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.
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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Vegas Hi-Rise Not Earthquake Safe
July 12, 2011 — CDJ Staff
If an earthquake hit Las Vegas, the Harmon Tower would not withstand it. A report from Weidlinger Associates told MGM Resorts that “in a code-level earthquake, using either the permitted or current code specified loads, it is likely that critical structural members in the tower will fail and become incapable of supporting gravity loads, leading to a partial or complete collapse of the tower.” The inspection came at the request of county officials, according to the article in Forbes.
According to Ronald Lynn, directory of the building division in the county’s development services division, “these deficiencies, in their current state, make the building uninhabitable.” The county is concerned about risks to adjacent buildings.
MGM Resorts is currently in litigation, separate from the stability issues, with Perini Corp., the builders of Harmon Tower.
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Continuous Trigger of Coverage Adopted for Loss Under First Party Policy
August 2, 2012 — Tred Eyerly, Insurance Law Hawaii
The Seventh Circuit predicted that the Wisconsin Supreme Court would adopt the continuous injury trigger for first party property loss that extends over several policy periods. Miller v. Safeco Ins. Co. of Am., 2012 U.S. App. LEXIS 12940 (7th Cir. June 25, 2012).
A home inspection report performed before the Millers purchased their home showed a soft spot on the roof. The stucco's finish color was also uneven and stained. Further, some water damage was found in the study and skylights above the kitchen sink. But the report advised that the exterior walls, chimney, grass roof, flashings, floor joists/beams and columns, garage walls and floor appeared serviceable. A roof specialist determined the soft spot was not significant and could be repaired for $1,500.
The Millers purchased a homeowner's policy from Safeco on June 30, 2005. The policy went into effect the next day when the Millers closed on the property. But the Millers did not see the policy's terms until Safeco mailed them a copy of the policy at the end of July.
Before receiving the policy, the Millers discovered severe inner wall water leaks and significant water infiltration on three of the home's exterior walls.
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Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.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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No Resulting Loss From Deck Collapsing Due to Rot
July 10, 2012 — Tred Eyerly, Insurance Law Hawwaii
The Washington Supreme Court reversed the Court of Appeals’ decision that the ensuing loss provision provided coverage for a deck that collapsed due to rot and decay. Sprague v. Safeco Ins. Co. of Am., 2012 Wash. LEXIS 375 (Wash. May 17, 2012). Our prior post on the Court of Appeals’ decision is here.
The Sprague’s home had a deck supported by six "fin walls." The fin walls were encased in a foam and stucco coating. Twenty years after they purchased the home, it was discovered that the fin walls were in an advanced state of decay. Engineers discovered that construction defects caused the supports to rot. The deck was in danger of imminent collapse.
Safeco denied coverage. The all-risk policy did not exclude collapse, but did exclude coverage for losses causes by mold, wet or dry rot.
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Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
Water Drainage Case Lacks Standing
March 28, 2012 — CDJ Staff
The Texas Court of Appeals has ruled in the case La Tierra de Simmons Familia Ltd. V. Main Event Entertainment, LP. The trial court had found for Main Event. On appeal, the court threw out some of the grounds on which the trial court had reached its decision.
The case involved two commercial lots in northwest Austin, Texas. The uphill tract (Phase III of the Anderson Arbor development) diverts its runoff onto the lower tract (the “Ballard tract”). The owners of the Ballard tract claim that “the drainage system was designed or constructed in a manner that has damaged and continues to damage the Ballard tract.”
Both tracts have undergone changes of ownership since the construction of the drainage system in 2004. At the time the drainage system was constructed, the parcel was owned by Sears Roebuck and Co. Sears later sold the property. Main Event Entertainment is the current tenant. Likewise, the Ballard tract was previously owned by the Ballard Estate which sold the property to La Tierra on an “as is” basis in 2007.
After La Tierra bought the Ballard tract, La Tierra’s engineer “witnessed and videotaped what he described as ‘flooding’ on the Ballard tract caused by storm water discharge from the Anderson Arbor drainage system during a rainfall event.” La Tierra determined that an adequate drainage system would cost about $204,000. Development plans were put on hold.
La Tierra sued Main Event and various other parties associated with the uphill tract, seeking “actual damages for (1) decrease and loss in rental income due to delay in obtaining the development permit, (2) interest on carrying costs during that time period, (3) the cost to build a water conveyance system on the Ballard tract, (4) engineering fees incurred to redesign the water conveyance system, (5) unspecified out-of-pocket real estate expenses, and (6) property devaluation occasioned by the need to construct an expensive water conveyance system.” The trial court never reached these claims, ruling instead that La Tierra lacked standing, that its claims were barred under the statute of limitations, and that there was no evidence of damage.
La Tierra appealed, arguing that “(1) the summary-judgment evidence does not conclusively establish that property damage claims accrued or were discovered prior to September 11, 2007, which is within the limitations period and was after La Tierra purchased the property; (2) even if the property was damaged before La Tierra acquired ownership of the Ballard tract, standing exists based on the assignments of interest from the Ballard Estate heirs, and the discovery rule tolls limitations until the injury was discovered on September 11, 2007; (3) limitations does not bar La Tierra's request for injunctive relief; (4) La Tierra's water code claim against Main Event and M.E.E.P. is viable based on their control over the drainage system, which makes them necessary and indispensable parties for injunctive relief; (5) La Tierra presented more than a scintilla of evidence to raise a fact issue on damages, causation, and other essential elements of its causes of action; and (6) the trial court abused its discretion when it sustained the defendants' objections to La Tierra's summary-judgment evidence.”
The appeals court concluded that La Tierra’s second claim was irrelevant to standing, as La Tierra “obtained assignments from the Ballard Estate heirs ? nearly one year after the lawsuit was initially filed.” Nor did the court accept their first point. The water system had been operating unaltered since January, 2004, with monthly maintenance and inspection to maintain its designed operation. Further, a feasibility report La Tierra received stated that “over sixteen acres drain into those ponds, and thus onto this site.” The court noted that “the underlying facts giving rise to a cause of action were known before La Tierra acquired ownership of the Ballard tract.”
The court concluded that the drainage issue is a permanent injury, but that it “accrued before La Tierra acquired an ownership interest in the property.” As La Tierra has standing, the appeals court ruled that it was improper for the trial court to rule on the issues. The appeals court dismissed the questions of whether the case was barred under the statute of limitation and also the question of whether or not La Tierra had damages.
As the issue of standing would not allow La Tierra to bring the suit, the appeals court found for the defendants, dismissing the case for this single reason, and otherwise affirming the ruling of the lower court.
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Nevada Court Adopts Efficient Proximate Cause Doctrine
February 10, 2012 — Tred Eyerly, Insurance Law Hawaii
Although the Nevada Supreme Court adopted the efficient proximate cause doctrine, it determined it did not apply to salvage coverage under an all-risk policy for a rain-damaged building. Fourth Street Place, LLC v. The Travelers Indemn. Co., 2011 Nev LEXIS 114 (Nev. Dec. 29, 2011).
Fourth Street owned an office building which was insured by an all-risk policy issued by Travelers. Fourth Street hired Above It All Roofing to repair the roof of the office building. Above It All removed the waterproof membrane on the roof and prepared to replace the membrane the following week. Over the weekend, however, substantial rain hit. On Sunday, Above It All returned to cover the exposed portions of the roof with tarps, but wind later blew the tarps away. The building suffered significant interior damage as it continued to be exposed to the rain.
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Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
Parking Garage Collapse May Be Due to Construction Defect
November 7, 2012 — CDJ Staff
A parking garage under construction at the Doral campus of Miami Dade College collapsed on October 9. Experts state that the collapse may have been due to errors in the construction process, either in the fabrication of the pre-cast components or in their assembly. The Bradenton Herald quotes Mark Santos, a structural engineer, who “would look at erection procedures ?Äì that’s probably the one question to ask first.”
During the failure, floors separated from the south wall of the structure. The contractor responsible for the garage, Ajax Building Corp, said there was “no indication of any potential cause.”
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Manhattan Developer Breaks Ground on $520 Million Project
November 18, 2011 — CDJ Staff
Rebuilding an area of Midtown West that has been condemned for decades, the Gotham Organization has broken ground on a 1,200-unit project that will include housing for a variety of household incomes and a school. One unit of the project will be affordable housing for families of annual incomes up to $40,000. Another will be for middle-income households. Additionally, there will be a 31-story tower with 550 luxury units.
The site CityBiz quotes Mayor Michael Bloomberg, as saying that the project “will grow our economy by creating 2,900 construction-related jobs.” The president of the Gotham Organization, David L. Picket notes that it will “create hundreds of new jobs, generate millions of dollars in revenue for the construction industry, contribute towards the building of a new primary, and provide homes to thousands of New Yorkers.”
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Defect Claims as Occurrences? Check Your State Laws
July 10, 2012 — CDJ Staff
Although four states have defined construction defect claims as occurrences, contractors are still dealing with “coverage gaps for faulty work construction,” says Mike Tsikoudakis in a piece at Business Insurance. He quotes Julian Ehrlich, the senior VP of claims for Aon Risk Services that “one of the interesting and compelling aspects of the issue of coverage for defective construction is that jurisdictions differ, so policyholders don’t know what they’re going to get.” He further notes that “in context of construction defect, the term ‘occurrence’ is ambiguous.”
One problem, as noted by Jeffrey J. Vita, a partner at Saxe Doernberger & Vita, is that construction firms end up needing to simultaneously defend against defect claims and to also file suit to be certain their insurance firms will cover claims. Insurance for construction defect claims is described as “expensive and somewhat limited.” Mr. Vita expects more states to help this situation with new laws, clarifying what is an occurrence.
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Ensuing Loss Provision Found Ambiguous
April 25, 2012 — Tred Eyerly, Construction Law Hawaii
After the insurer denied coverage in a homeowner’s policy for construction defects under various exclusions, the court found the ensuing loss provision was ambiguous.Kesling v. Am. Family Mut. Ins. Co., 2012 U.S. Dist. LEXIS 38857 (D. Colo. March 22, 2012).
After purchasing a home from the sellers, the insureds noticed problems with the deck of the home. Massive cracking appeared, causing lifting and leaking on the deck and water running through the exterior foundation wall into the home. There was also damage to the roof and crawlspace.
The insureds had a homeowner’s policy with American Family, which covered accidental direct physical loss to property described in the policy unless the loss was excluded. They requested coverage for "conditions, defects and damages." American Family denied coverage because wear and tear, as well as damage to foundations, floors and roofs were excluded. The policy did provide coverage, however, for "any resulting loss to property described . . . above, not excluded or excepted in this policy.
When coverage was denied, the insureds sued American Family.
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Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
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.”
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Colorado Court of Appeals holds that insurance companies owe duty of prompt and effective communication to claimants and repair subcontractors
March 1, 2011 — Courtesy
Colorado Construction LitigationIn Dunn v. American Family Insurance, 09CA2173, 2010 WL 4791948 (Colo. App. Nov. 24, 2010), the Dunns reported a claim to American Family on their homeowners insurance policy after sewer and water backup caused sewage to flood their basement. American Family gave the Dunns contact information for a contractor (ICA) to remediate the flooding. However, ICA was unsuccessful and sewage began to infiltrate the Dunns’ HVAC system. Subsequently, black mold was detected in the HVAC system, the Dunns suffered health and respiratory problems, and they soon after vacated the home. The Dunns hired and fired two more contractors for unsatisfactory work throughout the winter before hiring a fourth to finish the job. Because the home remained vacant and unheated throughout the winter, the water pipes ruptured. The mold spread throughout the entire home and all of the contents needed to be replaced, which amounted to a claim of $340,000 on the policy.
American Family agreed to pay the full $340,000. However, the Dunns brought suit claiming that American Family breached the implied duty of good faith and fair dealing by: 1) failing to screen ICA for expertise; 2) failing to screen ICA for liability insurance coverage; 3) failing to monitor ICA’s work; 4) failing to advise them that flooding can cause further damage, including freezing pipes and mold; and, 5) failing to adequately and promptly communicate with them and remediation subcontractors in the course of investigating and handling their claim. The trial court found no duty owed by American Family beyond adjustment and timely payment of claims. Because American Family paid timely and in full, they dismissed all of the Dunns’ claims. However, the Court of Appeals reversed in part.
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Reprinted courtesy of Chad Johnson, Higgins, Hopkins, McLain & Roswell, LLC. Mr. Johnson can be contacted at johnson@hhmrlaw.com
Construction Jobs Expected to Rise in Post-Hurricane Rebuilding
November 7, 2012 — CDJ Staff
Businessweek reports that construction jobs and materials will see increased demand as property owners in New York and New Jersey rebuild after hurricane Sandy. Tom Jeffery, of Irvine, California-based CoreLogic, a real estate information service, noted that “a high percent of damaged properties are going to be repaired.” Experts estimate property damage to total anywhere from $7 billion to $40 billion.
It is also estimated that about 739,000 properties in the area are underwater in the way that has nothing to do with flooding, with negative equity of 25 percent or more. Many of these homeowners are likely to walk away from their mortgages.
Ken Simonson, chief economist of the Associated General Contractors of America, expects “localized spikes in construction employment throughout November and the winter.” Martin Connor, the chief financial officer of Toll Brothers, expects to see more a rise in labor costs than in materials.
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Nevada District Court Dismisses Case in Construction Defect Coverage Suit
August 16, 2012 — CDJ Staff
The United States District Court of Nevada has dismissed a case filed by Maryland Casualty Company against National Fire & Marine Insurance Company. This case follows a case in which National was sued over “200 causes of action arising out of 193 separate insurance coverage disputes related to 75 different insureds and 163 unrelated construction defect or Chapter 40 proceedings across seven states.” The judge in this initial case severed the plaintiffs, as he found that allowing joinder “would make this case impossible to manage.” In this particular instance, National seeks to have the claims made by Maryland Casualty dismissed.
Maryland Casualty alleged that for insurance policies issued to 38 companies, National was obligated to defend the insured. National was, according to the plaintiff, named as defendants in 72 unrelated lawsuits to which National disclaimed coverage. However, the court found that Maryland Casualty failed “to provide enough detail regarding the relevant property damage, policies, claims, and time periods.” The court found that Maryland failed to “state a claim upoin which relief can be granted.
The court also found that “the Complaint lacks any well-pled allegations from which the Court could conclude the Plaintiff has standing since the Complaint is devoid of information about the specific policies at issue.
The court did allow Maryland Casualty up to September 3, 2012 in which to file an amended complaint.
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Harmon Tower Construction Defects Update: Who’s To Blame?
August 17, 2011 — CDJ Staff
Reporting on the site VegasInc.com, Liz Benton notes that “nobody wants to take the fall for what happened at Harmon.” Work on the Harmon hotel building in Las Vegas’s CityCenter stopped in 2008 after 26 of the planned 49 stories were completed. Lorence Slutzky, a construction law professor at John Marshall Law School and a partner with the Chicago firm Robbins Schwartz Nicholas Lifton & Taylor told Benton that while inspectors and others are complicit, “the real responsibility rests with Perini, which has an obligation to comply with the plan specifications.” Perini’s claim is that they were given faulty design drawings. MGM disputes this.
Perini has offered to repair the building defects, however MGM has released a statement that they have “zero confidence or trust that Perini can and will properly fix a building it has so badly constructed thus far.” One MGM spokesperson likened these requests from Perini to “the director of ‘Ishar’ demanding a sequel.” “Ishtar,’ cost Columbia Pictures $55 million dollars and earned only $4.2 million in its initial run. Perini claims that MGM halted work because of the economy.
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Defective Grout May Cause Trouble for Bridges
August 16, 2012 — CDJ Staff
Grout, which was used to protect the steel support cables of the Woodrow Wilson Bridge, may lead to problems instead. The Baltimore Sun reports that the Federal Highway Administration is looking at three dozen bridges in twenty-one states that were built with defective grout. The grout contains high levels of chlorides, which can lead to corrosion. The collapse of pedestrian walkway in Concord, North Carolina was attributed to chloride contamination in the grout.
The grout, SikaGrout 300PT, was advertised as "non-corrosive, does not contain chlorides," but later testing showed that it contained levels that exceeded limits by 400 percent. Throughout the country, about 16 million pounds of this were used. Sika Corp. suspended production of the grout in 2010. If repairs need to be made, it is unclear who will pay.
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