Ensuing Loss Provision Does Not Salvage Coverage
December 9, 2011 — Tred R. Eyerly, Insurance Law Hawaii
Water intrusion caused by a construction defect was not covered under the all risk policy’s ensuing loss provision. See Friedberg v. Chubb & Son, Inc., 2011 U.S. Dist. LEXIS 123582 (D. Minn. Oct. 25, 2011).
Extensive water damage was discovered in the insureds’ home when a small hole in the exterior wall was being repaired. Chubb’s adjuster and an expert found water intrusion causing rot, mold, and damage to the home’s wood framing and insulation. Chubb denied coverage because water intruded through the roof and wall, resulting in gradual deterioration. The insureds filed suit.
The policy excluded coverage for construction defects, but insured "ensuing covered loss unless another exclusion applies."
The court agreed there was a prima facie case for coverage because the home suffered a physical loss.
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Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
Virginia Chinese Drywall and pollution exclusion
May 27, 2011 — CDCoverage.com
In Nationwide Mut. Ins. Co. v. The Overlook, LLC, No. 4:10cv69 (E.D. Va. May 13, 2011), homeowner Edmonds sued insured developer/general contractor Overlook seeking damages resulting from defective Chinese drywall installed in Edmonds’ home. Overlook’s CGL insurer Nationwide defended Overlook under a reservation of rights and filed a declaratory judgment action. The federal district trial court granted Nationwide’s motion for summary judgment.
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Reprinted courtesy of CDCoverage.com
Subcontractor Not Liable for Defending Contractor in Construction Defect Case
February 10, 2012 — CDJ Staff
The California Court of Appeals has ruled on January 9, 2012 in Hensel Phelps Construction Company v. Urata & Sons Cement, upholding the judgment of the lower court.
Hensel Phelps was the general contractor for a high-rise in Sacramento. They were sued by the owners of the building after problems were discovered in the concrete slabs of the building’s parking garage. Instead of welded steel wire mesh, the slabs had been constructed with fiber mesh. Hensel Phelps filed a cross-complaint against Urata Cement, the subcontractor that had performed the cement work. Urata refused to defend Hensel Phelps. The owners’ case was subsequently dismissed due to the statute of limitations.
Although the original case was over, Hensel Phelps continued in their claims against Urata. “Urata argued that a handwritten interlineation required Hensel Phelps to prove Urata was at fault for the injury alleged in the building owners’ complaint before Urata was obliged to defend Hensel Phelps in that action.”
The lower court concluded that Urata would have been obligated to defend Hensel Phelps if the owners’ lawsuit had alleged that the damage was due to the subcontractor’s work or if evidence at trial established this. The lower court found neither of these true. Instead, the use of the fiber mesh was a design issue and “that decision was outside the scope of the subcontractor’s work.”
During the trial, Hensel Phelps conceded that Urata was not at fault. The appeals court could find no reading of the contract that would cause Urata to be obligated to defend Hensel Phelps, calling Hensel Phelps’s reading of the contact as “grammatically infeasible.”
Judges Nicholson, Raye, and Butz upheld the decision of the lower court and awarded costs on appeal to Urata.
Read the court’s decision…
New Jersey Court Rules on Statue of Repose Case
May 26, 2011 — CDJ Staff
A three-judge panel issued a per curium ruling on May 23 in Fairview Heights Condo. v. Investors (N.J. Super., 2011), a case which the members of a condominium board argued: “that the judge erred by: 1) dismissing plaintiff’s claims against RLI based upon the statute of repose; 2) dismissing the breach of fiduciary duty claims against the Luppinos based upon a lack of expert opinion; 3) barring the testimony of Gonzalez; and 4) barring the May 23, 1989 job site report.” The court rejected all claims from the condominium board.
The court found that the building must be unsafe for the statute of repose to apply. They noted, “the judge made no findings on whether the water seepage, or the property damage caused by such seepage, in any way rendered the building, or any of the units, unsafe.” Further, “without a specific finding on the question of whether the defects had rendered the building ‘unsafe,’ defendants were not entitled to the benefit of the ten-year statute of repose.“
On the second point, the court also upheld the lower court’s findings regarding the management company:
“The report submitted by Berman establishes that the EIFS product was defective in its design and would therefore have failed from the outset. The defects in that product were, according to Berman, not prone to repair or other mitigation. Therefore, even if defendants did not appropriately inspect or repair the EIFS, their failure to do so would have had no impact on the long-term performance of the EIFS exterior cladding. As plaintiff failed to raise a genuine issue of material fact on these questions, the judge properly granted summary judgment to the Luppinos on plaintiff’s breach of fiduciary duty claim.”
On the final two points, the judges noted “plaintiff maintains that the judge committed reversible error when he excluded the Gonzalez certification and the 1989 job site report prepared by Raymond Brzuchalski.” They saw “no abuse of discretion related to the exclusion of the Gonzalez certification, and reject plaintiff’s arguments to the contrary.” Of the job site report, they found, “no abuse of discretion in the judge's finding that the Brzuchalski 1989 job site report did not satisfy the requirements of N.J.R.E.803(c)(6).”
Read the court’s decision
Lien Claimant’s Right to Execute against Bond Upheld in Court of Appeals
February 10, 2012 — Douglas Rieser, Builders Counsel
Stonewood v. Infinity Homes is a simple construction dispute over a matter of about $9,000.00. But sometimes these tiny little disputes turn into expensive legal battles over mere procedural quivering. In Stonewood, a small subcontractor won a big victory yesterday when the Divison 1 Court of Appeals upheld its judgment against a lien release bond posted by an owner.
Infinity Homes contracted with Stonewood Design to lay tile in one of its customer’s homes. Stonewood did the work, but Infinity withheld roughly $9,000.00 of the contract sums for what it alleged were trade damages left on the tile. The two parties were unable to come to an agreement over payment and Stonewood proceeded with a lien under RCW 60.04. It then filed an action to enforce the lien against the homeowner, Infinity and its bonding company.
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Reprinted courtesy of Douglas Reiser of Reiser Legal LLC. Mr. Reiser can be contacted at info@reiserlegal.com
No Coverage Under Ensuing Loss Provision
September 9, 2011 — Tred Eyerley, Construction Law Hawaii
The cost of removing and replacing cracked flanges to prevent future leakage was not covered as an ensuing loss under a builder’s risk policy in RK Mechanical, Inc. v. Travelers Prop. Casualty Co. of Am., 2011 U.S. Dist. LEXIS 83958 (D. Colo. Aug. 1, 2011).
The insured, RK Mechanical Inc., was a subcontractor hired to install plumbing for a residential construction project. RK was an additional insured on the general contractor’s policy with Travelers. RK installed approximately 170 CPVC flanges on the project. Subsequently, two of the flanges cracked, allowing water to overflow and causing water damage to the project. Travelers was notified of the flange failure and resulting water damage.
RK subsequently removed and replaced the two cracked flanges and began water remediation. Travelers paid for the cost of the water damage due to the cracked flanges.
RK then examined all of the flanges installed in the project and discovered many were cracked and/or showed signs of potential failure. RK removed and replaced the cracked flanges. RK tendered a claim and demand for indemnity to Travelers for these repair costs. Travelers denied the claim. RK then sued for breach of contract and declaratory relief. The parties filed cross motions for summary judgment.
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Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
California Lawyer Gives How-To on Pursuing a Construction Defect Claim
September 13, 2012 — CDJ Staff
On his recently started blog, Harry Kaladjian writes about construction defect litigation in California. He notes that after taking possession, homeowners sometimes notices problems such as “slab cracks in the garage, water leaking through the ceiling, warped floors, improper framing, cracking stucco, etc.” He goes on to note that once that happens, there are series of things homeowners must do.
The first is to be concerned about the statute of limitations. Then, “once it has been established that defects exist, the homeowner must refer to the ‘Right to Repair Act’ and ‘Calderon Procedures.’” These, he notes set out the “pre-litigation procedures prior to filing a lawsuit.”
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Ninety-Day Extension Denied to KB Home in Construction Defect Insurance Claim
July 10, 2012 — CDJ Staff
A magistrate judge has denied a request by KB Home Nevada to extend the time for service an additional ninety days. KB claims that St. Paul Fire & Marine Insurance Company has failed to defend them in a construction defect claim. However, the judge did grant KB an additional twenty days to effectuate service, noting that the request for additional time may be renewed.
Read the court’s decision…
Another Las Vegas Tower at the Center of Construction Defect Claims
November 7, 2012 — CDJ Staff
Accusations are coming from both sides over construction defects at a Las Vegas tower, only this time, it’s not the Harmon Towers, it’s Hilton Grand Vacations, which is part of the Planet Hollywood Resort. The project was originally dubbed PH Towers Westgate, and it was developed by Westgate Resorts, which is suing the contractor, Tutor-Saliba for $10 million over late completion and construction defects.
Among the defects Westgate is claiming are cracked floor tiles in the valet lobby and cracks and delamination of the pool deck. Tutor-Saliba argues that the failure of the valet lobby floor is due to Westgate specifying only 1/16th inch-wide grouting, instead of the specified ¬º inch, and Westgate’s refusal to allow expansion joints on the pool deck has lead to problems there. Westgate’s attorney, Robert Schumacher, attributes the problems to “shoddy construction practices.”
According to the article in the Las Vegas Review Journal, plans were only 60 percent complete when construction began, leading to “thousands of change orders.” Despite not meeting an August completion deadline, Tutor-Saliba is claiming it is owed a $1.5 million bonus nevertheless.
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Conspirators Bilked Homeowners in Nevada Construction Defect Claims
March 28, 2012 — CDJ Staff
Courthouse News has a summary of the current lawsuit over a Nevada conspiracy to defraud homeowners by taking control of homeowner boards and then providing inadequate repairs. Homeowners in eight Las Vegas area communities are involved in the suit, which claims that the conspirators purchased units in the communities and then transferred fractional interests to others to allow them to run for HOA board elections. The suit claims that David Amesbury and his firm helped manipulate the elections.
Once homeowner boards were controlled by the conspirators, Nancy Quon, the construction defect attorney whose recent death appears to be by suicide, handled the litigation against homebuilders. She would settle out of court, engaging Silver Lining Construction to “do very minor and superficial repairs” to the homes. The remainder of the money was split by the conspirators. The suit also notes that the construction defect claims were “frivolous,” and?in addition to the negative publicity?caused the homes to lose at least 5% of their value.
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Eleventh Circuit Asks Georgia Supreme Court if Construction Defects Are Caused by an "Occurrence"
December 20, 2012 — Tred Eyerly, Insurance Law Hawaii
The Eleventh Circuit certified a question to the Georgia Supreme Court, asking whether property damage can constitute an "occurrence" under a CGL policy where its effects are not felt on "other property." HDI-Gerling Am. Ins. Co. v. Morrison Homes, Inc., 2012 U.S. App. Ct. LEXIS 23813 (11th Cir. Nov. 19, 2012).
The general contractor, Taylor Morrison Services, Inc., was covered by a CGL policy issued by Gerling. The policy excluded "expected or intended injury," contractual liability," and business risk exclusions. Morrison was sued by homeowners in a class action suit. Morrison had allegedly omitted four inches of gravel required beneath the base of the concrete foundations by the Uniform Building Code. Thereafter, the houses sustained water intrusion, cracks in the floors and driveways, and warped and buckling flooring.
Gerling defended, but sued Morrison for a declaratory judgment.
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Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
Court Strikes Down Reasonable Construction Defect Settlement
December 20, 2012 — CDJ Staff
The Court of Appeals of Washington has struck down a construction defect settlement between a building owner and the companies she hired to repair the siding, among other repairs to bring the building up to code. Yuan Zhang hired Hawk Construction LLC to do repair work. Hawk, in turn, hired Ready Construction LLC for some aspects of the project. Hawk and Ready were both insured by Capital Specialty Insurance Corporation.
There were several problems with Ready’s work. After removing old siding, they did not protect the building, nor did they remove all of the damaged layers. Ready covered, but did not fix, a mildew problem under the old siding. When new siding was reattached, the nails used were too short to adequately attach it.
After paying for an inspection of the work, Zhang had Hawk and Ready begin the repairs again, but the work was abandoned without being completed. Zhang sued Hawk for breach of contract. Hawk then sued Ready, claiming that “Ready was liable to Hawk to the extent that Hawk was liable to Zhang.” Capitol retained defense for both contractors.
Zhang settled with Hawk, in an agreement that gave her “the right to collect and/or pursue all costs and attorney fees paid by Hawk or its insurance company defending against the Zhang’s claims and pursuing claims against Ready.” Subsequently, she also settled with Ready. Both companies ceased operations.
Zhang had the settlements reviewed by a court, which concluded that the settlements were reasonable. Capital was allowed to appeal, claiming that the settlement included costs that were Zhang’s responsibility. The appeals court did not examine the question of the reasonableness of the settlement, concluding that Capitol’s interests were relevant only to “questions of bad faith, collusion, and fraud.”
In the case of Zhang, the court concluded that the relationship between Zhang and her former contractors was collusive. The court noted that “bad faith or collusion may exist when the evidence indicates a joint effort to create, in a non-adversarial atmosphere, a resolution beneficial to both parties, yet highly prejudicial to the insurer as intervener.” The court noted that both companies had minimal assets which were, in any case, exempted from the agreement. Further, the court found that the agreements failed to determine “what amount of the repairs related to preexisting water damage.” Zhang’s calculation of costs also included her expenses for architectural and engineering services, which the court points out, “where always Zhang’s costs to bear.”
The court concluded that “the overall structure of the settlements is highly probative of collusion, fraud, or bad faith.” Zhang’s agreements with Hawk and Ready allowed her to collect compensation from Hawk and then collect Ready’s compensation to Hawk for their portion of the settlement, allowing Zhang to collect the monies twice. Further, she was allowed to pursue Capitol for Hawk’s attorney expenses, even though Hawk had none. “The right to recover Hawk’s fees merely set up a windfall recovery for Zhang.” The court described the agreements among Zhang, Hawk, and Ready as “precisely the type of manipulation [the law] is intended to preclude.”
Read the court’s decision…
West Coast Casualty Promises Exciting Line Up at the Nineteenth Annual Conference
March 28, 2012 — CDJ Staff
West Coast Casualty has announced the lineup for the annual WCC Construction Defect Seminar. This year’s seminar will be the nineteenth anniversary, and it will be held on May 17th and 18th, 2012 in Anaheim, California. They are the largest construction defect event in the world and this year’s seminar will again bring the top people in the field to address many of the current issues and where the construction defect community will be going in the future.
The event, anticipated to be even larger than prior years, will have numerous panels and presentations on the current state of construction defect litigation. Among the topics that will be presented are “Arbitrate? Let’s See You Make Me!” “Defending Construction Defect Failure Mechanisms?An Expert’s Perspective,” and “Current Trends in Effectively Handling SB800 Cases.”
Speakers at the event will include judges, lawyers, and representatives of the insurance industry. One event, “Meet Your Judges, A Candid Discussion on Construction Defect Claims and Litigation from the Bench?” will include judges from five states, including the Honorable Nancy M. Saitta, Chief Justice of the Nevada Supreme Court, the Honorable Clifton Newman of the South Carolina Circuit Court, and the Honorable Rex Heeseman of the Los Angeles County Superior Court.
Daniel A. Berman, Esq. and Stephen Henning, Esq. will be talking on the topic of “Social Networking Sites: Strategies, Ethical Pitfalls, and Practice Pointers for Litigating and Winning Your Construction Defect Case.” Mr. Berman is a Founding and Managing Partner of Wood, Smith, Henning & Berman LLP. He has been named a Southern California Super Lawyer for eight consecutive years. Mr. Henning is a Founding Partner of Wood, Smith, Henning & Berman, LLP and Fellow of the Litigation Counsel of America. Mr. Henning will also be one of the presenters on the panel “Important Court Decisions Impacting Construction Defect Claims.”
The panel “Why Do We Need to Know Certain Things and How Decisions Are Made” will be presented by important figures in the construction claims industry, including Phyllis Modlin, Todd Schweitzer, Teresa D. Wolcott, and Lee Wright. Ms. Modlin is a Construction Defect Claims Supervisor responsible for nationwide claims for Markel Corporation. Mr. Schweitzer is an Assistant Vice President of Major Case for Construction Defect and Professional Liability Claims Services at Zurich North America. Ms. Wolcott is the National Product Manager for Construction Defect Claims within the Construction Claims Organization at Travelers Insurance. Mr. Wright is an Assistant Vice President and Senior Claims Consultant for XL Specialty Insurance.
The event will also include a Science and Technology Fair in which exhibitors will be presenting technological problem solving and decision making as they relate to resolving ongoing construction and post construction-defect related issues while reducing costs for all those involved in claims and litigation. The fair is dedicated to these novel applications of science and technology that benefit the construction defect community but are not yet commonly available. This will be the third time the Construction Defect Seminar will include a Science and Technology Fair.
Sessions at the event are approved for MCLE credit in Arizona, California, Colorado, Illinois, Maine, Minnesota, New York, Ohio, and Pennsylvania. MCLE credits vary by state; attendees can obtain up to 10.25 hours of credit in Arizona, California, Maine, and New York. Applications for several other states are still pending. Additionally, the event is also worth continuing education credits with the Florida Department of Insurance and for Registered Professional Adjusters. West Coast Casualty has applications pending for adjuster continuing education in an additional thirty-six states.
West Coast Casualty recommends this event for anyone involved in construction or construction defect claims, whether they are a claims adjuster, a member of a homeowner board, a judge, a property manager, a construction claims attorney, a general contractor, or anyone else with an interest in this area. The event typically has more than 1,600 attendees. Those interested can register online.
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Construction Defects Lead to Demolition
May 26, 2011 — CDJ Staff
Ten years after it was built, demolition of Seattle’s McGuire Building has begun, as Jeanne Lang Jones reports in the Puget Sound Business Journal. Construction defects had rendered the 25-story apartment building uninhabitable. The major problem was corroded steel cabling. According to the report, “the building’s owners reached an undisclosed settlement last year with St. Louis-based contractor McCarthy Building Companies.”
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Hovnanian Increases Construction Defect Reserves for 2012
January 6, 2012 — CDJ Staff
In their fourth quarter earnings call, executives of Hovnanian Enterprises made some projections for investors, covering the company’s plans for 2012. During the call, Ara K. Hovnanian, the firm’s CEO, discussed their reserves to meet construction defect claims. The firm does an annual actuarial study of their construction defect reserves.
Mr. Hovnanian noted that there have been no changes for the past several years, but this year they are increasing their reserves by about $6.3 million. Additionally, the firm has added $2.5 million to their legal reserves. Mr. Hovnanian stated “we do not anticipate that changes of this magnitude will be recurring as we look forward to 2012.”
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Seven Former North San Diego County Landfills are Leaking Contaminants
April 7, 2011 — April 7, 2011 Beverley BevenFlorez - Construction Defect Journal
Deborah Sullivan Brennan of the North County Times reported that seven former dumps in San Diego are leaking contaminants into the surrounding groundwater. John R. Odermatt, a senior engineering geologist for the California Regional Water Quality Control Board s San Diego region, told the North County Times, “the risk to most county residents is very small or negligible, while local water supplies located in more rural areas may be at a somewhat elevated but unquantified level of risk.”
This issue is causing heavy scrutiny of a new proposed landfill in Gregory Canyon. The landfill would be located on 308 acres of undeveloped land near Pala, alongside the San Luis Rey River. The group “Save Gregory Canyon” has been speaking out against the landfill, stating that “the project threatens major detrimental impacts to both surface and groundwater, as well as a potential compromise of the two major San Diego Water Authority pipelines nearby.” Richard Felago, a Gregory Canyon Ltd. Consultant, told the North County Times that the 8-foot-thick liner, composed of layers of gravel and synthetic material, would not leak.
The appeal hearing is being rescheduled later this month after one of the three panelists recused himself due to having a competing interest in the property, according to the article by Gary Warth in the North County Times.
Read the full story (link 1)...
Read the full story (link 2)...
Bound by Group Builders, Federal District Court Finds No Occurrence
August 11, 2011 — Tred Eyerly, Insurance Law Hawaii
The homeowners sued their contractor, alleging the contractor had defectively constructed and failed to complete their home.  State Farm Fire and Casualty Co. v. Vogelgesang, 2011 U.S. Dist. LEXIS 72618 (D. Haw. July 6, 2011). The homeowners' complaint pled, among other things, damage caused by breach of contract and negligence. State Farm agreed to defend under a reservation of rights.
State Farm filed suit in federal court for declaratory relief. Judge Mollway granted State Farm's motion for summary judgment. Relying on the Hawaii Intermediate Court of Appeal's decision in Group Builders, Inc. v. Admiral Ins. Co., 123 Haw. 142, 231 P.3d 67 (Haw. Ct. App. 2010), Judge Mollway determined that the claims asserted in the underlying litigation arose from the contractor's alleged breach of contract.  Group Builders held that breach of contract claims based on allegations of shoddy performance were not covered under CGL policies.
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Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
Quarter Four a Good One for Luxury Homebuilder
December 20, 2012 — CDJ Staff
Toll Brothers has announced that their fourth-quarter net income is $2.35 per share, which they attribute in part to an income tax benefit. Their revenue, at $632.8 million, easily exceeded analysts’ projections of $565.1 million. Additionally, their number of signed contracts jumped seventy percent while their cancellation rate dropped nearly half to 4.9 percent.
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