Another Colorado District Court Refuses to Apply HB 10-1394 Retroactively
October 28, 2011 — David M. McLain, Colorado Construction Litigation
In Martinez v. Mike Wells Construction Company, 09CV227, Teller County District Court Judge Edward S. Colt refused to apply C.R.S. § 13-20-808 retroactively to provide coverage for the underlying construction defect allegations. According to the recitation of facts in Judge Colt’s March 2011 order, Martinez contracted with Mike Wells Construction to serve as the general contractor for the construction of a home. At that time, Mike Wells Construction was insured through ProBuilders Specialty Insurance Company, RRG. Disputes arose between Martinez and Mike Wells Construction, resulting in Martinez ordering it off of the project in mid-November 2007 and terminating its right to work there by letter dated November 28, 2007.
Mike Wells, the owner of the corporation, subsequently died. Martinez sued Mike Wells Construction in July 2009 for breach of contract and various claims relating to alleged defecting workmanship. Martinez provided notice of the suit to the special administrator of the probate estate. No answer having been filed, the court entered a default judgment against Mike Wells Construction and Martinez sought to garnish Mike Wells Construction’s ProBuilders insurance policy.
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Reprinted courtesy of Higgins, Hopkins, McLain & Roswell, LLC. Mr. McClain can be contacted at mclain@hhmrlaw.com
Retaining Wall Contractor Not Responsible for Building Damage
July 20, 2011 — CDJ Staff
The Court of Appeals of Indiana ruled on July 8 in the case of Rollander Enterprises, Inc. v. H.C. Nutting Co. Judge Baily wrote the opinion affirming the decision of the trial court.
The case involved an unfinished condominium complex, the Slopes of Greendale, in Greendale, Indiana. Rollander is a real estate development company incorporated in Ohio. One of the issues in the case was whether the case should be settled in the Indiana courts or be tried in Ohio. The project was owned by a special purpose entity limited liability corporation incorporated in Indiana.
Rollander hired Nutting to determine the geological composition of the site. Nutting’s report described the site as “a medium plastic clay containing pieces of shale and limestone.” The court summarized this as corresponding with “slope instability and landslides.” Rollander then hired Nutting to design the retaining walls, which were constructed by Scherziner Drilling.
After cracking was discovered on State Route 1, the walls were discovered to be inadequate. More dirt was brought in and a system of tie-backs was designed to anchor the walls. Not only were the tie-backs unsightly, local officials would not approve the complex for occupancy. Further, the failure of the wall below one building lead to damage of that building.
The court concluded that since almost all events occurred in Indiana, they rejected Rollander’s contention that the case should be tried in Ohio. Further, the court notes “the last event making Nutting potentially liable on both claims was an injury that occurred in Indiana and consequently, under the lex loci delicti analysis, Indiana law applies.”
Nor did the court find that Nutting was responsible for the damage to the rest of the project, citing an Indiana Supreme Court ruling, that “there is no liability in tort to the owner of a major construction project for pure economic loss caused unintentionally by contractors, subcontractors, engineers, design professionals, or others engaged in the project with whom the project owner, whether or not technically in privity of contract, is connected through a network or chain of contracts.”
The court concluded:
Because Rollander was in contractual privity with Nutting, and Indy was connected to Nutting through a chain of contracts and no exception applies, the economic loss rule precludes their recovery in tort. Damage to Building B was not damage to "other property," and the negligent misrepresentation exception to the economic loss rule is inapplicable on these facts. The trial court therefore did not abuse its discretion by entering judgment on the evidence in favor of Nutting on the Appellants' negligence and negligent misrepresentation claims.
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In Oregon Construction Defect Claims, “Contract Is (Still) King”
April 25, 2012 — CDJ Staff
Writing in Oregon’s Daily Journal of Commerce, David Anderson looks at the aftermath of the case Abraham v. T. Henry Construction, Inc. In that case, Anderson notes that “the homeowners hired a contractor to build their house, and subsequently discovered extensive water damage” “after expiration of the time to sue for breach of contract.” The homeowners claimed negligence. Oregon’s Supreme Court concluded that “homeowners only had to prove that the contractor negligently caused reasonably foreseeable harm to the homeowner’s property.”
Anderson views this decision as leading to two risks for contractors. “First, contractors can be held liable in tort for breaching building code standards; second, they can be held liable for violating the often-difficult-to-define ‘reasonable care’ standard.” But here, “contract can be king.” The Oregon Supreme Court noted that the contractor “could have avoided exposure to the general ‘reasonable care’ standard by more carefully defining its obligations in the original construction contract.”
He notes that contractors who fail to define their obligations or use generic definitions “may be exposing themselves to a more vague scope of liability.”
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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
Drug Company Provides Cure for Development Woes
November 18, 2011 — CDJ Staff
Vertex Pharmaceuticals is poised to become the holder of Boston’s biggest commercial lease, paying $72.5 million for 1.1 million square feet on Boston’s waterfront. Vertex’s new buildings are still under construction, but the plans have spurred other development in the Fan Pier area, according to the New York Times. The Times quotes Mary A. Burke, a senior economist at the Federal Reserve Bank of Boston that the Vertex project gives “a big push” to the “momentum for economic growth.”
The Fallon Company is building Vertex’s new laboratory and office space. They are separately planning to build a high-rise with 150 luxury condominium units. According to Joseph Fallon, the chief executive and president of the Fallon Company, there is already a waiting list of 50 buyers for the condominiums.
Across the street from the Vertex site, a group including Morgan Stanley and Boston Global Investors is planning a 23-block mixed use project that would include 1.2 million square feet of retail space. Additionally, the New England Development and the Hanover Group is building a 356-unit apartment building at the adjacent Pier 4.
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Webinar on Insurance Disputes in Construction Defects
July 10, 2012 — CDJ Staff
Seth Lamden, of the firm Neal Gerber Eisenberg will be presenting a webinar on “Insurance Coverage Disputes in Construction Defects” on July 17, 2012 at 1 p.m. EDT. Mr. Lamden’s presentation will focus on “handling both the construction and insurance components of construction defect claims.” He will be discussing recent case law and new insurance products. The presentation will present information on evaluating various types of insurance policies, explaining common issues, contract requirement, and the economic loss doctrine. Mr. Lamden will advise attendees on how to avoid getting into a construction defect case. He will conclude his presentation with a brief question-and-answer session.
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Can Negligent Contractors Shift Blame in South Carolina?
July 10, 2012 — CDJ Staff
Clay Olson looks back to a 1991 Carolina case, Nelson v. Concrete Supply Company. The court concluded in that case that “a plaintiff in South Carolina may recover only if his/her negligence does not exceed that of the defendant’s and amount of plaintiff’s recovery shall be reduced in proportion to amount of his or her negligence; if there is more than one defendant, plaintiff’s negligence shall be compared to combined negligence of all defendants.” In 2005, he reports, as part of tort reform in South Carolina, the legislature further addressed this.
He then suggests a possible outcome of this is that negligent contractors may be able to shift some of the blame (and cost of the settlement) to other defendants who may not be to blame. He offers a scenario in which a contractor is sued for construction defects and a jury has to allocate responsibility for indivisible damage. “A jury need only find the two subcontractors to have each contributed 15% of the indivisible damage.” He adds in another 15% for claims against the architect. Minor blame is given to the manufacturers, and suddenly the negligent contractor is paying less than 50% of the total settlement.
He notes that the previous system in place also had its problems, but notes that this one may not be “fair and equitable.”
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Insurers Reacting to Massachusetts Tornadoes
August 11, 2011 — CDJ Staff
The Patriot-Ledger reports that insurers could pay out as much as $200 million to cover homes damaged or destroyed in the tornadoes that hit central and southern Massachusetts in June, 2011. Joseph Murphy, Commissioner of the State Division of Insurance didn?t foresee problems with insurers covering these claims. “At this point, there doesn’t seem to be any one company overexposed in that area,” he told the Patriot-Ledger.
Insurance executives did not think the tornadoes would cause them to raise rates. Steve Chevalier, CEO of NLC Companies, said, “it’s a major event for those impacted by it, but it’s not close to a financial hit to us.”
One insurer noted that the winter weather generated more claims; however the cumulative value of those claims was $15 million.
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Lockton Expands Construction and Design Team
July 19, 2011 — CDJ Staff
Lockton Companies, LLC, the largest privately held independent insurance broker, has announced that it is expanding its construction and design team with the hiring of Karen Erger and Tom Miller.
Ms. Erger will provide professional liability practice management, loss prevention, contract and complex claims management consulting services to Lockton's architectural, engineering and construction clients in her role as Vice President, Director of Practice Management. Her background includes construction litigation at a leading construction law firm, professional liability claims defense and claims consulting for major professional liability underwriters.
Miller joins Lockton as a Senior Vice President within the Design and Construction Unit. His role will be dedicated to serving the needs of engineering, architecture and construction firms performing services around the globe. He has spent more than 15 years concentrating on professional liability for design professionals and contractors in multiple roles. He previously managed the professional liability underwriting of one of the largest construction insurers and has developed numerous manuscript insurance products as well as focused on strategic planning to enhance business unit opportunities.
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Massachusetts Couple Seek to Recuse Judge in Construction Defect Case
September 30, 2011 — CDJ Staff
After seeing their $1 million jury award overturned on appeal by a judge who called the award “against the weight of evidence and likely due to misapprehension, confusion or passion,” Kathryn and Christian Culley are seeking to have him removed from the case. The Massachusetts Supreme Judicial Court has rejected their claim.
The Culleys claim that Judge Thomas R. Murtagh’s decision was influence by him membership in the Andover Country Club which is represented by the opposing counsel in their construction defect case. Justice Margot G. Botsford had denied the Culley’s request, ruling that they had other remedies available to them.
The SJC noted in their ruling that if the Culleys are alleging judicial misconduct a request must be made to the Commission on Judicial Conduct. Their lawyer plans to file a new motion for recusal with the SJC.
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Contractor’s Home Not Covered for Construction Defects
September 13, 2012 — CDJ Staff
The US District Court in Seattle has rejected most of the claims made by a Des Moines man over insurance coverage for water damage to his home. Judge John C. Coughenour granted summary judgment to Liberty Northwest in Ayar v. Liberty Northwest Insurance Corporation.
Sayad Ayar was the general contractor for the construction of his house. As a homeowner held a $1.5 million insurance policy from Liberty Northwest (LNW) that excluded “faulty, inadequate, or defective construction.”
In 2008, less than three years after his house was constructed, Mr. Ayar filed a claim after water leaked through his living room ceiling. LNW hired an engineering firm to investigate the damage. The engineering firm, CASE Forensics, concluded that the water intrusion was due to “the failure to install an adequate and continuous waterproof membrane, flashing, and drainage system within the balcony at the time of construction.” Ayar’s expert attributed the leakage to “damage done to the weather deck waterproofing during a storm event with high winds,” which would be covered under the policy. CASE Forensics reviewed these conclusions and rejected them. LNW denied coverage.
Further problems lead to further investigations, and in each case, LNW attributed the problems to construction defects. During this process, LNW “authorized Ayar to cut into the ceiling’s drywall in order to assist in determining the source of the water intrusion.” Mr. Ayar moved his family to a rental home. He requested that LNW cover the rental and other other costs.
LNW’s adjuster concluded that no coverage was available, but recommended paying Mr. Ayar $19,648.68 to reinstall drywall and repair the hole in the ceiling. The insurance company paid $2,000 to cover the cost of cutting into the ceiling. The also claimed the amount of drywall he removed was “excessive” and would not cover his relocation as “his home had been livable and because the loss was not covered.”
Ayar made four claims to the court in support of the argument that LNW misrepresented “pertinent facts or insurance policy provisions.” The court rejected three of these, noting that as all water damage was excluded, LNW’s citation of other sources of water intrusion was not a misrepresentation. “LNW did not rely on this provision as the reason for denying coverage.” Nor was LNW’s reference to “fungi, wet or dry rot” a misrepresentation. As for their reference to construction defects, it “was clearly appropriate given that the construction defect exclusion was the principal basis or denying the claim.” However, the court found that regarding the removal of drywall, “a triable issue of the facts exists.”
Ayar also claimed that LNW did not conduct a reasonable investigation, but the court found no evidence to support this conclusion. “This is not a case where the insurer failed to investigate or did so only half-heartedly.” Although the thoroughness of the investigation could not questioned, the court concluded that its timing could. Ayar claimed that LNW engaged in unreasonable delays. LNW counters that the delays were due to “Ayar’s own obstructive behavior and failure to cooperate with LNW’s investigation.”
The court dismissed all of Ayar’s claims, with the exception of whether LNW should have informed him that they would not pay for drywall repair unless there was damage, and whether LNW’s investigation failed to conclude its investigation within a thirty-day time line.
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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.
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Ohio Casualty’s and Beazer’s Motions were Granted in Part, and Denied in Part
May 10, 2012 — CDJ Staff
The case Trinity Homes LLC and Beazer Homes Investments LLC has reached the summary judgment stage. The remaining plaintiffs are Trinity Homes LLC (Trinity) and Beazer Homes Investments LLC (Beazer), and the only defendant remaining is Ohio Casualty Insurance Company (Ohio Casualty). “Ohio Casualty has filed a motion for summary judgment (Dkt. #409) on all claims against it, and Trinity and Beazer have filed a cross-motion seeking partial summary judgment (Dkt. #431) in their favor.” Ohio Casualty’s Motion for Summary Judgment was granted in part and denied in part, and Beazer’s motion was granted in part and denied in part.
The court’s ruling presented a bit of background on the companies involved in the litigation: “Trinity is an Indiana limited liability company with its principal place of business in Indiana and is one of several construction related companies owned by Beazer, which is a limited liability company incorporated under the laws of Delaware having its principal place of business in Atlanta, Georgia. Beazer’s predecessor, Beazer Homes Investment Corporation, acquired the stock of Crossman Communities, Inc. in 2002. Crossman and its subsidiary owned all interests in Trinity. Beazer and Trinity are in the business of residential real estate development and construction.”
Furthermore, “Ohio Casualty’s home office is in Ohio, where it is incorporated. It sells insurance policies to commercial entities such as Plaintiffs. It purchased a book of business from Great American Insurance Company, a subsidiary of which had sold commercial general liability policies (‘CGL’) and umbrella liability policies to Trinity, covering the period of time between May 1, 1994 through May 1, 1999. For ease of reference, we will refer to these policies as the Ohio Casualty policies. Trinity sold and acted as a general contractor for the construction of new homes in Central Indiana throughout the period of time in which the Ohio Casualty policies were in place.”
The court disagreed with almost every argument put forth by Ohio Casualty. However, they did concede “that Ohio Casualty is obligated to indemnify Trinity only for damages arising during its policy periods for pro rata liability as opposed to several and indivisible, by reason of its having limited its indemnity obligation to ‘those sums’ that Trinity becomes liable to pay for property damage which ‘occurs during the policy period.’”
Finally, the court ruled that “Ohio Casualty Company’s Motion For Summary Judgment (Dkt. #409) is GRANTED IN PART, that is, to the extent that Beazer is not an insured under the Ohio Casualty insurance policies, but the motion is DENIED in all other respects.”
The court further ruled that “Trinity and Beazer’s Motion For Partial Summary Judgment (Dkt. #431) is GRANTED IN PART, that is: (1) Trinity is an insured under the Ohio Casualty CGL and umbrella policies in effect for the time period from May 1, 1994 to May 1, 1999; (2) the claims at issue in the Underlying Lawsuits are "property damage" claims resulting from an "occurrence" and are therefore within the policy coverage provided under the Ohio Casualty Policy; and (3) none of the exclusions in the Ohio Casualty Policy bars coverage. Trinity and Beazer’s Motion is DENIED in all other respects. Moreover, material questions of fact remain with respect to whether payments made to the 54 homeowners, who were part of the putative class in the underlying Colon class action but were not included in the certified settlement class, were voluntary payments and as such do not qualify for indemnification. Material questions of fact also preclude a summary ruling on the issue of whether Ohio Casualty is estopped from raising their voluntary nature as a defense to indemnity.”
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One to Watch: Case Takes on Economic Loss Rule and Professional Duties
June 28, 2011 — Douglas Reiser, Builders Counsel
According to the Supreme Court of Washington Blog, The Supreme Court heard oral argument in Jackowski v. Hawkins Poe on Thursday, June 16, 2011. The court’s synopsis of the case can be found on the Washington State Court website.
In short, two home purchasers brought a lawsuit against the home’s sellers, the sellers’ agent and the purchasers’ own agent, alleging claims of fraud, fraudulent concealment, negligent misrepresentation and breach of common law and statutory duties. The trial court dismissed the buyers’ claims on the basis of the economic loss doctrine and Division II reversed, opining that the ELR does not apply to professional duties. The Supreme Court will now look at applying the Independent Duty Doctrine established last year, and whether professional duties (those of the real estate agents) should be reviewed under a different light.
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Reprinted courtesy of Douglas Reiser of Reiser Legal LLC. Mr. Reiser can be contacted at info@reiserlegal.com
Demand for Urban Living Leads to Austin Building Boom
August 16, 2012 — CDJ Staff
The New York Times reports that Austin is undergoing a building boom as a high-tech firms, including Facebook and Google, have moved into the downtown area. With them, comes a need for more apartment buildings and more retail space. Mike Kennedy, the president and chief executive of an Austin real estate firm, told the Times “the office space was here, the housing came, and retail is arriving last to the scene.” Currently, two large projects that will add about 500 apartment units is underway, including a 222-unit, 18-story building, and another that will contain 277 units. Apartment occupancy in Austin is at ninety-seven percent.
Developers also have hotels and more office space planned. The area has about 6,000 hotel rooms with an additional 2,000 planned, but events in Austin can bring in more people than the city’s 30,000 hotel rooms can accommodate. Office space is eighty-eight percent occupied, and a lack of office space could cause firms to look elsewhere.
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Plaintiff Not Entitled to Further Damages over Defective Decking
August 2, 2012 — CDJ Staff
The Court of Appeal of the State of California, Third Appellate District has rejected an appeal from the successful plaintiff of a construction defect case in Evilsizor v. Calaveras Lumber Company. John Evilsizor hired Scott Hunton to remove and replace the deck at the rear of his home. Subsequently, the deck, which had been constructed with a product called SmartDeck, a product of the subsequently bankrupt US Plastic Lumber, exhibited problems. Hunton made some repairs. Calaveras Lumber offered replacement decking if Evilsizor would pay the difference in price. Mr. Evilsizor hired another contractor to replace the decking and then sued for lost use and compensation for the amount he paid the second contractor. Replacing the deck a second time cost Mr. Evilsizor $113,065.44.
During the trial, the defendant conceded that the planking was defective. It has been recalled by the manufacturer. Additionally, the jury heard testimony from a construction and building codes consultant, Lonne Haughton, however the trial court found that Mr. Haughton did not have sufficient expertise in wood-plastic composite materials. Further, Haughton had been a California contractor for only three years, and though he claimed a college degree, this was “‘a distance learning diploma’ that required no in-class work.” The appeals court upheld the decision that Mr. Haughton was not qualified to testify as an expert about wood-plastic materials.
The court also upheld the trial court’s exclusion of two pieces of evidence. One was a list of SmartDeck sales. However, the witness asked about it was not able “to testify who prepared it or confirm that it had been prepared by a Cascade employee.” Further, “the fact defendant bought and sold SmartDeck was not disputed.” The other was an e-mail in which US Plastics said they had “some bad product in the field.” This e-mail went to Westmark & Associates, and the plaintiff did not establish that it was ever sent to the defendant.
Though the defense has suggested an award of $18,000 plus loss-of-use damages for one year and an additional $4,000 if the jury believed that leftover material from the front deck was used in the rear. As the plaintiff requested $100 per month of loss of use, this would have totaled $34,000. The jury awarded the cost of the decking, $6,275,82. The court cites earlier decision that the amount of the award is “a question of fact to be determined by the jury.”
In conclusion, Mr. Evilsizor was not only unable to receive a larger award, but the court ruled that he must pay the defendant’s cost on appeal.
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New Web Site Tracks Settled Construction Defect Claims
June 19, 2012 — CDJ Staff
Peter Lissner, a former Nevada homebuilder, has created a new site to help track homes that have been involved in construction defect litigation. His site, housefaxreview.com, collections documentation about homes where claims of construction defects have been made. He told The Builders Magazine concerns about “the number of homes that have been served notices, received compensation, yet the homes weren’t repaired.” On the site, the creator is identified as “a family owned builder.” According to the site, “the builder had no claims until the neighborhood reached the statutory claims limit 10 years.”
Lissner also claims that in many cases, after settling construction defect lawsuits, the homeowners sell to subsequent buyers without disclosing the lawsuit or their failure to repair. “Who is going to let the new homeowner know about the issue?” he asks.
Documents on the site are priced according to their relevance. Lissner notes that those who provide documents to the site will receive free access.
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State Audit Questions College Construction Spending in LA
August 17, 2011 — CDJ Staff
A state audit of the Los Angeles Community College District found many problems with their construction spending. Their report, as described in the Los Angeles Times, found construction money spent for other purposes, such as promotional photography and public relation tours, $28.3 million spent on projects that were later cancelled, and oversight committees that provided no oversight.
Earlier this year, the LA Times ran a series of articles detailing problems with the Los Angles Community College District’s construction program. The LA Times reported that the State Controller’s audit reached many of the same conclusions.
The Community College District disputed the findings.
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