Water Damage Covered Under Efficient Proximate Cause Doctrine
August 2, 2012 — Tred Eyerly, Insurance Law Hawaii
A U.S. District Court in Washington found coverage in what it described as a text book study of the efficient proximate cause rule. Hiller v. Allstate Pro. & Cas. Ins. Co., 2012 U.S. Dist. LEXIS 84862 (E.D. Wash. June 19, 2012).
The Hillers purchased a newly constructed home in December 2006. They also purchased an all-risk homeowner's policy from Allstate.
In July 2010, the Hillers discovered that the carpet in the basement of the residence was saturated with water. Allstate was immediately notified. Hiller began an investigation to attempt to determine the source of the water. He poured water into a downspout drain at the northwest corner of the residence. This caused water to leak into the northwest corner of the home's basement.
An area was excavated around the northwest downspout drain. The end of the drain pipe was partially blocked by rocks and had been wrapped with fabric landscaping material. Further, a “T” pipe installed at the foot of the drain was directing water toward the house's concrete foundation. Hiller notified Allstate that the problems with the drain was due to construction defects and the system was designed to fail.
Allstate denied the claim. Based upon Hiller's information, coverage was excluded under the policy's surface water, subsurface water, inherent vice, and latent defect exclusions.
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Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
Lien Law Unlikely To Change — Yet
May 26, 2011 — Melissa Brumback, Construction Law in North Carolina
For those of you following the proposed revisions to the NC lien law that is currently at the NC House Judiciary Subcommittee B, a quick update: the proposed bill (HB 489) is unlikely to be voted on this legislative session due to its unpopularity with several constituency groups, including both the AIA-North Carolinaand the NC Home Builders Association.
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Reprinted courtesy of Melissa Brumback of Ragsdale Liggett PLLC. Ms. Brumback can be contacted at mbrumback@rl-law.com.
Construction Defect Notice in the Mailbox? Respond Appropriately
August 4, 2011 — Douglas Reiser, Builders Counsel
Recently, I have seen a rash of ignored construction defect notices. What is a construction defect notice? It’s a statutorily required notice, sent from a homeowner to a contractor, listing a number of defects found at their property. If you get one, don’t ignore it.
The Revised Code of Washington includes a number of provisions intended for residential construction disputes. Among them is the “Notice to Customer” requirement in RCW 18.27.114, which can preempt a contractor’s lien rights, and the “Notice of Construction Defects” found in RCW 64.50.020.
The Notice of Construction Defects is a standard notice mandated by RCW 64.50, a chapter in the Revised Code of Washington, intended to provide a pre-litigation resolution process for contractors and consumers. The chapter applies only to those losses “caused by a defect in the construction of a residence or in the substantial remodel of a residence.”(See “Action” RCW 64.50.010).
Unfortunately, many contractors will simply ignore these notices or tell the homeowner to make a warranty claim. But, the notice actually provides a contractor with a forty-five (45) day window to alleviate the dispute.
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Reprinted courtesy of Douglas Reiser of Reiser Legal LLC. Mr. Reiser can be contacted at info@reiserlegal.com
Court Will Not Compel Judge to Dismiss Construction Defect Case
August 2, 2012 — CDJ Staff
The Fourteenth Court of Appeals of Texas has denied a petition for a writ of mandamus. The parties involved, Bonner Ball, Thomas Zenner, and Rallin Welch, are lmited partners of Black Diamond Builders, LLP. Black Diamond is the recipient of a lawsuit from Grier and Camille Patton, for whom Black Diamond built a home. The Pattons are alleging construction defects.
The Black Diamond partners argue that Judge Jeff Shadwick, presiding judge of the 55th District Court of Harris County, Texas should have granted their motion to dismiss. They sought to have the Fourteenth Court of Appeals compel that action.
The Black Diamond Partners claims that “the homowners failed to satisfy statutory prerequisites before filing suit, and dismissal of the suit was automatic under the applicable statues in effect at the time the Pattons noticed alleged defects in their home.”
The court noted that “a trial court will be held to have abused its discretion only if the party requesting mandamus relief establishes that the trial court could have reached but one decision.” The court did not concur with this and denied the petition for a writ of mandamus.
Read the court's decision…
Harmon Towers Duty to Defend Question Must Wait, Says Court
March 1, 2012 — CDJ Staff
The Harmon Towers project in Las Vegas was eventually halted short of the planned forty-seven stories after “it was determined that there was substantial defective construction, including defective installation of reinforcing steel throughout the Harmon.” The American Home Insurance Company and Lexington Insurance Company put forth a claim that they had no duty to defend Perini Construction, the builder of the defective Harmon Towers. Further, American Home seeks to recover the monies American reimbursed Perini. The United States District Court of Nevada ruled in the case of American Home Assurance Co. v. Perini Building on February 3, 2012.
The two insurance companies covered Perini and its subcontractors, Century Steel, Pacific Coast Steel, and Ceco Concrete Construction. Century Steel was the initial subcontractor for the reinforcing steel; they were later acquired by Pacific Coast Steel. In this current case, Perini Construction is the sole defendant.
Perini sought a dismissal of these claims, arguing that without the subcontractors joined to the case, “the Court cannot afford complete relief among existing parties.” The court rejected this claim, noting that the court can determine the duties of the insurance companies to Perini, which the court described as “separate and distinct from those of the subcontractors.” The subcontractors “have not claimed an interest in the subject matter of the action.” The court concluded that it could determine whether Perini was entitled or not to coverage without affecting the subcontractors. The court rejected Perini’s claim.
Perini also asked the court to abstain from the case, arguing that it was better heard in a state court. The court noted that several considerations cover whether a case is heard in state or federal courts. The court noted that if the case weighed heavily on state law, the state courts would be the obvious location. Further, if there were a parallel action in the state courts, “there is a presumption that the whole suit should be heard in state courts.” This is, however, no parallel state suit, although the court noted that Perini has “threatened” to do so.
However, the issue of who is to blame for the problems at Harmon Towers has not been resolved. The court concluded that until the “underlying action” was concluded, it was premature to consider the issues raised in this case while the earlier lawsuit was still in progress. The court denied Perini’s motion to dismiss the case. Given that the outcome of the earlier construction defect case may lead to further litigation in state court, the District Court granted Perini’s motion to abstain, but staying their judgment until the construction defect case is resolved.
Read the court’s decision…
The Montrose Language Interpreted: How Many Policies Are Implicated By A Construction Defect That Later Causes a Flood?
March 17, 2011 — By Shaun McParland Baldwin, March 17, 2011
The Court of Appeals of Indiana recently addressed the “Montrose” language added to the CGL ISO form in 2001 in the context of a construction defect claim where a fractured storm drain caused significant flooding a year after the drain was damaged. The insuring agreement requires that “bodily injury or “property damage” be caused by an occurrence and that the “bodily injury or “property damage” occur during the policy period. The Montrose language adds that the insurance applies only if, prior to the policy period, no insured knew that the “bodily injury or “property damage” had occurred in whole or in part. Significantly, it also states that any “bodily injury” or “property damage” which occurs during the policy period and was not, prior to the policy period known to have occurred, includes a continuation, change or resumption of that “bodily injury” or “property damage” after the end of the policy period.
In Grange Mutual Cas. Co. v. West Bend Mut. Ins. Co., No. 29D04-0706-PL-1112 (Ct. App. IN March 15, 2011), http://www.ai.org/judiciary/opinions/pdf/03151109ehf.pdf, Sullivan was the General Contractor for a school construction project. Its subcontractor, McCurdy, installed the storm drain pipes. One of the storm pipes was fractured in 2005 while McCurdy was doing its installation work. More than a year later, the school experienced significant water damage due to flooding. It was later discovered that the flooding was due to the fractured storm drain. Sullivanrsquo;s insurer paid $146,403 for the water damage. That insurer brought a subrogation claim against McCurdy and its two insurers: West Bend and Grange. West Bend had issued CGL coverage to McCurdy while the construction was ongoing, including the date in which the storm pipe was fractured. Grange issued CGL coverage to McCurdy at the time of the flooding. Those two carriers jointly settled the subrogation claim and then litigated which insurer actually owed coverage for the loss. Significantly, the loss that was paid included only damages from the flooding, not any damages for the cost of repairing the pipe.
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Reprinted courtesy of Shaun McParland Baldwin of Tressler LLP. Ms Baldwin can be contacted at sbaldwin@tresslerllp.com
Seven Tips to Manage Construction Defect Risk
July 10, 2012 — CDJ Staff
Jody T. Wright looks at “seven strategies being used around the country to identify, manage and mitigate your exposures” in a piece in Business Insurance. Wright, Senior VP, Construction Department Manager for Lockton Companies in Denver, gives seven simple steps from the perspective of a insurer.
His first step is to match your project to your insurance. He suggests keeping the riskier projects separate, noting that from an insurer’s point-of-view, “any project that creates a homeowners association carries a higher potential threat of future litigation.” This leads to his second point: you need to “determine what makes your liability insurer nervous.” In other words, talk with your insurer.
His third point suggests that builders look back and see if there is a pattern of problems that have lead to payouts from your insurer. Keep your insurer happier by making sure these areas don’t continue to be problems. Nor should you look for new problems. He suggests against leading in new technologies.
Three more points deal with being careful about with whom you associate. He tells builders to negotiate their contracts, avoiding clauses that would obligate a builder to “indemnify the owner for the negligent work of others that they did not control.” Avoid subcontractors “with loss patterns that might affect your project and reputation.” Builders should identify “owners with a pattern of suing contractors” adding that risk to the cost of the job. They should also identify “the most effective attorneys and expert witnesses” and get them involved before the litigation starts.
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DA’s Office Checking Workers Comp Compliance
February 10, 2012 — CDJ Staff
The San Bernardino office of the California District Attorney is partnering with the California Contractor’s State License Board to check if subcontractors are holding the required workers compensation insurance. The High Desert Daily Press reports that the process of checking at sites has been going on for several months.
Investigators visit sites and ask supervisors to provide a list of subcontractors which the state then checks for compliance. One worker was quoted that insurance inspections were so rare that he had never seen one before, despite 20 years in construction.
On one day, investigators in two teams visited fourteen construction sites and reviewed the insurance status of twenty-two firms. Three were found out of compliance and stop work orders were issued.
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Statute of Limitations Upheld in Construction Defect Case
September 30, 2011 — CDJ Staff
The Missouri Court of Appeals has ruled in Ball v. Friese Construction Co., finding that Mr. Ball’s claims were barred by the statute of limitations.
Mr. Ball hired Friese Construction Company to build a single-family home. The sale was completed on March 29, 2001. That December, Mr. Ball complained of cracks in the basement floor. SCI Engineering, n engineering firm, hired by Friese, determined that the home’s footing had settled and recommended that Mr. Ball hire a structural engineer to determine if the footings were properly designed and sized. In September 2002, the structural engineer, Strain Engineering, determined that the cracks were due to slab movement, caused in part by water beneath the slab, recommending measures to move water away from the foundation. In 2005, Mr. Ball sent Friese correspondence “detailing issues he was having with the home, including problems with the basement slab, chimney structure, drywall tape, and doors.” All of these were attributed to the foundation problems. In 2006, Friese stated that the slab movement was due to Ball’s failure to maintain the storm water drains.
In 2009, Ball received a report from GeoTest “stating the house was resting on highly plastic clay soils.” He sued Friese in May, 2010. Friese was granted a summary judgment dismissing the suit, as the Missouri has a five-year statute of limitations. Ball appealed on the grounds that the extent of the damage could not be determined until after the third expert report. The appeals court rejected this claim, noting that a reasonable person would have concluded that after the conclusion of SCI and Strain Engineering that “injury and substantial damages may have occurred.”
The court concluded that as there were not “continuing wrongs causing new and distinct damages,” he should have filed his lawsuit after the first two expert reports, not waiting seven years for a third expert to opine.
Read the court’s decision…
Insurer Must Defend Claims for Diminution in Value of Damaged Property
June 19, 2012 — Tred Eyerly, Insurance Law Hawaii
The insurer’s duty to defend a developer sued by purchasers of homes for damages for diminution in value of homes was at issue in Mid-Continent Cas. Co. v. Academy Dev., Inc., 2012 WL 1382459 (5th Cir. April 20, 2012).
In the underlying action, plaintiffs alleged the developer knew when it sold the homes that the lake walls were falling and that water was leaking from the lakes onto adjacent home sites. They sought damages for diminution in the value of their homes resulting from the defective lakes. The action was tried in 2008, and the jury returned a verdict for the developer.
Mid-Continent initially defended under a reservation of rights.
Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
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Is There a Conflict of Interest When a CD Defense Attorney Becomes Coverage Counsel Post-Litigation?
September 1, 2011 — Chad Johnson of Higgins, Hopkins, McLain & Roswell, LLC
In Weitz Co., LLC v. Ohio Cas. Ins. Co., the U.S. District Court for the District of Colorado was asked to rule on a motion to disqualify counsel in an insurance coverage action. 11-CV-00694-REB-BNB, 2011 WL 2535040 (D. Colo. June 27, 2011). Motions to disqualify counsel are viewed with suspicion, as courts “must guard against the possibility that disqualification is sought to ‘secure a tactical advantage in the proceedings.’” Id. at *2 (citing Religious Technology Center v. F.A.C.T. Net, Inc., 945 F. Supp. 1470, 1473 (D. Colo. 1996).
Weitz Company, LLC (“Weitz”) is a general contractor and defendant in an underlying construction defect suit which had concluded before the action bringing rise to this order. In the underlying action, Weitz made third-party claims against subcontractors, including NPW Contracting (“NPW”). Weitz was listed as an additional insured under NPW’s policies with both Ohio Casualty Insurance Company and Mountain States Mutual Casualty Company (collectively “the Carriers”). The Carriers accepted Weitz’s tender of defense under a reservation of rights. However, neither insurance carrier actually contributed to Weitz’s defense costs in the underlying action. At the conclusion of the construction defect action, the parties unsuccessfully attempted to apportion the attorney’s fees and costs. Eventually, Weitz brought suit against the recalcitrant carriers. The Lottner firm, which had previously represented Weitz in the underlying construction defect action, continued to represent Weitz in this coverage action.
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Reprinted courtesy of Higgins, Hopkins, McLain & Roswell, LLC. Mr. Johnson can be contacted at johnson@hhmrlaw.com
Mark Van Wonterghem To Serve as Senior Forensic Consultant in the Sacramento Offices of Bert L. Howe & Associates, Inc.
March 1, 2012 — CDJ Staff
Sacramento, CA — Bert L. Howe and Associates, Inc., is pleased to announce that Mark Van Wonterghem - General Contractor, has joined the firm as Senior Forensic Consultant. Mark will be responsible for leading the firm’s expansion in the newly formed Sacramento headquarters.
His focus will continue to be working with construction practice groups and claims professionals in the Sacramento and Bay Area markets. He will utilize the resources of the Construction Experts Group at Bert L. Howe & Associates in furthering the litigation support needs attendant to the firm’s Northern California clientele.
Mr. Van Wonterghem possesses extensive consulting and testimony experience. Through 32 years of experience in the construction industry he leverages extensive practical experience with multiple trades including concrete foundations, walls and flatwork, structural wood and steel framing, finish carpentry, drywall, lath & plaster/stucco, window & door installations, deck coating systems, metal and membrane flashings and above/below grade waterproofing. This trade experience encompasses both the commercial and residential construction sectors and has been vital in his ability to provide concise explanation of construction industry standards, as well as trade-specific standards of care.
Mr. Van Wonterghem has broad experience with all types of building construction ranging from concrete and steel commercial construction to high-end custom residential construction.
In connection with the Construction Experts Group at BHA, Mr. Van Wonterghem provides construction consulting and litigation support services to a wide variety of recognized construction claims professionals, owners, and publicly traded builders.
The firm’s Sacramento offices are located at the Gateway Oaks III office complex, 2520 Venture Oaks Way, Suite 435, Sacramento, CA 95833. Mr. Van Wonterghem can be reached via e mail at mvanwonterghem@berthowe.com or at (800) 783-1822.
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…
No Coverage for Negligent Misrepresentation without Allegations of “Bodily Injury” or “Property Damage”
February 10, 2012 — Tred Eyerly, Insurance Law Hawaii
Jeff City Industries was the general contractor for a sewer system improvement project in Branson, Missouri. Bituminous Cas. Corp. v. United HRB Gen. Contractors, Inc., 2011 U.S. Dist. LEXIS 145666 (W.D. Mo. Dec. 19, 2011). Branson sued Jeff City, alleging breach of the construction contract for the project. The claims included improperly bedded sewer piping, improper aligning portions of trenching for the sewer piping, improper service line connections to the sewer piping, etc.
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Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
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
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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Driver’s Death May Be Due to Construction Defect
August 16, 2012 — CDJ Staff
A man driving a rental truck collided with a parking ramp at the Mall of America in Bloomington, Minnesota, leading to his death when the ramp broke and crushed the cab of the truck. One expert said that the ramp should have been built to withstand the impact. Tim Galarnyk told Fox News that the building feature didn’t’ even bear weight, describing it as “a cosmetic facial panel.” Nevertheless, in a contest with a truck he said the ramp portion should “peel it like a tin can before it takes the concrete element down.”
The Mall of American is not commenting on the accident.
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Follow Up on Continental Western v. Shay Construction
March 28, 2012 — Brady Iandiorio, Colorado Construction Litigation
Writing in Construction Law Colorado, Brady Iandiorio revisits the case Continental Western v. Shay Construction. He promises to continue to follow cases dealing with Colorado HB 10-1394.
Recently the Court ruled on two Motions to Reconsider filed by Defendants Milender White and Shay Construction.
Procedurally, the Motions to Reconsider were ruled on by the Honorable William J. Martinez, because the day after the motions were filed the action was reassigned to Judge Martinez. In the short analysis of the Motion to Reconsider, the court leaned on Judge Walker D. Miller’s ruling on the summary judgment and his analysis of the (j)(5) and (j)(6) exclusions.
As a quick refresher regarding the grant of summary judgment, Judge Miller agreed with Continental Western’s argument that the asserted claims were excluded under the “damage to property” exclusion. The policy’s exclusions state: “(j) Damage to Property . . . (5) that particular part of real property on which you or any contractors or subcontractors working directly or indirectly on your behalf are performing operations, if the ‘property damage’ arises out of those operations; or (6) that particular part of any property that must be restored, repaired or replaced because ‘your work’ was incorrectly performed on it.” Judge Miller found that both exclusions (j)(5) and (6) applied to both Shay’s allegedly defective work.
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Reprinted courtesy of Brady Iandiorio of Higgins, Hopkins, McClain & Roswell, LLC. Mr. Iandiorio can be contacted at iandiorio@hhmrlaw.com.
