A recent opinion out of the Texas Supreme Court has recently been the subject of a lot of commentary around the insurance coverage and construction world. The case is Ewing Construction Co. v. Amerisure Insurance Co., and it came before the Texas Supreme Court on certification of questions from the Fifth Circuit (Ewing Constr. Co. v. Amerisure Ins. Co., 690 F.3d 628, 633 (5th Cir. 2012)). The issue before the Court was the application of the Contractual Liability exclusion in a typical CGL policy in cases involving claims for defective construction.
In summary, the Texas Supreme Court concluded that a contractor who agrees (in a contract) to perform its construction work in a good and workmanlike manner, without more, does not enlarge its duty to exercise ordinary care in fulfilling its contract (a negligence standard). Thus it does not “assume liability” for damages arising out of its defective work so as to trigger the Contractual Liability Exclusion. According to this opinion, the insured would have to “assume liability” for something beyond the general duty of due care in order for the exclusion to apply.
For what it’s worth, I’m not convinced that this decision matters much in North Carolina, since here the courts recognize the following generally accepted principles:
(1) If the damage claimed is only for work within the scope of the contractual undertaking, under Ports Authority, the only legal basis for a claim by a party to that contract is breach of contract. (I’m still not sure how that would play in construing whether the insured “assumed liability” in a contract or agreement beyond what he was already supposed to do – provide workmanlike quality work. But if a NC court ruled with Ewing in mind, it might rule that a breach of contract claim was covered, despite the excluson); and,
(2) Under Production Systems, if the only damage is to the work of the insured, it is not considered to be “property damage” under the insuring clause. (Under this principle, one never gets to the exclusion because the insuring clause is not triggered.)
Nevertheless, you can bet that this case will be used as an inroad to gut another exclusion in CGL policies. We shall see.
[Contact Deb Bowers for more information.]
In cases involving construction defect claims (and potentially other types of claims), the insurance policy that is implicated is a very important issue. The issue of whose policy and/or which policy is “on the risk” for a particular claim is most often referred to as “trigger of coverage”. Some states’ laws allow all policies in effect during the relevant time frame to be triggered and those insurers share pro rata in defense and indemnity costs according to the time their respective policies were in effect. Those are the so-called “continuous trigger” states. North Carolina, however, follows the “single trigger” rule. Accordingly, it is critical to determine which policy applies to the claims involved, because that policy and its terms and conditions will apply to all claims for defense and indemnity involved in the underlying lawsuit.
Trigger of coverage issues have been the subject of several appellate cases in North Carolina over the past decade. As the law stands today, there appears to be a different analysis applied depending on whether the date of injury is known with certainty or whether there is continuing damage over time, with no specific known date for the “injury-in-fact”. In a recent published opinion on the subject, the North Carolina Court of Appeals held that damage to a residence and personal property occurred when an altered slope and retaining wall collapsed, not when the wall was built. Erie Ins. Exchange v. Builders Mutual Ins. Co., 742 S.E.2d 803(N.C.App. 2013), disc. rev. denied __ S.E.2d __ (N.C. 2013). This was a departure from prior appellate opinions where the court had used the date work was completed as the trigger date for coverage.
In Erie Ins. Exchange we now have a published appellate opinion that follows the principle of injury-in-fact articulated in Gaston County Dyeing Machine Co. v. Northfield Ins. Co., 351 N.C. 293, 524 S.E.2d 558 (2000), and that is intellectually consistent with the CGL policy language. In that case, Plaintiff/Erie was the carrier on the risk during construction of a retaining wall, and Defendant/Builders Mutual was the carrier on the risk when the retaining wall collapsed allegedly causing damage to the house owned by the underlying plaintiff/homeowner. Builders Mutual refused to defend, and Erie defended the underlying case and settled the claim. In a dispute between the two insurers over whose policy was triggered, the Court of Appeals determined that Builders Mutual had a duty to defend its insured/contractor even though the complaint in underlying action alleged that faulty construction (which occurred when the contractor was insured by Erie) caused the collapse, since all property damage alleged related to a single occurrence of slope collapse. In a departure from the Hutchinson rationale that focused on the date of the “defect from which damages flow,” the Erie Ins. Exchange court held that it is not the date of the “defect” that controls, noting that the date of the “defect” in Gaston County would have required that Court to use the date the pressure vessel was manufactured, not the date the pressure vessel failed. Specifically, the Erie court stated as follows:
[I]n Gaston County Dyeing, our Supreme Court looked to when the defective product failed and caused the property damage complained of, consistent with the terms of the insurance policy at issue. Id. at 302, 524 S.E.2d at 564. To the extent the language employed in Hutchinson is inconsistent with that employed by our Supreme Court in Gaston County Dyeing, we follow our Supreme Court’s holding and analysis.
742 S.E.2d at 812. The Court of Appeals in Erie Ins. Exchange thus correctly analyzed the facts of Gaston County and pointed out that the date of the injury causing event was the date the pressure vessel ruptured (not the date of manufacture which would have corresponded to the date of construction in the Erie Ins. Exchange case). Accordingly, the date the retaining wall collapsed was the appropriate date for triggering coverage, and the court ruled that Builders Mutual should have provided a defense to its insured/contractor.
I believe the principles that will be followed going forward are twofold: (1) when there is a date of injury-in-fact known with certainty, then that is the date used to determine the policy (or policy period) that applies to a particular claim; (2) when there is no date of injury-in-fact known, and injury occurs over time, then presumably the courts will fall back on the Hutchinson line of cases and hold that the date to be used for trigger of coverage is the date of completion of the work that is alleged to have caused the damage. Of course, my crystal ball can be wrong. When all else fails, any analysis of coverage should include determining when the construction was completed and when the damage causing event occurred, if a date certain for that can be determined. If there is a policy in effect on both those dates, tendering the claim to both carriers would be prudent.
 2013 WL 4735042 (August 27, 2013).
 Hutchinson v. Nationwide Mutual Fire Ins.Co., 163 N.C. App. 601, 594 S.E.2d 61 (2004) and cases that followed.
 For more information and a more detailed analysis of the subject, refer to NC Bar Association website and manuscript from the September 27, 2013 seminar “Constructing the Trial of a Construction Defect Case: Building to a Verdict” (2013 NC/SC Joint Construction Law Program)
[Contact Deb Bowers for more information.]
In connection with a discovery dispute between the parties, the Court of Appeals held that a blanket general objection asserted by the defendants based on “the attorney/client privilege, the work product doctrine, or any other applicable privilege or doctrine” was inadequate to effect the intended purpose of the objection. The Court noted that even though such holding was a matter of first impression in North Carolina, it was consistent with federal courts’ approach to general objections based on privilege, where such objections must be made and established on a document-by-document basis. K2 Asia Ventures v. Trota, No. COA10-1065 (N.C. App. Sept. 6, 2011). Click here for a copy of the case opinion.
In a lawsuit involving a mobile home park tenant assaulted by another tenant, the Court of Appeals stated that although North Carolina law has recognized a landowner’s duty to exercise reasonable care to protect tenants from foreseeable third-party criminal acts, such a duty did not include a duty to evict a tenant, and although other states have recognized such a duty, the Court declined to do so under the facts of this case. The Court viewed the evidence of the assaulting tenant’s prior conduct as not indicating a propensity for violence at the level of his attack on the plaintiff-tenant. Davenport v. D.M. Rental Properties, Inc., No. COA11-231 (N.C. App. Nov. 15, 2011). Click here for a copy of the case opinion.
In a medical malpractice lawsuit brought by the parents of a deceased child alleging that defendant doctors were negligent in failing to discover lacerations to the child’s liver at the hospital following a car accident, the Court of Appeals agreed that the parents’ expert witness’ testimony was not improperly speculative, even though the expert used the word “speculation” during his testimony. The Court concluded that the expert was not labeling as speculation his opinion that, if the child’s liver laceration had been diagnosed and treated, he would have had greater than a 51% chance of survival. Instead, the Court viewed such testimony as acknowledging that the practice of putting a specific percentage on the chance of survival is inherently speculative, and nevertheless, the expert ultimately testified that “most” patients with the kind of injury that the child had who are treated in accordance with the standard of care will survive, and such an opinion was sufficient to establish a probability of survival regardless of the precise numerical percentage used. Day v. Brant, COA09–573–2 (N.C. App. Jan. 17, 2012). Click here for a copy of the case opinion.
The North Carolina Supreme Court “adopted” the reasoning of the dissenting Court of Appeals judge and hence held that the age of a lawful visitor injured on property naturally occurring (a creek), in and of itself, did not impose a higher standard of care on the property owner, because such a heightened level of care would have given improper emphasis to the injured person’s age and would have created a higher standard of care in any case where a plaintiff had some characteristic condition (such as age, physical disability, or mental disability) which may have decreased that person’s ability to look out for his or her own safety. The Court acknowledged that a property owner generally has a duty to a lawful visitor to use reasonable care to keep the property safe and to warn of hidden dangers, and a jury is to make the determination of the standard of care required by a reasonable landowner by considering the totality of the circumstances of a particular case, including the location, the time of day, lighting conditions, type of facility, and the foreseeable characteristics of lawful visitors. Therefore, the Court felt that the age of the visitor is just one of various factors and circumstances for a jury to consider in determining what is “reasonable.” Cobb v. Town of Blowing Rock, No. 300A11 (N.C. Jan. 27, 2012); No. COA09-1443 (N.C. App. July 5, 2011). Click here for a copy of the Supreme Court case opinion; click here for a copy of the Court of Appeals dissenting case opinion.
In a product liability action involving a self-propelled wheelchair that caught fire, resulting in the house to catch on fire and burning Plaintiff’s decedent, the Court of Appeals held that the defense of “insulating negligence” (by which a defendant is insulated from liability by an independent act of another) does not apply where it is the injured person whose negligence was allegedly “insulating,” but rather, the defense of contributory negligence is the sole method available to relieve a defendant from liability due to the injured person’s negligence. Muteff v. Invacare Corp., No. COA11–495 (N.C. App. Feb. 7, 2012). Click here for a copy of the case opinion.
The Court of Appeals, asserting that it was following established law, declined to allow damages for the loss of a pet dog based upon a strong emotional bond the owners had with the dog, and instead damages were generally limited to the cost of “replacing” the dog, since the Court viewed the dog as merely personal property. Shera v. N.C. State University Veterinary Teaching Hospital, No. COA11–1102 (N.C. App. Feb. 21, 2012). ). Click here for a copy of the case opinion.
Although Plaintiff filed the Complaint without it being signed and ordinarily that would result in the action being deemed not to have been properly instituted, Plaintiff’s prompt remedial measures of filing an amended, signed Complaint corrected the deficiency, and the amended Complaint related back to the commencement of the action for purposes of timeliness. Estate of Livesay v. Livesay, No. COA11–973 (N.C. App. Feb. 21, 2012). Click here for a copy of the case opinion.