Source: https://insuranceclaimsbadfaith.typepad.com/insurance_claims_badfaith/construction-defect-claims/
Timestamp: 2019-04-25 12:02:07+00:00

Document:
MIS-INTERPRETATION OF ADDITIONAL INSURED ENDORSEMENT CAUSES BAD FAITH DAMAGES ... Continued.
Having determined the Coverage Claim in favor of the General Contractor, the Court turned its attention to both the Bad Faith Claims in this case, and TRC's Claims based on several Model Unfair Claim Practices Act provisions which are enacted into the Washington State Insurance Fair Conduct Act. The underscored language in the quotation immediately above, gives a clear indication of how the Court was going to rule on the Bad Faith Claims. "An insurer acts in bad faith if its breach of the duty to defend was unreasonable, frivolous, or unfounded." Tim Ryan Construction, Inc. v. Burlington Insurance Co., 2012 WL 6567586 *7 (W.D. Wash. December 17, 2012).
Since Burlington's breach of its Duty to Defend in this case was based on its "unreasonable" interpretation of its own Additional Insured Endorsement, the Court granted TRC's Motion for Summary Judgment on TRC's Bad Faith Claim based on Burlington's Denial of its Duty to Defend TRC.
TRC also based its lawsuit on two provisions of the Revised Code of Washington State and the Washington Administrative Code, which are typical provisions found in many State Unfair Claim Practices Acts. TRC contended that Burlington violated these two provisions, and the Federal Court granted TRC's Motion for Summary Judgment against Burlington as to both of them.
(1) No insurer shall fail to fully disclose to first party claimants all pertinent benefits, coverages or other provisions of an insurance policy or insurance contract under which a claim is presented.
It will be noted that by its terms this provision applies with regard to disclosure "to first party claimants". A review of the Washington Administrative Code and of the Revised Code of Washington gives no reason to believe that the term, "first party claimants," means anything different in the quoted provision than it means generally in other United States jurisdictions, which is a Policyholder or other Insured which claims Policy Benefits directly under her, his or its own Insurance Policy for a loss claimed by the Insured due to damage suffered or incurred by the Insured.
Without ever explicitly conferring the status of "first party claimant" upon TRC which claimed a defense from Burlington under a Comprehensive General Liability Policy in this case, the Federal Court held that Burlington's apparently uncontested failure to disclose "the existence of the new additional insured endorsement in the 2010-11 Burlington Policy, much less coverage available" under it, coupled with Burlington's apparently belated assertion that its Additional Insured Endorsement is somehow limited "temporally," led to the Federal Court's entry of Summary Judgment in favor of TRC on its claim that Burlington violated this provision of Washington State law. Tim Ryan Construction, Inc. v. Burlington Insurance Co., 2012 WL 6567586 *7 (W.D. Wash. December 17, 2012).
(13) Failing to promptly provide a reasonable explanation of the basis in the insurance policy in relation to the facts or applicable law for denial of a claim or for the offer of a compromise settlement.
The Federal District Court granted TRC's Motion for Summary Judgment on this claim, too. "Burlington may have been prompt" in denying a Defense, the Court allowed, but "Burlington did not provide a reasonable explanation of the basis for their denial. Summary judgment on this issue is granted." Tim Ryan Construction, Inc. v. Burlington Insurance Co., 2012 WL 6567586 *7 (W.D. Wash. December 17, 2012).
The Court then held TRC entitled to "an award of attorneys fees," Tim Ryan Construction, Inc. v. Burlington Insurance Co., 2012 WL 6567586 *8 (W.D. Wash. December 17, 2012), presumably referring to the fees incurred by TRC in its defense of the Underlying Case against it.
The Federal Court reserved ruling, however, on TRC's claim for statutory treble damages; the Court reserved "ruling on the total award of damages until the time the underlying lawsuit is resolved." Tim Ryan Construction, Inc. v. Burlington Insurance Co., 2012 WL 6567586 *8 (W.D. Wash. December 17, 2012).
For the parties, the Insurance Company's denial of all Coverage including any Duty to Defend is perhaps the central issue. For observers standing outside of this lawsuit, however, a major question raised by this ruling is how an Insured under a Commercial General Liability Policy, particularly one which (successfully) claims a Defense under that Policy, can ever be seen as a "first party claimant" for purposes of the Carrier's exposure to extracontractual damages.
New Jersey Bad Faith Law, Federal Class Action, Force-placed Flood Insurance.
MIS-INTERPRETATION OF ADDITIONAL INSURED ENDORSEMENT CAUSES BAD FAITH DAMAGES.
In Tim Ryan Construction, Inc. v. Burlington Insurance Co., 2012 WL 6567586 (W.D. Wash. December 17, 2012) the Court was faced with a General Contractor which was denied a Defense under an Additional Insured Endorsement. The General Contractor sued for a Declaration of Insurance Coverage and for Bad Faith Damages. The Court granted the General Contractor's Motion for Summary Judgment in all pertinent respects.
Tim Ryan Construction, Inc. ("TRC") is the General Contractor. Its subcontractor on a commercial building project, Sound Glass, purchased a Commercial General Liability Policy from Burlington. Burlington's CGL has an Additional Insured Endorsement under which TRC is 'indisputably' "covered as an additional insured under Burlington's policies with Sound Glass." Tim Ryan Construction, Inc. v. Burlington Insurance Co., 2012 WL 6567586 *1 (W.D. Wash. December 17, 2012).
TRC was sued in an Underlying Complaint filed in 2011 which did not mention its subcontractor, Sound Glass. Burlington denied TRC a Defense to the 2011 Complaint for that reason, relying also on the language of the Additional Insured Endorsement to the effect that Additional Insureds are Burlington's Insureds "'only with respect to liability arising out of 'your work' for that insured by or for you.... [Further,] any other insurance maintained by the Additional Insured [here, TRC] shall be excess and noncontributory but ... only if such claim, loss or liability is determined to be solely due to the negligence or responsibility of the Named Insured [i.e., of Sound Glass in this instance].'" Tim Ryan Construction, Inc. v. Burlington Insurance Co., 2012 WL 6567586 *4 (W.D. Wash. December 17, 2012). Burlington contended that since Sound Glass was not named in the 2011 Complaint, there was no Duty to Defend TRC.
Having determined the Coverage Claim in favor of the General Contractor, the Court turned its attention to both the Bad Faith Claims in this case, and TRC's Claims based on several Model Unfair Claim Practices Act provisions which are enacted into the Washington State Insurance Fair Conduct Act.
... ON "NO DUTY TO DEFEND, THEREFORE NO BAD FAITH" ARGUMENTS BY INSURANCE COMPANY: SUMMARY JUDGMENT DENIED.
In McMillin Construction Services, L.P. v. Arch Specialty Insurance Co., 2012 WL 243321 (S.D. Cal. January 25, 2012), Download McMillin Constr. Servs, L.P. v. Arch Spec. Ins. Co. (S.D. Cal. Case No. 10cv2592, Order Denying Def's MPSJ Filed Jan. 25, 2012) PUBLIC ACCESS, two of the Insurance Company Defendants filed a Motion for Partial Summary Judgment. They both argued two grounds for the Motion: First, that they had no Duty to Defend under their Additional Insured Endorsement, and second, that Exclusions barred all Coverage including a Duty to Defend anyway. Since they had no Duty to Defend, they argued, they could not in turn be guilty of Insurance Bad Faith as a matter of law. See id. at *1 - *3.
The Federal Court in this case held that the Additional Insured Endorsement relied on by both of the Insurance Companies joining in the Motion at bar was "ambiguous" about a Duty to Defend. Their Motion for Partial Summary Judgment was denied on that first ground accordingly. Id. at *3.
The Federal Judge next turned to the Defendants' argument based on certain Exclusions (Exclusions j(5) and j(6) concerning in pertinent part "ongoing operations"). In this Court's eyes, these Defendants did not meet their Burden of Proof that the Exclusions apply in this particular case. In pertinent part, potential Insurance Coverage for the Damages alleged in the underlying complaint against the Insured, if proven, would not have been excluded by these two Exclusions in any case. "Defendants have not met that burden here, and thus they are not entitled to summary judgment based on the exclusions." Id. at *3.
When moving for Summary Judgment, it is often wise to consider how the Court will read the documents involved in the case -- here, the documents involved were the Additional Insured Endorsement and the underlying complaint -- compared to the Duty to Defend which, after all, is not always the ultimate exposure faced by a Liability Insurance Company in the ordinary case. Even after such consideration is factored into the Insurance Coverage analysis in a given case, sometimes an appropriate motion to highlight one or more issues may be worth pursuing in that particular case, regardless of the results of such consideration.
Colorado Construction: No CGL Defense Duty, No Bad Faith.
It is a prevailing rule of law that where there is no Insurance Coverage, there is no Bad Faith Claim either. Sometimes that rule is applied in silence, i.e., without even mentioning it. Such a decision came in the case of Download Continental Western Insurance Co. v. Shay Construction, Inc. (D. Colo. Case No. 10.cv.02126, Order on MSJ Filed July 28, 2011) PUBLIC ACCESS, also published as 2011 WL 3236102 (D. Colo. July 28, 2011)(authorized password required to access Westlaw).
Shay and White were the two Defendants in a Declaratory Judgment Action over Insurance Coverage. The DJA Plaintiff was Continental Western, which had previously issued a CGL or "Commercial General Liability" Insurance Policy to Shay Construction. Shay's subcontractors filed a lawsuit in which they asserted claims against Shay, and also against White, the General Contractor on the Construction Project in question. White cross-claimed against Shay in the Underlying Liability Case. Continental Western sought a declaration that its CGL did not provide a Duty to Defend anyone against any of the Claims alleged in the underlying case.
In the DJA, Shay counterclaimed against Continental Western for alleged "breach of contract, bad faith breach of insurance contract, and statutory bad faith" under cited Colorado Revised Statutes. Continental Western Insurance Co. v. Shay Construction, Inc., 2011 WL 3236102 at *2.
"The only property damage alleged is Shay's defective work and damage to the work of other trades resulting from the repair of Shay's deficient work. This raises the question, then, of whether this would be considered an accident pursuant to the Policy." Id. at *4. The District Court assumed for purposes of this decision that this could be considered an accident pursuant to the Policy. However, what was claimed was affirmatively excluded. What was claimed fell within Exclusions (j)(5) and (j)(6), standard provisions in the CGL Policy almost totally in use in this country. These two Exclusions together "are described as 'faulty workmanship' provisions." Id. at *6.
"Exclusion (j)(5) generally applies when work is in progress and focuses on the area on which the insured is performing work; Exclusion (j)(6), on the other hand, focuses on the repair of that work and expressly does not apply if the work has been completed." Id. Shay's efforts to repair its own work and allegedly damage the work of others in the process, fell afoul of Exclusion (j)(5) in the eyes of the Court. Similarly, Exclusion (j)(6) excluded "tear out costs" such as those allegedly caused by Shay when it made repairs to tear out its own work, and allegedly thereby damaged the work of others in the process. "Under the circumstances, therefore, Continental Western's duty to defend Shay was not triggered." Id. at *7. The Court accordingly entered its Order Granting Continental Western's Motion for Summary Judgment "on all its claims and against Shay Construction on Shay's counterclaims." Id.
In the course of entering its Order the Court did not mention that among Shay's counterclaims were claims for Bad Faith Breach of Insurance Contract and for Statutory Bad Faith. In fact, after describing what counterclaims were alleged by Shay at the outset of the Court's opinion (as noted above), the Court never mentioned them again. Its decision is, however, squarely in line with the vast majority of jurisdictions that have determined where there is no Insurance Coverage, there is no Bad Faith as a matter of law.
The 22nd Annual Bad Faith Litigation Conference of the American Conference Institute is being held in 2011 in Orlando, Florida. The author will be speaking. As a result, the ACI will offer you a large discount if you choose to register for the Conference. In order to register and receive this discount from the ACI, contact Amanda Waltmon, Esquire, Legal Analyst and Program Director at the ACI and the deadline most recently announced by the ACI for requesting this discount is August 31, 2011. Ms. Waltmon's direct dial is 212.352.3220, ext. 5231 or send Ms. Waltmon an EMail at a.waltmon@americanconference.com. Here is a link to the American Conference Institute Website Page which features this Conference including registration, if you or someone you know would like to attend.
Good Faith Construction Defect Claim Handling: Pointers in Fair Dealing.
Construction Defect Claims Handling presents many challenges for Good Faith and Fair Dealing. Some pointers are provided in this recently published article in Claims Magazine: "Handling Construction Defect Claims/Matters to Consider When Investigating Construction Losses" published online by Claims Magazine in June, 2009, also published in print edition October, 2009; co-authored by Dennis J. Wall, Esquire and W. Michael Latzo, retired, of Generali USA.

References: v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v.