New Washington Law Nixes Unfair Indemnification in Construction Contracts
April 25, 2012 — Douglas Reiser, Builders Cousel
Contractual fairness ? it is part of my mantra. If you read the blog, you probably know that I preach brevity, balance and clarity in contracting. The State of Washington did well to finally eliminate something that has angered me for quite some time ? unfair indemnification.
One of my favorite construction contract revisions is mutual indemnification. Many “up the chain” contractors and owners are going to stick you with a unilateral indemnification clause that protects them for just about everything, including their own fumbling of a project. Adding mutual indemnification provides some balance, and keeps parties reliant upon each other for success on the job site.
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Reprinted courtesy of Douglas Reiser of Reiser Legal LLC. Mr. Reiser can be contacted at info@reiserlegal.com
Don MacGregor To Speak at 2011 West Coast Casualty Construction Defect Seminar
January 1, 2011 — February 08, 2011 CDJ Staff
“Challenges for Experts in Construction Defect Claims and Litigation” will be held Thursday May 13, 2011 between 1:30 and 3:00 PM at this year’s West Coast Casualty Construction Defect Seminar. Among the various topics covered will be of Right to Repair/Opportunity to Repair statutes, improper testing methodologies, new challenges where a case involves a Wrap Policy, OCIPS, CCIPS, and other owner controlled insurance programs, as well as the need for realistic testing protocols for the party the expert is retained to represent.
During the presentation Mr. MacGregor will be working in connection with a group of construction and design experts each of which have extensive experience with construction defect and claims related litigation. This particular session is expected to attract a standing-room only crowd, drawing in excess of 1700 attendees.
The West Coast Casualty Construction Defect Seminar is the largest seminar of its type. This year’s event is scheduled for will take place on May 12 and 13, 2011, at The Disneyland Hotel and Resort. For more information regarding the years event please visit http://www.westcoastcasualty.com/dyncat.cfm?catid=3322
http://www.westcoastcasualty.com/dyncat.cfm?catid=3322
Construction Defect Journal Marks First Anniversary
January 6, 2012 — CDJ Staff
November 2011 marked the first anniversary of the Construction Defect Journal. During the first year our staff and contributors in the insurance and legal communities have compiled several hundred articles of interest to the construction defect and claims community.
Each of these articles are maintained in the CDJ archives, and are accessible at http://www.constructiondefectjournal.com/archives.html. Each story in the archives is listed in the order it was posted to the archives. Each story in the archives opens up in its own page, so you can easily locate topics and articles of interest.
If you’re new to Construction Defect Journal, or just want peruse past articles, please take a moment to visit the CDJ Archives page. Also please feel encouraged to submit your firm’s articles or legal publications of interest to the CD community at http://www.constructiondefectjournal.com/submitStory.html.
Lower Court “Eminently Reasonable” but Wrong in Construction Defect Case
July 10, 2012 — CDJ Staff
Noting that “circuit court’s orders are eminently reasonable, logical and just” the Supreme Court of Appeals of West Virginia has granted a writ to halt enforcement of these orders and to compel arbitration instead in the case of State v. Tucker. The initial case concerned claims that an HVAC system had been improperly designed, constructed, manufactured, or maintained, leading to serious problems. Glenmark Holding, the owner of the Suncrest Executive Plaza brought a lawsuit against seven defendants. Three of the defendants, Morgan Keller, Inc, York International Corporation, and Johnson Controls, Inc. argued that Glenmark was obligated to enter into arbitration.
Glenmark and the other defendants argued that the motions for arbitration should be denied “so all the claims and cross-claims of the parties could be litigated in one forum, in one proceeding.” The circuit court noted that arbitration is preferred over litigation because of its supposed “expeditious, economic resolution of issues,” but that in this case, “the petitioners would expend additional, not fewer resources responding to the parties’ claims and cross-claims.” As “compulsory arbitration would be insufficient and inequitable” the court denied the request, finding the arbitration clauses “unconscionable and, therefore, unenforceable.”
Morgan Keller, York, and Johson argued that “the interpretation of arbitration clauses is governed exclusively by the Federal Arbitration Act.” The appeals court found that “the circuit court was within its authority to consider Glenmark’s claim that the arbitration clauses were unenforceable.” However, the appeals court rejected the circuit court’s conclusion about the “piecemeal” resolution of the conflict, as it contradicts a Supreme Court ruling. The Supreme Court stated in 1983 that the FAA “requires piecemeal resolution when necessary to give effect to an arbitration agreement.” In a 1985 decision, the Court held that a court could “not substitute [its] own views of economy and efficiency.”
Nor could the court find the arbitration clause to be unconscionable or unenforceable. The court noted that the contract was a standard AIA form, and was amended by the parties involved, whom the court characterized as “commercially sophisticated.” The court found that the agreement limited the rights of all parties and was not one-sided.
As the arbitration clause was neither unconscionable nor unenforceable, and Supreme Court rulings preclude a court from substituting its own procedures, even when these are “eminently reasonable, logical and just,” the appeals court halted the order of the circuit court, sending the matter to arbitration.
Read the court’s decision…
Know the Minnesota Statute of Limitations for Construction Defect Claims
July 10, 2012 — CDJ Staff
Writing on the Benson Kerrane Storz Nelson web site, Alex Nelson gives an overview of the Minnesota laws covering statutes of limitation and repose. He notes that frequently when his firm declines to take a construction defect case its’ over a missed statute of limitation. He describes the time periods as both “short” and “ambigious.” The briefest limit is that a homeowner “has only 6 months within which to give written notice of the defect to the builder once the defect has manifested itself.” Any legal action must commence within two years of the same point.
The Minnesota statutes also have a six-year limitation, which starts for a single home at transfer of title to the first purchaser or when the purchaser takes possession, whichever happens first. For a condo, it is the last of “completion of the common element,” first unit sale or “Termination of Declarant control.” Fraud or misrepresentation also has a six-year limit, while negligence claims are limited to within the first two years “after the manifestation of the defect.”
The statues of repose also provide limits to filing construction defect lawsuits. Mr. Nelson points out that the longest are for negligence, fraud, and “major construction defects,” all of which have a ten-year limit. On the other hand, claims against general workmanship and materials must be made in the first year.
Read the full story…
Windows and Lawsuits Fly at W Hotel
July 5, 2011 — CDJ Staff
An Austin, Texas lawyer has filed a lawsuit against Starwood Hotels and Resorts, the operator of the W Hotel Austin, after two people were struck by glass which fell from the hotel’s balconies. YNN in Austin reports that the hotel has been closed indefinitely as construction workers removed panels. An additional three panels fell before work started. Randy Howry, the lawyer representing the injured parties, notes that in May glass falling from the W Hotel in Atlanta killed one woman and injured another. “Seventeen days pass and we put them on notice, our clients have put them on notice, yet nothing has been done an only after the glass fell yesterday did they do something about it,” YNN quotes Howry.
The hotel released a statement that they will be replacing all of the balcony glass to ensure safety for their guests and the general public. They relocated all hotel guests and coordinated with Austin officials to close adjacent sidewalks and roads. The statement identifies the firms involved with the design and construction of the balconies.
Read the full story …
One World Trade Center Due to Be America’s Tallest and World’s Priciest
February 10, 2012 — CDJ Staff
As One World Trade Center rises, so does the price tag. After construction delays and cost overruns, the cost of the building at the site of the September 11 attacks has risen to $3.8 billion. Part of the expense of the skyscraper is the heavily reinforced base of the building. The elevator shafts are also heavily reinforced, all part of guarding against future terrorist attacks.
In comparison, the world’s tallest tower, the Burj Khalifa in Dubai, cost only $1.5 billion, less than half the cost of One World Trade Center. As a result, the Port Authority does not see the building as being profitable in near future. In order to fund it, the agency is raising tolls on bridge and tunnel traffic.
Currently, about the half the unfinished building is leased. Construction is expected to conclude in 2013.
Read the full story…
Injured Construction Worker Settles for Five Hundred Thousand
October 28, 2011 — CDJ Staff
An upstate New York man who was injured when an unsecured truss fell off the railings of a scissor lift has settled for $500,000. As the accident happened at the building site for a casino for the Seneca Nation, attorneys for the construction firm had argued that New York labor laws were inapplicable as the injury happened on Seneca Nation land. The state appeals court ruled that as none of the parties involved were Native Americans, it was not internal to the affairs of the Seneca Nation.
Read the full story...
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
Construction Company Head Pleads Guilty to Insurance and Tax Fraud
December 20, 2012 — CDJ Staff
The former head of Orients Construction Company and of Melrose Construciton Company, Herlindo Garcia-Merlos, has entered a guilty plea to charges that the gave false informoation to his insurer, New Jersey Manufacturers Insurance Group, for more than three years in order to lower his workers compensation payments. Mr. Garcia-Merlos was able to underpay by more than $315,000 as a result of this deception.
Mr. Garcia-Merlos additionally failed to file tax returns for his companies and underreported his wages on his own tax returns. The State of New Jersey is seeking an eight-year prison term and restitution of more than $400,000.
Read the full story…
No Coverage For Damage Caused by Chinese Drywall
October 28, 2011 — Tred Eyerley, Insurance Law Hawaii
The pollution exclusion barred coverage for alleged property damage and bodily injury in Evanston Ins. Co. v. Harbor Walk Dev., LLC, No. 2:10cv312 (E.D. Va. Sept. 9, 2011).
Homeowners sued the insured, Harbor Walk, in three lawsuits, alleging the Chinese drywall installed in their homes emitted sulfides and other noxious gases. This caused corrosion and damage to the air-conditioning and ventilation units, refrigeration coils, copper tubing, faucets, metal surfaces, electrical appliances and other personal items. The homeowners also alleged the compounds emitted by the drywall caused bodily injury, such as allergic reactions, headaches, etc.
Harbor Walk’s insurer, Evanston, filed for a declaratory judgment that the pollution exclusion precluded coverage.
Read the full story...
Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
The King of Construction Defect Scams
June 19, 2012 — CDJ Staff
Echoing Businessweek, the Las Vegas Sun agrees that the Nevada HOA scandal is the “king of all Vegas real estate scams,” and says that the Nevada legislatures should take action. The Sun notes that the case involves only 12 out of 2,356 HOAs in Southern Nevada.
To date, 25 people have plead guilty in the case. At the center were an attorney and contractor who allegedly referred work to each other. To enable this, they assembled a wider conspiracy of people who enriched by the process. In the words of the Sun, those involved “upended the concept of a ‘common interest’ community.”
Read the full story…
High School Gym Closed by Construction Defects
October 28, 2011 — CDJ Staff
The high school gym in Lake Oswego, Oregon has been shut down because testing has revealed that the construction defects have lead to deterioration of the structural integrity of the roof. The school district noted that there was a chance of collapse if there were a “significant seismic event or heavy rain and winds and snow.” The school district has been in a lawsuit with the builders since 2008, which was recently settled for $600,000.
The school board is still determining whether the original contractor will be asked to correct the defect or if they will bid the job out.
Read the full story...
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…
California insured’s duty to cooperate and insurer’s right to select defense counsel
April 14, 2011 — April 14, 2011 - CDCoverage.com
In Travelers Property Casualty Co. v. Centex Homes, No. C 10-02757 (N.D. Cal. April 1, 2011), general contractor Centex was sued by homeowners for construction defects. Centex tendered its defense to Travelers as an additional insured under policies issued by Travelers to two Centex subcontractors. Travelers agreed to defend Centex under a reservation of rights and selected defense counsel to defend Centex. Centex refused to accept the defense, asserting that it was entitled to select defense counsel. Travelers filed suit against Centex seeking a declaratory judgment that Centex had breached the duty to cooperate condition in the Travelers’ policy.
Read the full story...
Reprinted courtesy of CDCoverage.com
Florida Appeals Court Rules in Favor of Homeowners Unaware of Construction Defects and Lack of Permits
December 9, 2011 — CDJ Staff
The Florida Court of Appeals has ruled that a homeowner is not liable for defects in unpermitted alterations, reversing a lower court’s decision in Jensen v. Bailey. The Jensens sold their house to the Baileys. During the sale, the Jensens filled out a property disclosure statement, checking “no” to a question about “any improvement or additions to the property, whether by your or by others that have been constructed in violation of building codes or without necessary permits.”
After moving in, the Baileys discovered several problems with the home. One involved a defective sewer connection leading to repeated backups. The Baileys also found problems with remodeling the Jensens had done in the kitchen, master bath, and bedroom. The remodeling work was not done with required permits nor was it up to code.
The court noted that an earlier case, Johnson v. Davis, established four criteria: “the seller of a home must have knowledge of a defect in the property; the defect must materially affect the value of the property; the defect must not be readily observable and must be unknown to the buyer; and the buyer must establish that the seller failed to disclose the defect to the buyer.” The court found that the first of these criteria was crucial to determining the case.
In the Johnson ruling, the then Chief Justice dissented, fearing that the courts “would ultimately construe Johnson’s requirement of actual knowledge to permit a finding of liability based on constructive knowledge,” quoting Justice Boyd, “a rule of constructive knowledge will develop based on the reasoning that if the seller did not know of the defect, he should have known about it before attempting to sell the property.” The Appeals Court concluded that the lower court hit this point in ruling on Jensen v. Bailey.
Citing other Florida cases, the court noted that the Johnson rule does require “proof of the seller’s actual knowledge of the defect.” The court cited a case in which it was concluded that the seller “should have known” that there was circumstantial evidence was that the seller did know about the defects, as the seller had been involved in the construction of the home.
In the case of the Jensens, the lower court concluded that they did not know that the work was defective, nor did they know that they were obligated to obtain permits for it. The Appeals Court found this one fact sufficient to reverse the decision and remand the case to the lower court for a final judgment in favor of the Jensens.
Read the court’s decision…
Homeowner’s Policy Excludes Coverage for Loss Caused by Chinese Drywall
November 18, 2011 — Tred Eyerley, Insurance Law Hawaii
Exclusions barred the homeowners from recovering for losses caused by Chinese drywall in their home. Ross v. C. Adams Const. & Design, L.L.C., 2011 La. App. LEXIS 769 (La. Ct. App., released for publication Oct. 5, 2011).
Two years after purchasing their home, the Rosses began experiencing chronic malfunctions in the heating, ventilation and air conditioning system. After discovering the presence of gypsum drywall, or "Chinese drywall", they submitted a claim to their insurer, Louisiana Citizens Property Insurance Company, for damages caused by the Chinese drywall. Louisiana Citizens denied the claim.
The Rosses sued. The trial court granted summary judgment to Louisiana Citizens based upon exclusions in the policy.
On appeal, the appellate court first agreed the Rosses had sustained a direct physical loss. The inherent qualities of the Chinese drywall created a physical loss to the home and the drywall had to be removed and replaced.
Read the full story…
Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
Faulty Workmanship may be an Occurrence in Indiana CGL Policies
April 7, 2011 — April 7, 2011 Beverley BevenFlorez - Construction Defect Journal
The question of whether construction defects can be an occurrence in Commercial General Liabilities (CGL) policies continues to find mixed answers. The United States District Court in Indiana denied the Plaintiff’s Motion for Summary Judgment in the case of General Casualty Insurance v. Compton Construction Co., Inc. and Mary Ann Zubak stating that faulty workmanship can be an occurrence in CGL policies.
Judge Theresa L. Springmann cited Sheehan Construction Co., et al. v. Continental Casualty Co., et al. for her decision, ”The Indiana Supreme Court reversed summary judgment, which had been granted in favor of the insurer in Sheehan, holding that faulty workmanship can constitute an ‘accident’ under a CGL policy, which means any damage would have been caused by an ‘occurrence’ triggering the insurance policy’s coverage provisions. The Indiana Supreme Court also held that, under identically-worded policy exclusion terms that are at issue in this case, defective subcontractor work could provide the basis for a claim under a CGL policy.”
As we reported on April 1st, South Carolina’s legislature is currently working on bill S-431 that would change the wording of CGL policies in their state to include construction defects. Ray Farmer, Southwest region vice president of the American Insurance Association spoke out against the bill. “CGL policies were never meant to cover faulty workmanship by the contractor,” he said. “The bill’s supplementary and erroneous liability provisions will only serve to unnecessarily impact construction costs in South Carolina.”
Read the Opinion and order...
Read the court’s ruling...
Read the American Insurance Association statement...
