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Georgia is the latest state to have its highest court hand down a decision falling into line with the majority rule that defective construction can be an “occurrence” in a CGL policy. In Taylor Morrison Services, Inc. v HDI-Gerling Am. Ins. Co., Case No. S13Q0462, — S.E.2d —, 2013 Ga. LEXIS 618 (Ga. July 12, 2013), the Supreme Court of Georgia recently addressed two certified questions from the 11th Circuit involving the meaning of “occurrence” in a standard form CGL policy:

1.) Whether, for an “occurrence” to exist under a standard CGL policy, Georgia law requires there to be damage to “other property,” that is property other than the insured’s completed work itself.
2.) If the answer to Question One (1) is in the negative, whether, for any “occurrence” to exist under a standard CGL policy, Georgia law requires that the claims being defended not be for breach of contract, fraud, or breach of warranty from the failure to disclose material information.

In its July 12 decision, the court answered “No” to the first – under Georgia law an “occurrence” can exist when the damage is to the insured’s completed work – and yes and no to the second -a claim of fraud will not involve an “occurrence”, but a breach of warranty claim may (although, take care, the court expressed doubt that a breach of warranty claim will yield coverage given other standard form policy terms).

In the underlying case, homeowners sued Taylor Morrison, a homebuilder, in a class action involving faulty construction of residential homes in California. The homeowners complained of improperly constructed concrete foundations which they alleged resulted in water intrusion, cracks in floors and driveways, and warped and buckling flooring. Taylor Morrison’s insurer, HDI-Gerling American Insurance Company, Taylor Morrison’s CGL insurer, initially defended the suit and then filed a declaratory judgment action in the Northern District of Georgia seeking a declaration that its policy does not afford coverage for the claims for which the California class was certified. The district court granted summary judgment in favor of the insurers for a number of reasons, including that the claims asserted did not arise from an “occurrence” as the term is defined in a standard form CGL policy because the only “property damage” alleged was to the insured’s work. Taylor Morrison appealed, and the 11th Circuit certified the two questions above to the Supreme Court of Georgia.

In answering the first question, the court picked up where it left off in American Empire Surplus Lines Ins. Co. v Hathaway Development Co., Inc., 288 Ga. 749 (Ga. 2011), wherein, as the court in Taylor Morrison reported, “[o]ur decision [there] definitively establishes that faulty workmanship sometimes can amount to an “occurrence”, at least when the property of someone other than the insured is damaged.” Taylor Morrison, slip at 7. In that case, an insured sought coverage for repairs to property damaged when the faulty workmanship of its plumbing subcontractor caused water and weather damage to neighboring property the insured was also building. The trial court agreed with the insurer that the damage did not arise out of an occurrence, reasoning that faulty workmanship could never be deemed an “accident” because performing the work was intentional. The Court of Appeals reversed and the Supreme Court granted certiorari.

The Supreme Court affirmed, rejecting out of hand the insurer’s assertion that the acts of the plumbing subcontractor could not be deemed an “occurrence” under the standard form’s definition (i.e., an accident, including continuous or repeated exposure to substantially the same general harmful conditions). As the court explained in American Empire, “[a] deliberate act, performed negligently, is an accident if the effect is not the intended or expected result; that is, the result would have been different had the deliberate act been performed correctly.” Id. at 752 quoting Lamar Homes v. Mid-Continent Cas. Co., 242 S.W.3d 1, 16 (Tex. 2007).

In American Empire, the Supreme Court’s focus was on whether an “occurrence” can arise from defective work. In Taylor Morrison, the court then addressed whether, when the damage at issue is to the insured’s work, this changes how the court construes the term “occurrence.” The Supreme Court reasoned that it does not:

It seems rather clear that, in its usual and common usage, “accident” conveys information about the extent to which a happening was intended or expected. Standing alone [as it does in the policy, noted the court], the word is not used usually and commonly to convey information about the nature or extent of injuries worked by such a happening, much less the identity of the person whose interests are injured.

Taylor Morrison, at 9-10. Thus, the court held that an “occurrence” as the term is used in a standard CGL policy, does not require damage to the property or work of someone other than the insured. Any such proscription, the court further explained, does not come from the term “occurrence,” but rather comes from the definition of “property damage” (which it did not address), any applicable exclusions, in particular business risk exclusions, as well as from the requirement that CGL coverage is for liability for “damages because of” property damage. Those “other requirements of coverage are inherently better suited than the requirement of an “occurrence” to limit coverage in faulty workmanship cases to instances in which the faulty workmanship has damaged other, nondefective property or work.” Id. at 11. “The sounder analytical approach” according to the court, “is to avoid conflating the several requirements of the insuring agreement and the exclusions, and instead, to let each serve its proper purpose.” Id. at 13.

The court reported that its understanding is consistent with the “strong trend in the case law.” Id. at 16 citing decisions from the 10th and 4th circuits, and Connecticut, South Carolina, Florida, Texas, and Wisconsin.

Although the court rejected the insurer’s argument that its ruling was inconsistent with three previous Georgia Court of Appeals cases, (SawHorse, Inc. v .Southern Guaranty Ins. Co., 269 Ga. App. 493 (2004); McDonald Constr. Co. v. Bituminous Cas. Corp., 279 Ga. App. 757 (2006); and Custom Planning & Dev. V. American Nat. Fire Ins. Co., 270 Ga. App. 8 (2004)), distinguishing the cases instead, the court did note its disapproval of Custom Planning most definitively with respect to the second certified question.

In answering the second question, the court repeated its “common usage” approach from the first part of its decision to hold that because fraud claims include elements of scienter and intent to induce, such claims could not involve an “accident”, and thus an “occurrence.” “Breach of warranty, however, is a different story” because warranty law tends to impose strict liability regardless of intent or fault. (The court noted that it did not address breach of contract because the underlying class action did not involve a claim for breach of contract other that as a breach of warranty.) Accordingly, Georgia law does not require that the claim being defended be for something other than breach of warranty, at least not for there to be an “occurrence.” Again, the court reiterated that “permitting each requirement of the insuring agreement and exclusion to serve its own purpose is a sounder analytical approach than any endeavor to make “occurrence” bear the entire burden for defining the limits of coverage.” Id. at 23.

Back then, to the court’s disapproval of Custom Planning. There, the Court of Appeals affirmed a finding of no coverage for repairs to a retaining wall that was defectively constructed because “no other [nondefective] property…was damaged as a consequence of the faulty workmanship.” The appellate court further said that “occurrence does not mean a breach of contract, fraud, or breach of warranty from the failure to disclose material information.” The Supreme Court noted that this second statement appeared to have been dicta. On the first point, the Taylor Morrison court expressly disapproved of the appellate court’s treatment of “other [nondefective] property as a component of an “occurrence” but declined to overrule that decision because it found the appellate court’s result to be consistent with its. On the second, the Georgia Supreme Court further disapproved the decision to the extent that “Custom Planning dicta suggests that a breach of warranty claim never can involve an “occurrence.” Id. at n. 15. The court did however overrule Forster v. State Farm Fire & Cas. Co., 307 Ga. App. 89 (2010) which it said relied on the dicta in Custom Planning to affirm summary judgment in favor of an insurer with regard to any construction defects constituting a breach of warranty. Id.

BREAKING NEWS AUG. 15: SF-Oakland Bay Bridge to Open As Originally Planned, Sep. 3.

On July 8, the Toll Bridge Program Oversight Committee (“TBPOC”) announced that the opening of the new East Span of the San Francisco-Oakland Bay Bridge has been postponed. In mid-July 2005, Governor Schwarzenegger and the State Legislature, through Assembly Bill 144, created the TBPOC to provide project oversight and project control for the Bay Area’s Toll Bridge Seismic Retrofit Program, which includes the San Francisco-Oakland Bay Bridge East Span Replacement Project. The TBPOC’s project oversight and control activities include: (a) reviews of contract bid documents and specifications, ongoing capital costs, significant change orders and claims; (b) implementation of a risk management program; and (c) resolution of project issues.

As part of the TBPOC’s charge, it is investigating and resolving the challenge of the fractured A354 grade BD high-strength steel rods/bolts installed on the Self-Anchored Suspension (SAS) Bridge of the new East Span. 32 of the 96 A354 grade BD high-strength anchor rods on shear keys S1 and S2 on Pier E2 failed in March 2013 after being tightened to their specified tension levels. In response, TBPOC launched an investigation into why these rods failed and whether the 2,210 other rods on the SAS Bridge also are at risk. The TBPOC directed its staff to investigate and report on what led to the failure of the rods, what course of action is needed to address all the rod failures, and what implications the analysis, findings and recommendations from the investigation have on the TBPOC’s determination of the timing for opening the new East Span to traffic.

On the same day that it announced the delay in completion of the bridge, TBPOC released its 102-page Report on the A354 Grade BD High-Strength Steel Rods on the New East Span of the San Francisco-Oakland Bay Bridge With Findings and Decisions. The Report’s Summary of the TBPOC Investigation concludes that “Hydrogen embrittlement is the root cause for the failure of the A354 grade BD high-strength steel anchor rods at shear keys S1 and S2 (Item #1 in Table ES-1). As used in this report, hydrogen embrittlement is considered a short-term phenomenon that occurs in metals, including high-strength steel, when three conditions apply: a susceptible material, presence of hydrogen and high tensile stress (as shown in Figure ES-4). To trace what led to the rod failures, this summary calls out each of the three hydrogen embrittlement conditions, and then tracks the events and decisions that either caused or contributed to that condition. In their totality, these events and decisions led to the failure of the 2008 A354 grade BD rods in March 2013.” The Report discusses what retrofit strategy should be used to replace the lost clamping force of the rods, including that, after review of three retrofit design options, the “TBPOC unanimously approved selection of the steel saddle retrofit option after finding that it would meet all design requirements and objectives of the project. As shown in Figure ES-5, it also applies a direct preload to the lower housing via the radial forces that are developed from the main vertical post-tensioning force being applied as intended in the original design.”

It also reports that “[a]s for the remaining 2,018 A354 grade BD rods, none have failed, and all have been under tension from 91 to 1,429 days as of July 1, 2013. Because hydrogen embrittlement is a time-dependent phenomenon, also dependent on the level of sustained tension, these rods have low risk of hydrogen embrittlement. In contrast, approximately 30 percent of the anchor rods in shear keys S1 and S2 failed just 3 to 10 days after tensioning to their design loads, and more might have failed if that tension level had been maintained.” However, “[t]he longer-term concern is whether the remaining A354 grade BD rods are susceptible to stress corrosion cracking and, if so, when cracking may occur. Like hydrogen embrittlement, there are three factors that contribute to stress corrosion cracking — susceptible material, high tensile stress and hydrogen-related corrosion. Without any one of these three conditions, stress corrosion cracking will not occur.” The Report confirms that “[f]urther, stress corrosion testing is underway as part of Tests IV and V that will provide important data for further analysis and remediation of the rods.” To read the Report, click here.

There was a public briefing at a special meeting of the Bay Area Toll Authority on July 10 at 10 a.m. at the Metropolitan Transportation Commission offices at 101 Eighth Street in Oakland, Calif. Discussions took place and questions from the public, elected officials and the media were answered by members of the TBPOC and by members of the Seismic Safety Peer Review Panel. To hear the online audio-cast, click here.

Between the Brazilian national soccer team’s amazing victory over Spain in the final of the Confederations Cup last month in Rio de Janeiro and the massive protests that took place outside of the stadiums throughout the tournament, the country of Brazil has been making a lot of headlines recently. Here are a few that relate to construction and development as Brazil moves towards hosting the 2014 World Cup and the 2016 Summer Olympics:
• Bloomberg examines the $13 billion being spent by the government on the 12 World Cup stadiums and the possibility that these stadiums will become white elephants.
• Meanwhile, TriplePundit looks at the ways these stadiums will be more sustainable than their predecessors, including using a photocatalytic membrane on a roof to offset pollution, building a solar plant on site, and locating new stadiums within walking distance of hotels and housing.
• Romário, who led the Brazilian team to a World Cup victory in 1994 and is currently a Brazilian congressman, explains how this spending–for what will be the most expensive World Cup ever–has incited over a million Brazilians to protest.
• And finally, The Guardian details the rich and turbulent history of the most famous stadium in Brazil, the Maracanã, which hosted the Confederations Cup final last weekend and will host the World Cup final next year.

UPDATE: New 2014 Goals For Recycling Old Mercury Thermostats

On May 15, 2013, the California Department of Toxic Substances Control (CDTSC) adopted new regulations as the final part of the Mercury Thermostat Collection Act of 2008. The new regulations apply to (a) manufacturers, as described in tit. 22, C.C.R. § 66274.3; (b) HVAC contractors, as described in tit. 22, C.C.R. § 66274.3; and (c) demolition contractors, as described in tit. 22, C.C.R. § 66274.3.

The CDTSC estimates that 10 million mercury thermostats are still in California homes and businesses. Since January 1, 2006, California law has banned the sale of mercury-added thermostats for most uses.

Among other things, the regulations establish annual performance goals for the collection of mercury-containing thermostats and a methodology for calculating the number of such thermostats that become waste annually. They also require manufacturers to collect and recycle more than 32,500 mercury thermostats in the second half of 2013, or 30 percent of the estimated number of the devices that become waste. Recycling goals will increase for the next five years. They also establish identification requirements for persons delivering thermostats to collection centers and annual reporting requirements for thermostat manufacturers. For more information, click here.

Thermostat Recycling Corporation, a nonprofit, industry-funded entity, operates roughly 350 collection sites in California that accept and recycle these thermostats. To find a location, click here.

After more than a decade in the “no” column, West Virginia can now be counted among – as its highest court reports — the majority of states that recognize that defective construction causing bodily injury or property damage is an “occurrence” under standard CGL policies. Cherrington v. Erie Ins. Property & Cas. Co, Case No. 12-0036, available here: http://www.courtswv.gov/supreme-court/docs/spring2013/12-0036.pdf In this June 2013 decision, the court expressly overruled its prior pronouncements on this issue in Erie Ins. Property & Cas. Co v. Pioneer Home Improvement, Inc., 206 W.Va 506 (1999); Corder v. William W. Smith Excavating Co., 210 W. Va. 110 (2001); Webster County Solid Waste Auth’y v. Brackenrich & Assoc’s, Inc., 217 W. Va. 304 (2005); as well as McGann v. Hobbs Lumber Co., 150 W. Va. 364 (1965) and their progeny.

Cherrington is a case involving coverage for defective construction of a home under the general contractor’s CGL policy and under its principal’s homeowner’s and umbrella policies, all issued by Erie Insurance Property & Cas. Company. In the underlying complaint against Pinnacle Group, the general contractor, Cherrington, the homeowner sued for negligent construction and breach of fiduciary duty and sought to recover for emotional distress as well as for damages resulting from defects in her home discovered after completion – defects resulting from the work of Pinnacle’s subcontractors. The trial court had granted summary judgment in favor of third party defendant insurer, Erie, concluding, inter alia, that allegations of emotional distress without physical manifestation was not “bodily injury” under the policies, that no “occurrence” had caused the damages alleged, and that nevertheless certain exclusions, specifically the “your work” (Exclusion L), “damage to impaired property or property not physically injured” (Exclusion M) and “sistership” (Exclusion N) exclusions, all barred covered. Additionally, the trial court determined that the coverage was barred under the homeowner/umbrella policies issued to Pinnacle’s principal under a “business pursuits” exclusion. On appeal, the Supreme Court of Appeals affirmed the trial court as to bodily injury and the “business pursuits” exclusion, but reversed as to whether defective construction constitutes an occurrence and the applicability of the cited CGL exclusions.

On the first issue of whether defective construction constitutes an occurrence under standard CGL policies, the court reported that “many cases have emerged since this Court’s 2001 definitive holding in Corder” in which it previously held that defective construction does not constitute an occurrence. (The opinion collects cases in the minority and the majority, and also cites states where legislative amendments have been made to the state’s insurance statutes regarding the definition of “occurrence.”) As the court explained, “With the passage of time comes the opportunity to reflect upon the continued validity of this Court’s reasoning in the face of judicial trends that call into question a former opinion’s current soundness.” Evoking Justice Frankfurter, the court added “[w]isdom too often never comes, and so one ought not to reject it merely because it comes late.”

In addition to recognizing ” a definite trend in the law”, the court grounded its ruling that defective construction can constitute an “occurrence” — defined in the CGL policy as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions” — on the meaning of “accident”, which itself is not defined in the policy. As the court explained, to be an “accident” the circumstances giving rise to the claimed damage or injuries must not have been deliberate, intentional, expected, desired, or foreseen by the insured. According to the court, common sense cuts against finding defective workmanship to be that: “had Pinnacle expected or foreseen the allegedly shoddy workmanship its subcontractors were destined to perform, it would not have hired them in the first place”; “[n]or can it be said that Pinnacle deliberately intended or even desired the deleterious consequences” as “[t]o find otherwise would suggest that [the contractor] deliberately sabotaged the very same construction project it worked so diligently to obtain.”

The court reported that its conclusion was further supported by the express language of Exclusion L, which by exception, provides coverage for work performed by subcontractors. Finally, said the court, its “prior proscriptions limiting the scope of the coverage afforded by CGL policies to exclude defective workmanship” were “so broad” “as to be unworkable in their practical application.”

The court went on to reverse the trial court on its ruling that no property damage had been alleged, citing “an extensive list of damaged items in her home resulting from the allegedly defective construction and completion work.” It also reversed the trial court on the applicability of Exclusion L, M and N to bar coverage, concluding first that Exclusion L, by its express terms, does not operate to preclude coverage for work performed by Pinnacle’s subcontractors. As to Exclusion M, the court would not read it to directly conflict with Exclusion L. And, Exclusion N — applicable to the products recalled or withdrawn from the market — did not apply on the facts in this case.

The court affirmed the trial court’s ruling of no coverage under the homeowners and umbrella policies of Pinnacle’s principal. Those policies both included exclusions for bodily injury, property damage or personal injury “arising out of business pursuits of anyone we protect.” Although it was unclear what role Mr. Mamone played in the construction, the court found that he was both the president and agent of Pinnacle, and that his actions fell squarely within the business pursuit exclusions of both policies issued to him, and did not fall under any exceptions.

Eager to get its share of the billions of dollars looking for infrastructure investments in the United States, Florida is set to be the next state to enact new public-private partnership legislation. Florida House bill 85 authorizes expanded opportunities for public-private partnerships to develop projects that have traditionally been public-sector only.

After clearing the Florida House by a wide margin, HB 85 received unanimous approval from the Florida Senate. This leaves the matter to Governor Scott, who has already voiced his support for the measure. Unless Scott vetoes the bill, it will become effective on July 1, 2013.

HB 85 promotes the private construction, financing, and/or operation of green or brown field projects that satisfy traditionally public sector obligations. The bill establishes procedures for those developments by the state and authorizes counties to use public-private partnerships to develop county assets. This latter aspect is a force-multiplier for the State, by vastly expanding the number and nature of viable projects that can be undertaken.

Those familiar with Florida’s key infrastructure needs believe that HB 85 could be a boost for those interested in the further development of the I-4 corridor (linking Tampa, Orlando, and Daytona Beach) and even offer a break-through in the discussions about a the renovation to Sun Life Stadium.

There are quite a few major development projects taking place in the Bay Area. Here are some highlights that are catching the attention of both the Bay Area development community and the public at large:

• The San Francisco 49ers’ newly named and still under construction Levi’s Stadium was selected to host Super Bowl 50 in 2016 this week. Watch a live view of the ongoing construction.
• In other sporting news, Fran Weld, the San Francisco Giants director of Real Estate, recently spoke at the Building Industry Conference Board and highlighted the Mission Rock development project next to AT&T Park.
• Meanwhile, the foundation work for the Transbay Transit Center is well underway. Check out this interactive flythrough of the Transbay Transit Center project and compare it to these time-lapse videos of the construction.
• Finally, will the new Bay Bridge ever open? Governor Brown made no promises in interviews before his commencement speech at UC Berkeley.

• New York is back and better than ever. Construction crews hoist a 408-foot spire atop One World Trade Center that once fully installed will stand a symbolic 1,776 feet high.

• Finally, a home that pays for itself. Construction to begin on Dubai’s “Sustainable City” in July.

• Researchers propose new technology to prevent collapsing bridges. Another alternative, construct bridges that float (crews successfully floated six new pontoons to replace the aging SR 520 floating bridge on Lake Washington). Watch time lapse video here.

OK, this post isn’t about construction. But it is about law–civil procedure, to be precise. Anyone who has been through a trial knows how much persuasiveness expert witnesses can have, particularly with juries, but with judges and arbitrators as well. It’s been 20 years since the U.S. Supreme Court started reining in slick experts with Daubert v. Merrill Dow Pharmaceuticals, putting trial judges in a gatekeeper role to only allow reliable expert opinions to reach a jury. The high court followed its Daubert decision with General Electric v. Joiner (1997) and Kumho Tire (1999) which clarified the standard of review for a trial judge’s decision whether to admit expert testimony and also that the Daubert standard applies to all experts — not just scientific experts. Daubert and its progeny are now well-established rules in federal courts. Not so much in state courts, but that’s about to change for at least one state.

Many states still follow the old Frye standard, which allows experts to testify as long their expertise was “generally accepted” — whatever that means. Actually, what that means is that the trial judge doesn’t play a gatekeeper role at all; anyone who calls himself an expert can testify. Florida is one of those Frye states. But not for long, at least, not apparently.

Late last week both chambers of the Florida legislature passed HB 7015, which writes the Daubert standard right into the Florida Evidence Rules, effective July 1, assuming it’s signed by the governor. The text of the bill is here and here:

90.702 Testimony by experts.
(1) If scientific, technical, or other specialized 25 knowledge will assist the trier of fact in understanding the 26 evidence or in determining a fact in issue, a witness qualified 27 as an expert by knowledge, skill, experience, training, or education may testify about it in the form of an opinion or otherwise, if: (a) The testimony is based upon sufficient facts or data; (b) The testimony is the product of reliable principles and methods; and (c) The witness has applied the principles and methods reliably to the facts of the case.
(2) The courts of this state shall interpret and apply the requirements of subsection (1) and s. 90.704 in accordance with Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993); General Electric Co. v. Joiner, 522 U.S. 136 (1997); and Kumho Tire Co., Ltd. v. Carmichael, 526 U.S. 137 (1999). Frye v. United States, 293 F. 1013 (D.C. Cir. 1923) and subsequent Florida decisions applying or implementing Frye no longer apply 44 to subsection (1) or s. 90.704. All proposed expert testimony, including pure opinion testimony as discussed in Marsh v. Valyou, 977 So. 2d 543 (Fla. 2007), is subject to subsection (1) and s. 90.704.

• Video animations of construction projects are always fun. But this metamorphosis of Rio de Janeiro is quite amazing.

• Meanwhile, architects are taking “building skin” to a whole new level – and proposing a building in Dubai that grows its own skin!

• And over in Mexico, while this building may not be designed to grow, the modules on the facade “are coated with a special pigment that, when hit by ambient ultraviolet light, reacts with urban air pollutants, breaking them down into less noxious compounds like carbon dioxide and water”…in other words, it eats smog.