Why the “your work” exclusion in CGL policies is limited in application and why damages seemingly for loss of use of “your work” may not be.

In claims arising out of construction defects and faulty workmanship, insurers are often faced with many difficult coverage questions. Not the least among these are the issues surrounding the “occurrence” and “property damage” issues, but equally important is a proper assessment of the applicability of Business Risk exclusions. On January 31, 2012, the Missouri Court of Appeals, Eastern District, rendered an opinion providing guidance as to the interpretation of the “your work” exclusion found in many commercial general liability policies.

In Cook’s Fabrication & Welding, Inc. v. Mid-Continent Cas. Co., Continental Equipment Co. hired Cook’s to install two mast radial stackers at quarries owned by LaFarge North America, Inc. Cook’s installed the stackers at two Missouri quarries owned by LaFarge. Greystone, Inc. manufactured the stackers, which were intended for use as conveyors to move rock and gravel from one location to another. After Cook’s completed installation, both stackers collapsed, causing damage including hindrances to each quarry’s ability to continue doing business while awaiting repairs. 

In 2006, LaFarge filed a products liability suit against Greystone in federal court alleging damages of lost business, business opportunities, and profits. In turn, Greystone filed a claim against Cook’s for indemnification, alleging Cook’s had negligently installed the stackers.

At the time of the stacker collapses, Cook’s was insured under a CGL policy issued by Mid-Continent. Mid-Continent initially agreed to defend Cook’s in the federal lawsuit but then withdrew its defense, having determined coverage was precluded by the policy’s “Damage To Your Work” exclusion. In April of 2008, Cook’s filed a declaratory judgment action against Mid-Continent in state court asking the court to declare any liability assigned to Cook’s in the federal suit was covered by the CGL policy.

In November of 2008, Greystone paid $380,000 to LaFarge in settlement of the federal suit. It then initiated a state-court lawsuit against Cook’s for indemnification, again alleging Cook’s negligently installed the stackers and was responsible for the damages to LaFarge. Greystone alleged the money it paid satisfied LaFarge’s damages for lost profits during the time the stackers were inoperable and under repair. Mid-Continent against declined to defend Cook’s. The trial court found for Greystone’s and ordered Cook’s to indemnify Greystone for the full amount paid to LaFarge.

Greystone then filed a cross-claim in Cook’s declaratory judgment action seeking garnishment against the Mid-Continent policy. All parties filed summary judgment motions, and the court ruled in favor of Mid-Continent. Naturally, an appeal followed.

Mid-Continent contended its “your work” exclusion barred coverage completely. The exclusion stated, “This insurance does not apply to … ‘property damage’ to ‘your work’ arising out of it or any part of it and included in the ‘products-completed operations hazard.’” Mid-Continent focused on the phrase “arising out of,” arguing that because all the damages at issue arose out of Cook’s work they were not covered. Cook’s and Greystone disagreed, asserting the exclusion applied only to damage to Cook’s work, not all damage arising out of Cook’s work.

The Court of Appeals agreed with Cook’s and Greystone, noting the exclusion clearly barred coverage only for damage to Cook’s work (as opposed to damages to property other than Cook’s work but which still arose out of it). Additionally, the Court compared the exclusion to the policy’s definition of “products-completed operations hazard” and concluded the interpretation urged by Mid-Continent was impermissible. The Court reasoned, “A plain reading of these two policy provisions reveals that while the PCOH definition in the instant case encompasses certain ‘“property damage”…arising out of…“your work,”’ the exclusion addresses only the portion of that same property damage which was actually caused to ‘your work.’ Both contain the same language concerning property damage arising from the insured’s work, and both clearly address property damage falling within the definition of PCOH. However, the exclusion contains the qualifying phrase ‘to your work,’ thereby removing from coverage property damage that falls within the PCOH definition, but that actually occurred to the insured’s work. Any remaining property damage meeting the definition of PCOH but occurring to property that was not the insured’s work, it follows, would be covered.” The Court further found these provisions to be unambiguous.

Actually, the Court concluded an ambiguity would exist only under the interpretation of the exclusion advanced by Mid-Continent. “If the exclusion in fact addresses all property damage arising from ‘your work’ and ‘included in the PCOH definition,’ then the exclusion would remove coverage for all property damage included in the PCOH definition, rendering the latter provision illusory.”   

Thus, the Court held the “your work” exclusion applies not to any damage arising out of an insured’s work but only to damage specifically to the insured’s work. The exclusion, therefore, does not apply to damage to other property even if it does arise out of the insured’s work.

The Court then assessed the application of the exclusion in light of the specific damages assessed against Greystone and, as indemnitor, Cook’s.  The policy defined “your work” as “(1) Work or operations performed by you or on your behalf; and (2) Materials, parts or equipment furnished in connection with such work or operations.” The Court held, “It is clear that the work or operation Cook’s performed was installation of the mast radial stackers. The materials and equipment furnished in connection with the installation would include the stackers themselves and any equipment necessary for installation. Therefore, applying the plain language of the policy, any physical damage to the stackers or related equipment Cook’s installed, or any loss of use of those items, would constitute ‘property damage’ to Cook’s’ ‘work,’ and would not be covered due to the policy exclusion.”

The more interesting issue, however, concerned LaFarge’s loss of use of other equipment and the quarry itself. Remember, the damages Greystone paid to LaFarge in settlement of the latter’s claim included the loss of production capacity and loss of use of its facilities as a result of the stacker collapse. The Court held this was “damage to property falling under the definition of PCOH, but property that is not part of the mast radial stackers or the installation thereof. This would therefore not be excluded by the ‘Damage To Your Work’ policy exclusion, rather these damages would be coverd by the PCOH definition in the policy.”

In essence, the Court determined that, while loss of use of the stackers themselves was not covered because it was damage to Cook’s work, loss of use of the quarries and other equipment used at the quarries – including profits lost – were covered because that damage was not damage to “your work,” even though the loss of use of those items was caused by the loss of use of Cook’s work.

By:  Jim Maloney

No Comments »

The rule of one’s third D.U.I. being a felony has been a bulwark of Missouri and Kansas law for decades. Kansas, however, recently amended its driving under the influence statute, K.S.A. §8-1567, to change this effect in certain limited circumstances. 

If one’s prior D.U.I. convictions are over 10 years old, the third D.U.I. is now only a misdemeanor.  In this manner, someone who had some youthful indiscretions can obtain a break if they obtain a D.U.I. later in life.

It should be noted, that the over 10 year old provision does not provide any leniency for fourth or subsequent D.U.I.s.

Also, even where the third D.U.I. is a misdemeanor, many of the same minimum punishments are still applicable.  And, regardless of whether a felony or misdemeanor, the third D.U.I. usually results in one’s license being suspended for 1 year with the need to have an ignition interlock for another two – three years (depending on the severity of one’s BAC).  The main benefit is that one is protected from being a felon – with the loss of civil liberties that come with it.

With this new wrinkle in the D.U.I. law it is as important as ever to have competent representation at one’s criminal and administrative D.U.I. proceedings.

 By:  Michael Belancio

No Comments »

Claims arising out of injuries sustained at work are generally prosecuted in the Missouri Labor and Industrial Relations Commission (the “Commission”). However, it is not uncommon for an injured worker to elect to either file suit in circuit court or file in both venues. Missouri’s Workers’ Compensation Law (the “Act”) provides that if an injury comes within the definition of the term “accident” as defined in R.S.Mo. §287.020.2, then it is included within the exclusivity provisions of the Act, and recovery can be had, if at all, only under the terms set out in the Act. In other words, if an injury arising out of the course and scope of employment falls within the statutory definition of “accident”, any relief must be obtained through the Commission, to the exclusion of circuit court.

The Act’s exclusivity provision is set forth in R.S.Mo. §287.120.1, which provides that:

Every employer subject to the provisions of this chapter shall be liable,
irrespective of negligence, to furnish compensation under the provisions
of this chapter for personal injury or death of the employee by accident
arising out of and in the course of the employee’s employment, and shall
be released from all other liability therefore whatsoever, whether to the
employee or any other person.

Beginning in the 1980’s, Missouri courts interpreted the Act’s exclusivity provision as a jurisdictional issue, meaning that the circuit courts lacked jurisdiction over the subject matter of the claim. Because circuit courts can only adjudicate issues over which they possess jurisdiction over the subject matter of the claim, a motion to dismiss for lack of subject matter jurisdiction may be raised at any time. That was the case in McCracken v. Wal-Mart Stores East, LP, 298 S.W.3d 473 (Mo. banc 2009), where Wal-Mart filed a motion to dismiss McCracken’s negligence claim on the morning trial was set to begin. Wal-Mart alleged McCracken was its statutory employee, therefore, the court lacked subject matter jurisdiction over McCracken claim.

The circuit court agreed, finding the exclusive jurisdiction of his claim was vested in the Commission. In reversing the circuit court, the Missouri Supreme Court overruled 30+ years of case law in holding that, “to the extent that some cases have held that a court has no jurisdiction to determine a matter over which it has subject matter and personal jurisdiction, those cases have confused the concept of a circuit court’s jurisdiction — a matter determined under Missouri’s constitution — with the separate issue of the circuit court’s statutory or common law authority to grant relief in a particular case.”

The Missouri Supreme Court concluded that the exclusivity provisions of the Act must be raised as an affirmative defense to the court’s statutory to proceed with resolving the claim, and the defense will be deemed waived if not asserted. Following publication of McCracken, the Missouri Court of Appeals – Western District issued its opinion in Fortenberry v. Buck, 307 S.W.3d 676 (Mo.App.W.D. 2010), in which the court noted the requirement of raising the exclusivity provision as an affirmative defense, and found that “a defendant, seeking a pre-trial dismissal based on workers’ compensation exclusivity, must file a motion for summary judgment.” The court further noted, however, that, “[w]hen the applicability of section 287.120 appears from the face of the petition, a defendant can also properly file a motion to dismiss for failure to state a claim upon which relief can be granted, see Rule 55.27(a)(6), or for judgment on the pleading pursuant to Rule 55.27(b) if the affirmative defense appears from the petition and other pleadings.”

Several appellate opinions have followed the procedural guidelines for asserting the exclusivity provision announced in Fortenberry. See, e.g., Treaster v. Betts, 324 S.W.3d 487 (W.D.Mo. 2010); Heirien v. Flowers, 343 S.W.3d 699 (Mo.App.S.D. 2011); Cooper v. Chrysler Group, LLC, 2011 Mo.App. LEXIS 1647 (Mo.App.E.D. Dec. 13, 2011).

The court in Cooper identified another alternative to the motion to dismiss/motion for summary judgment option. In Cooper, the injured worker first filed a claim with the Commission, and while that claim was pending, filed suit in circuit court. Chrysler Group raised the exclusivity provision of the Act as an affirmative defense and moved for summary judgment, in accord with Fortenberry, arguing that “plaintiff’s exclusive remedy for damages caused by injuries arising from a slip and fall on his employer’s premises was with the Commission.” The trial court agreed.

On appeal, the appellate court reversed and remanded with directions to stay the circuit court proceedings until the Commission determined whether there had been an “accidental injury” as defined by the Act. The court reasoned that the Commission retained primary jurisdiction to determine “questions includ[ing] determinations of whether there was an accident arising out of and in the course of employment and whether an employee’s injury resulted from an accident or an intentional act.” The court concluded that, “under the primary jurisdiction doctrine, the circuit court does not have the authority to determine the question of whether there was an “accidental injury” within the definitions of the Workers’ Compensation Law.”

The court notes that prior to McCracken, the exclusivity defense was permissibly raised as a motion to dismiss for lack of subject matter jurisdiction, but that dismissal on jurisdictional grounds “did not prevent a plaintiff from refiling his common law action and litigating it on the merits if the Commission subsequently determined that the plaintiff’s injury was not compensable under the Workers’ Compensation Law.” The court reasoned that since the exclusivity defense is based on the existence of accidental injury, which is an issue of fact to be determined by the Commission, it would be inappropriate for a court to enter summary judgment on the defense before the Commission decided the question of accidental injury, “because summary judgment would bar the refiling of the lawsuit if the Commission does not find an accidental injury.” As a result, the court found summary judgment to be premature, and remanded the case back to the circuit court with instructions to stay the proceedings until the Commission determines whether there was an “accident” as defined by the Act. Both parties in Cooper filed a motion for rehearing/transfer to the Missouri Supreme Court, and both motions were denied by the appellate court on January 23, 2012.

McCracken and its progeny make clear that a defense predicated on the exclusivity provision of the Missouri Workers’ Compensation Law is no longer considered a subject matter jurisdictional defect, but rather is an affirmative defense to the circuit court’s statutory authority to proceed. The defense must therefore be timely raised or it will be deemed waived. However, in light of Cooper, it remains uncertain whether circuit courts will be inclined to stay civil actions which are filed contemporaneously with or before a claimant seeks relief in the Commission.

 By:  Christopher Zarda

No Comments »

Negligence Claims in Kansas Home Construction Cases
Kansas Supreme Court Finds Economic Loss Doctrine Inapplicable to Home Construction Cases

 In David v. Hett, the Kansas Supreme Court held that the economic loss doctrine should not preclude claims by homeowners seeking to recover economic damages resulting from negligently performed residential construction services.  In reaching this holding, the David Court overturned the Kansas Court of Appeals’ 2004 decision, which had previously barred such negligence claims.   

The case arose from a claim for negligent workmanship brought by the Appellants, Scott and Sherry David, who had acted as their own general contractor in the construction of their home.  In the course of this venture, the Davids hired David Hett d/b/a Hett Construction to excavate and lay the foundation for their new home.  Hett’s bid was orally accepted by the Davids and then orally modified at a later date; there was some dispute regarding the terms of the modification.  Regardless, the Davids accepted Hett’s finished work in 1998.  In 2003, the Davids’ home began experiencing unusual settling, and in 2005 the Davids sued Hett for breach of contract, negligence, fraud, fraudulent concealment, and violation of the Kansas Consumer Protection Act.  Seeking damages to bring the house into compliance with the original plans, the Davids alleged that Hett had negligently performed the contractually required work.  The sole issue on appeal was whether the economic loss doctrine barred the Davids’ negligence claims.

As noted in David, the economic loss doctrine is “a judicially created doctrine that sets forth the circumstances under which a tort action is prohibited if the only damages suffered are economic losses.”  (internal citations omitted).  The rationale for the doctrine, which arises out of product liability law, is that a manufacturer is tasked with guarding against dangerous products, but cannot be expected to protect against a product not meeting a consumer’s expectations.  The Supreme Court of the United States previously approved the practicality of the economic loss doctrine by offering the following justifications:  1) the damage to a product is substantially less than that of personal injury; 2) warranty and contract law were better positioned to handle commercial disputes; and 3) allowing negligence theories exposed the manufacturers to an unlimited number of claimants who might not have privity with the manufacturer. 

The Kansas Supreme Court previously identified situations where the law imposed a duty irrespective of the existence of a contract.  In such instances any negligence actually arises out of the breach of the actual or implied duty, rather than under the terms of a contract.  In applying this theory in the context of medical malpractice claims, the Kansas Supreme Court held that “an injury is remediable in tort if it traces back to the breach of tort duty arising independently of the terms of the contract.”  (internal citations omitted). 

The Kansas Court of Appeals had been the highest court in Kansas to consider whether the economic loss doctrine should apply in negligent home construction claims in Prendiville v. Contemporary Homes, Inc.  The Court of Appeals reasoned that the plaintiff’s claims were governed by contract and warranty, and therefore were more properly disposed under those areas of the law.  Accordingly, the court decided that any claims for negligent home construction were barred by the economic loss doctrine. 

The Kansas Supreme Court overruled Prendiville because it found that a contractor has a duty to perform their obligations in a workmanlike manner and exercise reasonable care in the course of such performance.  As a foundation for this point, the Court demonstrated that the workmanlike manner and reasonable care standards were widely recognized in Kansas case law.  The David Court found this result equitable because service contracts are not armed with the warranty protections afforded goods under the Kansas Uniform Commercial Code.  As further rationale for this holding, the Court demonstrated that the home buyer, who is typically not in the same bargaining position as the contractor, should be afforded additional protections.  Lastly, the Court felt that the application of the economic loss doctrine could potentially expose two contractors to different results of liability on the basis of when the damage was discovered. 

As it was unclear from the record whether the Davids had sufficiently plead an alleged breach of duty, the Court remanded the case for that determination. 

 By: Mike Meyer, Associate

No Comments »

 The deceased’s next of kin brought a law suit alleging that the defendants (local businessmen) negligently entrusted a motor vehicle to the deceased because they allegedly should have known he was an alcoholic.  The deceased was killed in a one car accident. 

Joe Roper and Mike Belancio filed a motion to dismiss the law suit.  In what the trial court recognized was an issue of first impression in Missouri, the Firm demonstrated that there was no duty for the defendants to protect the deceased from injuries inflicted on himself, as opposed to third parties.

The Missouri Dram Shop Act already precludes suits by the consumers of alcohol for their own self-imposed injuries after they are served alcohol.  Thus, with even greater certainty, the Firm argued there should be preclusion of law suits by the consumers of alcohol for injuries sustained based on provision of a vehicle.

Plaintiff made a pre-suit demand of $3.75 million dollars.

No Comments »