United States District Court Confirms That Insurers Can Be Held Liable Under The CCPA.
June 19, 2012 — Chad Johnson
In D.R. Horton, Inc.-Denver v. The Travelers Indem. Co. of Am., 10-CV-02826-WJM-KMT, 2012 WL 527204 (D. Colo. Feb. 16, 2012), the court was asked to rule on Travelers’[1] motion to dismiss D.R. Horton, Inc. ?Äì Denver’s (“DRH”) claim that Travelers violated the Colorado Consumer Protection Act (“CCPA”).
In the underlying construction defect case (“CD case”), DRH, as the developer and general contractor of a construction project, tendered the defense of the CD case to certain subcontractors and to Travelers as an insurer to those subcontractors. Travelers accepted the duty to defend DRH. DRH hired counsel to defend it, and the attorney fees and costs of suit were billed to Travelers. However, for a period of over five years, Travelers failed to actually pay any portion of the defense of DRH. Finally, on October 31, 2008, Travelers offered checks for payment of only 4% of the costs and fees incurred. DRH then returned the checks to Travelers and provided Travelers with authority to support its position that the amounts in Travelers’ checks were inadequate. Thereafter, Travelers dug its heels in, and resubmitted the same checks.
DRH was then forced to file a coverage action against Travelers for declaratory judgment, breach of contract, bad faith breach of insurance contract, and deceptive trade practices under the CCPA. In its motion to dismiss DRH’s CCPA claim, Travelers’ argued that DRH failed to plead specific facts that Travelers engaged in a deceptive trade practice under C.R.S. § 6-1-105, and DRH failed to plead sufficient facts showing that Travelers’ actions significantly affect the public ?Äì a necessary element of a CCPA claim.
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Reprinted courtesy of Chad Johnson, Higgins, Hopkins, McLain & Roswell, LLC. Mr. Johnson can be contacted at johnson@hhmrlaw.com
Insurance Company Prevails in “Chinese Drywall” Case
June 17, 2011 — CDJ Staff
The Louisiana Court of Appeals rejected an appeal to reverse a summary judgment granted to Louisiana Citizens Property Insurance Company. Terrence and Rhonda Ross contracted for a remodel of their home in which Chinese-made drywall was used. When the drywall emitted harmful gasses, the Rosses filed a claim under their insurance policy. This claim was rejected under four exclusions: for faulty materials, latent defect, loss by corrosion, and loss by pollution. After the claim was denied, the Rosses sued Louisiana Citizens.
In April 2010, the lower court granted a summary judgment, followed by a May, 2010 order dismissing the Rosses’ claims against Louisiana Citizens. The Rosses appealed this decision. In the court’s review, they agreed with Louisiana Citizens and the lower court on all counts. Although the Rosses maintained that the drywall was not defective (as it still functioned as drywall), the court ruled that its emission of sulfuric gases was a defect. Further, as it was in place for two years before this became evident, it was also a latent defect. Damage to the Rosses’ home consisted of corrosion damage caused by the pollutants in the drywall.
The Rosses made an additional claim that since their policy covered smoke damage, this should be covered, as the harm was done by sulfuric gases. The court noted that the contract specifies “fumes or vapors from a boiler, furnace, or related equipment,” none of which apply in this case.
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Federal District Court Predicts Florida Will Adopt Injury In Fact Trigger
October 23, 2012 — Tred Eyerly, Insurance Law Hawaii
The U. S. District Court for the Middle District of Florida was confronted with determining whether Florida would follow the manifestation or injury in fact trigger in Axis Surplus Ins. Co. v. Contravest Constr. Co., 2012 U.S. Dist. LEXIS 104502 (D. Fla. June 5, 2012).
The homeowner's association sued the insureds for alleged negligent construction and development of individual dwelling units and common areas of their condominium. Due to this negligence, severe damage was caused by water intrusion. The Association's members only became aware of the defects through the retention of construction experts.
The insured had CGL coverage with Axis, with policies issued from 2003 to 2007. Coverage was denied for the periods 2003-2004 and 2004-2005. Axis provided a defense under the policies issued for 2005-2006 and 2006-2007, but under a reservation of rights. Axis sought a declaration that it had no duty to defend or indemnify because the damage manifested before its policy periods.
For coverage to exist, "property damage" must have "occurred" during Axis' policy period.
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Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
Homeowners May Not Need to Pay Lien on Defective Log Cabin
July 1, 2011 — CDJ Staff
The Idaho Supreme Court has ruled in the case of Perception Construction Management v. Bell. The Bells hired PCM to build a log home, agreeing to play monthly invoices in full within ten days. The Bells paid the first four invoices in full, part of the fifth, and ceased payment after that. Beofre seventh invoice, the Bells terminated the contract and hired a new contractor. PCM filed a claim of lien and ceased work.
The Bells responded that PCM was in breach of contract and had failed to fulfill the contract in a workmanlike manner. They claimed construction defects and in the lien suit, sought to include testimony from an architect and a plumber reviewing PCM’s work. The court only allowed the architect to testify as to whether the amount of the lien was reasonable. No testimony was permitted from the plumber.
The Idaho Supreme Court concluded that the claims of construction defects were important to case and remanded it to the lower court for a new trial taking into evidence that Bell’s contention that PCM’s work was defective.
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Wisconsin “property damage” caused by an “occurrence.”
April 4, 2011 — April 4, 2011 in CDCoverage.com
In American Family Mut. Ins. Co. v. American Girl, Inc., 673 N.W.2d 65 (Wis. 2004), the insured general contractor was hired by the owner to design and build a warehouse on the owner s property. The general contractor hired a soil engineer to do a soil analysis and make site preparation recommendations. The soil engineer determined that the soil conditions were poor and recommended a compression process which the general contractor followed. After the warehouse was completed and the owner took possession, excessive soil settlement caused the foundation to sink which in turn caused structural damage to the warehouse. The warehouse had to be torn down.
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Reprinted courtesy of CDCoverage.com
Homebuilding Still on the Rise
December 20, 2012 — CDJ Staff
The National Association of Home Builders reports that spending on private homes was up three percent in October 2012, bringing it to a four-year high. This was part of a trend in which fourteen of the last fifteen months have seen increases in spending on residential construction. Likewise, multifamily residences have seen thirteen months of increased spending, putting it 82% higher than its low, two years ago. ¬?In addition to new homes, remodeling is also up, reaching its highest point in five years.
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Toxic Drywall Not Covered Under Homeowner’s Policy
March 28, 2012 — CDJ Staff
The Duphuys of Baton Rouge Louisiana found themselves needing to argue both sides of an issue, according to the judge in Duphuy v. USAA Casualty Insurance Company. The Duphuys alleged that the drywall in their home “emits odorous gases that cause damage to air-condition and refrigerator coils, copper tubing, electrical wiring, computer wiring, and other household items.” Additionally, they reported damage to “their home’s insulation, trimwork, floors, cabinets, carpets, and other items” which they maintained were “covered under the ‘ensuing loss’ portion of their policy.”
Their insurer declined coverage, stating that the damages were not a “direct, physical loss,” and even if they were “four different exclusions independently exclude coverage, even if such loss occurred.” The policy excludes defective building materials, latent defects, pollutants, and corrosion damage. The court noted that “ambiguities in policy exclusions are construed to afford coverage to the insured.”
The court did determine that the Duphuys were not in “a situation where the plaintiffs caused the risk for which they now seek coverage.” The judge cited an earlier case, In re Chinese Drywall, “a case with substantially similar facts and construing the same policy” and in that case, “property damage” was determined to “include the loss of use of tangible property.” The court’s conclusion was that the Duphuys “suffered a direct, physical loss triggering coverage under their policy.”
Unfortunately for the Duphuys, at this point the judge noted that while they had a “direct, physical loss,” the exclusions put them “in the tough predicament of claiming the drywall is neither defective nor its off-gassing corrosive or a pollutant, but nonetheless damage-causing.”
In the earlier Chinese Drywall case, the judge found that “faulty and defective materials” “constitutes a physical thing tainted by imperfection or impairment.” The case “found the drywall served its intended purpose as a room divider and insulator but nonetheless qualified under the exclusion, analogizing the drywall to building components containing asbestos that courts have previously determined fit under the same exclusion.” In the current case, the judge concluded that the drywall was “outside the realm of coverage under the policy.”
The court also found that it had to apply the corrosion exclusion, noting that the plaintiffs tried to evade this by stating, “simplistically and somewhat disingenuously, that the damage is not caused by corrosion but by the drywall itself.” The plaintiffs are, however, parties to another Chinese drywall case, Payton v. Knauf Gips KG, in which “they directly alleged that ‘sulfides and other noxious gases, such as those emitted from [Chinese] drywall, cause corrosion and damage to personal property.’” As the court pointed out, the Duphuys could not claim in one case that the corrosion was caused by gases emitted by the drywall and in another claim it was the drywall itself. “They hope their more ambiguous allegations will be resolved in their favor and unlock the doors to discovery.”
The court quickly noted that “the remaining damage allegations are too vague and conclusory to construe” and permitted “exploration of the latent defect and pollution exclusions.”
The judge concluded that the plaintiffs did not provide sufficient facts to establish coverage under the ensuing loss provision, stating that the “plaintiffs must allege, at the very least, how the drywall causes damage to the trimwork, carpet, etc., not simply that it does so.” Given the court’s determinations in the case, the plaintiffs’ motion was dismissed.
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Is There a Conflict of Interest When a CD Defense Attorney Becomes Coverage Counsel Post-Litigation?
September 1, 2011 — Chad Johnson of Higgins, Hopkins, McLain & Roswell, LLC
In Weitz Co., LLC v. Ohio Cas. Ins. Co., the U.S. District Court for the District of Colorado was asked to rule on a motion to disqualify counsel in an insurance coverage action. 11-CV-00694-REB-BNB, 2011 WL 2535040 (D. Colo. June 27, 2011). Motions to disqualify counsel are viewed with suspicion, as courts “must guard against the possibility that disqualification is sought to ‘secure a tactical advantage in the proceedings.’” Id. at *2 (citing Religious Technology Center v. F.A.C.T. Net, Inc., 945 F. Supp. 1470, 1473 (D. Colo. 1996).
Weitz Company, LLC (“Weitz”) is a general contractor and defendant in an underlying construction defect suit which had concluded before the action bringing rise to this order. In the underlying action, Weitz made third-party claims against subcontractors, including NPW Contracting (“NPW”). Weitz was listed as an additional insured under NPW’s policies with both Ohio Casualty Insurance Company and Mountain States Mutual Casualty Company (collectively “the Carriers”). The Carriers accepted Weitz’s tender of defense under a reservation of rights. However, neither insurance carrier actually contributed to Weitz’s defense costs in the underlying action. At the conclusion of the construction defect action, the parties unsuccessfully attempted to apportion the attorney’s fees and costs. Eventually, Weitz brought suit against the recalcitrant carriers. The Lottner firm, which had previously represented Weitz in the underlying construction defect action, continued to represent Weitz in this coverage action.
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Reprinted courtesy of Higgins, Hopkins, McLain & Roswell, LLC. Mr. Johnson can be contacted at johnson@hhmrlaw.com
Insurance Company Must Show that Lead Came from Building Materials
August 17, 2011 — CDJ Staff
The Fourth Circuit Court of Appeals for Louisiana has reversed the summary judgment of a lower court in the case of Widder v. Louisiana Citizens Property Insurance Company. Judge Roland L. Belsome wrote the opinion for the panel of three judges. Ms. Widder discovered that her home and its content were contaminated by lead. She applied to her insurer, Louisiana Citizens Property Insurance, which denied her claim.
In response to Ms. Widder’s suit, LCPIC applied for a summary judgment on the grounds that there was no physical loss and that the policy did not cover defective material, latents defects, and pollution damage.
The appeals court found that the lead contamination of Widder’s home did meet the standards of a direct physical loss, citing a recent Chinese Drywall case. There, it was found, “when a home has been rendered unusable or uninhabitable, physical damage is not necessary.”
The lower court addressed only one of LCPIC’s exclusions, addressing only the exclusion on basis of “faulty, inadequate or defective material.” The appeals court noted that the evidence offered at trial does not show that the building materials were the source of the lead. This provided the appeals court with a matter of fact to remand to the lower court.
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Background Owner of Property Cannot Be Compelled to Arbitrate Construction Defects
November 7, 2012 — CDJ Staff
In Truppi v. Pasco Engineering, John Quattro sued Property Management Contractors, Inc. over construction defects in William Truppi’s home. All parties are named in the suit. The California Court of Appeals ruled that Property Management Contractors, Inc. (PMCI) could not compel Mr. Quattro to arbitration.
The background of the case involves two houses built in Encinitas, California by PCMI: one for Mr. Truppi at 560 Neptune, and one for Mr. Quattro at 566 Neptune. Both contracts contained an arbitration provision. Mr. Quattro signed the contract for his residence and Mr. Truppi signed the other. Mr. Quattro then sued PCMI and its principal, William Gregory. Mr. Quattro claimed to be the true contracting party for the 560 Neptune residence and a third party beneficiary of the contract Mr. Truppi signed, and stated that PCMI was aware of this.
PCMI in a demurrer stated that Quattro “had only a ‘prospective beneficial interest in the property upon its eventual sale or lease.’” Mr. Quattro amended his complaint to account for the issues raised by PCMI. The court rejected PCMI’s demurrer to the amended complaint.
Finally, PCMI and Gregory asserted that Quattro was “not the real party in interest” and could not sue. PCMI continues to assert that Quattro lacks standing, but their attorney sent Quattro an e-mail stating, “While my client disputes that you are a party, and that you lack standing to assert the claim, to the extent you do so I believe you are obligated to proceed by way of arbitration.”
The court did not cover the issue of Quattro’s standing in the case, only if he could be compelled to arbitration. The court affirmed the lower court’s finding that Quattro could not be compelled to arbitrate the construction defect claim as neither he nor Gregory signed the contract in an individual capacity. Further, the court noted that PCMI and Gregory “denied the existence of an agreement between themselves and Quattro on the 560 contract,” and cannot compel arbitration on a non-existent agreement. And while non-signatories can, in some situations be compelled to arbitrate, the court found that “these cases are inapplicable because here they seek to have the alleged third party beneficiary (Quattro) compelled by a nonsignatory (Gregory).” The arbitration clause in question “expressly limited its application to persons or entities that signed the 560 contract.”
As Mr. Quattro was not a signatory to that agreement, the court found that he could not be held to its arbitration provision.
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JDi Data Introduces Mobile App for Litigation Cost Allocation
October 23, 2012 — CDJ Staff
JDi Data of Fort Lauderdale, Florida has announced that they are about to release a mobile app for their Vendor Cost Control service. Their mobile app is a web app, and so can be used by customers on the iOS, Android, or Blackberry platforms. It provides a secure link to their database with no risk of releasing proprietary information. JDi Data notes that their product will allow users to “track their full subscribed case listings,” give them “easy access to carrier allocations, payments, and outstanding balances reports,” and to “call or email case managers directly from their mobile application.
James DeRosa, the founder of JDi Data says that “pushing the boundaries of technology has enabled us to further our goal of providing credible reporting and cost allocation expertise to insured, carriers and the legal community.”
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Georgia Supreme Court Rules Construction Defects Can Constitute an Occurrence in CGL Policies
April 5, 2011 — April 5, 2011 Beverley BevenFlorez - Construction Defect Journal
Recently, the Supreme Court of Georgia reversed the decision in American Empire Surplus Lines Insurance Company v Hathaway Development Company, Inc. stating that because Whisnant’s faulty workmanship caused damage to the surrounding properties, the construction defects constituted “occurrences” under the Commercial General Liability (CGL) policy. Unlike the South Carolina Supreme court ruling in the case of Crossman Communities v Harleysville Mutual, the Georgia Supreme Court stated that an accident can happen intentionally if the effect is not the intended result.
Interestingly, the only dissenting judge, J. Melton, disagreed with his colleagues on the basis that “although the term ‘accident’ is not specifically defined in the policy, it is axiomatic that an ‘accident’ cannot result from ‘intentional’ behavior.” It is clear that what constitutes an occurrence in CGL policies is still being hotly debated.
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Residential Construction Down in San Diego
September 13, 2012 — CDJ Staff
While new home construction is on the rise in some parts of the country, San Diego has seen a fall, comparing the first seven months of 2012 with the first seven months of 2011, dropping nine percent, according to an article in the San Diego Business Journal. The news isn’t all bad, since although July residential construction dropped sharply, nonresidential construction increased thirty-six percent.
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Lockton Expands Construction and Design Team
July 19, 2011 — CDJ Staff
Lockton Companies, LLC, the largest privately held independent insurance broker, has announced that it is expanding its construction and design team with the hiring of Karen Erger and Tom Miller.
Ms. Erger will provide professional liability practice management, loss prevention, contract and complex claims management consulting services to Lockton's architectural, engineering and construction clients in her role as Vice President, Director of Practice Management. Her background includes construction litigation at a leading construction law firm, professional liability claims defense and claims consulting for major professional liability underwriters.
Miller joins Lockton as a Senior Vice President within the Design and Construction Unit. His role will be dedicated to serving the needs of engineering, architecture and construction firms performing services around the globe. He has spent more than 15 years concentrating on professional liability for design professionals and contractors in multiple roles. He previously managed the professional liability underwriting of one of the largest construction insurers and has developed numerous manuscript insurance products as well as focused on strategic planning to enhance business unit opportunities.
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Avoid Gaps in Construction Defect Coverage
July 10, 2012 — CDJ Staff
The language may be standardized, but the way different states’ courts interpret it is not. That’s the problem discussed by William F. Knowles and Brendan Winslow-Nason in an article in Business Insurance. One of the major issue through the country is whether a construction defect claim and the resultant damage are an occurrence. Additionally, there are questions whether certain exclusions apply, such as “your work” or “your product” exclusions. They note that many courts “ agree that they are intended to exclude defective construction itself, while providing coverage for unintended consequences.” They further note that these are not the only insurance issues, “making it difficult for construction companies operating across state lines to ensure adequate coverage.”
Their recommendations to contractors are that they pay careful attention to where they’ve done business and “if the states have issued decisions or if there is legislation in place address the scope of coverage under additional insured endorsements.” Additionally, they suggest determining whether a contractor can negotiate a choice of law provision in their policy. The conclude that “construction companies can take proactive steps to protect themselves by identifying the applicable states’ laws, determining whether insurance is adequate under those laws, and then taking steps to resolve any gaps in their coverage.”
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Colorado Senate Bill 12-181: 2012’s Version of a Prompt Pay Bill
May 10, 2012 — W. Berkeley Mann, Jr., Higgins, Hopkins, McLain & Roswell, LLC
A potentially important legislative bill has been introduced in waning days of the 2012 legislative session, which would change many of the commercial practices that prevail in the construction industry. Senate Bill 12-181 applies to all building and construction contracts and would prohibit any contract provision that requires a contractor, subcontractor, or supplier to waive their lien in advance of payment. It also would ban any “choice of law” provisions that make a Colorado-based construction contract subject to enforcement only in another state, or under the laws of another state.
The bill also seeks to change many existing commercial practices between contractors, subcontractors, and suppliers. It is presently unclear whether the bill allows parties to contract around these payment procedure provisions, or whether these requirements are simply “gap filling” provisions that pertain if there are no written contract terms specified on these issues. The proposed statute would mandate payment to subcontractors and material suppliers due within seven days in the absence of a dispute about the work or materials being billed. After this seven day period, the bill would require the payment of interest at the rate of 1.5% monthly (18% annually). In any later suit for payment, the creditor would also be able to collect reasonable attorneys’ fees. Additionally, non-payment to a subcontractor or supplier who is later found to be entitled to prompt payment would excuse the subcontractor or supplier, and its surety bond provider, from any further performance under the contract.
It is presently unclear whether the bill allows parties to contract around these payment procedure provisions. However, it is clear that the bill provides some leeway for change orders, as long as there is (1) negotiation in good faith between the parties concerning the changed scope of work, and (2) a 50% payment of a subcontractor’s costs by the changing party within 30 days of the change order work being done. Additionally, the bill provides for retainage, but in an amount of no more than 5%.
The bill is presently set for hearing before the Colorado Senate Committee on Business, Labor, and Technology Committee on May 2, 2012 at 1:30 p.m.
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Reprinted courtesy of W. Berkeley Mann, Jr. of Higgins, Hopkins, McLain & Roswell, LLC. Mr. Mann can be contacted at mann@hhmrlaw.com.
Workers Hurt in Casino Floor Collapse
February 10, 2012 — CDJ Staff
More than a dozen construction workers fell about thirty feet when a floor collapsed in a Cincinnati casino. The workers were pouring cement on the second-floor level when the accident happened. The area in question will be the gaming area in the completed casino. Scott Allen, OSHA’s regional spokesperson, said their investigation of the accident would probably take about a month to complete.
The cause of the collapse is still undetermined. Although the weather has been wet in the area, experts thought it unlikely to be the cause. A construction forensics professor at Ohio State University said that “concrete pouring is very common” and that “you cannot go wrong unless something happens with the connection.” Engineering experts said it was more likely an issue with the metal decking.
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Micropiles for bad soil: a Tarheel victory
March 14, 2011 — Original article by by Melissa Brumback on March 14, 2011
Despite foundation challenges, construction is almost complete on the expansion at University of North Carolina’s Kenan stadium. The project started with a deep foundation system from design-build contractor GeoStructures. Known as the Carolina Student-Athlete Center for Excellence, the addition was built on a parcel with a knotty mix of fill soils, subsurface boulders and varying depths to rock. To achieve uniform foundation support, GeoStructures designed a Micropile system (also known as a Mini pile system) which could be drilled into the variable ground conditions.
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Reprinted courtesy of Melissa Brumback of Ragsdale Liggett PLLC. Ms. Brumback can be contacted at mbrumback@rl law.com.
