Construction Law

• Publication year: 2016

Construction Law

Frank O. Brown Jr.

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Construction Law

by Frank O. Brown, Jr.^*

I. Introduction

This Article focuses on noteworthy opinions by Georgia appellate courts between June 1, 2015 and May 31, 2016 relevant to the practice of construction law and on an important amendment to Official Code of Georgia Annotated (O.C.GA.) section 13-8-2,¹ expanding its anti-indemnity provisions.

II. Commercial General Liability Insurance

A. Additional Insured Claims

The issue of first impression in Auto Owners Insurance Co. v. Gay Construction Co.² was whether the general contractor's scope of work or its subcontractor's scope of work should be considered when determining if standard business risk exclusions apply to the general contractor's first-party claim as an additional insured against the subcontractor's commercial general liability policy.³

The general contractor, Gay Construction Company (GCC), contracted to build an elevated terrace in Piedmont Park. Gunby Construction (Gunby) subcontracted to pour the concrete for the terrace floor. Dai—Cole Waterproofing Company, Inc. (Dai-Cole) subcontracted to install a waterproofing membrane and a drainage mat to prevent leakage into the areas under the terrace. Shortly after completion of the work, water began leaking into those areas. GCC determined the leak was caused by the improper application of the waterproofing membrane. When GCC could not get Dai-Cole to address the problem, GCC did so. Specifically, GCC removed the terrace's top concrete slab and drainage mat, repaired

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and replaced the waterproofing membrane, replaced the top concrete slab, repaired the underside of the slab, repainted the underside of the slab to cover water stains, and replaced a light fixture that was damaged as a result of the water infiltration. As an additional insured under Dai-Cole's commercial general liability policy, GCC then sued Auto Owners Insurance Company (Auto Owners) to recover the costs GCC had incurred in performing the work. Auto Owners filed a motion for summary judgment, contending that standard business risk exclusions applied to all of GCC's work, not just the work performed by Dai-Cole, and therefore none of the claims were covered by the policy. The trial court denied the motion but granted a certificate of immediate review.⁴

The Georgia Court of Appeals reversed, holding that the business risk exclusions applied to all of GCC's work.⁵ The court reasoned in part that to hold otherwise would mean that GCC had greater coverage under the Auto Owners policy than Dai-Cole and would effectively require Auto Owners to financially guarantee Dai-Cole's work.⁶

B. Mold Claim Exclusions

Dolan v. Auto Insurance Co.⁷ involved a declaratory judgment action filed by a commercial general liability insurer for a determination of coverage for claims by homeowners allegedly arising out of the negligent replacement by the insured contractor of duct work for an air conditioning unit.⁸ The insurer contended that the homeowners' claims for property damage were barred by an exclusion for property damage to "[t]hat particular part of real property on which any insured or any contractors or subcontractors working directly or indirectly on your behalf are performing operations, if the 'property damage' arises out of those operations . . . ."⁹ The Georgia Court of Appeals reversed the trial court's grant of summary judgment on this ground, reasoning that this exclusion, with its present tense language "are performing," applied only to work being performed and not to the contractor's work that had already been completed.¹⁰

The trial court's grant of summary judgment was also based on an exclusion for property damage to "[t]hat particular part of any property that

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must be restored, repaired or replaced because 'your work' was incorrectly performed on it."¹¹ The policy expressly stated, however, "this exclusion does not apply to 'property damage' included in the 'products-completed operation hazard,'"¹² which the policy defined "as property damage or bodily injury occurring away from property owned by [the contractor] and 'arising out of . . . [the contractor's] work . . . when all the work to be done at the job site has been completed.'"¹³ On appeal, the court reversed, holding that because the record established all of the contractor's work had been completed prior to the damage, the work fell within the products-completed operation hazard exception to this exclusion.¹⁴

On appeal, the homeowners also argued the trial court erred in ruling the "Fungi Endorsement" excluded coverage for their claims for bodily injury because that endorsement did not apply to claims falling within the products-completed operations aggregate. The court disagreed, reasoning that such claims did fall within the aggregate.¹⁵

C. Notice to Excess Insurer

Plantation Pipe Line Co. v. Stonewall Insurance Co.¹⁶ is a helpful reminder of the importance of promptly notifying excess insurers of potential claims and maintaining a complete record of insurance policies. The "occurrence" at issue took place in 1976, when it was discovered that fuel had leaked from a Plantation Pipe Line Company (Plantation) pipeline. Plantation immediately repaired the pipeline. About thirty years later, in April 2007, Plantation discovered contaminated soil, which was traced to the April 1976 leak.¹⁷ Three years later, Plantation sent written notice to Stonewall Insurance Company (Stonewall) that its excess policy would likely be implicated by third-party claims arising from the contamination discovered in April 2007. Stonewall responded that Plantation's notice was not prompt as required by its policy and denied coverage. Plantation then filed suit against Stonewall. The trial court granted Stonewall's motion for summary judgment based on its notice defense, and it denied Plantation's motion for summary judgment on that defense.¹⁸

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On appeal, the Georgia Court of Appeals referenced a notice provision of the Stonewall policy that stated in part: "When an occurrence takes place which, in the opinion of the insured, involves or may involve liability on the part of the company, prompt written notice shall be given by or on behalf of the insured to the company or its authorized agents. . . ,"¹⁹ Under terms like this, the court reasoned, the insured's notice obligations are not triggered by the underlying occurrence, but rather by the insured's assessment of the likelihood that its liability will exceed the primary policy or lower tier excess coverage.²⁰ The court held that Plantation failed, as a matter of law, to provide prompt notice as required by the policy, because it did not provide notice to Stonewall until more than two years after Plantation had determined that its liability would likely exceed its underlying coverages.²¹

Plantation further contended that, even if its notice was untimely, it did not eliminate coverage under the Stonewall policy, because the policy did not expressly state that prompt notice was a condition precedent to coverage, and Stonewall was not prejudiced by the delay in notice.²² Before addressing those specific arguments, the court noted several principles of Georgia law relating to late notice.²³ First, when possible, an insurance policy is construed to avoid forfeitures and to provide coverage.²⁴ Second, a notice provision that expressly states timely notice is a condition precedent to coverage is enforceable absent a showing of justification for late notice, and the insurer is not required to show actual harm from a delay in order to deny coverage.²⁵ Third, conversely, if timely notice is not an express condition precedent to coverage, untimely notice forfeits coverage only if the insurer demonstrates prejudice.²⁶

The court held that, because the Stonewall policy notice provision did not expressly make compliance with that provision a condition precedent to coverage, the trial court erred in concluding that Stonewall was not required to show prejudice in order to deny coverage.²⁷ The court further held Stonewall's bare assertion that Plantation's untimely notice deprived Stonewall of an opportunity to investigate was insufficient to carry its burden on summary judgment of showing prejudice as a matter

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