The federal Fair Housing Act (“FHA”) and Americans with Disabilities Act (“ADA”) require property developers to provide reasonable accommodations for disabled individuals. In turn, property owners rely on their architect and engineer to design compliant projects. If a project is not compliant, it is typical thinking that the property owner will seek indemnification and defense from the architect or engineer who was paid and insured to make it compliant.

The federal courts prohibit this, however. That is because the national consensus is that the FHA and ADA preempt state contractual law. The courts have looked at the statutes for an express private right of indemnification by an owner against a negligent designer, and they have not found one. As such, they hold that the requirements of the FHA and ADA on property owners are “non-delegable,” and that the liability for their breach cannot be shifted on to any other party.

The recent case of The Chicago Housing Authority v. Destefano and Partners, Ltd., 45 N.E.3d 767, 2015 IL App (1st) 142870 (2016) is illustrative. There, a review by the United States Department of Housing and Urban Development (“HUD”) revealed a range of noncompliance issues at seven properties, necessitating over $4 Million in renovations and new work. The Housing Authority had worked with the architects and engineers expressly to achieve compliance, requiring compliance in the design contracts. The Housing Authority therefore sued the architect and engineer to recover the cost of achieving compliance, under both breach of contract and indemnity theories.

The Illinois Court reviewed a lead case on the matter, Equal Rights Center v. Niles Bolton Associates, 602 F.3d 597 (4th Cir. 2010), noting that the federal trend has been consistent that property owners cannot contractually delegate their duty to comply with the federal accessibility standards. The Illinois Court ultimately held that the Housing Authority had no recourse against its designers whose negligence had caused the noncompliance, because no recourse was provided for in the governing federal standards. Recently, contractors have also been taking advantage of this caselaw to further isolate developers when claims arise. Continue Reading Property Developers Need to Take Extra Steps to Protect Themselves from ADA and FHA Liabilities

In a recent case, the Oregon District Court adopted a liberal interpretation of “property damage.” The Oregon Shakespeare Festival Association (OSF) suffered a loss during its season: nearby wildfires caused smoke to infiltrate a partially outdoor theater where performances were being held, necessitating cancellations. Oregon Shakespeare Festival Association v. Great American Insurance Company, 2016 WL 3267247 at 1-3 (D. Or. June 7, 2016).

OSF’s insurance policy covered “direct physical loss or damage” to its property and the “actual loss of Business Income” caused by such loss or damage. Id. at 4. Thus, to get coverage for the business losses it sustained by cancelling performances, OSF had to show that the smoke infiltration, the undisputed reason for the cancellations, was “direct physical loss or damage” to property.

OSF argued that “physical loss or damage” means “any injury or harm to a natural or material thing.” Id. at 5. Great American Insurance, OSF’s insurer, argued that air is not “property,” and that covered damage must be “physical”—not just smoky air. Id. at 5-6. The court agreed with OSF, holding that Great American’s definition was too restrictive: there was nothing in the policy, the court said, to suggest contaminated indoor air is not covered, nor could Great American explain why air is not “physical.” Id. The court explained: Continue Reading Oregon Court Endorses Broad Definition of “Property Damage”

Fortunately for Utah policyholders, a recent District of Utah decision has continued the trend toward liberalizing Commercial General Liability (“CGL”) coverage in Utah. In The Cincinnati Ins. Co. v. Spectrum Devel. Corp, the District of Utah held that defective construction can be an “occurrence” so as to trigger coverage under a CGL policy.

CGL policies generally cover amounts that an insured “becomes legally obligated to pay as damages because of property damage” caused by an “occurrence.” The standard definition of “occurrence” is “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” Utah courts have had considerable difficulty determining whether defective construction is an “accident.”

The previous rule in Utah was that conduct, and the result of conduct, is not accidental if it is deliberate or intentional, even if the result was neither deliberate nor intentional. Until recently, Utah courts borrowed the reasoning of the Washington Court of Appeals, which put it this way:

 [A]n accident is never present when a deliberate act is performed, unless some additional, unexpected, independent, and unforeseen happening occurs which produces or brings about the result[.]

Safeco Ins. Co. of Am. v. Dotts, 38 Wash.App. 382, 685 P.2d 632, 633-34 (1984).

Two previous Utah cases, Rosenberg and Geary, illustrate the above rule. In Geary, the Utah Court of Appeals held that bodily injury resulting from a shotgun blast was not accidental because the shooter deliberately pulled the trigger, whether or not he had any intention to harm the victim. See State Farm Fire & Cas. Co. v. Geary, 869 P.2d 952, 955-6 (Utah Ct. App. 1994).  Similarly, in Rosenberg, bodily injury resulting from a cherry bomb was not accidental because the bomb was deliberately and intentionally thrown. See Fire Ins. Exchange v. Rosenberg, 930 P.2d 1202, 1205 (Utah Ct. App. 1997). Continue Reading Across the Spectrum: Utah’s Recent Move Toward a Proper Interpretation of “Occurrence” In Commercial General Liability Policies

Recently, a federal district court in Florida held that the Chapter 558 process is not a “suit” under a commercial general liability policy and the insurer had no obligation to defend the insured during this process. Under Chapter 558 of the Florida Statutes, before a lawsuit can be commenced concerning construction defects, the claimant must provide notice of the claim to the contractor and provide the contractor with an opportunity to resolve the claim (often referred to as the “558 process”).

This process can be expensive as it may require the hiring of counsel and experts and entail property inspections. Normally, a contractor will send the 558 Notice to its insurer and request the insurer hire counsel to protect the contractor’s interests. In most cases, the insurers will abide. Unfortunately for one contractor, its insurer denied to do so.

In Altman Contractors, Inc. v. Crum & Forster Specialty Insurance Company, Altman Contractors, Inc. (“Altman”) was served with a Chapter 558 Notice of Claim regarding the construction of a high-rise residential condominium. Altman forward the Notice to its insurer, Crum & Forster, and demanded that Crum & Forster defend and indemnify Altman during the process. Crum & Forster denied that it had a duty to defend Altman because the matter was not in “suit.” Altman filed suit against Crum & Forster for breach of contract as well as for a declaration determining whether Crum & Forster owed Altman a duty to defend the 558 process. Both Altman and Crum & Forster filed motions for summary judgment on these issues. Continue Reading Federal Court in Florida Finds Insurer Has No Duty to Defend Insured During Chapter 558 Process

On April 7, 2015, a federal appellate court issued a critical opinion on insurance coverage for construction-defect cases. In Carithers v. Mid-Continent Casualty Company, the Eleventh Circuit held that (1) the duty to defend is triggered unless there is certainty (factual and legal) that no coverage exists; (2) there is coverage under a contractor’s commercial general liability policy for property damage caused by one subcontractor’s work to another subcontractors work; and (3) “rip and tear” costs are covered “property damage.” Continue Reading Eleventh Circuit Provides Critical Path to Defense and Indemnity

With the sanctity of any time-honored tradition, insurers resist discovery of their claim file with the ritualistic incantation that it is protected from discovery because it was prepared in anticipation of litigation, and therefore qualifies as work product.  To support this argument, oftentimes insurers outsource the adjustment of the claim (a normal business activity) to outside attorneys, and then refuse to provide the attorney’s file, or communications with the insurer and the attorney, on the basis that those documents are protected by the attorney-client privilege. Courts across the county have been increasingly dismissive of these arguments, holding that an insurer cannot cloak its claim file with privilege simply by paying a lawyer to do what is otherwise an everyday claim handling activity for the insurer.  Oregon finally has a chance to weigh in on this issue and level the playing field for insureds.  Read more on The Policyholder Report blog.

Please check out my latest post on the Policyholder Report blog regarding a recent Florida decision  – another win for policyholders.  Here is an excerpt:

Last week, a federal district court in Florida reaffirmed the black-letter law in Florida that claims against a general contractor for damage to the completed project resulting from the defective work of a subcontractor constitutes “property damage” under a Commercial General Liability, or “CGL,” policy. The order also clarifies how “other insurance” clauses are construed when insurers offer competing arguments about who has to pay first — a common dispute in multiparty, multipolicy cases.

In Pavarini Construction Co. v. ACE American Ins. Co. (Feb. 25, 2015), Pavarini, the insured, was the general contractor for a 63-floor, mixed-use condominium tower. As is customary in projects of this size, Pavarini hired several subcontractors to perform the work. The steel subcontractor’s deficient work at issue in this case involved missing and misplaced reinforcing steel in the concrete masonry unit. This deficient work caused excess movement in the building, resulting in damage to exterior stucco, water intrusion in the penthouse enclosure, and cracking in the concrete columns, beams, and shear walls.  Read more.

Be sure to check out Dwain Clifford’s post on The Policyholder Report:  Oregon Court of Appeals Rejects Insurer’s Heads-I-Win, Tails-I-Win Policy Interpretation.

The Oregon Court of Appeals yesterday issued an opinion confirming that Oregon law remains faithful to the bedrock principle in coverage disputes that ambiguities in a policy must be resolved in favor of the insured.

In Patton v. Mutual of Enumclaw Ins. Co. (Oct. 8, 2014), an insured seeking coverage under his homeowner’s policy found himself between a rock and hard place, at least under the insurer’s erroneous attempt to link two unconnected policy provisions to deny coverage.  Read it here.

Our colleagues at The Policyholder Report  note on a recent decision of whether construction defects present a single or multiple “occurrence” for insurance coverage purposes. In Chartis Specialty Ins. Co. v. Am. Contractors Ins. Co. (Aug. 12, 2014), Judge King of the federal district court in Oregon ruled that allegations of “deficiently managed construction” constituted a single occurrence for coverage purposes. Whether defective construction, development, administration and management give rise to one or more “occurrences” has profound consequences for both insurers and their insureds with regard to policy limits in play and deductibles/self-insurance retention amounts.  Read it here.

Today the Oregon Court of Appeals handed down a lengthy opinion upholding a money judgment awarded in favor of a judgment creditor in its garnishment action against American Family Insurance Company.  Read about it and get the decision on Ball Janik’s Policyholder Report.