Construction Defect Claims

1) Introduction
2) Course Based on ISO CGL Policy
3) Course Does Not Address Builders Risk Forms
4) Course Focus on CGL Application
5) Objectives
a) Discuss Legal Arguments
b) Analyze CGL Policy Provisions
c) Identify Judicial Trends in Construction Defect Claims
6) Case: Weedo v. Stone-E-Brick, Inc.
a) Posture of Case
b) Business Risk Doctrine
c) Henderson Article
d) CGL Coverage is for Accidents
e) “Business Risk Doctrine”
f) Decision Driven by Policy Language
7) Significant Policy Changes
a) 1973 CGL changes
i) Work Performed Exclusion
ii) Exclusion Interpreted Broadly
b) 1976 Broad Form Endorsement
c) 1986 Policy Incorporated Your Work Exclusion
8) Explosion in Residential and Commercial Building
a) Questionable Building Practices
b) Questionable Building Materials
c) Rise in Construction Defect Lawsuits
9) Recap

1) What Constitutes “Occurrence”
a) Majority View
i) Number of Majority States
ii) Majority Courts Follow Weedo
iii) Approve “Business Risk Doctrine”
b) Minority View
i) Growing Momentum
ii) Insured’s Faulty Work Can be “Occurrence”
iii) Subcontractor Exception
iv) Faulty Work as Accident
v) Case: Fejes v. Alaska Ins Co. Inc.
vi) Case: Lee Builders, Inc. v. Farm Bureau Mut. Ins Co.
vii) Number of Minority States
2) Extent of Court Battles
a) Recent Minority Victories
b) Sophistication and Coordination of Insureds’ Attack
c) Dozens of Groups Filing Amicus Briefs
d) Courts Independently Reached Same Conclusion
e) ”     Occurrence” Resolved; Exclusions Favor Insureds
3) Practical Application
a) Investigation: What Did Insured Know
b) How Insured Performed Work
c) Insurer May Need Multiple Experts
4) Recap

1) Investigation
a) Insurer Demonstrate Facts Indicate Breach of Contract
b) May Have Coverage Fight Even in Majority State
c) Undecided Jurisdiction: Care in Which Cases Litigated
d) End-Game Strategy
e) Trend Against Insurers
2) Deductibles/Number of “Occurrences”
a) “Occurrence” Confusion with Tract Homes
b) Number of Deductibles v. Number of Policy Limits
c) Cause Test v. Effect Test
3) Property Damage
a) Property Damage Confused with Occurrence Issue
b) Physical Injury, Loss of Use of Tangible Property
c) Actual Damage v. Potential Damage
d) Majority View: No Liability Coverage
4) Recap

1) Does Incorporation of Work Matter
a) Incorporation of Defective Work or Product is Property
Damage
b) Physical Change is Necessary for Property Damage
c) Cancerous Cell Argument
2) “Economic Loss” Argument
a) What is CGL Coverage Designed to Cover
b) No “Economic Loss” Rule in CGL Insuring Agreement
c) Tort/Liability Defenses Inapplicable to Insurance Contracts
3) Evaluation and Investigation
a) Measure of Damages
b) Lawyers Concerns v. Adjusting Concerns
c) In-Depth Investigation
4) Interest of the Insured
a) Proceed Carefully in Investigation
b) Don’t Provide Plaintiff with Evidence
5) Additional Insured Concerns
a) Interrelationship Between Contractors
b) Insurer’s Liability for Other Contractors’ Work
6) Recap

1) Policy Period Trigger Issues
a) Manifestation Trigger
b) Continuous Trigger
c) National Trend Towards Expansive Triggers
d) Notice Issues
2) Liability Exclusion Issues
a) Damage to Real Property Exclusion
i) Applies to Real Property Only
ii) Applies to Contractors and Subcontractors
iii) Applies to Ongoing Operations Only
iv) Applies Narrowly
b) Damage to Any Property Exclusion
i) “Particular Part” Language
ii) Consequential Damages Flowing from Insured’s Work
iii) Pre-completion v. Post-completion Work
c) Damage to Your Product Exclusion
i) Does Not Apply to Real Property
ii) Insured’s Role as to Product
d) Damage to Your Work Exclusion
i) Applies to the Insured’s Work
ii) Does Not Apply to Ongoing Operations
ii) Subcontractor Exception
3) Recap

1) Damage to Work of Others by Insured’s Faulty Work
2) Impaired Property Exclusion
a) Applies to Impaired Property
b) Applies to Property Not Physically Injured
c) Intended to Address Incorporation Rule Cases
d) Hardest Exclusion to Understand and Apply
e) When in Doubt, Leave it Out
f) Irreversible Incorporation
3) Conclusion
a) State Survey
i) Age of Pro-insurer Cases
ii) Court Deciding Pro-insurer Cases
b) Comments
i) Aggressive Underwriting
ii) Changing Policy Forms
iii) Future Claims
4) Recap