We’re nearing the conclusion of reviews for the 2014 Best Construction Blog competition. I think I have two or three more to do, and should have the reviews wrapped up by early next week. leaving several weeks of “unbiased” voting opportunities before the March 31 voting deadline.
Matt DeVries’ Best Practices Construction Law blog provides a comprehensive, and highly articulate, information source for anyone concerned about construction law challenges (and there are many specialized issues affecting contractors, trades, suppliers and owners, as well as design and engineering professionals.)
DeVries, based in Nashville, TN, writes with a broader-than-local focus. Consider, for example, this recent post where he warns of the risks of settling a construction contract dispute before confirming your decision with your insurer (especially if you wish the insurance company to pay the claim.)
In Perini/Tompkins Joint Venture v. ACE American Insurance Company (pdf), applying Maryland and Tennessee law, the Fourth Circuit held that the joint venture contractor violated the terms of both the primary insurance and excess insurance policies by not obtaining the insurer’s consent before settlement. Accordingly, the joint venture could not claim reimbursement under the policies
The Facts. The project involved the construction of the $900m Gaylord hotel and convention center in Oxon Hill, Maryland. The construction manager was a joint venture between Perinit Building Company and Turner Construction Company (the “Contractor”). The contract required Gaylord to purchase and maintain an Owner Controlled Insurance Program (“OCIP”). During construction, a 2,400 ton glass atrium collapsed, causing significant damages and delays.
The Underlying Dispute. The Owner and the Contractor alleged numerous claims against each other, ranging from breach of contract, mechanic’s liens, prompt pay act violations, failure to maintain the schedule, construction defects and others. The Contractor sought payment of approximately $80m, while the Owner sought reimbursement of $65m. The Contractor did not notify the insurance carrier of the dispute prior to settlement.
The Insurance Claim. After settling with the Owner, the Contractor filed a lawsuit against the insurance carrier in an effort to recover the losses resulting from the atrium collapse that had not been paid by the Owner. The trial court ultimately dismissed the claim on the grounds the settlement occurred without consent, which was required by the insurance policies.
Lesson Learned: There was a lot of money at stake in this lawsuit and I am sure some of the facts were hotly contested. However, there are a couple of lessons to remember for insurance coverage disputes:
- Read the insurance policy. Whether you the policy holder or an additional insured, your rights are going to be affected by the written documents, which is no different than any other contract.
- Understand “no action” provisions. Many insurance policies have what is called a “no action” provision, which states that: “No action shall be maintain against the Insurance Company by the Insured to recover for any loss under this Policy . . . until the amount of such loss has been fixed by agreement between the parties with the written consent of the Insurance Company.”
- Prejudice may be irrelevant. Depending on your state’s law, prejudice to the insurance company may be irrelevant. For example, in Perini, the court concluded that neither the statute or common law required proof of prejudice by the insurance company—meaning that the insurance company did not have to prove that “settlement without consent” actually caused harm to the insurance company.
In the end, the facts and circumstance of your case may lead you to settle a dispute without the assistance of counsel or participation of an insurance carrier. But if insurance recovery is a possibility, then check with “the Man” before settling.
Other entries have similar qualities, based on solid research, verifiable and cited sources, and relevance to the construction and legal communities.