Mr. Bolender presented this slide show in conjunction with his presentation of the Defense Research Institute\'s annual 2010 Construction Law Seminar, which was held at the Bellagio Hotel in Las Vegas, Nevada. The slideshow and article address key construction related insurance issues from 2009 to 2010.

1. Key Insurance Developments 2009 - 2010

2.  The Insured
 Coverage A
 Exclusions
 Conditions
 Performance

3.  Additional Insured Endorsements
- Coverage only for AI’s vicarious liability?
- Coverage for AI’s negligence?
- What does “arising out of” mean?

4.  AIE Example;
- Construction manager is additional insured
“only with respect to liability arising out of
[the named insured’s] ongoing operations...”
- Held: “Arising out of” means “‘originating
from, incident to, or having connection
with’…[,] requiring ‘only … some causal
relationship between the injury and the risk for
which coverage is provided.’” 930 N.E.2d 259
(N.Y. 2010) (New York law)
causal nexus

5.  Interpretations of “arising out of”
– Natural consequence
– Cause in fact but not necessarily a proximate
cause
– More liberal concept than proximate cause
while rejecting strict “but for” causation
– Minimal causal connection or incidental
relationship

6.  Property Damage
 Occurrence
 Trigger of Coverage
 Known Losses

7.  Property Damage;
– Physical injury to tangible property, including
all resulting loss of use of that property. All
such loss of use shall be deemed to occur at
the time of the physical injury that caused it.
– Loss of use of tangible property that is not
physically injured. All such loss of use shall be
deemed to occur at the time of the
“occurrence” that caused it.
policy definitions

8.  Property Damage;
– Issue: Does an unwanted odor that permeates
a building or residence constitute a physical
injury to tangible property?
– Held: Allegations that an ”unwanted odor
permeated the building and resulted in a loss of
use of the building are reasonably susceptible
to an interpretation that physical injury to
property has been claimed.” 562 F.3d 399 (1st
Cir. 2009) (Massachusetts law)
case examples

9.  Occurrence;
– An accident, including continuous or repeated
exposure to substantially the same general
harmful conditions
• Faulty workmanship
• Resulting damage
• Breach of contract
• Intentional acts, unexpected damage
policy definition

10.  Occurrence;
– Issue: Is water intrusion that occurs as a result
of faulty workmanship an “occurrence”?
– Example 1: “Faulty workmanship, even when
cast as a negligence claim, does not constitute
[an occurrence]; nor do natural and
foreseeable events like rainfall.” 609 F.3d 223
(3d Cir. 2010) (Pennsylvania law)
case examples

11.  Occurrence; case examples
– Example 2: Water intrusion was an
“occurrence” because it was unclear whether
the policyholder knew or should have known
with substantial probability that the defective
windows would cause resulting water damage.
631 F.Supp.2d 1125 (S.D. Iowa 2009) (Iowa
law)

12.  Trigger of Coverage;
– What must happen during the policy period in
order to trigger coverage?
• Majority: “The key date is when injury
happens, not when someone happens upon
it.” 267 S.W.3d 20 (Tex. 2008) (Texas law)
• Minority: “[T]he date on which the damage
first becomes visible.” 2010 WL 2821981
(M.D. Fla. July 16, 2010) (Florida law)
the issue

13.  Known Losses;
– Whether any qualifying insured knew that
property damage had commenced before policy
period?
• What degree of knowledge must be shown?
• Will courts look at each item of loss?
• Who bears the burden of proof?
the issue

14.  Known Losses;
– Issue: Must the qualifying insured know of its
potential legal liability?
– Held: “For the known loss doctrine to apply …,
the insured must know … an occurrence … has
caused damage to the property of a third
party;” and that “it is substantially probable
that the insured will be liable for the damage.”
2010 WL 1050252 (Wis. Ct. App. Mar. 24,
2010) (Wisconsin law)
case example

15. During Operations
Exclusion j(5)
Exclusion j(6)
After Completion
Your Work
WHEN DID PROPERTY SUSTAIN DAMAGE ?
Your Product
Impaired Property
Contractual Liability

16.  Business Risks;
– Issue: Did property sustain damage during
operations or after completion?
– Example 1: “[Exclusion j(6)] turns on when the
insured actually inflicted the damage on the
property and, here, [the contractor] caused the
damage to the woodwork while conducting its
storage and installation operations.” 679
F.Supp.2d 229 (D.Mass. 2010) (New
Hampshire law)
case examples

17.  Business Risks; case examples
– Example 2: “Although [contractor] intended to
eventually complete construction work once the
units were sold, an actor is not actively
performing a task simply because he has not
yet completed it but plans to do so at some
point in the future.” 557 F.3d 207 (5th Cir.
2009) (Texas law)

18.  Notice
 Cooperation
 No Voluntary Payments
 Contractor Warranties
 Self-Insured Retentions

19.  Notice
– Imposes duty upon named insured to promptly
notify insurance carrier of a potential loss,
claim, or “suit”
– Example: Late notice, which deprives an
insurance carrier of the opportunity to make
pre-trial decisions, constitutes a material
breach of the notice condition. 2010 WL
1050252 (Wis. Ct. App. Mar. 24, 2010)
(Wisconsin law)

20.  No Voluntary Payments
– Prohibits an insured from making voluntary
payments to a third-party claimant without the
insurance carrier’s consent
– Example: An insured’s voluntary repair of
damage sustained by homeowner (in attempt
to “do the right thing” and “mitigate damages”)
constitutes material breach of condition. 671
F.Supp.2d 1314 (S.D. Fla. 2009) (Florida law)

21.  Contractor Warranties
– Requires an insured contractor to obtain risk-
shifting documents from each downstream
subcontractor
– Example: Court found the endorsement to be
an enforceable condition-precedent to coverage
in a dispute between carriers. 99 Cal.Rptr.3d
225 (Cal. Ct. App. 2009) (California law)

22.  Duty to Defend
 Duty to Indemnify
 Supplementary Payments

23.  Duty to Defend;
– Potential for indemnification for any claim
– Mixed actions require complete defense
– Extrinsic evidence may create potential for
coverage or negate defense obligation
– “Four corners” or “eight corners” rules limit
scope of relevant inquiry
legal standards

24.  Duty to Defend;
– Issue: Will courts consider extrinsic evidence
showing an exclusion does not apply?
– Held: Although “[f]aulty workmanship by a
subcontractor might fall under the ...
exception[,]” the petition against the insured
did not mention any subcontractors or any
negligent supervision by the builder. 279
S.W.3d 650 (Tex. 2009) (Texas law)
case example

25.  Duty to Defend;
– Issue: Do pre-lawsuit proceedings constitute a
“suit” that an insurer must defend?
– Held: Mandatory, pre-litigation proceedings
satisfied the definition of “suit,” because they
are “part and parcel of construction … defect
litigation … and, as such, cannot be divorced
from a subsequent complaint.” 113 Cal.Rptr.3d
585 (Cal. Ct. App. July 27, 2010) (California
law)
case example

26.  Duty to Indemnify;
– Issue: Must an insurance carrier indemnify its
policyholder where no duty to defend?
– Held: “[A]n insurer may have a duty to
indemnify its insured even if the duty to defend
never arises.” 300 S.W.3d 740 (Tex. 2009)
(Texas law)
case example

27.  Supplementary Payments
– Affords insurance benefits that are outside of
policy limits
– Example: “We will pay, with respect to any …
‘suit’ … we defend … The cost of bonds to
release attachments, but only for bond
amounts within the applicable limit of insurance
… [and] … All costs taxed against the insured in
the ‘suit’.”

28.  Supplementary Payments
– SPP applicable “regardless of whether the
claims are or are not ultimately covered.”
2010 WL 2821981 (M.D. Fla. July 16, 2010)
(Florida Law)
– SPP does not enlarge the carrier’s duty to
defend or obligate it to pay “costs taxed
against the insured” on claims not potentially
covered. 95 Cal.Rptr.3d 845 (Cal. Ct. App.
2009) (California law)
; case law

29.  Looking Forward
- Additional Insured Coverage
- Meaning of “Occurrence”
- Known Loss Provisions
- SIR’s and Contractor Warranties
- Duty to Defend Issues
- Chinese Drywall Issues

30. INSURANCE COVERAGE COUNSEL