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Last month New York’s Supreme Court, Appellate Division 1st Department affirmed the Supreme Court, New York County’s decision granting partial summary judgment in favor of an insured freezer manufacturer, I.J White Corp., which sought defense and indemnity under a CGL policy for claims against it brought by Hill Country Bakery for breach of contract, breach of warranties, and fraudulent inducement. See I.J. White v. Columbia Casualty Co., 2013 N.Y. Slip Op 02500 (NY A.D., 1st Dept., April 16, 2013). The court held that Hill Country’s underlying complaint against I.J. White seeking damages because of a defect in its freezer system alleged both an “occurrence “and “property damage” within the meaning of the policy, triggering the insurer’s duty to defend.

Hill Country, a maker and distributor of baked goods, bought a spiral freezer system from I.J. White which was to freeze freshly baked goods within 150 minutes to a temperature necessary for proper handling and packaging. Once installed, however, the freezer failed to freeze the cakes as required, which became evident when workers cut into the cakes as part of the packaging process.

Hill Country sued the freezer manufacture for damages, including for the eight months its $21 million facility (specifically constructed to house the freezer equipment) was out of use and for the additional $1.9 million it spent fixing the defective equipment.
I.J. White tendered the claim to its CGL insurer, Columbia Casualty Co., which took the position that the alleged defects in the freezer did not qualify as an “occurrence” and that there was no “property damage” within the meaning of the policy and denied coverage.

The Supreme Court and the 1st Department on appeal disagreed. As the appellate court explained, while CGL policies like the one at issue do not insure against faulty workmanship in the work product itself, they do insure against property damage caused by faulty workmanship to something other than the work product. And here, that something other was Hill Country’s cakes. Distinguishing George A. Fuller v. United States Fid. & Guar. Co., 200 A.D. 255 (NY AD 1st Dept 1994), in which the court said the insured contractor sought coverage for damage to its own work, the court said here the insured seeks coverage for damage to the cakes, not to its freezer. This damage, according to the court, “is precisely the kind that [the insurer’s] CGL policy contemplated, and therefore, the complaint properly alleges an ‘occurrence’ within the meaning of the policy.” Additionally, the damages for loss of use of the facility specifically built to house the freeze fall squarely within the policy’s definition of property damage, which includes “[l]oss of use of tangible property that is not physically injured.” The court rejected the insurer’s argument that it was the act of cutting into the unfrozen cakes that ruined the product rather than the defective freezer itself as a distinction without a difference: “the fact remains that Hill Country’s product was rendered unusable as a direct result of the alleged defect in plaintiff’s freezer.”

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THE QUESTION: (A question pondered as far back as October 1981.) What do you do when the only way for 16,000 cars to get from point A to point B each weekday is to go through congested streets of downtown Miami?

THE ANSWER: The Port of Miami Tunnel (POMT) – a $1 billion tunnel connecting I-395 to the Port of Miami.

POMTProjectSiteMapSMALL.jpg

THE DILEMMA: How exactly does one build a tunnel (twin tunnels actually) approximately 4,2000 feet long, almost 40 feet in diameter, and 120 feet below the surface of the water?

Enter “Harriet” – the $45 million German-built Tunnel Boring Machine (TBM) that has spent the past 18 months digging through the earth near Miami, leaving twin tunnels in her wake. The massive TBM that would build this underground network was aptly named, by the Miami-Dade County Girl Scouts, after Harriet Tubman.

Harriet was built and tested by Herrenknecht in Germany, then disassembled and packed for her transatlantic voyage to the U.S. in the Summer of 2011. Harriet is the largest diameter soft ground tunnel boring machine in the United States. In an assembled state, she is 428.5 feet long and her cutter head has an outside diameter of 42.3 feet. That’s longer than a football field and as high as a 4 story building.

The process for excavating and building the twin tunnels is not an easy one – even for Harriet. The “Tunneling Process” is described as follows:

The cutter head rotates as a cutting wheel boring out the underground area, while the trailing gear contains the electrical, mechanical, guidance systems and additional support equipment. Excavated material is carried back through the trailing gear on an enclosed conveyor belt and deposited outside the tunnel entrance, or portal. It is moved off‐site to be used as fill material and is disposed in a manner consistent with applicable environmental rules and regulations. As the TBM moves forward it erects precast concrete liners (known as segments) that become the finished wall of the tunnel. Once the liners are in place, grout is pumped into the space between it and the excavated area to fill any voids or gaps.

And about those “segments” that become the finished wall of the tunnel – it takes 8 segments to construct each ring and Harriet can construct 3-6 rings per day. According to the POMT website, “Harriet launched from her home in the Watson Island pit on November 11, 2011, boring the first tunnel towards Dodge Island. Harriet emerged on Dodge Island on July 31, 2012 where she was disassembled, turned and reassembled.” EarthCam captured Harriet’s breakthrough on Dodge Island on video.

View_of_TBM_Cutterhead_and_Tunnel_Workers_Exiting_Machine.jpg

Yesterday, May 6, 2013, Harriet reached the end of her journey. After working 24 hours a day (with 4 hours being for daily maintenance) with up to 30 people inside and on the machine’s surface – Harriet has finally reached the light at the end of the tunnel. To quote Chris Hodgkins, V.P. of Miami Access Tunnel: “She’s dirty, she’s worn, she’s missing a lot of her teeth. She wants to breathe some fresh air. She served us well, and she’s ready to call it a day.”

The Port of Miami Tunnel is expected to open to traffic in May 2014. For more information, visit the Port of Miami Tunnel website.

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A few weeks ago I posted about an Eighth Circuit case that once again illustrated how, despite the drafter’s precision carrying the day most of the time, sometimes a litigator’s creativity can trump it. Well, it’s happened again. And again the issue is whether a dispute between and insured and a carrier is subject to arbitration. And again, the carrier wanted to arbitrate but the court kept the case. This time it’s the Second District California Court of Appeal, in Diamond Blue Enterprises v. Gemini Insurance Company. Before I say more, let me caution all the lawyers preparing to cite the case that it’s unpublished.

(I chuckle to myself as I write that given the difference between “published” and “unpublished”. Sure, the case won’t end up in a bound reporter on a library shelf collecting dust, but other than that and the fact that the judges who wrote it not wanting it to be precedent, what’s the difference between a published and unpublished case?) But enough of my editorializing; on to the case.

The insureds were sued by a third party and tendered the case to the carrier, who initially declined to defend. The insureds then incurred nearly $400,000 in defense costs but the carrier then picked up the defense. The insureds sued the carrier for reimbursement of the defense costs and the carrier moved to compel arbitration based on this clause in the policy: “If we and the insured do not agree whether coverage is provided under this Coverage Part for a claim made against the insured, then either party may make a written demand for arbitration.”

The word “coverage” was not defined in the policy, so the Court of Appeal looked at the duty to defend and the duty to indemnify and explained: “The duty to defend is triggered if a third party sues the insured seeking damages for a covered risk, but is not triggered if the lawsuit seeks damages for a risk ‘to which this insurance does not apply.’ Under the terms of the policy, coverage defines the risks and the duty to defend is triggered by the scope of coverage. Thus, the duty to defend and coverage are related by not synonymous.” The difference between the duty to defend and the duty to indemnify means that “there may ultimately be no coverage for a claim even though the insurer has an obligation to defend the claim.”

As a result, “[t]he arbitration clause is ambiguous as to whether it was meant to apply to a dispute over the duty to defend, and ambiguities in an arbitration agreement, like any other contract, are resolved against the party that drafted the agreement.”

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  • 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.

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New Tappan Zee Bridge.jpgDon’t worry. That shaking you feel isn’t an earthquake. It’s the construction of the new Tappan Zee bridge across the Hudson River north of New York. I’m kidding of course. Construction on the $3.9 billion project hasn’t even started yet, but much of the geotechnical work, not to mention the design, has. Now they are planning on picking up good vibrations with highly sophisticated shoebox-sized sensors posted around the construction site. This is nothing new, but the plan to make the data available online 24/7 is–at least as far as I know. Check back here in a few weeks to see the monitoring page.

But lest you think that the only people interested in the movers and shakers at the bridge are the contractor and the nimbies and gadflies nearby, note this: Columbia University’s Lamont-Doherty Earth Obversvatory is just downriver on the West side, home to gobs of the largest and most sophisticated earth measuring equipment you’ll find. My geotechnical engineer friends tell me that every year Lamont-Doherty hosts an open house, which is generally geared toward kids, but is fascinating for geeks (like me) of all ages. It’s usually in early October, so check their website if you’re anywhere near New York and take the kids. While you’re there you can swing by and see a pretty cool construction site at the new bridge.

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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.

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  • 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.

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In a previous post, we reported that the American Society of Civil Engineers (“ASCE”) released its 2013 Report Card for America’s Infrastructure. America’s cumulative GPA for infrastructure was a D+. One of the categories in this report focused on ports, which received a C grade. Now a new report goes into more depth on one particular part of our infrastructure: Ports. The question, it seems, is: CapEx or Capsize. More, after the jump.

ASCE reported that, according to U.S. Army Corps of Engineers estimates, more than 95% of the volume of overseas trade imported or exported by the United States moves through our ports. The report stressed the importance of improving our nation’s ports in order for the nation to maintain its competitive edge in the global economy: “To sustain and serve a growing economy and compete internationally, our nation’s ports need to be maintained, modernized, and expanded. While port authorities and their private sector partners have planned over $46 billion in capital improvements from now until 2016, federal funding has declined for navigable waterways and landside freight connections needed to move goods to and from the ports.” The inability of the federal government and state governments to fund the necessary improvements to our ports makes a strong case again for the importance of public-private partnerships (“P3s”) in improving our country’s infrastructure.

According to the recent North American Port Analysis report, published by Colliers International in April, America must secure $3.6 trillion in funding by 2020 for the country’s infrastructure in order to improve U.S. ports and to stay competitive in the global market. This is especially true since, as stated in the report, the Panama Canal Expansion is altering global trade patterns, and major trade is shifting from Asia to Latin America, and from America’s West Coast to East Coast/Gulf ports. In subtitling the report CapEx or Capsize, the economists for Colliers International are driving home the importance of investing in the nation’s infrastructure and ports now rather than delay such an essential undertaking. P3s will definitely contribute to this investment.

As exemplified by past projects, ports can greatly benefit from P3s. One example of a very successful P3 project was the 2004 expansion of the Port of Galveston in Galveston, Texas. The Port of Galveston Cruise Terminal Development (the “Project”) was a partnership between the Port of Galveston and several private partners, including CH2M Hill, Royal Caribbean International and Carnival Cruise Lines. In 2002, the private partners submitted an unsolicited proposal to expand the cruise ship services and facilities. The public and private sectors then worked together to fund the project and to provide the necessary facilities on time and within budget. The Port of Galveston benefited from the project because of the increased revenue from growth in related employment and commercial revenues. And the private partners benefited because a greater number of their cruise ships can now utilize the improved port to increase customers and revenues.

On the whole, like many P3 projects, it was a win for both sides. The National Council for Public-Private Partnerships awarded the Project the 2004 NCPPP Infrastructure Award Winner. A more detailed description of this exemplary project can be found here.

Overall, P3s can play a vital role in improving our nation’s infrastructure and assisting our nation to secure the $3.6 trillion necessary to raise our infrastructure GPA from a D+ to a B. P3 projects have proven time and time again that they can be much more efficient and can lower costs. This certainly is a winning combination to turn around our nation’s infrastructure.

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I occasionally give a presentation called “That’s not what I meant!” which is subtitled “Usually the drafter’s precision carries the day, but sometimes the litigator’s creativity trumps it.” Our legal system generates seemingly endless material for this presentation and last week the Eighth Circuit gave us more in Union Electric v. AEGIS Energy Syndicate. The policy had a mandatory arbitration provision, but an endorsement specified that Missouri law governed and a Missouri statute prohibits mandatory arbitration of insurance disputes, so while the carrier wanted to compel arbitration, Judge Jean Hamilton refused and the Eighth Circuit affirmed her decision. So, the drafters may have intended that any disputes would be arbitrated, but if so, they should have done some more homework.

There are a couple of lessons here. First, read the entire policy, including the endorsements. The endorsements are like change orders to construction contracts and until you’ve read them, you don’t know what the policy provides for. Second, just because a policy (or any other contract, for that matter) says something doesn’t mean it has to be. Many common contractual clauses are rendered unenforceable by either caselaw or statutes. Third, because insurance policies are governed by state laws, and in light of the differing interpretations and statutory schemes amongst the states, there can be wide variations of the procedural and substantive effect of policies depending on what state’s law governs. So, do your homework.

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For a visual tour of the construction of New York’s Second Avenue Subway line, the Big Apple’s first major expansion of its subway system since 1932, check out CBS Sunday Morning’s video, NYC’s subway, still under construction.

Amidst the obligatory interviews on the surface with planners, engineers, and inconvenienced neighbors, the video offers interesting glimpses of the excavation and construction of the first phase of the $4.5 billion project. Phase 1 of the planned four phase, two-track line will provide service from 96th to 63rd Streets and is expected to be complete in December 2016. The new line, once all four phases are completed, is to shuttle commuters up the East Side from Hanover Square to 125th Street.

If you don’t have time for the six and half minute video, skip to the photo gallery, Building NYC’s Second Ave. Subway, for photos and renderings of the project and equipment. For more detailed information on the project, including monthly project updates, go straight to the horse’s mouth at MTA.info.