Increased Expenditure on Injuries for New York City School Construction
August 16, 2012 — CDJ Staff
You can buy a lot of bandages for $270 million, but even though the expenses are related to the New York City schools, the money is being budgeted by the School Construction Agency as what they expect to pay for injuries and liability expenses related to school construction. The New York Post notes that this is nearly ten times what the city spent in 2000 on workers' compensation and liability claims. Michael Elmdendorf of the General Contractors Association likened injury compensation to a broken slot machine, telling the Post, "when you pull that lever, you win." A spokesperson from the Department of Education, Margie Feinberg, attributed the rise to higher medical care costs.
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Flooded Courtroom May be Due to Construction Defect
September 1, 2011 — CDJ Staff
The General Services Administration wouldn’t pin it on a construction defect, but a spokesperson said that a pipe that was misaligned during installation was the likely cause of a flood in the Thomas F. Eagleton US Courthouse on August 23. According to the St. Louis Dispatch, the burst pipe caused a 17-story waterfall in the courthouse, soaking ceilings and floors, and drenching the building’s contents.
The building was dedicated eleven years ago. During the nearly ten years before the building was complete, there were construction disputes and soil contamination issues.
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Des Moines Home Builders Building for Habitat for Humanity
September 13, 2012 — CDJ Staff
A group of Des Moines home builders is building two homes for low-income families. The homes are being constructed to meet the National Association of Home Builders’ emerald standard for green construction. According to the article in the Des Moines Register, the homes will be finished by the end of August.
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Insurer Able to Refuse Coverage for Failed Retaining Wall
October 28, 2011 — CDJ Staff
The Eleventh District of the US Court of Appeals has ruled in the case of Nix v. State Farm Fire & Casualty Company. In this case, the Nixes filed a claim after a portion of the retaining wall in their home collapsed and their basement flooded. State Farm denied the claim “on the ground that the policy excluded coverage for collapses caused by defects in construction and for damage caused by groundwater.”
The court reviewed the Nixes’ policy and found that State Farm’s statement did specifically exclude both of these items. In reviewing the lower court’s ruling, the appeals court noted that State Farm’s expert witness, Mark Voll, determined that the retaining wall “lacked reinforcing steel, as required by a local building code, and could not withstand the pressure created by groundwater that had accumulated during a heavy rainfall.” Additionally, a french drain had been covered with clay soil and so had failed to disperse the groundwater.
The Nixes argued that the flooding was due to a main line water pipe, but their opinions were those of Terry Nix and the contractor who made temporary repairs to the wall. “Those opinions were not admissible as lay testimony. Neither Nix nor the contractor witnessed the wall collapse or had personal knowledge about the construction of the Nixes’ home.”
The lower court granted a summary judgment to State Farm which has been upheld by the appeals court.
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Contractor Sues License Board
June 30, 2011 — CDJ Staff
Judge Kendall J. Newman of the US District Court handed down a decision on June 24 on the case of Kent v California Department of Consumer Affairs. Mr. Kent, appearing as his own counsel, had brought the suit against the California Department of Consumer Affairs and the Contractors State Licensing Board after he was arrested in a sting operation and, as the plaintiff put it, “was absurdly arrested and uncooperatively detained for a time longer than necessary or allowed by law under the false pretense of contracting with out a license.” Mr. Kent’s alleged that Rick Lopez, one of the defendants, formed him to read allow from the California Business and Professions Code. He said he was later handcuffed and placed in an uncomfortable chair, “enduring physical pain and emotional agony.”
Although Kent was given a Notice to Appear, he alleged that a further defendant, Stuart Rind, “closed the plaintiff’s case marked citation A7773 without giving written notice to anyone.” As a result, the Placer County District Attorney’s Office had no record of his Notice to Appear.
Kent alleged that subsequently his firm was essentially shut down for two years and that he was prevented from “legally contracting or selling services for any other contractor or qualifying for any other licensed capacity governed by the CSLB.” After this, the CSLB suspended the license for his firm, DSI Construction. He was assessed a $1,500 fine, after which he claims he sent a letter to the CSLB demanding money damages. The judge noted that the letter was not included in the plaintiff’s Ninth Amended Complaint.
Judge Kendall recommended that the plaintiff’s Complaints be dismissed, although he did allow that sixth, and perhaps the eighth and ninth, could be amended with a tenth amended complaint.
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Statutes of Limitations May be the Colorado Contractors’ Friend
April 18, 2011 — April 18, 2011 Beverley BevenFlorez - Construction Defect Journal
Albert Wolf, a principal in Wolf Slatkin & Madison P. C., has written an interesting article on statutes of limitations in construction defect claims in Colorado. While Wolf states that in most cases, “construction defect claims against construction industry participants (contractors, subcontractors, architects, engineers, etc.) requires that suits be started within two years after construction defects have been or should have been—in the exercise of reasonable diligence (care)—discovered,” if a project used the AIA General Conditions (AIA Document A2010) before the 2007 edition, the “statutes of limitations begin to run (accrue) at either substantial completion or breach by the contractor (installation of defective work), depending on the circumstances.”
“That’s a huge difference,” Wolf writes in his article. “For example, if the structural defect caused by faulty foundation work is not discovered or discoverable until walls begin to exhibit cracking more than two years after the building is completed, the owner’s claim against the contractor may be barred if the AIA provision is applied.”
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The Year 2010 In Review: Design And Construction Defects Litigation
February 25, 2011 — Candace Matson, Harold Hamersmith, and Helen Lauderdale -
Construction & Infrastructure Law Blog - February 25, 2011
This article is the first in a series summarizing construction law developments for 2010
1. Centex Homes v. Financial Pacific Life Insurance Co., 2010 U.S. Dist. LEXIS 1995 (E.D. Cal. 2010)
After settling numerous homeowners’ construction defect claims — and more than ten years after the homes were substantially completed — a home developer brought suit against one of the concrete fabrication subcontractors for the development seeking indemnity for amounts paid to the homeowners, as well as for damages for breach of the subcontractor’s duties to procure specific insurance and to defend the developer against the homeowners’ claims. The subcontractor brought a motion for summary adjudication on the ground the developer’s claims were barred by the ten year statute of repose contained in Code of Civil Procedure Section 337.15.
The District Court agreed the developer’s claim for indemnity was barred by Section 337.15. And it held that because the damages recoverable for breach of the subcontractor’s duty to purchase insurance are identical to the damages recoverable through the developer’s indemnity claim, the breach of duty to procure insurance claim also was time-barred. The District Court, however, allowed the claim for breach of the duty to defend to proceed. The categories of losses associated with such a claim (attorneys’ fees and other defense costs) are distinct from the damages recoverable through claims governed by Section 337.15 (latent deficiency in the design and construction of the homes and injury to property arising out of the latent deficiencies).
2. UDC — Universal Development v. CH2M Hill, 181 Cal. App. 4th 10 (6th Dist. Jan. 2010)
Indemnification clauses in construction agreements often state that one party to the agreement — the “indemnitor” — will defend and indemnify the other party from particular types of claims. Of course, having a contract right to a defense is not the same as actually receiving a defense. Any indemnitor attempting to avoid paying for defense costs can simply deny the tender of defense with the hope that when the underlying claim is resolved the defense obligations will be forgotten. In the past, when parties entitled to a defense — the “indemnitees” — had long memories and pressed to recover defense costs, indemnitors attempted to justify denying the tender by claiming their defense obligations coincided with their indemnity obligations and neither arose until a final determination was made that the underlying claim was one for which indemnity was owed.
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Reprinted courtesy of Candace Matson, Harold Hamersmith, and Helen Lauderdale, Sheppard Mullin Richter & Hampton LLP. Ms. Matson can be contacted at cmatson@sheppardmullin.com, Mr. Hamersmith can be contacted at hhamersmith@sheppardmullin.com, and Ms. Lauderdale can be contacted at hlauderdale@sheppardmullin.com.
Contract Not So Clear in South Carolina Construction Defect Case
November 7, 2012 — CDJ Staff
The South Carolina Court of Appeals has reversed a partial summary judgment issued by one of the lower courts in the case of The Retreat at Edisto Co-Owners Association v. The Retreat at Edisto. The underlying issues of the case deal with a construction defect complaint.
The lower court had concluded “Developer’s ‘First Amendment’ to the Master Deed required the Developer to satisfy the provision in the paragraph labeled ‘Master Deed Amendment or Phase II’ as a condition precedent to its election to proceed with the development of Phase II.”
The appeals court found that “the language of the First Amendment to the Master Deed is susceptible to more than one interpretation.” The court additionally concluded that the “Developer presented the requisite scintilla of evidence on the question of its intent in order to establish a genuine issue of material fact. As the material facts were in dispute, the appeals court reversed the summary judgment and remanded the case to the circuit court for further proceedings.
Read the court’s decision…
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
Vegas Hi-Rise Not Earthquake Safe
July 12, 2011 — CDJ Staff
If an earthquake hit Las Vegas, the Harmon Tower would not withstand it. A report from Weidlinger Associates told MGM Resorts that “in a code-level earthquake, using either the permitted or current code specified loads, it is likely that critical structural members in the tower will fail and become incapable of supporting gravity loads, leading to a partial or complete collapse of the tower.” The inspection came at the request of county officials, according to the article in Forbes.
According to Ronald Lynn, directory of the building division in the county’s development services division, “these deficiencies, in their current state, make the building uninhabitable.” The county is concerned about risks to adjacent buildings.
MGM Resorts is currently in litigation, separate from the stability issues, with Perini Corp., the builders of Harmon Tower.
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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…
Crane Dangles and So Do Insurance Questions
November 7, 2012 — CDJ Staff
Hurricane Sandy sent a construction crane dangling from the top of One57, a condo construction project in New York City. In response to the risk, the nearby Parker Meridian and other nearby buildings were evacuated until the crane could be stabilized. Businessweek reports that One57 involves “a tangle of companies,” including the developer, Extell Development and the contractor, Lend Lease Construction. Pinnacle Industries was responsible for providing and operating the crane.
The insurance claims are yet to be made, but they will likely include the costs of evacuating nearby buildings and to cover any damage to the building itself. David DeLaRue, a vice president in construction practice at Willis Group Holdings said there would be two questions: “Did our insured do anything to cause that loss? Does this policy cover it?”
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Exclusions Bar Coverage for Damage Caused by Chinese Drywall
July 5, 2011 —
Tred R. Eyerly,
Insurance Law HawaiiThe insured homeowners were unsuccessful in arguing around the policy's exclusions when seeking coverage for damage caused by Chinese drywall. Ross v. C. Adams. Constr. & Design, L.L.C., 2011 La. App. LEXIS 769 (La. Ct. App. June 14, 2011).
Before the insureds purchased and moved into their home, it was renovated. After moving in, the insures discovered foreign gypsum drywall, or Chinese drywall. The insureds submitted a claim to Louisiana Citizens Property Insurance Company. In an investigation, the insurer confirmed the presence of Chinese drywall and damage to the metal surfaces caused by corrosion. Louisiana Citizens refused coverage and the insureds sued. The trial court denied the insured's motion for summary judgment and granted summary judgment to Louisiana Citizens.
The court of appeal affirmed. Initially, the court determined the insureds sustained a direct physical loss. The inherent qualities of the Chinese drywall created a physical loss to the home and required that the drywall be removed and replaced.
Four exclusions, however, barred coverage. First, damages due to faulty or defective materials were excluded from coverage. The Chinese drywall emitted high levels of sulfuric gas which caused the damage to the insured's plumbing, electrical wiring and metal components.
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Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
Anti-Concurrent Causation Clause Bars Coverage for Landslide and Water Leak
June 19, 2012 — Tred Eyerly, Insurance Law Hawaii
The insured unsuccessfully attempted to get around the policy’s anti-concurrent causation clause by arguing a covered cause of loss was a contributing factor. See Stor/Gard, Inc. v. Strathmore Ins. Co., 2012 U.S. Dist. LEXIS 63217 (D. Mass. May 4, 2012).
A building at the insured’s storage facility was damaged when heavy rain caused a mass of soil to slide down a slope, causing soil and a retaining wall to fall on the building. The accident caused a partial collapse of the building. The insurer hired two soil engineers, each of whom concluded that a landslide caused the accident. The reports also noted, however, that a leak from the property’s drainage system resulted in a very small percentage of water infiltrating the ground.
The insurer denied coverage based upon an exclusion for landslides.
Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
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No Coverage for Counterclaim Alleging Construction Defects Pled as Breach of Contract
September 13, 2012 — Tred Eyerley, Insurance Law Hawaii
The Colorado Court of Appeals considered whether counterclaims against the insured for alleged faulty construction work were based in contract or constituted allegations of an "accident" under the policy. TCD, Inc. v. Am. Family Mutual Ins. Co., 2012 WL 1231964 (Colo. Ct. App. April 12, 2012).
The developer, Frisco Gateway Center, LLC, contracted with TCD, the general contractor, to construct a building. TCD, in turn, subcontracted with Petra Roofing to install the roof. The subcontract required Petra to "indemnify, hold harmless, and defend" TCD against claims arising out of resulting from the performance of Petra's work on the project. Petra was also required to name TCD as an additional insured on its CGL policy.
After a dispute arose between TCD and Gateway regarding payment and performance on the project, TCD sued Gateway and other parties seeking payment. Gateway counterclaimed against TCD for breach of contract and negligence. TCD demanded coverage from Petra's insurer, but coverage was denied.
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Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
Record-Setting Construction in Fargo
November 7, 2012 — CDJ Staff
Prairie Business reports that Fargo is experiencing the most new construction it has ever seen, totaling $434 million in value, which exceeds the previous high in 2006 of $428 million. Many of the construction starts are for single family homes, although there is also an increase in construction of apartments and townhomes.
The Home Builders Association of Fargo-Moorhead also noted that there was also a large of remodeling projects. Terry Becker, the president of the HBA, said that “remodeling is just huge right now.”
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Fifth Circuit Asks Texas Supreme Court to Clarify Construction Defect Decision
November 7, 2012 — CDJ Staff
The Fifth Circuit Court has withdrawn its decision in Ewing Construction Company v. Amerisure Insurance Company, pending clarification from the Texas Supreme Court of its decision in Gilbert Texas Construction, L.P. v. Underwriters at Lloyd’s London. The Fifth Circuit had applied the Gilbert case in determining that a contractual liability exclusion barred coverage for faulty workmanship. The Insurance Journal reports that this decision was both applauded and criticized, with a concern noted that “an insurer would now have its pick of either the ‘your work’ exclusion or the contractual liability exclusion without the exception for subcontracted work.”
The Fifth Circuit is now asking the Texas Supreme Court two questions to clarify Gilbert, which Brian S. Martin and Suzanne M. Patrick see as a sign that the Court has realized that it overly expanded the scope of the earlier ruling. A response is expected from the Texas Supreme Court by spring 2013.
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Homeowner Has No Grounds to Avoid Mechanics Lien
September 1, 2011 — CDJ Staff
The California Court of Appeals has rejected a motion by a homeowner in a dispute with the contractor who built an extension to his home. In McCracken v. Pirvulete, Mr. McCracken filed a mechanics lien after Mr. Pirvulete failed to complete payment. The matter went to trial with a series of exhibits that showed “the contractual relationship was strained and the parties disagreed over performance and payment.” As a result of the trial, the court awarded Mr. McCracken, the contractor, $1,922.22.
Mr. Pirvulete appealed, contending that the court had not allowed his daughter to act as a translator, that the court had failed to give him sufficient time to present his case, that the mechanics lien should have been dismissed, and several other claims, all before a formal judgment was issued. After the court formalized its judgment and rejected the appeal, Mr. Pirvulete appealed again.
The appeals court found that Mr. Pirvulete did not provide an adequate record for review. The court dismissed Mr. Pirvulete’s claims. The court notes that Mr. Pirvulete claimed that a request for a discovery period was denied, however, he has provided neither the request nor the denial. The trial court has no record of either.
Nor was there a record of a request that Mr. Pirvulete’s daughter provide translation. The court notes, “so far as we can glean from the record provided, the Register of Actions states, ‘Trial to proceed without Romanian Interpreter for Defendant; Daughter present to interpret if needed.’” Additionally, the court found that “there has been no showing that his facility with the English language is or was impaired in any way or that there was any portion of any proceeding, which he did not understand.”
Further, the appeals court found there were no grounds for a new trial, despite Mr. Pirvulete’s filings. The court concluded, “The owner has failed to provide a record adequate for review of most, if not all, of the claims of error. Some issues are not cognizable because they relate to entirely separate proceedings, and not the trial below. To the limited extent that the claims are examinable, the owner has made no showing of error.” The court affirmed the judgment of the lower court against Mr. Pirvulete.
Read the court’s decision…
