Forrest Construction, Inc. v. The Cincinnati Insurance Company, 703 F.3d 359 (6th Cir. Jan. 11, 2013) (applying Tennessee law)

On January 11, 2013, the U.S. Court of Appeals for the Sixth Circuit held that an insurer cannot rely on the “your work” exclusion if the underlying complaint against a general contractor potentially suggests that the allegedly faulty work was performed by a subcontractor. The court held that the allegation that a general contractor “caused” work to be performed in the construction of an allegedly defectively built home implied the existence of a subcontractor and, therefore, triggered the subcontractor exception. In a standard CGL policy, coverage is excluded for damage to the insured’s own work, except if the damaged work or the work out of which the damages arises was performed on the insured’s behalf by a subcontractor.

Big-D Const. Corp. v. Take it for Granite Too, 2:11-CV-00621-PMP, 2013 WL 222260 (D. Nev. Jan. 22, 2013)

On January 22, 2013, the U.S. District Court for the District of Nevada predicted that the Nevada Supreme Court would find that a CGL carrier can owe a duty to indemnify a contractor for damages caused by defective construction even if the contractor was never been sued and the duty to defend was never triggered. The court found that the term “legally obligated to pay as damages” contained in the standard CGL insuring agreement is ambiguous and could be construed to cover damages the insured is contractually required to pay.

Engineering & Const. Innovations, Inc. v. L.H. Bolduc Co., Inc., 825 N.W.2d 695 (Minn. 2013)

On January 23, 2013, the Minnesota Supreme Court adopted a narrow interpretation of a blanket additional insured provision in a liability policy issued to a construction sub-contractor. The Court found that an additional insured endorsement which limited coverage to injury or damage caused by the acts or omissions of the named insured only provided coverage for loss due to the vicarious liability of the additional insured.

ECI subcontracted with Bolduc to build a shoring system to be created by driving metal sheeting into the ground to act as walls for the underground pits necessary to construct a sewer pipeline. Under the subcontract, ECI was responsible for determining where to drive the metal sheeting into the ground and Bolduc was responsible for installation of the sheeting. The subcontract also required Bolduc to indemnify ECI as follows:

The U.S. Court of Appeals, Second Circuit, Finds That An Insured’s Defective Work Qualifies As An “Occurrence” Because The Policy Contains A Subcontractor Exception To The “Your Work” Exclusion

Scottsdale Ins. Co. v. R.I. Pools Inc., 11-3529-CV, 2013 WL 1150217 (2d Cir. Mar. 21, 2013)

On March 21, 2013, the U.S. Court of Appeals for the Second Circuit reversed the judgment of U.S. District Court for the District of Connecticut, finding that the district court failed to properly consider the impact of the subcontractor exception to the “your work” exclusion in a CGL policy.  The district court granted summary judgment to an insurer on the basis that the underlying construction defect lawsuits alleged only defects in the work itself and, therefore, did not allege an “occurrence” as defined in the policy.  The Second Circuit reversed, observing that the policy also contained an exception to the “your work” exclusion for work performed by subcontractors.  The court concluded that the existence of the subcontractor exclusion meant that the term “occurrence” must also include defects in the insured’s own work.

David M. Alt was an instructor at the Claims & Litigation Management Alliance conference, Fundamentals of Litigation Management, took place on April 18, 2013 in Peoria, Illinois.  To sign up to attend, please go to www.theclm.org.

Congratulations to Bob Bates, Arthur Brandt, Dan Graham and Michael Passman who have lent their expertise to the publication of the Illinois Institute of Legal Education’s recently released book Commercial and Professional Liability Insurance.

The particular chapters authored by our counsel are as follows:

• Pollution Exclusion: Robert J. Bates, Jr. and Arthur F. Brandt
• Introduction to Commercial Liability Coverages—Overview of the Forms:  Michael H. Passman

Please feel free to contact the authors with questions on their chapters or other insurance coverage issues.

A February 13, 2013 decision from the U.S. District Court for the Southern District of Illinois clarifies the line between the uninsured business risks of a public entity, and true covered “loss” or “damages.”

Public entities issue fines, charge fees, set utility rates and levy taxes. When citizens challenge these activities and seek the return of money, the line between insured “loss” or “damages” and the uninsured business risk of the city can often be blurred. Recently, the U.S. District Court for the Southern District of Illinois clarified that the return of fines and fees charged by a city do not typically give rise to covered “damages.” This decision, OneBeacon Am. Ins. Co. v. City of Granite City, No. 12-CV-00156-DRH-DGW, 2013 WL 556533 (S.D. Ill. Feb. 13, 2013), as well as related cases, are discussed below.

We highlight four decisions from early 2013 discussing a broker’s fiduciary obligations, claims made and reported requirements, the scope of “professional services,” and the prior knowledge provision.

BatesCarey LLP is proud to announce five of its partners were recently selected by their peers as Illinois Super Lawyers in the insurance coverage category, as well as two attorneys selected by their peers as Rising Stars in insurance coverage!

Illinois Super Lawyers are selected by independent rating service, Thompson Reuters. Each year, the survey invites attorneys to nominate peers in their fields for consideration as a Super Lawyer. Nominees are then rated on 12 indicators of peer recognition and professional achievement, combined with independent research. BatesCarey LLP is proud to announce its 2013 Super Lawyers and Rising Stars in the category of insurance coverage.

Congratulations to Adam H. Fleischer, who recently conducted a seminar for over 250 insurance professionals from over 25 different companies on the topic of Primary v. Excess insurance issues.  The seminar, hosted by Swiss Re, addressed various drop-down issues discussed in Adam’s 35-page article on the topic.

The specific issues addressed in the seminar and article include the following:

1. Duty to Investigate: when does an insurer have to dig beyond the materials received from the insured? What types of obligations are courts placing on primary and excess insurers in terms of investigation obligations?
2. Does an excess insurer have a duty to defend when a primary insurer refuses to defend?
3. When a primary settles for less than its full limits, does an excess insurer have its excess obligations triggered?
4. When an excess insurer’s indemnity obligations are triggered, must the excess insurer indemnify the insured’s defense costs?
5. Does an excess insurer have to drop down and pay post-judgment interest on a large verdict, even when it was the primary controlling the whole defense?
6. When does an excess insurer have to pick up orphaned shares of an insolvent primary insurer?
7. Must an excess insurer drop down to pay defense or indemnity when there are earlier or later primary policies still available?
8. Excess v. Primary: What are an excess insurer’s rights to pursue a primary insurer for bad faith failure to settle?

If you are a client of BatesCarey LLP and would like a copy of Adam’s article or a presentation of these issues for your colleagues, please contact Adam any time at afleischer@BatesCarey.com.