Construction Claims

Limitations & Repose Periods

Statutes of Limitations

Kansas has a five-year statute of limitations for any cause of action based upon a written contract, K.S.A. §60-511.

There is a three-year statute of limitations for any action based on an express or implied but unwritten contract, obligation or liability. K.S.A. §60-512.

Most actions based on negligence are subject to a two-year statute of limitations. This applies to actions for damage to personal property, injury to the rights of another not based on contract, and personal injury, including wrongful death. K.S.A. §60-513.

Statute of Limitations Regarding Alleged Construction Defects

Kansas has enacted the Kansas Residential Construction Defect Act which primarily addresses notice requirements that must be met by a homeowner prior to filing a lawsuit against a contractor for construction defects. K.S.A. §60-4701, et seq.

1. Statute of Limitations Claim Brought Pursuant to the Consumer Protection Act The statute of limitations for a claim for civil penalties brought under Kansas’s Consumer Protection Act is one year. K.S.A. § 60-514(3). There is a three-year statute of limitations for claims for actual damages. K.S.A. § 60-512-(2).
2. Statute of Limitations of a Claim Brought Pursuant to Breach of Implied Warranty of Workmanlike Construction Action for breach of implied warranty of workmanlike performance is subject to a three-year statute of limitations for actions upon implied contracts. Zenda Grain & Supply Co. v. Farmland Industries, Inc., 20 Kan.App.2d 728, 740 (1995); K.S.A. § 60-512.
3. Statute of Limitations of a Claim Brought Pursuant to Breach of Express Warranty A cause of action based upon a builder’s express warranty to repair or replace construction defects in a newly built house must be brought within five years of the date the builder breached the warranty by refusing or failing to repair or replace the defects. Hewitt v. Kirk’s Remodeling and Custom Homes, Inc., 49 Kan.App.2d 506, 507 (2013); K.S.A. § 60-511. However, if the express warranty is not written, the statute of limitations is three years. K.S.A. § 60-512.
4. Statute of Limitations of a Claim Based on Fraud The statute of limitations for claims based on fraud is two years. The statute of limitations does not begin to run until the fraud is discovered. K.S.A. §60-513(a)(3).

Discovery Rule

Construction contracts are subject to the general rule that a cause of action accrues when the plaintiff “could first have filed and prosecuted his action to a successful conclusion.” Edward Kraemer & Sons, Inc. v. City of Overland Park, 880 P.2d 789 (Kan. Ct. App. 1994) (citing Yeager v. Nat’l Corp. Refinery Ass’n, 470 P.2d 797 (Kan. 1970)).

However, with respect to most actions for injury to persons or property not based upon contract, a cause of action shall not be deemed to have accrued until the act first causes substantial injury, or the injury becomes reasonably ascertainable to the injured party. K.S.A. §60-513(b). This act further provides that such actions must be brought within ten years from the time the act gives rise to a cause of action.

The Discovery Rule in Relation to Tolling the Statute of Limitations in Actions Involving Construction Defects

Additionally, K.S.A. § 60-4702 (Construction Defect Act), provides that if the statute of limitations would expire during the time period necessary to allow the parties to comply with the provision of this act, the statute of limitations will be tolled if the claimant gives notice of the claim to the contractor within 90 days of entry of the order of dismissal of the action without prejudice pursuant to subsection (a). Further, the claimant’s notice of claim shall serve to toll the statute of limitations for 180 days after the latest of the following three dates: (1) the date the claimant personally serves or mails the notice of claim; (2) the date agreed upon for the contractor to make payment under subsection (c)(3) of (g)(2) of K.S.A. § 60-4704, and amendments thereto; or (3) the date agreed upon for the contractor to completely remedy the construction defect under subsection (c)(2) or (g)(1) of K.S.A. § 60-4704, and amendments thereto.

Statute of Repose:

There is no statute of repose pertaining specifically to construction defect actions. However, with respect to most actions for injury to persons or property not based upon contract, a cause of action shall not be deemed to have accrued until the act first causes substantial injury, or the injury becomes reasonably ascertainable to the injured party. K.S.A. §60-513(b). This act further provides that such actions must be brought within ten years from the time the act gives rise to a cause of action.

Right to Repair Laws and/or Pre-Suit Statutory Procedures

In Hewitt v. Kirk’s Remodeling and Custom Homes, Inc., 310 P.3d 436, 444-45 (Kan. Ct. App. Oct. 11, 2013), homeowners brought claims against a builder for breach of contract and express warranty. The Court of Appeals held that the builder’s refusal to repair defects triggered the statute of limitations on the express warranty claim. As such, for purposes of K.S.A. §60-511(1), a cause of action based upon a builder’s express warranty to repair or replace construction defects in a newly built house must be brought within five years of the date the builder breached the warranty by refusing or failing to repair or replace the defects.

The Kansas Legislature has passed the Residential Construction Defect Act (“RCDA”), which went into effect on July 1, 2003. K.S.A. § 60-4701 et seq. The primary purpose of the RCDA is to require a construction defect claimant to provide pre-suit notice of the claim upon the contractor. A “claimant” is defined as a “homeowner, including a subsequent purchaser, or association who asserts a claim against a contractor concerning a defect in the construction or in the remodel of a dwelling.” K.S.A. § 60-4701(c). A “contractor” is defined as “any person, firm, partnership, corporation, association or other organization that is engaged in the business of constructing dwellings.” K.S.A. § 60-4701(e). A “dwelling” includes a single-family residence, a duplex, or multifamily unit designed for residential use. K.S.A. § 60-4701(f).

Notice Issues

The initial notice of claim shall state that the claimant asserts a construction defect claim and the notice of claim shall describe the claim or claims in detail sufficient to determine the general nature of any alleged construction defects. K.S.A. § 60-4704(a). If a claimant files an action against a contractor without service of notice under the RCDA, the action will be dismissed without prejudice upon motion of the contractor filed within sixty (60) days of service of process. K.S.A. § 60-4702(a). An action against a contractor cannot be re-filed until the parties have complied with the provisions of this act. Id.

After receipt of the notice, the contractor is required to serve a copy of the notice upon each subcontractor who may be responsible for a defect specified in the notice. K.S.A. § 60¬4704(b). This must be done within fifteen (15) days after being served. Id. The notice must include the specific defect for which the contractor believes the subcontractor may be responsible. Id.

Within thirty (30) days after service of the notice of claim, each contractor that has received such notice shall serve a written response on the claimant. K.S.A. § 60-4704(c). The written response shall: (1) propose to inspect the subject dwelling, (2) offer to remedy the alleged defect at no cost to the claimant, (3) offer to settle the claim for a monetary amount, or (4) state that the contractor disputes the claim and will neither remedy the alleged construction defect nor compromise and settle the claim. Id.

If the contractor refuses service of the notice of claim, disputes the claim, does not respond to the claimant’s notice of claim within the time stated above, does not commence or complete the work on the alleged construction defect on the date specified or does not make the payment in the time specified, the claimant may bring an action against the contractor without further notice. K.S.A. § 60-4704(d).

Absent good cause, the contractor’s failure to respond in good faith to the claimant’s notice of claim shall preclude the contractor from asserting that the claimant did not comply with the provisions of this act. K.S.A. § 60-4704(m).

Remedy Proposal

Any claimant accepting the offer of the contractor to remedy the construction defects shall do so by serving the contractor with a written notice of acceptance no later than thirty (30) days after receipt of the offer. K.S.A. § 60-4704(k).

If a claimant accepts a contractor’s offer to repair a defect described in a notice of claim, the claimant shall provide the contractor and its agents reasonable access to the claimant’s dwelling during normal working hours to perform and complete the construction by the timetable stated in the offer. K.S.A. § 60-4704(1).

Rejection of Contractor’s Proposal

If the claimant rejects the inspection proposal or the settlement offer made by the contractor, the claimant shall serve written notice of the claimant’s rejection on the contractor. K.S.A. § 60-4704(e). After service of the rejection, the claimant may bring an action against the contractor without further notice or elect an arbitration process under K.S.A. § 5-201 et seq. Id. A failure to give the notice of rejection will not require the dismissal of the action under K.S.A. § 60-4702(a). Id.

Inspection Proposal

If the claimant elects to allow the contractor to inspect the dwelling, the claimant must notify the contractor and provide the contractor with access to the dwelling during normal working hours. K.S.A. § 60-4704(f). The inspection must occur within thirty (30) days of notification to the contractor. Id. Within thirty (30) days following the inspection, the contractor must respond to the claimant in writing and either offer to remedy the construction defect, offer to settle the matter through monetary payment, or state that the contractor will not proceed further to remedy the defect. K.S.A. § 60-4704(g). As stated above, if an agreement cannot be reached, the claimant can proceed with bringing a lawsuit. K.S.A. § 60-4704(g), (h), (i) and (j). However, if the claimant is rejecting a contractor’s proposed offer he must serve notice of rejection before proceeding with litigation. K.S.A. § 60-4704(j).

Miscellaneous Issues

The statute also requires the contractor to provide certain notices to the owner of the dwelling. For example, when constructing a new dwelling or remodeling the dwelling, the contractor must provide the owner notice of the requirements under this Act. K.S.A. § 60-4706. Furthermore, purchasers of newly constructed dwellings must be provided a list of subcontractors and a notification of the requirements under this Act. K.S.A. § 60-4707.

Indemnity and Contribution

Indemnity

An indemnification provision in a construction contract that requires the promisor to indemnify the promisee for the promisee’s negligence or intentional acts or omissions is against public policy and is void and unenforceable. K.S.A. § 16-121(b);

Kansas has previously recognized contractual indemnification in building and construction contracts. See, e.g., Sw. Nat’l Bank v. Simpson and Son, Inc., 14 Kan. App. 2d 763, 799 P.2d 512 (1991). The two most typical areas where one would likely see the use of contractual indemnification are (1) to protect a general contractor from contractual liability based on or arising out of the negligence of a subcontractor, or (2) to protect a party from injuries occurring on a construction site.

Indemnity is generally defined as “an obligation resting on a party to make good any loss another has incurred while acting at his request or for his benefit . . . .” Missouri Pac. Ry. Co. v. City of Topeka, 213 Kan. 658, 662, 518 P.2d 372 (1974).

While the indemnification agreement will be interpreted according to its terms, an obligation of good faith is implied within those terms. Hartford v. Tanner, 22 Kan. App. 2d 64, 73, 910 P.2d 872 (1996); Estate of Draper v. Bank of America, 288 Kan. 510, 525, 205 P.3d 698, 710 (2009).

A cause of action for indemnitee does not accrue until the indemnitee suffers actual loss or damage. Leiker v. Gafford, 249 Kan. 554, 558-59, 819 P.2d 655 (1991) overruled on other grounds by Martindale v. Tenny, 250 Kan. 651, 829 P.2d 561 (1992). “Simply because one has been found liable for an obligation of another, it does not necessarily follow that one is entitled to indemnification. A condition precedent to indemnification is that the indemnitee must actually have paid on the obligation for which he seeks indemnification.” Id. (discussing indemnity in the context of vicarious liability).

It should also be noted that absent express language in the contract, attorney’s fees are not recoverable in a lawsuit to enforce the indemnity agreement. Chetopa State Bancshares, Inc. v. Fox, 6 Kan. App. 2d 326, 333-34, 628 P.2d 249 (1981). The flip side, obviously, is where the contract provides for attorney’s fees, such a provision is enforceable. Id.

The doctrine of “comparative implied indemnity” is an equitable remedy that allows one tortfeasor to seek contribution from other potential tortfeasors in proportion to their comparative negligence. Kansas law restricts the use of this doctrine, however, to cases where an actual claim has been properly asserted against a joint tortfeasor. Am. Cas. Co. v. Healthcare Indem., Inc., 2002 U.S. Dist. LEXIS 9688, at *10 (D. Kan. Mar. 27, 2002).

Contribution

Under Kansas law, the doctrine of equitable contribution is as a remedy available to one who is forced to bear more than his fair share of a common burden or liability to recover from the others their chargeable proportion of the amount paid by him. American States Ins. Co. v. Hartford Acc. & Indem. Co., 218 Kan. 563, 571, 545 P.2d 399, 407 (Kan. 1976). Under Kansas law, there is no right to contribution among joint tortfeasors because no defendant is liable for the fault of any other. K.S.A. § 60-258(a).

The “one-action rule” requires that all parties must have their fault determined in a single trial. All liable parties are joined in one action. No party is liable for the fault of others, so “the equitable need for contribution vanished,” and the Kansas Supreme Court abolished it. Teepak, Inc. v. Learned, 699 P.2d 35 (Kan. 1985). Defendant in comparative negligence action cannot settle claim on behalf of party or parties against whom plaintiff has not sought recovery and then seek contribution from those parties in proportion to percentage of causal negligence attributable to them. Ellis v. Union Pac. R. Co., 643 P.2d 158 (Kan. 1982).

Certificate of Merit – Experts

If professional negligence action is filed, one of the parties can request that professional malpractice screening panel be convened. No person needs to sign a Certificate of Merit, no affidavit or expert report is required. K.S.A. §§ 60-3501 to 3509.

Economic Loss Doctrine

The economic loss doctrine is being eroded in Kansas. Kansas law recognizes the economic loss doctrine and in general “a plaintiff [in Kansas] seeking recovery for economic losses only cannot proceed under theories sounding in tort.” Rand Constr. Co. v. Dearborn Mid-W. Conveyor Co., 944 F. Supp. 2d 1042, 1062 (D. Kan. 2013); see also Koss Constr. v. Caterpillar, Inc., 960 P.2d 255, 259 (1998). That said, the Supreme Court of Kansas has created an exception for homeowners in the construction context, declining to apply the doctrine to “bar claims by homeowners seeking to recover economic damages resulting from negligently performed residential construction services.” David v. Hett, 270 P.3d 1102, 1114 (Kan. 2011).

Negligent misrepresentation claims are not subject to the economic loss doctrine because the duty underlying such claims arises by operation of law and the doctrine’s purposes would not be furthered by extending it to such claims. See Rinehart v. Morton Bldgs., Inc., 297 Kan. 926, 305 P.3d 622 (2013);

“For purposes of K.S.A. 60-511(1), a cause of action based upon a builder’s express warranty to repair or replace construction defects in a newly built house must be brought within 5 years of the date the builder breached the warranty by refusing or failing to repair or replace the defects. Hewitt v. Kirk’s Remodeling and Custom Homes, Inc., 49 Kan. App. 2d 506, 310 P.3d 436 (2013);

Breach of implied warranty claim against the construction company’s president (individually) failed as a matter of law where there was no underlying agreement between the plaintiff and the company president Coker v. Siler, 48 Kan App. 2d 910, 304 P.3d 689 (2013);

Defective bathroom vents caused fires in various housing units. The plaintiffs brought a tort claim for damage to the home, and defendants moved for summary judgment arguing that the tort claim was barred by the economic loss doctrine. The Court of Appeals held that the vents were not part of an integrated system, and therefore, the damage caused by the fires was damage to “other property” that was not barred the economic loss doctrine. Corvias Military Living, LLC v. Ventamatic, Ltd., 54 Kan. App. 2d 169, 179, 397 P.3d 441 (2017).

Construction Damages

Diminution in Value/Cost of Repair/Stigma Damages

When damage to real estate is temporary and of such a character that the property can be restored to its original condition, the measure of damages is the reasonable cost of repair necessary to restore it to its original condition plus a reasonable amount to compensate for loss of use of the property but not to exceed the fair and reasonable market value before the injury. Anderson v. Rexrod, 180 Kan. 505, 306 P.2d 137 (1957); McBride v. Rice, 23 Kan.App.2d 380, 930 P.2d 631 (1997).

Kansas courts allow testimony about fear in the market place affecting the property value of land with regard to electrical transmission lines, easements, termites, etc. Horsch v. Terminex International Company, L.P., 19 Kan.App.2d 134, 865 P.2d 1044 (1993). However, if the property owner has not proven either a physical injury to the property or physical interference with the owner’s use and enjoyment, stigma or market fear damages under a negligence or nuisance theory cannot be recovered. Smith v. Kansas Gas Serv. Co, 169 P.3d 1052 (Kan. 2007).

Punitive Damages

Pursuant to K.S.A. 60-3701, et. seq., the trier of fact determines whether to allow punitive damages. The court in a separate proceeding determines the amount. The plaintiff must prove by clear and convincing evidence that the defendant acted with willful or wanton conduct, fraud or malice. The damages are limited to the lesser of five million dollars or the defendant’s highest gross annual income during five (5) years before the wrongful act, except that the court may award 1.5 times the amount of profit the defendant earned or will earn from the wrongful act. The person or entity may purchase insurance covering vicarious liability for punitive damages payable when the insured lacks actual prior knowledge of the tortfeasor’s acts or omissions. K.S.A. 40-2,115. Otherwise punitive damages are not covered by insurance as a matter of public policy.

Damages for breach of contract are limited to pecuniary losses sustained. Exemplary or punitive damages are not recoverable in the absence of an independent tort. The CIT Group/Sales Financing Inc., v. E-Z Pay Used Cars, Inc., 29 Kan.App.2d 676, 32 P.3d 1197 (2001).

Attorney’s Fees

In the construction context, attorney’s fees are generally available in two contexts. See, e.g., Chetopa State Bancshares, Inc. v. Fox, 6 Kan. App. 2d 326, 333, 628 P.2d 249 (1981) (“As in Kansas, most states have a postulate that attorney fees are recoverable only if provided by statute or contract.”). First, attorney’s fees are available if the construction contract provides for the same. Id. Second, the Kansas Consumer Protection Act provides, “[T]he court may award to the prevailing party reasonable attorney fees, including those on appeal, limited to the work reasonably performed if: (1) The consumer complaining of the act or practice that violates this act has brought or maintained an action the consumer knew to be groundless and the prevailing party is the supplier; or a supplier has committed an act or practice that violates this act and the prevailing party is the consumer; and (2) an action under this section has been terminated by a judgment, or settled.” K.S.A. § 50-634(e). Interestingly, this section is a “prevailing party” provision, meaning that the supplier may be entitled to attorney’s fees if it is determined that the consumer knew the action to be groundless.

In Martin Underground, LLC v. Trinity Excavating & Constr. Inc., 308 P.3d 31, at *7 (Kan. Ct. App. Sept. 13, 2013), subcontractor Martin Underground recovered judgment on its breach of contract claim against Trinity. The parties filed competing claims for attorneys’ fees and disputed whether the choice of law clause in the subcontract governed the dispute. The Court of Appeals, without deciding whether Missouri or Kansas law applied, held that Martin was the “prevailing party” under both Missouri and Kansas law and was therefore entitled to attorneys’ fees.

Joint and Several Liability (specific to construction)

Each defendant only liable for its percentage of damages awarded. K.S.A. § 60-258a; Albertson v. Volkswagenwerk Aktiengesellschaft, 634 P.2d 1127 (Kan. 1981). The concept of comparative negligence/fault in Kansas as applied to all causes of action is based on the “less than or 49% rule.” The injured or damaged party may recover only when his fault is less than the fault of the parties against whom claim for recovery was made. If the plaintiff and the defendant(s) are equally at fault, there can be no recovery. K.S.A. 60-258a. The Kansas Comparative Negligence Act abolished joint and several liability, contribution among tortfeasors, and active/passive negligence, but permits modified implied comparative indemnity where a tortfeasor settles with the plaintiff for the full amount and proceeds after the other tortfeasors in the chain of distribution in product liability cases or contracting parties in construction defect cases. The Act did not abolish the defense of mitigation of damages and the defense of assumption of risk in a very restricted periphery. Jackson v. City of Kansas City, Kansas, 235 Kan. 278, 680 P.2d 877 (1984). Additionally, negligence claims carry with them the application of comparative fault, which may provide a defense or at least a mechanism for reduction of exposure to the party against whom it is brought. K.S.A. 60-258a.

Consequential Damages

Kansas follows the rule that, regardless of the damages incurred, a party can only recover damages that were reasonably foreseeable at the time the parties entered into the contract. Source Direct, Inc. v. Mantell, 19 Kan. App. 2d 399, 409 (1994). Consequential damages are defined as “damages that are recoverable from a breach of contract, which are limited to the damages that arise from the breach itself or damages that may reasonably be assumed to have been within the contemplation of both parties as the probable result of the breach.” Neighbors Const. Co., Inc. v. Woodland Park at Soldier Creek, LLC, 48 Kan. App.2d 33, 55-56 (2012) (internal quotation marks omitted). Consequential damages do not include attorney’s fees, but sometimes have been held to include interest. Id.

Construction contracts often include waivers of consequential damages, which a court will uphold as long as it is not unconscionable or contrary to public policy. Audiotext Comms. Network, Inc. v. U.S. Telecom, Inc., 912 F. Supp. 469, 476 (D. Kan. 1995).

Loss of Use

Even if there is no injury to property, loss may be covered if attributable to defective work if the owner has been deprived of the use of the property. For example, the removal of contaminated stucco material that had asbestos. This would have been so regardless of whether the application of the asbestos contained material constituted physical damage to tangible property. Johnson v. Studyvin, 839 F.Supp. 1490 (D. Kan. 1993).

Trigger of Coverage

Pursuant to Kansas law, damage occurring as a result of faulty or negligent workmanship constitutes an “occurrence,” thereby triggering coverage under a CGL policy, so long as the damage incurred is both unforeseen and unintended by the insured. See generally Lee Builders, Inc. v. Farm Bureau Mut. Ins. Co., 137 P.3d 486 (2006).

Definition of an Occurrence

Construction defects constitute an occurrence and coverage exists if the defects cause property damage not otherwise excluded from coverage under the CGL policy. Lee Builders, Inc. v. Farm Bureau Mut. Ins. Co., 137 P.3d 486 (Kan. 2006)(the claims alleged an occurrence because faulty materials and workmanship allegedly caused unforeseen and unintended damage to the home constructed by the insured).

The damage that occurs as result of faulty or negligent workmanship constitutes an “occurrence” as long as the insured did not intend for the damage to occur. American States Insurance Co. v. Powers, 262 F.Supp.2d 1245 (D. Kan. 2003); Employers Reinsurance Corp. v. Newcap Ins. Co., Ltd., 209 F.Supp.2d 1184 (D. Kan. 2002).

Damage allegedly caused by faulty workmanship held to constitute an occurrence because the insured did not intend for the damage to occur. Fid. & Dep. Co. of Md. v. Hartford Cas. Ins. Co., 189 F. Supp. 2d 1212 (D. Kan. 2002).

In Potomac Ins. Co. of Illinois v. Huang, 2002 U.S. Dist. Lexis 4710 (D. Kan. 2002), the Court concluded that leaky windows were an unprecedented, unpredictable and unforeseen event which was not expected by the installer, manufacturer, or the home owner.

Duty to Defend

Generally, the insurer has a duty to both defend and indemnify the insured for claims falling within policy coverage. Under Kansas law, the general rule is that the insurer has the duty to defend its insured whenever there is a possibility of coverage, even when the possibility is remote. Johnson v. Studyvin, 839 F. Supp. 1490 (D. Kan. 1993) citing Catholic Diocese of Dodge City v. Raymer, 16 Kan. App.2d 488, 825 P.2d 1144, affirmed 251 Kan. 689, 840 P.2d 456 (1992).

An insurer’s duty to defend is broader than its duty to indemnify. Advantage Homebuilding, LLC. v. Assurance Co. of America, 2004 WL 433914 (D. Kan. 2005).

In Kansas, unlike some jurisdictions, a determination of a duty to defend is not solely based on the plaintiff’s pleadings “The possibility of coverage must be determined by a good faith analysis of all the information known to the insured or all information reasonably ascertainable by inquiry in investigation.” Spruill Motors, Inc. v. Universal Underwriters Ins. Co., 212 Kan. 681, 512 P.2d 403 (1973); Miller v. Westport Ins. Corp., 288 Kan. 27, 35, 200 P.3d 419, 425 (2009).

An insurer may incur the duty to defend even though it may not have the ultimate obligation to indemnify the insured; however, the determination of whether there is a duty to defend ultimately depends upon whether coverage exists under the insurance policy. Patrons Mut. Ins. Ass’n v. Harmon, 240 Kan. 707, 732 P.2d. 741 (1987).

Where the insured proposes to defend an insured under a reservation of rights, the insurer must provide a timely, clear notice to the insured that it disclaimed liability under the policy. If it fails to provide the required notice, the insurer may not disclaim liability under its policy in a later garnishment proceedings. Sours v. Russell, 25 Kan.App.2d 620, 967 P.2d 348 (1998).

A liability insurer guilty of wrongfully refusing to defend an action against its insured may be held liable for the amount of a judgment in excess of policy limits on a showing that the excess judgment is traceable to the refusal to defend. Johnson v. Westhoff Sand Co., 31 Kan. App. 2d 259, 276, 62 P.3d 685, 699 (2003).

Where the complaint alleges both a negligent and intentional act, these alleged facts give rise to the potential for liability, and the duty to defend arises.” Allied Mut. Ins. v. Moeder, 30 Kan. App. 2d 729, 732, 48 P.3d 1, 4 (2002) (citing Quality Painting, Inc. v. Truck Ins. Exch., 26 Kan. App. 2d 473, 476, 988 P.2d 749 (1999)).

Kansas courts have recognized three possible consequences of the insurer’s breach of its duty to defend and its failure to reserve its rights under a policy of insurance: (a) the possibility of an award of damages in excess of policy limits; (b) collateral estoppel; and (c) equitable estoppel. Equitable estoppel to prevent the insurer from raising coverage or policy defenses does not inevitably apply. Aselco, Inc. v. Hartford Ins. Group, 28 Kan. App. 2d 839, 849-51, 21 P.3d 1011, 1019-20 (2001).

The insurer’s duty to indemnify runs only to the insured and only for the insured’s damage that fall under the general liability policy. Fidelity & Deposit Co. of Maryland v. Hartford Cas. Ins. Co., 216 F. Supp.2d 1240 (D. Kan. 2002).

Additional Insureds

In 2004, the Kansas legislature took on “broad form indemnity” clauses in construction contracts and made such clauses void, unenforceable, and against public policy. K.S.A. 16-121(b). Such clauses, customarily found in agreements between the owner and the general contractor and between the general and its subcontractors, compel either the general to indemnify the owner or a subcontractor to indemnify the general for the owner’s or general’s own negligence or intentional acts or omissions. As part of the Fairness in Private Construction Contract Act (2005) and Fairness in Public Contract Act (2007), the Kansas legislature made construction contract provisions which waived, released or extinguished insurance subrogation rights void and unenforceable. K.S.A. 16-1803(b)(3) and 16-1903(b)(3). The Kansas legislature amended its anti-indemnity statute to expressly void any provisions in a construction contract in which a party is required to provide liability coverage as an additional insured for another. K.S.A. 16-121(c).

Insureds Right to Independent Counsel and Consequences of Rejecting a Defense

The Kansas Supreme Court stated that when a conflict of interest arises between an insured and insurer, the insurer must hire independent counsel to defend the insured in the action and notify the insured of the reservation of rights. Patrons Mut. Ins. Ass’n v. Harmon, 732 P.2d 741, 745 (Kan. 1987).

Where underlying lawsuit involved covered and uncovered claims of negligent and intentional misconduct, insured did not allege any other facts from which the court could find that the insurer’s appointed counsel was not “independent” or able to defend all claims asserted against insured. Eye Style Optics, LLC v. State Farm Fire & Cas. Co., No. 14-2118-RDR, 2014 WL 2472096 (D. Kan. June 3, 2014).

Coverage Defenses

Notice

Any time an insured becomes aware of a potential problem, the matter should be brought to the insurer’s attention. If notice is not timely given, the insurer may claim that the coverage is voided. The insurer has the burden of proving that it was prejudicial as a result of an untimely filing of a notice before it can avoid liability under a policy. National Union Fire Insurance Co. of Pittsburg, Pa. v. FDIC, 264 Kan.733, 957 P.2d 357 (1998); Cessna Aircraft Co. v. Hartford Acc. & Indemnity. Co., 900 F. Supp. 1489 (D. Kan. 1995). The insurer has the burden to prove that actual prejudice resulted from late notice of a claim. Johnson v. Westoff Sand Co., Inc., 31 Kan. App.2d 259, 62 P.3d 685 (2003).

Duty to Cooperate

Once notice is given, the insured has a duty to cooperate with the insurer during the investigation and defense of the claim. The insurer can only raise the defense of failure of its insured to cooperate when it actually assumes the defense. Id. Again, the insurer must provide specific evidence of substantial prejudice. Cessna Aircraft Co. v. Hartford Acc. & Ind. Co., supra (D. Kan. 1995).

Failure to Comply with Conditions

The insurer may raise defenses based upon the failure of the insured to comply with conditions of the insurance policy, such as failure to give notice to the insurer or failure to cooperate. See Johnson v. Westhoff Sand Co., 31 Kan. App. 2d 259, 268-69, 62 P.3d 685, 694 (2003). However, to prevail on a defense of failure to notify, the insurer has the burden to prove it was actually prejudiced by the lack of notice by the insured. Id. Such prejudice is not presumed and the burden is on the insurer to show that the prejudice is substantial. Id. Moreover, “[t]he breach of a cooperation clause in a liability insurance policy does not by itself relieve the insurer of the responsibility. The breach must cause substantial prejudice to the insurer’s ability to defend itself and the burden to establish this policy defense is on the insurer.” Id. at 270, 62 P.3d at 695.

Choice of Law (Forum Selection Clauses)

A contract of insurance is considered to be made in the state in which the application for insurance is accepted by the insurer. Alliance Life Ins. Co. v. Ulysses Volunteer Fireman’s Relief Assn., 215 Kan. 937, 529 P.2d 171 (1974). Where the parties to a contract have entered an agreement that incorporates a choice of law provision, Kansas courts generally effectuate the law chosen by the parties to control the agreement. Brenner v. Oppenheimer & Co., Inc., 44 P.3d 364, 375 (Kan. 2002). Where there is a conflict of laws, the law of the state where the insurance contract is made controls. Id. The general rule is that the law of the forum applies unless it is expressly shown that a different law governs, and in case of doubt, the law of the forum is preferred. Id. at 376. Kansas will not, however, apply another state’s laws where it would violate Kansas public policy on the particular issue. Id. Generally, the contact is made where the last necessary step for its formation occurred. Foundation Prop. v. Ctp, 37 Kan. App. 2d 890 (2007).

Targeted Tenders

Not applicable in this state.

Consent Judgments

K.S.A. § 60-2002(b). Defendant may make an offer of judgment 15 days prior to trial, with response due 10 days after service. This is the same as Federal Rule except for filing deadline; if the offer is not accepted and the plaintiff recovers an amount less favorable than the offer, the plaintiff must pay the defendants costs incurred after making the offer.