Construction Claims Winter 2020

CONSTRUCTION WINTER 2020 CLAIMS BUILDING ISSUE 4 • VOLUME 5 BETTER OUTCOMES THE TECH REVOLUTION COMES TO CONSTRUCTION DOLLARS ON THE TABLE Rebuilding The WEST CONSTRUCTION CONSIDERATIONS AFTER THE SMOKE CLEARS A publication of TheCLM.org

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Photo by David McNew/Getty Images THE BONES WINTER 2020 10 ON THE COVER REBUILDING THE WEST Construction Considerations After the Smoke Clears FEATURES 20 22 26 30 COVID-19, THE TECH THE SEVEN HABITS OF DOLLARS ON THE TABLE CONSTRUCTION, AND REVOLUTION COMES A HIGHLY EFFECTIVE CLAIMS COLLEGE TO CONSTRUCTION CLAIMS TEAM Tort Recoveries From Instructors Discuss Managing New Risks Tips for Self-Improvement Second-Tier Design-Builders 2020’s Virtual Format and Claims in the Age of and Team Success STATE-BY-STATE Technology 14 Washington Dotting I’s and Crossing T’s 18 New York DEPARTMENTS In Whole or In Part 16 Florida 4 Inside Counsel The Courts in 2020 A Virtual Education 6 Ask the Expert Lessons Learned 8 Survey This Raining Embers 33 Back to School 34 Foundations Gwen Gatson-Long, CCP, Senior Claims Adjuster, North American Risk Services WINTER 2020 | 3

INSIDE COUNSEL A VIRTUAL EDUCATION The effects of COVID-19 have been numer- ence working with the instructors and seeing the same group of ous and far-reaching. First and foremost are students progress through the curriculum. the devastating health impacts, which we continue to see in the rising number of cases My observation was that it took a few classes for the students and deaths around the world. In addition, to adjust to the virtual setting. Early on, the biggest concerns there are the impacts on our personal and for students appeared to be getting and staying connected, and professional lives, whether it’s contending making sure they were able to use the technology correctly and with limitations on gatherings, closed or not miss anything important. Later on, as the level of comfort limited businesses, or just finding new and increased, I noticed more interaction—both among the students innovative ways to do our jobs in the current reality. themselves and between the students and instructors—and it began to feel more like a traditional classroom. At the CLM, we made a number of adjustments. For an asso- ciation that prides itself on bringing its members and fellows to- I thought it would be interesting, though, to offer a perspec- gether, the orders and guidance insisting that we all stay apart for tive beyond my own, so, in this issue, I reached out to some of the time being have been challenging. But, challenges are made the instructors I worked with and asked for their thoughts on to be answered, and we have done that by focusing our efforts on 2020’s virtual Claims College. You can see their takeaways on holding virtual events that allow us to interact and network, even page 20. Due to space in our print edition, we had to limit the if we can’t all gather in one place. number of responses, so please also check out this Q&A on CLM’s relaunched magazine website at theclm.org/magazine for Claims College added a bit of a twist to our efforts since it is an expanded version. K not just about delivering a high-quality presentation, but also cre- ating a classroom environment where instructors can teach and PHIL GUSMAN students can learn. I served as an administrator for the School Editor of Construction’s Level Two courses, and it was quite an experi- [email protected] CHIEF EXECUTIVE OFFICER WINTER 2020 Construction Claims is published four times a year Anne Blume and covers all aspects of construction-related claims, ISSUE 4 • VOLUME 5 including construction defect, site accidents/injuries, VP PARTNERSHIPS insurance coverage, subcontractor issues, and new Jeremy Campbell ADVERTISING technologies that address both national and regional/ Jeremy Campbell statewide audiences. SENIOR SALES REPRESENTATIVE [email protected] Bryan Pifer 513-377-7228 Copyright© 2020 by the Claims and Litigation Management (CLM) Alliance. All rights reserved. No part ACCOUNT EXECUTIVE EDITORIAL SUBMISSIONS of this publication may be reproduced or transmitted Megan Josd & QUESTIONS in any form or by any means, electronic, mechanical, Phil Gusman at [email protected] photocopying, recording or otherwise, without EDITOR prior written permission of the Claims and Litigation Phil Gusman REPRINTS Management (CLM) Alliance. For reprints and licensing EXECUTIVE EDITOR please contact Shabynka Nealy at The views expressed in the articles are solely those of the Eric Gilkey [email protected] authors and do not necessarily reflect the views or opinions or 954-587-2488. of the Claims and Litigation Management (CLM) Alliance or the ART DIRECTOR companies in which the authors are employed. Jason T. Williams 4 | CONSTRUCTION CLAIMS TheCLM.org/Magazine

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ASK THE EXPERT LESSONS LEARNED QUESTION: What is a challenging experience from early in your career that could serve as a lesson to young professionals today? William A: One of the primary career Nebeker concerns lawyers worry about is their reputation. Partner, For young lawyers, that worry can be extremely Koeller, Nebeker, taxing. I was no exception. Carlson, Haluck, Going into my fifth year LLP of practice, I was fortunate enough to be on my own and to have my own firm. The adverse lawyer was a seasoned veteran As with most young lawyers, of the courtroom brought in to try the case I knew many people that against me. The venue was in federal district could provide work to me, court before a non-drinking Judge. I was curi- but most were wary of hir- ous that the plaintiff ’s lawyers did not ask for a ing a new, young lawyer. jury trial. I certainly did not want one. I didn’t exactly struggle The insurance adjuster and risk manager to get clients, but I could watched the entire trial and there were few not break into the higher-profile cases that negotiations. We were confident with our I desired. Then, one of my clients entrusted evidence and were confident of a victory. a road-design case to me. The plaintiff had Unfortunately, the judge saw it differently suffered catastrophic injuries as the driver in a and awarded a seven-figure verdict. I was single-vehicle motorcycle accident, rendering devastated and obviously thought my career him a paraplegic. My client was a municipality was ruined. It wasn’t. that had owned the roadway since it was first built in the 1920’s. The roadway was a curve and Strangely enough, shortly after the trial the allegations were that it was dimly lit and not results became known in the community, I well marked. Not much had been done to it for started receiving inquiries about handling over half a century. more large cases. I started picking up new and excitingly complex matters in the months Without getting too deep into the details, that followed. My career took off—all because the plaintiff was a 32-year-old construction of a large loss. worker traveling back to his hotel. He was working on location and lived 300 miles away. It seemed that, because of the size of the He had been working all day and then went verdict against my client, I had now earned out drinking that night. The accident happened the reputation of being able to try large cases. I after midnight. Our defense was that there guess the lesson to be learned is that you never was nothing wrong with the road and that the know where your career will take you or what accident was caused by the negligence of the will impact it. All you can do is your best! K plaintiff himself for driving his motorcycle at a high rate of speed while intoxicated. The only two witnesses were transients who had to be tracked down. I deposed one of them in the Hattiesburg, Mississippi jail and the other in a small community in northern California. The plaintiff had a wife and three children. 6 | CONSTRUCTION CLAIMS TheCLM.org/Magazine

We’ve Got You Covered 2021 CONFERENCES & EVENTS DATE CONFERENCE/EVENT LOCATION MAY 12 – 14 CHICAGO JUNE 16 – 18 Workers Compensation and ATLANTA SEPTEMBER 8 – 11 Retail, Restaurant & Hospitality Conference BALTIMORE SEPTEMBER 22 – 24 SAN DIEGO OCTOBER 19 – 20 CLM Annual Conference CHICAGO OCTOBER 21 Claims College and Chief Claims Officer Summit CHICAGO OCTOBER 21-24 CHICAGO NOVEMBER 3 – 4 Construction Conference WASHINGTON, DC DECEMBER 2 CLM Focus • PROFESSIONAL LIABILITY NEW YORK • TRANSPORTATION SCHEDULED TRACKS: • CLAIMS AND LITIGATION • DIVERSITY & INCLUSION • MANAGEMENT LIABILITY MANAGEMENT • MEDICAL MALPRACTICE • PRODUCT LIABILITY Litigation Management Symposium Litigation Management Institute CLM Focus • SUBROGATION SCHEDULED TRACKS: • CLAIMS AND LITIGATION MANAGEMENT • CANNABIS • ENVIRONMENTAL • INSURANCE FRAUD • PROPERTY CLM Focus & Holiday Party • CLAIMS AND LITIGATION MANAGEMENT SCHEDULED TRACKS: • CYBER • EXTRA-CONTRACTUAL • INSURANCE COVERAGE Sponsorship: [email protected] theclm.org/events Speaking: [email protected] DATES, LOCATIONS, AND TRACKS SUBJECT TO CHANGE

SURVEY THIS RAINING EMBERS The Insurance Institute for Business and Home Safety conducted a wildfire demonstration in 2019 at its Research Center. This image shows the difference defensible space and fire-resistant materials can make, as the side of the building without these measures ignited after just 10 minutes of exposure to wind-driven embers. This issue’s cover story, on pg. 10, discusses the importance of rebuilding with such mitigation efforts in mind after another devastating year for wildfires out West. SOURCE: INSURANCE INSTITUTE FOR BUSINESS AND HOME SAFETY 8 | CONSTRUCTION CLAIMS TheCLM.org/Magazine



Photo by David McNew/Getty Images

Rebuilding The WEST CONSTRUCTION CONSIDERATIONS AFTER THE SMOKE CLEARS BY RICHARD GLUCKSMAN AND RAVI MEHTA W ildfires have always been a part of life in the western United States, but, in recent years, the frequency and size of wildfires have become staggering. Oregon, Washington, and—in particular—California face drier conditions, making wildfire season longer and more intense. In these states, among others, prescribed burns (designed to reduce wild- fire ignition sources and spreading potential) have been limited or cancelled altogether as the air pollution emitted by these burns may worsen the impact of COVID-19, a respiratory illness in its essence, as noted recently by Science magazine. These circumstances, further compounded by the severe short- age of housing, have created a “perfect storm” in California, which has seen new and denser construction deeper within wildfire-prone areas, prompting a number of key legislative proposals that will impact the rebuilding process after the smoke clears. The infamous 2018 Camp Fire in northern California made international headlines for decimating the town of Paradise. While the cause of the Camp Fire was determined to be faulty electrical transmission equipment, unusually dry conditions allowed the fire to spread to just over 150,000 acres, and the fire took 17 days to contain. Then, five of the 20 largest wildfires in California history occurred during the 2020 wildfire season, according to the California Department of Forestry and Fire Protection (Cal Fire). The Camp Fire was eclipsed by the August 2020 Complex Fire, which is the largest wildfire ever recorded in the state, growing to just over one million acres in size until it was finally contained on Nov. 15. WINTER 2020 | 11

Rebuilding The West Legislative Response While certain components of The Camp Fire and other 2018 wild- fire-resistant construction may fires displaced hundreds of thousands have increased costs, the benefits of people from their homes throughout California. The unprecedented scale far outweigh these increases. of both the 2018 and the 2020 wildfire seasons in California has spurred legisla- • Create new defensible-space require- wealthy homeowners. Several prominent tors in Sacramento to draft a number ments for both new and existing and well-known carriers offer homeown- of important bills that will undoubtedly construction in high fire-risk areas. ers-insurance policies that provide for impact rebuilding efforts. private firefighting personnel, as well as • Create a grant-assistance program for preventative services (wildfire hazard in- California AB 38 was prompted fire-prevention education, inspec- spections and clearing defensible space), by the 2018 California wildfire season tions, and technical assistance. and expected post-incident services and was signed into law by Gov. Gavin (clean up and removal of fire retardant Newsom in October 2019. It requires • Direct Cal Fire to develop vegetation- and similar substances). the state fire marshal, the Office of management recommendations to Emergency Services, and Cal Fire to minimize flammability. AB 2380 was signed into law by work together to develop and admin- Additionally, the bill would allow Newsom at the tail end of the 2018 ister a comprehensive wildfire mitiga- wildfire season, and it now requires Cal tion program, including “cost-effective insurers providing course of construction Fire, the governor’s Office of Emergency structure hardening and retrofitting to coverage for a project to request, from the Services, and the board of directors of create fire-resistant homes, businesses, owner, municipal certification that the the FIRESCOPE Program (designed to and public buildings.” structure to be built complies with exist- coordinate firefighting resources among ing and new building standards. Newsom different agencies) to develop standards Unfortunately, the well-intentioned vetoed this bill, cautioning that a “one size and regulations for privately contracted program has yet to be funded, and fits all” approach to wildfire management fire fighters. may be relying on federal hazard funds may not be appropriate, given that each from the Federal Emergency Manage- individual community’s needs differ. Housing Shortage and ment Agency at a future date. In light New Construction of the crippling economic impact of the California AB 2380 focuses on the These legislative efforts are underscored COVID-19 pandemic, federal funding development of standards and regula- by the worsening housing crisis, which is likely the only viable source for this tions for a relatively new and growing has both strained existing supply and important item of legislation. phenomenon: the rising use of private firefighting personnel, particularly by California SB 182 would enact new building regulations in high fire-risk areas (as determined by the state fire marshal), including new standards for fire-resistive construction, evacuation routes, defensible space, and available water and firefighting resources. It would also prohibit municipalities from approving new construction in high fire-risk areas unless wildfire reduction standards are satisfied. In effect, the bill would discourage new construction in high fire-risk areas. After passing through both legislative houses, Newsom vetoed the bill, citing its negative impact on the state’s strained supply of affordable housing. However, the bill is likely to be revisited in the 2020- 2021 legislative session. California AB 1516 is a comprehen- sive bill that would: 12 | CONSTRUCTION CLAIMS TheCLM.org/Magazine

Rebuilding The West increasingly pushed new construction Insurance Adjuster Act of 2019, which tion was estimated to cost approximately into areas known as the Wildland Urban sets regulations for insurance-claim 19 percent more than traditional decking Interface (WUI). adjusting in emergencies. construction. Wildfire-resistant landscap- ing has the most significant cost differ- WUI areas are designated as either Dodd also spearheaded the passage of ence as compared to traditional landscap- “interface” or “intermix.” Interface WUI SB 190, which was enacted in late 2019. ing construction, with the former costing areas have little to no wildland vegetation, The law requires, among other things, about double the latter. Landscaping but are near large wildlands. By contrast, the state fire marshal to develop suitable fabric can minimize the growth of weeds in intermix WUI areas, structures are materials and products for building in and thus reduce fire hazard, as does the mixed with wildland vegetation. WUI areas with respect to exterior wall use of rocks instead of mulch. siding and sheathing, exterior windows, A recent study by the U.S. Forest Ser- doors and skylights, vents, decking, While certain components of fire- vice found that, as expected, WUI areas treated lumber and ignition-resistant resistant construction may have increased are the hardest hit by wildfires. However, materials, and roofing materials. The state costs, the benefits far outweigh these the study also found that, contrary to fire marshal’s office found that roofing increases: longer life cycles and less popular belief, wildfires cause greater material is among the most important maintenance of the components, and, damage in interface WUI areas than factors in a structure’s fire resistivity, and most importantly, greatly increased fire intermix WUI areas—in other words, slate, metal, and tile roofs have the highest resistivity of the structure itself and thus wildfire damage is greatest where there is fire resistance rating of “A.” its life cycle. little to no wildland vegetation. The study concludes that wildfires in WUI areas As of July 1, 2021, wood-shake roofs As construction in WUI areas is are fueled more by human-made fuels will no longer be allowed by the Cali- expected to grow substantially in the as opposed to natural vegetation. These fornia Fire Code. The state fire marshal coming years, so too are fire-resistive human-made fuels include building also cites non-combustible siding as an construction standards and material materials and landscaping. important building element. requirements. These standards and re- quirements are part and parcel of a more It may not come as a surprise that Wildfire-Resistant Construction comprehensive and deliberate set of land- a growing body of scientific literature A recent study prepared by Headwaters use planning, vegetation management, has ascribed more severe and frequent Economics and commissioned by the and emergency-response regulations and wildfires to climate change. However, U.S. Forest Service, LOR Foundation, policies that California will develop by what may be less appreciated is the pro- and Insurance Institute for Business & necessity to meet the growing demand for found impact of building in the WUI. Home Safety analyzed cost differentials housing in WUI areas, and also to rein in By 2050, an estimated one million new between traditional construction and the staggering costs of wildfire suppres- homes are projected to be built in Cali- wildfire-resistive construction as they re- sion. Thus, construction in WUI areas, fornia WUI areas. late to the four most fire-critical assem- and, to a lesser degree, in non WUI areas, blies of a structure: roofs, exterior walls will be subject to more exacting standards In light of this, as well as the recogni- (including windows and doors), decks, in the years to come. tion that wildfire risk is determined, in and landscaping. Wildfire-resistant large part, by construction standards and roofing, vents, fascia, and gutters were As the science of wildfire preven- the fire resistivity of materials as op- estimated to cost about 27 percent more tion and suppression advances, so too posed to natural vegetation, California than traditional components. However, will the technological innovations that has developed a special building code for the wildfire-resistant roofing materials will allow for safer, longer-lasting and WUI areas: Chapter 7A of the California feature lower maintenance requirements ecologically sensitive construction. As Building Code—Materials and Construc- and longer lifespans. in many other fields, California is ex- tion Methods for Exterior Wildfire Ex- pected to emerge as a leader in wildfire- posure. California is one of the few states Wildfire-resistant exterior walls were resistant building and material require- to have a unique building code for WUI estimated to cost 25 percent less than ments, and will undoubtedly play a key areas, and, in light of the recent wildfires, traditional components, due in large part role in shaping fire policy throughout California officials are developing stricter to the substitution of true wood siding the United States. K WUI building standards. with fiber cement siding. Richard Glucksman is a partner, and Ravi Mehta is senior counsel, The constituents of State Sen. Bill Wildfire-resistant decking involves at Chapman Glucksman Dean & Roeb. Dodd in Napa County and surrounding the use of composite boards, foil-faced [email protected]; areas have faced some of the state’s most bitumen tape on support joists, and [email protected] devastating wildfires. Dodd is at the fore- the creation of non-combustible space front of significant fire-related legislation, beneath decking. This type of construc- WINTER 2020 | 13 and was responsible for the passage of the

State-By-State WASHINGTON DOTTING I’S AND CROSSING T’S Bringing Suit Against a Public Entity in the Northwest By Thomas F. Olsen and Diana C. Lopez Thomas Your construction project is humming along, on time Washington F. Olsen and within budget. However, over the weekend a In Washington, statutory law imposes strict storm arrives and the project is flooded by water from compliance requirements for any claims against Diana the storm drains on the public street nearby. It turns state or local government entities. Filing a claim C. Lopez out that the public entity in charge had not regularly for damages with a local government is a condition maintained the drains due to budget cuts and they precedent to commencement of any court action became clogged as a result. What can you do? for tort damages. The Revised Code of Washington § 4.96.010 requires that claims for damages be filed Normally, a public entity has sovereign im- with the governing body of the government entity. munity that would prevent any claims against Failure to adhere to these procedural requirements it. However, the states have limited waivers that is a quick way for the suit to be dismissed. allow certain claims against public entities for conduct that is an act or omission at the opera- In Burnett v. City of Tacoma (2004), the tional level (implementing or executing policy). Washington Court of Appeals held that claim- No such waivers exist for acts or omissions at the filing procedures demand strict compliance. The discretionary level (planning or legislating policy). court stated that claims-content requirements could be liberally construed to allow substan- The process, and amount for which one tial compliance, but the same does not apply to can bring a claim against a public entity, varies procedural requirements. Strict compliance with greatly between the states of the Northwest. 14 | CONSTRUCTION CLAIMS TheCLM.org/Magazine

State-By-State WASHINGTON “In Washington, statutory law imposes strict compliance requirements for any claims against state or local government entities.” procedural-filing requirements is man- entity. Under the OTCA, every public litigation. However, imposing these datory, even if the requirements appear body is subject to civil action for its torts limitations also means that, in Oregon, to be “harsh and technical.” and those of its officers, employees, and litigation against a public entity can agents acting within the scope of their result in an inability to recover the full Another Washington case, Kleyer employment or duties. Claims typi- amount of damages. v. Harborview Med. Ctr. (1995), held cally brought under the OTCA include that even if the public entity has actual personal injury or wrongful death, as Idaho knowledge of the claims against it, failure well as claims for property damage or The Idaho Tort Claims Act (ITCA), is to comply with procedural-filing require- destruction. In Oregon, a claim under the controlling statute when it comes to ments precludes the subsequent lawsuit. the OTCA is the exclusive method of pursuing a claim against a public entity In order to make the process of filing recovery against a public entity. for wrongful acts that result in injury claims against public entities less confus- to a person or property. Written notice ing for plaintiffs, the state now requires Like Washington, the OTCA imposes of the claim must be filed within 180 local governments to specify a person to strict compliance requirements on any days from the date “the claim arose or receive service of non-judicial claims. claimant. Oregon statutory law provides reasonably should have been discovered” that no action arising from any act or by the injured party. Any claims against Once a claim is filed, the plaintiff must omission of a public body, or an officer, a public entity that fail to comply with wait 60 days before commencing a lawsuit employee, or agent of a public body, proper notice requirements are barred. against that entity, and an action must be within the scope of the OTCA will be This rule even applies to construction filed within two years of the loss or injury. maintained unless notice of the claim contractors that enter into contracts There are no statutory caps on damages is given as required. Claims involving with the public entity on public works against the public entity. personal injury, property loss, or other construction projects for things such as damages have a notice period of 180 days. payment disputes. Oregon Wrongful-death claims have a one-year Oregon’s Tort Claims Act (OTCA) notice period. Plaintiffs must also include The notice of tort claim is a condi- governs the process by which a plaintiff certain information in the notice, includ- tion for bringing a subsequent lawsuit, can bring a tort action against a public ing a description of the time, place, and and serves to notify the particular entity circumstances that gave rise to the claim. that there may be grounds for a lawsuit against it. A lawsuit must be filed within While the OTCA is the sole method two years of the occurrence, or within of recovery against a public entity in six months of the denial of the claim if it Oregon, it does not always provide involves a county. The notice of tort claim full recovery for the tortious conduct. must include certain information such as: There are dollar limitations for claim- a description of the circumstances causing ants, occurrences, and when the damage the injury, a description of the injury, the arose; and these can vary depending on parties involved, and the damages being whether public entity is the state, or a claimed. The claim must be filed with the local entity. In Horton v. Or. Health & public entity at issue. Claims are limited to Sci. Univ. (2016), the Oregon Supreme $500,000 unless the public entity has liabil- Court upheld, against a constitutional ity insurance for higher limits than that. K challenge, a $3 million limitation on the amount a plaintiff could recover against Thomas F. Olsen is a partner, and Diana the state and its employees. The OTCA’s C. Lopez a law clerk, at Lorber, Greenfield limitations on the tort liability of such & Polito, LLP. [email protected]; public entities serve to protect them [email protected] from the financial impact of constant WINTER 2020 | 15

State-By-State FLORIDA THE COURTS IN 2020 Construction-Defect Litigation Developments By Troy Beecher and Richard Allison Troy The year 2020 saw some consequential construc- Thereafter, the project owners amended their Beecher tion-defect decisions in Florida’s state and federal complaint, incorporating by reference a notice courts. Topics included the acceptable standard listing numerous specific defects. The insurer for pleading “property damage” in an underlying initially agreed to defend, but later withdrew its liability suit, continuing developments regarding defense and filed a complaint seeking a declara- the statute of repose’s role in determining the duty tion it had no duty to defend or indemnify. to defend, and whether a declaratory judgment action to determine a duty to defend must be The district court granted summary judgment stayed during pendency of underlying litigation. to the insurer, concluding that the policy’s “Dam- age to Your Work” exclusion precluded any duty Richard “Marginally And By to defend. On appeal the 11th Circuit reversed, Allison Reasonable Implication” concluding that the underlying complaint could be In evaluating their duty to defend, insurers often “fairly construed” to allege damages falling outside encounter sparse and vague complaint allegations the exclusion, and remanded the case back to the regarding the extent of damage to property caused district court to determine whether the project by allegedly defective contractor or subcontractor owners alleged “property damage” as defined under work. The 11th Circuit Court of Appeals recently the policy. The district court again granted sum- addressed this issue. mary judgment, finding that the underlying suit did not allege any “property damage” beyond that In Southern-Owners Ins. Co. v. MAC Contrs. of allegedly effecting the insured’s own work. Fla., Inc., 817 Fed. Appx. 877 (11th Cir. 2020), the insured contracted to serve as general contractor for This time, the insured appealed, arguing the a residential-construction project. Problems arose underlying complaint potentially alleged “proper- soon after construction began, and the insured left ty damage” because it alleged “repair of items that the site before completing the project and before were not initially defective but damaged by the a certificate of occupancy was issued. The project defective installation,” therefore leaving the “po- owners sued, alleging the insured and its subcontrac- tential” for coverage triggering a duty to defend. tors left the residence “replete with construction de- fects,” but they neglected to list any specific defects. The insurer responded that the vague al- legations did not satisfy the insured’s burden to The insured tendered the suit to its insurer. implicate coverage; that several policy exclu- sions, including the completed-operations hazard 16 | CONSTRUCTION CLAIMS TheCLM.org/Magazine

State-By-State FLORIDA exclusion, operated to preclude a duty “The old axiom that the duty to defend is greater to defend; and that, since the insured than the duty to indemnify should always be was the only general contractor for the project, all alleged damages fell within its carefully considered since any factual ambiguity is scope of work and did not fall outside of likely to favor the insured.” the “Damage to Your Work” exclusion. Florida Building Code, and breach of determined that the amendment was The 11th Circuit ruled in favor of the warranty. The subcontractors moved for inapplicable because all of the relevant insured. While acknowledging the am- summary judgment, arguing that the claims were already barred. biguities within the operative complaint statute of repose for actions based on the and the insured’s burden to disprove the improvement of real property barred the Defending While Challenging applicability of any exclusions, it cited general contractor’s claims for the major- Subject to a proper and timely reserva- well-established precedent [See, generally, ity of the townhomes. tion of rights, a liability insurer may seek Amerisure Mutual Ins. Co. v. Auchter Co., a court declaration on its duty to defend 673 F.3d 1294 (11th Cir. 2012)] to hold Section 95.11(3)(c), Florida Statutes, and indemnify an insured from ongoing that the allegations supported a “potential states that a construction-related action litigation. In some cases, the disposition for coverage,” obligating the insurer to must commence within 10 years after: of a coverage action may have an adverse defend because the defective work caused the date of actual possession by the effect on an insured’s ability to litigate a damage to another subcontractor’s work. owner, the date of contract completion, construction-defect action and pay any or the date of certificate of occupancy judgment or settlement. For this reason, While claims professionals should issuance; whichever is latest. Under insureds often argue that a coverage action remain vigilant and exercise consis- Florida law, construction activities based should not commence until its defense in tent judgment in the interpretation of on warranties, “punch lists,” and repairs the underlying action is completed. coverage vs. no coverage and the duty do not constitute final furnishing of to defend, the old axiom that the duty work under a construction contract. In a decision consistent with the cur- to defend is greater than the duty to rent law in Florida on this issue, the trial indemnify should always be carefully Through its first prong of analysis, court in Granda Ins. Co. v. Jln Stucco, considered since any factual ambiguity is the court determined that a “Master 2020 Fla. Cir. LEXIS 1328 (11th Jud. Cir. likely to favor the insured. Contract”—which commonly does not Aug. 30, 2020) held that an insurer may list specific start and complete dates provide a defense in an underlying ac- Statute of Repose Reduces for construction projects—cannot be tion while contemporaneously challeng- Potential Duty to Defend used to determine a project completion ing its obligation to defend in separate Another challenge insurers face, when date. Second, the court concluded that coverage litigation unless it is a party in determining a duty to defend alleged the “Schedule A’s,” which contain more the underlying action. additional insureds, is when a claim ac- specific project terms, constituted the crues and whether it occurred during its contracts for statute-of-repose analysis. Claims professionals should endeavor applicable policy-coverage periods. to quickly identify any potentiality adverse To determine the specific contract coverage issues upon receipt of a lawsuit, In Spring Isle Community Assoc., Inc. completion date, the court then analyzed and work closely with their coverage v. Pulte Home Corp., Case No. 2017-CA- the project Payment Records and House counsel to ensure the insured is provided a 1953-O (9th Jud. Cir. Fla. Jun. 10, 2020), Cost Control Sheets and found that detailed reservation of rights letter prior to a general contractor entered into agree- payment for the majority of stucco work pursuing a declaratory judgment action. K ments with various subcontractors for was completed before the issuance of the stucco-related work on 390 townhomes certificates of occupancy. Thus, the court Troy Beecher, JD, LLM, is an over a period of several years. Certifi- concluded that all claims based on alleged insurance coverage partner in cates of occupancy were issued prior to defects for occupancy certificates issued Goldberg Segalla LLP’s Orlando office. March 24, 2007 for 329 of the town- before March 24, 2007 were barred. While [email protected] homes. When the plaintiff alleged stuc- acknowledging that the Florida legis- co defects, the general contractor served lature’s 2018 amendment extended the Richard Allison, CBIA, is a litigation Chapter 558 construction-defect notices status of repose for one year from third- specialist with Builders Mutual Insurance to the subcontractors and demanded party claims based on the same conduct Company. [email protected] defense and indemnity from plaintiff ’s alleged in the original action, the court claims on March 10, 2017. Two weeks later, the general con- tractor served a third-party complaint against the subcontractors for indem- nity, breach of contract, violation of the WINTER 2020 | 17

State-By-State NEW YORK Bart IN WHOLE OR IN PART Holmes Additional Insured Case Law Discussion After Burlington By Bart Holmes, Cheryl L. Kovaly, and Lance J. Kalik Cheryl In its 2017 decision in Burlington Insurance Com- entiated the endorsement’s language from “aris- L. Kovaly pany v. New York City Transit Authority, the New ing out of ” additional-insured endorsements York Court of Appeals held that where additional- and recognized that “caused, in whole or in part” Lance insured coverage is “restricted to liability for endorsements provide more limited coverage. The J. Kalik any bodily injury ‘caused, in whole or in part,’ decision is significant because it limits coverage for by the ‘acts or omissions’ of the named insured,” an additional insured to circumstances where the coverage for an additional insured applies only named insured is legally liable, on a proximate legal to injuries “proximately caused by the named causation basis, at least in part, for the injury that is insured.” 29 N.Y.3d 313, 317 (2017). In interpret- the basis of the lawsuit. ing the specific policy language of the “caused, in whole or in part” additional-insured endorsement After Burlington, it is clear that, where the at issue, the court fundamentally changed the additional insured is the sole proximate cause risk-transfer analysis that had previously existed of injury, it will not be entitled to additional- under some New York law. insured coverage under a “caused, in whole or in part” endorsement. Since Burlington, claims The Burlington court’s interpretation differ- adjusters and attorneys have sought clarity on 18 | CONSTRUCTION CLAIMS TheCLM.org/Magazine

State-By-State NEW YORK two issues in particular that were left Since Burlington, claims adjusters and attorneys unclear in the wake of the decision: the have sought clarity on two issues in particular that duty to defend and whether the ad- ditional insured is entitled to indemnity were left unclear in the wake of the decision. for its own negligence. when the negligence-based claims against suggested that the “caused, in whole or The Courts After Burlington the named insured were dismissed, a result in part” endorsement provides “coverage Although Burlington itself did not address that appears to conflict with Burlington’s for an additional insured’s vicarious or the duty to defend, several lower courts requirement that the named insured be the contributory negligence.” in New York have since done so. Some “proximate cause,” i.e., “legal cause” of the courts have held that, where the named liability of the additional insured. Whether other courts will hold that insured is a defendant in the case such a carrier must indemnify an additional that there are allegations of negligence Making Sense of It All insured for its own negligence when the asserted against the named insured by the Several observations can be drawn from named insured is at least partially at fault injured plaintiff, the carrier for the named these cases. It appears the more attenu- remains to be seen. While the Cruz ruling insured has a duty to defend the addition- ated the injury to the plaintiff-employee appears to rely on language in Burlington al insured because the allegations raise from the actual work of the named regarding the “contributory negligence” of the possibility that the additional insured insured, the more likely that arguments the additional insured, the ruling would may be held vicariously liable for the acts against a duty to defend the additional seem to be inconsistent with the notion or omissions of the named insured. [See insured may succeed. Likewise, when that the endorsement requires proximate Vargas v. City of New York, 71 N.Y.S.3d the plaintiff is not an employee of the cause between the acts or omissions of 415 (1st Dep’t 2018)]. named insured, or when the named the named insured and the liability of the insured is not a direct defendant, a additional insured. For similar reasons, courts have held carrier may have stronger arguments that, where the injured plaintiff is an to deny a duty to defend an additional It is fair to question whether a named employee of the named insured, and a insured. Whether an additional insured insured’s acts or omissions proximately direct claim against the named insured can effectively create a duty to defend for cause liability for an additional insured is presumably precluded by workers’ itself by naming the named insured as a when such liability is premised on the compensation immunity, the named third-party defendant is a question that additional insured’s own negligence, and insured’s carrier has a duty to defend the remains largely unanswered. whether risk transfer is appropriately vis- additional insured, whose liability may ited upon a carrier for the additional in- stem from the acts or omissions of the A second question raised by Burl- sured’s own negligence given the limited named insured. [See Indian Harbor Ins. ington is the so-called “in for a penny, in interpretation of the “caused, in whole Co. v. Alma Tower, LLC, 87 N.Y.S.3d 9 (1st for a pound” principle. That is, does the en- or in part” endorsement by the Court of Dep’t 2018); and M&M Realty of N.Y., dorsement require full or partial indemni- Appeals in Burlington. K LLC v. Burlington Ins. Co., 95 N.Y.S.3d 178 fication of an additional insured when the Jeffrey A. Beer, Jr., Esq. and Karimah (1st Dep’t 2019)]. named insured is one of several proximate Munem, associates at Riker, Danzig, causes of the injury. In E.E. Cruz & Co., Scherer, Hyland & Perretti LLP, contrib- On the other hand, several courts Inc. v. Axis Surplus Ins. Co., 87 N.Y.S.3d 173 uted to this article. have held there is no duty to defend the (1st Dep’t 2018), the general contractor for Bart W. Holmes, Esq. and Cheryl L additional insured—even where the the deck replacement of the Throgs Neck Kovaly, Esq. serve as counsel at injured plaintiff is an employee of the Bridge accidentally started a fire during Nationwide Commercial Lines Claims named insured—when the allegations welding operations, and the fire was exac- Legal. [email protected]; regarding the injury-causing condition erbated by the improper storage of welding [email protected] are not proximately related to the named gas by the named-insured subcontractor. Lance J. Kalik, Esq. is a managing insured’s work. [See Hanover Ins. Co. v. The court held that, given the negligence of partner at Riker, Danzig, Scherer, Philadelphia Indem. Ins. Co., 73 N.Y.S.3d the named insured, coverage was triggered Hyland & Perretti LLP. 549 (1st Dep’t 2018); and Pioneer Cent. and the additional insured was entitled [email protected] Sch. Dist. v. Preferred Mut. Ins. Co., 86 to coverage even for its own negligence, N.Y.S.3d 364 (4th Dep’t 2018)]. relying on language from Burlington that Seemingly at odds with these cases, and with Burlington itself, however, is the 1st Department’s decision in Breeze Nat’l, Inc. v. Century Sur. Co., 96 N.Y.S.3d 56 (1st Dep’t 2019). There, the court held that a carrier must defend an additional insured even WINTER 2020 | 19

COVID-19, The ongoing COVID-19 pandemic has impacted the way every CONSTRUCTION, AND industry operates, and one change CLAIMS COLLEGE we have all had to adapt to in our professional lives is substituting LORRAINE MERRITT, CLAIMS MANAGER, CLAIMS RESOURCE MANAGEMENT, INC. live events with virtual ones. This RAYMOND WEISSE, SENIOR VICE PRESIDENT, CONSTRUCTION PRACTICE LEADER, can be especially challenging GB SPECIALTY, GALLAGHER BASSETT SERVICES, INC. for a classroom environment RICK RIGHI, ATTORNEY, RIGHI FITCH LAW GROUP like CLM’s Claims College. Here, LEE WRIGHT, CASUALTY CLAIM DIRECTOR, TOKIO MARINE HCC four instructors for Claims College’s Level Two Construction 20 | CONSTRUCTION CLAIMS TheCLM.org/Magazine curriculum offer their perspectives on the challenges and successes from September’s virtual courses.

Covid-19, Construction, and Claims College While it was certainly a different “I think that the most line. And this was after I spoke at some experience from teaching courses important thing length with my nephew, who recently in-person, what was your overall that I learned is graduated from college after complet- impression of Claims College’s reconfirmation that ing a mostly online curriculum. As he virtual format? where there is a will said to me, attending school online can there is a way.” actually be just as good as attending live, RAYMOND WEISSE: While the virtual format as long as the instructors give the subject is not ideal, I think both the faculty and — Lorraine Merritt the energy it deserves. students did as good a job as we could possibly do under the circumstances. The non-existent with everyone in their indi- The truth is that it is far more dif- platform was easy to use and navigate and vidual virtual square. ficult to forge a connection with the worked well during our session. students—I was really only able to see That, and the landscapers cutting myself on the screen, and my co-instruc- RICK RIGHI: Probably like most attending the lawn outside my home office during tors while they were talking. But it is en- the Claims College—instructors and our session. tirely possible to teach the subject matter, students alike—I was not sure how the and, from the comments we reviewed format was going to work, and whether As an administrator, one concern from the students, it is possible to learn it would work. But I was impressed at the expressed to me by instructors the concepts in a virtual setting. success of the program. The preparation was how they would be able to phase of the event, which I understand forge a connection with students One major difference in the online was far more involved for those produc- without being in the room with setting is that the instructor has to simply ing the event, was relatively seamless them. What was your view of trust that the students are hearing the for the instructors, and well organized. how you were ultimately able to information, and understanding it—there The presentation went extremely well I engage with the students? is no real-time feedback other than chat thought, and, partially due to the absence questions that come through as one is of various happy hours the night before, LEE WRIGHT: Having a live chat option forging through the subject matter. So the all of the participants seemed attentive helps, and in some ways makes it easier to most one can do is to look into that com- and energetic, including me! interject questions and thoughts with- puter with as much confidence as possible out actually interrupting, so that was a and teach the subject as clearly and with What was the biggest challenge bonus. The online version of the college, as much energy as possible to keep the you faced adapting to the virtual unfortunately, removes the ability to stop audience engaged, and hope for the best. format? someone in the hallway and ask a ques- tion, or to sit down outside of class and The students certainly learned LORRAINE MERRITT: The biggest challenge get a chance for students and instructors quite a bit during Claims College, that I faced was staying on target with to get to know each other. Building rela- but what did you learn as an in- the presentation while trying to field tionships within the industry is one of the structor teaching courses during questions from students and the inter- big benefits of attending Claims College a unique time given the COVID-19 mittent poll questions to make sure that and I look forward to getting back to that pandemic? the students were still on. In addition, in Baltimore next year. the time of the class virtually left us a MERRITT: I think that the most important bit more confined than in person where RIGHI: I was probably one of the instruc- thing that I learned is reconfirmation that the students could talk to us after or in tors who voiced the concern mentioned where there is a will there is a way. Every- between classes. here. After 30 years or so of learning and one worked very hard to make Claims presenting legal topics in a wide variety College still happen, and, at the end of the WEISSE: As an instructor, you can pick up of live settings, I was uncertain that I day, it was a success. little cues or facial expressions from the could effectively teach legal concepts on- students when you are face to face and WRIGHT: Doing the courses online takes in person with them, which gives you an another level of preparation with your indication that they might not understand co-instructors. Normally, I think a fairly something, or that you may need to slow relaxed structure is best to allow for give- down as you go over some portion of the and-take and class feedback during a content. Those little nuances were really course, but I think the online classes work and flow better when a more structured approach is taken. K WINTER 2020 | 21

TETHECH REVOLUTION Comes to Construction Managing NewRisks and Claims in theAge ofTechnology By Melanie Brown, Alyssa DeStefano, and Brenda Radmacher T he construction industry has launched into the age of tech- nology over the past several years; a tremendous change for an industry that has been called a dinosaur. There are now upwards of 2,100 start-up companies alone bringing new technology to the industry. And TechCrunch reports that, between 2017 and 2018, U.S.-based construction-technology startups saw a 324 percent boom in funding, reaching nearly $3.1 billion. So, as we enter a new decade, we can only expect implementation and adoption to become more widespread. From the use of virtual reality (VR), to building information sys- tems (BIM), robotics, and pre-fabrication/modular technology, change abounds across the industry, and these changes bring new risks and claims that need to be effectively evaluated and managed. Game-Changing Trends and Issues Before COVID-19, remote team meetings, deploying drones for inspec- tions, and using robotics for construction of portions of a project were not common practices. However, in the last few months, the construc- tion industry has taken great strides and has embraced innovative technologies so that the essential business of building and construction could continue. While commercial construction in particular had started to imple- ment the use of BIM for integrated drawings and plan changes, as well as drones for inspections, over the last several years, their implementation has reached new levels more recently, and we anticipate that this is the tip of the iceberg. Some of the emerging technologies we can expect to see more of include: Wearable technology. Some of the new wearables include smart helmets, vests, glasses, and boots, as well as watches and other devices that monitor the location, health/biometrics, and activities of workers. In addition, as discussed in recent articles in Construction Dive and Boss Magazine, companies are exploring and starting to use exoskeleton suits that allow construction workers to lift up to 200 pounds. By bearing less weight, workers should experience less muscle fatigue, reducing the chances of occupational injury. Smart work boots, such as the ones from construction-technology startup SolePower, are an interesting new wearable with embedded sen- sors and communication technology that allow for location tracking, and 22 | CONSTRUCTION CLAIMS TheCLM.org/Magazine



The Tech Revolution Comes to Construction real-time verification of the completion of of the design role into the contractor’s By leveraging AI and machine tasks in the field. realm. While the new technology should learning, such technology can analyze make a design professional’s job easier, a historical data to better predict schedul- These new technologies bring sub- drawback is the possible expansion of the ing, costs, and required manpower—ul- stantial benefits, including being able to standard of care: In the near future, it is timately leading to a more accurate bid. monitor the health and safety of employ- possible that architects and engineers who ees, particularly as we continue to deal are not using the advanced technology on Hundreds of software programs and with the impact of COVID-19 on the job projects may be found to have breached apps have been developed to address site. However, as these tools have become the standard of care. the needs for construction projects, more common in the last few years, risks with construction-technology firms have also become more evident. Another interesting issue raised by the investing over $10 billion in funding use of AR, VR, and BIM is how to allocate between 2011 and 2017, according to With the ever-increasing volume the risk among the parties collaborat- McKinsey & Company. Companies are of data and information, there is an ing through use of the technology. If the using software to manage back-office, increased cyber risk. When using architect creates the design plans, but the on-site, pre-construction, and construc- augmented reality (AR) applications in implementation of the AR technology tion processes. the real world, companies can expose for a walkthrough of the project demon- vast amounts of data about themselves strates an issue with the design, does that With these changes come substantial and their employees, including intimate place the designer of the AR program or legal implications, including privacy biometric data that can be used to identify the operator in a role that would require issues arising out of the anonymization individuals. In addition, monitoring the a licensed professional and professional and storage of data and information, as real-time health and location of a worker liability insurance coverage? well as insurance-coverage and cyber- delves into privacy-rights issues: Can the security concerns. There are no OSHA employee remove the wearable during a BIM can also help with design guidelines regarding the use of AI or break? Are there liability issues that the capabilities, allowing architects, engi- industrial robot standards, which creates company may accrue where otherwise neers, and construction companies to a field of uncertainty. issues might have gone undetected and digitize blueprints and models to identify unreported/unclaimed, including work- any issues prior to breaking ground. Modular and Pre-Fabricated Con- ers’ compensation claims? For example, if a structural change is struction. Modular and pre-fabricated required once construction is underway, construction has been another area of Apart from the threat of a cyberattack, BIM can incorporate the adjustment and exploding technological changes. All seg- the collection and storage of biometric provide direction on how other building ments of the industry—from homebuild- data may involve statutory requirements. components will be impacted. But while ing to commercial construction—are Has this collection of data been disclosed BIM’s benefits can increase efficiency, this embracing remote construction, and with to and approved by the workers on a job technology also raises cybersecurity risks, the onset of COVID-19 and the need for site? To date, eight states (Illinois, Texas, such as potential hacking or unauthor- creative work to keep projects on track, Washington, California, New York, ized/inappropriate access to the data. modular construction is on the rise. Arkansas, Louisiana, and Oregon) have enacted biometric statutes or expanded Robotics & Artificial Intelligence/ Of course, modular-construction existing laws to include biometric infor- Augmented Intelligence. Contractors practices can create new liabilities that mation. Of these, Illinois, Texas, Washing- are now using machine learning and require additional insurance cover- ton, and California require some form of artificial intelligence (AI) to use data age. For example, the production of notice and voluntary consent prior to the more efficiently and make better deci- certain elements offsite can result in biometric information being collected. sions. Previously, when productivity and transportation-related exposures, performance data was available, it was including physical damage or liability VR and BIM for design reviews. too complex to mine through in order in the event of an accident. Addition- Construction firms are now implement- to help with planning. Now, AI is being ally, safety managers need to ensure ing Virtual Reality/Augmented Reality used to help with scheduling by making that they have the appropriate coverage and BIM for design review and post-mor- informed suggestions regarding what not only on the project site, but also at tem to evaluate when there are defects, durations, sequences, and costs of work the modular yard where the prefab- collapses, and on-site injuries. should be. TradeTapp and Construc- ricated materials are built. Consider- tion IQ, for example, use AI to provide ation should also be given to the “your The use of VR/AR and BIM has general contractors with subcontractor product” and “your work” exclusions broadened the role of the design profes- qualification, analysis, and custom risk- on general-liability policies to ensure sional, potentially creating confusion reduction recommendations. adequate coverage for liability arising regarding who is making what design out of the prefabricated components. decisions, and causing the “bleeding” 24 | CONSTRUCTION CLAIMS TheCLM.org/Magazine

The Tech Revolution Comes to Construction Claims and Risk Issues age to address the enhanced cybersecurity manage passwords, access, and cross- These changes are not just in the distant risk, transportation, and interconnected- checks for the technology. future; they are here, and the savvy ness, and the liabilities arising out of those • Oversee and coordinate transporta- practitioner should evaluate claims issues. Here are some of the key areas of tion of offsite materials and offsite and develop strategies for resolution concern for cyber dangers and liability construction with extra checks and through a better understanding of the in construction matters that companies balances for compliance with the different advances, the impacts on the should consider when procuring their contract documents, design, and construction processes, and the business insurance programs, which Arthur J. Gal- construction schedule. operations of the contracting players. lagher highlighted in a recent report: With greater use of technology, the However, ongoing pressures to imple- • Liability to employees arising from construction industry is increasing con- ment new technologies to achieve higher sistency, advancing safety, expanding efficiency and speed of construction will computer-security failure and breach efficiency, addressing its labor-shortage create new and expanded vulnerabilities. of private information. issues, and encouraging more produc- • Liability related to employees’ per- tive use of limited resources. However, As noted above, cybersecurity is- sonal information obtained through for an industry where technological sues will grow exponentially with the wearable technology. advances have traditionally been slow increased use of technology, including • Breach of confidential business to take root, the onslaught of change exposures in the supply chain, which information. in recent times may be overwhelming, will provide hackers with an easy route • Unauthorized access and interference and can threaten any good construc- into IT systems. In addition, as the with project data and specifications in tion company or design professional supply chain extends to accommodate BIM and/or interference with remote unaware of the risks. modular and offsite construction, control of processes or equipment. There is a high learning curve and vulnerabilities and potential for claims • Bodily injury and property damage an impact on productivity, in addition increase. With multiple parties connect- through the failure of Internet of to technology bugs, viability, longevity ed to a site’s systems, each is a potential Things (IoT) devices, robotics, and issues, intellectual-property concerns, point of entry for a range of cyberat- remote control of processes. and the potential for fraud and cyber tacks. A phishing attack may target just • Costs and claims arising out of hacks. These issues can lead to construc- one subcontractor that will open access these issues related to delay or tion delays and liability exposure arising into the whole network. business interruption, and the out of the inevitable friction of using new associated costs of responding to technology alone. Two specific cyberattack methods security or privacy breaches. Construction companies, architects, present a particularly heightened concern and engineers should carefully work with for the construction industry: email com- For claims handling, as issues start to legal counsel and insurance professionals promise and phishing attacks through arise, risk managers, brokers, attorneys, to evaluate the risks of implementing the impersonation of company executives or and construction companies can imple- technology and preparing for the new and vendors among the construction parties; ment some best practices to anticipate and expanded exposures they pose. However, and ransomware/malware targeting net- manage claims arising out of the changes with careful planning, use of AR, BIM, works, smartphones, and other devices. in technology, including the following: wearable technology, and software by • Carefully review insurance programs the industry can result in heightened ef- Ransomware damages cost the world and portfolios to ensure that cyber ficiency, safety, and productivity. K approximately $325 million in 2015, a 15 issues are covered, address transporta- Melanie Brown is head of complex claims percent increase in just two years, accord- tion related coverage, and evaluate at Munich Re Specialty Insurance. ing to Cybersecurity Ventures. Recent coverage for subcontractors and Alyssa DeStefano is senior claims reports show that the costs of ransomware design professionals, and for contrac- specialist at Willis Towers Watson. in loss-of-business productivity and down- tor professional liability for any AR [email protected] time in 2019 increased over 200 percent. and BIM. Brenda Radmacher is a partner at • Have a comprehensive approach Gordon Rees Scully Mansukhani, LLP. Wearables, along with all the emerging to the technology being used on a [email protected] technologies discussed above, are meant to project and to ensure that all of the enhance current safety practices, but with programs work in coordination. WINTER 2020 | 25 the increase in digitization of the construc- • Implement safety precautions and tion industry, companies can anticipate expanded exposure and insurance issues. Companies will have to carefully as- sess their insurance portfolios to ensure that they have procured sufficient cover-



ofTahCeHlaSigiemhvelsynTEHefafaembcittisveTips for Self-Improvement and Team Success By Stephanie Hillman, Terence Kadlec, Jason H. Klein, and Charles Wamsley elf-improvement is a popular goal, and not one we would consider to be new. Most professionals continu- ally look for ways to improve and evolve in their chosen 7Sindustries. Lucky for us, we live in a world that is full of ways to educate ourselves, such as coaching or men- toring, continuing education classes, workshops, conferences, podcasts, and books. In this article, we take inspiration from our experiences in the construction defect industry, where we focus the lion’s share of our attention. Additionally, we were inspired by Stephen Covey. As a best-selling author and speaker, Covey dedicated his life to inspiring people in all walks of life to be better. His book, “The Seven Habits of Highly Effective People,” is a comprehensive guide to self-growth and advancement, and if one were to incorporate these seven prin- ciples into their lives, they would be more effective. Following this inspiration, seven key habits stand out in cor- relation to insurance, and, specifically, claims teams. If claims teams provided an effective audit of current practices to identify what’s working and what isn’t, essentially highlighting both successes and challenges, would this reduce the number of allegations of bad faith or negligence in handling? One of Covey’s challenges for everyone is to “begin with the end in mind,” or, his “funeral exercise.” Yes, it’s a strange name, but also a great concept. Think about what you would like your friends, family, and colleagues to say about you at your funeral. Then, think about what they will say about you. It’s a pretty hard look in the mirror. WINTER 2020 | 27

The Seven Habits of a Highly Effective Claims Team With this same approach to claims doubtedly, litigation. No matter who the tial judgment. This topic could expand handling, we can begin with the end communication is between, developing the seven habits explored here and create in mind and see how a claim plays out, trust and respect, and communicating seven more sub-habits, especially when either pre-suit or post-suit. What will the in a timely manner, will foster improved considering the discussion of “uncon- insured, opposing counsel, the claims teamwork, problem solving, and a reduc- scious bias.” professional, the expert, the judge, and tion in contentiousness. Communica- the jury say about our handling of the tion within the claims team will lead Remaining unbiased involves being claim, depending on which role or pro- to clearer communication outside the trustworthy, as outlined by various states, fession we are in? We all want a success- claims team—to the insured, claimant, and impacts how bad faith is or can be ful resolution of the claim—no matter or trier of fact. alleged. Bad faith allegations generally your role in the story—and beginning 2. Be diligent. When communication require proof that the insurance company with the end in mind and communicat- is improved, the full message from the did not just make an error, but also en- ing effectively along the way is certainly person on the other end of the con- gaged in “intentional or grossly negligent a great way to start. versation can be understood—for the conduct” aimed at harming its insured. claims team, that is the allegation itself. Staying unbiased avoids such mistakes. Seven New Habits And when the allegation is understood To help reduce bad faith, negligence, and clearly, diligence should follow. For In addition, if an insurance company unethical behavior for claims teams, and claims professionals, this concept in- is advised by a retained expert regard- improve ethical decision-making and cludes knowing when it’s time to retain ing the cause and extent of damage, and best practices, be aware of the impor- counsel or an expert. Again, timely repair costs, and the insurer knowingly tance of these seven habits. execution of these concepts can miti- misrepresents the policy (i.e. denying cov- gate bad faith and negligence. Even in a erage when coverage existed), bad faith is 1. Be communicative. To be communi- world of instantaneous communication, evident. This would also display bias. cative, the conversation has to be about it is imperative to follow up with others 4. Be transparent. For a claims team to more than just exchanging informa- to ensure your messages did not get lost work seamlessly and effectively together, tion. Information must be shared with in the shuffle. open and transparent communication is discretion, empathy, and clear intentions required. Information should be shared (i.e. avoidance of misleading messages). With respect to retaining an attorney between those on the team. Granted, Communication requires strong listen- or expert, attorneys can see the blind spot discretion is necessary, and we’ll talk ing skills that gain the full meaning of that a claims professional may overlook, about that more in the next section, but, what’s being alleged, while also making most importantly with respect to legal generally, when information is shared the other person (i.e. insured) feel heard concerns. Having an attorney that sees upward, downward, and laterally, every- and understood. the claim objectively and brings not only one should be on the same page. a legal perspective, but also a new, fresh Listen and evaluate before making deci- business perspective on how to approach Transparency is something we all sions. This is a big first step toward avoiding a claim is invaluable. It may provide the value in our personal relationships, and bad faith. Listen intently, with an ear toward claims professional with an avenue toward the same applies in the claims context understanding and your mind focused on resolution that he may not have seen. when all parties are looking out for the learning rather than a reply. It can be truly best interests of the insured, or client. We helpful to understand the full story and Separately, when an expert is retained are all working toward the same goal. context, and it makes for more produc- early, she can assist with claims and counsel The purpose of transparency among the tive claims teams and more effective and in document requests; providing questions claims team; with the insured; and with efficient handling and resolution of a claim. for the plaintiff (or opposing expert); or, the claimant, or opposing party, must be Reflective listening is a muscle that must be more importantly, helping to identify the understood by everyone involved. exercised and developed. good, the bad, and the ugly in the case. Having that clear picture aids in providing Rather than concealing perceived In the context of insurance, the coverage decisions, engaging in settlement bad news, or, worse, skewing bad word “timely” shows up often, specifi- discussions, and/or proceeding to litigation. news, it is better to get in front of it. cally within discussions of bad faith. A 3. Remain Unbiased. Biases exist, Hiding something or concealing it common denominator with bad-faith whether they are accepted or discarded. opens up a weakness in timely claims and negligence cases is that when one Bias is defined as a tendency or inclina- decisions; bad faith is now in the blind person says something, the other person tion, especially one that inhibits impar- spot. When this happens, there is a hears something different. This leads to tendency toward cover-ups, finger- misunderstandings, frustration, and, un- pointing, and avoidance within the claims team, and one member may 28 | CONSTRUCTION CLAIMS TheCLM.org/Magazine

The Seven Habits of a Highly Effective Claims Team A common denominator with bad faith and negligence cases is that when one person says something, the other person hears something different. inadvertently be blindsided. And when manner for this discussion: tant to remember that committing to one falls, everyone falls. Open, trans- “The nature of collaborations is vari- excellence is achievable through ethical parent communication is the founda- decision-making, and disciplinary action tion for a collaborative environment. able, but responsible collaborations are is avoidable by remaining ethical. 5. Use discretion. Discretion aligns with always defined by openness and early, transparency. Specifically, each jurisdiction ongoing communication. Science is a This commitment essentially sum- has different requirements regarding the communal enterprise; both science and marizes the prior six proposed habits discussion of work product and discov- society are best served by collegiality and and can serve as a reminder to the claims ery, and what is protected by discovery. open collaboration. There should be a team that working at a higher level, to- Furthermore, communications between mutual understanding of what is to be gether, can result in a better product. attorneys and testifying experts would exchanged through the collaboration, otherwise qualify as protected work prod- how the research will be undertaken, and Understanding some of the subtle and uct. Having open, transparent discussions how the products of the collaboration will not-so-subtle nuances in order to establish regarding the good, the bad, and the ugly be shared. Collaboration is most likely to effective communication between and should happen. However, some discus- succeed if expectations are clearly com- across a claims team is invaluable for all sions should be avoided, such as: municated (and perhaps documented) industry professionals. This article serves • Attorneys advising claims adjusters to before commitments are made.” as more than an interpersonal review of best practices; it is an ethical review of best deny a claim when coverage does exist. The team-player discussion ties back practices for claims professionals. Teams • Claims adjusters reading the policy to to the tripartite relationship, expert witness that can be dubbed highly effective are less relationship, and ethical principles dis- likely to have allegations of bad faith or experts to find exclusions. cussed. The claims professional is working negligence in their handling of claims. K • Attorneys going over legal strategy in the best interest of the insured; and the This article is based on the Aug. 18 2020 expert is dealing with objective data and webinar hosted by CLM’s Young Profession- with experts to identify exclusions facts, and formulating her opinion; and als Community, entitled, “Seven Habits that based on policy. the attorney is the advocate for the insured Define a Highly Effective Claims Team.” • Experts revising professional opin- (client) working with both the claims pro- Stephanie Hillman is director of claims at Vela ions to appease claims professionals fessional and expert to resolve the matter Insurance Services. [email protected] or attorneys. either in court or out of court. Terence Kadlec is practice leader of the Insureds in many states can recover a construction and defect group at Envista multiple of actual damages (treble dam- Collaboration equates to better team- Forensics. [email protected] ages) if it is proven the insurer knowingly work, better morality, and results in better Jason H. Klein is managing partner at violated insurance laws or statues. Discre- decisions being made. Working together Wood, Smith, Henning, & Berman’s tion, but more importantly honesty and also breeds consistency, and forces fewer Denver office. [email protected] fairness, is required by claims profession- decisions to be made on the fly. The Charles Wamsley is construction defect als to ensure claims are properly handled. reduction in bad faith, negligence, and supervisor at National Claim Services. 6. Be collaborative and a team player. unethical behavior is the end-game plan. [email protected] The Resources for Research Ethics Edu- 7. Commit yourself to excellence. Com- cation tackles collaboration in a relevant mitting to excellence is a fundamental of WINTER 2020 | 29 ethical principles. Conversely, excellence could be defined as discipline: no one wants their hand slapped. It is impor-



Dollars on the Table Tort Recoveries From Second-Tier Design-Builders By Sean Dowsing Increasingly, project owners are using the This structure creates a single point of responsibility to the design-build delivery method. Design-build owner. The design-builder entity can be in other forms too, offers the owner a single point of responsibil- including joint venture LLCs and non-legal entity joint ven- ity, which eases the owner’s administration tures, with joint and several liability to the owner. This article costs. When there is property damage or will focus on the contractor-led approach, where the owner personal injury resulting from the design-builder’s work, the contracts with the construction contractor who then hires an owner can file just a single claim—against the design-builder. architect/engineer as a subcontractor. In this case, only the contractor has a direct privity of contract with the owner. This seems simple enough until there is a design-builder with multiple tiers of responsible design-build subcon- Second-Tier Design-Builder Liability tractors beneath it, and the owner approved each of their A setup with multiple layers of design-builders is confus- designs and construction. ing. So, here are two scenarios to illustrate how this situa- tion would arise. Design-build or not, two results come from con- struction-defect claims: First, the owner wants to get the 1. In scenario 1, a future homeowner hires a design-build damage paid for and repaired. Second, the prime contractor construction firm to design and build his custom home. (design-builder in our case) wants to get as many parties’ He wants a solar panel and battery-storage system. The dollars on the table as possible to pay for the damages, but prime design-builder hires a design-build subcontrac- that desire may be tempered by its business relationships tor to design and install the solar/battery system. The with the other responsible parties. subcontractor designs the two 10 kW batteries to be adjacent to each other inside the garage rather than Design-build’s single point of responsibility can go from separated as indicated by industry best practices. The an administrative blessing to a curse once a claim is filed. prime design-builder and owner approve the design. The owner has no privity of contract with the design-build- Two years later, one of the lithium-ion batteries catches er’s subcontractors, and the situation becomes muddier fire, and rather than only damaging its immediate sur- when the subcontractors are themselves design-builders roundings, it catches the other battery on fire, leading to and insurance companies begin subrogating claims. the home’s complete destruction. Recently, the 9th Circuit Court of Appeals addressed the 2. In scenario 2, an airport hires a design-builder to retrofit situation of owner claims against a design-build subcontractor. the office space in one of its hangars. The design-builder The holding provides insight into how owners can get paid and hires a design-build subcontractor to design and con- prime contractors can get settlement dollars on the table. struct the new fire alarm system. The fire-protection contractor’s designs do not use explosion-proof materials In “normal” construction, the project owner hires a because the probability of an explosion is low. The owner licensed architect or engineer to design his project and provide approves the design. Years later, a plane’s tire explodes plans. The owner then hires a contractor to construct the proj- on landing and the plane crashes into the hangar. The ect according to those plans. The lines of liability are clear: Both explosion destroys the fire alarm system and the airport’s the architect/engineer and contractor have privity of contract with the owner. Both are directly liable to the owner. In design-build, the owner contracts with a single entity, called the design-builder, to design and construct his project. WINTER 2020 | 31

Dollars on the Table fire department is alerted 20 minutes 9th Circuit addressed, albeit somewhat a design-builder looking to spread the later than normal because it never indirectly, the issue of design-build liability should discuss with the owner got the call. subcontractors when there is no privity. filing a claim against the design-build In Philadelphia Indem. Ins. Co. v. Simplex subcontractors, too, as it would lead to In the above scenarios, the prime Grinnell, L.P. 616 F. Apex 870, 872 (9th more money and a quicker resolution. design-builder hired a subcontracted Cir. 2015), the court held that a design- design-builder for a specific scope of work. build subcontractor could be liable to Practical Tips for Owners and The prime design-builder incorporated the third parties that would foreseeably suffer Prime Design-Builders subcontractor’s designs into its own, which injury for their failure. Claims will happen and dollars must get they and the owner approved. The owner paid. When, and by whom, are the major had no privity of contract with the design- In Philadelphia, the project owner sued considerations. Here are a few tips that build subcontractor. the design-build subcontractor, Simplex, owners and design-builders can use to get that designed and constructed an indoor dollars faster and from more parties: So, what happens when there is a soccer stadium’s fire protection system. claim? The owner needs to get paid. The The owner’s insurance company, Philadel- • Owners should ensure the design- prime design-builder, mindful of its insur- phia, sued Simplex in a subrogation action builder requires all subcontractors to ance-policy limits and next year’s premium after a soccer ball hit and then activated list the owner as an additional insured increase, wants to quickly get parties to the the fire sprinkler system, flooding the on the subcontractor’s policies. table with money to contribute. complex. Simplex argued that Philadelphia could not sue it in tort. The court disagreed • Design-builders must have a rigorous Getting Subcontractors and and held that Simplex owed a duty of system for tracking the expiration Their Policies Involved care—even though it was a design-build of subcontractors’ insurance and There are two main ways to get the subcontractor—to the owners and tenants should have a clause in its subcontract subcontractors and their insurance of the stadium because it was reasonably that failure to maintain insurance is involved: through the design-builder, foreseeable that they would suffer injury grounds for termination for cause. and through tort. for Simplex’s negligence. • Both owners and design-builders Involvement through the design- Philadelphia makes it clear that should require policy limits commen- builder—Involving a design-build subcon- design-build subcontractors can be liable surate with the work being performed. tractor through the prime design-builder to project owners, and their insurance depends on the language of the subcon- carriers in subrogation actions, through • Owners and design-builders should tract, and the subcontractor’s insurance tort. Notably, the parties stipulated that ensure that all insurance policies on protections. This route requires the prime Simplex was a design-builder, but Phila- the project are occurrence-based design-builder’s help and cooperation. delphia did not file a certificate of merit. rather than claims-made. The owner (and its insurance carriers) will Whether a certificate of merit is needed have trouble accessing the design-build depends on the design-builder’s struc- • Owners should mandate in their con- subcontractor’s assets or insurance if the ture. For example, is it a firm that hires tract with the prime design-builder design-builder wishes to prevent it. a licensed engineer to help it or does it that they have errors and omission perform that scope in house? services and that any design-build There is no privity of contract for the subcontractors do as well. owner to sue on. That may sound odd, In holding that subcontracted design- but the design-builder and its subcon- builders can be liable to owners and • Finally, owners should consider tractor could easily decide that, if their occupants in tort, Philadelphia informs language in their contracts that allow business relationship is valuable enough, a future litigation strategy: Owners try- them to assume subcontracts in a prime the design-builder will try to shield the ing to get as many dollars on the table design-builder default (this would have subcontractor from the owner or present as possible would be wise to file a claim to be reflected in the subcontracts, a defense united with the subcontractor. against the subcontracted design-builders too). It seems that many design-builder It is not uncommon to see this because through tort. Even before filing the claim, defects occur when a party is in finan- design-builders often have long and the design-build subcontractor may be cial trouble and starts cutting corners commercially valuable relationships with willing to contribute settlement dollars if or stops reviewing its subcontractors’ their subcontractors that will extend long it knows the owner is considering a tort design and construction. K beyond the claim’s life. claim. This would remove the design- builder’s gatekeeper status and can give it Sean Dowsing, Esq., is attorney at Man- Involvement Through Tort—The cover to pressure a valued design-build ning & Kass, Ellrod, Ramirez, Trester other method to get subcontractors subcontractor into contributing. Similarly, where he is a member of the construction involved is through tort. Recently, the team and specializes in design-build liabil- ity. [email protected] 32 | CONSTRUCTION CLAIMS TheCLM.org/Magazine

BACK TO SCHOOL ARE YOU A CONSTRUCTION CLAIMS EXPERT OR NOVICE? Find out with this issue’s quiz, which is based off the final exam for CLM’s Claims College’s School of Construction. 1. If there is a dispute as to whether coverage is actually 6. When coverage is afforded, who typically has exhausted, which statement is most likely true? the right to control the defense and negotiate v A. The primary insurer must continue to defend the insured until a settlements? ruling is obtained on the matter. v A. The insured. v B. The primary insurer can cease its duty to defend and indemnify v B. Primary carrier. the insured immediately. v C. Umbrella carrier. v C. The insured can elect which insurer it wants to pay for its defense. v D. Excess carrier. v D. The claimant cannot recover from the insured. 7. Which of the following is not a true statement? 2. What type of exhaustion typically applies in cases v A. An excess policy may be written as excess to a particular policy of alleged continuing property damage in states or policies. employing a continuous trigger of coverage? v B. An excess policy may be written as excess to coverage provided v A. Broad form. by a particular insurer. v B. Pro-rata. v C. An excess policy may be written as excess to any insurance v C. Vertical. coverage available to the insured. v D. Horizontal. v D. An excess policy may be written as excess to a policy without a predetermined amount of underlying coverage. 3. Which of the following is not typically a characteristic of “follow form” policies? 8. You are investigating a newly reported slip-and-fall v A. They are long and consist of hundreds of pages. claim by an employee of a subcontractor who was v B. They incorporate by reference the underlying policy. working at the job site that happened a year ago. It is v C. They are typically written on the same terms and conditions as confirmed that the insured’s supervisor was aware the coverage provided by the underlying primary policy. of the incident and had admitted to the claimant v D. None of the above. that, due to cost overruns, debris removal wasn’t performed regularly, and the insured would “take care 4. When an excess insurer is placed on notice that the of anything the claimant needed.”Unfortunately, what primary insurer has become insolvent, the excess was perceived to be a minor injury needing only ER insurer typically must: treatment (which the insured paid locally) is now a v A. Immediately afford a defense to the insured. herniated disc with $50,000 in lost wages. The claimant v B. Inquire regarding pending claims against the insured and can no is now represented. What portion of the policy best longer presume that primary insurer will provide adequate defense. addresses the issues raised above? v C. Immediately advise the insured that no coverage will be v A. Conditions. available under any policies. v B. Endorsements. v D. Do nothing. v C. Exclusions. v D. Definitions. 5. Which of the following acts may an excess insurer v E. Declarations. perform, but is not obligated to do so? v A. Step in to defend the insured and limit the insured’s liability prior to exhaustion if the primary insurer refuses to afford a defense. v B. Pay for defense costs after the primary coverage is exhausted. v C. Seek reimbursement from the insured after the primary coverage is exhausted. v D. None of the above. For more about the CLM Claims College’s School of Construction, go to TheCLM.org/claimscollege. ANSWER KEY 1.) A; 2.) D; 3.) A; 4.) B; 5.) A; 6.) B; 7.) D; 8.) A WINTER 2020 | 33

FOUNDATIONS “My career was with the telephone industry.” Gatson-Long worked in the telecom and cable industries before coming to insurance via a temp agency and working her way up to a senior claims adjuster position. She stayed on the cutting edge of technology in those industries by using her vacation time exclusively to take courses and gain certificates, a strategy she would later employ to advance in her claims career. GWEN GATSON-LONG, CCP, “I pride myself on knowing the Senior Claims Adjuster, contents of my files and claims.” North American Risk Services Gatson-Long most enjoys the research aspect of working in construction claims, For Gwen Gatson-Long, getting ahead and stakes her reputation on her ability to gain an understanding of the documents in her career has been a combination in her claim files. “Streamlining my research is probably the biggest thing I need to of hard work, timely career changes, overcome!” she says, noting it’s easy for research to lead down interesting, but non- and productive use of her vacation time. essential rabbit holes. As a claims professional, having an excellent memory has helped as well. “What do you do in “If I read something, I remember it, and your community?” I think that’s an advantage I have in this industry,” she says. This is a question Gatson-Long has posed to CLM members and fellows at speaking engagements. As the industry struggles to connect its dwindling talent pipeline to diverse Outside of her day-to-day job, Gatson- communities, she encourages leaders to reach beyond usual recruiting grounds and Long has spoken at CLM meetings consider how the diverse people they already serve within their own communities would about creating talent pipelines to more benefit from insurance jobs, and how the industry could reach them. diverse communities, and has worked within the African American community “Put the paper behind your name.” to help prepare students for college. Gatson-Long’s advice to young professionals: get training. “Get your licensing, Here, Gatson-Long discusses her career get your certifications. Study. Understand the job.” This, she says, builds a firm and offers advice to young professionals foundation. Of course, it also takes time, and Gatson-Long’s own strategy, as it looking to build their own careers, and was in her previous careers, has been to use her vacation time for attending to the industry about how to fill talent conferences and training courses. That doesn’t mean it has to be all work and no gaps with diverse candidates. play, though. “Fortunately, with the different educational events, we get to have some entertainment in there—when we go to San Diego, or Anaheim, it’s filled with a little bit of fun, too.” 34 | CONSTRUCTION CLAIMS TheCLM.org/Magazine

UNTANGLE. CLM Tracker streamlines the chore of tracking and renewing claims adjuster licenses. TheCLM.org/CLMTracker

INSTITUTISM no. 844 Success comes to those who reach and rise, and reach again. Knowledge is the ladder to success in the risk management and insurance industry, and The Institutes’ century-long track record of helping professionals climb each rung to prepare for and excel in their careers proves it. From designations, certifications and continuing education, to networking and research that informs public policy, our name is all you need to know. Know more. Do more. TheInstitutes.org