Insurance Claims And Issues

An "Occurrence" for Defense: Alleged Facts, or Causes of Action?

   A new decision by the Federal Fifth Circuit Court of Appeals, under Missouri law, has addressed the question of whether an "occurrence" triggers a defense under a CGL Policy because of the facts alleged against the insured defendant, or because of the causes of action alleged.  (Or, as in this case, because of the facts actually appearing in the record where apparently no lawsuit had yet been filed.)

   In Download Westchester Surplus Lines Insurance Co. v. Maverick Tube Corp. (5th Cir. Opinion Filed December 10, 2009), a panel of the Fifth Circuit answered this question squarely in favor of the facts being the trigger for an "occurrence" to defend under a CGL Policy.

   This is an important and continuing question.  See generally Dennis J. Wall, "Does Insurance Coverage for a Duty to Defend Depend on Causes of Action and Claims Alleged, or on the Facts That Are Alleged?", 14 Coverage 23 (American Bar Association, Litigation Section, LexisNexis January/February 2004).

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Construction Defect Claims and "Occurrrences" in Florida: Chinese Drywall Next.

This is PART TWO of a post begun on August 5, 2009.

Things changed in Florida Insurance Law in December, 2007, mirroring a change in Insurance Law across the nation.

 

That is at least partly because the relevant CGL Exclusion for Damage to Property changed.  The post-1986 standard CGL Coverage Form presently in use provides in relevant part that although there is still an Exclusion for Property Damage to the insured's work arising out of it or any part of it, this Exclusion does not apply if the work in question was performed on the insured's behalf by a subcontractor.

 

With this change in language, Insurance Coverage was extended in Florida to general contractors under their CGL Policies in cases presenting facts which earlier resulted in judgments of no coverage.  E.g., Auto-Owners Insurance Co. v. Pozzi Window Co. (Fla. Dec. 20, 2007, withdrawn and revised opinion substituted on June 12, 2008); United States Fire Insurance Co. v. J.S.U.B., Inc. (Fla. Dec. 20, 2007).  Other Courts in other jurisdictions have disagreed with parts of the Florida experience.

 

NEXT:  Applying these and other rules of Insurance Law to CHINESE DRYWALL CLAIMS.

 

THIS IS PART TWO.  Please Read The Disclaimer.

Construction Defect Claims and an Occurrence in Florida ....

    THIS IS THE FIRST OF TWO PARTS.

   Florida Insurance Law is an example of Comprehensive General Liability Insurance Issues arising from Construction Defect Claims.  Specifically, it is an example of how things have changed in that arena.

    This example begins at the beginning:  with cases involving pre-1986 standard-form Commercial General Liability Insurance Policies.  Looking at the language in those forms and endorsements, and also looking beyond the contract language to the avowed purpose of CGL Coverage, the Florida courts rejected CGL Coverage for many construction defect claims arising from a contractor's faulty workmanship.  Most if not all of these holdings involved damages claims against an insured general contractor for the replacement of its own defective materials and work.  See, e.g., Download LaMarche v. Shelby Mut. Ins. Co. (Fla. 1980).

    Once a construction project was completed, of course, even if the particular CGL Policy contained Coverage for a "Products - Completed Operations Hazard" still such Coverage was specifically excluded under these early forms for property damage to work performed by the named insured arising out of such work or any portion thereof.  Thus, where the named insured was also the defendant general contractor, all work on the construction project was deemed to be the work of the general contractor.  Under these forms, then, there was no Coverage under the general contractor's CGL.  Download Tucker Construction Co. v. Michigan Mut. Ins. Co. (Fla. 5th DCA 1982).

  THIS IS THE FIRST OF TWO PARTS.  Please Read The Disclaimer.

"Moral Hazard" Overwhelms Seventh Circuit Interpretation of a CGL Policy.

    Importing a justification for current foreclosures into the arena of Insurance Policy Interpretation, a panel of the Seventh Circuit Court of Appeals has held that under Indiana law, a residential General Contractor's CGL or Commercial General Liability Insurance Policy with a pre-1986 form provides no Coverage to the General Contractor when a Subcontractor causes damage and the G.C. is sued by the homeowners to pay for it:  Download Westfield Insurance Co. v. Sheehan Construction Co. (7th Cir. Opinion Filed April 29, 2009).

    The panel opinion wrote that the CGL was confined to "accidents of the sort we have mentioned," but then proceeded to say that the Court assumed that the case before it involved covered "Property Damage" caused by an "Occurrence".  The damage in that case resulted from water intrusion into residential homes.  See attached slipsheet at 1-2.  The Court applied  the Policy's "your work" Exclusion to bar all Coverage.  First, the "work" of a General Contractor in the opinion of the Court "is the whole project".  Id. at 3.  Naturally, then, an Exclusion of Property Damage "to '"your work'" arising out of it or any part of it and included in the "products-completed operations hazard"' is outside the policy's scope."  Id. at 2-3.

    Moreover, an Exemption added by a form first published by or for CGL Insurers in 1986 to the "your work" Exclusion, that this Exclusion "does not apply if the damaged work or the work out of which the damage arises was performed on your subcontractor," simply did not apply to this case.  The G.C.-Policyholder's CGL Policy contained an endorsement which included a Definition of, "your work," to include work or operations performed by the G.C. or on its behalf.  "The italicized phrase means that subcontractors' work is included in the scope of 'your work'."  Id. at 4.

    Indiana law applied by this panel of the Seventh Circuit required that CGL Coverage be totally excluded, the Court concluded.  The result would likely be different in other jurisdictions, such as Florida or Tennessee.  Id. at 5.

    A parallel post on this new decision is on Insurance Claims Bad Faith Law Blog at www.insuranceclaimsbadfaith.typepad.com.

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Property Insurers Dovetail With Environmentally Concerned Coalitions.

     The Travelers and Fireman's Fund Insurance Companies are reportedly pressing for innovations to meet climate changes that would alter forever the face of Property Insurance Coverage in the United States.  See, e.g., Cornelia Dean, "Groups See Added Risks From Change in Climate" (New York Times Online, Friday, April 24, 2009);   NU Online News Service, "Group Unveils Blueprint to Save Billions From Hurricanes" published by P & C/National Underwriter, Thursday, April 23, 2009.

    Among the innovations backed by an increasingly broader array of supporters:

• Adopting local land-use policies that deter people from construction in high-risk flood-prone areas.  An example is reportedly provided by City and County officials working together in or about Charleston, South Carolina to restrict development on Johns Island to its interior.
• Enacting more realistic Construction Codes and, at the same time, encouraging existing homeowners and commercial property owners to make their buildings more resistant to storms in storm-prone areas. 

While the members of the coalition were apparently reluctant to endorse the use of Property Insurance Premiums as a planning tool, clearly where Property Insurance in such areas is available at all the Premiums will be very high -- and the Property values are likely to increasingly become lower than they are even now.  See generally John K. DiMugno, Steven Plitt & Dennis J. Wall, "CAT Claims:  Insurance Coverage for Natural and Man-Made Disasters" (Thomson-West Publishing 2008).

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When Property Damage Occurs in Texas.

    On February 13, 2009 the Texas Supreme Court issued a unanimous decision.  The Court reaffirmed its 2008 pronouncement that under a CGL Policy in Texas, "Property Damage" is deemed to "occur" when there is what the Court calls an "actual injury."  The 2009 opinion is so concise and clear in expressing the Court's reasoning that the opinion is quoted here in this regard:

We adopted instead the actual-injury rule, under which property damage occurs during the policy period if "actual physical damage to the property occurred" during the policy period.  As we explained in that [2008] case, "the key date is when injury happens, not when someone happens upon it"--that is, the focus should be on "when damage comes to pass, not when damage comes to light."...  So property damage occurred under the [standard CGL Policies in the case at bar] "when a home that is the subject of an underlying suit suffered wood rot or other physical damage."

Download Pine Oak Bldrs., Inc. v. Great Am. Lloyds Ins. Co. (Tex. Case No. 06-0867, Opinion Filed Feb. 13, 2009). The quoted material will be found on pages 4-5 of this attached slipsheet opinion provided on the Texas Supreme Court website. This decision is also available as 2009 WL 353526 (subscription required).

    In Pine Oak Builders, the Texas Supreme Court went on to hold that there is no duty to defend under a standard CGL containing an Exclusion for property damage to the insured's completed work, where the underlying complaint alleges only property damage to the insured's completed work, even though the Exclusion also contains a standard Exception or Exemption if the damaged work was performed on the named insured's behalf by a subcontractor, and the insured puts on proof that the damaged work was performed on the insured's behalf by a subcontractor.  Id. at 5-7 of the attached slipsheet.

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