HOA Has No Claim to Extend Statute of Limitations in Construction Defect Case
October 28, 2011 — CDJ Staff
The California Court of Appeals ruled on September 20, 2011 in the case of Arundel Homeowners Association v. Arundel Green Partners, a construction defect case involving a condominium conversion in San Francisco. Eight years after the Notice of Completion was filed, the homeowners association filed a lawsuit alleging a number of construction defects, including “defective cabinets, waterproofing membranes, wall-cladding, plumbing, electrical wiring, roofing (including slope, drainage and flashings), fire-rated ceilings, and chimney flues.” Three years of settlement negotiations followed.
Negotiations ended in the eleventh year with the homeowners association filing a lawsuit. Arundel Green argued that the suit should be thrown out as California’s ten-year statute of limitations had passed. The court granted judgment to Arundel Green.
The homeowners then filed for a new trial and to amend its complaint, arguing that the statute of limitations should not apply due to the doctrine of equitable estoppel as Arundel Green’s actions had lead them to believe the issues could be solved without a lawsuit. “The HOA claimed that it was not until after the statute of limitations ran that the HOA realized Arundel Green would not keep its promises; and after this realization, the HOA promptly brought its lawsuit.” The trial court denied the homeowners association’s motions, which the homeowners association appealed.
In reviewing the case, the Appeals Court compared Arundel to an earlier California Supreme Court case, Lantzy. (The homeowners also cited Lantzy as the basis of their appeal.) In Lantzy, the California Supreme Court set up a four-part test as to whether estoppel could be applied. The court applied these tests and found, as was the case in Lantzy, that there were no grounds for estoppel.
In Arundel, the court noted that “there are simply no allegations that Arundel Green made any affirmative statement or promise that would lull the HOA into a reasonable belief that its claims would be resolved without filing a lawsuit.” The court also cited Lesko v. Superior Court which included a recommendation that the plaintiffs “send a stipulation?Ķextending time.” This did not happen and the court upheld the dismissal.
Read the court’s decision…
Texas covered versus uncovered allocation and “legally obligated to pay.”
April 27, 2011 — April 27, 2011, by CDCoverage.com
In Markel American Ins. Co. v. Lennar Corp., No. 14-10-00008-CV (Tex. Ct. App. April 19, 2011), insured homebuilder Lennar filed suit against its insurer Markel seeking recovery of costs incurred by Lennar to repair water damage to homes resulting from defective EIFS siding. Following a jury trial, judgment was entered in favor of Lennar and against Markel. On appeal, the intermediate appellate court reversed. Applying Texas law, the court first held that Lennar failed to satisfy its burden of allocating damages between covered and uncovered. In a prior decision, the court had held that, while the costs incurred by Lennar for the repair of the resulting water damage
Read the full story…
Reprinted courtesy of CDCoverage.com
Nevada Assembly Sends Construction Defect Bill to Senate
June 6, 2011 — CDJ Staff
In a 26 to 16 vote, the Nevada Assembly has passed Assembly Bill 401, which extends the time limit for legal action over home construction defects. According to the Las Vegas Sun, Assembly member Marcus Conklin, Democrat of Las Vegas, said the bill was about “keeping the consumer whole.” However, Ira Hansen, Republican of Sparks, told the sun that suits are happening before contractors can make repairs. The bill would allow attorney fees even if repairs are made.
Read the full story…
Changes To Indemnification Statute Are Here! Say Hello To Defense Duties
June 19, 2012 — Douglas Reiser, Builders Counsel
A months back, I discussed the passage of SHB 1559. The law changes the existing statutory indemnification regulation to include the costs of defense and to rid contracts of unfair indemnification for someone else’s sole negligence. The law went into effect last week!
Check back to my recent article on the changes set forth in the new law. The amendments to RCW 4.24.115 will broaden the existing law and clarify what types of indemnification are unenforceable. In short, an “up the chain” contractor (such as a general contractor) cannot expect to pass 100% of the defense and indemnification obligations downward if it is partially liable.
Read the full story…
Reprinted courtesy of Douglas Reiser of Reiser Legal LLC. Mr. Reiser can be contacted at info@reiserlegal.com
Boston Tower Project to Create 450 Jobs
November 18, 2011 — CDJ Staff
Continuing the development of Boston’s Theater District, Millennium Partners broke ground for the building of Hayward Place, a 15-story residential tower with street-level shops. The project is expected to take two years to complete and will employ about 450 construction workers.
Thomas Menino, the mayor of Boston said that the “ground breaking of Hayward Place is another sign of economic growth and forward progress on the revitalization of this area.” The project will be built by Suffolk Construction. John Fish, their CEO, said they were “fortunate as a contractor to be the beneficiary of this.”
The report in the Boston Herald notes that a few blocks away, the site of the former Filenes department store is still “an empty eyesore.” Menino joked, “anyone want to bid for it?” He promised that site would also be developed.
Read the full story…
Minnesota Starts Wide-Ranging Registration of Contractors
July 10, 2012 — CDJ Staff
Minnesota has replaced its Independent Contractor Exemption Certificate program with the Contractor Registration Pilot Project, according to an article in the Martindale-Hubble Legal Library by Michael B. Lapicola. Mr. Lapicola notes that “it will be a violation of the law to contract with or perform construction services for another person without first being registered with the Pilot Project, or to contract with or pay another person to perform construction services if the other person is not registered with the Pilot Project. There are, however, quite a few exceptions, including those who are currently registered with the earlier program. Additionally, independent contractors who do not register can avoid the fine (up to $2,000) by registering within thirty days of fines being levied. Individuals and firms that do not perform building construction or improvements are exempt from the hiring aspects of the statute.
Minnesota’s goal is to “assist state agencies to investigate employee misclassification in the building industry.” Employees of construction firms do not individually register. Rather, the intent of the of law is to stop those who would “require any individual through coercion, misrepresentation or fraudulent means to adopt independent contractor status” or to “knowingly misrepresent or misclassify an individual as an independent contractor.”
Read the full story…
Fourteen More Guilty Pleas in Las Vegas Construction Defect Scam
June 19, 2012 — CDJ Staff
The ongoing case over claims that a group fixed homeowner board elections in order to supply the conspirators with a stream of construction defect cases and repairs has lead to fourteen guilty pleas. The judge recently issued charges against fifteen of the accused; one defendant did not join in the group as he was recovering from pneumonia. The prosecutors have asked the judge to delay sentencing, as the investigation is continuing. Prosecutors note that another dozen people may be indicted.
Along with an earlier group who plead guilty, this brings the total number of guilty pleas in the case to twenty-five. All have promised to cooperate with authorities.
The case has also involved four deaths, although authorities have not suspected foul play in the deaths. Nancy Quon, one of the four, was the construction defect attorney suspected to be at the center of the conspiracy.
Read the full story…
Insurer Has Duty to Defend Despite Construction Defects
January 6, 2012 — CDJ Staff
In a case the judge attributed to “shoddy masonry work,” the US District Court of Illinois has rendered a decision in AMCO Insurance Company v. Northern Heritage Builders. Northern Heritage built a home in Chicago for Michael McGrath (who joined Northern Heritage as a defendant). According to the decision, “seven months after he moved into the house, McGrath noticed water coming in the house and warped millwork.” This was attributed to porous block, installed by the mason with Northern Heritage’s knowledge.
McGrath sued National Heritage for both the damage to his house and its contents. The court rejected his claim for the contents. For the damages to his house, he was awarded $601,570.50 in damages. He also sued his homeowner’s insurance carrier for damages not covered in his suit against National Heritage. There he was awarded $1,130,680.16.
AMCO informed National Heritage that it had neither duty to defend nor duty to indemnify. The judge considered whether AMCO had a duty to defend. Under Illinois law, “damage to a construction project resulting from construction defects is not an ‘accident’ or ‘occurrence’ because it represents the natural and ordinary consequence of faulty construction.” However, it is noted that while if the defects lead only to damage to the project itself, there is no occurrence, “if the building owner asserts damages to other property besides the construction itself, there is an ‘occurrence’ and ‘property damage.’” The judge further noted that were construction defects an occurrence, “shoddy work” would be rewarded by double pay, once by the homeowner and a second time by the insurer. Judge Kendall concluded that as McGrath had alleged damage to the contents of his house, AMCO had a duty to defend National Heritage.
She then looked at the issue of whether AMCO had a duty to indemnify. Should they pay the $601,570.50? Judge Kendall noted that “the duty to indemnify is narrower than the duty to defend.” The key point here was that once McGrath’s insurance carrier covered him for the damage to the contents of his house, “AMCO’s duty to defend ended.” Once McGrath “only sought damages for the natural consequences of faulty workmanship” there was no occurrence, hence nothing for AMCO to cover.
Judge Kendall granted a summary dismissal of AMCO’s claim that they had no duty to defend while upholding their claim that they had no duty to indemnify.
Read the court’s decision…
Florida Chinese drywall, pollution exclusion, “your work” exclusion, and “sistership” exclusion.
May 26, 2011 — CDCoverage.com
In Auto-Owners Ins. Co. v. American Building Materials, Inc., No. 8:10-CV-313-T-24-AEP (M.D. Fla. May 17, 2011), insured drywall supplier ABM was sued by general contractor KB Homes seeking damages because property damage to houses built by KB Homes using defective Chinese drywall supplied by ABM. ABM’s CGL insurer Auto-Owners defended ABM under a reservation of rights and filed suit against ABM and KB Homes seeking a judicial declaration of no to duty to defend or indemnify ABM against the KB Homes lawsuit. On cross motions for summary, the federal district trial court directed entry of judgment in favor of ABM and KB Homes and against Auto-Owners, holding that Auto-Owners had a duty to defend and indemnify ABM against the KB Homes lawsuit.
Read the full story…
Reprinted courtesy of CDCoverage.com
Preparing for Trial on a Cause of Action for Violation of Civil Code section 895, et seq.
May 10, 2012 — Samir R. Patel, Esq., Lorber, Greenfield, & Polito, LLP
In 2002, the California Legislature enacted the Right to Repair Act (hereinafter “SB-800”), as codified in Title VII of the Civil Code. As set forth in Civil Code section 895, et seq., SB-800 established a set of standards for residential construction, and provides a statutory protocol to address alleged violations of those standards. SB-800 applies to all new single family homes sold after January 1, 2003, and it created its own cause of action governed completely by its own terms, in that in order to state a cause of action under SB-800, a plaintiff may only allege a violation of the Act. (Civ. Code, § 938.) Under Civil Code sections 896, 897, 943, and 944, the Legislature made it clear that it intended to create a single cause of action for construction defects in homes that fall under the purview of SB-800. By passing SB-800, the Legislature eliminated multiple and often redundant or conflicting causes of action, burdens of proof, statutes of limitations, and types of damages that were common in construction defect actions prior to the enactment of the same.
Civil Code section 895, et seq. has significantly changed the landscape of construction defect lawsuits. Yet, for years, the only attention given to the statutes focused solely on the codified pre-litigation process that requires plaintiffs and builders to meet and confer regarding defects and attempt a process to repair the alleged defects before litigation is pursued. A major impediment to the implementation of the pre-litigation procedures has often been that the statutes specifically state that the information obtained during the pre-litigation process is admissible at trial. Hence, through use of the pre-litigation process, plaintiffs’ counsel can engage in a builder funded fishing expedition and later use the information obtained to advance their litigation goals. As such, many builders have chosen to opt out of codified pre-litigation process altogether, an option which the builder can elect within their Purchase and Sale Agreements.
Recently, counsel for builders throughout California have turned their attention to the “exclusive remedy” aspect of SB-800 by seeking, often successfully, to limit plaintiffs to a single cause of action for violation of SB-800. Civil Code section 943 makes clear that a cause of action for violation of SB-800 performance standards is a plaintiff’s sole remedy for a residential construction defect action. Civil Code section 943 states:
Except as provided in this title, no other cause of action for a claim covered by this title or for damages recoverable under 944 is allowed. (Civ. Code, § 943.) Â
The question remains: what is the benefit of requiring plaintiffs to trim down their complaint and eliminate their tried and true common law causes of action, and requiring them to pursue only a single cause of action for violation of SB800?
The construction standards enumerated within SB-800 include fifty-plus functionality standards. On their face, any benefit to pursuing a construction defect action under a single cause of action for violation of SB-800 initially appears trivial at best, in light of the fact that a jury may be very confused with the complexity of the functionality standards set forth within the Civil Code. Nevertheless, Title VII of the Civil Code actually contains numerous provisions that builders can utilize to their benefit throughout the process of construction defect litigation, including during preparation for trial.
First and foremost, counsel for builders can assert numerous affirmative defenses that will be beneficial if the matter proceeds to trial. These affirmative defenses, as codified in Civil Code section 945.5, include mitigation, in whole or in part, for damages caused by: an unforeseen act of nature; a homeowner’s failure to allow reasonable and timely access for inspections and repair under the pre-litigation procedures; the homeowner’s failure to follow the builder’s recommendations and commonly accepted homeowner maintenance obligations; ordinary wear and tear; misuse; abuse; or neglect. Builders should include these affirmative defenses within their responsive pleadings and as trial approaches, prepare appropriate motions in limine and request special jury instructions regarding the same. As frustrated builders and their attorneys are well aware, many construction defect suits result from a homeowner’s failure to properly maintain their property in a manner that is consistent with normal maintenance procedures and guidelines. Furthermore, within the ten year statute of limitations for most defects, ordinary wear and tear is often attributable to numerous deficiencies alleged by plaintiffs. The affirmative defense for a homeowner’s failure to allow inspections and repairs is also vital, as plaintiffs’ counsel may encourage a homeowner to forego the repair and seek monetary damages, allowing plaintiffs’ counsel to ultimately obtain their share of attorney’s fees. Therefore, the SB-800 statutes provide the builder with recourse and distinctive mitigation defenses that were previously and confusingly mixed into tort and contract related defenses. These affirmative defenses can also be utilized by counsel during the cross-examination of plaintiff homeowners and expert witnesses. Defense counsel should fully grasp these defenses and utilize them as defense themes throughout litigation.
As a plaintiff is limited to a single cause of action for violation of SB-800, if defense counsel has failed to properly eliminate excessive tort and contract causes of action prior to trial, a motion for summary adjudication, or at the very least, a motion for judgment on the pleadings should be brought to limit the introduction of evidence outside of a single cause of action for violation of SB-800. Practical judges are always looking for ways to streamline and expedite trials, and they are currently ruling that SB-800 is the exclusive remedy available to plaintiffs. In fact, plaintiffs’ firms in SB-800 matters are now voluntarily limiting their complaints to this one cause of action.
Special jury instructions can also be crafted to limit a jury’s computation of damages pursuant to Civil Codesection 944, which provides the method for computing damages within a construction defect action, as follows:
If a claim for damages is made under this title, the homeowner is only entitled to damages for the reasonable value of repairing any violation of the standards set forth in this title, the reasonable cost of repairing any damages caused by the repair efforts, the reasonable cost of repairing and rectifying any damages resulting from the failure of the home to meet the standards, the reasonable cost of removing and replacing any improper repair by the builder, reasonable relocation and storage expenses, lost business income if the home was used as a principal place of a business licensed to be operated from the home, reasonable investigative costs for each established violation, and all other costs or fees recoverable by contract or statute. (Civ. Code, § 944.) [Emphasis added.]
Civil Code section 944 specifically prohibits recovery for damages outside the scope of its explicit language as it states “the homeowner is only entitled to ... damages for the reasonable value of repairing any violation of the standards set forth in this title....” [Emphasis added.] The statute ultimately provides a “reasonableness” standard for the computation of damages that did not exist when computing damages on traditional common law tort and contract claims. Therefore, defense counsel should prepare special jury instructions to limit evidence of damages introduced at trial to the reasonable value of repairing any violation of the standards, and to exclude any evidence of damages beyond the reasonableness standard. Defense counsel should seize the opportunity to utilize the theme of “reasonableness” when attacking plaintiffs’ allegations and plaintiffs’ proposed repair methodology throughout the discovery process and at trial.
Defense counsel may also prepare a motion in limine or special jury instruction regarding the limitation of evidence regarding defects that did not cause resultant damage. Civil Code section 897 states:
Intent of Standards
The standards set forth in this chapter are intended to address every function or component of a structure. To the extent that a function or component of a structure is not addressed by these standards, it shall be actionable if it causes damage. (Civ. Code, § 897.) [Emphasis added.]
Defense counsel can argue that the introduction of any evidence supporting a claim for construction-related deficiencies that are not enumerated within Civil Code section 896, or for deficiencies where no damage has occurred is prohibited and must be excluded at trial. This requirement of resultant damages is familiar as the general rule was previously established in Aas v. Superior Court (2000) 24 Cal.4th 627, in which the California Supreme Court held that there is no tort recovery for construction defects that have not actually caused property damage. The legislature effectively codified this rule within Civil Code section 897.
A motion in limine can also be crafted to limit expert testimony to the standards enumerated in Civil Code section 896, and to deficiencies that caused damage pursuant to Civil Code 897. The motion in limine can be based upon Civil Code section 943 and the fact that claims for defects in homes which were sold after January 1, 2003 may only be pursued under a single cause of action for violation of SB-800. As such, expert testimony should be controlled by the standards set forth in Civil Code section 896. Furthermore, throughout a construction defect matter, defense counsel should ensure that their experts are well versed with the standards and that they can provide testimony that utilizes the same. Defense counsel’s knowledge of the standards will also be helpful during the cross-examination of plaintiffs’ expert witnesses.
If, despite the efforts of defense counsel, the complaint still has numerous causes of action, or if only some homes fall under the purview of SB-800 while others do not, defense counsel can utilize a motion to bifurcate trial. The motion’s basis is that a cause of action for violation of SB-800 will require the introduction of evidence regarding the violations of the fifty-plus standards, and the tort and contract-based claims would also require the introduction of a wide range of evidence to prove each cause of action. For example, in order to prove the tort causes of action, plaintiffs must prove elements such as: duty, breach, proximate and actual causation, and that the builder placed the homes into the stream of commerce. (See Richards v. Stanley (1954) 43 Cal.2d 60, 63; Kriegler v. Eichler Homes, Inc. (1969) 269 Cal.App.2d 224, 227.) On the contract causes of action, plaintiffs must prove the existence of a valid written contract for the sale of the home, including proof regarding the existence of basic contractual elements such as offer, acceptance, and consideration. (Civ. Code, § 1624 subd. (a); Roth v. Malson (1997) 67 Cal.App.4th 552, 557.) Defense counsel can argue that exposing the jury to elements that may or may not be applicable to all of the homes in the action will complicate and confuse the jury. Thus, concurrently exposing the jury to the SB-800 claims and the non-SB-800 claims will necessitate undue consumption of time, and create the substantial danger of undue prejudice of confusing the issues or misleading the jury.
One of the most important and relevant features of the SB-800 statutes is that they include shortened statutes of limitation as to certain enumerated defects. The codified statutes of limitations apply from the date of “close of escrow,” and are much more definitive than statutes of limitations regarding tort and contract claims. Therefore, they can be utilized within a motion for summary adjudication in cases where only one or a few defects are alleged. For example, under Civil Code section 896, et seq., there is a five year limitation on paint (Civ. Code, § 896, subd. (g)(1)); a four year limitation on plumbing fixtures (Civ. Code, § 896, subd. (e)); a three year limitation on landscaping (Civ. Code § 896, subd. (g)(12)); and a one year limitation on irrigation systems and drainage (Civ. Code, § 896, subd. (g)(7)). The non-SB-800 claims are subject to a four year statute of limitation for patent defects and a ten year statute of limitation for latent defects. (See Code of Civ. Proc., §§ 337.1, 337.15.) The contrast between the statute of limitations for the SB-800 claims and non-SB-800 claims can complicate a matter at trial, further establishing the necessity to limit plaintiffs to a single cause of action for violation of SB-800. Hence, defense counsel should also utilize a motion to bifurcate the statute of limitations issues from the issue of liability if a question of fact exists. If successful on the motion to bifurcate, plaintiff’s counsel will be barred from the introducing evidence at trial regarding a defect where the statute of limitations has run.
Defense counsel should also seek to simplify the construction standards for the jury. Ultimately, by drafting jury instructions and a special verdict form that is easy to navigate, counsel can promote an easy interpretation of the standards enumerated within the Civil Code. The best route for drafting a special verdict form is to draft it as a check-list, similar to a traditional real estate walk-through check-list. By incorporating the shortened statutes of limitations into the special verdict form, defense counsel can effectively frame the case for the jury. The special verdict form should also allow the jury to easily eliminate any claim for damages that is mitigated, in whole or in part, through the codified affirmative defenses. Defense counsel should also consider drafting a trial brief that effectively and simplistically provides the trial court judge with an understanding of the specific defects before the court, and simultaneously notes which Civil Code standards are implicated and the scope of the same. If the trial judge is not well versed in construction defect litigation, defense counsel should be all the more careful in breaking down the parameters and limitations codified within SB-800 for the court.
The strategies outlined within this article are only a few tactics that can be utilized to defend a construction defect suit. Depending on the defect allegations within any particular case, defense counsel should become intimately familiar with Title VII of the Civil Code and use all aspects of the same to their advantage. If not, plaintiffs’ counsel will have the advantage during “court-house step” settlement discussions and at trial.
Printed courtesy of Samir R. Patel, Esq. of Lorber, Greenfield, & Polito, LLP. Mr. Patel can be contacted at spatel@lorberlaw.com.
History of Defects Leads to Punitive Damages for Bankrupt Developer
March 1, 2012 — CDJ Staff
The South Carolina Court of Appeals has ruled that evidence of construction defects at a developer’s other projects were admissible in a construction defect lawsuit. They issued their ruling on Magnolia North Property Owners’ Association v. Heritage Communities, Inc. on February 15, 2012.
Magnolia North is a condominium complex in South Carolina. The initial builder, Heritage Communities, had not completed construction when they filed for bankruptcy protection under Chapter 11. The remaining four buildings were completed by another contractor. The Property Owners’ Association subsequently sued Heritage Communities, Inc. (HCI) alleging defects. The POA also sued Heritage Magnolia North, and the general contractor, BuildStar.
The trial court ruled that all three entities were in fact one. On appeal, the defendants claimed that the trial court improperly amalgamated the defendants. The appeals court noted, however, that “all these corporations share officers, directors, office space, and a phone number with HCI.” Until Heritage Communities turned over control of the POA to the actual homeowners, all of the POA’s officers were officers of HCI. The appeals court concluded that “the trial court’s ruling that Appellants’ entities were amalgamated is supported by the law and the evidence.”
Heritage also claimed that the trial court should not have allowed the plaintiffs to produce evidence of construction defects at other Heritage properties. Heritage argued that the evidence was a violation of the South Carolina Rules of Evidence. The court cited a South Carolina Supreme Court case which made an exception for “facts showing the other acts were substantially similar to the event at issue.” The court noted that the defects introduced by the plaintiffs were “virtually identical across all developments.” This included identical use of the same products from project to project. Further, these were used to demonstrate that “HCI was aware of water issues in the other projects as early as 1998, before construction on Magnolia North had begun.”
The trial case ended with a directed verdict. Heritage charged that the jury should have determined whether the alleged defects existed. The appeals court noted that there was “overwhelming evidence” that Heritage failed “to meet the industry standard of care.” Heritage did not dispute the existence of the damages during the trial, they “merely contested the extent.”
Further, Heritage claimed in its appeal that the case should have been rejected due to the three-year statute of limitations. They note that the first meeting of the POA was on March 8, 2000, yet the suit was not filed until May 28, 2003, just over three years. The court noted that here the statute of limitation must be tolled, as Heritage controlled the POA until September 9, 2002. The owner-controlled POA filed suit “approximately eight months after assuming control.”
The court also applied equitable estoppel to the statute of limitations. During the time in which Heritage controlled the board, Heritage “assured the unit owners the construction defects would be repaired, and, as a result, the owners were justified in relying on those assurances.” Since “a reasonable owner could have believed that it would be counter-productive to file suit,” the court found that also prevented Heritage from invoking the statute of limitations. In the end, the appeals court concluded that the even apart from equitable tolling and equitable estoppel, the statute of limitations could not have started until the unit owners took control of the board in September, 2002.
Heritage also contested the jury’s awarding of damages, asserting that “the POA failed to establish its damages as to any of its claims.” Noting that damages are determined “with reasonable certainty or accuracy,” and that “proof with mathematical certainty of the amount of loss or damage is not required,” the appeals court found a “sufficiently reasonable basis of computation of damages to support the trial court’s submission of damages to the jury.” Heritage also claimed that the POA did not show that the damage existed at the time of the transfer of control. The court rejected this claim as well.
Finally, Heritage argued that punitive damages were improperly applied for two reasons: that “the award of punitive damages has no deterrent effect because Appellants went out of business prior to the commencement of the litigation” and that Heritages has “no ability to pay punitive damages.” The punitive damages were upheld, as the relevant earlier decision includes “defendant’s degree of culpability,” “defendants awareness or concealment,” “existence of similar past conduct,” and “likelihood of deterring the defendant or others from similar conduct.”
The appeals court rejected all of the claims made by Heritage, fully upholding the decision of the trial court.
Read the court’s decision…
Construction Bright Spot in Indianapolis
March 1, 2012 — CDJ Staff
The downtown Indianapolis area is the site of about 85 major building projects that are from groundbreaking to just complete. The Indianapolis Star reports that the cumulative worth of the projects is about $3 billion, a level of construction that Indianapolis has seen only once before.
About thirty of the projects are residential. The main commercial project is a $754 million hospital building. The boom in downtown Indianapolis is not matched elsewhere, with the Indianapolis Star reporting that in the rest of Central Indiana, construction has slowed.
Read the full story…
Nevada Senate Rejects Construction Defect Bill
June 7, 2011 — CDJ Staff
The Las Vegas Sun reports that Assembly Bill 401, the construction defect bill, lost in a vote of 9 to 12. The measure extended the time for construction defect suits to be filed, awarded legal costs only to successful plaintiffs, and set a definition of construction defects. Two Democrats joined the Republicans in the Senate in defeating the bill.
Read the full story…
Court Requires Adherence to “Good Faith and Fair Dealing” in Construction Defect Coverage
September 30, 2011 — CDJ Staff
The California Court of Appeals has ruled in the case of Allied Framers, Inc. v. Golden Bear Insurance Company. Allied had been sued in a construction defect case and its primary insurer had become insolvent. Coverage for Allied’s defense was paid for by the California Insurance Guarantee Association through June 8, 2006. When warned that CIGA’s involvement was ending, Allied notified Golden Bear, which declined to provide coverage.
In the matters that followed, Golden Bear claimed that Allied had not exhausted its $1 million in primary insurance. Allied then showed that $1 million had already been paid out in the case. A few months thereafter, Golden Bear offered a $500,000 settlement on behalf of Allied which was rejected. Thereafter, Golden Bear hired new counsel to defend Allied. Golden Bear received, but allegedly did not pay, invoices Allied sent from their former counsel. Golden Bear finally settled the construction defect case for $2 million.
Allied’s original counsel sued Allied for payment. Golden Bear declined coverage. Allied then claimed that Golden Bear liable on several counts, arising from its failure to settle the construction defect action earlier than it did and its failure to pay Allied’s counsel. Golden Bear demurred, arguing that Allied had now exhausted is coverage with the $2 million settlement. The lower court sustained Golden Bear’s demurrer, dismissing Allied’s complaints.
The appeal court reviewed Allied’s seven complaints and sustained most of them. However, the court did reverse the trial court’s order in regard to Allied’s complaint that Golden Bear breached an implied covenant of good faith and fair dealing. The appeals court was not convinced that Golden Bear properly evaluated the settlement demand in the underlying construction defect case. The court found three other ways in which Golden Bear’s actions might show bad faith, in refusing to pay defense fees “after promising [Allied] such costs would be paid in full,” “failing to advise Allied about ‘actual or potential negative consequences of agreeing to the proposed settlement,’” and that their choice of counsel “failed to protect [Allied’s] interests in the negotiation.”
Read the court’s decision…
Yellow Brass Fittings Play a Crucial Role in Baker v Castle & Cooke Homes
May 10, 2012 — CDJ Staff
Baker v Castle & Cooke Homes Hawaii, et al. is a “class action filed by homeowners who allege that their homes have a construction defect. They allege that their plumbing systems include brass fittings susceptible to corrosion and likely to cause leaks. They bring this action against the developer of their homes and the manufacturers of the brass fittings.”
Zurn, the manufacturer of the allegedly defective brass fittings, sought a dismissal, or if that could not be achieved, then “a more definite statement, of five of the six claims.” Zurn moved for summary judgment on the sixth claim, or alternately sought “summary judgment on one of the five claims it” sought to dismiss.” The court granted in part the motion, and denied the motion for summary judgment.
The developer, Castle & Cooke, sought dismissal of the First Amended Complaint stating “that Plaintiffs have not complied with Hawaii’s Contractor Repair Act, chapter 672E of Hawaii Revised Statutes, which requires, among other things, a plaintiff to give a contractor the results of any testing done before filing an action against that contractor.” The court couldn’t determine “certain facts essential to ruling” on Castle & Cooke’s motion, and therefore denied the motion, but ordered Plaintiffs to submit requested material by the stated deadline.
The Baker v Castle & Cooke case began with the Plaintiffs claim that the use of yellow brass fittings can lead to construction defects. They allege that “yellow brass is particularly susceptible to dezincification, a corrosion process in which zinc leaches into potable water that comes into contact with the brass. According to Plaintiffs, as the brass corrodes, it becomes porous and mechanically weak. Plaintiffs further allege that the PEX systems in the putative class members’ homes have begun to, or are about to, leak water into the walls, ceilings, and floors of their homes. Plaintiffs allege that the leakage will cause water damage and mold growth, exposing the occupants to toxins.”
In response to the plaintiffs’ claims, Zurn argued “because their yellow brass fittings have not failed to date, Plaintiffs fail to allege, and have no evidence showing, that they have suffered any actual injury.” Plaintiffs replied, “even if the fittings have not failed as of today, failure in the future is inevitable.”
However, the court stated, “whether Plaintiffs have suffered any injury, or whether Plaintiffs are attempting to proceed based solely on future injury, implicates Plaintiffs’ standing to bring this action, as well as whether this case is ripe for adjudication.” The court has requested the parties to submit “supplemental briefing on whether this case should be dismissed pursuant to Rule 12(b)(1). In supplemental briefs, Zurn argues that dismissal is appropriate because Plaintiffs lack standing, and Castle & Cooke argues that dismissal is appropriate because Plaintiffs’ claims are not ripe.”
The court continues to discuss the problem of standing: “To establish standing, a plaintiff must demonstrate three things. First, the plaintiff must suffer an "injury-in-fact," which means that there must be a concrete and particularized "invasion of a legally protected interest" and the invasion is actual or imminent. Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992). Second, the injury must be fairly traceable to the challenged action. Third, a favorable decision must be likely to redress the injury. Id. It is the first element (injury-in-fact) that is in issue here.”
The court found that the plaintiffs do have standing: “Even if the court could not rely on the allegations that the pipes will soon leak, the court would conclude that, for standing purposes, Plaintiffs have a sufficient injury-in-fact in the form of their alleged economic loss.” In a hearing, Plaintiffs argued that their homes had decreased in value.
The court also denied Castle & Cooke’s motion to dismiss based on a lack of ripeness, stating “the same reasons Plaintiffs satisfy the injury-in-fact requirement for standing purposes, they satisfy the constitutional ripeness requirement.”
Plaintiffs asserted six counts against Zurn. Zurn, in response, made a motion to dismiss counts VIII, IX, X, XII, and XIII. The court granted Zurn’s motion for Counts VIII, IX, and X only: “Counts VIII (product liability), IX (negligence), and X (strict liability) sound in tort. Zurn argues that, because Plaintiffs allege no injury other than to the PEX systems and the yellow brass fittings themselves, the economic loss rule bars their tort claims. The court agrees.”
The court disagreed with Zurn’s motion regarding Count XII: “Count XII asserts that Zurn has breached the implied warranty of merchantability. Zurn argues that Count XII is barred by the applicable statute of limitations and that Plaintiffs do not sufficiently allege an injury. The court disagrees.”
Zurn’s motion regarding Count XIII was also denied: “Count XIII asserts that Zurn violated section 480-2 of Hawaii Revised Statutes.” Furthermore, “Plaintiffs allege that Zurn ‘engaged in unfair and deceptive acts or practices when [it] designed, manufactured and sold Yellow Brass Fittings.’ Zurn argues that Plaintiffs fail to state a claim under section 480-2(a) because their claims are barred by the statute of limitations and they do not adequately allege reliance or a cognizable injury. The court disagrees.”
The court denied the motion for summary judgment with respect to Counts XI and XII.
Castle & Cooke sought to dismiss “Plaintiffs’ claims against it under section 672E-2 of Hawaii Revised Statutes, which provides for dismissal when claimants fail to comply with chapter 672E.” There was some discussion regarding the test results. Apparently, the plaintiffs had failed to provide a written notice of claim at least 90 days before filing the action. However, it is unclear if the Plaintiffs have since complied with the requirements of the chapter. “The court has received no supplemental information from either party about whether any test results from another case have been turned over or whether those materials are subject to a confidentiality agreement. The record at this point does not establish noncompliance with the requirement in chapter 672E to provide such information. The court therefore denies the motion to dismiss.”
In summary, “Zurn’s motion to dismiss is granted as to Count VIII, Count IX, and Count X. Zurn’s motion to dismiss is denied with respect to Plaintiffs’ other claims. Zurn’s request for a more definite statement and its summary judgment motion are denied. Plaintiffs are given leave to file an amended Complaint no later than May 21, 2012.” Furthermore, “the court denies Castle & Cooke’s motion, but directs Plaintiffs to file, within two weeks, either a certificate of compliance with section 672E-3(c), or an explanation as to why they have not complied. Castle & Cooke may submit a response within two weeks of Plaintiffs’ submission. Each party’s submission is limited to 1000 words.”
Read the court’s decision…
Counterpoint: Washington Supreme Court to Rule on Resulting Losses in Insurance Disputes
September 1, 2011 — Douglas Reiser, Builders Counsel
This is the fourth installment of posts on Vision One v. Philadelphia Indemnity, a Washington Supreme Court case touching on Washington construction and insurance law. After Williams v. Athletic Field got so much coverage, I wished that I had provided a forum for argument on Builders Counsel. While we await that opinion from the Supreme Court, I decided to let a few good writers have at Vision One here on the blog. Last week, attorney Chris Carr weighed in. Today, insurance expert David Thayer returns to give his final impression. David provided an initial peak at the case earlier this year. Thanks to both Chris and David for contributing to the debate.
In August 2011 the Washington Supreme Court will rule on a pair of joined cases that involve critical insurance coverage issues. The outcome of the ruling will impact a large swath of policyholders in Washington State including builders, developers, and homeowners to name a few.
The cases are Vision One vs. Philadelphia Indemnity Insurance and Sprague vs. Safeco. The Vision one case comes from Division Two of the Appellate Court which overturned a lower court decision in favor the plaintiff, Vision One. Division Two decided that the collapse of a concrete pour during the course of construction did not constitute a resulting loss due to faulty workmanship. They further went on to redefine efficient proximate cause in a way that is harmful to policyholders by broadening rather than narrowing the meaning of exclusionary language in Philadelphia’s Builders Risk Policy.
Read the full story…
Reprinted courtesy of Douglas Reiser of Reiser Legal LLC. Mr. Reiser can be contacted at info@reiserlegal.com
Hawaii State Senate Requires CGL Carriers to Submit Premium Information To State Legislature
March 20, 2011 — March 20, 2011 Construction Defect Journal Staff
In light of the decision in Hawaii’s Intermediate Court of Appeals in Group Builders, Inc.,v. Admiral Insurance Company, 231 P.3d 67(2010), Hawaii’s state senate is requesting that "every domestic and foreign insurance company that has ever issued commercial general liability policies in the State is requested to submit information to the Legislature on the total premiums received for their commercial general liability policies during the past ten years"
Read Full Text of Hawaii State Senate Resolution
Construction Law Alert: A Specialty License May Not Be Required If Work Covered By Another License
March 7, 2011 — By
Steve Cvitanovic of
Haight Brown & Bonesteel, LLP.Contractors should always be sure that they understand the licensing in any Subcontract or Prime Contract before entering into any agreement. However, on March 3, 2011, in the case of Pacific Casson & Shoring, Inc. v. Bernards Bros., Inc. 2011 Cal.App.Lexis 236, the Court of Appeal determined that if a specialty license is subsumed within another license, the specialty license may not be required.
Bernards entered into a subcontract with Pacific to excavate, backfill, grade and provide geotechnical design parameters for a hospital. The Prime Contract required the bidder to maintain a Class C-12 specialty earthwork license. However, Pacific only held a Class A general engineering license which it turns out was suspended during the performance of the work. Pacific sued Bernards for nonpayment of $544,567, but the lawsuit was dismissed because the trial court found that Pacific (1) lacked a C-12 license, and (2) Pacific’s Class A license was suspended for failure to pay an unrelated judgment. Pacific was also ordered to disgorge $206,437 in prior payments.
The Court of Appeal reversed and remanded. The Court of Appeal agreed with Pacific and held that a C-12 specialty license was not required despite the Prime Contract. The Court of Appeal found that the C-12 specialty license would have been “superfluous” since it was fully encompassed within the Class A requirements. However, the Court of Appeal also remanded the case for further
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Reprinted courtesy of Steve Cvitanovic of Haight Brown & Bonesteel, LLP.
