Court of Federal Claims Holds Contract Term Prescribing Adjustment for Variances Does Not Bar Claim for Breach of Contract Based on Negligent Estimates
Ravens Group, Inc. v. United States
2013 U.S. Claims LEXIS 979 (Fed. Cl. 2013)
This action arose out of a contractor’s claim for additional compensation for unanticipated work. The U.S. Army (the “Government”) solicited private contractors to provide the maintenance and repair services for General and Flag Officers Quarters (“GFOQ”) at Fort Myers, Virginia and Fort McNair, Washington D.C. GFOQ is military housing specifically designated for senior officers of the military and their families. Traditionally, the Government used “in-house” personnel to respond to the majority of the maintenance and repair service calls at GFOQ housing. The solicitation from private contractors marked a new initiative in which the service calls at these two bases would be handled exclusively by a private contractor.
Because it was a new initiative, the Government sought the assistance of The Ravens Group, Inc. (“TRG”) to help draft the performance work statement (the “PWS”). TRG was one of the private contractors that filled in when the in-house government personnel were unavailable or unable to perform the required services. In developing the PWS, TRG asked the Government for access to military service call records for GFOQ housing at both bases. TRG wanted historical services data to prepare the PWS as well as its own bid proposal for the work. In recognition of the need for some number to use in preparing the PWS, and without locating historical records, the Government decided that they “would come up with a number as far as service calls to be performed.” Accordingly, during pre-contract discussions, the Government orally informed TRG that it could expect fifty (50) monthly service calls and one (1) or two (2) emergency calls per year.
TRG relied on this estimate in preparing its bid of $15,000 per month for service calls under the fixed price portion of the contract and was subsequently awarded the contract. Shortly after the contract was awarded, however, TRG began responding to over ninety (90) service calls and ten (10) emergency calls per month. Because of the severe underestimation of the workload, TRG proposed an increase in the fixed price for service calls from $15,000 to $102,675 per month. After the parties failed to reach an agreement TRG submitted a claim and request for a contracting officer’s (“CO’s”) final decision. The CO, however, only agreed to pay approximately $55,000 to TRG. TRG filed suit in the Federal Court of Claims alleging, among other claims, that because the government provided it misleading estimates and breached the implied duty of good faith and fair dealing, TRG was entitled to damages.
The Government moved for summary judgment and argued, in part, that TRG was barred from recovering any damages for breach of contract because the contract contained a variance and equitable adjustment provision, which provided a formula which TRG specified the adjustments to compensation to be made for hours expended beyond the coverage of the monthly $15,000 fixed price for service calls. The Court disagreed, and found “that the contract’s variance and equitable adjustment clause served only to protect the [G]overnment from unforeseen circumstances at the time of contract formation. It did not, however, excuse the [G]overnment if it provided a negligent or misleading estimate to [TRG].” The Court reasoned that the Government could not provide inaccurate estimates and then be allowed to bar an equitable recovery by arguing that the resulting damages fall within the contract’s variance and equitable adjustment provision. The court held that there was a genuine issue as to whether the estimates supplied pre-contract were negligently made. Moreover, the Court found that “[t]he Federal Circuit has made plain…that such provisions for equitable adjustments do not necessarily bar other measures of damages in cases where the court finds a breach.” Therefore, the Court held that the Government could not successfully use the contract’s variance and equitable adjustment provision to preclude TRG from the opportunity to present the merits of its negligent estimate - breach of contract case. Accordingly, the Court concluded that summary judgment on this ground was not proper.
Jeffery R. Mullen
U.S. District Court in Maryland Holds Work Performed After Termination Does Not Delay Commencement of One-Year Miller Act Statute of Limitations
United States ex rel. Tymatt Indus. v. Allen & Shariff Constr. Servs.
2013 U.S. Dist. LEXIS 114015 (D. Md. Aug. 13, 2013)
This action arose out of a subcontractor’s Miller Act claim for unpaid contract balances on a federal construction project. Allen & Shariff Construction Services, LLC (“Allen & Shariff”) was the prime contractor on a federal contract for the construction of a dam in Bethesda, Maryland, and related remediation (the “Project”). United States Security Company (“USSC”) was the surety on the Miller Act payment bond for the Project. Allen & Shariff subcontracted with Tymatt Industries, Inc. (“Tymatt”) to perform work on the Project (the “Subcontract”). The Subcontract contained a default provision stating that “should Tymatt fail to perform, after giving three days written notice Allen & Shariff had the option to terminate the [S]ubcontract for default if the defective performance was not cured.” Allen & Shariff issued three such notices to Tymatt, the last of which was issued on November 11, 2011. When Tymatt failed to cure, USSC sent Tymatt a termination notice on November 18, 2011 stating that the “[S]ubcontract…has been terminated due to lack of performance effective immediately.” Additionally, Allen & Shariff notified Tymatt that its “base access privilege [would] be terminated on November 23, 2011,” and requested that its equipment be removed prior to that date. Tymatt subsequently alleged that Allen & Shariff failed to pay $107,665.26 in amounts owed for work performed under the Subcontract. On Monday, November 26, 2012, Tymatt filed a Miller Act claim against USSC, as surety, to recover the monies allegedly due and owing.
The Miller Act authorizes any “person that has furnished labor or material in carrying out work” under a federal contract and who “has not been paid in full within 90 days after the day on which the person did or performed the last of the labor or furnished or supplied the materials” to bring “a civil action on the payment bond.” The Miller Act contains a limitations provision, which states: “An action brought under this subsection must be brought no later than one year after the day on which the last of the labor was performed or material was supplied by the person bringing the action.” In its complaint, Tymatt claimed that the “date on which the last labor was performed and equipment supplied to [Allen & Shariff] by [Tymatt] was November 25, 2011.”
USSC contended that Tymatt’s action was time-barred and moved for summary judgment. USSC disputed Tymatt’s allegation that its last day of work on the Project was November 25, 2011. Instead, they asserted that “Tymatt’s last day of work was either November 17, 2011, the last day of productive work by Tymatt on the site, or November 22, 1011, the day that Tymatt began to remove [its] equipment from the site.” However, USSC argued that even assuming the truth of Tymatt’s allegation that its last day of work was November 25, 2011, Tymatt’s claim nevertheless is time-barred on its face under the Miller Act’s one-year statute of limitations, because Tymatt filed suit on November 26, 2011—one year and one day after its alleged last day of work. Tymatt countered that Rule 6(a) of the Federal Rules of Civil Procedure applied and extended the one-year period in this circumstance because November 25, 2012 (the one-year anniversary of November 25, 2011) fell on a Sunday. Rule 6(a) provides that, “if the last day [of a given time period] is a Saturday, Sunday, or legal holiday, the period continues to run until the end of the next day that is not a Saturday, Sunday, or legal holiday.” The Court agreed with Tymatt and rejected USSC’s proposition that Rule 6(a) does not apply to the Miller Act’s limitations period. The Court held that consistent with Fourth Circuit precedent, Rule 6(a), applied by its terms, inter alia, “in computing any time specified…in any statute that does not specify a method of computing time.” Therefore, because Tymatt alleged that the day on which the last of the labor was performed or material supplied was on a Sunday, and because the Miller Act does not specify a method of computing time, the Court concluded that “the period continue[d] to run until the next day that is not a Saturday, Sunday or legal holiday,” which was Monday, November 26, 2012, the day Tymatt filed its claim.
In the alternative, USSC argued that Tymatt’s claim was still untimely because Tymatt’s last day of work on the Project was actually earlier than November 25, 2011. USSC contended that while Tymatt’s personnel were present at the Project site as late as November 25, 2011, a subcontractors mere presence on the work site is insufficient to constitute the “perform[ance]” of “labor” or the “suppl[y]” of “materials,” within the meaning of the Miller Act’s statute of limitations provision. The Court agreed. The Court began its analysis by stating the Fourth Circuits “well established rule” that, to determine the time at which the Miller Act’s limitation period begins, the court must consider “whether the work was performed and material supplied as a ‘part of the original contract’ or for the ‘purpose of correcting defects or making repairs following inspection of the Project.’” The Court clarified that the Fourth Circuit’s interpretation of the Miller Act’s “last of the labor” language turns on a distinction between “performance of the contract, on the one hand, and correction or repair, on the other…[C]ontract work sets the starting-point for the limitations period, whereas corrections and repairs do not.”
Applying that standard to the facts, the Court held that, “within the meaning of the Miller Act, it is impossible for a subcontractor to undertake labor in ‘performance of a contract’ when the subcontractor’s contract has been terminated by the prime contractor.” The Court reasoned that the only evidence provided as to what was done by Tymatt on or after November 25, 2011, with reference to the Miller Act limitations period, indicates that the Subcontract was terminated as of November 18, 2011. The Court determined the fact “[t]hat Tymatt was authorized to remove materials from the site through November 23, 2011, does not equate to providing work or materials. When a subcontractor has been terminated, the provision of a brief period of time for removal of its equipment from the job site” does not equate to labor performed or material supplied that was “part of the original contract.” Therefore, the Court concluded that as a matter of law, there was no genuine dispute of material fact that Tymatt’s last day of work on the Project occurred prior to November 25, 2011. Accordingly, the Court granted summary judgment in favor of USSC.
Jeffery R. Mullen
U.S. District Court in Puerto Rico, Applying Connecticut Law, Considers Application of Notice Requirements to Termination of Joint Subcontractors
Fed. Ins. Co. v. Empresas Sabaer, Inc.
2013 U.S. Dist. LEXIS 112930 (D.P.R. Aug. 9, 2013)
This action arose out of a surety’s claim for expenses incurred for correcting a subcontractor’s defective work. DTC Engineering and Constructors, LLC (“DTC”) and the U.S. Army Corps of Engineers (the “Corps”) entered into a contract for the design and construction of the Armed Forces Reserve Center at Fort Buchanan, located in Guaynabo, Puerto Rico. Federal Insurance Company (“Federal”) and DTC subscribed to a payment and performance bond as surety and principal, respectively, naming the government as obligee. DTC subsequently entered into a subcontract (the “Subcontract”) with Empresas Sabaer, Inc. (“Sabaer”) and BBS Developers, S.E. (“BBS”) (collectively the “Subcontractors”). The Subcontract provided that Sabaer was required to complete the work under Subcontract, while BBS was responsible for providing technical and economic support. United Surety and Indemnity Co. (“USIC”) and the Subcontractors, as surety and principal, respectively, subscribed to a payment and performance bond and named DTC as obligee. DTC assigned to Federal all of its rights emerging from the Subcontract and USIC’s bond.
Federal exercised its right to complete the Project and executed a takeover agreement with the Corps and DTC. On October 18, 2011, Federal notified Sabaer, USIC, and BBS of “deficiencies in the form of an incorrectly installed silt fence and concrete pads that were rejected by quality control.” On the same day, Federal informed Sabaer, USIC, and BBS that it “was considering declaring them in default of the Subcontract” and requested a conference with them to discuss completion of their contractual obligations. However, Federal sent the letter to Sabaer and BBS to their addresses listed on their performance bond, and not their addresses listed on the Subcontract.
On October 26, 2011, Federal sent Sabaer another letter expressing its desire to meet with representatives from Sabaer and USIC to discuss the allegedly uncured deficiencies. On November 10, 2011, Federal sent letters to USIC and Sabaer at their contractual addresses of record stating that Federal intended to formally terminate Sabaer for default pursuant to the Subcontract. On November 15, 2011, Federal formally declared Sabaer in default by letter addressed to USIC, providing Sabaer and BBS with carbon copies by mail. Federal then filed suit against the Subcontractors to recover $286,233.62 in expenses incurred to correct Sabaer’s deficient work. In defense, Sabaer contended that Federal never provided BBS with the contractually required notice prior to the termination for default because the correspondence was neither addressed to BBS nor sent to the address listed in the Subcontract. Both Federal and the Subcontractors moved for summary judgment.
To resolve whether Sabaer and BBS were properly notified, the Court first looked to the terms of the Subcontract. Under the “Subcontractor’s Failure to Perform” section, Federal could terminate for default the Subcontractors upon three days written notice of the Subcontractors’ failure to perform, unless the condition specified in such notice was eliminated within the three day period. Under the “Notice” section, the Subcontract stated that “[a]ll notices shall be addressed to the Parties at the addresses set out herein, and shall be considered as delivered when postmarked, if dispatched by registered mail, or when received in all other cases, including facsimiles.” “Parties” was a defined term in the Subcontract and included DTC, BBS and Sabaer. The address set out in the Subcontract for both BBS and Sabaer was 65 Infanteria Station, San Juan, Puerto Rico.
The Court then looked to the letters sent by Federal to determine whether they provided sufficient notice. The Court concluded that Sabaer received letters at the Infanteria Station address listed under the Subcontract, and thus had actual notice of Federal’s intent to terminate due to default. The Court, however, determined that no such notice was provided to BBS. The October 18th and November 15th letters were sent to BBS at the address of Calle Lepanto URB, El Alamein, San Juan, Puerto Rico. While this address was listed as BBS’s address on the performance bond, the Subcontract required that notice be sent to the Infanteria Station address.
Nonetheless, applying Connecticut law as was called for by the Subcontract’s choice of law provision, the Court held that Federal adequately notified BBS. The Court specified: “The contract plainly states that notice shall be provided to both BBS and Sabaer in writing at the Infanteria Station address on the Subcontract. Plaintiffs did not do this. Thus, the inquiry should cease, but Connecticut law holds otherwise.” The Court traced the history of Connecticut and Second Circuit jurisprudence on the matter, dating back to a 1914 Connecticut Supreme Court case holding that notice to one joint contractor sufficed as notice to a second joint contractor. The Court found that “BBS’s agreements with Sabaer and its actions during the life of the Subcontract reveal that it was inextricably intertwined with and reliant upon Sabaer” and that “Sabaer ostensibly performed all of the duties under the Subcontract.” Thus, consistent with Connecticut precedent, the Court held that notice to Sabaer conveyed notice to BBS with respect to matters affecting their joint obligation, irrespective of whether BBS actually received notice.
Further the Court found that Federal’s failure to send notice to BBS at the Infanteria Station address is overcome not only by Connecticut’s notice-to-one, notice-to-both rule, but also by the Subcontracts requirement that the Subcontractors subscribe to a performance bond in which the Subcontractor’s included a second address to which Federal sent notice. The Court found that in Connecticut, “[w]here the question whether proper notice was given depends on the construction of a written instrument or the circumstance are such as to lead to only one reasonable conclusion, it will be one of law, but where the conclusion involves the effect of various circumstances capable of diverse interpretation, it is necessarily one of fact for the trier.” Because the Subcontract contemplated submission of a performance bond, BBS provided its address at the Calle Lepanto location on the bond, and the bond was signed subsequent to the Subcontract, the Court concluded that notice was properly sent to that address. The Court reasoned that “no reasonable fact finder could conclude that notice was improper and the court must adhere to Connecticut’s interpretation of what constitutes proper notice.” Therefore, the Court determined notice was properly given and granted summary judgment in favor of Federal.
Jeffery R. Mullen
Court of Federal Claims Holds Government Abused Discretion in Terminating Contract for Convenience; Also Finds Contractor Liable for Violations of the False Claims Act
Gulf Group Gen. Enters. Co. W.L.L. v. United States
2013 U.S. Claims LEXIS 899 (Fed. Cl. July 2, 2013)
This action arose from a contractor’s claim that the U.S. Army (the “Army” or the “Government”) abused its discretion in terminating contracts for its convenience. In September 2004, Gulf Group General Enterprises Co. W.L.L. (“Gulf Group”) entered into four contracts worth approximately $15.8 million with the Army to provide cleanup and sanitation services in Kuwait. Three of the contracts—the camp package master blanket purchase agreement for provisions (the “BPA contract”), the latrine contract, and the dumpster contract—were terminated by the Army for its convenience within a month after they were awarded. The fourth contract, for bottled water distribution (the “bottled water contract”), was not terminated and instead extended into 2005.
In December 2005, Gulf Group submitted a series of claims to the Government for losses it allegedly incurred because of the termination of the three contracts and for losses from delays in bottled water deliveries it alleged were caused by the Government’s requirement that military convoys escort its delivery trucks into Iraq. After its claims were denied, Gulf Group filed four separate complaints with the Federal Court of Claims in 2007 that were subsequently consolidated in 2008. Gulf Group’s complaints alleged abuse of discretion and arbitrary and capricious action by the Army concerning the terminations, and, therefore, breaches of the BPA contract, the latrine contract, and the dumpster contract. Gulf Group further asserted that the Government violated its duty of good faith and fair dealing by causing delays for the delivery of Gulf Group’s bottled water pursuant to the bottled water contract.
In response, the Government asserted fraud-related counterclaims and affirmative defenses under the False Claims Act alleging that Gulf Group knowingly submitted false or fraudulent claims to the Government under the four contracts. The Government contended that Gulf Group submitted claims under the four contracts for an amount significantly greater than what was owed, and that, under the antifraud provision of the Contract Disputes Act, Gulf Group had to pay the Government the money it claimed which is not supported, plus the Government’s costs in reviewing the claims.
The Court first considered whether Gulf Group had “knowledge,” as defined by the False Claims Act to include “reckless disregard,” that the claims Gulf Group submitted to the Government were false or fraudulent. All invoices submitted by Gulf Group were reviewed, signed and submitted by Gulf Group’s attorney. They had also been signed by Gulf Group’s owner. However, the submitted claims were inflated and contained gross inaccuracies. For example, despite being terminated less than a month into the Project, Gulf Group claimed amounts greater than the total sum it would have been entitled to under the dumpster contract had the contract been performed. In defense, Gulf Group, a foreign company, argued that it did not know how to compile and submit a government claim and that it relied on advisors in submitting the claim. The Court rejected these arguments. The Court held that “a failure to make a minimal examination of records can constitute deliberate ignorance or reckless disregard, for which a contractor may be found liable under the False Claims Act.” The Court determined that had Gulf Group conducted even a minimal inquiry into the accuracy of the claims submitted, they would have been aware of the inconsistencies and inaccuracies therein. “Although Gulf Group…relied on [its] advisors as to how to submit claims…those advisors [failed] to provide competent advice…” This reliance did not excuse Gulf Group from reviewing its settlement proposals and claim submissions, and evinced “a reckless disregard for accuracy” under the False Claims Act. The Court concluded that Gulf Group submitted conflicting, incorrect, and baseless claims regarding the BPA contract, the latrine contract, and the dumpster contract in 2005 and in 2007. Accordingly, the Court found Gulf Group liable for the maximum statutory penalty of $11,000 per claim, for a total amount of $66,000 for the six violations of the False Claims Act.
Despite the established liability under the False Claims Act, the Court found that the Government had not proven that the claims were made with intent to deceive the Government. The Court reasoned that because Gulf Group had relied upon “advisors” to prepare those claims, it did not intend to deceive the Government with their submission, which would have resulted in their forfeiture under the Special Plea in Fraud statute. Therefore, the Court went on to assess the merits of Gulf Group’s claims against the Government for wrongful termination.
With regard to the BPA contract, the Court found that Army officials offered a reasonable and good faith explanation for its termination. The officials supported Gulf Group’s assertion that the termination of the BPA contract was contingent on Gulf Group being awarded a BPA for a larger military base, Camp Virginia. Gulf Group ultimately was not awarded the Camp Virginia contract, but the Court found that the Government had no contractual obligation to make the award.
Conversely, the Court found that the Government had improperly terminated the latrine and dumpster contracts because it failed to “establish a legitimate basis for doing so,” which amounted to an abuse of discretion. The Court noted that various Army officials presented a number of different and often conflicting reasons for terminating Gulf Group’s dumpster and latrine contracts, none of which were reasonable or consistent with the Government’s obligation to act in good faith. An alleged security incident was chief among those reasons. In the incident, a Gulf Group employee asked about the layout of the military base Camp Arifjan and made drawings of buildings around the base, purportedly to determine placement locations for dumpsters. The Court determined, however, that the Army’s termination of these contracts “based on security reasons, without finding a need to even open a case or begin a formal investigation…is not reasonable or best practices, and is arbitrary and capricious.” In fact, the Court found that Government personnel “were simply motivated… ‘to get Gulf Group off the bases.’” As a result, the Court ruled that “[a]lthough a termination for convenience generally does not entitle a contractor to anticipatory profits, a termination for convenience ‘tainted by bad faith or an abuse of contracting discretion,’ which amounts to a breach of contract, may entitle a plaintiff to expectancy damages.” Accordingly, the Court found that Gulf Group was entitled to both lost profits and contract preparation costs under the latrine and dumpster contracts.
Finally, with regard to the bottled water contract, the Court determined that Gulf Group could not recover any money for losses it allegedly suffered from delays in bottled water deliveries because the Government’s requirement that Gulf Group make its deliveries into Iraq with a military convoy was a sovereign act and not part of a contractual agreement.
Therefore, the Court ordered the Government to pay Gulf Group approximately $560,000 for losses it suffered from the Army’s termination of the latrine and dumpster contracts. The Court also directed Gulf Group to pay the Government $66,000 for the six False Claims Act violations resulting from Gulf Group’s submission of inflated claims in 2005 and 2007.
Jeffery R. Mullen
Sixth Circuit Court of Appeals, Applying Kentucky Law, Holds Subcontractor’s Allegedly Faulty Construction of a Building Pad and the Resulting Damages Is Not an “Occurrence” Under a Commercial General Liability Policy
Liberty Mut. Fire Ins. Co. v. Kay & Kay Contr.
2013 U.S. App. LEXIS 23587 (6th Cir. Nov. 19, 2013)
This action arose out of a commercial general liability (“CGL”) policy issued by Liberty Mutual Fire Insurance Co. (“Liberty Mutual”) to MW Builders, Inc. (“MW Builders”) and Kay and Kay Contracting, LLC (“Kay & Kay”) for the construction of a Wal-Mart store in Morehead, Kentucky. Wal-Mart Stores, Inc. (“Wal-Mart”) contracted with MW Builders as general contractor for the construction of the building. MW Builders then entered into a subcontract with Kay & Kay to perform site preparation work and construct the building pad beneath the structure. Liberty Mutual issued the CGL policy to Kay & Kay, with MW Builders as an additional insured (the “Policy”). The Policy was the standard ISO (Insurance Services Office, Inc.) policy containing the standard coverage language. Specifically, the Policy provided: “This insurance applies to ‘bodily injury’ and ‘property damage’ only if… [t]he ‘bodily injury’ or ‘property damage’ is caused by an ‘occurrence’ that takes place in the ‘coverage territory’…” The Policy defined “occurrence” to mean “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” The term “accident” was not defined in the Policy.
After Kay & Kay had completed the building pad and the building had been erected, Wal-Mart notified MW Builders that there were cracks in the building’s walls. Wal-Mart alleged that the fill area underneath a corner of the building had experienced settling due to problems with the foundation, and that this had caused structural problems and resultant damage to the building. MW Builders demanded that Kay & Kay remedy these issues and indemnify it. Kay & Kay denied liability and turned to Liberty Mutual with defense and indemnity claims under the Policy. Liberty Mutual subsequently filed a complaint seeking declaratory relief against MW Builders and Kay & Kay (jointly the “Contractors”) alleging that the Contractors’ claims for a defense and indemnity were not covered under the Policy. Liberty Mutual and the Contractors filed cross-motions for summary judgment on the limited threshold issue of “whether there was an ‘occurrence’ as defined in the underlying policy.” The district court agreed with the Contractors and found that the damage to the building qualified as an “occurrence” and was therefore covered under the Policy. Liberty Mutual appealed.
A three-judge panel of the Sixth Circuit Court of Appeals reversed and held that the facts of the case did not present an “accident” that would trigger coverage as an “occurrence” under the Policy. Applying Kentucky law, the Court first noted that although faulty workmanship generally is not an “accident” within the meaning of a CGL policy, the Supreme Court of Kentucky has not “definitively decided whether allegedly faulty workmanship that causes damage to other property constitutes an ‘accident’ under a CGL policy.” The Contractors argued that the damage was not to the insured’s (Kay & Kay’s) allegedly defective work product itself (the building pad), but was rather “collateral damage” to other property (the building), the work of third-party subcontractors. The Contractors contended that under these circumstances, the Supreme Court of Kentucky would conclude there was indeed an “occurrence.”
The Court disagreed. The Court recognized that in order for there to have been an “occurrence”, there had to have been an “accident.” Because the term “accident” was undefined in the Policy, the Court looked to Kentucky case law and concluded that the plain meaning of the term “accident” implicated the doctrine of fortuity. Applying this doctrine, the court focused its analysis on the level of control Kay & Kay had over the construction of the building pad. The Court distinguished the case before it, where Kay and Kay had exclusive control over the construction of the building pad for a new structure, from a situation where a contractor comes to an existing property to work on only a certain aspect of that property, and the contractor’s defective workmanship causes unintentional damage to other aspects of the property beyond its control. Under the latter scenario, the Court stated that it is “certainly plausible” that the damage “qualifies as ‘fortuitous’ and therefore an ‘accident.’” However, where the damage to the building was within the control of the contractor, the Court held that it could not be considered an “accident” that would give rise to coverage under a CGL policy. The Court found that “Kay & Kay was hired precisely to prevent the settling and resultant structural damage that occurred… [i]n other words, the possibility of the type of damage in this case was exactly what Kay & Kay was hired to control.” Therefore, the Court concluded that Kay & Kay’s construction of the allegedly faulty building pad could not qualify as an “accident” that would trigger coverage as an “occurrence” under the Policy. Accordingly, the district court’s decision in favor of the Contractors was reversed and the Court ordered that summary judgment be entered in favor of Liberty Mutual.
Jeffery R. Mullen