Hunt Construction Group, Inc. v. Berkley Assurance Company

Background

Hunt Construction Group, Inc. sued Berkley Assurance Company over Berkley’s refusal to defend Hunt in two lawsuits. Hunt alleged breach of the insurance contracts and breach of the implied promise of good faith and fair dealing. Berkley moved to dismiss two claims. Hunt moved for partial summary judgment, and Berkley cross-moved for summary judgment on all claims.

The two insurance policies covered a written demand or lawsuit alleging a negligent act, error, or omission in Hunt’s professional services, including construction, project, or property-management services. The policies required Hunt to report a claim in writing during the applicable policy period and excluded liability arising from contractual obligations, including obligations to subcontractors. New York law governed the policies.

Fairmount Austin Project

Manchester sent Hunt a February 2017 letter identifying alleged project-management problems, including failures to meet deadlines and supervise subcontractors, and demanding that Hunt correct the problems. Hunt did not notify Berkley at that time. After Manchester sued Hunt in November 2018, Hunt notified Berkley and attached the February 2017 letter. Berkley initially agreed to defend Hunt but later refused, arguing that the letter was a professional claim that should have been reported during the 2016 policy period.

The court held that the February 2017 letter was a professional claim because it was a written demand seeking correction of professional services. The court rejected Hunt’s argument that the term “correction” applied only to fixing past mistakes rather than preventing future mistakes. The court also held that the later allegations in Manchester’s lawsuit were logically related to the problems described in the letter. Under the policies, they therefore constituted one claim dating back to the 2016 policy period.

The court nevertheless ruled for Hunt because Berkley waived its late-notice defense. Berkley had received the February 2017 letter as an attachment to Hunt’s later notice but did not raise late notice when it initially denied coverage. The court held that Berkley’s general reservation of rights was not enough because it did not specifically identify a possible late-notice defense.

Houston Methodist Project

On the Houston Methodist Project, subcontractor Way Engineering notified Hunt about schedule delays and later sought more than $25 million in additional compensation. Hunt notified Berkley in April 2019. Way then sued Hunt, asserting claims including breach of contract, unjust enrichment, violations of the Texas Prompt Pay Act, declaratory relief, and indemnification.

The court addressed only Berkley’s argument that the Way lawsuit did not involve negligence. It held that the claims were based on Hunt’s alleged intentional failure to pay contractual obligations, not on negligent professional services. Because the policies covered claims arising from negligence and the Way lawsuit presented no covered negligence claim, Berkley had no duty to defend Hunt in that matter.

Implied Covenant Claim

Hunt also alleged that Berkley breached the implied covenant of good faith and fair dealing by handling the claims unfairly, taking meritless coverage positions, and changing its coverage positions. The court explained that a separate claim based on the implied covenant generally cannot proceed when it merely duplicates a contract-breach claim and seeks the same relief. Because the parties acknowledged that this claim depended on the two contract claims, the court did not grant summary judgment to Berkley on it after ruling for Hunt on the Fairmount Austin claim.

Disposition

Judge J. PAUL OETKEN’s order granted Berkley’s motion for summary judgment as to the Houston Methodist claim and denied it as to the Fairmount Austin and implied-covenant claims. It granted Hunt’s motion for partial summary judgment as to the Fairmount Austin claim and denied it as to the Houston Methodist claim. It also denied Berkley’s motion to dismiss. The clerk was directed to terminate the motions at Docket Numbers 18, 27, and 39.