PA Court Suggests Bright-Line Rule in Coverage of Construction Defect Claims

An Allegheny County trial judge recently granted summary judgment in favor of two excess insurers on a matter of first impression relating to the coverage of claims for faulty workmanship.

In the case of American Home Assurance Co. v. Trumbull Corp., Trumbull was employed to prepare the foundational pad on which a new J.C. Penney store would be built in southwestern Pennsylvania. Trumbull completed its portion of the project in late 2006, but J.C. Penney and other shopping center tenants began to experience foundational cracks due to settling and sued for faulty workmanship shortly thereafter. Although Trumbull’s primary insurer agreed to defend the case under a reservation of rights, American Home Assurance and National Union Fire Insurance quickly instituted a declaratory judgment action against the contractor to disclaim excess coverage. The insurers argued that damage to the tenants’ buildings did not constitute an “occurrence,” that is, an accident, in light of Pennsylvania’s recent decisions on the coverage implications of faulty workmanship.

In considering the insurers’ summary judgment motions, Judge R. Stanton Wettick, Jr. quickly pointed out that Pennsylvania courts have yet to address this specific issue. He explained that coverage of faulty workmanship claims has been considered in three factual scenarios, namely: (1) damage to the work itself; (2) damage to the larger project where the work was performed pursuant to a contract between the insured and property owner; and (3) damage to the larger project where there is no contract between the insured and property owner. Although Pennsylvania courts unanimously agree that an insurer may properly disclaim coverage where the damage is to the work itself, judges have applied two conflicting lines of reasoning in respect of the remaining two situations. On the one hand, some previous cases have required coverage for ancillary damage while others have hold that faulty workmanship can never constitute an “occurrence.”

According to Judge Wettick, American Home Assurance presented a fourth factual scenario and thus an opportunity to reconcile the inconsistent treatment of faulty workmanship claims in coverage disputes. He ultimately concluded that the weight of authority supported a growing trend of per se disclaimers and ruled that the excess insurers could decline coverage solely on the nature of the faulty workmanship claim.

While the decision is not precedential, Judge Wettick’s well-reasoned opinion in American Home Assurance indicates that Pennsylvania courts are rapidly approaching a bright-line rule with respect to coverage of faulty workmanship and construction defect claims. Just as important, the ruling in American Home Assurance is likely to provide Pennsylvania’s appellate courts with the opportunity to address definitively coverage issues in construction defect and provide a modicum of predictability to these disputes.

Thanks to Adam Gomez, law clerk, for this post. If you have any questions or comments, please email Paul at .

Did I Really Say That?

Under NY CPLR 3116, after a party receives a deposition transcript, the witness has an opportunity to make “changes in form or substance . . . at the end of the deposition with a statement of the reasons given by the witness for making them.” Although typically utilized to correct transcription errors, some plaintiffs use this statute as an opportunity to “clean up” problematic testimony. As the First Department decision in Banegas v Unique Gas Corp shows, it is critical that attorneys review and, if necessary, challenge all such changes.

In Banegas, plaintiff testified that she slipped on the driveway where cars entered and exited the station. However, when shown photographs of the location of her fall, plaintiff marked a spot in the street. Since the marked spot was not on their property, the defendant moved for summary judgment. After receiving the transcript, plaintiff clarified that she had marked the spot where she landed . Thus, she maintained that she slipped on the defendant’s driveway. As this change was made before the defendant filed its motion, summary judgment was denied.

When faced with a change to deposition testimony, an attorney should always carefully analyze the reason for, and effect of, the change. If the plaintiff failed to provide an adequate explanation – or if the change requires further questioning of the witness – a motion must be filed or you may be stuck with an improper “correction” of that party’s deposition testimony.

Thanks to Bill Kirrane for his contribution to this post. If you have any questions, please email Paul at

GC Not Liable Where Equipment Selected, Supplied and Controlled by Sub (NJ)

Construction work exerts competing pressures on its participants. First, there’s pressure to get the job completed as soon as reasonably possible; after all, time is money. On the other hand, quality work takes time and no owner or investor wants to accept work that is inferior or shoddy. Finally, safety is a significant concern, not solely because of a genuine concern for the safety of the workers, but also because accidents cause injuries and injuries result in claims, i.e. money.

When a work related accident blossoms into a lawsuit, a key question is who had a duty of care to the injured worker? The owner? The general contractor? The subcontractor who employed plaintiff? According to the recent New Jersey Appellate Division decision of Tarabokia v. Structure Tone, the general contractor has no duty of care to the injured employee of a subcontractor under the circumstances of that case.

In Tarabokia, the general contractor hired a major electrical subcontractor for an office building construction project. The general contract with the owner required the GC to remain responsible for overall jobsite safety. Consistent with industry practice, the GC hired an electrical subcontractor to perform the electrical work pursuant to a series of purchase orders, none of which made specific provision for an allocation of safety responsibilities.

The plaintiff was required to use a specialized powder-activated power tool that drove anchors into concrete or steel. The Sub arranged for its employee to be trained on the proper use of the tool at the job site and required plaintiff to attend weekly safety meetings. Unfortunately, the plaintiff used the tool without wearing special anti-vibration gloves, leading to a serious polyneural compression injury.

Plaintiff could not directly sue his employer because of New Jersey’s worker compensation bar so his next best target was the GC. Did the GC have a duty of care to the plaintiff to ensure his safety on the jobsite? “No,” according the Tarabokia court. First, there was no contract between the GC and Sub that imposed an obligation on the GC to assume any safety obligations for the Sub’s employees. Second, the GC was unaware of the specific danger posed by the improper use of the highly specialized tool being used by the plaintiff. Third, the GC did not create the condition that caused plaintiff’s injury. Fourth, the danger posed by the tool was not readily apparent to the GC. Last, the Sub assumed control over the manner and means of plaintiff’s work and seemingly understood its obligation to accept overall responsibility for plaintiff’s work.

The roles and responsibilities of the multiple parties working at a construction site are not always clear, particularly with respect to worker safety. Tarabokia confirms that the GC on the jobsite is not the presumptive safety supervisor of last resort, particularly for equipment selected, supplied and controlled by a subcontractor .

If you have any questions or comments about this post, please email Paul at .

Super Storm Sandy not a Hurricane

New York Governor Andrew Cuomo announced that hurricane deductibles in homeowners’ policies were not triggered because there were no hurricane force winds at the time that Sandy hit New York. In addition, the New York Department of Financial Services has imposed a 30-day moratorium on cancellation of homeowners’ policies in “storm-stricken areas.” The Department also indicated it will be monitoring how insurers will be handling such claims.

These pronouncements, however, do not alter policy language, so it will be interesting to see whether there is any impact on insurer’s coverage determinations.
Thanks to Mendel Simon for his contribution to this post.

Court of Appeals Clarifies Assumption of Risk (NY)

Generally, under New York law, the apportionment of contributory fault of a plaintiff is governed by CPLR 1411, which applies comparative negligence as a percentage to decrease the culpable conducts of the defendants, rather than act as a total bar to a plaintiff’s claim.  However, there are still circumstances where an “assumption of risk” applies as a complete bar to certain actions.

The Court of Appeals recently clarified this doctrine in Custodi v. the Town of Amherst, a lawsuit arising out of a rollerblading accident that the trial court had dismissed on summary judgment due to an assumption of the risk by the plaintiff.  However, the Court of Appeals upheld the reversal by the appellate court, finding that the law did not apply to the facts before it.

The Court held that, “as a general rule, application of assumption of the risk should be limited to cases appropriate for absolution of duty, such as personal injury claims arising from sporting events, sponsored athletic and recreative activities, or athletic and recreational pursuits that take place at designated venues. In this case, plaintiff was not rollerblading at a rink, a skating park, or in a competition; nor did defendants actively sponsor or promote the activity in question.”

Here, the plaintiff was injured when her skate struck the raised edge of the defendant’s driveway in front of a private home on the street.  Because those facts did not meet the limited circumstances described above by the Court, assumption of risk did not warrant dismissal.  However, a jury could still consider plaintiff’s comparative fault at trial.

If you would like further information, please write to

Secondary Home Buyers Can Sue Contractors for Habitability Claims (PA)

In Conway v. Cutler Group, the state Superior Court ruled on the novel issue of whether the implied warranty of habitability applies to homebuyers who are not the original purchases of the home. In this case the Cutler Group built a new home for the Fields family in 2003. In 2006, the Conway family acquired the home from the Fields. It was not until 2008 that the Conways discovered water entering their home around the windows in their master bedroom. A subsequent inspection of the home revealed a number of defects. In 2011 the Conways sued the Cutler Group for breach of the implied warranty of habitability.

The Bucks County Court of Common Pleas dismissed the complaint, granting Cutler’s preliminary objections on the basis that there was no privity of contract between Cutler and the Conways and that the implied warranty of habitability did not extend beyond the builder and the original purchaser of the home. However, the Superior Court disagreed. A three-judge panel felt that the implied warranty of habitability is based upon public policy concerns and is not a contractually dependent remedy. The court also stated that it would be inequitable to re-shift the risk of latent defects back to a second or subsequent homeowner. The Superior Court also relied on numerous other decisions from states such as New Jersey, New Hampshire, Rhode Island and Illinois for confirmation of the decision.

The court cautioned that the Conway ruling would not result in unlimited liability against homebuilder. “ It is still the plaintiff’s burden to show that the alleged defect is latent, attributable to the builder’s design or construction, and affects habitability.” Moreover, claims filed under the implied warranty of habitability are still subject to the twelve year time limit created by statute of repose.

Thanks to Remy Cahn for her contribution to this post.  If you would like more information please write to

 

Litigation Privilege Pierced in Legal Malpractice Action (NJ)

The litigation privilege generally shields individuals involved in a litigation from liability for any communication made in connection with that litigation, as long as the statements are made in connection or logical relation to the litigation.  But the New Jersey courts recently handed down a decision that changes the liability shield of the litigation privilege in legal malpractice actions where counsel violated rules of professional conduct.

In Buchanan v. Leonard, the Appellate Division examined a interesting “legal-malpractice-within-legal-malpractice” suit. Buchanan, an attorney, had been sued for allegedly mishandling a bankruptcy petition on behalf of his clients, the Kerrs.  The Kerrs alleged that as a result of the mishandling of their bankruptcy, they subsequently lost their home as well as their business property.

Leonard was then hired by Buchanan’s professional liability insurance carrier to defend Buchanan in the underlying malpractice lawsuit, and Leonard discovered a letter where Buchanan agreed to file a bankruptcy petition on behalf of the Kerrs that contained misrepresentations of fact, and the Kerrs agreed to indemnify Buchanan for any resulting sanctions.  Leonard later wrote a settlement memorandum to Buchanan’s insurer recommending settlement before trial because if the memorandum was revealed at trial, Buchanan could face professional disciplinary charges.

Shortly after receiving the settlement memorandum, and a week before the trial, the insurer notified Buchanan that it was withdrawing its coverage and would not defend the lawsuit on Buchanan’s behalf, citing an exclusion in the policy for “dishonest, fraudulent, criminal or malicious acts or omissions.”  The insurer also filed a declaratory judgment action against Buchanan seeking a determination that it was not required to provide coverage to Buchanan in the legal malpractice suit.  The declaratory judgment action was decided in favor of Buchanan.

Buchanan then filed a complaint against Leonard and his law firm, alleging legal malpractice, negligent supervision of Leonard, breach of contract, breach of fiduciary duty, tortuous interference with contract, defamation, and unjust enrichment.  After filing an answer, but before the close of discovery, cross-motions for summary judgment were filed by the parties.  Buchanan sought partial summary judgment on his legal malpractice claim.  Leonard and his law firm sought summary judgment on all claims in the complaint, citing the litigation privilege and lack of expert testimony as to the legal malpractice claims, and a statute of limitations defense as to the defamation count.

Ultimately, the trial court granted Leonard’s motion for summary judgment, and denied Buchanan’s motion.  The judge agreed that the defamation claim was time-barred because it had not been filed within one year of the alleged defamatory statements (the settlement memorandum), and that the legal malpractice claims failed because Buchanan had not submitted an expert report in support of that claim.  The judge also determined that all of Buchanan’s claims failed as a matter of law because they were based on the settlement memorandum, which the trial court held was subject to the litigation privilege.

On review, the Appellate Division affirmed the grant of summary judgment as to the defamation claim, but reversed as to the legal malpractice claims.  Because the litigation privilege issue was one of first impression, the Appellate Division decided to follow the example set by the California courts, and deny litigation privilege as a shield from liability as between an attorney and a client in a malpractice matter.  The court stated that because the litigation privilege does not protect attorneys from discipline for violating the New Jersey Rules of Professional Conduct, “[i]t therefore follows that the litigation privilege does not protect an attorney from a claim by his or her client based upon statements the attorney made in the course of a judicial proceeding where, as in this case, it is alleged that the attorney breached his duty to the client by failing to adhere to accepted standards of legal practice.”

Additionally, because discovery had not yet closed in this matter prior to the filing of the cross-motions for summary judgment, and because Buchanan had already retained a legal malpractice expert, the Appellate Division remanded the matter to the trial court with instructions to allow Buchanan the opportunity to submit his expert report.

This case underscores the care that must be taken by defense counsel in the tripartite relationship.  Although an attorney must keep his insurance client apprised of the facts of the case, revealing confidential facts that place his legal client’s coverage in jeopardy can lead to a host of troubles.

Thanks to Christina Emerson for her contribution to this post.  If you would like more information please write to .

 

 

 

WCM Presents IUA Seminar on Value Issues in Fine Arts and Specialty Losses

New York, NY

On November 14, 2012, WCM Senior Partner Dennis M. Wade and Partner Michael Bono spoke before the International Underwriters Association (“IUA”) in London, England.  Their presentation was entitled Fine Art and Collectible Losses: Framing the Value Issues and focused on the factual and legal difficulties in determining the market value of unique objects.

And Now Mold…

Things have been pretty bad of  late in New York, with Sandy and then snow. While the problems continue, a new threat emerges — mold — http://m.nypost.com/p/news/local/manhattan/merchants_battling_growing_mold_C9YfFCRUBZ6CTXHqFOSRHO New Yorkers are going to find out in a hurry that most insurance policies don’t provide mold coverage.

For more information about this post, please contact Bob Cosgrove at .

In NJ, Store In Multi-Tenant Shopping Center Not Liable For Plaintiff’s Fall

In the recent Appellate decision of Kandrac v. Marrazzo’s Market, the court considered whether a commercial tenant in a multi-tenant shopping center owes a duty to its patrons to maintain an area of the parking lot that the landlord is contractually obligated to maintain.

Marrazzo’s Market was one of thirty-six stores in a shopping center that Foxmoor Associates owned. Kandrac was injured when she fell in the shopping center’s parking lot after leaving Marrazzo’s store. Specifically, she claimed that her foot was caught on a “hump” in the parking lot, causing her to trip and fall forward. The fall occurred two feet from the cross-walk in a roadway that separates the stores from the area where cars are parked. Pursuant to the lease between Marrazzo’s and Foxmoor, the landlord was responsible for maintaining the common areas, including the parking lot.

Marrazzo’s filed a motion for summary judgment, arguing that, as a commercial tenant in a multi-tenant facility, it owed no duty to invitees for injuries that occur in a common area. The trial court agreed and Kandrac appealed, arguing that Marrazzo’s had a duty to provide a safe ingress and egress from the store to the parking lot. The Appellate Court upheld the trial court’s decision and upheld dismissal of the claims against Marrazzo’s.

Thanks to Heather Aquino for her contribution to this post.

http://www.judiciary.state.nj.us/opinions/a6081-10.pdf