A regional defense litigation firm
with offices in
Washington, Oregon and Alaska
with offices inWashington, Oregon and Alaskawith offices inWashington, Oregon and AlaskaBy: Mark O’Donnell, Bennett Hansen, Lori McKown and Jeff Daly
July 16, 2008
American Safety Ins. Co. v. Bordeaux, Inc., et al., Court of Appeals, Div. 1, July 7, 2008
Issue: Whether an insured is entitled to recover its SIR from subcontractor
recovery before the carrier is entitled to recover settlement funds.
The Court reviewed and affirmed Bordeaux’s self-insured retention (SIR) requirement was not “insurance” in the traditional sense, and was not primary for purposes of subrogation. Accordingly, Bordeaux (a condominium declarant and general contractor) was entitled to be made whole before American Safety could recover funds from third-party settlements with the project subcontractors.
The Court also analyzed whether Bordeaux owed a single SIR payment for the single occurrence, or a payment for each of the defending insurers (both American Safety’s and Zurich’s policy required a $100,000 SIR requirement). The Court held that American Safety had no right to apportion defense costs between the two policies and Bordeaux owed a single SIR obligation of $100,000 for the occurrence, not for each of the two defending policies.
Steadfast Ins. Co. v. Heights at Issaquah Ridge, Court of Appeals, Div. 1, July 7, 2008
Issue: What factors the court considers to determine whether a proposed
settlement directly by the insured with the plaintiff is reasonable.
Under a Washington statute, the trial court may hold a hearing to determine the reasonableness of a settlement between two joint tortfeasors. The Washington Supreme Court has defined numerous factors the trial court should consider to determine the reasonableness of the settlement. The factors are generally known as the Chaussee/Glover factors. The court later adopted the factors for determining the reasonableness of consent judgments, covenants not to execute, and bad faith claims.
Recently, the appellate courts concluded that a trial court has the authority in a contract condominium defect case to conduct a reasonableness hearing on a covenant judgment settlement agreement between an insured and a claimant because the settlement amount may become the presumptive measure of damage for a bad faith claim against the insurer. However, the Chaussee/Glover factors were originally intended to apply to settlements in tort-based cases and do not necessarily apply to contract-based concepts.
The Court reviewed which of the Chaussee/Glover factors a trial court should consider during a reasonableness hearing in a contract action involving a condominium construction defect case. The Court concluded that in a contract action, the main concern is protecting an insurer from excessive confessed judgments that are the product of bad faith, collusion, and fraud. Therefore, in contract actions, the relevant Chaussee/Glover factors are those that concern questions of bad faith, collusion, and fraud. The Court did note that the Chausee/Glover factor concerning comparative fault has no role in construction defect cases which involve contractual obligations.
The Hartford Ins. Co. v. American States Ins. Co., et al, Court of Appeals, Div. 1, July 14, 2008.
Issue: The interpretation of “ongoing operations” in insurance agreements in
construction defect cases.
The Court reviewed insurance policy language concerning the meaning of “ongoing operations” and “your work” in a contribution action by The Hartford. The Court concluded that “ongoing operations” evinces an intent to provide coverage to an additional insured only for liability that arises while the work is still in progress, such as a work site accident involving bodily injury or property damage.
The court further found that “your work” does not evince a similar intent and does provide coverage for latent construction defects so long as damage occurred during the policy period. The Hartford survived summary judgment with an expert declaration describing the defects and opining the defects allowed water to penetrate the building envelope and damaged the building during the first rainy season, which occurred during the policy period.
The Court also analyzed whether The Hartford made a voluntary settlement payment on behalf of its insured, declarant/general contractor Roosevelt, LLC, waiving a right to contribution. After the condominium association filed suit, but before the developer settled with the COA, Roosevelt, LLC was administratively dissolved precluding it from bringing suit. American States argued The Hartford’s duty to defend and indemnify Roosevelt terminated when Roosevelt was administratively dissolved. The Court disagreed holding that The Hartford continued to owe Roosevelt a duty because Roosevelt was still subject to the COA’s suit and remained subject to additional suits because of the retroactive application of the three-year LLC claim survival statute.
Interestingly, prior to filing the action for declaratory relief, The Hartford received an assignment from the construction management company’s insurer, which contributed $1.6 million of the $2 million settlement. The Court found, however, that the $1.6 million was unrecoverable in the contribution action because it was a voluntary payment since Roosevelt did not have standing to sue the construction manager at the time of the settlement as a dissolved limited liability company.
