[00:00:02] Speaker 03:
We're now ready to hear 23-1307, Curtis Park Group versus Allied World Specialty Insurance Company.

[00:00:11] Speaker 03:
Mr. Yarger.

[00:00:21] Speaker 05:
Thank you, Judge Arts.

[00:00:23] Speaker 05:
And may it please the court, Fred Yarger on behalf of the appellant, Allied World Specialty Insurance Company.

[00:00:29] Speaker 05:
Curtis Park purchased a builder's risk policy to cover its own losses only.

[00:00:35] Speaker 05:
It did not purchase or pay premiums for the losses of anybody else, including Milner White or its subcontractors.

[00:00:45] Speaker 05:
Although the policy is expressly limited to covering only the losses of the name insured, the district court instructed the jury, quote, Milner White's payment of these costs, the hard costs, does not preclude Curtis Park

[00:00:59] Speaker 05:
from seeking coverage under the policy.

[00:01:02] Speaker 05:
You must treat these facts as true.

[00:01:05] Speaker 05:
That was a significant legal error that requires reversal for three reasons.

[00:01:09] Speaker 05:
First, the language of the policy is very clear.

[00:01:12] Speaker 05:
It says that only the losses of the named insured are covered.

[00:01:18] Speaker 05:
And case law confirms that named insured provisions are important.

[00:01:22] Speaker 05:
And those who are not listed as named insureds and builder's risk policies are not covered for the losses.

[00:01:29] Speaker 05:
Second, Curtis Park never paid the hard costs and will never have to pay them.

[00:01:32] Speaker 05:
Instead, Curtis Park sent a formal notice to Millinder White under the party's contract requiring Miller White to, quote, fix all deficiencies and cover all associated costs.

[00:01:45] Speaker 05:
And that's exactly what Millinder White and its subcontractors did.

[00:01:50] Speaker 05:
Finally, a complete retrial required not a partial remand, as Curtis Park is asking this board.

[00:01:57] Speaker 05:
Because the court's errors below in instructing the jury, excluding evidence, and misconstruing the policy fundamentally affected the presentation of the case.

[00:02:07] Speaker 05:
And we cannot be certain that the outcome would not change had the jury been properly instructed.

[00:02:13] Speaker 02:
Outcome on what?

[00:02:14] Speaker 02:
On the original exclusion?

[00:02:16] Speaker 05:
On the entire case.

[00:02:18] Speaker 05:
And probably the best example of this, but not the only example of this, is Allied World had a misrepresentation defense.

[00:02:26] Speaker 05:
about the hard costs.

[00:02:28] Speaker 05:
That defense is not just a defense to parts of damages or claims.

[00:02:32] Speaker 05:
It's a defense to the entire case, coverage, soft costs, hard costs, and the bad faith claims.

[00:02:39] Speaker 05:
So had that defense been submitted to the jury, there certainly could have been a very different outcome.

[00:02:45] Speaker 05:
It could have been a complete defense verdict.

[00:02:47] Speaker 02:
Did Curtis Park represent that it had, in fact, paid the losses?

[00:02:51] Speaker 02:
It did do so.

[00:02:52] Speaker 05:
It did so in a sworn proof of claim

[00:02:56] Speaker 05:
Submitted to the insurance company during the claim adjustment process.

[00:03:02] Speaker 02:
And with the claim narrative there, and was this just a mistake?

[00:03:06] Speaker 02:
The claim narrative, Curtis Park lists the general contractor as an additional insurer.

[00:03:14] Speaker 02:
That's false.

[00:03:16] Speaker 02:
And what's the explanation for that?

[00:03:18] Speaker 02:
Was there a misunderstanding of whether that was so?

[00:03:22] Speaker 05:
I can't climb into the mind of

[00:03:25] Speaker 05:
Curtis Park and Millinder White.

[00:03:27] Speaker 02:
But it's stipulated now.

[00:03:29] Speaker 05:
Well, their argument is not that Millinder White was named as an insured in the policy, as an additional insured or something else.

[00:03:39] Speaker 05:
Their argument is that the definition of losses in the policy is so broad that it covers not just Curtis Park who's named, but Millinder White and also the subcontractors and the subcontractors

[00:03:52] Speaker 05:
So their argument is not that Milner-White is named.

[00:03:56] Speaker 05:
And I don't think they make that claim here or that representation in the brief.

[00:04:00] Speaker 02:
What if Curtis Park had just written a check for the hard losses, even though it might have well had a right to an action against the general contractor and perhaps even the subcontractors?

[00:04:11] Speaker 02:
At that point, would Allied be responsible?

[00:04:13] Speaker 05:
Well, I wouldn't say Allied would be responsible, because we have other defenses to coverage.

[00:04:19] Speaker 05:
That would have made a world of difference

[00:04:21] Speaker 05:
because then Curtis Park would have been actually out of pocket for the repair costs.

[00:04:27] Speaker 05:
And first, that's what the policy requires.

[00:04:29] Speaker 05:
It says that we will not pay, payment will not exceed the amount that you, defined as Curtis Park, spend to replace the damaged property.

[00:04:39] Speaker 05:
And of course, they said if we had paid an invoice, this case would be different.

[00:04:43] Speaker 05:
We've agreed with that.

[00:04:44] Speaker 05:
They didn't pay an invoice.

[00:04:45] Speaker 05:
Not only did they not pay an invoice, there was no invoice ever even issued

[00:04:50] Speaker 05:
Instead, there was a formal notice letter from Curtis Park to Melinda Waite saying, quote, I think it's important to quote exactly what this notice said.

[00:05:01] Speaker 05:
We are requiring you to, quote, fix all deficiencies and cover all associated costs.

[00:05:08] Speaker 05:
which is exactly what Milliner-White and its subcontractors did.

[00:05:12] Speaker 05:
And there's really no dispute about that.

[00:05:13] Speaker 05:
The evidence at trial was uniform and the statements of counsel was uniform.

[00:05:19] Speaker 05:
Perhaps the best evidence of this was the statement of Curtis Park's own corporate representative, Jonathan Alpert.

[00:05:25] Speaker 05:
And I think it's worth understanding exactly what he testified to in his deposition testimony.

[00:05:30] Speaker 05:
Question, do you know whether or not Curtis Park has paid to Milliner-White any of this $2.8 million?

[00:05:37] Speaker 05:
Answer, we have not.

[00:05:40] Speaker 05:
Question, if the insurance company is successful in its defense of this claim, you would in turn not owe any money to Millinder White?

[00:05:48] Speaker 05:
Answer, no, we will not pay Millinder White.

[00:05:53] Speaker 05:
There is no coverage for those losses.

[00:05:55] Speaker 05:
There's coverage for Curtis Park's cost that it actually incurred, that it actually spent.

[00:06:01] Speaker 02:
So is the closeout agreement just essentially

[00:06:06] Speaker 02:
an agreement by Curtis Park to share its insurance with Millinder?

[00:06:10] Speaker 05:
If it is, that's completely void because you can't expand coverage of a policy through a third party.

[00:06:15] Speaker 02:
Understood.

[00:06:15] Speaker 02:
But is that what's really going on?

[00:06:17] Speaker 02:
Is that a fair characterization?

[00:06:19] Speaker 05:
I think what a fair characterization is is what the agreement itself says what's going on.

[00:06:24] Speaker 05:
Quote, cooperation in the joint prosecution of the insurance plan.

[00:06:29] Speaker 05:
It's an agreement to fund litigation against the insurance company.

[00:06:33] Speaker 05:
It doesn't say anything about an invoice because there was no invoice issued.

[00:06:36] Speaker 05:
It says nothing at all about repair on credit because there was no repair on credit agreement.

[00:06:40] Speaker 05:
By the way, those are brand new arguments.

[00:06:44] Speaker 05:
Curtis Hart below never said a word to the judge or anybody else that there was a repair on credit agreement or that there was a valid debt for the cost of these repairs because there isn't any valid debt.

[00:06:56] Speaker 05:
There was a situation where Melinda White fixed this slab

[00:07:03] Speaker 05:
forced its subcontractors to fix this lab, went to the subcontractors and told them, we're not paying you either.

[00:07:11] Speaker 05:
We're not paying you a dime.

[00:07:13] Speaker 05:
And in fact, in this closeout agreement, it says that Millinder White will identify and hold harmless Curtis Park against any claims the subcontractors may have.

[00:07:27] Speaker 05:
So the closeout agreement wasn't just not an invoice for debt.

[00:07:31] Speaker 05:
It was a guarantee

[00:07:32] Speaker 05:
that Curtis Park wouldn't owe anything about the hard cost.

[00:07:36] Speaker 05:
It was an agreement to share the cost of litigation and sharing the upsides of litigation.

[00:07:41] Speaker 05:
That is not a valid debt of an invoice.

[00:07:43] Speaker 03:
Your Honor.

[00:07:44] Speaker 03:
Did Millinder White have to make any payments with respect to the hard cost, or was that extra work paid for by the subs of Millinder White?

[00:07:56] Speaker 05:
As I understand it, it was a combination of two.

[00:08:00] Speaker 05:
Millinder White did go out of pocket on its own for portions of the hard costs, but it also pushed those costs down to its two subcontractors, All Face and Harris Rebar.

[00:08:12] Speaker 05:
It told them, we're not paying you.

[00:08:14] Speaker 05:
In fact, not only are we not paying you on this job, we're withholding amounts of money that we would otherwise pay you on completely unrelated construction projects that Allied World had absolutely nothing to do with.

[00:08:27] Speaker 03:
So did Millinder White incur any additional costs?

[00:08:30] Speaker 03:
from the reworking of the structure?

[00:08:35] Speaker 03:
Again, I think a portion of those are costs.

[00:08:38] Speaker 03:
Some portion of it.

[00:08:39] Speaker 03:
When you started your argument, you were saying you're asking for a full trial of everything.

[00:08:48] Speaker 03:
How would this issue that you're raising here affect the soft costs?

[00:08:53] Speaker 03:
Yes, so in at least two ways, your Honor.

[00:08:56] Speaker 05:
First of all, again, we had a misrepresentation defense.

[00:09:01] Speaker 05:
that said to Curtis Park, you told us that you had coverage for these hard costs.

[00:09:09] Speaker 05:
You never told us that Miller went and his subcontractors, in fact, paid those costs.

[00:09:14] Speaker 05:
That's a material misrepresentation under the policy.

[00:09:17] Speaker 05:
That is a complete defense.

[00:09:19] Speaker 05:
It's not just a defense.

[00:09:20] Speaker 05:
It's one part of the claim.

[00:09:21] Speaker 05:
It's a complete defense to the entire case.

[00:09:23] Speaker 03:
The coverage claim, which is- And how did the district court deal with that defense?

[00:09:27] Speaker 05:
At the pretrial conference, the district court said,

[00:09:30] Speaker 05:
I don't find there to be a misrepresentation because it doesn't matter in any one of them.

[00:09:36] Speaker 05:
The key quotes is, quote, I do not believe it matters that Miller-White did the repair on their own and have agreed to waive costs.

[00:09:45] Speaker 05:
That's volume 6 of the appendix 192, and it goes on from there to talk about the misrepresentation.

[00:09:50] Speaker 03:
And the bad faith claim, obviously, would be affected.

[00:09:52] Speaker 05:
It would be, yes.

[00:09:53] Speaker 03:
Were there any other claims?

[00:09:55] Speaker 05:
There were really two claims in the case.

[00:09:57] Speaker 05:
You're on coverage in bad faith.

[00:09:59] Speaker 05:
There were some parts of those claims about different coverage provisions in the agreement, but the basic sort of contours of the case was a coverage claim for soft costs and hard costs and a bad faith claim.

[00:10:12] Speaker 03:
The misrepresentation defense was a defense of the whole thing.

[00:10:15] Speaker 03:
And are you seeking to retrial on the bad faith and hard costs also?

[00:10:19] Speaker 05:
No, we're asking this court, just as it did in Boardwalk, to correctly construe the policy, instruct the court that it has to retry the case, but without any hard costs involved, because it's... Okay.

[00:10:30] Speaker 03:
And what about bad faith?

[00:10:32] Speaker 05:
Yes, we're seeking a retrial on bad faith to the extent they can still pursue it.

[00:10:38] Speaker 05:
I think they would still argue that there is a bad faith claim that underlies the soft cost.

[00:10:42] Speaker 02:
These things, they get to retry that.

[00:10:45] Speaker 02:
Because the delay occurred before the agreement?

[00:10:48] Speaker 02:
Or what?

[00:10:49] Speaker 02:
Why does that survive?

[00:10:51] Speaker 05:
Their assertion on bad faith was essentially that the claim investigation took too long.

[00:10:57] Speaker 05:
Which was over a year.

[00:10:58] Speaker 05:
It was.

[00:10:59] Speaker 05:
It was a significant period of time.

[00:11:01] Speaker 05:
And I can go into many reasons why it took that long.

[00:11:03] Speaker 05:
Let's not.

[00:11:04] Speaker 02:
Let's not.

[00:11:05] Speaker 05:
The bottom line is the jury heard a lot of ads on that issue.

[00:11:10] Speaker 05:
And our world deserves a retrial because this is the other issue with retrial.

[00:11:15] Speaker 05:
It's not just a misrepresentation of facts.

[00:11:18] Speaker 05:
Immediately after, my trial team adduced evidence from Miller-White, or excuse me, from Curtis Park, that Curtis Park didn't actually pay for these losses.

[00:11:31] Speaker 05:
The judge took a break, admonished my co-counsel, came out of their break and told the jury immediately, it doesn't matter.

[00:11:38] Speaker 05:
I'm telling you as the jury that they can agree together outside of court

[00:11:44] Speaker 05:
and then come in here and see benefits, and it doesn't matter.

[00:11:47] Speaker 05:
That cast my client in a very awkward light.

[00:11:51] Speaker 05:
It basically told the jury the arguments that Allied World is making about coverage are a waste of your time and are incorrect and you should disregard them.

[00:11:59] Speaker 05:
That had a fundamental effect on the jury's presentation.

[00:12:03] Speaker 05:
Also, just like in the Boardwalk case, this case presents an odd situation.

[00:12:07] Speaker 05:
Typically, you'd expect the building owner

[00:12:12] Speaker 05:
to be arguing that their contractor made a mistake and that they owe money for it.

[00:12:16] Speaker 05:
Here, oddly enough, because McLeodath closed that agreement and the agreement to fund this litigation, they were, quote, rowing the boat together.

[00:12:24] Speaker 05:
So the owner of the project was claiming that it didn't know what happened.

[00:12:28] Speaker 05:
The contractor was claiming that they didn't know what happened, even though they'd agreed to pay all costs and waive all expenses.

[00:12:36] Speaker 05:
And so it presented a very skewed picture

[00:12:39] Speaker 05:
to the jury where we weren't allowed to tell them, listen, the out-of-court, without telling their insurer, agreed to fund this litigation against the insurer and you should provide us coverage despite that.

[00:12:50] Speaker 05:
I see him into my... Just one quick question.

[00:12:53] Speaker 02:
It's a little out of left field.

[00:12:54] Speaker 02:
Was there a subrogation, Ryan, if, in other words, if Curtis Park had paid, could Allied have gone against the general on the subs?

[00:13:01] Speaker 05:
I think that the closeout agreement makes that very... Without that.

[00:13:06] Speaker 05:
In some ways, they're attempting to prevent that, because Curtis Park is saying, we will hold you harmless no matter what.

[00:13:13] Speaker 02:
That's why I'm asking.

[00:13:14] Speaker 02:
Was there a subrogation right?

[00:13:18] Speaker 05:
I think there ought to be a subrogation right.

[00:13:20] Speaker 05:
There was no subrogation action proposed just because of the way that the claim was denied.

[00:13:25] Speaker 03:
OK, thank you.

[00:13:26] Speaker 03:
You're welcome.

[00:13:26] Speaker 03:
Yes, Your Honor.

[00:13:27] Speaker 03:
Is there anything in the policy about subrogation?

[00:13:31] Speaker 05:
There are rights in the policy regarding subrogation.

[00:13:36] Speaker 05:
What I can tell you is the clearest prohibition in the policy is that it cannot be assigned without our world's permission.

[00:13:43] Speaker 05:
And of course, they're arguing that they did assign it to Melinda White, and that's incorrect.

[00:13:47] Speaker 05:
And if I can, I'll just redress my time.

[00:13:49] Speaker 05:
Thank you.

[00:13:58] Speaker 04:
May it please the court.

[00:13:59] Speaker 04:
Andrew Guthrie for Curtis Park, the insurer.

[00:14:03] Speaker 04:
This is effectively a single issue appeal on the basis

[00:14:07] Speaker 04:
I want to touch on why there's no circumstances where a complete retrial is appropriate.

[00:14:12] Speaker 04:
But the issue that has been raised on the merits in this appeal is set aside all those jury findings.

[00:14:18] Speaker 04:
It's one question.

[00:14:20] Speaker 04:
Did the district court properly allow Curtis Park to recover the $1.5 million in hard costs that the jury awarded?

[00:14:29] Speaker 03:
Right.

[00:14:30] Speaker 03:
Curtis Park didn't suffer any loss.

[00:14:33] Speaker 03:
It didn't.

[00:14:37] Speaker 03:
After, with this verdict, let's ignore the soft costs and say that's covered.

[00:14:45] Speaker 03:
The hard cost, Curtis Park is making money on the insurance policy.

[00:14:52] Speaker 03:
There's no insurable interest.

[00:14:53] Speaker 03:
It's getting back more.

[00:14:55] Speaker 03:
It's in better shape with this extra money from the verdict on the hard cost than it was if everything had gone properly in this project.

[00:15:05] Speaker 03:
It's making money on the insurance policy.

[00:15:08] Speaker 03:
Insurance policy is supposed to make you whole.

[00:15:10] Speaker 03:
That's it.

[00:15:11] Speaker 03:
And when you start getting more than what you suffered as a loss, there's, what's the term for that?

[00:15:21] Speaker 03:
Do you know the term I'm thinking of?

[00:15:23] Speaker 03:
The Opposite Council is called a windfall.

[00:15:26] Speaker 03:
Is that the term you're thinking of?

[00:15:28] Speaker 03:
It's not a windfall.

[00:15:30] Speaker 03:
No, it's an incentive to collusion and fraud.

[00:15:35] Speaker 03:
You're better off without it.

[00:15:38] Speaker 03:
Oh, I'm sorry.

[00:15:39] Speaker 03:
I don't remember the term.

[00:15:40] Speaker 03:
I'll think of it as soon as you walk away.

[00:15:42] Speaker 03:
I'll probably start talking and you'll think of it as soon as I say something that you don't like.

[00:15:46] Speaker 03:
Can I push back on it?

[00:15:47] Speaker 03:
No.

[00:15:49] Speaker 03:
The basic principle is insurance companies make money on insurance policies by investing the money and so on.

[00:15:56] Speaker 03:
The insurer is not supposed to make money.

[00:15:58] Speaker 03:
It's made whole.

[00:16:00] Speaker 04:
And respectfully, Your Honor, that's exactly what's happening here because... I'll explain that.

[00:16:04] Speaker 04:
Absolutely.

[00:16:05] Speaker 04:
I'm glad to do that.

[00:16:05] Speaker 04:
So what is happening here is we have promised to pay Melinda White for their portion of the hard costs when we recover in this litigation.

[00:16:18] Speaker 04:
So we're not making money.

[00:16:20] Speaker 04:
They are going to get paid.

[00:16:22] Speaker 04:
How much money do you get out of it?

[00:16:24] Speaker 04:
We get the portion of the loss that relates to our soft costs, which we unquestionably incur.

[00:16:29] Speaker 03:
You get a fraction of the hard cost, don't you?

[00:16:32] Speaker 04:
We do not.

[00:16:33] Speaker 04:
We are going to pay, under the closeout agreement, it says we pay to them 62% of the recoveries in this case.

[00:16:40] Speaker 04:
And that is linked up with the relative allocation of hard cost versus hard cost.

[00:16:46] Speaker 04:
Now, of course, the reason these numbers are bigger

[00:16:49] Speaker 04:
because we've got back fake damages, which multiplies by two.

[00:16:52] Speaker 02:
We essentially have a traveling of the damages.

[00:16:54] Speaker 02:
So you get 38% to follow up with Judge Hartz's question.

[00:16:59] Speaker 02:
You're going to get some of the hard costs.

[00:17:01] Speaker 02:
We're not going to get some of the hard costs because... What is the 38% then?

[00:17:07] Speaker 04:
This was just the agreement that the parties reached in the closeout agreement to say, hey, we've got this lingering liability.

[00:17:15] Speaker 04:
And if I could, Your Honor, just take a step back.

[00:17:17] Speaker 04:
What is the policy cover?

[00:17:19] Speaker 02:
This is a broad policy.

[00:17:20] Speaker 02:
It covers a named insured.

[00:17:22] Speaker 02:
It covers the named insured.

[00:17:23] Speaker 04:
Curtis Park is the named insured.

[00:17:25] Speaker 04:
Curtis Park has brought this litigation as the named insured to recover its losses.

[00:17:28] Speaker 02:
For incurred losses.

[00:17:30] Speaker 02:
Incurred.

[00:17:31] Speaker 02:
That word matters.

[00:17:32] Speaker 02:
That's exactly right, Your Honor.

[00:17:33] Speaker 04:
And there's no dispute in this appeal that the term incurred has a broad, ordinary meaning that focuses on liability for the expense, not on who paid for it.

[00:17:44] Speaker 02:
So you can incur losses without paying any money.

[00:17:47] Speaker 02:
Is that your bottom line?

[00:17:48] Speaker 02:
Absolutely.

[00:17:48] Speaker 04:
You can be liable for an expense.

[00:17:50] Speaker 04:
We've cited case authorities that say, if you're liable for the expense, you have incurred it whether you've paid it out of poverty.

[00:17:56] Speaker 02:
But there's testimony that, to the greatest part, can't be liable for the expense.

[00:18:00] Speaker 04:
I disagree with the characterization of that testimony.

[00:18:03] Speaker 04:
I'm grateful for the opportunity to address this.

[00:18:05] Speaker 04:
So the Jonathan Alpert testimony that you just talked about, one, he said, no, we haven't paid it.

[00:18:10] Speaker 04:
That's undisputed.

[00:18:12] Speaker 04:
But this policy covers incurred liabilities, not what we pay.

[00:18:16] Speaker 02:
And then the second line... But the agreement prevents that from happening.

[00:18:20] Speaker 02:
That's the whole purpose of the agreement is to make it clear that Curtis Park isn't going to have to pay.

[00:18:26] Speaker 02:
We are going to have to pay.

[00:18:27] Speaker 04:
As soon as we recover from insurance, we are going to pay them their portion of the proceeds.

[00:18:32] Speaker 04:
That is a liability.

[00:18:34] Speaker 02:
Well, if we disagree with you on that point, which I think there's some skepticism, do you lose?

[00:18:40] Speaker 02:
If you disagree with us on which point?

[00:18:42] Speaker 02:
On whether we've incurred liabilities?

[00:18:44] Speaker 02:
On incurred losses.

[00:18:46] Speaker 04:
No, because the policy is broad enough to cover, I mean, the way it's written, right, it talks about physical loss or damage to our covered buildings, right?

[00:18:56] Speaker 04:
And it says we will value that coverage based on replacement costs.

[00:19:01] Speaker 04:
That is, the costs of materials and labor incurred to repair or replace the data.

[00:19:07] Speaker 04:
Now, that policy language.

[00:19:09] Speaker 02:
Did the district court read the policy functionally to say,

[00:19:15] Speaker 02:
In fact, Millinder is an additional insurer, even though that's not what the policy agreed to.

[00:19:19] Speaker 04:
No, I think the court said over and over and over again that this argument, the argument that Ali Grohl is raising here, does not prevent the fact that Curtis Park incurred the loss.

[00:19:29] Speaker 04:
The court understood the broad policy that we're talking about here, which is that we have liability.

[00:19:35] Speaker 04:
Look, we have liability under the construction agreement.

[00:19:37] Speaker 04:
We laid this out in our brief.

[00:19:39] Speaker 04:
And it says specifically, and I want to talk about some of what Mr. Yarger talked about, that the construction agreement, look at section 7.7.5.

[00:19:48] Speaker 04:
The overall structure of agreement says, yes, Millinder White fronts the costs.

[00:19:53] Speaker 04:
It's the general contractor.

[00:19:55] Speaker 04:
But then we as the owner, it is our obligation to reimburse Millinder White for the cost of the performance of the project.

[00:20:02] Speaker 04:
And section 7.7.5 speaks to this issue specifically.

[00:20:06] Speaker 04:
And it says that Curtis Park must pay Melinda White the costs of repairing or correcting damaged or non-conforming work.

[00:20:16] Speaker 02:
You've been asked this question before, or at least your client has.

[00:20:19] Speaker 02:
What is the case that is like this one that agrees with your position?

[00:20:25] Speaker 02:
What's your best case?

[00:20:26] Speaker 02:
West End Harbor.

[00:20:28] Speaker 04:
And so in West End Harbor, the owner of an apartment building was seeking to recover flood insurance.

[00:20:33] Speaker 04:
for costs that its contractors had fronted, the owner had not yet paid out of pocket.

[00:20:40] Speaker 04:
There was even a settlement agreement that said, we will go and pursue insurance and then we will pay you the contractor once we've recovered from insurance.

[00:20:50] Speaker 04:
Now that was an even more strict insurance policy that only covered the amounts the insured had actually spent.

[00:20:57] Speaker 04:
But the federal court in that case said, it's fine.

[00:21:01] Speaker 04:
because the policy language is broad enough to cover liabilities that you've incurred to do the repairs, even if the money has not yet flowed from the insurer to the contractor.

[00:21:12] Speaker 04:
Because what the court said is, if we interpret this policy any differently, that would preclude repair services on credit, and that result would be untenable.

[00:21:23] Speaker 04:
That's what the court held in West Indy Harbor.

[00:21:25] Speaker 04:
We have a broader policy language here, right?

[00:21:27] Speaker 04:
That was one of the amounts you actually spent

[00:21:30] Speaker 03:
How did the parties reach the percentage split?

[00:21:36] Speaker 03:
And why did it cover all recovery, which would include hard costs and salt costs?

[00:21:44] Speaker 04:
I don't know if there's testimony that breaks that down.

[00:21:47] Speaker 04:
I think there's testimony that says the 6238 roughly went to what is the amount of hard costs that Melinda White had fronted.

[00:21:58] Speaker 04:
and had this sort of lingering liability for versus what was the amount of soft cost that we, as Curtis Park, had paid out of pocket.

[00:22:09] Speaker 03:
Describe the hard cost again.

[00:22:11] Speaker 03:
The cost that Melinda White had fronted.

[00:22:15] Speaker 03:
Had fronted.

[00:22:16] Speaker 03:
And yet Melinda White, if for some reason the insurance policy lawsuit lost, maybe because of bad faith, because they, whatever.

[00:22:28] Speaker 03:
Melinda White would not get anything back.

[00:22:33] Speaker 04:
Your Honor, that's the arrangement the parties reached.

[00:22:36] Speaker 04:
I think what the testimony is, is when we get to the end of a big project like this, they the general contractor, we the owner, we're going to have a lot of open issues, open obligations and liabilities to one another.

[00:22:50] Speaker 04:
And so what they said at that point was, all right, we're going to resolve this in the closeout agreement.

[00:22:55] Speaker 04:
And through the closeout agreement,

[00:22:57] Speaker 04:
Curtis Park, you're going to pay Melinda White a check.

[00:22:59] Speaker 04:
Melinda White is going to get, rather than getting this direct reimbursement for the hard costs that they had fronted and under the plain terms of the construction agreement were owed reimbursement, what Melinda White said was, okay, rather than this direct reimbursement, we're going to get a contingent payment right under the insurance claim.

[00:23:19] Speaker 04:
Now, your honors have referenced this.

[00:23:22] Speaker 04:
Melinda White is going to get paid more than just

[00:23:26] Speaker 04:
the hard costs that it paid out of pocket.

[00:23:28] Speaker 04:
It gets 62% of the recovery.

[00:23:30] Speaker 04:
And so I don't know that there's testimony to this effect, but clearly that was a business decision that Melinda White reached and said, we have this liability.

[00:23:38] Speaker 04:
We're going to accept a contingent payment obligation in order to satisfy that.

[00:23:45] Speaker 03:
How were the soft costs calculated by the jury?

[00:23:48] Speaker 03:
What was the evidence on which the soft costs were based?

[00:23:52] Speaker 04:
So that was joint exhibit 42, I believe, in our supplemental appendix.

[00:23:55] Speaker 04:
There was an outline of the soft costs of the things that we, Curtis Park, had lost.

[00:24:00] Speaker 04:
So this is additional taxes.

[00:24:03] Speaker 04:
It's marketing expenses.

[00:24:05] Speaker 04:
It's lost lease revenue.

[00:24:06] Speaker 04:
There's testimony from Jonathan Alpert that laid that out.

[00:24:09] Speaker 04:
The jury gave us what we asked for.

[00:24:10] Speaker 04:
And there's been no dispute on appeal that we incurred those soft costs.

[00:24:15] Speaker 03:
That Curtis Park did?

[00:24:16] Speaker 04:
We incurred those soft costs.

[00:24:18] Speaker 03:
Did Melinda White incur any?

[00:24:21] Speaker 03:
costs that were included in that calculation?

[00:24:24] Speaker 04:
Not in the soft cost, Your Honor, no.

[00:24:26] Speaker 04:
The only evidence that Melinda White, what they fronted, what they paid in the hard costs is the $2.8 million.

[00:24:36] Speaker 04:
And you reference this all-phase issue.

[00:24:38] Speaker 04:
The testimony is Melinda White paid out the $2.8 million, and it was the last $400,000 that it withheld from its construction from all-phase

[00:24:50] Speaker 04:
because they had this lingering liability much in the same way that we do.

[00:24:54] Speaker 04:
But let me say, to give you some comfort or make your life easier, you can set aside every dollar of the all-phase issue.

[00:25:03] Speaker 04:
We have $2.8 million in hard costs.

[00:25:06] Speaker 04:
Set aside all $1.1 million.

[00:25:08] Speaker 04:
We've still got $1.7 million in hard costs that Curtis Park unquestionably incurred.

[00:25:14] Speaker 04:
The jury awarded $1.5.

[00:25:16] Speaker 04:
And so you can set the all-phase issue aside.

[00:25:20] Speaker 04:
Let me clarify his claim that we represented, that we paid the hard costs in the swarm proof of loss.

[00:25:29] Speaker 04:
You can go back and look at that exhibit.

[00:25:31] Speaker 04:
It will not say that.

[00:25:32] Speaker 04:
It's a very general document that just says, here are our hard costs.

[00:25:36] Speaker 04:
And again, it goes back to this sort of, I don't want to call it a slide, but they talk in their brief, they talk today, what are the amounts you've heard as part paid?

[00:25:46] Speaker 04:
That's not what the policy is asking.

[00:25:48] Speaker 04:
The policy asks, what are the liabilities we incurred?

[00:25:52] Speaker 04:
And under the construction agreement, and then under the closeout agreement, we have incurred liability for the hard costs.

[00:25:58] Speaker 02:
So you're distinguishing between a liability and a loss?

[00:26:03] Speaker 02:
Not at all, Your Honor.

[00:26:03] Speaker 02:
Well, you keep saying liability instead of loss.

[00:26:06] Speaker 04:
So Your Honor, loss is not defined in this policy.

[00:26:09] Speaker 04:
The policy says, we will pay your loss.

[00:26:11] Speaker 04:
but it doesn't define what loss means.

[00:26:13] Speaker 04:
What does loss mean to you?

[00:26:15] Speaker 04:
It's a general.

[00:26:16] Speaker 04:
It gets its ordinary meaning under insurance law.

[00:26:19] Speaker 04:
This is the property you've been deprived of, the damage you suffered under the insurance policy.

[00:26:24] Speaker 04:
And so we look at the scope of the policy.

[00:26:26] Speaker 04:
And the scope of the policy is physical loss and damage to our covered buildings in the course of construction as valued by replacement costs.

[00:26:35] Speaker 02:
So is it the same place as if the general contractor, subcontractors had been additional insured?

[00:26:42] Speaker 02:
Yeah, we'd probably get to the same place.

[00:26:45] Speaker 02:
But again, the additional... So the district court's modifying the policy.

[00:26:48] Speaker 04:
It's not because Curtis Park is bringing the lawsuit as a named insurance company.

[00:26:54] Speaker 04:
Right?

[00:26:54] Speaker 04:
So what the additional insured provision says is, okay, you contractor, if for whatever reason you don't recover, you can sue the insurance company.

[00:27:04] Speaker 04:
And that's what all their case authorities say.

[00:27:06] Speaker 04:
There are cases where these third-party contractors weren't named as an additional insured and they got the claim.

[00:27:12] Speaker 04:
That's not what this is.

[00:27:13] Speaker 04:
This is Curtis Park suing as a named insurer to recover its losses, just as is allowed in the broad language of this issue as well.

[00:27:22] Speaker 03:
What you've argued is a loss is not just the amount they paid, but the amount that they're liable for.

[00:27:29] Speaker 03:
That's right.

[00:27:32] Speaker 03:
Given the closeout agreement, doesn't that establish that Curtis Park will never have to pay another penny?

[00:27:41] Speaker 03:
It's not liable for anything after that agreement is executed.

[00:27:46] Speaker 03:
Your Honor, it is liable for paying 62% of the judgment that we recover from Ally Broll.

[00:27:51] Speaker 03:
But there's no way it's going to be out any money.

[00:27:54] Speaker 03:
But that's the point of insurance.

[00:27:56] Speaker 04:
The point of insurance is when my property is damaged, I've got an insurance policy so the insurance company pays to repair that damage.

[00:28:04] Speaker 04:
And that's what Ally Broll promised to do.

[00:28:07] Speaker 03:
But it promised to pay.

[00:28:11] Speaker 03:
If for whatever reason the people that Curtis Park might have owned have agreed not to ask for any of that money, not to seek any of that money, then there's no loss by Curtis Park.

[00:28:25] Speaker 03:
And Curtis Park has benefited.

[00:28:30] Speaker 03:
I wish I could remember the term that escaped me.

[00:28:33] Speaker 03:
I should have written it down.

[00:28:35] Speaker 04:
Your Honor, I would just say we have a liability to pay.

[00:28:39] Speaker 04:
It is under the close-out agreement.

[00:28:41] Speaker 03:
You have a liability to pay.

[00:28:45] Speaker 03:
There's no way you're going to be any worse off.

[00:28:52] Speaker 03:
Because of that agreement, Curtis Park is not going to have to pay anybody anything.

[00:28:58] Speaker 03:
And Your Honor, I see my time's up.

[00:28:59] Speaker 04:
Can I answer your question?

[00:29:00] Speaker 04:
Oh, yes.

[00:29:01] Speaker 04:
That is exactly what would have happened if they had come to this property, had acknowledged coverage, had written us a check,

[00:29:08] Speaker 04:
we would have immediately paid Melinda White.

[00:29:10] Speaker 04:
We would not have been any worse off.

[00:29:12] Speaker 04:
That's the reason why we have insurance, is so that we as the insurer... But you would have been better off.

[00:29:19] Speaker 04:
Under the scenario where the insurance company pays for the damage and then we pay Melinda White, we wouldn't.

[00:29:25] Speaker 04:
They did net zero.

[00:29:27] Speaker 04:
That's exactly right.

[00:29:28] Speaker 04:
And that's what we're trying to get to, is net zero, plus the bad face damages, Your Honor.

[00:29:32] Speaker 04:
That's the only difference.

[00:29:34] Speaker 04:
But the point is, the cost that Melinda White paid upfront,

[00:29:38] Speaker 04:
we are going to pay them when we recover from insurance.

[00:29:42] Speaker 04:
And that's no different from just thousands of other, I mean, think about a homeowners claim, where if I have roof damage at my house and somebody comes out and fixes it, I'm going to say, okay, yeah, do that work, but I'll pay you when the insurance check comes.

[00:29:56] Speaker 04:
Me as the homeowner, I'm not any worse off, I'm not any better off.

[00:30:00] Speaker 04:
I have paid for the roof damage that the insurance companies say recover.

[00:30:03] Speaker 04:
And that's what happened here.

[00:30:05] Speaker 04:
And so for all those reasons, we ask you to.

[00:30:07] Speaker 01:
Can I just jump in there?

[00:30:08] Speaker 01:
Sure.

[00:30:09] Speaker 01:
But the homeowner, doesn't the homeowner have to contact the insurance company and the insurance company sends out an adjuster to look at the damages?

[00:30:18] Speaker 01:
I mean, isn't the point that you have deprived the insurance company of their ability to assess the damages of the amount by a private agreement?

[00:30:31] Speaker 04:
Well, Judge, if I kept trying to get your question,

[00:30:34] Speaker 04:
They had the opportunity to come out, they had the opportunity to come out and investigate all the damage.

[00:30:39] Speaker 01:
I know, but they didn't, they didn't, they weren't party to that, to the agreement, right?

[00:30:44] Speaker 04:
The close out agreement, yes.

[00:30:46] Speaker 01:
Right, they weren't part, so I guess that's my, that's my question.

[00:30:50] Speaker 01:
How, how is that not something that you're gaining?

[00:30:55] Speaker 04:
Because we are liable for the costs and what the insurance company.

[00:31:00] Speaker 01:
Right, but the amount of the costs and the assessment of the costs.

[00:31:03] Speaker 04:
Oh, got it.

[00:31:06] Speaker 04:
I'll let you finish your question.

[00:31:08] Speaker 04:
The amount of the cost, they had four years to test those things.

[00:31:12] Speaker 04:
They saw all of the invoices.

[00:31:14] Speaker 04:
So if you can go back and look at the claim summary document in our appellate appendix, that's joint exhibit 24, there's pages and pages laying out.

[00:31:22] Speaker 04:
This is the repair work we did to fix the concrete slab, to fix the building.

[00:31:27] Speaker 04:
Here's an itemization of all the expenses that adds up to the $2.8 million.

[00:31:32] Speaker 04:
The insurance company had every opportunity to test those numbers.

[00:31:36] Speaker 04:
And it tested those numbers in front of the jury.

[00:31:38] Speaker 04:
It said that none of them are covered because this was faulty workmanship.

[00:31:43] Speaker 04:
The jury heard all that evidence, rejected it, found there was no contractor fault.

[00:31:48] Speaker 04:
So all of those cost the $2.8 million.

[00:31:51] Speaker 04:
The jury found that those were covered by the terms of the policy.

[00:31:55] Speaker 04:
The only issue we're still talking about is is there somehow some difference that we as the insured cannot recover for those costs

[00:32:04] Speaker 04:
simply because we didn't pay out of pocket but were simply liable for it.

[00:32:08] Speaker 04:
The district court properly found that we could recover and we ask you to affirm.

[00:32:12] Speaker 03:
Thank you, counsel.

[00:32:16] Speaker 03:
Thank you.

[00:32:16] Speaker 03:
Counsel, you'll have some extra time.

[00:32:19] Speaker 03:
I'd like you first to respond to their reliance on West End.

[00:32:24] Speaker 03:
How do you distinguish West End?

[00:32:26] Speaker 05:
Yes, your honor, very easily.

[00:32:28] Speaker 05:
In West End Harbor, there were

[00:32:29] Speaker 05:
two very key points that distinguish that case fully from this one.

[00:32:35] Speaker 05:
The contractors issued invoices to the building owner.

[00:32:39] Speaker 05:
Not only that, the contractors took out liens on the property.

[00:32:45] Speaker 05:
Even then, the court said, well, there's still a fact issue here.

[00:32:47] Speaker 05:
I'm not going to decide it in favor of one party that goes to the fact finder.

[00:32:51] Speaker 05:
Here, we have no invoices, of course not.

[00:32:54] Speaker 05:
We have the opposite.

[00:32:55] Speaker 05:
We have a formal notice of the contract

[00:32:57] Speaker 05:
whereby Curtis Hart tells them all in their way, you're going to fix this and you're going to pay for all costs.

[00:33:03] Speaker 05:
And they're making this new argument, two new arguments on appeal that show up for the first time in their response brief.

[00:33:12] Speaker 05:
First is West End Harvard and the notion that this is a repair on credit agreement.

[00:33:17] Speaker 05:
This is not a repair on credit agreement.

[00:33:19] Speaker 05:
As you pointed out Judge Hart, there is no obligation to pay back the hard costs at any point.

[00:33:24] Speaker 05:
Imagine this.

[00:33:25] Speaker 05:
Imagine we went to trial and the jury found only soft costs are recoverable, no hard costs.

[00:33:31] Speaker 05:
Curtis Park would still be apparently paying Millinder White two-thirds of the recovery.

[00:33:36] Speaker 05:
That's a windfall of Millinder White, who's not insured under this agreement.

[00:33:40] Speaker 05:
And it's not recovering our costs if it was a zero dollar recovery.

[00:33:44] Speaker 05:
Curtis Park would owe nothing to Millinder White or those subcontractors.

[00:33:49] Speaker 05:
The next thing they're arguing is this brand new argument under the construction agreement.

[00:33:53] Speaker 05:
And they focus on,

[00:33:55] Speaker 05:
7.7.5.

[00:33:58] Speaker 05:
What they don't tell you is a couple pages further in 12.12.1, in order for Milner-White to bill Curtis Park for amounts owed, Milner-White has to send what is called a quote, formal application for payment, showing in complete detail all monies paid out or costs incurred by the contractor, Milner-White,

[00:34:21] Speaker 05:
for which the contractor is to be reimbursed under the terms of the contract documents.

[00:34:25] Speaker 05:
That's not just a formal, you know, documentation requirement.

[00:34:29] Speaker 05:
It is the obligation by which Miller White says you have to pay me fees.

[00:34:34] Speaker 05:
We don't have that document because there is no obligation for Curtis Park to pay the hard cost.

[00:34:39] Speaker 05:
It's sort of like a lawyer's engagement agreement.

[00:34:42] Speaker 05:
Someone hires me, we set out the scope of work in my hourly rate, but until I invoice that client, they don't owe me a dime.

[00:34:48] Speaker 05:
The same is true here under the construction agreement, and they completely ignore that provision.

[00:34:55] Speaker 05:
On the closeout agreement, what they're saying is that the obligation to pay the judgment of this lawsuit somehow supports the claim that they filed years ago.

[00:35:05] Speaker 05:
The closeout agreement wasn't submitted as part of the claim.

[00:35:08] Speaker 05:
It didn't even exist when the claim existed.

[00:35:10] Speaker 05:
The only document that we have that existed at the time that this insurance claim was filed was that formal notice saying, no, you have to pay for this.

[00:35:18] Speaker 05:
And they didn't tell us about that.

[00:35:19] Speaker 05:
They didn't give us that document during the claim process.

[00:35:23] Speaker 05:
Nor did they tell us that the subcontractors were going to be paying for these costs.

[00:35:28] Speaker 05:
Nor did they tell us about the closeout agreement.

[00:35:31] Speaker 05:
There is a very significant misrepresentation issue

[00:35:35] Speaker 05:
in this case that we were never allowed to pursue because the district court fundamentally misunderstood the scope of this policy.

[00:35:44] Speaker 05:
I think the final point I want to make is that the point of insurance is not what Mr. Duffrey said.

[00:35:54] Speaker 05:
The point of insurance is to cover specific losses pursuant to an agreement for premiums paid.

[00:36:01] Speaker 05:
Milner-White never paid premiums, neither did some contractors.

[00:36:05] Speaker 05:
If your home gets damaged and someone else agrees to pay for it without charge, you don't go to your homeowners insurance and ask for money from the homeowners insurance.

[00:36:15] Speaker 05:
And what you certainly don't do is go to the person who fixed your house and say, let's team up and sue the insurance company.

[00:36:23] Speaker 05:
and split the proceeds after the fact.

[00:36:26] Speaker 05:
As you said, Judge Arts, that's an invitation to collusion and fraud.

[00:36:30] Speaker 05:
It's not an invitation to correctly construing an insurance policy that covers the main insurance losses.

[00:36:36] Speaker 03:
Before you get to your last point, did the jury find that there was no defective construction causing the need to repair?

[00:36:49] Speaker 05:
It found that that exclusion did not apply.

[00:36:53] Speaker 05:
It was our burden.

[00:36:54] Speaker 05:
It was the exclusion.

[00:36:55] Speaker 05:
The exclusion for defective work.

[00:36:58] Speaker 00:
OK.

[00:36:59] Speaker 05:
But keep in mind, every time we told the jury or tried to tell the jury, Miller White is paying for these losses and so are its subcontractors, the judge jumped in and said, don't worry about that.

[00:37:11] Speaker 05:
Forget about it.

[00:37:12] Speaker 05:
What's the very best evidence that we have that there was defective construction here?

[00:37:18] Speaker 05:
The fact that the contractor agreed to pay for it, and the contractor went to its stuffs and said,

[00:37:23] Speaker 05:
Not only are we not paying for it, you're paying for it.

[00:37:29] Speaker 03:
Was there expert testimony that you presented showing that this was detective construction, but the jury didn't buy that?

[00:37:39] Speaker 05:
That's correct.

[00:37:40] Speaker 05:
On a skewed record, and again, they were not allowed to consider our misrepresentation.

[00:37:44] Speaker 05:
The facts would have washed all that away.

[00:37:46] Speaker 05:
The other thing they weren't allowed to consider is their expert, who

[00:37:50] Speaker 05:
professed an inability to figure out what actually caused this slab to crack, even though it's very clear that the reinforcement within the structure wasn't placed in the right location.

[00:38:01] Speaker 05:
We weren't allowed to tell the jury the story, well, now wait a minute.

[00:38:05] Speaker 05:
Miller White is paying half the cost of his lawsuits.

[00:38:08] Speaker 05:
And Miller White is the one who wants to claim that it can't figure out what happened, even though it's paying for the deflected slab and the cost

[00:38:16] Speaker 05:
So even though there was expert testimony on that point, the jury didn't fully understand and was not allowed to, and the judge told them to ignore the significance of the fact that the contractor here, who you typically think would be at fault,

[00:38:31] Speaker 05:
was being told it doesn't matter that they covered the costs.

[00:38:34] Speaker 05:
You can ignore that.

[00:38:35] Speaker 05:
I'm telling you, as a matter of fact, ignore that piece of evidence.

[00:38:39] Speaker 05:
And that was a very significant problem in the presentation of this case.

[00:38:43] Speaker 05:
And that doesn't even get into the misrepresentation defense that we had that we were allowed to spend.

[00:38:48] Speaker 05:
Oh, and last point on that misrepresentation defense, I want to make this clear.

[00:38:55] Speaker 05:
Curtis Park represented in its words statement of loss that it, quote, engaged in

[00:39:00] Speaker 05:
No attempt to deceive the insurance company as to the extent of said loss has in any manner been made.

[00:39:09] Speaker 05:
We had a right to prove that they did misrepresent the extent of the loss, because no one in white paid for it.

[00:39:15] Speaker 05:
They don't have insurance.

[00:39:16] Speaker 05:
And their sons paid for it.

[00:39:17] Speaker 05:
They don't have insurance.

[00:39:19] Speaker 05:
So we should have been allowed to present that misrepresentation defense to this jury.

[00:39:24] Speaker 05:
You had a question, Judge?

[00:39:25] Speaker 05:
No, I think you go.

[00:39:27] Speaker 03:
Thank you.

[00:39:29] Speaker 03:
Interesting.

[00:39:33] Speaker 03:
Case is submitted.

[00:39:34] Speaker 03:
Counselor excused.

[00:39:35] Speaker 03:
We're going to take a brief recess at this time.