Happy Halloween
Access Costs Covered as "Property Damage" Under CGL Policy
This new coverage case arose from a condo project with poorly installed siding that caused rot, mold and water damage to portions of the interior. The siding sub was insured by Mutual of Enunclaw (MOE) which defended under reservation of rights. After mediation, the siding sub settled for $3.3 million and a customary assignment of its coverage claims against MOE. The trial court approved the settlement as reasonable, rejecting MOE's various claims that the sum was excessive (i.e., MOE contended that a "spot" or "surgical" repair was sufficient compared to plaintiffs' repair scope of stripping and re-siding the building).
On appeal, MOE sought to raise a defense to its insured's liability (specifically, a statute of limitations defense) that had not been fully litigated prior to the settlement. The Supreme Court held that the insurer is not entitled to raise the issue anew, since it was "considered in the liability case and the parties reached a settlement which was judicially approved as reasonable."
The Court also considered MOE's claim that while some interior walls were damaged by water, the the siding itself was largely undamaged and therefore the cost to remove and replace the siding itself should be excluded. Agreeing with the 9th Circuit's 2002 Dewitt case, the Court held the re-siding costs were covered because "removing and repairing the siding is simply part of the cost of repairing the damage to the interior walls."
Copy of opinion also available here Download file
Joint Venture Cleared for Guam Project
Posted In DWT Pacific , Government Contracts By John Parnass
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The Kilo Wharf, Guam project presses on. Recently, the United States Court of Federal Claims lifted an injunction and upheld the Navy's award to the joint venture of Japanese and U.S. construction firms. Watts-Healy Tibbitts v. United States and IBC/TOA Corporation, No. 08-261C. Months earlier the Court had enjoined the contract award; the Court originally held that the Navy contracting officer acted arbitrarily in finding the Japanese firm as "responsible" despite suspension and fines for bid rigging in Japan and failure to disclose this in the bid certification. The Court at that time ordered a new responsibility determination at the "flag officer or presidential appointee level." The Navy conducted a new review and found that joint venture to be responsible. On the next round of review, the Court lifted the injunction and held that although the Court did not agree with the Navy's decision on its new responsibility determination, it would defer to the agency. Foreign and U.S. companies will need to work together to perform projects during the massive Guam build up by the U.S. and Japanese governments. The Watts-Healy Tibbitts case provides insight to one of many issues that U.S. and foreign partners might face.
Let's Dance
Court Limits Damages for Bad Faith Violation
The insurer in this new condo defect case received a tender of defense from a general contractor under its additional insured endorsement to a subcontractor's policy. About 14 months later, the insurance company accepted defense under a reservation of rights but otherwise did nothing in that time to investigate the claim. Division 1 held this delay constituted bad faith sufficient to estop the carrier from denying coverage.
For damages, the GC sought to hold the carrier liable for all of its exposure on the project, regardless of whether that exposure stemmed from the specific subcontractor at issue. Division 1 rejected this argument.
Copy of opinion also available here Download file
Builder Challenges Feds on Project Site Safety Obligation
This case is worth keeping an eye on, since it appears to run contrary to the Stute rule in Washington (general contractor has nondelegable WISHA duty for project site). Perhaps the tide is turning away from that rule on federal projects...
(Thanks to reader GJ for the tip...)
CPA Claim Is Only Claim to Survive in Harbor Homes Appeal
In this case, 10 homeowners who bought homes from the original purchaser-occupants of a Harbor Homes project in Snohomish County sued the original developer (Harbor) for construction defects. Each claim (save the Consumer Protection Act claim) was mowed down by Division One as follows:
- Implied Warranty of Habitability. Because this warranty only extends to original purchaser-occupants and may not be assigned to subsequent purchasers, this claim was dismissed.
- Intentional Fraud. The Court held that this claim is barred by the economic loss doctrine.
- Assignment of CPA and Contract Claims. The Court upheld the validity of the assignments of claims made from the original purchasers to the next generation buyers, thereby allowing the subsequent purchasers to bring Consumer Protection Act and contract breach claims that were once owned by the original buyers.
- Merits of CPA Claim. On the merits, the Court held that the homeowners presented sufficient evidence to avoid summary judgment on their CPA claims and that they were entitled to a full trial.
- Merits of Good Faith and Fair Dealing Claim. For their assigned contract claim, the homeowners alleged that Harbor violated the implied duty of good faith that exists in any contract. They evidently failed to point to any specific contractual term that was violated, however, and on that ground the Court dismissed this claim.
Copy of opinion also available here Download file