Posted
by and

The Florida Supreme Court gave insureds a Fourth of July present one day early — July 3 — by ruling that property policies providing replacement cost coverage include the cost of a contractor’s overhead and profit, even if the insured does not actually pay a contractor overhead and profit to replace the damaged property. We’ll explain the decision, Trinidad v. Florida Peninsula Insurance Company, in detail after the jump, but first some commentary.

We’ve often seen this issue in the “no good deed goes unpunished” situation where a contractor steps in to perform repair work on a builders risk policy and the carrier refuses to pay the contractor’s overhead and profit. If the contractor did not perform the repairs, either the owner or the carrier would have to hire a different contractor who was not already on site to mobilize to the site and perform the repair work. The carrier would obviously have to pay that contractor overhead and profit. And that contractor would be much less efficient and more expensive. But the carrier tries to take advantage of the original contractor’s willingness to step in by carving overhead and profit off the payout.

This Florida Supreme Court decision validates our position: A carrier must pay the overhead and profit whether or not the insured actually pays a contractor to do the work. Now, for the details.

In Trinidad, a homeowner filed a claim with his insurance company for fire damage. The insurer admitted coverage under the homeowner’s replacement cost policy and issued a payment for completion of repairs, even though the homeowner did not make repairs to his home or hire a contractor to do so. The insurer’s payment did not include overhead and profit, and the insurer claimed that it was not obligated to pay these amounts until the homeowner actually incurred such expenses in repairing his home.

The homeowner sued for breach of contract arguing that he was entitled to all costs of repair, including overhead and profit. The insurer responded that it was not required to pay these costs under Section 627.7011 of the 2008 Florida Statutes until such costs were actually incurred. On summary judgment, the trial court found in favor of the insurer and stated that the policy language only required the insurer to pay costs that had been “actually spent.” The Third District affirmed the trial court’s decision and refused to interpret the Florida Statutes as requiring payment for overhead and profit which had not been incurred.

The Supreme Court of Florida reversed and held that an insurer’s required payment under a replacement cost policy includes overhead and profit where the insured is “reasonably likely” to need a general contrator to perform repairs. The court noted that neither the homeowner’s policy nor the 2008 version of the Florida Statutes required an insured to actually repair his property before recovering the full replacement cost, including overhead and profit. The court stated that overhead and profit were “no different that any other costs of a repair” that an insured is reasonably likely to incur.

NOTE: The section of the Florida Statutes at issue in this case, Section 627.7011, was amended in 2011 to allow insurers in some situations to hold back certain amounts until work is performed and expenses are incurred.

Posted
by

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.

Posted
by

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.

Posted
by

On June 21, 2013, the government issued an interim rule amending the Federal Acquisition Regulation (“FAR”) to remove the dollar limits on contracts that may be set aside for Women-Owned Small Businesses (“WOSB”) and Economically Disadvantaged Women-Owned Small Businesses (“EDWOSB”). The FAR rule conforms to a final rule issued by the U.S. Small Business Administration (“SBA”) on May 7, 2013. This change should greatly increase the number and dollar value of contracts federal agencies set aside for WOSBs and EDWOSBs in the future.

To learn more about this, click No More Dollar Limits on Federal Contract Set-Asides for Women-Owned Small Businesses to read the alert by John E. Jensen, Nicole Y. Beeler, and me.

Posted
by

A recent California case, Ahdout v. Hekmatjah (2013) 213 Cal.App.4th 21, held that an arbitrator’s refusal to apply California’s disgorgement remedy against an unlicensed contractor was subject to judicial review even if the underlying agreement was not entirely void.

Two adjacent landowners formed a limited liability company to develop condominiums on the combined property. The LLC’s operating agreement provided that the LLC would hire a contractor owned by the managing member to construct the project. The contractor was not to receive any direct payment for its work. Instead, the agreement provided that the managing member would receive a greater credit to his capital account based on the construction price, and a correspondingly greater share of the profits.

Unhappy with delays and cost overruns, the non-managing member initiated arbitration proceedings. The non-managing member asserted that the managing member’s contractor was not properly licensed, and thus under California Business and Professions Code section 7031 the non-managing member was entitled to (a) equalization of the profit-sharing mechanism, and (b) a 50% share of the construction cost, all of which should be disgorged to the LLC.

The arbitratror denied disgorgement, on the basis that neither the managing member nor the contractor acted as a general contractor.

The non-managing member sought to vacate the arbitrator’s award, but the trial court determined it did not have the power to review the arbitrator’s decision.

On appeal, the court reviewed Loving & Evans v. Blick (1949) 33 Cal.2d 603, which held that a construction contract with an unlicensed contractor was void, and an arbitrator’s award in favor of the unlicensed contractor under that void agreement was unenforceable. The court determined that Loving was not directly applicable, because the provision in the LLC’s operating agreement mandating hire of the unlicensed contractor was only a portion of the agreement, and did not void the entire agreement. Under Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, when only part of an agreement containing an arbitration provision is illegal (and the illegal part is not the arbitration provision), disputes under the agreement remain arbitrable.

However, the court found refuge for the non-managing member in a portion of the Moncharsh decision identifying a public policy exception to its broad rule in favor of arbitration. The court found that California’s strong public policy against unlicensed contractors was sufficient to merit “judicial review of arbitration awards that allegedly fail to enforce section 7031.” Id. at 39. The court remanded the case to the trial court to conduct a de novo review of the evidence to determine whether disgorgement was required.

Posted
by

Since we last checked in on California’s planned high speed rail system nearly a year ago, it has continued to take baby steps toward construction.

Mike Rosenberg of the San Jose Mercury News notes here that on June 6 the California High Speed Rail Authority’s (CHSRA) board authorized its CEO to negotiate final terms of a contract for the first phase of construction with a Tutor Perini-led group after its $985 million bid beat its nearest competitor by about $100 million and the initial estimate by over $200 million.

The project also avoided a potential roadblock with the June 13, 2013 decision of the federal Surface Transportation Board (STB) to grant the CHSRA an exemption allowing it to proceed with construction without subjecting itself to the STB’s approval requirements in addition to the hurdles already cleared. The STB’s decision, effective June 28 according to its text, is available here.

Posted
by

Posted
by

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.

Posted
by

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:

Posted
by
  • Demolition of “The Coop,” a 113-year-old building on Michigan State University’s campus, was delayed after a fire broke out on the building’s roof this week.