies are sued most commonly for things like contract disputes, disgruntled employees, patent litigation – and, more often than not, installation issues.

“Installation mistakes are a big one, and they can be prevented,” said Gentry. “We have to be at least somewhat involved in installation because of this.”

Gentry, who is also a blogger for DWM, offered several of the most common installation mistakes that can lead to litigation. Among them are not sealing house wrap, lack of end dams, flashing or subsills, and poor shimming. Poor caulking is also a common mistake, whether it means not cleaning the substrates thoroughly, not using the proper tools, or not leaving space for caulk to expand or shrink.

Final checks matter, Gentry said.

“Installers are the face of the window industry,” he said. “You have to see, does it open? Does it close? Does it lock? Were specs followed? Get your standards set; be involved in specs. Get boots on the ground, and make sure it’s done right.”

A dollar today can save your company millions tomorrow, he added.

Aside from avoiding installation mistakes, the best thing you can do is have good insurance, said Gentry. He recommended making sure you have enough insurance limits to effectively protect you.

“Be better prepared,” he said. “Be aware of the various clauses you can shop for that provide better and more meaningful protections for your company.”

Knowing your rights is also critical, said Gentry.

“You have a right to add counsel of your choice,” he said. “Find one with fenestration experience and knowledge of your company. Find a reputable broker you can trust, who has experience in window manufacturing, to make sure you have the right insurance.”

To keep costs low, avoid, or at least limit, claims. Manage risk by keeping track of prior claims and erosion of limits. Update a list of claims under each policy. Be prepared for a carrier to sue. Control exposure, and keep a paper trail.

Finally, Gentry advised all to keep their old policies.

“Old insurance policies are golden,” he said.

Multiple Instances of Defectively Designed, Manufactured, or Installed Windows Does Multiple Occurrences Make

Nora Valenza-Frost | PropertyCasualtyFocus | May 12, 2017

Damaged Windows

After previously holding that various claims against the insured, Pella, alleged property damage caused by an “occurrence,” thus triggering Liberty Mutual Insurance Company’s (“Liberty”) coverage obligations under various CGL policies, in Pella Corp. v. Liberty Mut. Ins. Co., No. 4:11-cv-00273 (S.D. Mar. 31, 2017), the Southern District of Iowa was then tasked with determining the number of “occurrences.”

Pella purchased annual liability policies – CGL policies (with an SIR) and Excess Indemnity policies (with an aggregate SIR) – from Liberty. Pella sought reimbursement of certain expenses incurred while defending against and resolving (either by settlement or damage awards) various claims against Pella. Due to the high number of underlying lawsuits against Pella, the coverage litigation focused on 15 of the highest value claims – the “Sample Claims” – which alleged Pella’s windows were defectively designed, manufactured, or installed, and allowed water intrusion to buildings that resulted in third-party property damage or personal injury.

Pella sought a declaration that each Sample Claim was one “occurrence,” or that Liberty should be estopped from arguing otherwise based on its alleged conduct while processing each Sample Claim. Liberty argued that the Sample Claims set forth either three or four occurrences at most, and that Pella should be estopped from arguing the Sample Claims present separate occurrences, as Pella had taken a contrary position in the parties’ prior coverage litigation.

Noting there was little, if any, Iowa case law regarding how to determine the number of occurrences, the court adopted the majority approach, which looks at the underlying cause of the property damage alleged. While the parties agreed with this approach, they disagreed with its application.

Pella argued that each Sample Claim should be considered to allege a separate occurrence as a matter of law because each Sample Claim presented a unique underlying circumstance. Liberty, on the other hand, argued that the concept of the underlying cause should be viewed by the court at a higher level of generality. Specifically, Liberty pointed out that the definition of “occurrence” included “continuous or repeated exposure to the same general harmful conditions,” which supported Liberty’s position that there were either three or four sets of general alleged causes of damage: (1) defective design and inadequate warnings; (2) improper installation; and (3) defective windows.

Looking at the definition of “occurrence,” the court concluded that the CGL policies were ambiguous with respect to the interpretation of the word “occurrence,” and accordingly analyzed cases outside of Iowa which interpreted the number of occurrences. The court held that some cases, including Liberty Mut. Ins. Co. v. Treesdale, Inc., 418 F.3d 330, 337–39 (3d Cir. 2005) and Chemstar, Inc. v. Liberty Mut. Ins. Co., 797 F.Supp. 1541, 1547-48 (C.D. Cal. 1992), provided support for Liberty’s position but involved different facts, and that others, such as American Red Cross v. Travelers Indemnity Co. of Rhode Island, 816 F.Supp. 755, 761 (D.D.C. 1993), supported Pella’s interpretation.

Applying those cases to the facts at hand, the court ultimately found that both parties’ positions were reasonable, yet flawed. In particular, the court noted:

While some Sample Claims themselves might involve multiple products, which could theoretically have caused water damage in different ways, there is little to no indication that subdividing any individual Sample Claim into multiple occurrences accords with the intent of the parties to the CGL policies. That neither party here argues that any individual Sample Claim presents more than one occurrence is persuasive evidence that the intent of the parties was not to define the unit of an ‘occurrence’ so narrowly.

Based on the principle that, where both parties present reasonable interpretations of ambiguous policy language, the insured’s interpretation prevails, the court adopted Pella’s position to hold that each Sample Claim presented a separate “occurrence.”

In closing, the court assessed Pella’s arguments in the prior coverage litigation, finding that because Pella’s arguments in the instant case were not actually inconsistent with its prior arguments, “judicial estoppel presents no bar to Pella’s current argument.” Whether Liberty was estopped from its argument was rendered moot by the court’s decision.

This case offers an example of the challenges an insurer may face where neither the applicable policy nor case law provides clear guidance in a unique situation. Liberty’s “30,000 foot” view of the number of occurrences had logical appeal, but, absent any clear policy language to support it, the policyholder was able to prevail by offering a similarly plausible (albeit similarly lacking in policy support) interpretation.

Reflections on Low-E Glass vs. Vinyl Siding

Zachary Renegar | Cozen O’Connor | December 3, 2015

From luxury vehicles melting on the streets of London to sunbathers being attacked by a “death ray” at a Las Vegas pool, splashy news reports highlight unanticipated hazards associated with the use of low-e glass in new construction. As more residential building codes mandate the use of low-e glass in residential construction, insurers have seen an increase in property damage claims allegedly caused by low-e glass windows – specifically the melting and distortion of vinyl siding. These losses may present potential for subrogation.

What is Low-E Glass?

Low-emissivity glass, also known as low-e glass, gained popularity in both residential and commercial construction due to its ability to control heat transfer through insulated windows. Low-e window glass is coated with a thin layer of metal or metallic oxide. Visible light passes through the glass but the metallic layer blocks the passage of heat inducing ultraviolet light into the home. Low-e glass windows keep the home cooler in the summer and warmer in the winter thus reducing energy costs. In certain circumstances, these windows can act like a magnifying glass reflecting sunlight in focused beams that can exceed 200˚F. Vinyl siding melts at 160 to 170˚F.

Concavity in Double-Paned Windows Using Low-E Glass

Variables contributing to damage caused by low-e glass windows include the concavity of the glass, angle of the sun, proximity to a neighboring structure, and buffering objects such as foliage. Glass concavity appears to be the necessary requirement for low-e glass to cause property damage. Low-e glass windows develop concavity when the glass warps due to an imbalance in the air pressure between the interior and exterior panels of glass. Builders can mitigate the potential hazardous effects from warping by considering sun angles and planting trees between neighboring properties. Manufacturers can prevent warping by installing capillary tubes to regulate pressure between the window’s interior and exterior glass. In 2014, in response to reports from property damage caused by low-e glass windows, North Carolina passed a rule that allowed builders discretion in the previously mandated use of low-e glass windows. After an aggressive push by the architect and fenestration (window and door) lobby, North Carolina reversed the rule and re-instated the mandatory use of low-e windows in new residential building.

Subrogation Potential

As to be expected, neither…

To finish reading this article

New Florida Building Codes Adding More Cost

Don Magruder | Daily Commercial | August 8, 2015

Effective July 1, Florida imposed new building codes that are meant to improve the safety, energy efficiency and construction of new residential homes and remodels.

They also increased the cost of building — again. Many affordable housing advocates argue that the government in Tallahassee, by mandating excessive building rules to guard against every “what if” situation, has created a housing crisis in Florida and the new codes are not needed.

You can drive throughout Central Florida and see scores of well-built homes that were constructed before the building code frenzy began in 2001 and they are still standing.

Building code advocates will typically pull out the insurance card, stating these new codes are saving homeowners money on insurance rates. If that’s true, why are so many companies refusing to write homeowner’s policies in Florida, and when is the last time you got a reduction in your insurance premium?

Under the Florida Building Code, the three methods of compliance are prescriptive, work area and performance.

Prescriptive is following the code through specific provisions of compliance as written in the code books.

Work area is following general provisions of compliance but in a very limited area that falls under the threshold for bringing the entire property up to code.

The performance code method evaluates the entire structure by maintaining and increasing safety without specific requirements, and the project must be evaluated by a Florida Registered Design Professional.

To help you understand, let me give an example of each method as it relates to windows.

Under the new prescriptive energy codes, regular aluminum windows do not meet code. For a whole house window replacement job, the contractor will likely be required to replace aluminum windows with vinyl windows or some wood/aluminum-clad window because regular aluminum windows do not meet the energy requirements.

Under the work area code, if a homeowner needs to replace one aluminum window that is less than 15 square feet, the contractor should be able to replace just that window. Each code jurisdiction can be different, but many have stated that remodels that affect less than 25 percent of the house will probably fall under this work area code method. Please check with your local code official before finalizing remodel plans.

Under the performance code method, a homeowner can have an energy calculation completed by a registered Florida Design Professional, and if they are able to achieve an energy rating in the home through improved insulation, air conditioning or solar boards, they could still use aluminum windows.

For example, there are builders who are upgrading their roof sheathing materials to one-sided foil-backed solar boards and are upgrading the air conditioning so they can continue to use aluminum windows because they question the longevity of vinyl-based windows.

As you can see, the codes are very confusing and, frankly, it becomes more complicated when local building inspectors vary in their interpretations. In addition to windows, the code has other big changes that include:

Self-closing doors between the garage and home;

Sprinkler systems or fire retardant soffits for homes;

Requirements to train homeowners to cut and reinstall screens when winds are expected to exceed 75 mph for aluminum screen cages;

Landings for egress doors no matter the number of steps;

Upgrading all smoke alarms to dual source energy sources or 10-year batteries, even in remodels;

New finishing requirement for walls and open floor systems;

Upgraded felt rules that push roofers to synthetic felt instead of black felt;

Increased rules for attic ventilation;

Specific stucco installation that will likely require more inspections.

For the average-size home in Lake County, these new codes could add 2 to 3 percent in extra costs, and this would be on top of typical yearly inflation. New homebuyers or remodelers who have not permitted their project should understand these upgraded codes are now in force and older construction plans must be changed prior to permitting. Please check with your local code official and get your checkbook out to pay more.

via New Florida building codes adding more cost – Daily Commercial: Real Estate.