Continuous Trigger Coverage Expanding in PA or Still Only About Asbestos?

That was the question (effectively) posed before the Commonwealth Court in the case of Pennsylvania Manufacturers’ Association Insurance Company v. Johnson Matthey, et al. In the case (which was brought in the Commonwealth Court because PA’s Department of Environmental Protection was a defendant), Pennsylvania Manufacturers sought a declaration that it did not owe coverage for an environmental contamination lawsuit filed by DEP against Johnson Mathey. In the underlying lawsuit, DEP alleged that from 1951 through to 1969, a Johnson Mathey predecessor company allowed hazardous substances (arising out of the manufacture of alloy tubes) to escape into Chester County, PA. Pennsylvania Manufacturers insured Johnson Mathey from 1969 through to 1971. The contamination was not discovered until 1980 and thus no contamination at the Site was detected during the Policy period.

Pennsylvania Manufacturers, which assumed its insured’s defense under a reservation of rights, argued that for coverage to attach, the property damage must manifest itself during the policy period. The Commonwealth Court agreed with this basic coverage principle and noted that the “trigger of coverage under an “occurrence” insurance policy is ordinarily the first manifestation of the injury that is alleged to have been caused by the insured.” If only the decision had ended there!

However, the court went on to write that under the reasoning of the J.H. France Refractories Co. v. Allstate Insurance Co., 626 A.2d 502 (Pa. 1993) decision (which expanded the trigger of coverage with respect to asbestos bodily injury claims and held that all “occurrence” policies from the date of exposure to the date of first manifestation are triggered), there was no specific reason for continuous trigger coverage to be limited to asbestos cases. The Commonwealth Court wrote that “the justification for the multiple trigger of coverage was not the peculiar nature of asbestos disease, but the long latency of the claim for which coverage was sought.” Applying this reasoning to the facts at bar, the Commonwealth Court held “On the record before us, this case therefore presents the long latency of continuing, undetected injury or damage that supports a trigger of insurance coverage prior to manifestation under the Supreme Court’s decisions in J.H. France Refractories Co. and St. John.”

So, what does this mean for the insurance marketplace? What it means is that there are now, at least, two possible scenarios in which continuous trigger exposure applies in PA – asbestos and environmental pollution. We suspect to see the plaintiff’s bar citing Pennsylvania Manufacturers’ Association Insurance Company v. Johnson Matthey, et al. in other contexts – and our suspicion is that the attack will start in the construction defect arena. Stay tuned for what happens next!

For more information about this post please e-mail Bob Cosgrove.

What Lurks Within the 4 Corners of the Complaint?: Oregon Supreme Court Expands Scope of AI Coverage in Construction Arena

In a move that is sure to shakeup insurance underwriting, the Oregon Supreme Court, in West Hills Development Co. v. Chartis Claims, Inc., recently expanded the scope of coverage afforded by an Ongoing Operations AI Endorsement. What makes this case particularly interesting—or concerning, from an insurer’s standpoint—is that the underlying complaint clearly alleged damage based on the completed work of the contractors. Yet, the Oregon Supreme Court nevertheless read the complaint to trigger coverage for ongoing operations.  The state’s highest court affirmed an appellate court decision, effectively requiring an insurer to provide completed operations coverage, where none was obtained by the insured.

As in many faulty workmanship cases surrounding CGL policies, the underlying action involved defective work in the construction of a residential development. When the new homeowners of Arbor Terrace took up residence in their brand-new townhomes, they quickly discovered shoddy construction was causing significant water intrusion. The Arbor Terrace homeowners then sued the general contractor, West Hills Development Co, alleging negligent construction based on faulty workmanship.

West Hills then tendered the Arbor Terrace suit to its subcontractor, L&T Enterprises, and the sub’s insurer, Oregon Automobile Insurance Company. Oregon Auto denied coverage, among other reasons, because its policy only provided coverage to additional insureds for property damage occurring in the course of L&T’s ongoing operations performed for West Hills. As there were no allegations of damage to townhomes while L&T was actually working on the project, and L&T did not purchase Completed Operations coverage for additional insureds, West Hills did not qualify for coverage under the Oregon Auto policy.

After settling the Arbor Terrace action with the homeowners, West Hills commenced a DJ against Oregon Auto to recover defense costs incurred. West Hills argued that the Arbor Terrace complaint triggered Oregon Auto’s duty to defend because the allegations sufficed to create the possibility that West Hills would have been subject to liability for L&T’s ongoing operations. West Hills also argued that the Ongoing Ops endorsement applied to damages arising out of L&T’s ongoing operations, and this covered consequential damages that resulted from L&T’s work. Oregon Auto argued the underlying complaint did not allege any negligence on the part of its insured, only that West Hills was negligent. As the Oregon Auto policy did not cover West Hills for its own negligence, no coverage was owed. Further, Oregon Auto claimed coverage was only afforded if there were allegations of damages occurring while L&T was working on the Arbor Terrace project. Because no allegations were made, West Hills was not entitled to coverage under the policy’s ongoing operations endorsement. The trial court and court of appeals agreed with West Hills, and Oregon Auto appealed to the Supreme Court of Oregon.

Unsurprisingly, the potential that the state’s highest court would rule in favor of West Hills encouraged a plethora of amicus briefs, including ones from the Property Casualty Insurers Association of American, the National Association of Mutual Insurance Companies, and the Oregon Trial Lawyers Association. There were many issues on appeal, but the crux of the matter boiled down to whether the 4-corners of the complaint could be read to allege property damage caused by L&T’s ongoing operations performed for West Hills, despite the clear evidence the work on the Arbor Hills development was complete by the time the suit was filed.

Both the court of appeals and the Supreme Court of Oregon found one particular allegation by Arbor Terrace to be dispositive: the homeowners alleged the property damage occurred by the time they purchased their townhomes. Taking a broad interpretation of this allegation, the Court held it was possible the damages occurred earlier, and thus it did not rule out the possibility that damage occurred before L&T finished its operations. The Oregon Supreme Court performed some legal gymnastics in a strained reading of the Arbor Terrace complaint to find coverage was potentially triggered under the ongoing operations endorsement. As a result, although there were no allegations that damage arose before work was completed, the Court nevertheless found coverage because the complaint could be reasonably interpreted to allege damage to the Arbor Terrace properties before the homeowners purchased their townhomes.

Ignoring the syntax and grammar of the allegations (all in the past-tense and referring to prior work), the court concluded one allegation was sufficient to grant the insured more coverage than that which it bargained for (i.e., converting Ongoing Operations into Completed Operations coverage). This speculation on what could be meant by a party’s allegations exceeds the traditional scope of the 4-corners rule. Normally, an insurer compares the 4-corners of the complaint with the policy to determine whether anything alleged falls within the scope of coverage. If the allegations fail to plead facts that could trigger coverage under the policy, the insurer is relieved of its coverage obligations. Now (at least in Oregon), so long as the complaint does not expressly state facts ruling out coverage (e.g.,  no “occurrence,” injury/damage occurred before inception of policy, etc.) there would be a duty to defend. Undoubtedly, attorneys will use this to their benefit by making their allegations as ambiguously broad as possible, as a way to trigger coverage.

Thanks to Dan Beatty for his contribution to this post. If you have any questions about this post, please call or email Dennis Wade at dwade@wcmlaw.com for additional information.

WCM Awarded Summary Judgment in Philadelphia County Construction Defect Case.

Partner Bob Cosgrove and associate Erin Connolly were awarded summary judgment in the Pennsylvania Court of Common Pleas, Philadelphia County, in a construction defect lawsuit.
The case of Horowski v. Neal F. Rubin, et al. arose out of the new construction of a single family residence in Philadelphia, PA, which the plaintiffs bought and thereafter alleged to have been defective. As a result of the defects, the plaintiffs sued a number of parties, including the general contractor. In turn, the general contractor sued our client, a roofing subcontractor. In its joinder complaint, the general contractor alleged, inter alia, that our client’s roofing work was defective.
After the completion of discovery and depositions, we moved for summary judgment, arguing that there was no evidence demonstrating that Aklym’s work was defective. In support of our argument, we highlighted the depositions of the City’s inspector and the plaintiffs’ home inspector as well as the plaintiffs’ expert reports, all of which clearly demonstrated that our client’s work was not defective. Ultimately, the court agreed with our position and dismissed all claims against our client.
For more information about this post please e-mail Bob Cosgrove .

Faulty Workmanship Is Not An Occurrence (PA)

Construction defect claims raise insurance coverage questions when the damages sought are essentially for the work of the insured.  A federal court judge in the Eastern District of Pennsylvania recently ruled that an insurer had no duty to provide coverage or defend its insured, a contractor, for its negligent roof installation.

The case State Farm Fire and Casualty Co. v. Kim’s Asia Construction, stemmed from an underlying lawsuit filed by Powerline Imports, Inc. alleged that the State Farm’s insured, Kim’s Asia Construction negligently installed a new roof that leaked during minor rain storms. Kim’s Asia sought defense and indemnification from State Farm for the claim.

State Farm began defending Kim Asia’s under a reservation of rights but subsequently filed a declaratory judgment action.  State Farm argued that the underlying complaint essentially amounted to a claim of property damage based on faulty workmanship against its insured and that allegations of negligence against the insured did not bring the action within the scope of coverage. The court agreed with State Farm, ruling that State Farm had no duty to defend or indemnify Kim’s Asia under the policy.

The court cited the well-established four corners rule namely that “an insurer’s duties under an insurance policy are triggered by the language of the complaint against the insured.” See Kvaerner Metals Div. of Kvaerner U.S., Inc. v. Commercial Union Ins. Co., 908 A.2d 888, 896 (Pa. 2006). In comparing the four corners of the underlying complaint to the insurance policy, the court held that leaks that arose from the contactor’s negligent installation of the roof were not entitled to defense or indemnity under the policy. Although Kim’s Asia argued that the leaks arose from alternative sources and were based upon claims of negligence, the analysis of the underlying complaint did not contain a causal nexus between the property damage and a fortuitous event, as required by the policy. The court, parsing the language of the complaint, arrived at the conclusion that the only claim alleged within the underlying complaint was faulty workmanship which does not qualify as an occurrence under the policy.

Thanks to Sathima Jones for her contribution.

For more information, contact Denise Fontana Ricci at dricci@wcmlaw.com.

Contract for Elevator Maintenance Creates Duty of Care (NY)

In Fajardo v. Mainco El Elec. Corp., the Second Department recently discussed how an elevator maintenance company assumes a duty of care to third-parties injured in elevators the company contracts to inspect and repair.

The case stems from injuries sustained by the plaintiff in 2008 in a building owned by defendant Underbruckner Realty Co., LLC and leased by defendant Bronx Center for Rehabilitation and Healthcare (“Bronx Center”) for use as a nursing home.

Plaintiff, a Bronx Center employee, was injured when he attempted to access the building’s freight elevator. The elevator became stuck between floors, and the plaintiff leaned into the elevator shaft, placed his foot on the top of the elevator, and attempted to call down to his co-workers on the floor below. The elevator’s hoist cable snapped, causing the elevator and the plaintiff to fall into the shaft. The plaintiff sued the building owner, the Bronx Center, and Mainco Corp., the elevator maintenance company that entered into an elevator repair agreement with the Bronx Center. Among the flurry of motions and cross motions made to the Supreme Court, Mainco moved for summary judgment dismissing the complaint insofar as asserted against it. The Supreme Court denied Mainco’s motion.

On appeal, the Second Department held that Mainco failed to demonstrate prima facie entitlement to summary judgment, because an elevator company that agrees to maintain the subject elevator may be liable to passengers for the alleged failure to discover or correct any dangerous conditions. Further, any party that enters into this type of services agreement “may be said to have assumed a duty of care – and thus be potentially liable in tort . . .  where the contracting party has entirely displaced the other party’s duty.” The Second Department found that Mainco’s maintenance agreement with the Bronx Center required Mainco to periodically inspect the subject elevator and to perform mandatory annual inspections. Further, the evidence indicated that the Bronx Center would report any and all elevator issues to Mainco, who would inspect the elevator, issue a repair proposal, and perform the required repairs upon acceptance of its proposal. Accordingly, the Second Department held that the Supreme Court properly denied that aspect of Mainco’s motion.

Thanks to Evan King for his contribution to this post.  Please email Brian Gibbons with any questions.

In a Surprising Change of Pace, the 1st Department Limits Scope of Additional Insured Coverage (NY)

In a decision that is sure to have substantial reverberations in construction coverage disputes, the First Department, Appellate Division recently ruled that blanket AI endorsements require contractual privity between the named insured and the party seeking additional insured status. In short, the decision upsets the status quo for AI coverage; where coverage is usually triggered as long as the named insured agrees in a contract to name the person/organization as an AI.

The facts surrounding Gilbane are standard fare as coverage disputes go: a construction manager, Gilbane Building Co./TDX Construction Corp. (TDX), was hired by the Dormitory Authority of the State of New York (DASNY) to provide services in connection with the construction of a 15-story building for use by the City of New York. DASNY also contracted with a general contractor to perform work on the project, and the contract required the GC to procure additional insured coverage for TDX and DASNY. The GC’s work caused structural damage to adjacent properties, which required DASNY to incur additional costs.

Thereafter, the GC and architects were sued for the negligent work, and the construction manager was impleaded by the architects. TDX then tendered to Liberty, the GC’s CGL carrier, seeking coverage as an additional insured. Liberty denied the tender, stating that it had not been provided with a contract whereby its named insured entered into a contractual relationship with TDX for additional insured coverage. The Liberty policy contained a relatively standard blanket AI endorsement naming as additional insureds “any person or organization with whom you have agreed to add as an additional insured by written contract…” TDX then commenced a DJ for a declaration that Liberty is obligated to provide defense and indemnification in connection with the underlying action.

The lower court denied Liberty’s summary judgment motion because the AI endorsement “requires only a written contract to which [the GC] is a party,” and the DASNY-GC contract satisfied this requirement. On appeal, the First Department reversed the Supreme Court’s decision, holding that the language in the Liberty AI endorsement “clearly and unambiguously requires that the named insured execute a contract with the party seeking coverage as an additional insured.” Interestingly, the cases cited by Liberty and relied on by the Court were previous decisions in which the AI endorsement granted coverage “when you and such organization have agreed in writing in a contract or agreement.”  TDX argued that this language materially differs from that included in the Liberty policy because it requires contractual privity, whereas the Liberty policy simply requires a written contract, any written contract, where the GC agreed to name TDX as an AI.

The Appellate Division rejected this argument because it “place[s] undue emphasis on the phrase ‘by written contract’ and completely ignore[s] the inclusion of the words ‘with whom’ as the object of the verb phrase ‘you agree’.” After a short grammar lesson, the court held the plain meaning of the Liberty AI endorsement is indistinguishable from the substance of the language in other endorsements. TDX also argued that was obvious from the DASNY-GC contract there was a clear intent for TDX to be named as an AI on the Liberty policy. The court noted that although this may be true, it does not mean “the policy issued by Liberty can be judicially rewritten to cover TDX.”

It’s also worth noting that the decision contains a lengthy dissenting opinion by Justice Kahn. In brief, the dissent would have found coverage for TDX for two reasons: 1) the DASNY-GC is a written contract where the GC agreed to name TDX as an AI, therefore triggering coverage; and 2) viewing the endorsement as ambiguous, all extrinsic evidence supports finding that TDX is an additional insured under the Liberty policy.  Last, the dissent makes a rather foreboding warning that “the majority’s unduly narrow reading of Liberty’s policy provision on additional insureds would upend the established customs and practices of the construction industry and its insurers.” Although the majority claims this dire prediction “rings hollow,” it nevertheless underscores the likelihood of increased coverage disputes pertaining to AI coverage.

Although the decision is recent, its potential effects cannot be understated. Many AI endorsements contain language identical to that in the Liberty policy. It is also commonplace for construction agreements, such as those promulgated by the AIA, to require a plethora of parties/entities as additional insureds.  If the CGL policy contains an AI endorsement similar to Liberty, this now requires that the contractor enter into separate contracts with all of those entities in order for additional insured status to extend.

It would not be surprising to see the Court of Appeals grant certification if TDX decides to appeal, particularly in light of the lengthy dissent. Nevertheless, over the past decade, courts have frequently expanded the scope and breadth of additional insured coverage. The decision in Gilbane may be a sign that there is a ceiling to an insurer’s assumption of risk under a blanket AI endorsement.

Thanks to Dan Beatty for his contribution to this post. If you have any questions about this post, please call or email Brian Gibbons at Brian Gibbons for additional information.

If I Only Had a Hammer: NJ Supreme Court Rules on Key Construction Defect Coverage Issue

Constructive defect litigation has bedeviled the insurance industry for years, particularly in New Jersey, California, and Florida. These claims are complex and generate years of expensive litigation. While many insurers have abandoned the construction/contractor’s market or excluded these risks with “Tract Homes” or Condominium exclusions,  others find themselves mired in disputes over the scope of coverage available to contractors involved in construction defect litigation.

In New Jersey, one unresolved question was whether the standard 1986 ISO form CGL policy covered a developer/general contractor against claims of consequential damage caused by the faulty workmanship of a sub-contractor. Do such claims satisfy the requirement that “property damage” must be caused by an “occurrence”?  If so, are those claims barred by Exclusion l. as “property damage” to “your work”?

In Cypress Point Condominium Association, Inc. v. Adria Towers, L.L.C., et al., the New Jersey Supreme Court used a three step process in resolving these coverage issues.  First, it held that the consequential damages caused by a subcontractor’s shoddy work qualified as “property damage.”  Further, the Supreme Court found the water damage to common elements and individual units caused by the subcontractor’s faulty workmanship was an occurrence, because “the consequential harm caused by negligent work is an ‘accident.’” Second, the Supreme Court observed the “Your Work” exclusion likely eliminated coverage for the ensuing water damage. However, on the final step of analysis, the “Your Work” exclusion was nullified by the exception for damage arising out of work performed “on your behalf by a subcontractor.”

There are two main takeaways from Cypress Point. First, a standard CGL policy provides coverage to a general contractor for claims of consequential damage caused by a subcontractor.  The insurer for a general contractor can no longer disclaim coverage on the basis that the entire project is the GC’s work and therefore excluded from coverage.  Second, the Supreme Court invited insurers to exclude this specific risk – participants in the Excess & Surplus Lines market take note – by eliminating the subcontractor exception from the “Your Work” exclusion or adding a breach of contract exclusion.

If you have an questions or comments, please email Paul at pclark@wcmlaw.com.

 

WCM Obtains Judgment of No Coverage in Bucks County, PA Construction Defect Case.

Partner Bob Cosgrove and associate Hillary Ladov were awarded a declaration of no coverage in a Buck County, Pennsylvania coverage action arising out of the defective construction of a residential pool.

In the case of Nautilus Insurance Company v. Crystal Clear Pools, Inc., et al., the underlying plaintiff allegedly suffered approximately $200,000 damages due to the failure of Nautilus’s insured to timely and correctly construct a pool, decking, and surrounding landscaping.

Throughout pleadings and motion practice, we maintained that a commercial general liability policy does not afford coverage for faulty workmanship, such as that alleged in the underlying complaint. At the close of the pleadings, we moved for entry of an order declaring that no coverage was provided under the policy for the underlying plaintiff’s damages. The court agreed and held that there was no coverage under the policy.

For more information about this post please e-mail Bob Cosgrove .

Certificate of Occupancy Trumps Plaintiff’s Claims of Construction Defect (NJ)

Construction defect litigation involves complex issues of law and fact to establish whether damages are attributable to faulty workmanship.  In, Wilson v. Woodfields at Princeton Highlands, a  pro se plaintiff learned that her claims of water infiltration and shoddy workmanship were not sufficient to prove her case against the contractors who built her home.

The plaintiff testified about flooded basement events, musty smells,  and muddy residues.  She brought in expert witnesses who testified that the construction of the home over shallow groundwater, grading around the home, a blocked drainage pipe and other construction defects were the cause of her problems.  However, the judge (in a bench trial) was not persuaded by any of her evidence.

The defense was able to chip away at the credibility of plaintiff and her witnesses. Significantly, they showed inconsistencies in her testimony about when she first noticed water problems and confronted her with documentation that contradicted her testimony.  The defense pointed out that an expert mistakenly referred to radon pipe as a drainage pipe – and this poisoned other experts who relied upon his opinions.

On the other hand, the judge was particularly swayed by the fact that the building department had inspected and approved the construction as compliant with codes and the plans and blueprints.  While the Court did not establish a presumption per se, it found that the defendant’s evidence that the municipality issued a Certificate of Occupancy for plaintiff’s home compelling enough to establish that there were no defects prior to the sale.

When faced with the defendant’s expert testimony supported by the fact that the town issued a certificate of occupancy, the Appellate Division held that the plaintiff did not present sufficient evidence to disturb the trial court’s dismissal of the claim. In the end, the plaintiff just did not present enough credible proofs and could not overcome the compelling proofs offered by the defense.

Thanks to Ann Marie Murzin for her contribution.

For more information, contact Denise Fontana Ricci at dricci@wcmlaw.com.

 

When Runoff Water Runs Afo(w)l (PA)

In Scott v. Ferguson, plaintiff Scott filed a complaint against a neighboring homeowner, alleging that Ferguson allowed his guinea fowl to enter plaintiff’s property and cause damage. Ferguson countersued, alleging that plaintiffs improperly installed a water drainage pipe, causing water to run off onto Ferguson’s property.

In response to the countersuit, plaintiffs filed a third-party complaint against Susquehanna Township, alleging that the Township was negligent in failing to install catch basins on or near the properties of the plaintiff and defendant. In essence, the plaintiffs installed a drainage pipe that emptied onto a public roadway. The water then travelled downhill and entered defendants’ property. The claim was that the Township should have installed a basin to catch the additional water coming off the plaintiffs’ property. At issue here are the Township’s preliminary objections to the plaintiffs’ third-party complaint.

The Township argued that the complaint should be dismissed since it had no duty to the plaintiffs to install a basin. This was based on the Township’s assertion that the overflow of water was due to incremental changes in the landscape over time. The Court of Common Pleas of Lycoming County agreed. The court said that a city cannot be held liable for the effects of an incidental increase in surface waters flowing in a natural channel where the increase is owing to normal, gradual development in the city. In this case the increase in water flow was due to the gradual changeover from rural to urban land and there is no authority to hold a city liable for such changes.

This case provides a useful window into understanding how Pennsylvania courts in more rural counties are dealing with surface water issues. We expect similar issues to come up more frequently as residential and commercial development in these areas continues to grow. It is important to recognize that in cases such as these, the role of the town or city as a potential source of contribution is likely minimal.  Thanks to Remy Cahn for her contribution.  Please email Brian Gibbons with any questions.