Federal Court in North Carolina Enforces Insurers’ Duty to Defend a General Contractor as an Additional Named Insured Under the Subcontractor’s Commercial General Liability Policy

Westfield Ins. Co. v. Weaver Cooke Constr., LLC, 2019 BL 129431 (E.D.N.C. Apr. 11, 2019)

Christine Z. Fan

This case arises out of the alleged defective construction of a condominium complex in North Carolina.  In 2009, the developer on the project filed suit for the alleged construction defects.  This related coverage lawsuit then ensued between the parties’ insurers regarding a duty to defend the general contractor.

The general contractor, Weaver Cooke Construction, LLC (“Weaver Cooke”) was the named insured under the respective commercial general liability policies by plaintiff Westfield Insurance (“Westfield”) and defendant Zurich America Insurance Company (“Zurich”).  Pursuant to the policies, Westfield and Zurich contributed to the costs of defending Weaver Cooke in the underlying construction-defect action.

Two of Weaver Cooke’s subcontractors, William H. Dale dba DD Plumbing Company (“DD Plumbing”) and East Carolina Masonry, Inc. (“ECM”), were the named insureds under the commercial general liability policies issued by defendant Selective Insurance Company of America (“Selective”) and defendant Penn National Insurance Company (“Penn”), respectively.  Both the Selective and Penn policies extended defense obligations to DD Plumbing’s and ECM’s contractors as the additional insured.

In light of the defect claims brought against it, Weaver Cooke tendered defense obligations to DD Plumbing and ECM and requested that the parties forward the tenders to their respective insurers (Selective and Penn).  On September 12, 2013, Westfield also directly tendered to Selective and Penn demanding a duty to defend Weaver Cooke.  Despite the tenders, however, Selective and Penn refused to defend Weaver Cooke as an additional insured under their policies.  Selective and Penn argued that coverage only applies to claims involving bodily injury and property damage, whereas the damages in the underlying defect action were purely for economic losses.

Westfield and Zurich thereafter sued to enforce Selective’s and Penn’s duty to defend as the primary insurers.  Weaver Cooke, Westfield, and Zurich all sought reimbursement from Selective and Penn for the defense costs and fees incurred in defending the claims.

Under North Carolina law, the interpretation of an insurance policy is a matter of law.  Where there is a hybrid of covered and excluded events, it is sufficient to impose a duty to defend if there is merely a possibility that the insured is liable.  Any doubt as to coverage should be resolved in the insured’s favor.

The pleadings in the underlying construction-defect action allege that ECM furnished brick and concrete masonry units and DD plumbing installed piping and plumbing fixtures.  The court determined that the pleadings implicate the work done by ECM and DD Plumbing and are thus covered under Selective’s and Penn’s policies.  The court found that the lawsuit’s triggering event is not merely related to economic losses but is the actual result of property damages due to poor construction.  It also found that these facts sufficiently trigger a duty to defend by both Selective and Penn as the primary insurer.  The duty arose when Selective and Penn first received notice of the lawsuit on September 12, 2013 through the tender letters.  It did not matter that the tender letters were sent by Westfield and not directly by Weaver Cooke.

Further, that court explained that it was irrelevant that Weaver Cooke chose to pay its selected attorney at a higher rate than Westfield and Zurich wanted to pay.  Specifically, when an insured provides notice of a claim to an insurer, the insurer gains an opportunity to mount its defense early to control the defense costs.  This means that where an insured fails to provide a timely notice, the insurer is not required to pay for the legal fees prior to its notice of the claim.  But Selective and Penn did receive proper notice of the claims and thus could have controlled the defense costs at the onset.  Their deliberate refusal to do so mooted the argument of excessive defenses costs.  As a result, the court award Weaver Cooke, Westfield, and Zurich reimbursement of their defense fees and costs.

Accordingly, the court granted the motions for summary judgment brought by Weaver Cooke, Westfield, and Zurich on the issue of duty to defend by Selective and Penn.  The court also granted Weaver Cooke’s motion for summary judgment against Penn under the Unfair and Deceptive Trade Practices Act sections 58-63-15(11)(e) and (n) for failing to promptly provide a reasonable explanation of in the insurance policy for denying Weaver Cooke’s claims.

To view the full text of the court’s decision, courtesy of Bloomberg Law, click here.

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New York Supreme Court Granted Summary Judgment for Subcontractor Where Contractor Attempted to Utilize Contractual “Pay-When-Paid” Provision to Unreasonably Withhold Payment from Subcontractor

A.E. Rosen Elec. Co. v. Plank, LLC, No. 07862-7, 2019 BL 113951 (Sup. Ct. Mar. 01, 2019)

Michelle Beth Rosenberg

On March 1, 2019, the Supreme Court of New York, Albany County, granted a subcontractor’s motion for summary judgment on a payment dispute involving a “pay-when-paid” contract provision.

Defendant Plank, LLC (“Contractor”) entered into a construction contract with Dutch Village, LLC (“Owner”) to act as the general contractor for the construction of four apartment buildings (“Project”).  Thereafter, Contractor entered into a subcontract with Plaintiff A.E. Rosen Electrical, Inc. (“Subcontractor”) for electrical work on the Project.  After nine months of work on the Project, a payment dispute arose between the Owner and Contractor.  At that time, Contractor directed the Subcontractor to cease work on the Project.

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Enhanced Anti-Corruption Scrutiny in Construction Industry

Photo of Robert Gallagher
Robert A. Gallagher
Anthony Finizio
Michael A. Schwartz

Bribery and corruption have long plagued the construction industry, particularly in emerging markets in Latin America, Eastern Europe, the Middle East and Asia-Pacific. Large contracts often trickle down through layers of subcontractors and consultants, presenting opportunities for corruption at each level. The risk is enhanced in certain foreign jurisdictions where public officials may expect payment in exchange for state-issued licenses or government contracts.

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Contractor’s Third Party Beneficiary Claim Dismissed Against Designer Where Designer’s Contract with Owner Lacked Clear Intent to Benefit the Contractor

Arco Ingenierosm, S.A. v. CDM Int’l Inc., Civil Action No. 18-12348-PBS, 2019 BL 100779 (D. Mass. Mar. 22, 2019)

Luke Nicholas Eaton

In November 2009, Tropical Storm Ida hit El Salvador, causing flooding, landslides, and the destruction of homes, roads, bridges, schools, health clinics, and other infrastructure.  The United States Agency for International Development (“USAID”) provided $25 million in funding to rebuild damaged infrastructure.  USAID retained Defendant CDM International Inc. (“CDM”) to conduct studies and assessment for the construction of eight schools and one health clinic (the “Projects”) and to create preliminary designs and technical specifications for these Projects.  These preliminary designs were intended to constitute at least thirty percent of final designs for the Projects.  Relying on the preliminary designs created by CDM, Plaintiff Arco Ingenieros, S.A. de C.V. (“ARCO”) submitted bids to act as the design-build contractor for the Projects.  USAID awarded the Projects to ARCO.

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Colorado Court of Appeals Finds Contractor Satisfied Conditions Precedent Under Performance Bond

Whiting-Turner Contracting Co. v Guar. Co. of N. Am. USA, 2019 BL 97923 (Colo. App. Mar. 21, 2019).

Danielle J. Volpe

This construction dispute involved rights and obligations under a performance bond supplied for an office building construction project in Denver, Colorado.  Whiting-Turner Contracting Company was the general contractor, and it subcontracted Klempco Construction to construct an anchor system for the project’s underground parking garage.  Klempco provided performance and payment bonds for the project from Guarantee Company of North America USA (“GCNA”).  When Klempco fell behind schedule, it stopped paying its sub-subcontractors and directed Whiting-Turner to assume responsibility for its work and sub-subcontractors.

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