Texas contractual liability exclusion
May 18, 2011 — May 18, 2011 - CDCoverage.com
In Ewing Construction Co., Inc. v. Amerisure Ins. Co., No. C-10-256 (S.D. Tex. April 28, 2011), insured Ewing was the general contractor for an athletic facility constructed for a school district. The school district sued Ewing alleging defective construction of the project. The underlying complaint included contract and negligence causes of action, and sought damages for the repair of the damages and loss of the use of the project. The complaint did not allege damage to any property other than the project itself. Ewing tendered its defense to its CGL insurer Amerisure. Amerisure denied a defense and Ewing filed suit against Amerisure. The federal district trial court entered summary judgment for Amerisure. Applying Texas law, the court held that all of the damages fell within the “contractual liability†exclusion precluding any duty to defend or indemnify.
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Reprinted courtesy of CDCoverage.com
Texas Construction Firm Files for Bankruptcy
December 20, 2012 — CDJ Staff
A Texas construction firm, founded in 1937, filed for bankruptcy, bringing twenty-two projects to a sudden halt, and resulting in the loss of jobs for hundreds of employees. Ballenger Construction told its employees to go home, as it could not complete the jobs. In some cases, work will need to be done to ensure that the work sites do not cause public safety hazards.
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Construction Defect Bill Introduced in California
June 10, 2011 — CDJ Staff
Linda Halderman (R-Fresno) has introduced a bill which would require lawyers soliciting clients for construction defect cases to provide their prospective clients with a statement including that sellers may be required to disclose that they were engaged in a construction lawsuit. Further, the bill would require lawyers to disclose that they cannot guarantee financial recovery.
Halderman was quoted by The Business Journal as saying, “Lawsuit abuse has been very damaging, especially to homeowners in the Valley.” Halderman hopes that her bill will discourage class action lawsuits against builders and that this will protect jobs in the construction industry.
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New OSHA Fall Rules to Start Early in Minnesota
June 14, 2011 — CDJ Staff
Minnesota has elected to implement the new OSHA rules concerning fall prevention in residential construction on June 20, well before OSHA’s September 15 deadline. Brian Johnson, reporting in Finance and Commerce, quotes Pam Perri, the executive vice president of the Builders Association of Minnesota, “this is the worst time to implement a new rule.” Ms. Perri notes “In Minnesota, education time for the residential construction industry is between November and March 1, not in the middle of the construction season.”
Mike Swanson of Rottlund Homes estimated that the new regulations would add between $200 to $500 to the cost of a house and that he felt the current safety regulations were adequate. OSHA officials are quoted that there continues “to be a high number of fall-related deaths in construction.”
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Construction Defects as Occurrences, Better Decided in Law than in Courts
December 9, 2011 — CDJ Staff
Construction defect claims are now occurrences for insurance purposes in four states, Arkansas, Colorado, Hawaii, and South Carolina, yet there are still frustrations for commercial general liability policyholders. Business Insurance describes court decisions on whether construction defect claims are covered as “incongruous,” and this drives up coverage and litigation costs. Construction firms often find they are defending themselves on two fronts, both the construction defect claim and also whether their insurance covers it.
Frank Armstrong, the Senior Vice President and National Director of Construction Claims for Willis North America says that the problem starts with the word “occurrence,” as various state courts have different interpretations of the word. “Certain pieces of it don’t fit well, at lest according to some courts in the country, with coverage for construction defect risks.”
Another insurance executive, Julian Ehlich, the Senior Vice President of Claims for Aon Risk Solutions’ construction services group notes that “jurisdictions differ, so policyholders don’t know what they’re going to get.”
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School Sues over Botched Pool
October 23, 2012 — CDJ Staff
The Daily American reports that the Somerset Area School District has alleged that the contractor who repaired and renovated the district’s swimming pool “botched” the job. Now the school has filed a civil case in the Somerset County Court of Common Pleas. The contractor, Wilson Construction Co. would prefer the matter to be settled in binding arbitration.
The school district alleges that the surface installed by Wilson Construction cracked and bubbled due to improper installation. The manufacturer of the waterproofing system, Dryvit Systems, tested the installation and concluded it was an installation failure instead of a product defect. Dryvit told the district that the exterior walls would have be removed.
The school district paid Wilson Construction $591,081 for their work. In their lawsuit, they are seeking $594,596 to cover the cost of draining the pool and repairing it.
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Unit Owners Have No Standing to Sue under Condominium Association’s Policy
February 10, 2012 — Tred Eyerly, Insurance Law Hawaii
If a condominium owner suffers damage caused by a leak from another unit, may it sue the insurer for the Association of Apartment Owner (AOAO) for coverage? The federal district court for Hawaii said "no" in a decision by Judge Mollway. See Peters v. Lexington Ins. Co., 2011 U.S. Dist. LEXIS 148734 (D. Haw. December 27, 2011).
Two cases were consolidated. In each case, Plaintiffs owned condominium units at the Watercrest Resort on Molokai. Water leaking from another unit damaged Plaintiffs’ units.
Watercrest Resort was insured by Lexington pursuant to a policy maintained by the AOAO. Plaintiffs filed claims with Lexington. Lexington hired an adjustor.
Unhappy with the adjustment of their claims, Plaintiffs sued Lexington and the adjustor.
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Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
Federal Court Denies Summary Judgment in Leaky Condo Conversion
August 4, 2011 — CDJ Staff
In the US District Court for Illinois, Judge William Hibber has rejected the request for summary judgment sought by the developers of a condominium building in the case of Nautilus Ins. Co. v. 1735 W. Diversey, LLC (the insureds). The insureds renovated a building at 1735 W. Diversey, Chicago, converting it into condominiums. After the project was completed and all units sold, and a condominium association form, one of the owners found that unit suffered leaks during rainstorms. The condo board hired a firm, CRI, to investigate the cause of the leakage. CRI found “water infiltration through the exterior brick masonry walls, build-up of efflorescence on the interior surfaces of the masonry, and periodic spalling of portions of the brick masonry.”
The redevelopment firm had purchased coverage from Nautilus. “Shortly after the Board filed its first complaint, the Insureds tendered the mater to Nautilus and requested that it indemnify and defend them from the Board's underlying claims. Nautilus, however, rejected the Insureds’ tender and denied coverage under both insurance policies.” Nautilus stated that the water leakage did not constitute an occurrence under the policies. The court cited these policies in which an occurrence is defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” The Illinois courts have determined that construction defects are not accidents.
The court concluded that the insured did not bring forth claims within the coverage of the policies and denied the motion for summary judgment.
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Kentucky Court Upholds Arbitration Award, Denies Appeal
June 15, 2011 — CDJ Staff
The Kentucky Court of Appeals has ruled in Lake Cumberland Community Action Agency v. CMW, Inc. affirming the arbitration award. CMW, Inc. was responsible for the construction of a facility to be used for pre-school students and the housing of Alzheimer patients and senior citizens. An agreement was made that any disputes would be heard by an arbitrator selected by the construction industry.
The plaintiff alleged that there were design and construction defects in the building trusses, violation of the Kentucky Building Code, and problems with the HVAC system. The arbitrator awarded $106,000 to the plaintiff which then sought to vacate the award. The circuit court upheld the arbitrator’s decision.
The Court of Appeals found that there was no basis for rejecting the arbitrator’s decision, noting “there is nothing to show that there was any fraud or bias on the part of the arbitrator.” The appeals court, with all three judges concurring, upheld the arbitration award.
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Official Tried to Influence Judge against Shortchanged Subcontractor
February 10, 2012 — CDJ Staff
A contractor testified in the trial of former Cuyahoga County Commissioner Jimmy Dimora. According to Fox 8 in Cleveland, Ohio, Sean Newman, the president of Letter Perfect testified that his company was a subcontractor on the reconstruction of the locker rooms at the Cleveland Browns Stadium. Newman said his company was paid only $400,000 of their $650,000 bid. When Letter Perfect sued the contractor, D.A.S. Construction, Dimora called the judge to influence her to rule in favor of D.A.S.
The judge in the earlier case, Bridgett McCafferty, has been found guilty of lying to the FBI during their investigation and is serving a 14-month prison sentence.
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Appeals Court Reverses Summary Judgment over Defective Archway Construction
February 10, 2012 — CDJ Staff
A judge has ruled that a plaintiff can go forward with her suit that she was injured by a defective archway during a birthday party. A three-judge panel of the California Court of Appeals issued this ruling on January 23, 2012, in the case of Trujillo v. Cosio.
Ms. Trujillo attended a birthday party at the home of Maria Cosio and Joel Verduzco. A piñata was hung between a tree and a brick archway. Ms. Trujillo went to get candy that had fallen from the piñata, during which the archway fell on her hand. Subsequent examination of the archway showed that it had not been “properly anchored to the supporting pillars to protect the arch from falling.”
Ms. Cosio and Mr. Verduzco argued that they could not have been aware of the defective nature of the archway’s construction, as it had been built at the request of the prior property owner. The structure was constructed without building permits. Mark Burns, a civil engineer testifying for the plaintiff, said that “a reasonable property owner would have thoroughly tested the archway to ensure it was capable of withstanding such horizontal forces before allowing children to enter into the area.” Mr. Burns noted that twenty rope pulls would have been sufficient to demonstrate the structure’s instability.
The trial court rejected Mr. Burn’s statements, finding that the respondents did not have any knowledge of the defect and that a visual inspection should have sufficed. The court noted that this a triable issue, whether visual inspection suffices, or whether the property owners should have done as Mr. Burns suggested and yank a rope twenty times. The court noted that “although a jury may ultimately disagree with Burn’s opinion, it was supported by sufficient foundation and was not speculative.”
The opinion was written by Judge Flier, with Judges Rubin and Grimes concurring.
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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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Contractor’s Coverage For Additional Insured Established by Unilateral Contract
November 18, 2011 — Tred Eyerley, Insurance Law Hawaii
The contractor was covered as an additional insured under the subcontractor’s policy even though the parties had never actually signed an agreement to add the contractor to the policy. Evanston Ins. Co. v. Westchester Surplus Lines Ins. Co., 2011 U.S. App. LEXIS 20081 (9th Cir. Oct. 3, 2011).
The policies held by Bellevue Master, the general contractor, required it to be an additional insured under any subcontractor’s liability policy. Northwest Tower Crane Services was a subcontractor. Bellevue Master LLC, faxed a message that Northwest could continue to be a subcontractor on the project if it complied with Bellevue Master’s insurance requirements. Northwest contacted its insurance broker and requested an insurance certificate be issued to Bellevue Master so that it would be an additional insured under Northwest’s policy.
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Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
Unfinished Building Projects Litter Miami
November 18, 2011 — CDJ Staff
Buildings born in ambitious development plans that were never brought to completion form a grim reminder of the building bust in Miami, according to an article in the Miami Herald. One project started in 2007 as a residential project, later there were hopes to develop it as a hotel. These plans are ten months old with no work done.
Another project was projected as a 30-story office and commercial tower. Four were built before the project was abandoned. The article describes the site as “squalid.” Another project completed the planned 17 stories, but no work has been done beyond constructing the shell. Once planned as luxury condos, the owner owes more than $30,000 in property taxes.
Each of the three sites profiled in the Miami Herald have become dumping grounds for trash. The building skeletons have also become damaged by the elements. Some abandoned projects have been taken over by homeless people. Businesses near the abandoned properties have been hurt. The buildings also represent failed obligations to subcontractors who have put liens on the properties for work they performed but were never paid for.
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Colorado “property damage” caused by an “occurrence” and exclusions j(5) and j(6) “that particular part”
August 11, 2011 — CDCoverage.com
In Continental Western Ins. Co. v. Shay Construction, Inc., No. 10-cv-02126 (D. Col. July 28. 2011), general contractor Milender White subcontracted with insured Shay for framing work.  Shay in turn subcontracted some of its work to others. When Shay?s subcontractors filed suit against Shay and Milender White seeking payment for their work, Milender White cross-claimed against Shay for breach of contract alleging that,Milender White notified Shay during construction that some of Shay?s work was defective and that when Shay repaired its defective work, it damaged work performed by others. Shay’s CGL insurer Continental Western filed suit against Milender White and Shay seeking a judicial declaration of no coverage. The federal district trial court granted Continental Western?s motion for summary judgment.
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Reprinted courtesy of CDCoverage.com
Remodels Replace Construction in Redding
September 9, 2011 — CDJ Staff
The Record Searchlight reports that while new construction is down in Redding, California, residential and commercial remodel permits are up 17 percent. By August 2010, there had been 63 housing and commercial business starts in Redding, while this year has seen only 15.
One such remodel, that of Parkview Market, will cost about $201,000. Safeway is planning on two $80,000 remodels of its grocery stores in Redding. In all, the 150 building permits for remodels are worth a total of $2.8 million.
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Policyholder Fails to Build Adequate Record to Support Bad Faith Claim
May 19, 2011 — May 19, 2011 -
Tred R. Eyerly,
Insurance Law HawaiiThe importance of careful preparation and documentation was the take away lesson in a Texas bad faith case, C.K. Lee v. Catlin Specialty Ins. Co., 2011 U.S. Dist. LEXIS 19145 (S.D. Tex. Feb. 28, 2011).
C.K. Lee owned a commercial shopping center in Houston. Catlin issued a commercial property policy to Lee. On September 12, 2008, Hurricane Ike hit and caused substantial property damage throughout the Texas Gulf Coast area. On September 24, 2008, Lee submitted a claim for damage to the roof of his shopping center to Catlin.
Catlin hired Engle Martin to represent its interests in adjusting the claim. Engle Martin eventually adjusted over 200 Ike-related claims for Catlin.
In November 2008, Engle Martin and Emergency Services Inc., retained by Lee, inspected Lee’s property. Engle Martin observed evidence of roof repairs that had apparently been made both before and after Hurricane Ike. Engle Martin decided it was necessary to use an infrared scan of the roof to help identify which damages, if any, were attributable to wind and which, if any, were attributable to sub par, prior repairs or natural deterioration.
Engle Martin retained Project, Time & Cost (PT&C) to conduct the infrared inspection. PT&C’s inspection determined there was no wind-related damage to the roof and no breaches or openings created by wind. Instead, the roof had exceeded its life expectancy and was in need of replacement due to normal wear and weathering. Consequently, Catlin decided that the damage to Lee’s roof was not caused by winds from Hurricane Ike.
Meanwhile, Lee’s contractor, Emergency Services, prepared a report estimating that the total cost of repairing the roof would be $871,187. Engle Martin’s estimate for repair of the roof was $22,864.
Lee filed suit for breach of contract, breach of the duty of good faith and fair dealing, and violations of the Texas Insurance Code. Catlin moved for summary judgment on all claims but breach of contract, arguing that because there was a bona fide dispute concerning the cause of the damages and whether they were covered under the policy, there was no evidence of bad faith or violations of the Texas Insurance Code.
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Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
Environment Decision May Expand Construction Defect Claims
August 16, 2012 — CDJ Staff
Could a California Supreme Court decision on environmental claims have an effect on construction defect cases? Jonathan B. Sokol, a lawyer at Greenberg Glusker argues just that in a post on his firm’s blog. He notes that the California Supreme Court has held that “the ‘all sums” method of allocation applies in California” and that “an insurer cannot limit its liability to just the amount of loss that occurred in its particular policy period.” While his focus is on environmental cases, he says that “the decision could also potentially expand the scope of coverage for construction defect claims and other claims involving continuous and progressive property damage and bodily injury.
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