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December 2013

Gordon & Rees San Francisco Partner Greg Gangitano Wins Arbitration in Claim Involving Risk Pool Coverage Contract

On Dec. 2, Gordon & Rees San Francisco partner Gregory J. Gangitano prevailed in the arbitration of a claim for the cost of reconstructing a tower crane foundation under a memorandum of builder’s risk coverage issued by a self-insurance pool.  The case involved the application of various coverage exclusions to claims involving damages from unforeseeable soil events.  Gangitano, a member of the firm’s Construction Practice Group, represented the claimant, Webcor Concrete, a division of Webcor Construction, LP, and successfully established that the exclusions did not bar Webcor Concrete’s claim.  The arbitrator awarded Webcor Concrete its full damages and declared it the prevailing party for purposes of recovering attorney’s fees.

The case arose out of the North Beach/Chinatown campus expansion project for the City College of San Francisco.  Webcor Concrete was the concrete subcontractor to Bovis Lend Lease for all architectural and structural concrete.  Part of Webcor Concrete’s work involved construction of a large, pier-supported crane foundation for a 300-foot tower crane.  The foundation consisted of a large concrete and steel base supported by piers drilled to depths of 40-60 feet.  After the structural rebar and concrete base was installed on top of the piers, it shifted outside of the required levelness tolerances, preventing erection of the tower crane.  Webcor Concrete demolished and reinstalled the base at significant cost. 

Investigation by geotechnical engineers revealed that the base shifted as the result of unforeseeable soil movement.  Webcor Concrete submitted a claim under a “memorandum of builder’s risk coverage” for the project.  The memorandum was issued by the respondent community college self-insurance pool, the Statewide Association of Community Colleges Joint Powers Authority (SWACC).  Despite the absence of any evidence to establish that the event occurred as the result of negligent design or construction, SWACC denied the claim on the ground that it fell within certain exclusions for “inadequate, faulty or defective workmanship,” as well as “normal settlement.” 

At the arbitration, Webcor Concrete argued that in the absence of any evidence to establish negligence in the design or construction process, the “faulty workmanship” exclusion did not apply.  Webcor Concrete also argued that the soil conditions in question were clearly abnormal as testified to by geotechnical engineers, thus barring application of the “normal settlement” exclusion.  In contrast, SWACC argued that the “faulty workmanship” exclusion created a broad standard that did not necessarily require negligence, but rather a simple showing that something went wrong in the design and construction process as evidenced by the fact that the crane foundation moved outside of the required levelness tolerance.  It also argued that while the soil movement may have been unanticipated, it was not abnormal. 

The arbitrator found that Webcor Concrete’s claim was the result of unforeseeable, extraneous circumstances beyond the control of the project design and construction team, and therefore was not subject to the exclusions asserted by SWACC.  Specifically, the arbitrator found that the “faulty workmanship” exclusion required a showing of error on the part of the contractor or design professional and that SWACC offered no such evidence.  He also found that Webcor Concrete met its burden of proving the soil movement was abnormal and thus not subject to the memorandum’s “normal settlement” exclusion. 

This case provides an intriguing analysis of how burdens of proof and policy exclusions are viewed in the context of risk pool coverage contracts that are not subject to insurance law principles.  By its terms, the “memorandum of coverage” was not to be construed in accordance with fundamental California insurance law rules.  Thus, a key issue was whether Webcor Concrete established its burden of proof under typical principles of contract law.  While the arbitrator held that Webcor Concrete was required to disprove the application of the subject coverage exclusions, he agreed that Webcor Concrete satisfied its burden by showing that (1) the design and construction team was not negligent, and (2) the crane foundation moved as the result of events beyond anyone’s control.  The ruling also reinforces what is usually assumed – that “faulty, inadequate or defective” design or construction requires a showing of error.