Source: https://www.insurancelawhawaii.com/insurance_law_hawaii/2016/11/index.html
Timestamp: 2019-04-22 09:59:03+00:00

Document:
The Illinois Appellate Court determined the general contractor was not covered for construction defects despite allegations of damage to personal property. Wesfield Ins. Co. v. West Van Buren, LLC, 59 N.E. 2d 877, (Ill. Ct. App. 2016).
The developer constructed a condominium development in Chicago. The installation of the roof was contracted to Total Roofing. Total Roofing agreed to insure and indemnify the developer against liability for Total Roofing's work. Total Roofing obtained a CGL policy with Westfield Insurance Company listing the developer as an additional insured.
After it took possession, the Van Buren Condominium Association claimed construction defects in the roof caused water to infiltrate into the building and individual condominium units, causing damage to personal and other property in the units. When the developer refused to correct the roofing problems, the Association spent $309,000 for repairs.
The Association then sued the developer and Total Roofing. The developer notified Westfield and tendered the defense. Westfield denied the tender, but defended Total Roofing under a reservation of rights. Westfield filed an action for declaratory judgment against the developer for a determination that there was no duty to defend or indemnify. The developer filed a counterclaim alleging a duty to defend because the underlying complaint contained allegations of personal property damage that were within the policy's coverage.
The parties cross-moved for summary judgment. At the hearing Westfield acknowledged the underlying complaint alleged personal property damage but argued the Association lacked standing to assert such claims on behalf of individual unit owners. The trial court granted summary judgment to the developer, but on a motion for reconsideration, the court vacated its judgment and granted summary judgment to Westfield.
On appeal, the judgment was affirmed. First, the underlying complaint either focused on the intentional bad acts of the developer or nonfortuitous events. Such events included the resulting damage to the condo building due to shoddy workmanship, of which the developer was allegedly aware.
Second, the allegations did not constitute property damage under the policy. Under Illinois law, "physical" injury occurred when property was altered in appearance, shape, color, or in other ways that did not take place when an economic injury occurred, such as diminution in value. The complaint alleged that had the unit owners known of the defects, they would not have purchased the units or would have negotiated the price. Therefore, these damages and the allegations related only to diminished value and economic harm. Defective work and products were purely economic losses.
Third, while construction defects that damage something other than the project itself could constitute an occurrence and property damage, the allegations of damage to personal property were meant to bolster the contention that water infiltration generally occurred and caused damages. Moreover, the Association's allegations of personal property damage were not offered for the purposes of recovery. These allegations were purely tangential to the Association's claim for damages for repair and remediation of the roof.
Having determined there was not duty to defend, the court also affirmed the trial court's ruling that there was no duty to indemnify.
The Eleventh Circuit found there was no duty to defend the contractor additional insured for the costs of repairing and replacing roofing installed incorrectly by the subcontractor insured. Core Constr. Servs. Southeast v. Crum & Forster Spec. Ins. Co., 2016 U.S. App. LEXIS 17575 (11th Cir. Sept 28, 2016).
After the condominium project was completed, Hurricane Wilma damaged several roofs in the development. The association and its insurer, Empire Indemnity Insurance Company, discovered that the roof had been installed incorrectly by Patnode Roofing, Inc. Empire paid for the damages and the association assigned its claims against Core Construction and its subcontractors, including Patnode, to Empire. Empire then sued Core Construction, Patnode and other subcontractors.
Core Construction was a named insured under a CGL policy issued by Crum & Forster to Patnode. Core Construction requested a defense, but Crum & Forster rejected the request. In a coverage suit, the district court granted summary judgment to Crum & Forster because the underlying suit did not allege that Patnode's work resulted in "property damage" as defined in the policy. The complaint only asserted that the roofs had been damaged, rather than asserting that the roofs had caused damage to other elements of the building.
The Eleventh Circuit acknowledged that the Florida Supreme Court had concluded that "property damage" involves "damage beyond the faulty workmanship or defective work." But there was "no coverage for 'property damage' when a claim sought solely the costs of repairing and replacing the actual defects in . . . construction." United States Fire Ins. Co. v. J.S.U.B., Inc., 979 So.2d 871, 889 (Fla. 2008).
Here, Crum & Forster owed no duty to defend because the complaint did not allege a claim for "property damage." Empire did not allege that the defective installation of roofing caused "physical injury to tangible property" such that there was damage to the completed project caused by the subcontractor's defective roofing work or that the defective work caused the roof to fail in such a way as to allow the elements to damage other components of the project. The complaint against Core Construction only alleged a claim for the cost of repairing and replacing a roof that had been installed improperly by its subcontractor.
Interpreting Florida law, the United States District Court found there was no duty to defend a contractor against construction defect claims. Evanston Ins. Co. v. Dimmucci Dev. Corp. of Ponce Inlet, Inc., 2016 U.S. Dist. LEXIS 123678 (M.D. Fla. Sept 13, 2016).
The insured constructed the Towers Grande Condominium. In 2012 the Towers Grande Condominium Association, Inc. initiated the underlying action alleging that the insured's failure to construct the Towers Grande properly resulted in building defects and deficiencies. Damage to the roof, generator exhaust pipe, and HVAC system was alleged. Further, water intrusion and decking/structural issues were claimed. In addition to the construction defects, the Association also alleged that the insured's faulty work led to additional damages.
Evanston filed a declaratory judgment action. The parties filed cross motions for summary judgment on coverage issues.
The court initially determined that the underlying complaint alleged an occurrence under the policies. The insured did not expect nor intend the resulting structural damages caused by water intrusion and improper ground floor decking.
The complaint also sufficiently alleged "property damage." The complaint alleged damages for more than the cost of repairing or replacing the insured's defective work. For example, the complaint alleged "failure of waterproofing, sloping and/or joint issues with sealant allowing water into units and structural damage to decking and rebar below." Such allegations did not solely encompass the insured's defective work but also described other property damaged, such as damage caused by the insured's faulty work in applying waterproofing and sealant. Because the underlying complaint alleged property damage to nondefective portions of the project caused by the insured's defective work, and were not limited to repair or replacement of such work, the allegations sufficiently established an "occurrence" that caused "property damage," thus triggering a duty to defend.
However, the allegations also brought the alleged property damage within the "your work" exclusion, ultimately extinguishing the insurer's duty to defend. If the complaint alleged damage only to the insured's work, the "your work" exclusion barred coverage. The complaint alleged that the insured's defective work on a portion of the Towers Grande caused property damage to other portions of the building also constructed by the insured.
Interestingly, the court's reasoning departed from that of the New Jersey Supreme Court and other jurisdictions. In Cypress Point Condominium Assoc. Inc. v. Adria Towers, 226 N.J. 403 (N.J. 2016) [post here], the New Jersey Supreme Court recognized the subcontractor's exception to the exclusion and held that because the water damage to the completed portions of the project were alleged to have arisen out of faulty workmanship performed by subcontractors, it was a covered loss.
The Louisiana Supreme Court held that the duty to defend in long latency disease cases should be prorated between the insurer and insured when the policies cover for only a portion of the time in which the exposure occurred. Arceneaux v. Amstar Corp., 2016 La. LEXIS 1675 (La. Sept. 7, 2016).
The underlying plaintiffs alleged that they worked at American Sugar's refinery during various years ranging from 1941 to 2006, and suffered hearing losses from exposure to loud noise in the course of their work. For many of these years, American Sugar was self-insured. For other years, various insurers provided policies. Continental Casualty Company provided liability policies to American Sugar covering bodily injury from December 31, 1975 through March 1, 1978, or a period of 26 months. Continental agreed to pay 25% of the past and future defense costs, subject to a reservation of rights.
In the ensuing lawsuit, American Sugar moved for partial summary judgment, contending that Continental owed a duty to defend, including a complete defense and reimbursement of defense costs expended plus interest. The trial court granted American Sugar's request for a complete defense going forward, but denied the motion's request for past defense costs.
The Supreme Court noted there was no Louisiana precedent on whether an insurer's duty to defend may be prorated among insurers and the insured during periods of self-insurance in long latency disease cases. Nationwide, the pro rata allocation method and the joint and several allocation method were used.
Under the pro rata allocation, carriers of triggered policies were responsible for a share of defense costs based at least in part on the period of time they were on the risk. Defense costs were divided among insurers, and if the insured was not covered for certain periods, the insured was responsible for its pro rata share. Under the joint and several allocation, the insured selected one insurer that was on the risk and held it liable for the entire loss up to policy limits. This insurer then had the burden of collecting contribution from other insurers.
The court adopted the pro rata allocation method for defense costs based on the policy language. The joint and several allocation approach provided a disincentive to insureds to purchase uninterrupted insurance coverage and provided a windfall to companies that failed to obtain continuous coverage. The pro rata allocation method, by contrast, promoted risk spreading.
Therefore, the amount of time an insurer was on the risk was an appropriate formula for pro rata allocation. Continental was only responsible for its pro rata share of defense costs based on its policy periods. A petition for rehearing was denied by the Louisiana Supreme Court on October 19, 2016.
The insurers were granted summary judgment on three issues regarding Amtrak's claim for damages caused by Hurricane Sandy. Amtrak v. Aspen Sec. Ins. Co., 2016 U.S. App. LEXIS 16074 (2nd Cir. Aug. 31, 2016).
Hurricane Sandy caused flooding which damaged two of Amtrak's tunnels under the East and Hudson Rivers. Seawater from the flooding caused extensive damage to equipment in the tunnels. The district court granted summary judgment to the insurers on the following issues: (1) the damage caused by an inundation of water in the tunnels was subject to the policies' $125 million flood sublimit; and (2) the corrosion of equipment after Amtrak pumped out the seawater was not an "ensuing loss" and therefore was also subject to the flood sublimit.
Various policies offered different definitions of "flood." Some of the policies did not include within the definition of flood "sea surge" and "wind driven water." Therefore, Amtrak argued the wind-driven tidal surge did not fall within the definition. The court disagreed. The policies' definitions of "flood" were sufficiently broad to include an inundation of seawater driven by storm surge or a wind storm under their plain meaning. Consequently, the $125 million flood sublimit applied.
The ensuing loss clause provided that: "Even if the peril of flood . . . is the predominant cause of loss or damage, any ensuing loss or damage not otherwise excluded herein shall not be subject to any sublimits." The court noted that coverage for an ensuing loss directly related to the original excluded risk was not allowed. Amtrak contended that the corrosion of its metal equipment was caused by a "chloride attack" arising from the combination of seawater residue with oxygen in the air, and thus an "ensuing loss" that was not subject to the flood sublimit. The corrosion began only after Amtrak pumped the seawater out of the tunnels. The court found Amtrak's interpretation of the ensuing loss clause so broad that it would contravene the flood sublimit's purpose. Therefore, damage due to the corrosion was also subject to the $125 million flood sublimit.
The insureds' motion for partial summary judgment on the applicability of the homeowner's mold limitation was denied. R.W.& R. v. Liberty Mutual Fire Ins. Co., 2016 U.S.Dist. LEXIS 131586 (W.D. Wash. Sept. 26, 2016).
The policy imposed a $5,000 limit on losses caused by mold. Plaintiffs discovered that their dishwasher was leaking and reported the loss to Liberty. Liberty's contractor concluded that the bottom of the dishwasher had rusted out, causing water to seep into parts of the kitchen and the laundry/utility room below. The contractor used dehumidifiers to extract moisture from the affected areas and removed damaged cabinetry, drywall and tiling. The contractor discovered mold that it believed predated the dishwasher leak. Although the contractor took steps to remove the mold, its dehumidification efforts exacerbated the problem by dispersing mold spores throughout portions of the house.
Liberty covered certain losses caused by the dishwasher leak, but asserted that the portion of the losses attributable to mold was contractually limited to $5,000. Liberty hired Rimkus Consulting Group, Inc. to investigate the mold damage. Rimkus identified ten moisture sources, only one of which was the dishwasher leak. Rimkus also found numerous locations throughout plaintiffs' home where mold was present.The dishwasher leak was not entirely to blame. In the bedroom, a considerable portion of the mold was attributable to moisture from the exterior of the home. The same was true for the laundry/utility room. Rimkus confirmed that the contractor's remediation work had worsened the issue, but it was not solely at fault. The home was plagued by numerous sources of ongoing moisture intrusion.
Another contractor hired by Liberty estimated the cost of remediating the mold problem. It was estimated that it would cost $4,252.79 to remove the mold growing in the kitchen and laundry/utility room and $1,291.35 for the mold in the bedroom. Remediating the mold throughout the remainder of the house would cost nearly $40,000.00. Liberty advised plaintiffs that the mold damage to the kitchen and laundry/utility room was covered, but the damage was subject to a limit of $5,000. Liberty paid this amount.
Plaintiffs sued and moved for partial summary judgment, contending there was no genuine issue of material fact concerning Liberty's liability for breach of contract.
The motion was denied. Plaintiffs' breach of contract claim could not be resolved on summary judgment because there was a disputed issue of whether the dishwasher leak was the efficient proximate cause of more that $5,000 in mold damage. Plaintiffs were correct that Liberty could not use the $5,000 policy limit on mold damage to circumvent the efficient proximate cause rule, under which Liberty had to cover any losses that were predominantly caused by the dishwasher leak.
The dishwasher leak was only partially to blame for the mold problem in the laundry/utility room and bedroom. This mold was also attributable to the exterior moisture that had seeped through the walls. The estimate for repairing the kitchen and laundry/utility room was $4,252.79. At this stage, it was impossible to apportion which of those losses were predominantly caused by the dishwasher leak as opposed to the intrusion of exterior moisture. This was for the factfinder. The same applied to the bedroom, where the estimate was $1,291.35 to remediate the bedroom, but there was evidence that the mold damage caused by the dishwasher leak was limited to the closet.
Because there were genuinely disputed issues of material fact whether the dishwasher leak was the efficient proximate cause of more than $5,000 in losses, plaintiff's motion for summary judgment on the breach of contract claim was denied.

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