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Dial back that hyperbole, or it could really hurt you

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One of the first tactical lessons most litigators learn is not to overstate your position. Another lesson is to always remain civil, even in the face of an un-civil opponent. These lessons are sometimes difficult for young lawyers, brimming with aggression, to digest. Most of the time when one of those lawyers inserts unfortunate language in a brief--say, openly mocking the opponent's argument--cooler heads prevail and a sage senior lawyer excises the offending language.

Most of the time. But not all of the time. This short Sixth Circuit opinion, Bennett v. State Farm Mutual Insurance is a good lesson to young lawyers. I can't deliver a judicial bench slap any better than the court, so let me just quote Judge Kethledge:

"There are good reasons not to call an opponent's argument "ridiculous," which is what State Farm calls Barbara Bennett's principal argument here. The reasons include civility; the near-certainty that overstatement will only push the reader away (especially when, as here, the hyperbole begins on page one of the brief); and that, even where the record supports an extreme modifier, "the better practice is usually to lay out the facts and let the court reach its own conclusions." Big Dipper Entm't, L.L.C. v. City of Warren, 641 F.3d 715, 719 (6th Cir.2011). But here the biggest reason is more simple: the argument that State Farm derides as ridiculous is instead correct."

Ouch. Whatever feeling of satisfaction that lawyer had when he wrote "ridiculous" in his brief must have felt worlds away when he read that opinion.

There's another lesson here: Always carefully review defined terms in your insurance policy. In Bennett, "The question presented is whether Bennett was an "occupant" of the Fusion--as that term is defined by State Farm's policy--at the time she was on the vehicle's hood. If she was, then she is entitled to coverage for the injuries she sustained there; if not, then not." The policy defined "occupying" as "in, on, entering or alighting from." Since Mrs. Bennett was "on" the car, she was "occupying" it as defined by the policy.

One last lesson for insureds: Don't give up too easily. It would have been very easy for Mrs. Bennett to hang her head when State Farm denied her claim because she was on the hood, and wasn't an "occupant" of the car. But she stuck with it and pressed her case. Good for her.

Owner-Operated Businesses With No Employees May Be Surprised By Recent Cal AG Opinion

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UPDATE: The Sacramento Bee, E-cigarettes face restrictions as cities update smoking ordinances (Mar. 10, 2014)

Recently, the California Office of the Attorney General ("AG") issued its Opinion No. 12-901 (Dec. 20, 2013), answering the question: "Under what circumstances does an owner-operated business with no employees nevertheless constitute a 'place of employment' under Labor Code section 6404.5, which prohibits smoking in a workplace?" Section 6404.5 provides, in relevant part: "No employer shall knowingly or intentionally permit, and no person shall engage in, the smoking of tobacco products in an enclosed space at a place of employment." smoking.jpg The AG confirmed that "[a]n owner-operated business with no employees nevertheless constitutes a 'place of employment' under [S]ection 6404.5 when employment of any kind is carried on at the business location -- that is, even when such employment is carried on by persons who are employed by someone other than the business owner." As a result, "if employment is being carried on in an owner-operated business, then the owner-operator and all other persons are forbidden from smoking in any enclosed space therein, whether or not the owner-operator is the direct employer of those carrying on the employment."

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Bidding on California Public Projects Not a "Fundamental Vested Right": The Case of the $915 Debarment

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California contractors who violate prevailing wage laws do so at their peril. A recent case, Ogundare v. Department of Industrial Relations (2013) 214 Cal.App.4th 822, held that a one year debarment from bidding on public projects did not implicate a "fundamental vested right." Consequently, trial court review of a Division of Labor Standards Enforcement decision imposing debarment should have been more deferential to the DLSE decision, evaluating whether substantial evidence supported the decision rather than exercising its independent judgment on the evidence.

In a hearing before the DLSE, a laborer presented his paystub showing that he had worked 61 hours for a contractor in a particular week for $915, or $15/hour. The certified payroll submitted by the contractor to the public owner for that week showed that the laborer had worked 25 hours at the prevailing wage of $36.10/hour. On the basis of this and additional evidence that two other workers had not been paid overtime, the DLSE ordered a one-year debarment of the contractor for commiting willful violations of California's prevailing wage law with intent to defraud.

When the contractor sought mandamus to set aside the debarment order, the trial court assumed that the right to bid on public projects was a "fundamental vested right." It then applied its independent judgment to the facts and found no "credible evidence . . . of an intent to defraud" and that willfulness alone was insufficient to support debarment under the relevant statute.

On appeal by the DLSE, the court found that the right to bid on public projects was not a "fundamental vested right"--the contractor was not prohibited from working on all projects, only public ones, and therefore the interest involved was instead "purely economic." This distinction is critical--administrative adjudications affecting only "purely economic" interests are reviewed under the much more deferential substantial evidence test (phrased in one case as "unless the finding . . . is so lacking in evidentiary support as to render it unreasonable, it may not be set aside."). The court then applied the substantial evidence standard, and despite the contractor's pleas of clerical error and lack of intent to defraud, remanded to the trial court to affirm the debarment.

Trigger happy NJ Supreme Court allows two carriers of the same insured to sue each other

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What if you get sued for property damage that occurred progressively over the course of two years, and you had separate GL policies for each year? Do you get the benefit of coverage for both years, or just the first year? Well, if you're in New Jersey, you get coverage for both years, which generally will mean twice the limits, thanks to Potomac Ins. Co. of Ill., ex rel. One Beacon Insurance Company v. Pennsylvania Manufacturers Association Insurance Company, a case the New Jersey Supreme Court handed down earlier this week.

But what if one of the carriers provides a defense to the lawsuit, but the other refuses? Under One Beacon the carrier that provides a defense can sue the carrier that doesn't. Time will tell the effect of that. One danger might be that carriers become reluctant to settle with insureds in a continuous loss case because of the risk of later being sued for more money by a co-insurer. Alternatively, it may - as the New Jersey Supreme Court believes - promote early settlement, as an insurer that anticipates paying an allocated portion of defense costs may factor those costs into a potential resolution of the underlying claim and will be incentivized to seek earlier settlement.

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Replacement cost property policies cover contractor's OH&P -- says Florida Supreme Court

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The Florida Supreme Court gave insureds a Fourth of July present one day early -- July 3 -- by ruling that property policies providing replacement cost coverage include the cost of a contractor's overhead and profit, even if the insured does not actually pay a contractor overhead and profit to replace the damaged property. We'll explain the decision, Trinidad v. Florida Peninsula Insurance Company, in detail after the jump, but first some commentary.

We've often seen this issue in the "no good deed goes unpunished" situation where a contractor steps in to perform repair work on a builders risk policy and the carrier refuses to pay the contractor's overhead and profit. If the contractor did not perform the repairs, either the owner or the carrier would have to hire a different contractor who was not already on site to mobilize to the site and perform the repair work. The carrier would obviously have to pay that contractor overhead and profit. And that contractor would be much less efficient and more expensive. But the carrier tries to take advantage of the original contractor's willingness to step in by carving overhead and profit off the payout.

This Florida Supreme Court decision validates our position: A carrier must pay the overhead and profit whether or not the insured actually pays a contractor to do the work. Now, for the details.

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California Court Orders Judicial Review of Arbitrator's Decision Not to Order Disgorgement from Unlicensed Contractor

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A recent California case, Ahdout v. Hekmatjah (2013) 213 Cal.App.4th 21, held that an arbitrator's refusal to apply California's disgorgement remedy against an unlicensed contractor was subject to judicial review even if the underlying agreement was not entirely void.

Two adjacent landowners formed a limited liability company to develop condominiums on the combined property. The LLC's operating agreement provided that the LLC would hire a contractor owned by the managing member to construct the project. The contractor was not to receive any direct payment for its work. Instead, the agreement provided that the managing member would receive a greater credit to his capital account based on the construction price, and a correspondingly greater share of the profits.

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That's not what I meant either! -- Ambiguous drafting thwarts (one party's version of its) intent, again

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A few weeks ago I posted about an Eighth Circuit case that once again illustrated how, despite the drafter's precision carrying the day most of the time, sometimes a litigator's creativity can trump it. Well, it's happened again. And again the issue is whether a dispute between and insured and a carrier is subject to arbitration. And again, the carrier wanted to arbitrate but the court kept the case. This time it's the Second District California Court of Appeal, in Diamond Blue Enterprises v. Gemini Insurance Company. Before I say more, let me caution all the lawyers preparing to cite the case that it's unpublished.

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That's not what I meant! The drafter's (apparent) intent thwarted again.

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By Michael S. McNamara

I occasionally give a presentation called "That's not what I meant!" which is subtitled "Usually the drafter's precision carries the day, but sometimes the litigator's creativity trumps it." Our legal system generates seemingly endless material for this presentation and last week the Eighth Circuit gave us more in Union Electric v. AEGIS Energy Syndicate. The policy had a mandatory arbitration provision, but an endorsement specified that Missouri law governed and a Missouri statute prohibits mandatory arbitration of insurance disputes, so while the carrier wanted to compel arbitration, Judge Jean Hamilton refused and the Eighth Circuit affirmed her decision. So, the drafters may have intended that any disputes would be arbitrated, but if so, they should have done some more homework.

There are a couple of lessons here. First, read the entire policy, including the endorsements. The endorsements are like change orders to construction contracts and until you've read them, you don't know what the policy provides for. Second, just because a policy (or any other contract, for that matter) says something doesn't mean it has to be. Many common contractual clauses are rendered unenforceable by either caselaw or statutes. Third, because insurance policies are governed by state laws, and in light of the differing interpretations and statutory schemes amongst the states, there can be wide variations of the procedural and substantive effect of policies depending on what state's law governs. So, do your homework.

Defects in an insured's own work are "unmistakably included" in the definition of "occurrence" in CGL policy, rules Second Circuit.

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The Second Circuit's recent decision in Scottsdale Insurance Company v. R.I. Pools, Inc., Case No. 11-3529, 2013 WL 1150217 (2d Cir. March 21, 2013) should be welcome news for Connecticut contractors insured under CGL policies with Broad Form Property Damage Coverage, seeking coverage for losses to their work caused by their subcontractors. In RI Pools, the Second Circuit vacated the district court's grant of summary judgment in favor of an insurer, including a ruling that the insurer was entitled to a return of funds it spent on the insured's defense, after concluding that the district court erred when it ruled that a swimming pool contractor's liability for cracked concrete could not be covered by its insurance. The district court relied on the "your work" exclusion, but in doing so, it read the "subcontractor exception" out of the policy. The Second Circuit put it back in.

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Denying Coverage Based on the Insured's Lack of Cooperation - A Difficult Standard for Insurers to Meet

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An insured's duty to cooperate with its insurer in the investigation and potential payment of claims is essential to the insurance relationship and is often a condition precedent to coverage. As the Supreme Court for the State of Washington recently affirmed, however, an insurer's ability to deny coverage based on lack of cooperation is limited. Staples v. Allstate Ins. Co., No. 86413-6 (Wash. Jan. 24. 2013). To do so, the insurer must demonstrate a substantial and material breach by the insured of the cooperation clause that results in actual prejudice to the insurer. In other words, where the insured has substantially complied with the cooperation clause or there has been no prejudice to the insurer, a denial of coverage for breach of cooperation will not stand.

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Challenge Problems in Solicitation Amendments Before Award: A Friendly Reminder from the Federal Circuit

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On December 7, 2012, the U.S. Court of Appeals for the Federal Circuit issued its first decision determining that government contractors need to challenge any obvious errors, improprieties, or ambiguities on the face of a solicitation amendment before award (extending its previous rule that such challenges to the initial solicitation generally must be challenged before award). In COMINT Systems Corp. & Eyeit.com, Inc., JV v. United States, the Federal Circuit found that Comint missed an opportunity to challenge an obvious - or patent - error in an amendment to the solicitation. By signing the amendment and waiting until after award to protest the allegedly problematic amendment, the government contractor waived any right to challenge the terms of the amendment to the solicitation.

To learn more about this, click here to read the client alert that was written by Daniel Herzfeld.

Illinois Finds Coverage for Additional Insured Despite Lack of Coverage for Named Insured Engineer Under Professional Services Exclusion; California Finds Fire-Sale Pricing of High End Goods May Trigger Personal Injury Coverage for Trade Disparagement

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Illinois and California appellate courts recently issued two policy-holder favorable decisions. In both cases, the trial court had granted summary judgment in favor of the insurance company and denying coverage, and in both cases the trial court decisions were reversed.

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Wisconsin Holds That Insurer's Failure to Reserve Rights Does Not Waive Its Ability to Deny Coverage Based on Coverage Clause

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It is the rule in many jurisdictions that an insurer which assumes defense of its insured without issuing a reservation of rights can be estopped from later denying coverage based on rights or defenses in the insurance contract. This general rule was rejected by the Supreme Court of Wisconsin in Maxwell v. Hartford Union High School District, 814 N.W.2d 484 (Wis. 2012). The court in Maxwell held that an insurer which defends without reserving the right to deny coverage has not waived its ability to rely on coverage clauses in the policy allowing for such a denial.

In Maxwell, the policyholder - a school district facing a wrongful termination suit from an ex-employee - tendered a claim to its liability insurer which defended the school district in the ensuing litigation without issuing a reservation of rights letter. It was not until a judgment in excess of $100,000 was awarded against the school district that the insurer denied coverage based on language in the policy excluding liability for damages due under the employment agreement and for lost benefits or lost wages. That the policy indeed excluded coverage for the damages at issue was not in dispute. The issue presented to the court was whether, because the insurer failed to issue a reservation of rights, it had waived or could be estopped from asserting its defense of no coverage. In rendering its decision, the court held that waiver or estopped could not supply coverage to an insured that was not provided in the policy itself. Ruling otherwise, the court stated, would force an insured to pay for a loss for which it had not received a premium.

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Oxford Aviation, Inc. v. Global Aero, Inc.: The First Circuit's Broad Interpretation of an Insurer's Duty to Defend

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By Pillsbury Winthrop Shaw Pittman

The First Circuit has endorsed key principles that favor policyholders in insurance coverage disputes -- principles that can frequently be used to help insureds in construction cases. So, this new case is worth a look. In Oxford Aviation, Inc. v. Global Aero., Inc., 2012 U.S. App. LEXIS 10101 (1st Cir. 2012), the U.S. Court of Appeals for the First Circuit vacated the district court's decision which found that a carrier had no duty to defend claims involving alleged faulty workmanship. Relying on Maine law, the court held strong to the concept that even the remotest possibility of coverage triggers an insurer's duty to defend.

The details, after the jump.

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The quid pro quo of Texas' workers compensation statute bars injured employees of a general contractor from bringing suit against employees of a covered subcontractor, their deemed fellow employees.

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Under the Texas code, the workers' compensation exclusive remedy bar applies up and down: barring injured employees of subcontractors from bringing common law tort suits against a general contractor which provided workers compensation insurance, and also in reverse, barring injured employees of the general contractor from bringing suit against a subcontractor, even when the employees are covered under separate workers' comp policies. So says the Texas Court of Appeals in Garza v. Zachry Construction Corp., 2012 WL 1864350 (Tex. Ct. App. May 23, 2012).

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