Does a General Contractor’s Commercial General Liability Insurance Provide Coverage Against Damage Caused by a Subcontractor’s Defective Work?

Sean B. Cullen

Construction projects often involve work performed by subcontractors. While this makes sense given the varying expertise

and equipment required, it can create some difficult issues from an insurance perspective when things go awry. Imagine, for example, a general contractor who performs non-defective work on one part of a construction project while a subcontractor performs defective work on another part of the project. What happens if the general contractor’s work is damaged by the subcontractor’s defective work? Is the general contractor covered under its commercial general liability (“CGL”) insurance policy for this type of damage? The United States Court of Appeals for the First Circuit recently said no and held that the insurance company had no duty under the CGL insurance policy to indemnify or defend the general contractor against this type of claim.

The controversy arose when the property owner filed a state court action against the general contractor and others alleging property damage caused by defective work (“State Court Action”). The property owner did not allege, however, that the general contractor was negligent or that the general contractor caused the property damage. The parties determined through the discovery process that a subcontractor’s defective work caused the property damage.

In response to the State Court Action, the general contractor sought defense and indemnity under its CGL insurance policy. The insurance company denied coverage, however, concluding the property owner’s allegations did not constitute an “occurrence” under the policy. The insurance company also concluded that, even if it did, an exclusion to coverage would apply. After “some back and forth letters,” the insurance company filed a separate action in the United States Federal District Court for the District of Massachusetts to determine whether it had a duty to defend or indemnify the general contractor in the State Court Action (“Federal Court Action”).

There are three steps to this analysis. The court first determines whether the damages alleged are caused by an “occurrence” and therefore fall within the scope of coverage provided under the insurance policy.  If so, the court must then determine whether any exclusions to coverage apply. Finally, if an exclusion to coverage does apply, then the court must determine whether any exceptions to the exclusions apply. Interestingly, the burden of proof shifts between the insured and the insurer at each of these stages.

Ultimately, the First Circuit bypassed the initial step and thornier question as to whether negligent work performed by a subcontractor constitutes an “occurrence” under the general contractor’s CGL insurance policy. The First Circuit acknowledged that there is sharp split of authority on this question, and were hesitant to predict which way the Massachusetts Supreme Judicial Court would decide the issue. Instead, the First Circuit determined that there was an applicable exclusion regardless. The First Circuit reasoned that “the purpose of a general liability insurance policy is for tort liability to physical damages to others and not for contractual liability of the insured for economic loss because the product or completed work is not that for which the damaged person bargained.” In other words, the purpose of a general liability policy is to protect against unforeseeable and accidental damage, not to protect against inherent business risks. 

An Associate in the Boston law firm of Rudolph Friedman LLP, Sean is a seasoned litigator with nearly twenty years of experience. He has a successful track record in state and federal court defending against claims for alleged violations of the Massachusetts Consumer Credit Cost Disclosure Act (MCCCDA), the Fair Debt Collections Practice Act (FDCPA), and the Real Estate Settlement Procedures Act (RESPA). Sean can be emailed at scullen@rudolphfriedman.com

 

Massachusetts Noncompetition Agreement Act Ruled Not Applicable to Non-Solicitation Agreement with Forfeiture Clause

 Robert P. Rudolph

The SJC recently clarified that the Massachusetts Noncompetition Agreement

Act (“Act”) does not apply to a non-solicitation agreement incorporated into a termination agreement even if the termination agreement includes a forfeiture provision if the employee breaches the non-solicitation agreement. In the matter of

Susan Miele v. Foundation Medicine, Inc., Susan Miele (“Miele”) signed a transition agreement that included: (i) a non-solicitation provision barring Miele from directly or indirectly soliciting, enticing or attempting to persuade any other employee or consultant of Foundation Medicine, Inc. (“FMI”) to leave FMI during her employment and for one year thereafter and (ii) a forfeiture clause providing that if Miele committed a breach of the transition agreement, any unpaid benefits she was entitled to would be forfeited and any previously paid benefits must be immediately repaid to FMI.

FMI alleged the Miele improperly solicited employees to work for her new employer in breach of the transition agreement. FMI demanded repayment of benefits disbursed to her (valued at $1.2 million) and ceased future payments based on the forfeiture clause. Miele sued FMI alleging that FMI breached the transition agreement by withholding payment of her transition benefits. FMI counterclaimed for breach of the non-solicitation provision of the transition agreement and sought a ruling that it was not obligated to pay Miele any remaining transition benefits.

Miele contented the FMI’s counterclaims were unenforceable under the Act, claiming that the requirement that she forfeit her remaining severance benefits in the event of a breach made the covenant not to solicit subject to the Act. The lower court judge noted that the Act defined “noncompetition agreement” to include “forfeiture for competition agreement[]” – one that “imposes adverse financial consequences on a former employee” for engaging in competitive activity following termination and concluded that the transition agreement qualified as a “forfeiture for competition agreement” and was subject to the Act. The judge concluded that non-solicitation agreements are only excluded from the Act if they do not impose forfeiture of benefits upon a breach.

On FMI’s application for direct appellate review, the SJC clarified that because the plain language of the Act states (i) noncompetition agreements do not include non-solicitation agreements and (ii) forfeiture for competition agreements are a subset of noncompetition agreements, it follows by implication that forfeiture for competition agreements also exclude non-solicitation agreements. As a result, a forfeiture clause triggered by a breach of a non-solicitation agreement does not constitute a “forfeiture for competition agreement” subject to the Act, and is enforceable. This is an important clarification provided by the SJC which allows employers to continue to enforce non-solicitation agreements with forfeiture clauses without being subject to counterclaims for violation of the Act. We recommend that employers consult with employment counsel prior to presenting non-competition, non-solicitation and non-disclosure agreements to employees to ensure compliance with Massachusetts law. 

A frequent contributor to REBA New and a partner at Rudolph Friedman LLP, Bobby Rudolph represents individuals and businesses in complex commercial litigation. His cases involve issues related to business, employment, real estate and construction. Bobby is a trusted advisor on pre-litigation issues, regularly appears in court and has successfully resolved a range of matters through alternative dispute resolution.  He can be contacted at rrudolph@rudolphfriedman.com

Three Small Housing Reforms with Outsized Potential in Mass.

Daniel Dain, Douglas Troyer and NicholasShapiro

Bill H.2317

Solving the major housing crisis confronting the commonwealth will require bold and big solutions. Some good ones have been discussed and debated to

try to spur housing production – should multifamily housing be allowed in every zoning district? Should minimum lot size requirements be capped, allowing the development of smaller lots which can support more overall units?

The challenge of potentially transformative ideas, of course, is they often face entrenched and widespread resistance.

How about looking for seemingly minor ideas that could have an outsized effect on housing production? Maybe instead of focusing on substantive impediments to housing production, we should examine procedural impediments. 

ClickHere to read the rest of the article (for free) at Banker & Tradesmen or use the link below.

https://bankerandtradesman.com/three-small-housing-reforms-with-outsized-potential-in-mass/

Are Boston Assessors Penalizing Property Owners? (Video)

 

Flashing Lights, Legal Rights: What to Know if You’re Pulled Over by the Police

 Casey Sack

Getting pulled over by the police can be a stressful experience. In Massachusetts, understanding your rights and responsibilities during

a traffic stop can help you stay calm, stay safe, and avoid unnecessary legal trouble. This article breaks down what every driver should know—from how to respond when those blue lights flash to what the law says about searches, identification, and interaction with officers. Knowing what to expect can make all the difference.

 

Do You Need to Identify Yourself to the Police?

 

If you are pulled over while driving a motor vehicle or a bicycle in Massachusetts, you must identify yourself to the police upon request. You otherwise can be charged with a crime for not doing so. As a passenger, you are not required to identify yourself unless the police officer is trying to issue you a citation or there is reasonable suspicion that the passenger has engaged in criminal activity.

 

Can the Police Search You and/or Your Vehicle?

 

Under the Fourth Amendment, you are allowed to refuse a search without a warrant or probable cause. A police officer is only allowed to search you, your car, or other belongings if he “reasonably suspects that he is in danger of life or limb,” and if the police suspects you have a weapon, they may pat down your clothing.

Can I Record the Traffic Stop?

The First Amendment protects the right to secretly record police officers discharging their official duties in public spaces.

 

What if I Believe the Traffic Stop Is Unlawful?

 

The Peace Officer Standards and Training (“POST”) Commission certifies police officers allowing them to work in Massachusetts. The POST Commission can limit or revoke an officer’s certification if they engage in certain misconduct. The POST Commission reviews complaints about police officers, notifies the relevant agency about the complaint, and undertakes an investigation or waits for the agency to investigate. Complaints can be submitted online.

 

Traffic stops can escalate quickly. Being stopped by the police doesn’t have to turn into a legal or personal crisis, especially if you know your rights and how to assert them respectfully. Staying calm, cooperative, and informed can help de-escalate the situation and protect you legally. Whether you’re in Massachusetts or anywhere else, a little knowledge goes a long way when those blue lights appear in your rearview mirror.

 

A frequent contributor to REBA News and an associate attorney at Rudolph Friedman LLP, Casey counsels and represents individuals and businesses in commercial litigation matters in state and federal court. She litigates complex commercial and civil actions, construction disputes, shareholder and stockholder issues, employment cases and appeals. Casey has also resolved various matters through mediation, arbitration and alternative dispute resolution.  She can be contacted at csack@rudolphfriedman.com

Cancel That Subscription!

Jonathan D. Friedmann 

How many times have you tried to cancel a subscription after the trial period and continue to be billed notwithstanding your cancellation? How many times have you ordered something only to find out that the true price of the purchase is significantly different? Well, if this has happened to you, you’re now in luck if you live in Massachusetts, even if you make the purchases online. 

Attorney General Andrea Campbell, has proposed regulations for unfair and deceptive fees. These

regulations cover both of these scenarios. The regulations establish standards by defining certain unfair and deceptive acts or practices governing the imposition of fees in connection with marketing, soliciting and the sale of products. The proposed regulations also establish definitions regarding unfair and deceptive acts or practices related to automatic renewal, continuous service contracts, and trial offers. These provisions apply across the board and require that clear and conspicuous notices are given so that the true price of a purchase can be determined and the true mechanism for cancellation is provided. Should a company violate these provisions, the violation by regulation will constitute an unfair and deceptive act or practice pursuant to General Laws Chapter 93A, Section 2. 

These regulations are currently proposed, but will go into effect in September.  As these regulations go into effect, one can expect a multitude of consumer claims including many class action lawsuits for the violation of these regulations to consumers.

The proposed regulation is 940 CMR 38.00 and is titled Unfair and Deceptive Fees.

A founding partner of Rudolph Friedmann LLP and chairman of the firm’s litigation practice, Jon litigates countless matters in state and federal courts throughout the United States. A vigorous advocate, Jon pursues and protects the interests of his clients in a wide range of matters including: business litigation, complex construction, real estate, land use, class action, wrongful death, bankruptcy and employment.  Jon can be contacted at jfriedman@rudolphfriedman.com

 

Conveyancing Real Estate from Trusts & Estates (Video)