Are you a construction company owner, CFO, controller, or lead estimator involved in the bidding process?

On October 13th, join construction industry leaders, Bill Burke, Jason Copley, David Kane, and Anthony Stagliano, for a hands-on seminar, providing insights into effective strategies to maximize your profitability through innovative insurance, surety, legal, and accounting perspectives.

To register, contact Olivia Kornilowicz at 215.564.1700 or opk@cohenseglias.com.

Continue Reading Construction Executive Boot Camp 2016 – Interactive Panel Discussion and Cocktail Networking Event

[Note from the Editor: Due to an inadvertent editing error, omitted from our post entitled NJ Supreme Court Gets It Right! Consequential Damages Caused By A Subcontractor’s Defective Construction Work Is Insured was the fact that the property damage at issue occurred after the project was completed.  The insurance coverage at issue in the case was completed operations coverage included in the commercial general liability form.  The corrected article appears below.] 

Consultant presenting insurance concept and risk managementThe New Jersey Supreme Court’s August 4, 2016 decision in Cypress Point Condominium Association, Inc. v. Adria Towers, LLC opened the door for general contractors to obtain insurance coverage under their commercial general liability (CGL) policies for property damage caused by their subcontractor’s defective work after the project was completed. Continue Reading NJ Supreme Court Gets it Right! Consequential Damages Caused by a Subcontractor’s Defective Construction Work is Insured

As we reflect upon the past year, few in the Delaware Valley will forget the fateful day in June when a building located at 22nd and Market Streets collapsed in the midst of demolition work performed by contractor Griffin Campbell, which claimed six lives. In an effort to improve safety and prevent such tragedies from recurring, the City of Philadelphia took swift action in an effort to improve the process through which contractors obtain demolition permitting.

building permit.jpgIn the City’s latest effort to improve upon safety, Philadelphia’s Licenses and Inspections Department (L&I) has issued new permitting and licensure requirements that took effect last week. The new requirements apply to all contractors conducting business in the City of Philadelphia. Permit applicants will be required to provide a Tax Clearance form and a Certificate of Insurance, and license holders will be required to clearly display license information on the job site and on business materials.

Applications for Construction and Demolition Permits

In the past, Philadelphia has required Tax Clearance certifications for limited situations such as zoning appeals. Now, the rules require all permit applicants to provide a Tax Clearance form certifying that the applicant is in compliance with, or intends to work with the City to cure any violations of, the tax and regulatory provisions of The Philadelphia Code. Contractors can obtain the Tax Clearance forms at the Department of Revenue’s website.

Permit applicants also must provide Certificates of Insurance to demonstrate appropriate insurance coverage for the work to be performed. These certificates are available from a contractor’s insurer, and must contain the following basic information:

  • indicate current general liability, workers’ compensation and automobile liability coverage;
  • reflect minimum general liability coverage of $500,000;
  • describe the type of operations/work covered by the insurance;
  • name the City of Philadelphia as Certificate Holder and an Additional Insured; and,
  • include contact name and phone number of the contractor’s insurance broker or agent.

Display of License Information

In addition to the new tax clearance and insurance certificate requirements, contractors should also be aware that recent changes to Title 9 of the Philadelphia Code have made display requirements significantly more stringent. Philadelphia Code Section 9-1004 lays out the requirements for trade license holders, including for all contractors, registered master plumbers, electrical contractors, warm air installers and fire suppression system contractors. The Code now requires all licensees to display their license number in the following places:

  • each job site;
  • business signage;
  • advertisements;
  • stationery / correspondence;
  • proposals and contracts; and,
  • all company vehicles when used during the course of business.

The Code requires the displays to be at least two (2) inches high and clearly visible. Unauthorized transfer or sharing of license numbers or failure to display required license information may result in license suspension, fines, or license revocation.

In addition to public health and safety, another reason for these additional requirements is the generation of revenue to offset compliance and enforcement activities. Though the City, through a spokeswoman for L&I, has acknowledged that the new requirements would not have prevented contractor Griffin Campbell from obtaining a permit to demolish the property at 22nd and Market Streets, these latest requirements represent a continued effort to shore up construction safety in the City. They also present new hoops through which City contractors must jump in order to obtain permitting for City construction and maintain and valid license to perform work in the City. For more information about how these requirements affect you and your business, feel free to contact us.

Daniel E. Fierstein is an Associate in the Construction Group of Cohen Seglias and focuses his practice on construction law. Dan counsels clients at all tiers of the construction industry, including general contractors, subcontractors, owners, developers, and design professionals.

Catherine Nguyen is an Associate in the Construction Group and concentrates her practice in the area of construction litigation. She has represented clients in construction litigation, contract disputes, landlord-tenant matters and consumer protection cases.

As members of the construction industry know, to describe the relationship between a surety and the party to whom it issues a surety bond (the principal) as confusing would be an understatement.  In fact, many believe that the surety-principal relationship is similar, if not identical, to the insurer-insured relationship. In a recent federal court opinion – Reginella Construction Company, Ltd. v. Travelers Casualty and Surety Company of America – a contractor learned the hard way that the principal in a surety-principal relationship is not nearly as protected as the insured in an insurer-insured relationship.

The Case

In Reginella, the United States District Court for the Western District of Pennsylvania granted a surety’s motion to dismiss the claims brought against it by the surety’s principal, Reginella, finding, among other things, that a surety does not owe the kind of heightened duty to its principal that an insurance carrier owes to its insured (this heightened obligation is called a fiduciary duty, and we tend to see it in the insurer-insured, attorney-client, trustee-beneficiary, and guardian-ward contexts).  In Reginella, the surety, Travelers, issued performance and payment bonds on behalf of its principal, Reginella, for a school district project in Pennsylvania and a turnpike project in Ohio.

On the school district project, Reginella’s relationship with the owner broke down, and the project shutdown.  On the turnpike project, Reginella’s relationship with Travelers soured over a disagreement surrounding a lien filed by one of Reginella’s subcontractors.  Reginella alleges that Travelers failed to, among other things, (i) pay Reginella’s subcontractors in accordance with the payment bonds that Travelers issued, (ii) issue a bond to address a subcontractor lien, and (iii) generally act in the best interests of Reginella in a way that would facilitate payment from the project owners to Reginella.

Ultimately, Reginella sued Travelers for damages in excess of $15 million for lost business, goodwill, future earnings and residual value of its enterprise against Travelers for, among other claims, Travelers’ alleged breach of its fiduciary duty owed to Reginella in relation to the bonds issued on the two projects.  Travelers moved to dismiss the entirety of Reginella’s claims.  In applying Pennsylvania law, the Court granted Travelers’ motion and dismissed Reginella’s claims against Travelers, concluding that a Pennsylvania court would not impose fiduciary duties on a surety because a surety is a guarantor issuing a commercial guaranty, not an insurance carrier issuing an insurance policy.

What Does It All Mean?

The Court’s decision makes it clear that in Pennsylvania, a surety’s obligations to its principal are not the same as the heightened obligations that exist in fiduciary relationships.  In a fiduciary relationship, the fiduciary (e.g., an insurer) must act with the utmost fairness and refrain from using his position to the other’s detriment and his own advantage.  As the Court determined, however, surety relationships are ordinary arm’s-length commercial relationships where each party owes the other a less protected duty of good faith and fair dealing.  When entering into surety relationships, contractors need to be mindful of this distinction, especially when a surety begins communicating with project owners on its principal’s behalf.

Principals like Reginella should carefully monitor the surety’s activity and insist on being copied on all communications to and from the surety.

It is important to note that a couple of weeks ago, Reginella asked the Court to reconsider and alter its decision.  Therefore, the Court’s decision is not yet final, and we will continue to monitor the result.

John A. Greenhall is a Partner with the Firm and a member of the Construction Group. He can be reached at 215.564.1700 or jgreenhall@cohenseglias.com.

Lori Wisniewski Azzara is an Associate at Cohen Seglias Pallas Greenhall & Furman PC. Lori practices in the areas of construction and commercial litigation and has experience in contract negotiation, claims for delay and inefficiency, mechanics’ liens, and all types of contractual disputes.

Daniel E. Fierstein is an Associate in the Construction Group of Cohen Seglias and focuses his practice on construction law. Dan counsels clients at all tiers of the construction industry, including general contractors, subcontractors, owners, developers, and design professionals.

As most people have heard, a vacant building being demolished on the corner of 22nd and Market, in Center City Philadelphia, collapsed into a thrift store this past Wednesday morning.  The collapse resulted in 6 deaths and injuries to numerous people.  This tragedy brings to mind the risk of building collapses in general, and the fact that as buildings age worldwide, these tragedies will likely increase.

Buildings are clearly at higher risk of collapse when demolition work is being performed. However, there are also numerous factors that can cause a building’s collapse even when it is not undergoing demolition.  These factors include defective design, sub-standard and/or improperly specified materials, faulty construction, changes in subsurface conditions, failure to properly inspect the building during construction and upon completion, general deterioration to structural components caused by an owner’s failure to  maintain the building, and overloading of the building’s structure.  When a building collapses causing personal injuries or property damage, numerous parties, including the building owner, design professionals and contractors, may be held responsible for the resulting damages.

The potential claims that may be brought as a result of a building’s collapse include those for property damage, personal injury, wrongful death, worker’s compensation, and business interruption.  The property owner could also bring breach of contract and negligence claims against the responsible design professionals and contractors to the extent that faulty design or workmanship contributed to or caused the collapse.   Additionally, the Occupational Safety and Health Administration will conduct an investigation into the cause of the collapse, and could assess heavy fines and penalties against those involved where violations are found.

To reduce the risk of these types of claims, building owners and construction professionals need to take all necessary precautions to ensure that both building erection and demolition are done pursuant to all applicable codes, regulations, and industry standards, that all required permits are obtained.  Owners and contractors need to understand the significant risks that accompany any construction project, especially when demolition is involved, and take appropriate steps to make sure that adequate insurance is procured to cover the risk.

Owners also need to conduct regular maintenance and inspections of the building once construction is completed.  On active construction sites, policies and procedures should be implemented to ensure that all surrounding areas are secured, particularly during any demolition work, and that applicable engineering and OSHA standards are followed to minimize the risk of such a catastrophe occurring.

Jonathan A. Cass is Partner and the Chair of the Insurance Coverage & Risk Management Group at Cohen Seglias Pallas Greenhall & Furman PC. He has extensive experience representing insureds and insurers in insurance coverage disputes.

Lori Wisniewski Azzara is an Associate at Cohen Seglias Pallas Greenhall & Furman PC. Lori practices in the areas of construction and has experience in contract negotiation, claims for delay and inefficiency, mechanics’ liens, green building and all types of contractual disputes.

For most people, there is only one thing more excruciating than a discussion about insurance coverage: a blog post about it.  So brace yourselves dear readers.

With all kidding aside, the importance for contractors and owners to understand the ins and outs of their insurance policies, and the risk transfer mechanisms that they are using, or are being subject to, cannot be oversInsurance Policy.jpgtated.  Members of the construction industry should be generally familiar with the individual concepts of commercial general liability (“CGL”), additional insured status, and contractual indemnification, but few understand how they fit together and, worse, how their synergies can cause unintended and costly consequences.  It gets even worse when a liability policy called an Owners and Contractors Protective Liability policy (“OCP Policy”) is thrown into the mix.

In recent years, we have seen owners increasingly requesting that our contractor clients purchase an OCP Policy.  An OCP Policy is a policy that is specific to a construction project that insures the owner for personal and property damage arising out of the work of a designated contractor.  It differs from the more commonly utilized additional insured concept in that the OCP Policy only covers the owner, instead of the contractor and owner together under the contractor’s CGL policy.

Owners like it because an OCP Policy can provide broader coverage than that provided under an additional insured endorsement, and provides them with coverage limits that they do not need to share among any other parties in the event of an insured claim.  Contractors like it because an OCP Policy typically provide primary insurance coverage, which means in the event of an accident arising from the contractor’s work that leads to a claim against the owner, the OCP Policy’s limits will be tapped by the owner, rather than the contractor’s CGL policy providing coverage to the owner as an additional insured.  (This is true even if the owner has also required a contractor to name the owner as an additional insured on the contractor’s CGL Policy).

The concern and unintended consequences of which contractors must be aware arises in cases where the owner, in addition to requiring the contractor to purchase the OCP Policy, also requires the contractor, pursuant to the construction contract, to indemnify the owner for personal injury and property damage arising from the negligence of the contractors in performing its work.  In practice, if an accident occurs during construction – say an employee of a subcontractor is injured – the employee will sue both the contractor and owner.  The owner will respond by tendering its defense and seeking indemnification from the insurance carrier that issued the OCP Policy.  The contractor, in turn, tenders to its own CGL carrier, expecting that the OCP carrier will defend the owner, and its CGL carrier will defend it.

However,  what we have seen occur is that the attorney appointed to defend the owner by the OCP carrier then asserts a claim for contractual indemnification against the contractor, and demands that the contractor defend and indemnify the owner pursuant to the indemnification provision in the construction contract.  Although the contractor will typically have contractual liability coverage under its CGL policy for such an indemnification claim, the contractor’s efforts to insulate its own CGL policy from having to pay claims asserted against the owner by purchasing the OCP policy have been thwarted.  Not only did the contractor have to pay for an entirely separate OCP policy for the owner, but once coverage under the OCP Policy is triggered, the OCP carrier circles back and dumps the claim back on the contractor’s CGL policy through the construction contract’s indemnification provision.  Simply put, the contractor pays for the OCP Policy, and then faces increased CGL premiums because of the costs associated with responding to the contractual indemnification obligation.

The lesson to be learned?  It is important for contractors (and owners) to understand the interplay between an OCP Policy, additional insured status, and a contractual indemnification provision.  To the extent that an owner is demanding that a contractor purchase an OCP Policy, the contractor should attempt to negotiate the elimination of any contractual indemnification provision that requires the contractor to defend and indemnify the owner for personal injury and property damage – the very same claims covered by the OCP Policy.  In doing so, the contractor can avoid the scenario discussed above.

Jonathan A. Cass is a the Chair of the Insurance Coverage & Risk Management Group at Cohen Seglias Pallas Greenhall & Furman PC. He has extensive experience representing insureds and insurers in insurance coverage disputes.

Daniel E. Fierstein is an Associate in the Construction Group of Cohen Seglias and focuses his practice on construction law.

As commercial property owners and their tenants assess the damage caused by Hurricane Sandy, they need to understand their rights and obligations under leases, mortgage loan documents, and insurance policies.

LEASE PROVISIONS

As a result of storm damage, many buildings were temporarily uninhabitable or sustained such significant damage as to be uninhabitable or untenantable for the foreseeable future. The question becomes what rights and obligations do a tenant and landlord have under the terms and provisions of their lease? It should be kept in mind that these terms and provisions were negotiated and decided when the lease was executed.

First, it is necessary to understand the difference between a service interruption and casualty. A service interruption or disruption involves, for example, a loss of utility service to a property, thereby interfering with the tenant’s use of the property. A casualty involves the inability of the tenant to use or possess the property because of physical damage to the property itself.

Generally, commercial leases prepared by landlords will not provide for rent abatement or lease termination in the event the landlord fails to provide utilities or services. However, the lease should be checked because sometimes landlords will agree to abate if utilities or services are not provided for some period of time.

Commercial leases will often consider the extent of damage and the time necessary to restore or rebuild. For example, a lease may distinguish between partial and total casualty where the former means that the tenant was or is unable to use a portion of the leased space and the latter means that the entire leased space is unusable or untenantable.

The lease may provide for rent abatement in the event of a partial casualty and even the right to terminate if the premises cannot or are not restored within a certain period of time. Generally, a landlord’s lease may provide for a pro-rata abatement of at least the basic rent during the any period in which the tenant is actually dispossessed, but only to the extent of such dispossession.

If a total casualty has occurred, landlords under most commercial leases have the option, but not the obligation, to rebuild/restore the building. Tenants may or may not have the option of terminating the lease under certain circumstances such as if the landlord is unable or does not rebuild within a set period of time or if the casualty occurs toward the end of a lease term.

INSURANCE COVERAGE

Both tenants and landlords need to not only understand what coverage is provided by their insurance policies, but also to provide immediate notice of any potential claims to their insurance carriers as required under the applicable policy. Additionally, it is extremely important to fully document the damages sustained so as to preserve rights under the policy, and to ensure that the claim can be properly defended if challenged by the insurer. Tenants and landlords should be talking to the insurance brokers to review and understand available coverage, and the notice provisions required under their policies.

Typically, under a commercial lease, a landlord insures the building structure and common areas and the tenant is required to purchase insurance coverage on any improvements it made to its leased space, and its personal property. Commercial property insurance is intended to cover losses from fire, theft and natural disasters. However, such policies do not cover property losses caused by flood, which are only covered by a separate flood insurance policy.

In the event that a landlord or tenant has lost business income because, for example, the landlord had to provide tenants with rent abatements, or the tenant has been unable to conduct business because the leased property is untenantable, it is important to determine whether the effected business has business interruption coverage. This type of coverage is not part of a standard property policy and is intended to reimburse the business owner for loss profits and fixed expenses incurred as a result of the interruption of the business.

LOAN DOCUMENT PROVISIONS

To protect themselves against damage to their collateral, lenders place provisions in the loan documents specifying the insurance to be carried by the borrower and the borrower’s obligations in the event of a casualty loss. (These provisions are negotiable, to a degree, at the time of the loan.) A borrower is required to notify the lender in the event of a casualty loss of a certain magnitude. Additionally, the lender almost always is entitled to collect the proceeds of insurance, and can elect to either apply it to the loan balance or, under certain circumstances, escrow it and apply it to the cost of repairs to the collateral.

In the event of a casualty loss, it is important to understand the obligations owed the lender under the loan documents, and to ensure that the borrower complies with those obligations so as to avoid being declared in default. Additionally, in the event that significant repairs are required to the building, the borrower will want to negotiate with the lender to avoid any delays in gaining access to the insurance payments necessary to make the necessary repairs.

The Firm has extensive experience in commercial real estate and insurance coverage matters, and is available to answer any questions or respond to any issues that you may have. Questions concerning leases and mortgages issues can be directed to Marian A. Kornilowicz, Esquire, and concerning insurance coverage matters to Jonathan A. Cass, Esquire.

Marian A. Kornilowicz is the Chair of the Business Practice Group of Cohen Seglias Pallas Greenhall & Furman PC. His practice is concentrated in the representation of clients in varied business transactions and real estate matters.

Jonathan A. Cass is a the Chair of the Insurance Coverage & Risk Management Group at Cohen Seglias Pallas Greenhall & Furman, PC. He has extensive experience representing insureds and insurers in insurance coverage disputes.

Recent Pennsylvania court decisions have virtually eliminated any insurance coverage under commercial general liability policies for claims brought against general contractors arising from the faulty workmanship of their subcontractors.

Construction Executive.pngJonathan A. Cass, partner with Cohen Seglias Pallas Greenhall & Furman, PC, recently co-authored an article with Peter Stoll, Jr. and Mary Stoll Walter of The Stoll Agency, Inc. for the December 2010 issue of Construction Executive magazine, titled “Protecting Against Faulty Workmanship Claims” which dealt with this topic. The article discusses how courts in certain states have eliminated insurance coverage for claims arising from the faulty workmanship of subcontractors, and explains how general contractors can use, as an alternative to insurance coverage, performance and maintenance bonds to provide protection against such faulty workmanship claims.

To read the full article, please visit Construction Executive, and for more information please contact Jonathan Cass.

Jonathan A. Cass, senior counsel with Cohen Seglias contributed to this post.

Your company is sued as a result of an alleged constructive defect. You tender the claim to your insurance company and they hire and pay for a lawyer to defend your company. It is later determined that there is no insurance coverage for the construction defect claim. Can the insurance company force your company to reimburse it for all the costs that it spent in defending the action? The answer depends on the language contained in your insurance policy.

insurance claim form.jpg

Recently, the Pennsylvania Supreme Court determined that an insurer who assumes an insured’s defense is forbidden from seeking reimbursement of defense costs from the insured unless the policy specifically permits it to do so.

American and Foreign Insurance Company v. Jerry’s Sport Center, Inc.

In American and Foreign Insurance Company v. Jerry’s Sport Center, Inc., the Court held that even if a court ultimately determines that an insurance company had no duty to defend its insured, that insurance company generally cannot seek reimbursement of defense costs from the insured “absent an express provision in the written insurance contract.”

Jerry’s Sports Center (Jerry’s) was a sporting good store that sold firearms. It was one of eighteen firearms wholesalers and distributors sued by the National Association for the Advancement of Colored People (NAACP) and the National Spinal Cord Injury Association (NSCIA) who “sought to hold the firearms industry liable for injury, death, and other damages to association members through the negligent creation of a public nuisance by virtue of the industry’s failure to distribute firearms reasonably and safely.” The NAACP and the NSCIA alleged that the firearms dealers caused bodily injury to its members, and while it did not seek monetary damages to compensate individual members injured by the defendants’ actions, it did seek injunctive relief, along with monetary damages to “establish a fund for the education, supervision and regulation of gun dealers.”

Continue Reading Pennsylvania Supreme Court Declares Insurance Defense Costs May Not Be Reimbursable