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Chubb wins liability dispute with port

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A policy exclusion for prior or pending litigation and administrative proceedings means a Chubb Ltd. unit does not have cover litigation costs related to a dispute between contractors and San Diego Unified Port District, a federal appeals court ruled.

The U.S. Court of Appeals for the 9th Circuit in San Francisco upheld a lower court ruling that Ace American Insurance Co. had no duty to defend the port district in an underlying lawsuit filed by Greeley Colorado-based Hensel Phelps Construction Co. and Phelps Portman San Diego L.L.C., according to the Feb. 17 ruling in San Diego Unified Port District vs. Ace American Insurance Co.

Ace issued a public entity liability policy to the port with a policy period of July 1, 2011, to July 1, 2012, that had a per claim limit of $5 million with a $250,000 self-insured retention, according to the lower court ruling in the case in 2014.

In December 2005, the Port had entered into a lease with One Park Boulevard L.L.C. in San Diego to construct a hotel property owned by the port district.  Phelps Portman was named the developer and Hensel Phelps the general contractor.

In April 2008, the California Department of industrial Relations issued a determination the project was a public work subject to prevailing wage laws, according to the ruling.

Phelps went to state court asking that the determination be rescinded beginning in June 2008. In July 2011, a state appeals court reversed a trial court and held the project was subject to prevailing wage laws.

Ace, which had received a notice of a potential claim related to the wage issue proceeedings, denied coverage under Exclusion Q in its policy, which states it is not liable for any claim arising out any prior or pending “litigation or administrative or regulatory proceeding.”

Meanwhile, the California Department of Labor Standards Enforcement began an audit of payroll records related to the project.  In May 2013, Phelps agreed to pay $8.5 million to resolve the Department of Labor Standards’ proceedings.  It then filed suit against the port seeking to recover the full amount it paid to settle the lawsuit plus attorneys’ fees and costs.

The port tendered defense of the Phelps lawsuit to Ace, which again denied coverage, and the port filed suit against Ace.   The U.S. District Court denied the port coverage based on the exclusion, which a three- judge appeals court panel unanimously affirmed.

“The subject insurance policy includes a very broad exclusion that unambiguously defeats the Port’s claim for coverage,” said the appeals court ruling.  “There were no questions of fact that precluded entry of summary judgment, and the district court did not err by concluding, as matter of law, that the claims against the Port fall within the policy’s exclusion.”