INSURANCE-RELATED COURT CASES
Digested from case reports published online
COURT DECISIONS
There may be fraud, but there are no damages
This is a dispute that centers upon whether possible fraud on one party’s part results in a legitimate claim for damages for another party. This situation involves contracts between contractor Continental Building Company (Continental) and subcontractor US Framing International LLC (US Framing).
This nightmare arose from a simple agreement between two companies to work together. Continental was in the midst of constructing complexes of student housing in Tennessee and in Michigan. It hired US Framing to perform framing work at both locations. Note: “Framing” refers to installing the skeletal components of a structure such as floors, walls and roofs.
Their relationship during the project soured. Both parties argued over construction delays in Tennessee. After a failed attempt to restart the Tennessee efforts, the parties initially agreed to walk away from that portion of their contract. Continental stopped payments and US Framing terminated its work, mutually ending their obligations.
Developments beyond their walk-away agreement were quite adverse. Continental sent a termination letter to US Framing ending the work arrangement for Tennessee and stopping all payments on the Michigan project. The general contractor claimed it was due to US Framing’s sub-par performance and not correcting previous problems.
Next, Continental filed a claim with its subguard insurer based on it reporting that US Framing defaulted on its work in Tennessee. Note: “Subguard” is a form of coverage that protects an insured general contractor from losses caused primarily by a subcontractor’s failure to perform.
Continental eventually collected roughly $3 million on a total damage request of $6 million.
How did things go with US Framing? Well, in their dispute with Continental over missed payments for the work they performed, it received an arbitration award of $2.9 million. It then pursued a legal remedy to allegations that it performed sub-par work and defaulted on their contract.
Further, it sued for damages with an argument that Continental was guilty of fraud. Its position was that the latter company made a number of false statements in order to secure payment from its subguard insurer.
After a state court dismissed the case in favor of Continental, US Framing appealed.
The appeal was heard by a federal court after the matter was found to clear several hurdles to determine that it was within that court’s jurisdiction. The higher court then considered the issue, focusing on US Framing’s arguments that it should receive payment for loss resulting from Continental’s filing an alleged fraudulent subguard insurance claim.
In order to reach its decision, there was a considered review of applicable Tennessee state law and some separate cases it found to be relevant. Eventually it determined that US Framing was unable to establish that it suffered any recoverable loss.
The court ruled that there was no evidence that Continental’s subguard claim (and payment) resulted in either direct or indirect economic damages to US Framing. While the court agreed that US Framing did accumulate legal expenses arising from Continental’s action, it said it could not recover for litigation costs.
The lower court ruling to dismiss the action in favor of Continental was affirmed. US Framing International, LLC v. Continental Building Company, et al—US Court of Appeals, Sixth District—No. 23-6001—April 7, 2025.
