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The United States District Court for the District of Oregon held that property damage incurred to a condominium project resulting from a myriad of construction defects constituted just one occurrence under the relevant excess general liability policy.

In Chartis Specialty Ins. Co. v. American Contractors Ins. Co. Risk Retention Group et al., Case No. 3:13-CV-1669 (D. Ore. Aug. 12, 2014), the owners association of a condominium complex sued its developers for property damage incurred to the condominium as a result of numerous and distinct construction defects. The owners association alleged that the developers failed in their duties as developers to build the condominium complex free from defects. The alleged defects included errors in the construction of the roof, fire sprinklers, insulation, and windows and doors, resulting in total damages of $3.6 million.

Chartis, which provided liability insurance for the developers in excess of $2 million per occurrence/$4 million aggregate, argued that the damages at issue were the result of multiple occurrences, subject to at least two retentions; i.e., $4 million. The Chartis Policy defined “occurrence” as:

an accident, including continuous or repeated exposure to conditions, which results in … Property Damage neither expected nor intended from the standpoint of the Insured. All such exposure to substantially the same general conditions shall be considered as arising out of Occurrence.

Because there were multiple defects/conditions resulting in property damage, Chartis argued for multiple occurrences.

The court disagreed, finding that despite various defects, the property damages at issue arose from just one occurrence: the developers’ failure to perform its duties. In reaching this holding, the court looked to the allegations and facts forming the basis of the settlement between the owners association and developers, rather than the actual cause of the property damage at issue. The court explained that “in insurance coverage cases, it is the insured’s actual conduct, not the imputed conduct of another, that determines coverage.” Id. at 10 (quoting McLeod v. Tecorp Int’l, Ltd., 844 P.2d 925 (Or. App. 1992). The court found that because the allegations asserted that the property damage was the developers’ failure to ensure that the condominium was properly developed, and not that the developers negligently performed any of the work themselves, the property damage was caused by a single occurrence.

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In the case of CEnergy-Glenmore Wind Farm #1, LLC, v. Town of Glenmore, decided on August 7, 2014, the U.S. Court of Appeals for the Seventh Circuit affirmed the lower court’s ruling that the Town of Glenmore, Wisconsin’s delay and final rejection of wind farm building permits did not violate CEnery’s constitutional substantive due process rights. The proposal became very controversial, prompting the Town’s Board to rescind its earlier approval of the building permits, and the applicant alleged that it consequently lost a potentially lucrative business opportunity if the wind farms were unable to deliver power to a local utility.

The Court of Appeals held that the Board’s actions “were not arbitrary in the constitutional sense”, and that “popular opposition to a proposed land development plan is a rational and legitimate reason to delay making a decision”. Moreover, the plaintiff had other state law remedies available which it chose not to use, which further weakened its case. Finally, the Court of Appeals noted that if the plaintiff was successful, its success would cost each resident of Glenmore roughly $6000.

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Yesterday, Pillsbury attorneys Ken Taber, Paula Weber, Rebecca Carr Rizzo and Stephen Asay published their advisory titled “Ban the Box” Legislation Expands Across the Country Employers Need to Update Employment Applications and Policies. The Advisory discusses the growing national movement to “Ban the Box” – i.e., to prohibit questions about a job applicant’s criminal history on employment applications.

Currently, “Ban the Box” laws are primarily targeted at public employers; however, there are increasing efforts to impose these same restrictions on private employers. New Jersey, Washington, D.C., and San Francisco have become the latest jurisdictions to pass such legislation. Laws prohibiting private employers from seeking certain information regarding criminal convictions are already in place in Hawaii, Illinois, Massachusetts, Minnesota, and Rhode Island, as well as various cities and municipalities, including Baltimore, Philadelphia, and Seattle.

Employers would be well-advised to review and update their employment applications and policies based on these increasingly common restrictions.

If you have any questions about the content of this blog, please contact the Pillsbury attorney with whom you regularly work or Ken Tabor, Paula Weber, Rebecca Carr-Rizzo, or Stephen Asay, the authors of this blog.

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In Columbia Riverkeeper, et al. v. U.S. Coast Guard, decided on August 5, 2014, the U.S. Court of Appeals for the Ninth Circuit held that a Coast Guard “Letter of Recommendation” provided to FERC in connection with FERC’s ongoing review of a proposed Oregon LNG terminal project was not a final agency action that was reviewable under the Natural Gas Act. The Letter was issued in 2009 and addressed the suitability of the Columbia River for vessel traffic associated with the facility; it was subjected to unsuccessful administrative appeals within the Coast Guard, after which this challenge was filed in the Ninth Circuit. After reviewing the regulatory apparatus that is used to determine whether a proposed LNG facility can be permitted by FERC, the Court of Appeals held that the Letter does not have any “conclusive legal effect”, and it is therefore not a final agency action triggering judicial review. However, the Court of Appeals noted that the Letter could be an issue when the FERC permit is itself litigated, or if the Coast Guard issues a final order pursuant to its independent legal authority.

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The U.S. Court of Appeals for the Fourth Circuit recently reviewed the lower court’s rejection of a series of challenges to an important North Carolina highway transportation project that will repair and restore access to the North Carolina Outer Banks. The case is Defenders of Wildlife, et al., v. North Carolina Department of Transportation, et al., decided August 6, 2014.

Following its review of a long and complex administrative record, the Court of Appeals upheld the lower court’s dismissal of the plaintiffs’ National Environmental Policy Act (NEPA) challenge to the complicated project, but ordered to court to conduct additional inquiries into the defendants’ argument that the “joint planning exception” known as a “Section 4(f)” exception, was warranted. The “Section 4(f) exception” is a shorthand reference to a provision of the transportation laws administered by the Federal Highway Administration that affect the use of federal transportation funds in a designated wildlife area.

The Court of Appeals acknowledged that additional hearings may require the lower court to conduct “an odyssey into the facts of the condemnation proceedings [that preceded the refuge designation] and pertinent North Carolina property law”, and it provided a roadmap for this inquiry. The opinion of the Court of Appeals is a very useful explication of these complicated laws and policies.

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On July 9, 2014, Pennsylvania Governor Tom Corbett signed into law PA State Flower.jpgSenate Bill 145 (aka “Act 117”), amending Pennsylvania’s Mechanics’ Lien Law of 1963. Act 117 is effective September 7, 2014.

Among other things, Act 117 provides that, any lien obtained under the Act by a contractor or subcontractor is subordinate to “[a]n open-end mortgage as defined in 42 Pa.C.S. § 8143(f) (relating to open-end mortgages), where at least sixty percent (60%) of the proceeds are intended to pay or are used to pay all or part of the costs of construction.” This change responded to the May 9, 2012 Pennsylvania Superior Court case of Commerce Bank v. Kessler, in which the court interpreted the “all or part of” language in the existing mechanic’s lien laws to mean that the mechanics lien would be subordinate only if all of the proceeds from the mortgage were used to pay the cost of completing erection, construction, alteration or repair of the mortgaged premises subject to the open-end mortgage.

Subcontractors should also note that a subcontractor does not have the right to a mechanic’s lien with respect to an improvement to a residential property if:

(1) the owner or tenant paid the full contract price to the contractor;

(2) the property is or is intended to be used as the residence of the owner or subsequent to occupation by the owner, a tenant of the owner; and

(3) the residential property is a single townhouse or a building that consists of one or two dwelling units used, intended or designed to be built, used, rented or leased for living purposes. For the purposes of this paragraph, the term “townhouse” shall mean a single-family dwelling unit constructed in a group of three or more attached units in which each unit extends from foundation to roof with a yard or public way on at least two sides.

Act 117 adds a definition for “costs of construction.” It includes “all costs, expenses and reimbursements pertaining to erection, construction, alteration,repair, mandated off-site improvements, government impact fees and other construction-related costs, including, but not limited to, costs, expenses and reimbursements in the nature of taxes, insurance, bonding, inspections, surveys, testing, permits, legal fees, architect fees, engineering fees, consulting fees, accounting fees, management fees, utility fees, tenant improvements, leasing commissions, payment of prior filed or recorded liens or mortgages , including mechanics liens, municipal claims, mortgage origination fees and commissions, finance costs, closing fees, recording fees, title insurance or escrow fees, or any similar or comparable costs, expenses or reimbursements related to an improvement, made or intended to be made, to the property.” A “reimbursement” includes any such disbursements made to the borrower, any person acting for the benefit or on behalf of the borrower, or to an affiliate of the borrower.

Photo: David Hill, Mountain Laurel, Kalmia latifolia – Creative Commons

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On August 6, Illinois Governor Pat Quinn signed into law House Bill 5622, a bill amending the state Wage Payment and Collection Act, 820 Ill. Comp. Stat. §§ 115, et seq., and barring employers from making the use of payroll cards a condition of employment and preserving workers’ right to demand more traditional forms of wage payment, such as paper checks and direct deposits into a bank account. The new law becomes effective January 1, 2015.

The new law requires, among other things, an employer using a payroll card to pay an employee’s wages to meet the following requirements:

(1) The employer shall not make receipt of wages by payroll card a condition of employment or a condition for the receipt of any benefit or other form of remuneration for any employee.

(2) The employer shall not initiate payment of wages to the employee by electronic fund transfer to a payroll card account unless: (A) the employer provides the employee with a clear and conspicuous written disclosure notifying the employee that payment by payroll card is voluntary, listing the other method or methods of payment offered by the employer in accordance with Section 4, and explaining the terms and conditions of the payroll card account option, including: (i) an itemized list of all fees that may be deducted from the employee’s payroll card account by the employer or payroll card issuer; (ii) a notice that third parties may assess transaction fees in addition to the fees assessed by the employee’s payroll card issuer; and (iii) an explanation of how the employee may obtain, at no cost, the employee’s net wages, check the account balance, and request to receive paper or electronic transaction histories, as provided in item (3); (B) the employer also offers the employee another method or methods of payment in compliance with Section 4; and (C) the employer obtains the employee’s voluntary written or electronic consent to receive the wages by payroll card.

(3) A payroll card program offered by the employer shall provide the employee with: (A) at least one method of withdrawing the employee’s full net wages from the payroll card once per pay period, but not less than twice per month, at no cost to the employee, at a location readily available to the employee; (B) at the employee’s request, one transaction history, which the employee may request to receive in paper or electronic form, each month that includes all deposits, withdrawals, deductions, or charges by any entity from or to the employee’s payroll card account at no cost to the employee; and (C) unlimited telephone access to obtain the payroll card account balance on the payroll card at any time without incurring a fee.

(4) An employer may not use a payroll card program that charges fees for point of sale transactions, the application, initiation, loading of wages by the employer, or participation in the payroll card program. Fees for account inactivity may be assessed following one year of inactivity. The payroll card program must offer the employee a declined transaction, at no cost to the employee, twice per month. Commercially reasonable fees, limited to cover the costs to process declined transactions, may be assessed on subsequent declined transactions within that particular month.

(5) The payroll card or payroll card account may not be linked to any form of credit including, but not limited to, overdraft fees or overdraft service fees, a loan against future pay, or a cash advance on future pay or work not yet performed.

(6) An employee paid wages by payroll card may request to be paid wages by another method of payment provided by the employer in accordance with Section 4. Following the request, the employer shall, within 2 pay periods, begin payment to the employee by the allowable method requested by the employee.

(7) A payroll card program offered by an employer shall provide the employee with protections from unauthorized use of the payroll card in accordance with State and federal law concerning electronic fund transfers.

(8) The employer’s obligations under this Section shall cease 60 days after the employer-employee relationship has ended and the employee has been paid the employee’s full and final wages.

(9) Within 30 days of the termination of the employer-employee relationship, the employer shall notify the employee that the terms and conditions of the account may change if the employee chooses to continue a relationship with the payroll card issuer.

Additional Source: Illinois Department of Labor, Electronic Payroll Debit/Credit Cards for Payment of Wages; Hawaii Issues Amended Notice Re: Use of Payroll Debit Cards

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Over a strong dissent, the U. S. Court of Appeals for the Ninth Circuit rejected the lower court’s approval of several proposed de minimis consent decree settlements. The Arizona Department of Environmental Quality (ADEQ) had negotiated these settlements with a number of potentially responsible parties (“PRPs”) at the Broadway-Patano Landfill, a former hazardous waste site located in Tucson, Arizona; the site is being cleaned up at an expected cost of $75 million. Several parties claiming to be de minimis PRPs approached the ADEQ seeking early settlements of their alleged liability. Their allocations at the site ranged from 0.01% to 0.2% of the overall liability, and the ADEQ’s review of the record agreed with these conclusions. A proposed Consent Decree was filed with the U.S. District Court for Arizona. Although opposed by many intervenors, the court approved the Consent Decree. An appeal followed; the case is State of Arizona v. Raytheon, et. al., decided August 1, 2014.

The Court of Appeals held that the lower court was obliged to independently scrutinize the terms of the settlement, and that it had erroneously deferred to the ADEQ’s judgment that these settlements were in the public interest. In its decision, the lower court noted that the allocation was based on a record consisting of 800 witness interviews, and a 100,000 page record, and it did not feel compelled to second guess the ADEQ. The Court of Appeals held that no special deference was owed to a state agency interpreting a federal statute such as CERCLA. The dissent argued that the majority will now require the lower court to “wade deep into the abyss of liability allocation” and gauge the accuracy of the state agency’s decision which will require expertise that most courts do not possess. In addition, the majority did not acknowledge the significant role the states play in the CERCLA cleanup process. The majority, in a footnote, criticizes the dissent for engaging in a de novo review of the evidence by concluding that there was evidentiary support for the settlements. The dissent, for its part, rejected this criticism.

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Today, Pillsbury attorneys Jerry Jacobs, Julia Judish, and Dawn (Crowell) Murphy issued their advisory titled The ADA and Private Professional Certification. Their Advisory discusses Title III of the Americans with Disabilities Act (ADA), as amended, which mandates that private entities offering examinations or courses related to certain applications, licensing, certification, or credentialing ensure that such exams and courses are accessible to individuals with disabilities or offer alternative accessible arrangements. They encourage those involved with any aspect of credentialing examinations to pay careful attention to what aids or accommodations must be offered by law.

If you have any questions about the content of this blog, please contact the Pillsbury attorney with whom you regularly work or Jerry Jacobs, Julia Judish, or Dawn (Crowell) Murphy, the authors of this blog.

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Zurich has updated its “Litigation Management Guidelines” to give the insurer an unprecedented level of control over defense counsel’s activities. The new Guidelines adopt the Recommended Case Handling Guidelines for Insurers created by The Defense Research Institute, and also append an extensive Addendum covering business policies, expense and professional fee payment, and other administrative points.

The Guidelines purport to impose a sweeping waiver of attorney-client privilege and work product protection, even though the law in most states imposes significant limitations on an insurer’s access to privileged or protected information developed by defense counsel – especially where the insured is entitled to so-called Cumis or independent counsel as a result of conflicts of interest with its insurer. Zurich’s Guidelines mandate almost complete and constant transparency in case development and strategy, stating “counsel should provide a significant development report to immediately communicate important case developments to the claims professional, such as settlement overtures by other parties, codefendant strategies or developments, new information obtained through discovery, etc.” The Addendum also requires counsel to “enunciate the impact of the information being conveyed,” specifically on “case strategy, evaluation, posture, and resolution opportunities.” Zurich essentially attempts to coerce insureds to waive the attorney-client privilege and work product protection by expressly stating that Zurich reserves the right to review defense counsel’s files and will not pay for defense activities for which Zurich is not given access to “full” explanation and documentation.

The Guidelines require development reporting by the defense counsel to Zurich including:

• Acknowledgement – counsel should send a letter acknowledging receipt of the new case and outlining the legal team assigned, along with any matters of immediate concern/information that may resolve the case quickly
• Initial Report – counsel should send an initial report with:

– a summary of the complaint allegations, factual basis for litigation, a summary of preliminary investigation information, and preliminary evaluation of liability and damages – a litigation plan identifying significant activities (investigation, motions, discovery, etc.) counsel proposes to initiate, discovery and motions that have been or may be initiated by others, and estimated completion dates and expenses for each activity – settlement discussion with any recommendations on arbitration, mediation, or negotiations – discussion on the potential success of dispositive motions before/after the commencement of discovery and when motions to dismiss or for summary judgment are appropriate – trial date estimate
• Significant Development Report – counsel should communicate significant developments including summaries of depositions, pretrial reports, and, if applicable, settlement options and/or dispositive motions, updated liability and damages evaluation, updated litigation plan, and trial report (no later than 45 days prior to the trial date)

Other specific guidelines and restrictions are included, regarding such issues as time charges, multiple attorney attendance at certain functions, and required measures on updating. On matters of planning and case building, Zurich requires that any discovery contemplated by counsel must be discussed during the Case Management Conference (“CMC”) between counsel and the insurer’s claims professional and confirmed in the Case Management Plan (“CMP”) completed by counsel and sent to the claims professional to be reviewed and authorized with a corresponding budget. CMPs must be also re-evaluated at least every 180 days, and the CMC must include an Early Resolution Action Plan. The Guidelines require defense counsel to obtain Zurich’s permission before performing such core defense functions as conducting legal research, pursuing discovery, retaining experts, filing dispositive motions, preparing exhibits, and deciding how a matter should be staffed and whether more than one attorney should attend major litigation events.

Courts across the country have refused to enforce litigation management guidelines that unduly interfere with the independent professional judgment of defense counsel. For example, in Dynamic Concepts, Inc. v. Truck Insurance Exchange, 61 Cal. App. 4th 999, 1009 (Cal. Ct. App. 1998), the California Court of Appeal made clear that an insurer cannot impose restrictions on defense counsel that hinder counsel’s ability to provide a full and complete defense, stating that “[i]nsurer-imposed restrictions on discovery or other litigation costs may well violate the insurer’s duty to defend as well as the attorneys’ ethical responsibilities to exercise their independent professional judgment in rendering legal services.” Thus, if Zurich’s Guidelines are challenged and shown to encroach upon defense counsel’s ethical and professional responsibilities, they are unlikely to be enforced.

State ethics boards have also refused to permit such rigid oversight of the policyholder’s defense counsel as is mandated by Zurich’s Guidelines. The Supreme Court of Ohio Board of Commissioners on Grievances and Discipline, for example, has expressly forbidden such insurer influence on the defense, stating in an advisory opinion that “it is improper under DR 5-107(B) for an insurance defense attorney to abide by an insurance company’s litigation management guidelines in the representation of an insured when the guidelines interfere with the professional judgment of the attorney. Attorneys must not yield professional control of their legal work to an insurer.” Again, provided an influence upon the professional judgment of defense counsel is shown, guidelines like Zurich’s are likely to fail before the ethics boards of many jurisdictions.