Ensuing Loss Provision Does Not Salvage Coverage
October 23, 2012 — Tred Eyerly, Insurance Law Hawaii
The insureds' home was built in 1989. In 2006, extensive water damage was found to the house. The insureds notified their carrier, Chubb. The insureds had coverage for all risks unless stated otherwise in the policy or if an exclusion applied.
Chubb hired an adjustor who determined that defective construction had enabled water to enter the wall and beam systems. Chubb denied coverage under the faulty planning, construction or maintenance exclusion.
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Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.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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Arizona Court of Appeals Decision in $8.475 Million Construction Defect Class Action Suit
May 9, 2011 — May 9, 2011 Beverley BevenFlorez - Construction Defect Journal
In the case of Leflet v. Fire (Ariz. App., 2011), which involved an $8.475 million settlement in a construction defect class action suit, the question put forth to the Appeals court was “whether an insured and an insurer can join in a Morris agreement that avoids the primary insurer’s obligation to pay policy limits and passes liability in excess of those limits on to other insurers.” The Appeals court provided several reasons for their decision to affirm the validity of the settlement agreement as to the Non-Participatory Insurers (NPIs) and to vacate and remand the attorney fee awards.
First, the Appeals court stated, “The settlement agreement is not a compliant Morris agreement and provides no basis for claims against the NPIs.” They conclude, “Appellants attempt to avoid the doctrinal underpinnings of Morris by arguing that ‘the cooperation clause did not prohibit Hancock from assigning its rights to anyone, including Appellants.’ This narrow reading of the cooperation clause ignores the fact that Hancock did not merely assign its rights — it assigned its rights after stipulating to an $8.475 million judgment that neither it nor its Direct Insurers could ever be liable to pay. Neither Morris nor any other case defines such conduct as actual ‘cooperation’—rather, Morris simply defines limited circumstances in which an insured is relieved of its duty to cooperate. Because Morris agreements are fraught with risk of abuse, a settlement that mimics Morris in form but does not find support in the legal and economic realities that gave rise to that decision is both unenforceable and offensive to the policy’s cooperation clause.”
The Appeals court further concluded that “even if the agreement had qualified under Morris, plaintiffs did not provide the required notice to the NPIs.” The court continued, “Because an insurer who defends under a reservation of rights is always aware of the possibility of a Morris agreement, the mere threat of Morris in the course of settlement negotiations does not constitute sufficient notice. Instead, the insurer must be made aware that it may waive its reservation of rights and provide an unqualified defense, or defend solely on coverage and reasonableness grounds against the judgment resulting from the Morris agreement. The NPIs were not given the protections of this choice before the agreement was entered, and therefore can face no liability for the resulting stipulated judgment.”
Next, the Appeals court declared that “the trial court abused its discretion in awarding attorney’s fees under A.R.S § 12-341.” The Appeals court reasoned, “In this case, the NPIs prevailed in their attack on the settlement. But the litigation did not test the merits of their coverage defenses or the reasonableness of the settlement amount. And Plaintiffs never sued the NPIs, either in their own right or as the assignees of Hancock. Rather, the NPIs intervened to test the conceptual validity of the settlement agreement (to which they were not parties) before such an action could commence. In these circumstances, though it might be appropriate to offset a fee award against some future recovery by the Plaintiff Leflet v. Fire (Ariz. App., 2011) class, the purposes of A.R.S. § 12-341.01 would not be served by an award of fees against them jointly and severally. We therefore conclude that the trial court abused its discretion in awarding fees against Plaintiffs ‘jointly and severally.’”
The Appeals court made the following conclusion: “we affirm the judgment of the trial court concerning the validity of the settlement agreement as to the NPIs. We vacate and remand the award of attorney’s fees. In our discretion, we decline to award the NPIs the attorney’s fees they have requested on appeal pursuant to A.R.S. § 12-341.01(A).”
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Residential Construction: Shrinking Now, Growing Later?
August 17, 2011 — CDJ Staff
Jim Haugey, the Chief Economist for Reed Construction Data noted that new residential construction spending fell 0.2% in June and a slightly larger drop of 0.5% in residential remodeling. While economic growth is still low, Haugey states that homebuilders have “record low inventories.” He forecasts a shrinkage of 1.5% in 2011, followed by about 20% growth in 2012.
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Application of Efficient Proximate Cause Doctrine Supports Coverage
January 6, 2012 — Tred Eyerly, Insurance Law Hawaii
Relying on the efficient proximate cause doctrine, the court determined coverage potentially existed for damage caused by water. Union Sav. Bank v. Allstate Indem. Co., 2011 U.S. Dist. LEXIS 134398 (S.D. Ind. Nov. 21, 2011).
The Tods purchased property that was mortgaged by Union Savings. The Tods obtained a Landlords Policy for the property from Allstate. When the Tods were in default on their loan, Union Savings notified them that foreclosure proceedings would commence. Union Savings sent an appraiser to the property who discovered water in the basement. Water and electricity to the building were off. Union Savings notified Allstate and later filed a formal claim under the mortgagee clause in the Landlords Policy. This clause stated, "A covered loss will be payable to the mortgagees named on the policy declaration. . . ."
Allstate denied coverage, citing exclusions for water damage.
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Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
Colorado “occurrence”
January 6, 2012 — CDCoverage.com
In Greystone Construction, Inc. v. National Fire & Marine Insurance Co., No. 09-1412 (10th Cir. November 1, 2011), general contractors Greystone and Branan were each sued by purchases of homes built by each alleging defective construction performed by subcontractors. CGL insurer American Family Mutual Insurance Company defended both Greystone and Brannon while co-insurer National Fire & Marine Insurance Company denied a defense. Greystone, Branan, and American Family sued National Fire for contribution towards defense costs. The federal district trial court entered summary judgment for National Fire.
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Reprinted courtesy of CDCoverage.com
Builder Waits too Long to Dispute Contract in Construction Defect Claim
May 10, 2012 — CDJ Staff
The Louisiana Court of Appeals has affirmed the lower court’s judgment in the case of Richard v. Alleman. The Richards initiated this lawsuit under Louisiana’s New Home Warranty Act, claiming that they had entered into a construction contract with Mr. Alleman and that they quickly found that his materials and methods had been substandard. They sued for the cost of repairing the home and filing the lawsuit. Mr. Alleman countersued, claiming the Richards failed to pay for labor, materials, and services. By his claim, they owed him $12,838.80.
The trial court split the issues of liability and damages. In the first trial, the court concluded that there was a contact between Alleman and the Richards and that the New Home Warranty Act applied. Mr. Alleman did not appeal this trial.
The second trial was on the issue of damages. Under the New Home Warranty Act, the Richards were found to be entitled to $36,977.11 in damages. In a second judgment, the couple was awarded $18,355.59 in attorney’s fees. Mr. Alleman appealed both judgments.
In his appeal, Alleman contended that the trial court erred in determining that the Home Warranty Act applied. This was, however, not the subject of the trial, having been determined at the earlier trial. Nor did the court accept Alleman’s claim that the Richards failed to comply with the Act. The trial record made clear that the Richards provided Alleman with a list of problems with their home by certified mail.
The court did not establish whether the Richards told Alleman to never return to their home, or if Alleman said he would never return to the home, but one thing was clear: Alleman did not complete the repairs in the list.
A further repair was added after the original list. The Richards claimed that with a loud noise, a large crack appeared in their tile flooring. Mr. Alleman stated that he was not liable for this as he was not given a chance to repair the damage, the Richards hired the flooring subcontractors, and that the trial court rejected the claim that the slab was defective. The appeals court found no problem with the award. Alleman had already “refused to make any of the repairs.”
Finally Alleman made a claim on a retainage held by the Richards. Since Alleman did not bring forth proof at trial, the appeals court upheld the trial courts refusal to award a credit to Alleman.
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Home Sales Still Low, But Enough to Spur Homebuilders
August 16, 2012 — CDJ Staff
Although new home sales are still fifty percent below the average over the last forty years, the housing rebound has sent stock of homebuilders up 53 percent this year, during the same period, the S&P 500 rose only 12 percent. The San Francisco Chronicle reports that from 2005 through 2011, homebuilder stocks trailed the S&P 500.
The growth isn’t limited to homebuilders alone. Building suppliers are also seeing a growth in sales, with profits for companies that make gypsum wallboard, cabinetry, plumbing products, and other items used in home building.
Homebuilders have also been able to raise prices. Standard Pacific Corp of Irvine, California has raised prices and cut incentives. Nevertheless, the buyers still come. PulteGroup and D.R. Horton are also raising prices.
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Arizona Supreme Court Confirms Eight-Year Limit on Construction Defect Lawsuits
July 18, 2011 — CDJ Staff
Acting on the case of Albano v. Shea Homes Ltd. Partnership, the Arizona Supreme Court has ruled that Arizona’s eight-year statute of repose applies. The case was referred to the court by the Ninth Circuit Court of Appeals which had asked for a clarification of Arizona law. The case focused on three questions:
1. Does the filing of a motion for class certification in an Arizona court toll the statute of limitations for individuals, who are included within the class, to file individual causes of action involving the same defendants and the same subject matter? 2. If so, does this class-action tolling doctrine apply to statutes of repose, and more specifically, to the statute of repose for construction defects set forth in Arizona Revised Statutes ("A.R.S.") § 12-552? 3. If the doctrine applies to statutes of repose, and specifically § 12-552, may a court weigh the equities of the case in determining whether, and to what extent, an action is tolled?
The litigation at hand has a lengthy history, starting with a case referred to as “Hoffman” in 2003. The Albano plaintiffs were not able to join in Hoffman, and they filed their own lawsuit in 2006. An additional lawsuit was filed by the Albano plaintiffs in 2007. The courts decided that the Albano plaintiffs’ lawsuit was untimely.
The Arizona Supreme Court concluded that the statute of repose was the appropriate standard for this case. They noted that “the eight-year statute of repose period began to run on November 6, 1997, the date of the Town of Gilbert’s final inspection. Albano II was filed on November 5, 2007.”
The court found that the plaintiffs had waited too long for start their suit. As a result, they found it unnecessary to answer the first or third questions. Justice A. John Pelander of the Arizona Supreme Court wrote the opinion, dated June 30, 2011.
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School District Marks End of Construction Project by Hiring Lawyers
June 19, 2012 — CDJ Staff
A school district in northeastern Pennsylvania has retained legal services as they approach the end of a construction project. The Mid Valley School Board cited concerns about the project’s budget, but Randy Parry, Superintendent of Mid Valley schools referenced “possible litigation at the end of the project.” Mr. Parry told the Scranton Times Tribune that construction delays could be a reason for litigation.
In addition to approving an additional $20,000 for legal representation, the board also approved $21,579 for additional project costs.
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After Breaching its Duty to Defend, Insurer Must Indemnify
August 11, 2011 — Tred Eyerly, Insurance Law Hawaii
In a brief decision analyzing Oregon law, the Ninth Circuit determined that once an insurer breaches its duty to defend, it must indemnify. See Desrosiers v. Hudson Speciality Ins. Co., 2011 U.S. App. LEXIS 12591 (9th CIr. June 21, 2011).
The victim secured a judgment against the insured after he was beaten by another patron outside the insured's bar. Hudson Speciality Insurance refused to defend the insured, claiming the injury arose from an assault and battery, which excluded coverage.
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Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
Insurer Has Duty to Disclose Insured's Interest In Obtaining Written Explanation of Arbitration Award
October 23, 2012 — Tred Eyerly, Insurance Law Hawaii
The issue faced by the Minnesota Supreme Court was whether the insurer had a duty to disclose the insured's interest in obtaining a written explanation of an arbitration award that identified the claims of recovery and the portions of the award attributable to each. Remodeling Dimensions, Inc. v. Integrity Mut. Ins. Co., 2012 LEXIS Minn. 404 (Minn. Sup. Ct., Aug. 22, 2012).
Remodeling Dimensions, Inc. ("RDI") built an addition for the homeowners and installed windows in the original part of the house. After construction began, the homeowners also asked RDI to fix the master bedroom window in the original part of the house.
After completion of the project, the house sustained storm damage.
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Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
Partial Settlement in DeKalb Construction Management Case
July 10, 2012 — CDJ Staff
The DeKalb County School District has made a partial settlement in a lawsuit over their claims of mismanagement of construction projects. The Atlanta Journal-Constitution reports that the school board settled with E. R. Mitchell & Co., the smaller of two firms that they have sued. As part of the settlement, Mitchell will be testifying against their former partner. Claims from the other side of the lawsuit are that the school board improperly fired the Heery/Mitchell partnership. The superintendant who fired the company, Crawford Lewis, and his chief operations office, Pat Reid, have since been charged with criminal conspiracy to defraud the construction program. A lawyer for Heery said that “we believe that when presented to a jury, Heery will be vindicated.”
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Homeowners Not Compelled to Arbitration in Construction Defect Lawsuit
January 6, 2012 — CDJ Staff
A California appeals court has ruled that developers cannot enforce CC&Rs in a case where a developer cited an arbitration clause it had inserted into the CC&R. The homeowners are alleging construction defect and wished to sue the developer who claimed a right to this under the CC&Rs.
The Marina del Rey Argonaut reports that particular appeal dealt only with whether the developer could compel arbitration. The underlying construction defect issues will subsequently have to be determined at trial.
The attorney for the homeowners’ association, Dan Clifford, noted that “arbitration has to be agreed to by both parties.” The covenant was drafted by the developer and in addition to requiring arbitration, it had a clause that it could not be amended without the consent of the developers. The court ruled that CC&Rs “can be enforced only by the homeowners association, the owner of a condominium or both.”
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Nevada Bill Aims to Reduce Legal Fees For Construction Defect Practitioners
March 21, 2011 — March 21, 2011 Construction Defect Journal Staff
Assemblyman Ira Hansen and twelve additional members of Nevada’s Assembly are sponsoring Assembly Bill 285. AB 285 Revises provisions governing an award of attorney’s fees in causes of action for constructional defects. Existing law generally provides that a claimant may recover reasonable attorney’s fees as part of the claimant’s damages in a cause of action for constructional defects. (NRS 40.655)
This bill removes this provision and instead authorizes a court to award reasonable attorney’s fees to a prevailing party involved in such a cause of action if an independent basis for the award exists pursuant to existing law which authorizes a court to award attorney’s fees in certain circumstances, or Rule 68 of the Nevada Rules of Civil Procedure, which provides for the payment of reasonable attorney’s fees by an offeree who rejects an offer and subsequently fails to obtain a more favorable judgment.
In an AP report published in Business Week it is suggested that the target objective of legislators centers on what it refers to as Nevada’s "Rampant construction defect lawsuits".
According to Business Week "The suits bring in hundreds of millions of dollars for lawyers and have put construction companies out of business. Hansen says fewer construction firms mean higher prices for Nevada consumers."
Click Here To Read Full Text and Revisions of Assembly Bill 285
Architect Not Responsible for Injuries to Guests
September 1, 2011 — CDJ Staff
The Texas Court of Appeals has ruled, with one dissent, that the architectural firm that designed a home was not responsible to the injuries caused to guests when a balcony collapsed. Judge David Puryear wrote the majority opinion in Black + Vernooy Architects v. Smith.
Black + Vernooy designed a vacation home for Robert and Kathy Maxfield in 2000. The Maxfields hired a general contractor to build the home. The general contractor hired a subcontractor to build a balcony; however, the subcontractor did not follow the architect’s design in building the balcony.
A year after the house was completed; the Maxfields were visited by Lou Ann Smith and Karen Gravely. The balcony collapsed under the two women. Ms. Gravely suffered a broken finger, a crushed toe, and bruises. Ms. Smith was rendered a paraplegic as a result of the fall. They sued the Maxfields, the general contractor, and the architects for negligence. The Maxfields and the general contractor settled. A jury found that the architects held 10% of the responsibility. The architects appealed the judgment of the district court.
The Appeals Court reversed this judgment, noting that “there has been no allegation that the Architects negligently designed the balcony or that the Architects actually created the defects at issue.” Further, “the Smiths allege that the defect was caused by the construction practices of the contractor and subcontractor when the balcony was not built in accordance with the design plans of the Architects.”
The court found that even though the architects had a duty “to endeavor to guard against defects and deficiencies in the construction of the home and to generally ascertain whether the home was being built in compliance with the construction plans,” this duty did not extend to third parties.
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A Call to Washington: Online Permitting Saves Money and the Environment
October 28, 2011 — Douglas Reiser, Builders Counsel
Here’s some good news for Oregon contractors: Electronic Permitting is here. That’s right, no more standing in line with folders full of printed submittals and waiting all day for your permit. The click of a few buttons and you are in business. Great news, right? Unfortunately, Oregon isn’t sharing that celebration with Washington. So I say - why not?
Last week, the State of Oregon released its new ePermitting online interface. The website allows contractors, owners and even local building departments to create an account, submit building plans and procure permits. With your account, you can track the progress of submissions, print documents and get posting information.
The state ran a limited test version in the City of Florence since 2009, working out the kinks. Perhaps the most impressive result of the new system is that Oregon tackled the task of coagulating a local process into one central location.
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Reprinted courtesy of Douglas Reiser of Reiser Legal LLC. Mr. Reiser can be contacted at info@reiserlegal.com
Claims Under Colorado Defect Action Reform Act Count as Suits
July 10, 2012 — CDJ Staff
The Colorado Court of Appeals has affirmed the judgment of the lower court in Melssen v. Auto-Owners Insurance. The Melssens built a custom home for the Holleys, during which time the Melssens retained a comprehensive general liability policy from Auto-Owners, which “obligated Auto-Owerns to defend the Melssens with respect to any ‘suit’ seeking damages for ‘property damage’ during the policy period.” Soon after the house was constructed, cracks developed in the drywall, then outside stucco and basement slab. The Holleys contended that “approximately $300,000 of damages to the Holleys’ property was caused by the Melssens’ engineering and construction defects” and filed a claim under the Colorado Defect Action Reform Act (CDARA). The Melssens “demanded Auto-Owners defend and indemnify the Melssens and forwared Auto-Owners the notice of claim.”
Although the Melssens notified Auto-Owners in June 2008, it was not until October 2008 that Auto-Owners denied coverage stating that the claims were sustained outside the policy period. The Melssens filed an action against Auto-Owners. At trial, the jury ruled in favor of the Melssens awarding them damages, to which the trial court added costs and attorney fees.
On appeal, Auto-Owners contended that the trial court erred in allowing the Melssens to argue that the CDARA notice of claim “was the functional equivalent of a complaint commencing a suit.” The appeals court found that “the CDARA notice of claim process constituted an alternative dispute resolution proceeding under the policy.” The court agreed that jury should not have been asked to determine if a CDARA action is a “suit,” but as the jury found for the Melssens, the concluding it “constituted harmless error.” Further, the court found that an action under the CDARA satisfied the definition of a “suit.”
The court found for the Melssens, affirming the lower court’s decision and remanding the case to the lower court for the awarding of appeals costs to the Melssens.
Read the court’s decision…
