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Vol. 5, Iss. 9
September 7, 2016

The Wall Street Journal Tackles Construction Defect Litigation And Insurance
It is always nice to see the national press take up an issue that is usually reserved to the insurance press or lives principally in the insular world of coverage professionals. Such was the case with an August 8th article in The Wall Street Journal: “Lawsuit Threat Crimps Condos.” Reporter Chris Kirkham does an excellent job addressing the onslaught of construction defect litigation concerning condominium developments. The article noted that condos have been the slowest segment of the housing market to bounce back. Reasons for this include construction defect lawsuits and the resulting increase in the cost of insurance. The article reported that, based on a study of the Denver market in 2013, it costs a developer three times more for insurance for a condo unit than a similarly sized apartment. Further, the study found that the risk of CD litigation adds an additional $15,000 to the cost of a condo unit.

This is a good time to bring out the best quote ever from a court about construction defect litigation: “As Forecast [Homes] told us at the beginning of its brief, ‘given our litigious society, Forecast is also in the ‘business’ of getting sued over the homes that it builds. It is not too much of an exaggeration to say that as soon as the last nail in a project is hammered and the keys are handed over to the homeowners, the ink on the first lawsuit over the construction of the homes is starting to dry.” Forecast Homes, Inc. v. Steadfast Ins. Co., 181 Cal. App. 4th 1466, 1482 (2010).

Supreme Court Wishes Insureds “Good Luck” Understanding Their Policy
I’ve never see this statement in a judicial opinion – although I suspect that some judges are thinking it. The Supreme Court of Idaho had this to say about a policy provision in the context of resolving a dispute over a UIM claim: “Good luck to the average insurance buyer in deciphering the meaning of this provision.” The provision, for which a rabbit’s foot is required, is an “other insurance” clause that reads as follows: “If there is other applicable similar insurance we will pay only our share. Our share is the proportion that our limit of liability bears to the total of all applicable limits. If this policy and any other policy providing similar insurance apply to the accident, the maximum limit of liability under all the policies shall be the highest applicable limit of liability under any one policy. However, insurance we provide with respect to a vehicle you do not own shall be excess over any other collectible insurance.” Personally, I do not believe that the provision is hard to understand. And I know that lots of readers would agree. But I guess CO readers are not “average insurance buyers.”

California Supreme Court: This Could Be Big
The Ninth Circuit has asked the California Supreme Court to answer this question: “Whether there is an ‘occurrence’ under an employer’s commercial general liability policy when an injured third party brings claims against the employer for the negligent hiring, retention, and supervision of the employee who intentionally injured the third party?” Liberty Surplus Ins. Corp. v. Ledesma & Meyer Constr. Co., No. 14-56120 (9th Cir. Aug. 22, 2016). In my experience, insurers generally accept that negligent hiring (in general, failure to prevent-type claims) are an “occurrence.” I would expect to see that change, somewhat, if the venerable California Supreme Court concluded otherwise.

For My Pennsylvania Construction Defect Friends: Kvaerner Applies; Indalex Does Not
This is for those who follow Pennsylvania CD law. Since it’s for a narrow audience, who are familiar with the issues, I’ll just set out the holding here, sans explanation. If you are in this group, you’ll know the significance of this. No explanation is needed.

Acuity v. Knisely & Sons, Inc., No. 3:15-76 (W.D. Pa. Aug. 9, 2016): “[T]he Court concludes that Kvaerner, rather than Indalex, governs the resolution of this action. The claims in the Fifth Amended Joinder Complaint are unequivocally based on faulty workmanship. Kvaerner and its progeny dictate that such claims do not constitute an occurrence as required to trigger an occurrence-based insurance policy.” The court examined what made Indalex different from Kvaener and concluded that “neither of these critical factors is present in the instant case. The underlying action does not involve a bad product designed by Knisely, but rather, poor workmanship in the course of attempting to remedy the deficiencies in an existing product.”

Location, Location, Location -- Does Not Matter
In Lima Delta Co. v. Global Aero, Inc., No. A16A0643 (Ga. Ct. App. July 12, 2016), the court held that no coverage was owed under an aviation policy, for a Gulfstream that crashed landed in the Congo. The policy included an “open pilot warranty” stating that it does not apply (as paraphrased by the court) “while a scheduled aircraft is in flight unless both the pilot in command and the second in command have completed the manufacturer’s recommended ground and flight training school for the applicable make and model aircraft within the 12 months preceding the date of the flight.” One of the pilots had not completed the required training within the 12 months preceding the accident. The court rejected the argument that the “open pilot warranty” did not apply because it was located in the Declarations section of the policy and is not specifically labeled an “exclusion.” The court stated: “[T]he insureds have failed to cite any case that supports their position that the location of the provision creates an ambiguity, where, as here, the terms of the policy provision at issue are clear and unambiguous.”

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