CGL COVERAGE FOR RIP AND TEAR COSTS

Transcription

1 Workshop W2 Wednesday, November 14 9:00 10:15 a.m. and 10:45 a.m. noon CGL COVERAGE FOR RIP AND TEAR COSTS Presented by Jeffrey D. Masters Partner Cox, Castle & Nicholson LLP Claims involving damage to the work often raise the complex issue of CGL coverage for rip and tear costs. Sometimes referred to as "access costs," rip and tear costs refer to costs incurred in tearing out, and then replacing, nondefective work to get to and repair damaged work. These costs can be a substantial portion of the loss, especially in major construction defect cases, and coverage for these costs in the CGL policy can be difficult to determine. Using examples of real claims, this session will explain the coverage questions surrounding rip and tear costs, synthesize the differing conclusions reached by courts, and provide both buyers and sellers of CGL insurance with the legal and practical analytical tools they need to successfully handle rip and tear coverage issues. Workshop W2 Copyright 2012 International Risk Management Institute, Inc. 1

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3 Jeff Masters Partner Cox, Castle & Nicholson LLP Mr. Masters is presenting Workshop W2, CGL Coverage for Rip and Tear Costs, on Wednesday morning. Mr. Masters is a partner in the Litigation Department and co-chair of the Development Risk Management Practice Group at Cox, Castle & Nicholson LLP in Los Angeles. He represents owners, investors, developers, home builders, and contractors in complex insurance coverage claims and litigation involving CGL, umbrella, excess, pollution liability, builders risk, and permanent property policies. He has served as coverage counsel for insureds in numerous construction defect cases and other construction litigation matters. He also has an extensive transactional risk management practice, where he counsels clients on contractual risk transfer issues in design and construction contracts, leases, purchase and sale agreements, loan documents, and other real estate contracts. He has served as coverage counsel for owners, developers, and home builders in the structuring and implementation of dozens of OCIPs, both project-specific and rolling. Mr. Masters is a frequent lecturer for real estate and construction industry groups such as IRMI, the Building Industry Association (BIA), the National Association of Home Builders (NAHB), and Urban Land Institute (ULI). He was coauthor of the educational materials and coinstructor for IRMI s seminar series, Construction Defect Risk Management and Insurance (2008, 2007) and Advanced Risk Management and Insurance Strategies for Residential Developers and Contractors (2006), and for NAHB s educational course, Risk Management and Insurance for Building Professionals (2003). He is a graduate of UCLA School of Law and UCLA Anderson Graduate School of Management. Workshop W2 3

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5 CGL Coverage for Rip and Tear Costs Presented by: Jeffrey D. Masters Partner Cox, Castle & Nicholson LLP 1 What this Session Will Cover What are rip and tear costs? How are rip and tear costs covered under the CGL policy? How have courts approached CGL coverage for rip and tear costs? Workshop W2 2 5

6 Rip and Tear Costs Defined Costs attributable to damaging or destroying nondefective work to obtain access to repair defective work or resulting damage 3 Legally Obligated To Pay Focus is on what the claimant is legally entitled to recover 4 6

7 As Damages Because of Property Damage Because of = by reason of ; on account of The policy coverage is not limited to property damage Coverage for consequential damages 5 Property Damage Defined Property damage means: a. Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it; or b.loss of use of tangible property that is not physically injured. All such loss of use shall be deemed to occur at the time of the occurrence" that caused it. Workshop W2 6 7

8 How Have Courts Approached Coverage for Rip and Tear Costs? Traditional View Rip and tear costs are covered Coverage is not precluded by your product, your work, or impaired property exclusions 7 How Have Courts Approached Coverage for Rip and Tear Costs? Bundy Tubing Co. v. Royal Indemnity Co., 298 F.2d 151 (6th Cir. 1962) 8 8

9 How Have Courts Approached Coverage for Rip and Tear Costs? Baugh Construction Co. v. Mission Insurance Co., 836 F.2d 1164 (9th Cir. 1988) 9 How Have Courts Approached Coverage for Rip and Tear Costs? Current Trends Less predictability of results Differing views of whether defective construction is an occurrence and whether it involves property damage Workshop W2 10 9

10 How Have Courts Approached Coverage for Rip and Tear Costs? Current Trends Reluctance to apply the coverage as written Misunderstanding Exclusion L (PD to your work ) and the subcontractor exception 11 How Have Courts Approached Coverage for Rip and Tear Costs? Five Analytical Tools for Handling Rip and Tear Coverage Issues 12 10

11 Question 1: Is There Existing PD or Is the Rip and Tear Itself the PD? New Hampshire Ins. Co. v. Vieira, 930 F.2d 696 (9th Cir. 1991) 13 Question 1: Is There Existing PD or Is the Rip and Tear Itself the PD? Mutual of Enumclaw Ins. Co. v. T&G Construction, Inc., 165 Wash.2d 255 (2008) Workshop W

12 Question 1: Is There Existing PD or Is the Rip and Tear Itself the PD? Riverfront Landing Phase II Owners Association v. Assurance Co. of America, 2009 WL (W.D. Wash. 2009) 15 Question 1: Is There Existing PD or Is the Rip and Tear Itself the PD? Indian Harbor Ins. Co. v. Transform LLC, 2010 WL (W.D. Wash. 2010) 16 12

13 Question 1: Is There Existing PD or Is the Rip and Tear Itself the PD? DeWitt Construction Inc. v. Charter Oak Fire Ins. Co., 307 F.3d 1127 (9th Cir. 2002) 17 Question 2: Are the Rip and Tear Costs Caused by an Occurrence? Bright Wood Corp. v. Bankers Standard Ins. Co., 665 N.W.2d 544 (Ct.App.Minn. 2003) Workshop W

14 Question 2: Are the Rip and Tear Costs Caused by an Occurrence? OneBeacon Ins. v. Metro Ready-Mix, Inc., 427 F.Supp.2d 574 (D.Md. 2006) 19 Question 2: Are the Rip and Tear Costs Caused by an Occurrence? Employers Mutual Cas. Co. v. Grayson, 2008 WL (W.D.Okla. 2008) 20 14

15 Question 2: Are the Rip and Tear Costs Caused by an Occurrence? Indian Harbor Ins. Co. v. Transform LLC, 2010 WL (W.D.Wash. 2010) 21 Question 3: Are the Rip and Tear Costs Attributable to Repair of the Defective Work Itself? Desert Mountain Properties Limited Partnership v. Liberty Mutual Fire Ins. Co., 225 Ariz. 194 (Ct. App. 2010), aff d, 226 Ariz. 419 (2011) Workshop W

16 Question 3: Are the Rip and Tear Costs Attributable to Repair of the Defective Work Itself? OneBeacon Ins. v. Metro Ready-Mix, Inc., 427 F.Supp.2d 574 (D.Md. 2006) 23 Question 3: Are the Rip and Tear Costs Attributable to Repair of the Defective Work Itself? Nas Surety Group v. Precision Wood Products, Inc., 271 F.Supp.2d 776 (M.D.N.C. 2003) 24 16

17 Question 4: Will the Rip and Tear Costs Be Incurred after Expiration of the Policy Period? Baugh Construction Co. v. Mission Ins. Co., 836 F.2d 1164 (9th Cir. 1988) 25 Question 4: Will the Rip and Tear Costs Be Incurred after Expiration of the Policy Period? General Acc. Ins. Co. of America v. American National Fireproofing, Inc., 716 A.2d 751 (R.I. 1998) Workshop W

18 Question 5: Does an Exclusion Bar Coverage? Your product Employers Mut. Cas. Co. v. Grayson, 2008 WL (W.D.Okla. 2008) 27 Question 5: Does an Exclusion Bar Coverage? Your product Columbia Mut. Ins. Co. v. Epstein, 239 S.W.3d 667 (Ct.App.Mo. 2007) 28 18

19 Question 5: Does an Exclusion Bar Coverage? Your product Int l Environmental Corp. v. National Union Fire Ins. Co. of Pittsburgh, PA., 843 F.Supp (N.D.Ill. 1993) 29 Question 5: Does an Exclusion Bar Coverage? Your product Bright Wood Corp. v. Bankers Standard Ins. Co., 665 N.W.2d 544 (Ct.App.Minn. 2003) Workshop W

20 Question 5: Does an Exclusion Bar Coverage? Your work Employers Mut. Cas. Co. v. Grayson, 2008 WL (W.D.Okla. 2008) 31 Question 5: Does an Exclusion Bar Coverage? Your work Limbach Co. LLC v. Zurich American Ins. Co., 396 F.3d 358 (4th Cir. 2005) 32 20

21 Question 5: Does an Exclusion Bar Coverage? Your work H.E. Davis & Sons, Inc. v. North Pacific Ins. Co., 248 F.Supp.2d 1079 (D.Utah 2002) 33 Question 5: Does an Exclusion Bar Coverage? Impaired property Standard Fire Ins. Co. v. Chester- O Donley & Associates, Inc., 972 S.W.2d 1 (Ct.App.Tenn. 1998) Workshop W

22 Question 5: Does an Exclusion Bar Coverage? Impaired property Indian Harbor Ins. Co. v. Transform LLC, 2010 WL (W.D.Wash. 2010) 35 Question 5: Does an Exclusion Bar Coverage? Impaired property Employers Mut. Cas. Co. v. Grayson, 2008 WL (W.D.Okla. 2008) 36 22

23 Question 5: Does an Exclusion Bar Coverage? Impaired property H.E. Davis & Sons, Inc. v. North Pacific Ins. Co., 248 F.Supp.2d 1079 (D.Utah 2002) 37 Practical Tips Know the applicable state law Begin and end with the policy language Use persuasive authorities from other jurisdictions Be educative Workshop W

24 Thank You! Jeffrey D. Masters Partner Cox, Castle & Nicholson LLP 2049 Century Park East Suite 2800 Los Angeles, CA P: (310) E: 40 24