Source: http://www.myconstructionexpert.com/blog/2017/08/
Timestamp: 2019-04-21 08:15:07+00:00

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August 2017 - Advise & Consult, Inc.Advise & Consult, Inc.
Policyholders purchase property insurance and pay lofty premiums with the intention of their insured property being restored to where it was prior to a loss. But what happens when the loss affects only a portion of the siding or has destroyed only a handful of discontinued roofing tiles? Is the policyholder forced to accept mismatching materials? The trial court in Hamlet Condominium Association v. American Family Mutual Insurance Company, recently entered an order1 which discussed an insurer’s obligation under a replacement cost value policy to provide a reasonable match between the replacement and existing materials.
When American Family denied the claim, Hamlet invoked the policy’s appraisal provision. An engineer was hired by the umpire and concluded that skimming of the entire wall was required to achieve a uniform appearance. After reviewing the report, the panel agreed to an appraisal award which included costs to skim-coat all buildings to achieve the same color as the repairs. American Family paid the amounts in the appraisal award except for the EIFS skim-coating, which it concluded was not covered by the policy. Hamlet eventually filed suit for breach of contract and statutory bad faith.
In support of its argument for coverage of the EIFS skim-coating, Hamlet relied upon the conclusions drawn in Cedar Bluff v. American Family Mutual Insurance Company,3 a 2014 Minnesota Supreme Court matching case which held that “comparable materials and quality required something less than an identical color match, but a reasonable color match nonetheless.” Hamlet also relied upon recent decisions in Missouri4 and the District of Columbia,5 which similarly concluded that an insurer’s obligation to pay based on “comparable,” “similar,” “like kind,” or “equivalent” quality required a reasonable match between the replacement and existing materials. The trial court ultimately agreed with the cases offered by Hamlet, finding that American Family’s breached its contract as the Hamlet policy covered the cost of obtaining reasonable matching.
This recent decision suggests that, at least in Larimer County, courts will likely agree to a matching standard of reasonable uniform appearance under a replacement cost value policy. It also demonstrates the importance of carefully choosing whether to avoid appraisal and enter straight into litigation, as the issue of whether a reasonable uniform appearance can be achieved is a question of fact for the jury or the appraisal panel to determine. This decision stresses the importance of closely reviewing the policy to confirm that the carrier is providing everything due under the coverage purchased.
1 Hamlet Condominium Association v. American Family Mut. Ins. Co., 2016 cv 30594 (Colo. Dist. Ct. April 12, 2017).
2 EIFS is a form of exterior siding with the appearance of stucco but is made of modern composite materials. It consists of insulation board attached adhesively and/or mechanically to the exterior of a building, a base coat reinforced with fiberglass mesh, and a tinted finish coat.
3 Cedar Bluff v. American Family Mut. Ins. Co., 857 N.W.2d 290, 2014 WL 7156914 (Minn. Sup. Ct. 2014).
4 Alessi v. Mid-Century Ins. Co., Inc., 464 S.W.3d 529 (Mo. App. 2015).
5 Nat’l Presbyterian Church, Inc. v. Guideone Mut. Ins. Co., 82 F.Supp.3d 55 (D.D.C. 2015).
A well-drafted insurance clause is an integral part of a construction contract because it sets forth a subcontractor’s obligations to add the general contractor to its policies of insurance as an additional insured and identifies the manner by which the general contractor will qualify as an additional insured. In a typical construction contract, the general contractor will be an additional insured via a scheduled endorsement or a blanket endorsement.
A scheduled endorsement contains a “schedule” in which the person or organization that is named in the schedule is added to the policy as an additional insured. The following scheduled endorsements are commonly used in construction contracts.
The CG 20 10 11 85 endorsement, entitled “Additional Insured-Owners, Lessees or Contractors (Form B),” provides coverage to the person or organization named in the endorsement for liability arising out of “your [the named insured’s] work.” The phrase “your work” includes the named insured’s ongoing and completed operations.
The CG 20 10 11 85 is generally no longer available, even though most construction contracts continue to require subcontractors to name the general contractor as an additional insured under this endorsement. After 1985, the Insurance Service Office (“ISO”) modified the CG 20 10 form to limit coverage to liability arising out of the named insured’s ongoing operations. The CG 20 10 10 01 endorsement, entitled “Additional Insured- Owners, Lessees or Contractors-Scheduled Person or Organization,” provides coverage to the person or organization named in the endorsement for liability arising out of the named insured’s ongoing operations.
Alternatively, the general contractor can be named as an additional insured for completed operations via a CG 20 37 07 04 endorsement. The CG 20 37 04, entitled “Additional Insured-Owners, Lessees or Contractors-Completed Operations,” provides additional insured coverage to the person or organization named in the endorsement for liability arising out of the named insured’s “work” that is included in the “products-completed operations hazard.” In other words, the endorsement provides coverage for bodily injury or property damage that occurs after the named insured’s work is completed. However, the CG 20 37 07 04 is difficult to obtain, as most insurers have opted not to provide such coverage.
In response to the absence of completed operations coverage in the CG 20 10, the ISO created the CG 20 37 10 01 endorsement, entitled “Additional Insured-Owners, Lessees or Contractors-Completed Operations.” The CG 20 37 10 01 endorsement provides coverage to the person or organization named in the endorsement for liability arising out of the named insured’s completed operations, but does not provide coverage for ongoing operations. Therefore, requiring the subcontractor to name the general contractor as an additional insured using a combination of the CG 20 10 10 01 and CG 20 37 10 01 endorsements , in lieu of a CG 20 10 11 85 endorsement, is proper in order to ensure that the general contractor is an additional insured for both ongoing and completed operations.
As illustrated above, in order for the general contractor to qualify as an additional insured via a scheduled endorsement, the general contractor must be named as an additional insured on the endorsement. Due to administrative errors, it is not uncommon for a general contractor not to be named as an additional insured on a scheduled endorsement. However, despite this omission, the general contractor may still qualify as an additional insured via a blanket endorsement.
A typical blanket endorsement states that additional insured status is automatically provided when the named insured has agreed in a written contract to add a person or organization to its policies of insurance as an additional insured. Thus, a blanket endorsement does not require the intended additional insured to be named on the endorsement in order for coverage to apply.
There are two blanket endorsements that are commonly used in the construction industry. The CG 20 33 07 04 endorsement, entitled “Additional Insured-Owners, Lessees or Contractors-Automatic Status When Required in Construction Agreement With You,” provides coverage to “any person or organization for whom you [the named insured] are performing operations when you and such person or organization have agreed in writing in a contract or agreement that such person or organization be added as an additional insured on your policy” for liability arising out of the named insured’s ongoing operations. The endorsement also states that a person’s or organization’s status as an additional insured ends when the named insured’s operations for the additional insured are completed.
There are two drawbacks to blanket endorsements. Blanket endorsements providing coverage for completed operations are rare, as evidenced by the above endorsements. In response, the subcontractor could attempt to procure a manuscript blanket endorsement (i.e., a non-ISO form endorsement) that provides coverage for completed operations, though industry trends suggest that insurers are reluctant to issue such endorsements. Therefore, if the general contractor wants to have coverage for completed operations, it should confirm that it has been named as an additional insured on a scheduled endorsement providing completed operations coverage.
Blanket endorsement are also problematic because if the named insured’s policy is cancelled, a person or organization that is an additional insured via a blanket endorsement may not receive a notice of cancellation from the insurer. California Insurance Code section 677.2 requires an insurer to provide a notice of cancellation to a named insured. In Kotlar v. Hartford Fire Ins Co., 83 Cal.App.4th 1116 (2000), the California Court of Appeal held that Section 677.2 applies to both named insureds and any persons or entities named as additional insureds on an endorsement. Since blanket endorsements do not require the person or organization to be named as an additional insured, Section 677.2 does not apply to blanket endorsements. In order to remedy this deficiency, the contract could require the subcontractor to provide the general contractor with written notification that the policy is cancelled within a specific time frame following cancellation of the policy. Ultimately, if the general contractor wants to ensure that it receives the statutory notice of cancellation, it should require the subcontractor to name it as an additional insured on a scheduled endorsement.
On December 1, 2016, the Florida Supreme Court held in an insurance coverage case that “when independent perils converge and no single cause can be considered the sole or proximate cause, it is appropriate to apply the concurring cause doctrine.” This decision came on the heels of a recent district split in the state between Florida’s Second District Court of Appeal and Third District Court of Appeal. The split concerned which legal theory of recovery should apply when two or more perils converge to cause a loss, and at least one of the perils is excluded from coverage. The Third District, in Wallach v. Rosenberg, 527 So. 2d 1386 (Fla. 3d DCA 1988), applied the concurrent causation doctrine, which holds that insurance coverage may exist when there are concurrent causes of a loss and at least one cause is covered under the policy. In contrast, the Second District, in American Home Assurance Co. v. Sebo, 141 So. 3d 195 (Fla. 2d DCA 2013), the decision from which the appeal was taken to the Florida Supreme Court, directed application of the efficient proximate cause doctrine. This theory holds that when different perils contribute to a loss, the efficient cause — the one that set the other causes in motion — is the cause to which the loss is attributable. If that cause is covered under the policy, the insured is entitled to coverage for the entire loss. The Florida Supreme Court resolved this divergence of views in Sebo v. American Home Assurance Company, Case number SC14-897, in favor of the Third District’s reasoning and the concurrent cause doctrine.
In Sebo v. American Home Assurance Company, homeowner John Sebo suffered severe property damage, resulting in the ultimate loss of his home, after Hurricane Wilma struck the West Coast of Florida in October 2005. Sebo had purchased his then four-year-old home in Naples, Fla., in April of that same year. Sebo then obtained homeowner’s insurance from American Home Assurance Company (AHAC) and was issued a custom “all risks” policy providing $8,000,000 in coverage. Shortly after purchasing the home, Sebo’s property began experiencing significant water intrusion and related problems during rainstorms. It became clear that the house suffered from major design and construction defects. When Hurricane Wilma subsequently hit Naples, Sebo’s home was further damaged. The residence could not be repaired and was eventually demolished. When Sebo submitted his claim to AHAC, the company denied coverage for any damage other than mold damage. Sebo subsequently renewed his claim but that was denied as well.
Sebo brought suit against the sellers of the property, the architect of the property, the construction company that built the property, and AHAC. Sebo settled against the other defendants and the issue went to trial with AHAC alone on the insurance coverage issue. The trial court entered judgment against AHAC and awarded Sebo the full policy limits of $8,000,000.
On appeal, the Second District Court of Appeal found that there was “no dispute in this case that there was more than one cause of the loss,” — that is, defective construction, rain, and wind — but disagreed with the trial court’s application of the concurrent causation doctrine and reversed and remanded for application of the efficient proximate cause theory.
The Florida Supreme Court, in reviewing the Second District’s decision and the diverging theories, reiterated that “ambiguous exclusionary clauses are construed even more strictly against the insurer than coverage clauses,” and that in all-risk policies such as Sebo’s, the “construction is governed by the language of the exclusionary provisions.” The court then rejected the Second District’s decision and its reasoning and held that the concurrent cause doctrine applied.
The Second District, in remanding for application of the efficient proximate cause doctrine, had reasoned that “a covered peril can usually be found somewhere in the chain of causation, and to apply the concurrent causation analysis would effectively nullify all exclusions in an all-risk policy.” The court disagreed with this logic because AHAC had explicitly written other sections of Sebo’s policy to avoid applying the concurrent cause doctrine. Because the relevant exclusionary language did not explicitly avoid applying the doctrine, the court found that the plain language of the policy did not preclude recovery.
This is a policyholder friendly decision as it is not uncommon for multiple perils to combine and simultaneously cause properly damage. The decision frees policyholders from having to prove that the primary cause of a loss was a covered peril in circumstances involving unrelated causes of loss. While this decision provides policyholders some benefit when concurrent causes converge, the decision does not prohibit the application of the efficient proximate cause doctrine when the causes of loss are not concurrent; that is, when it is possible to trace the damage back through a chain of events and pinpoint a single cause that set the chain into motion.
Given that both the concurring cause and efficient proximate cause doctrines can still apply under Florida law when multiple causes contribute to a loss depending upon the facts giving rise to a particular claim, insurers handling claims in Florida will have to carefully evaluate the specific fact pattern giving rise to the loss to consider which causation doctrine should be applied and how. Furthermore, the court, while briefly mentioning that AHAC did not employ anti-concurrent cause language in the relevant exclusion, did not squarely address how the case would have been resolved if such language had been employed.
The resolution of this case in favor of policyholders should be an indicator to the insurance industry that they can expect to see an increase in claims, especially in the volatile environment of Florida where windstorms and similar occurrences are far from irregular. Policyholder and insurers alike will need to consider the implications this has on coverage of current contracts and how policies language will now be written moving forward in the wake of Sebo. Needless to say, as insurers adjust to this state of the law, similar coverage issues involving causation of loss will inevitably surface and the courts will have to address them at such time.
Following entry of an appraisal award that favored the insured, Owners sought to vacate the appraisal award in part because the insured’s appraiser was not “impartial” under the policy. The appellate court affirmed the trial court’s determination that an appraiser need not be impartial in the same manner as a judge, umpire or arbitrator. Rather, appraisers must be impartial in the sense that experts need to be: rendering their opinions based on their experiences and not allowing themselves to be influenced by the litigants. In the context of appraisers this means that their valuation opinion applies appraisal principals with fairness, good faith and lack of bias.
The appellate court stated that while an impartial appraiser should be unbiased and unswayed by personal financial interests, that does not mean that the appraiser may not favor one side more than the other. The court concurred with the Iowa Supreme Court’s conclusion in Central Life Insurance Company v. Aetna Casualty & Surety Company,2 that so long as the selected appraiser acts fairly, without bias and in good faith, he or she meets the policy requirement of an impartial appraiser. The court also noted that the relevant policy provision distinguished appraisers from the umpire—who is ultimately left to resolve the differences between the appraisers—and the policy contemplated that the appraisers would put forth a value on behalf of the party that selected them. The policy did not hold an appraiser to the standard of “not favoring one side more than the other.” Therefore, an appraiser does not violate the impartiality requirement by acting as an advocate for their respective selecting parties. They must, however, act fairly, without bias and in good faith.
1 Owners Ins. Co. v. Dakota Station II Condominium, No. 16CA0733, 2017 WL 3184568 (July 27, 2017).
2 Central Life Ins. Co. v. Aetna Cas. & Sur. Co., 466 N.W.2d 257, 261 (Iowa 1991).
The word “limit” also carries an abundance of meaning when it’s used in the context of analyzing a worker’s ability to perform basic work activities and whether an injured worker is entitled to permanent total disability (PTD) benefits under Utah’s workers’ compensation statutory scheme. The way the word is used in Utah law was key in a recent decision by the Utah Supreme Court addressing whether a construc­tion worker who was injured on the job was entitled to PTD benefits.
Mark Oliver was working for D. Tyree Bulloch Con­struction on March 27, 2000. While he was on a Bulloch construction site, he fell from a suspended porch and was injured. For years after the injury, he worked in a variety of jobs, including as a construction worker, landscape de­signer, and delivery truck driver. In 2007, he stopped work­ing altogether.
Several years after he was injured on the job, Oliver applied to the Utah Labor Commission for PTD benefits under Utah’s Workers’ Compensation Act. The parties presented conflicting medical and vocational evidence to the commission. Both Oliver and Bulloch had medi­cal experts who provided opinions on Oliver’s ability to work. Dr. Mark Passey opined that Oliver is able to perform “just about any activities he wishes to do.” By contrast, Dr. Jacob Corry opined that he suffers from constant attention difficulties because of his pain and is severely restricted in his ability to walk, balance, and crouch.
In addition, the parties had vocational experts who testified about Oliver’s ability to work. Oliver’s voca­tional expert testified that he likely couldn’t perform basic work activities because of his inability to concen­trate. Bulloch’s vocational expert disagreed, opining that Oliver could perform “medium-duty” work and wasn’t limited in his ability to perform basic work ac­tivities. However, Bulloch’s vocational expert conceded that if Corry’s medical opinion was correct, Oliver likely wouldn’t be able to perform basic work activities.
Because of that conflicting evidence, an administra­tive law judge (ALJ) appointed an independent medical panel to perform an impartial review of the medical evidence. The panel determined that Oliver could per­form medium-duty work as long as he was able to be absent from work occasionally, elevate his legs for five to 10 minutes every hour, and take occasional unscheduled breaks. In addition, the panel concluded that he is able to perform basic work activities. It found that he could con­centrate, commute, communicate, work, remain at work, and cope with the work setting.
The ALJ reviewed the evidence, concluded that Oli­ver was permanently totally disabled, and tentatively awarded him PTD benefits. Bulloch appealed the award of benefits, and the commission reversed the ALJ’s deci­sion on two grounds.
First, relying on the medical panel’s report, the commission concluded that Oliver failed to prove that he was limited in his ability to perform basic work activities. The commission noted that although the panel determined that he might require unscheduled breaks and occasionally need to be absent from work, it found that the “indefinite circumstances do not present a rea­sonable limitation on [his] ability to do basic work activi­ties,” particularly in light of its conclusion that he could work, remain at work, and cope with work changes. The commission also noted that being required to elevate his legs for five to 10 minutes every hour wasn’t enough to show that he was reasonably limited in his flexibility and endurance. Second, the commission disagreed with the ALJ’s determination that Oliver couldn’t perform the essential functions of his work as a delivery truck driver.
(1) He was not limited in his ability to perform basic work activities.
(2) He was not prevented from performing the essential functions of the work for which he was qualified up to the time of his on-the-job injury.
Oliver appealed the commission’s decision to the Utah Court of Appeals, which reversed the denial of benefits. The court found that the commission misinter­preted the “basic work activities provision” of the stat­ute applicable to permanent total disabilities. The court also consulted the U.S. Bureau of Labor Statistics’ (BLS) Occupational Outlook Handbook (which wasn’t in the record as evidence during the commission proceedings) and concluded that the commission’s determination that Oliver was qualified to work as a delivery truck driver wasn’t supported by substantial evidence. The court of appeals reinstated the ALJ’s PTD benefits award. Bull­och appealed to the Utah Supreme Court.
(1) He sustained a significant impairment as a result of the work-related injury.
(2) He is not gainfully employed.
(3) He has an impairment or a combination of impair­ments that limits his ability to perform basic work activities.
(4) His impairment or impairments prevent him from performing the essential functions of the work for which he was qualified until the time of the accident.
(5) He cannot perform other work that’s reasonably available.
(6) The industrial accident or occupational disease is the direct cause of his permanent total disability.
The court clearly placed the burden of proving each of those elements by a preponderance of the evidence on the employee. Most of the inquiries focus on the employ­ee’s ability to work. If the employee fails to prove even one of the six elements, his claim for PTD benefits will be denied.
The Utah Supreme Court first examined the “basic work activities” element of Section 34A-2-413(1)(c)(ii). This element requires employees seeking PTD benefits to prove they have “an impairment or combination of impairments that limit [their] ability to do basic work ac­tivities.” The issue in this case was the meaning of the word “limit” as it is used in the statute.
The court of appeals maintained that employees can show a “limit” on their ability to do basic work activities by producing evidence of any limitation on their abil­ity to work, no matter how slight. In other words, even employees capable of performing basic work activities would be able to establish a claim for PTD benefits if they can show “some limitation” on their performance of basic activities.
The supreme court disagreed with the court of ap­peals’ interpretation, concluding that it was at odds with the “basic work activities” element in the statute. Looking to Provo City v. Utah Labor Commission, a case it decided in 2015, the supreme court explained that it has previously held that “basic work activities” are not just any activities performed in the workplace; rather, they are the activities that are essential to “a broad spectrum of jobs available.” In other words, they are the abilities that allow an employee to perform most jobs, including more sedentary lines of work.
The court then turned to an examination of how “limit” is used in the statute. It acknowledged that “limit” has a variety of possible meanings, but the word is not used in isolation in the statute. According to the court, it’s clear that in the context of the statute, whether an employee is “limited” in his ability to per­form basic work activities depends on whether, irrespec­tive of any impairments, he is meaningfully able to per­form the “core tasks” that are the basic requirements for employment.
Being “limited” in the ability to perform basic work activities is really a question of whether an employee has the abilities and aptitudes necessary for most jobs. If a limitation doesn’t hinder the employee from mean­ingfully engaging in the workforce, he may be limited in performing typical activities, but he isn’t limited in performing “basic” work activities. Thus, the supreme court concluded that the court of appeals incorrectly interpreted the word “limit” in the statute, and the commission correctly interpreted it.
In short, the supreme court concluded that only im­pairments that strike at the heart of the abilities and ap­titudes necessary for most jobs actually limit an employ­ee’s ability to do basic work activities. In other words, an impairment must meaningfully inhibit an employee from performing the core tasks of a wide swath of jobs, making it unreasonable for an employer to ask the em­ployee to perform those tasks.
The supreme court noted that interpretation isn’t consistent with federal disability law. However, federal law doesn’t govern the interpretation of the word “limit” as it’s used in the state’s workers’ comp law. Applying its interpretation, the supreme court concluded the com­mission’s determination that Oliver failed to satisfy the basic work activities element was supported by substan­tial evidence.
The Utah Supreme Court also analyzed the essen­tial functions provision of the statute when it considered Oliver’s application for PTD benefits. Under the statute, an employee must show that his impairments “prevent [him] from performing the essential functions of the work activities for which [he] has been qualified until the time of the industrial accident.” The commission found that Oliver failed to prove that his impairments prevented him from performing the “essential func­tions” of a delivery truck driver, a job he was qualified to perform at the time of his work-related accident.
The court noted that an employee merely has to present evidence that the only job he is qualified to perform is the job he held at the time of the injury. However, an employer can counter that evidence with proof that the employee is qualified for another job (in this case, deliv­ery truck driver). The employee must then respond with evidence that he cannot perform the essential functions of that position. Oliver couldn’t do that. Accordingly, the court concluded that he failed to meet his burden on the essential functions element of the statute.
The supreme court also noted that the court of ap­peals shouldn’t have considered information about the qualifications of delivery truck drivers from the BLS that wasn’t on the record before the commission. The su­preme court upheld the denial of Oliver’s application for PTD benefits. Oliver v. Utah Labor Commission, Workers’ Compensation Fund, 2017 UT 39 (Utah July 25, 2017).
This case illustrates that under Utah’s workers’ comp statute, an employee will be entitled to PTD ben­efits only if he is limited in the abilities and aptitudes necessary to perform most jobs. When confronted with a claim for PTD benefits, you should focus on whether the employee has the ability to perform the basic job duties—i.e., the core functions—of the majority of jobs, including sedentary jobs. If you concentrate on satisfy­ing that standard, you will be better able to defeat over­reaching claims for PTD benefits.

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