INSURANCE-RELATED COURT CASES
Digested from case reports published online
COURT DECISIONS
Subcontractor “goes bare”
American Building Innovation LP (ABI) was hired by Balfour Beatty Construction, LLC, (Balfour Beatty) as a subcontractor for a school construction project. ABI had a workers compensation policy when it began work, but the policy was canceled because of ABI’s refusal to pay outstanding premiums from a previous policy. This cancellation led to the automatic suspension of ABI’s contractor’s license. Despite knowing it was unlicensed and uninsured, ABI continued working on the project.
The Superior Court of Orange County found that ABI was not duly licensed at all times during the performance of its work, as required by California law. ABI’s license was suspended because it failed to maintain workers compensation insurance.
ABI later settled its premium dispute and had the policy retroactively reinstated, but the court found this retroactive reinstatement meaningless because it occurred long after the statute of limitations for any workers compensation claims had expired. The court ruled that ABI could not maintain its action to recover compensation for its work because of its lack of proper licensure. ABI appealed.
The California Court of Appeal affirmed the lower court’s judgment. The court held that ABI was not entitled to retroactive reinstatement of its license because the failure to maintain workers compensation insurance was not caused by circumstances beyond ABI’s control.
ABI’s decision not to pay the premiums and its false representations to the contractors’ state license board were within its control. Consequently, ABI was barred from bringing or maintaining the action under the state’s business and professions code. The court also affirmed the award of attorney fees to Balfour Beatty under the subcontract’s prevailing party attorney fee provision.
American Building Innovation v. Balfour Beatty Construction—California Court of Appeal, Fourth Appellate District—No. G062471—September 3, 2014.
Extrinsic evidence required
A commercial tenant and landlord entered into a contract for the construction and lease of a warehouse, with the landlord also acting as the general contractor. The contract included a waiver of subrogation, where both parties waived subrogation against each other for certain losses, including those caused by their subcontractors. After the warehouse sustained weather damage, the tenant’s insurer sought to recoup insurance payments by suing the subcontractors.
The circuit court for Baltimore City granted summary judgment in favor of the subcontractors, concluding that they were intended beneficiaries of the waiver of subrogation in the contract between the tenant and landlord. The court did not consider any extrinsic evidence regarding the parties’ intent. The landlord and tenant appealed.
On appeal, the Appellate Court of Maryland reversed this decision, finding that the waiver of subrogation in the contract did not unambiguously benefit the subcontractors and that the subcontractors were not intended third-party beneficiaries.
The Supreme Court of Maryland reviewed the case and held that the waiver of subrogation in the contract between the tenant and landlord did not extend to the subcontractors. The court found that the language of the waiver was unambiguous and did not show an intent to benefit the subcontractors.
The court found, however, that the waiver of subrogation included in the subcontracts was ambiguous regarding whether it applied to the tenant’s insurer’s claims against the subcontractors. Therefore, the court held that extrinsic evidence was needed to determine the parties’ intent regarding the scope of the subrogation waiver in the subcontracts.
The Supreme Court of Maryland affirmed the appellate court’s decision, reversing the circuit court’s summary judgment in favor of the subcontractors, and remanded the case for further proceedings to consider extrinsic evidence.
Lithko Contracting v. XL Insurance America, Inc.—Supreme Court of Maryland—No. 31/23—July 15, 2024.
