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Bolender Presentation to Defense Research Institute: Key Construction Related Insurance Issues - 2009 -2010
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Bolender Presentation to Defense Research Institute: Key Construction Related Insurance Issues - 2009 -2010

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Mr. Bolender presented this slide show in conjunction with his presentation of the Defense Research Institute\'s annual 2010 Construction Law Seminar, which was held at the Bellagio Hotel in Las …

Mr. Bolender presented this slide show in conjunction with his presentation of the Defense Research Institute\'s annual 2010 Construction Law Seminar, which was held at the Bellagio Hotel in Las Vegas, Nevada. The slideshow and article address key construction related insurance issues from 2009 to 2010.

Published in: Economy & Finance, Business

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  • 1. Key Insurance Developments 2009 - 2010
  • 2.  The Insured  Coverage A  Exclusions  Conditions  Performance
  • 3.  Additional Insured Endorsements - Coverage only for AI’s vicarious liability? - Coverage for AI’s negligence? - What does “arising out of” mean?
  • 4.  AIE Example; - Construction manager is additional insured “only with respect to liability arising out of [the named insured’s] ongoing operations...” - Held: “Arising out of” means “‘originating from, incident to, or having connection with’…[,] requiring ‘only … some causal relationship between the injury and the risk for which coverage is provided.’” 930 N.E.2d 259 (N.Y. 2010) (New York law) causal nexus
  • 5.  Interpretations of “arising out of” – Natural consequence – Cause in fact but not necessarily a proximate cause – More liberal concept than proximate cause while rejecting strict “but for” causation – Minimal causal connection or incidental relationship
  • 6.  Property Damage  Occurrence  Trigger of Coverage  Known Losses
  • 7.  Property Damage; – Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it. – Loss of use of tangible property that is not physically injured. All such loss of use shall be deemed to occur at the time of the “occurrence” that caused it. policy definitions
  • 8.  Property Damage; – Issue: Does an unwanted odor that permeates a building or residence constitute a physical injury to tangible property? – Held: Allegations that an ”unwanted odor permeated the building and resulted in a loss of use of the building are reasonably susceptible to an interpretation that physical injury to property has been claimed.” 562 F.3d 399 (1st Cir. 2009) (Massachusetts law) case examples
  • 9.  Occurrence; – An accident, including continuous or repeated exposure to substantially the same general harmful conditions • Faulty workmanship • Resulting damage • Breach of contract • Intentional acts, unexpected damage policy definition
  • 10.  Occurrence; – Issue: Is water intrusion that occurs as a result of faulty workmanship an “occurrence”? – Example 1: “Faulty workmanship, even when cast as a negligence claim, does not constitute [an occurrence]; nor do natural and foreseeable events like rainfall.” 609 F.3d 223 (3d Cir. 2010) (Pennsylvania law) case examples
  • 11.  Occurrence; case examples – Example 2: Water intrusion was an “occurrence” because it was unclear whether the policyholder knew or should have known with substantial probability that the defective windows would cause resulting water damage. 631 F.Supp.2d 1125 (S.D. Iowa 2009) (Iowa law)
  • 12.  Trigger of Coverage; – What must happen during the policy period in order to trigger coverage? • Majority: “The key date is when injury happens, not when someone happens upon it.” 267 S.W.3d 20 (Tex. 2008) (Texas law) • Minority: “[T]he date on which the damage first becomes visible.” 2010 WL 2821981 (M.D. Fla. July 16, 2010) (Florida law) the issue
  • 13.  Known Losses; – Whether any qualifying insured knew that property damage had commenced before policy period? • What degree of knowledge must be shown? • Will courts look at each item of loss? • Who bears the burden of proof? the issue
  • 14.  Known Losses; – Issue: Must the qualifying insured know of its potential legal liability? – Held: “For the known loss doctrine to apply …, the insured must know … an occurrence … has caused damage to the property of a third party;” and that “it is substantially probable that the insured will be liable for the damage.” 2010 WL 1050252 (Wis. Ct. App. Mar. 24, 2010) (Wisconsin law) case example
  • 15. During Operations Exclusion j(5) Exclusion j(6) After Completion Your Work WHEN DID PROPERTY SUSTAIN DAMAGE ? Your Product Impaired Property Contractual Liability
  • 16.  Business Risks; – Issue: Did property sustain damage during operations or after completion? – Example 1: “[Exclusion j(6)] turns on when the insured actually inflicted the damage on the property and, here, [the contractor] caused the damage to the woodwork while conducting its storage and installation operations.” 679 F.Supp.2d 229 (D.Mass. 2010) (New Hampshire law) case examples
  • 17.  Business Risks; case examples – Example 2: “Although [contractor] intended to eventually complete construction work once the units were sold, an actor is not actively performing a task simply because he has not yet completed it but plans to do so at some point in the future.” 557 F.3d 207 (5th Cir. 2009) (Texas law)
  • 18.  Notice  Cooperation  No Voluntary Payments  Contractor Warranties  Self-Insured Retentions
  • 19.  Notice – Imposes duty upon named insured to promptly notify insurance carrier of a potential loss, claim, or “suit” – Example: Late notice, which deprives an insurance carrier of the opportunity to make pre-trial decisions, constitutes a material breach of the notice condition. 2010 WL 1050252 (Wis. Ct. App. Mar. 24, 2010) (Wisconsin law)
  • 20.  No Voluntary Payments – Prohibits an insured from making voluntary payments to a third-party claimant without the insurance carrier’s consent – Example: An insured’s voluntary repair of damage sustained by homeowner (in attempt to “do the right thing” and “mitigate damages”) constitutes material breach of condition. 671 F.Supp.2d 1314 (S.D. Fla. 2009) (Florida law)
  • 21.  Contractor Warranties – Requires an insured contractor to obtain risk- shifting documents from each downstream subcontractor – Example: Court found the endorsement to be an enforceable condition-precedent to coverage in a dispute between carriers. 99 Cal.Rptr.3d 225 (Cal. Ct. App. 2009) (California law)
  • 22.  Duty to Defend  Duty to Indemnify  Supplementary Payments
  • 23.  Duty to Defend; – Potential for indemnification for any claim – Mixed actions require complete defense – Extrinsic evidence may create potential for coverage or negate defense obligation – “Four corners” or “eight corners” rules limit scope of relevant inquiry legal standards
  • 24.  Duty to Defend; – Issue: Will courts consider extrinsic evidence showing an exclusion does not apply? – Held: Although “[f]aulty workmanship by a subcontractor might fall under the ... exception[,]” the petition against the insured did not mention any subcontractors or any negligent supervision by the builder. 279 S.W.3d 650 (Tex. 2009) (Texas law) case example
  • 25.  Duty to Defend; – Issue: Do pre-lawsuit proceedings constitute a “suit” that an insurer must defend? – Held: Mandatory, pre-litigation proceedings satisfied the definition of “suit,” because they are “part and parcel of construction … defect litigation … and, as such, cannot be divorced from a subsequent complaint.” 113 Cal.Rptr.3d 585 (Cal. Ct. App. July 27, 2010) (California law) case example
  • 26.  Duty to Indemnify; – Issue: Must an insurance carrier indemnify its policyholder where no duty to defend? – Held: “[A]n insurer may have a duty to indemnify its insured even if the duty to defend never arises.” 300 S.W.3d 740 (Tex. 2009) (Texas law) case example
  • 27.  Supplementary Payments – Affords insurance benefits that are outside of policy limits – Example: “We will pay, with respect to any … ‘suit’ … we defend … The cost of bonds to release attachments, but only for bond amounts within the applicable limit of insurance … [and] … All costs taxed against the insured in the ‘suit’.”
  • 28.  Supplementary Payments – SPP applicable “regardless of whether the claims are or are not ultimately covered.” 2010 WL 2821981 (M.D. Fla. July 16, 2010) (Florida Law) – SPP does not enlarge the carrier’s duty to defend or obligate it to pay “costs taxed against the insured” on claims not potentially covered. 95 Cal.Rptr.3d 845 (Cal. Ct. App. 2009) (California law) ; case law
  • 29.  Looking Forward - Additional Insured Coverage - Meaning of “Occurrence” - Known Loss Provisions - SIR’s and Contractor Warranties - Duty to Defend Issues - Chinese Drywall Issues
  • 30. INSURANCE COVERAGE COUNSEL