presents presents Construction Defect Insurance Claims Strategies for Policyholders and Insurers to Resolve Coverage Disputes A Live 90-Minute Teleconference/Webinar with Interactive Q&A Today's panel features: Ruth S. Kochenderfer, Of Counsel, Steptoe & Johnson , Washington, D.C. 202.429.8173, rkochenderfer@steptoe.com J James P. Bobotek, Senior Attorney, Pillsbury Winthrop Shaw Pittman , Washington, D.C. P B b t k S i Att Pill b Wi th Sh Pitt W hi t D C 202.663.8930, james.bobotek@pillsburylaw.com Wednesday, September 15, 2010 The conference begins at: The conference begins at: 1 pm Eastern 12 pm Central 11 am Mountain 10 10 am Pacific P ifi You can access the audio portion of the conference on the telephone or by using your computer's speakers. Please refer to the dial in/ log in instructions emailed to registrants.
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Construction Defect Insurance Claims Construction Defect Insurance Claims Ruth S. Kochenderfer – Steptoe & Johnson LLP James P. Bobotek – Pillsbury Winthrop Shaw Pittman LLP
INSURANCE IN A CONSTRUCTION DEFECT CASE INSURANCE IN A CONSTRUCTION DEFECT CASE Occupant Owner/Developer Insurance Contractor Design Consultants Insurance Insurance Building Product Building Product Subcontractors Material Suppliers Manufacturers 1 Insurance Insurance Insurance 5
Occurrence Occurrence Occurrence Occurrence "Occurrence" means an accident , including continuous or repeated exposure g p p to substantially the same general harmful conditions. 6
Occurrence Occurrence Occurrence Occurrence Major issue in construction defect cases – is faulty workmanship an y p occurrence? 7
IT IS! IT IS! IT IS! IT IS! Architex Assoc., Inc. v. Scottsdale Ins. Co., 27 So. 2d 1148, 2010 WL 457236 (Miss. 2010). United Fire & Cas. Co. v. Boulder Plaza Residential, LLC, 2010 WL 420046 (D. Colo. Feb. 1, 2010). Auto-Owners Ins. Co. v. Pozzi Window Co., 984 So. 2d 1241 (Fla. 2008). Hathaway Dev. Co. v. American Empire Surplus Lines Ins. Co., 686 S.E.2d 855 (Ga. App. 2009). 8
IT IS! IT IS! IT IS! IT IS! T.R. Bulger, Inc. v. Indiana Ins. Co., 901 N.E.2d 1110 (Ind. App. 2009). Liberty Mut. Ins. Co. v. Pella Corp., 631 F. Supp. 2d 1125 Liberty Mut. Ins. Co. v. Pella Corp., 631 F. Supp. 2d 1125 (S.D. Iowa 2009). Generali U.S. Branch v. National Trust Ins. Co., 2009 WL 2762273 (W.D. Ky. Aug. 27, 2009). Martco Ltd. P'ship v. Wellons, Inc., 588 F.3d 864 (5th Cir. Martco Ltd. P ship v. Wellons, Inc., 588 F.3d 864 (5th Cir. 2009). Acadia Ins. Co. v. Peerless Ins. Co., 679 F. Supp.2d 229 (D. Mass. 2010). ass 0 0) Fortney & Weygandt, Inc. v. American Mfrs. Mut. Ins. Co., 595 F.3d 308 (6th Cir. 2010). 9
IT IS! IT IS! IT IS! IT IS! Furey Roofing & Constr. Co., Inc. v. Employers Mut. Cas. Ins. Co., 2010 WL 422253 (R.I. Super. Feb. 1, 2010). Auto Owners Ins. Co., Inc. v. Newman, 684 S.E.2d 541 (S.C. 2009). Pine Oak Builders, Inc. v. Great Am. Lloyds Ins. Co., 279 S.W.3d 650 (Tex. 2009). Stanley Martin Cos., Inc. v. Ohio Cas. Group, 313 Fed. App'x 609 (4th Cir. 2009). 10
IT IS NOT! IT IS NOT! IT IS NOT! IT IS NOT! Lexicon, Inc. v. ACE Am. Ins. Co., 2010 WL 79479 (E.D. Ark. Jan. 7, 2010), on appeal, Case No. 10–1100 (8th Cir. 2010). CMK Dev. Corp. v. West Bend Mut. Ins. Co., 917 N.E.2d 1155 CMK Dev. Corp. v. West Bend Mut. Ins. Co., 917 N.E.2d 1155 (Ill. App. Ct. 2009). Trinity Homes, LLC v. Ohio Cas. Ins. Co., 2009 WL 3163108 (S.D. Ind. Sept. 25, 2009). (S.D. Ind. Sept. 25, 2009). W.C. Stewart Constr., Inc. v. Cincinnati Ins. Co., 770 N.W.2d 850 (Iowa App. 2009). Friel Luxury Home Constr Friel Luxury Home Constr., Inc. v. ProBuilders Specialty Ins. Inc v ProBuilders Specialty Ins Co. RRG, 2009 WL 5227893 (D. Mass. Dec. 22, 2009). 11
IT IS NOT! IT IS NOT! IT IS NOT! IT IS NOT! Meridian Mut. Ins. Co. v. James Gilligan Builders, 2009 WL 1704474 (E.D. Pa. June 18, 2009). Brake Landscaping & Lawncare, Inc. v. Hawkeye-Security Ins. Co., 2009 WL 4725293 (E.D. Mo. Dec. 2, 2009). Pennsylvania Nat'l Mut. Cas. Ins. Co. v. Parkshore Dev. Corp., 2009 WL 1737032 (D.N.J. June 17, 2009). 12
MAYBE? MAYBE? MAYBE? MAYBE? COLORADO – It is not? Colorado H.B. 10-1395 “Construction Professional Commercial Liability Insurance Act” Legislating changes to an insurance contract “accident” Known loss/loss in progress Effective as of May 21, 2010 13
MAYBE? MAYBE? MAYBE? MAYBE? TEXAS – It is? Gilbert Texas Construction LP v. Underwriters at Lloyd’s y London , No. 08-0246 (Tex. June 4, 2010) Contractual liability exclusion bars coverage for breach of contract claim. Lamar Homes v. Mid-Continent Cas. Co. , 242 S.W.3d 1 (Tex. 2007) Breach of contract claim may involve an occurrence f and coverage does not turn on the label of the cause of action. 14
C Coverage A - Coverage A C A A - Insuring Agreement I I Insuring Agreement i i A A t t We will pay those sums that the insured becomes legally obligated to pay as becomes legally obligated to pay as damages because of "bodily injury" or "property damage" to which this insurance applies. pp ISO Form CG 00 01 12 07 15
The “Insured” The “Insured” The “Insured” The “Insured” Who is “the insured”? Named Insured – Declarations Page g Insured (Who Is An Insured section) employees, officers, directors (acting in scope of employees, officers, directors (acting in scope of employment) real estate managers newly formed/acquired organizations (grace period) newly formed/acquired organizations (grace period) Additional insureds 16
“Bodily Injury” “Bodily Injury” Bodily Injury Bodily Injury means bodily injury, sickness or disease sustained by a person, y p , including death resulting from any of g y these at any time. 17
“Property Damage” “Property Damage” Property Damage Property Damage a. Physical injury to tangible property, including all resulting loss of use of that property. All such loss of 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; or b. 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. 18
Trigger Trigger Trigger Trigger “This insurance applies to This insurance applies to . . . ‘property damage’ only if: . . . the . . . ‘property damage’ occurs during the policy period.” p y p 19
Trigger Trigger Trigger Trigger Exposure Manifestation Injury-in-fact Continuous 20
Trigger Trigger Trigger Trigger The Incorporation Doctrine : whether the incorporation of a defective product or work into the product or work of another th d t k f th constitutes “property damage” Travelers Ins Co of Illinois v Travelers Ins. Co. of Illinois v. Eljer Manufacturing, Inc. , 757 N.E.2d 481, 502 (Ill. 2001) Esicorp v. Liberty Mut. Ins. Co. , 266 F.3d 859 (8th Cir. 2001) (applying Missouri law) 21
Myths? Myths? Myths? Myths? A CGL policy distinguishes between: Negligence and breach of contract; Property damage and economic loss Property damage and economic loss. 22
EXCLUSI ONS EXCLUSI ONS EXCLUSI ONS EXCLUSI ONS 23
Exclusion b Exclusion b - Contractual Liability Exclusion b. Exclusion b. - Contractual Liability Contractual Liability Contractual Liability This insurance does not apply to: b. Contractual Liability "Bodily injury" or "property damage" for which the Bodily injury or property damage for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement. t 24
Exception to the Contractual Liability Exception to the Contractual Liability Exclusion Exclusion This exclusion does not apply to liability for damages: (1) Th t th (1) That the insured would have in the absence of the i d ld h i th b f th contract or agreement; or (2) Assumed in a contract or agreement that is an ( ) ssu ed a co ac o ag ee e a s a "insured contract", provided the "bodily injury" or "property damage" occurs subsequent to the execution of the contract or agreement execution of the contract or agreement . . . 25
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