Insurer's Litigation Conduct Inadmissible to Show Bad Faith

In a case involving a fire at a new Wal-Mart store, the general contractor for the project took out a liability insurance policy which provided that insurance coverage would terminate when the store was "accepted by the buyer" or "occupied or put to any use." when the contractor turned over the store keys to Wal-Mart's representatives, only limited work remained to be done; later that day, however, a welding subcontractor started a fire which caused substantial damage to the building.

The respective insurers for the owner and contractor disputed which company should cover the loss. At trial, the contractor introduced evidence of certain allegedly objectionable litigation tactics used by its insurer's attorneys, which included filing a counterclaim against the contractor and pursuing a motion to join the owner as a necessary party. The jury awarded substantial compensatory and punitive damages against the insurer. On appeal, however, the court reversed, ruling that admitting evidence of legitimate pre-trial tactics as proof of bad faith would place insurance defense lawyers in an "untenable position." The court further held that, absent such evidence in this case, there was inadequate evidence of bad faith to support the jury's verdict, since a legitimate dispute existed as to whether Wal-Mart had "accepted" or "occupied" the building before the fire. Timberlake Construction Co. v. U.S. Fidelity and Guaranty Co., 71 F.3d 335 (10th Cir. 1995).

Trial Court May Apportion Damages Attributable to the Respective Parties

The Georgia Court of Appeals has held that damages in a contract case may be apportioned based upon the percentage of the total loss caused by the respective litigants. In a joint venture between the plaintiff construction company and the defendant engineering firm to construct a power plant for the U.S. Navy, the plaintiff suffered a large loss on project. The plaintiff claimed that the defendant's design work was defective and that it had breached other contractual and fiduciary duties, causing the plaintiff's loss.

The defendant claimed that, in contract cases where two parties have contributed to a given loss, the party sustaining the loss can only recover from the other if it can specifically identify which aspects of the loss were solely the result of the other party's actions.

The Court of Appeals, the plaintiff established to a reasonable degree of certainty the percentage of its overall damages attributable to the defendant's actions.

Accordingly, the trial court had properly apportioned responsibility for the plaintiff's losses based upon the relative fault of the respective parties. CRS Sirrine, Inc. v. Dravo Corp., 264 S.E2d 897 (Ga. App. 1995).

A Supervising Architect May be Obligated to Indemnify an Owner Sued by Injured Construction Worker

A New York appellate court has established that an owner may sue its architect for contractual and common law indemnification in a lawsuit brought against the owner by a worker injured on a construction project.

In order to be entitled to common law indemnity from a contractor under New York law, the owner must be able to establish that its role in causing the plaintiff's injury was "strictly passive." The court held that the same principle applies when the owner sues its architect for indemnification, rather than the contractor/employer.

The architect in this case maintained a particularly high degree of supervisory control over the project. It employed a full-time representative at the jobsite, who made daily reports addressing both work quality and work safety issues. Both the architect and its representative issued numerous directives concerning site safety.

Moreover, the owner presented evidence that the architect had the authority to issue stop-work orders, and one employee of the general contractor testified that he viewed the architect's representative as the "onsite safety officer."

The court held that these facts could support a common law indemnity claim against the architect. Deyo v. County of Broome, 638 N.Y.S.2d 802 (A.D. 1996).

George Anthony Smith, Esq. Partner, and C. Francis Whitaker, associate, practice with the law firm of Sutherland, Asbill & Brennan, Atlanta, Georgia.