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ConstructionRisk.com Report
http://www.ConstructionRisk.com
Vol. 6, No. 5, June 04
Inside
This Issue:
•
Mold Loss Excluded Under Homeowner’s Policy – Summary
Judgment for Carrier
•
Personal Injury Case against Engineer Dismissed for Lack of
Expert Testimony
•
Contractor May be Sued for Lost Profits Arising out of Breach of
Contract
.
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ARTICLE
#1
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Mold
Loss Excluded under Homeowner’s Policy –
Summary Judgment for Carrier
A
homeowner’s suit against Lexington Insurance Company to recover under
a property policy for damages caused by shoddy roofing work that
resulted in mold contamination was dismissed based on a coverage
exclusion for mold.
The insurance policy covered any risks of loss to the structure
unless caused by one of the listed exclusions.
It stated that “any ensuing loss to property described in
Coverages A and B not excluded or excepted in this policy is covered.”
One of the listed exclusions was mold.
The exclusion was specifically for loss caused by “smog, rust
or other corrosion, fungus, mold, wet or dry rot.”
The crux of the dispute concerned the question of whether the
coverage for “any ensuing loss to property,” in combination with the
mold exclusion, should be read as excluding mold damages only when the
losses were directly caused by mold.
The homeowner argued that since the loss was caused by shoddy
workmanship or vandalism by the contractor which would be a covered loss
under the policy, the mold ensuing from that work or vandalism must also
be covered. The court held
that this position is not supported by the case law of the state.
In reviewing case precedents from several other states, the court
explained that courts hold that “the ensuing loss provision does not
reinsert coverage for excluded losses, but affirms coverage for
secondary losses ultimately caused by excluded perils.” In
other words, if an uninsured peril causes a secondary loss of the type
that is covered by the policy, that secondary loss will be covered only
and this does not thereby result in the uninsured primary cause of that
insured secondary loss being entitled to coverage under the policy as
well. In this case,
the court held that mold, and the damage mold caused to the structure,
are excluded. Because the
court found that claims for damages resulting from mold damage to the
structure were not covered, it granted summary judgment in favor of
Lexington Insurance Company. Brick
v. Lexington Insurance Company, (Superior Court of
New Jersey
, Docket No. ATL-L-1285-03 (
April 2, 2004
)).
Risk
Management Note: This is
an important decision in that it reiterates the intent of the insurance
company that a mold exclusion is intended to exclude losses arising out
of mold, regardless of how that mold was caused.
Mold exclusions have routinely become a standard exclusion in
most policies, either in the text of the base policy itself or in an
endorsement added to the policy by the underwriter.
The policy in question was a general liability property policy
but the same concerns and exclusions are also seen in contractors’
general liability policies and in the professional liability policies of
design professionals.
A wide variety of mold endorsements have been drafted by the
Insurance Services Organization (ISO) and numerous insurance companies.
Some endorsements may provide mold coverage subject to a sub-limit.
Others may provide a higher deductible for mold coverage than for
the balance of the policy. There
are “bodily injury only” mold endorsements as well as “property
damage only” endorsements. And
there are endorsements granting mold coverage provided it does not
result from improper maintenance or in other cases from faulty
workmanship or defective design. Some
endorsements may grant mold coverage on certain types of commercial
facilities but exclude it on residential facilities. The possibilities
are extensive. This is
definitely not a situation where one size fits all.
By working with its insurance broker and insurance company, the
insured may be able to obtain coverage to at least cover some of its
risk arising out of mold.
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ARTICLE
#2
___________
Personal
Injury Case against Engineer
Dismissed for Lack of Expert Testimony
Where a
pedestrian sued a city and its engineering consultant for negligent
design and construction, and failure to warn of a dangerous condition in
a sidewalk, a court held that the engineer was entitled to summary
judgment. This was because
the plaintiff did not present expert testimony on the professional
standard of care, and the evidence did not establish a duty of the
engineer to warn of a dangerous condition.
In the case of Luther v.
City of Winner and Dan Britton, 674 N.W. 2d 339, 2003 WL 23137692
(South Dakota, 2004), the renovations for Main Street that was designed
by the city’s engineer included changing the sidewalk and curbs to
correct drainage problems caused by the fact that one side of the street
was two feet higher than the other. The engineer changed the sidewalks
in front of several stores to create a six inch step in the sidewalk, in
addition to the curb. As
a result of this change, a customer would walk out of a store on a level
surface, and after walking about ten feet toward the street, the
customer would encounter a sex step down the middle of the sidewalk.
After walking another four feet, the customer would reach the
street. Unfortunately, one
customer, Donald Luther, fell on the step in the middle of the sidewalk
and was hurt. He had climbed up the step while going into the store but
says he forgot it was there when leaving.
Apparently there was no handrail or marking on the step or
sidewalk to indicate that there was a step.
There was some indication that the step had been painted a bright
yellow at one time but that the paint had worn off over the years.
In his case against the engineer, the plaintiff failed to present
expert testimony concerning the standard of care that was owed by the
engineer. Instead of expert testimony, the plaintiff presented testimony
(mostly hearsay) that several other people had fallen in the same area.
The court found that expert testimony was required to show what
the standard of care was and that the engineer failed to meet the
requisite standard. As
explained by the court, expert testimony is required if the standard of
care is not within the common knowledge of the jury.
Only when a layperson would know based on their common knowledge
that a professional service was negligent does it become unnecessary to
have an expert. An example
of such common knowledge of negligence would be where a surgeon cuts off
the wrong leg of a patient. On
the other hand, says the court, if there was a question whether the
surgeon correctly performed a complicated surgery, an expert may be
required.
Litigation Comment: This
case once again demonstrates the importance in obtaining expert
testimony to (1) establish the standard of care and (2) to prove that a
design professional failed to meet that standard.
In most claims against professional service providers for
negligence, the types of questions for consideration by the jury go
beyond the kind of common knowledge that a layperson would have as to
whether the services were negligently performed.
The number of cases like that of a surgeon cutting off a wrong
leg being subject to a common knowledge determination of negligence are
not nearly as common as the more subtle determinations that typically
arise concerning whether a design professional exercised his or her
services consistent with the generally accepted standard of care for
similar services performed by similar professionals.
When filing a suit based on professional negligence, some states
require an affidavit by an expert be attached to the complaint.
Even where such an affidavit is not required, however, courts may
dismiss a case for failure to present expert testimony.
Moreover, even when a plaintiff believes the negligence is so
obvious that it can be proved by lay testimony to the common knowledge
of a lay person, it still may be most prudent to submit expert testimony
rather than risk a court finding, as this court did, that the alleged
negligence was not within a layperson’s ability to determine without
an expert.
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ARTICLE #3
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Contractor
May be Sued for Lost Profits arising out of Breach of Contract
When an
oral surgeon hired a contractor to construct his office and was unable
to use part of the finished office due problems with the floors, he sued
the contractor for damages, including loss of profits.
The court held that the possibility that there would be lost
profits if the facility were not open and available for business in time
could have been reasonably foreseen at the time the parties entered into
the contract and the surgeon was entitled to have a jury determine
whether lost profits should be awarded as part of the compensatory
damages.
After opening his dental practice, the floors in his office began
seeping moisture, becoming slippery, and producing offensive odors.
He closed the surgical rooms of his office due to these
conditions which were caused by improper ventilation of the concrete
slab under the flooring. He
sued for lost profits due to lost patients and lost business growth
opportunities. The
contractor argued that such losses were not included in the measure of
damages for breach of a construction contract.
The case law of the state having jurisdiction over this case
(Connecticut) supports awarding lost profits as an element of
compensatory damages for general breach of contract claims, says the
court. Citing the Restatement
(Second) of Contracts, the court states that recovery is divided
into the components of direct damages and incidental or consequential
loss caused by the breach, and goes on to state that traditionally,
consequential damages include “any loss that may fairly and reasonably
be considered [as] arising naturally, i.e., according to the usual
course of things, from such breach of contract itself.”
The court quotes previous case law for the proposition that “it
is our rule that unless they are too speculative and remote, prospective
profits are allowable as an element of damage whenever their loss arises
directly from and as a natural consequence of the breach.” Amrogio
v.
Beaver Road
Associates, 267
Conn.
148, 836 A.2d 1183 (2003).
Risk
Management Note: This
case demonstrates why contractors and design professionals are seeking
waivers of consequential damages in their contracts with project owners.
Some of the American Institute of Architects (AIA) standard form
agreements contain such waivers to protect the contractor against
consequential economic damages such as lost profits or lost rents.
Project owners that believe such economic damages may be a
significant part of their project risks may find it to strike such
waivers of consequential damages out of the contracts for that reason. I
have attended more than one construction lawyers program where attorneys
for project owners have stated that they routinely strike these clauses
from contracts.
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ABOUT
THIS NEWSLETTER & A DISCLAIMER
This
newsletter Report is published and edited by J. Kent Holland, Jr.,
J.D., a construction lawyer and risk management consultant for
environmental and design professional liability. The Report is
independent of any insurance company, law firm, or other entity, and is
distributed with the understanding that ConstructionRisk.com, LLC, and
the editor and writers, are not hereby engaged in rendering legal
services or the practice of law. Further, the content and comments
in this newsletter are provided for educational purposes and for general
distribution only, and cannot apply to any single set of specific
circumstances. If you have a legal issue to which you believe this
newsletter relates, we urge you to consult your own legal counsel.
ConstructionRisk.com, LLC, and its writers and editors, expressly
disclaim any responsibility for damages arising from the use,
application, or reliance upon the information contained herein.
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Copyright
2004, ConstructionRisk.com, LLC
Publisher
& Editor: J. Kent Holland, Jr., Esq.
8596 Coral
Gables Lane
Vienna, VA
22182
703-623-1932
Kent@ConstructionRisk.com
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