Still a Beneficial Tool, Mediation Process Is Not Perfect

South Carolina Construction Defect Law by Christopher Clay Olson

In 2001 I mediated my first case as a young lawyer with just enough knowledge to be dangerous…..to myself most likely. Over the past 14 years I have observed the process and it’s uncanny ability to resolve the previously unresolvable. Lately I have noticed the indirect, less tangible benefits. That said, a review of the past 15 years leaves me with a few criticisms.

Mediation

The legal definition of mediation is as follows:

“A settlement of a dispute or controversy by setting up an independent person between two contending parties in order to aid them in the settlement of their disagreement.”

That independent person, the mediator, is typically a lawyer removed from the parties and case prior to mediation. He or she wears many hats during the process. One should be a capable listener who possesses other qualities such as man management, a calm demeanor, and the ability to remain…

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Still a Beneficial Tool, Mediation Process Is Not Perfect

     In 2001 I mediated my first case as a young lawyer with just enough knowledge to be dangerous…..to myself most likely.   Over the past 14 years I have observed the process and it’s uncanny ability to resolve the previously unresolvable.  Lately I have noticed the indirect, less tangible benefits.  That said, a review of the past 15 years leaves me with a few criticisms.

Mediation

The legal definition of mediation is as follows:

“A settlement of a dispute or controversy by setting up an independent person between two contending parties in order to aid them in the settlement of their disagreement.”

That independent person, the mediator, is typically a lawyer removed from the parties and case prior to mediation.   He or she wears many hats during the process.   One should be a capable listener who possesses other qualities such as man management, a calm demeanor, and the ability to remain neutral in both mind and exterior actions.   While it is argued that a mediator should not be an advisor, I think the two can coexist if practiced in an artful manner.

Advantage of Mediation Part 1: Cost

This should come as no surprise.   Trials are very expensive in all practice areas.  Within complex construction defect matters, the time preparing witnesses and evidence alone can anhilate a litigation budget before the trial has begun.

These trials take weeks.   Mediation can be concluded in as few as a couple of days.

Advantage of Mediation Part 2: Control

Some people refer to this principal as predictability.  I don’t know if a mediation is always a predictable endeavor, yet I find it leaves less to chance than a resolution which involves 12 strangers who have spent too much time away from life and reality.  Even the most unfavorable mediation outcome requires the parties, rather than strangers, to dictate outcomes.

Advantage of Mediation Part 3:  Venting

Lawyers are guilt of forgetting that there can be value, in the form or personal satisfaction, derived by a client who has the opportunity to air their hurt, anguish etc.  In construction defect matters this can be best illustrated by a homeowner providing specific instances of inconvenience due to the alleged defective construction.

Contractors often feel affirmed as their reputation is put on the line.  Having the ability to tell a crowded room, “Hey, I am a quality professional and human being.  I take these allegations seriously and I feel that I was kept out of the loop when problems were mentioned.”   This helps the insured contractor as he more than likely has not been in any contact with the Plaintiff since initiation of suit.

Ways We Can Improve

Suggestion 1:  Light Judicial Involvement

This might be more idealistic than realistic but medications would be aided with some judicial monitoring.  In South Carolina the court administration is pretty hands off, with the exception of requiring contested civil matters participate in some form of ADR within the first 300 days.  If there were more formal requirements to report back to court post mediation, it might allow an insurance coverage issue to be fast tracked for judicial ruling.  Having a conference call which allowed the Judge or a law clerk to document the issues impeding settlement might allow for these to be addressed sooner, rather than two years later.

Suggestion 2:  Multiple Days

This is self explanatory.   Attempting to settle a large, complex case with multiple defendants is simply too much of an endeavor and typically fails.   Further, I would argue that these one day events are viewed by lawyers as wasted efforts prior to attending mediation and thus less effort is initiated prior to the event.  If, for instance, a two day mediation is scheduled 90 days in the future there should be none of the common impediments such as securing settlement authority after fully evaluating your position and exposure.
Conclusion

Complex construction defect suits are perfectly posture for the mediation process.   Without mediation, these suits would not be resolvable due to the numerous parties and issues.  Trial judges and court administrators would be the equivalent of sheephearders without it as babysitting the parties, jury, lawyers etc would be rendered impossible.   All that said, the process can be improved and tweaked in slight ways which would only make mediation a more satisfying and successful means of resolving disputes.

Construction Manager entitled to Additional Insured Status

A recent decision in New York has held that a construction manager was entitled to additional insured treatment under a general contractor’s CGL policy.  Turner Constr. Co. v. Navigators Ins. Co., 2015 N.Y. Misc. LEXIS 2704 (N.Y. Sup. Ct. July 23, 2015).

The Construction Manager (“Turner”)    was hired to “provide pre-construction services and construction management services for the Project.”  

The owner hired two prime contractors under condition that each would procure endorsements to their CGL policies which were to name the owner and a “construction manager” which went unnamed.  

Plaintiff in the underlying suit, Edward Walls, was an employee of a prime contractor and was injured at the job site. He sued Turner and others for injuries. Turner claimed it was an additional insured under a Travelers policy which was issued to the prime contractor employing Plaintiff. Travelers argued Turner was not an additional insured because it was not named in the policy and was nowhere identified as the construction manager. Travelers further contended that Turner was not entitled to a defense because its costs in the underlying action did not equal the deductible in the Travelers’ policy.

The court found that Turner was the construction manager and the contractor’s promise in the contract with the project owner to provide additional insured coverage for the construction manager applied to Turner. 

The court went on to find that additional insured status was conferred under Travelers’ policy for any entity that the insured was required by a written contract to name as an additional insured.  

It was of no consequence that Turner was not named specifically in the contract or policy. Therefore, Travelers had a duty to defend Turner.

Florida Rules Developer Not Entitled to Additional Insured Coverage for Negligent Misrepresentation

A Florida court has determined that a project owner’s (Cypress) general partner was not an additional insured under an insurance policy issued to the Genral Contractor (WPC) who constructed the project.  The ruling was made in conjunction with a lawsuit brought by a homeowners association for construction defects, maintenance issues and failure to disclose material facts.  WPC’s insurer (St. Paul) was not obligated to defend or indemnify General Partner (Vineland) for damages arising from alleged construction defects. St. Paul Fire & Marine Ins. Co. v,. Cypress Fairway Condo. Ass’n (M.D. Fla. July 20, 2015).

It should be noted for factual understanding that Cypress and Vineland were both named additional insureds on three policies issued to WPC.  These policies were issued in 1999-2001 by St. Paul to WPC.  Cypress and Vineland were named as separate defendants and alleged to have mismanaged the property and negligently omitted information allegedly relied upon by buyers making up the Plaintiff association.

Defective Construction

While it conceded a duty to defend Cypress, St. Paul argued on summary judgment the policies did not include Vineland as an additional insured because it was not an owner of the property. The policies covered, “[a]ll owners, contractors . . . who require that you add them as an Additional Protected Person in a specific written contract entered into by you.” The construction contract required WPC to indemnify the owner, officers, directors, shareholders, partners and many others. This broad and general indemnification provision did not convert all the indemnitees into additional insureds. Therefore, St. Paul had no duty to defend or indemnify Vineland.

Negligent Misrepresentation 

As insurer for the general contractor, St. Paul argued it had no duty to defend or indemnify Vineland or Cypress as developer/sellers because the negligent supply of information did not cause property damage. The court agreed. 

Misresentations about the condition of the buildings might have induced Plaintiffs to purchase units, but these misrepresentations did not cause water intrusion and the resultant property damage. Further, representations were not accidents and could not be “events” within the meaning of the policies. While the Association may have suffered economic damage based on Cypress and Vineland’s representations, it did not suffer property damage caused by an event as defined in the policy.

North Carolina Courts face coverage for faulty work issue in Nationwide v. Hyde

Insurance coverage for faulty workmanship is certainly not a new topic on this blog, and states have entertained the issue with varying conclusions for years. The U.S. District Court for the Western District of North Carolina will take this issue on in a case styled Nationwide Mutual Insurance Company v. Hyde. (1:2015cv00137) 

In Nationwide Mutual Insurance Company v. Hyde, Nationwide requests a declaratory judgment that coverage is not owed to a builder who was sued by homeowners for property damage that occurred as a result of the insured constructing the home on top of improperly compacted fill soil. The homeowners were awarded $350,000.00 in damages in an underlying suit against the builder.

 Nationwide provided the insured a defense in the underlying suit, but filed the declaratory action subsequent to the $350,000 judgment. pursuant to a reservation of rights, once a judgment was entered against the insured, Nationwide filed the declaratory judgment action seeking the extent of its responsibilities. so that the court could determine Nationwide’s obligations.  

 Nationwide contends that the policies at issue only provide coverage for property damage caused by an “occurrence,” which is defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” Since faulty workmanship is not an “accident,” Nationwide argues that the policy does not provide coverage and Nationwide is not obligated to pay any damages on behalf of the insured. This is the same argument typically advanced in these cases.

 Second, Nationwide argues that even if the policies did offer coverage, the exclusions for “Damage to Your Product” and “Damage to Your Work” preclude coverage for the damages to the house. Under these exclusions, property damage to the insured’s product or work arising out of the product or work itself is not covered. This argument is not new either, and has been reviewed by numerous states over the past ten years.

 Nationwide distinguishes itself by relying on the “Subsidence of Land” exclusion in the policies, which excludes coverage for earth movement, including earth sinking and earth rising or shifting. The homeowners in the underlying action alleged that that house was constructed over improperly compacted fill soil, so Nationwide argues that the shifting of the land underneath the house that caused the damages is not covered by the policies.

 More to come on this case as it will certainly have the potential to create precedent.

Known Injury or Damage Exclusion not Applicable in Case of Continuing and Progressive Water Infiltration Resulting from Defective Construction

AUTO DEALER BUZZ

I recently posted an article, CGL Coverage:  “Known Injuries or Damages” in Minnesota and Beyond”, addressing the “Known Injury or Damage” provision in CGL policies.  In August 2014, the Connecticut Supreme Court addressed the provision in the context of a construction defect case involving ongoing water infiltration issues in Travelers Cas. & Sur. Co. of Am. v. Netherlands Ins. Co., 312 Conn. 714, 95 A.3d 1031 (2014).  Although the insured contractor was placed on notice of the infiltration problems before the policy inception date, the court held the Known Injury or Damage provision did not bar coverage because extrinsic evidence of when the insured was placed on notice could not be used and the underlying complaint did not “specify exactly” when the insured was first placed on notice of the problem.

In 1994, the state of Connecticut contracted with Lombardo to perform masonry for the construction of the…

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