#51 – The Maryland Construction Network

by Robert Bertazon

in Podcast Episodes

Claim Settlement Can Jeopardize Insurance Coverage

Most contractors look forward to the opportunity toMCN Podcast 130x130 Brown have a claim settled in a mutually agreeable fashion. However, a recent decision by The U.S. District Court of Maryland demonstrates the need to consult with your insurer before settling any claims on a project.

Joining us to discuss the particulars of the case Perini/Tompkins Joint Venture v. ACE American Ins. Co., and to explain why it is critical your insurance companies be made aware of any claim negotiations are two attorneys from the law firm of Ober|KalerJohn F. Morkan III is a co-chair of Ober|Kaler’s Construction Group and Jackson B. Boyd is an associate with Ober|Kaler’s Construction and Litigation Groups

The Case: Perini/Tompkins Joint Venture v. ACE American Ins. Co.

The Job: A $900 Million hotel & Convention center at National Harbor.

Case Background:

  • Developer Gaylord National, LLC hired Perini/Tompkins Joint Venture (PTJV) as a construction manager
  • Gaylord purchased and maintained an Owner Controlled Insurance Program (OCIP) from ACE American Insurance Co. (ACE)
    • Policy included commercial general liability (CGL) and excess liability policies
    • Both naming PTJV as an additional insured
    • Project also was insured by a builder’s risk policy
  • Part of an 18-story, 2,400 ton glass atrium collapsed during construction, causing damage and delaying final completion
  • After completion –
    • PTJV sued Gaylord to establish and enforce a mechanic’s lien and for breach of contract
    • Gaylord countersued
    • The parties ultimately settled the dispute in November 2008
    • PTJV did not seek ACE’s consent prior to entering into the settlement agreement with Gaylord
  • PTJV subsequently advised ACE that, to the extent the builder’s risk policy did not cover the claim related to the glass atrium collapse, PTJV would seek reimbursement under the CGL and excess liability policies
    • ACE issued a reservation of rights letter, citing several contractual clauses as possible grounds for coverage being denied
    • PTJV filed suit in the U.S. District Court against ACE for breach of contract, bad faith, and a declaratory judgment
    • After limited discovery, ACE filed a motion for summary judgment, since PTJV had failed to obtain ACE’s consent prior to entering into the settlement with Gaylord, breaching the Voluntary payment clause and No-action clause
    • The District Court sided with ACE and granted their motion for summary judgment
  • The District Court ruling was appealed
  • Upon appeal to the U.S. Court of Appeals for the Fourth Circuit, the District Court verdict was upheld.

The Takeaway: A contractor must obtain the consent of its liability insurer before settling a construction defect claim; otherwise, the insurer can deny coverage without having to prove that it suffered any prejudice.

For detailed information regarding the case, click here.

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