After Construction Defect Case, Repairs to Austin Building
August 2, 2012 — CDJ Staff
The Austin Business Journal reports that remediation is about to begin on Met Center 10, a building that was “at the center of a complex structural defect case.” Claims were made that Grubb & Ellis failed to disclose known structural defects to a group of investors who purchased the building. The brokerage was ordered to pay $6.75 million. Repairs will take an estimated six months at a cost of $3.7 million.
Read the full story…
Was Jury Right in Negligent Construction Case?
September 30, 2011 — CDJ Staff
Yes, said the South Carolina Court of Appeals in Pope v. Heritage Communities, Inc. Heritage Communities developed Riverwalk, a community in South Carolina. During the earlier trial, HCI “conceded that construction defects existed at Riverwalk, and repairs needed to be made.” The trial court found that the construction was negligent, awarding the property owners association $4.25 million in actual damages and $250,000 in punitive damages, with the class of owners awarded $250,000 in actual damages and $750,000 in punitive damages. HCI appealed on nine issues. All were rejected by the appeals court.
The court rejected HCI’s claim that the judge’s instruction to the jury suggested to the jury that “the court had already determined that Appellants were willful, wanton, and reckless.” But here, the appeals court found “no reversible error.”
The general contractor for Riverwalk was BuildStar. Off-site management and sale were managed by Heritage Riverwalk, Inc., which also owned title to the property. Both these companies were owned by Heritage Communities, Inc. During the trial, an HCI employee testified that “the three corporations shared the same officers, directors, office, and telephone number.” The trial court found that the three entities were amalgamated. This was upheld by the appeals court.
Nor did the appeals agree with the HCI that the trial court had improperly certified a class. The owners were seen as properly constituting a class. Further, the court held that the property owners’ losses were properly included by the trial court. HCI objected at trial to the inclusion of evidence of subsequent remedial measures, however, as they did not object that it was inadmissible, the issue could not be addressed at appeal.
HCI argued on appeal that the trial court should not have allowed evidence of defects at other HCI developments. The appeals court noted that “the construction defects at the other HCI developments were substantially similar to those experienced by Riverwalk.”
The court additionally found that the negligence claims, the estimated damages (since full damage could not be determined until all defective wood was removed), and the award of punitive damages were all properly applied.
Read the court’s decision…
No Coverage For Construction Defects When Complaint Alleges Contractual Damages
September 1, 2011 — Tred Eyerley, Insurance Law Hawaii
The underlying plaintiff’s allegations contended the contractor was in breach of contract for construction defects caused in building her home. Accordingly, the court found no coverage.See Nat’l Builders and Contractors Ins. Co. v. Slocum, 2011 U.S. Dist. LEXIS 81694 (S.D. Miss. July 26, 2011).
Slocum Construction LLC sold a home it built to Laura Peterson. Subsequently, Peterson filed suit, alleging a breach of the contract and seeking rescission and cancellation of the contract. Peterson further alleged at least thirty-three specific defects in the construction of the house.
Slocum tendered to its insurer, National Builders and Contractors Insurance Company (NBCI). NBCI filed suit for a declaratory judgment.
Read the full story…
Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
Construction Law Client Alert: California Is One Step Closer to Prohibiting Type I Indemnity Agreements In Private Commercial Projects
June 15, 2011 — Haight Brown & Bonesteel, LLP
On June 1, 2011 by majority vote, the California Senate passed Senate Bill 474, which would amend Civil Code section 2782, and add Civil Code section 2782.05. The passage of this new law is a critical development for real estate developers, general contractors and subcontractors because it will affect how these projects are insured and how disputes are resolved.
Civil Code section 2782 was amended in 2007 to prohibit Type I indemnity agreements for residential projects only. Since 2007, various trade associations and labor unions have lobbied to expand those very same restrictions to other projects. These new provisions apply to contracts, entered into after January 1, 2013, that are not for residential projects, and that are not executed by a public entity. The revisions provide that any provision in a contract purporting to indemnify, hold harmless, and defend another for their negligence or other fault is against public policy and void. These provisions cannot be waived.
A provision in a contract requiring additional insured coverage is also void and unenforceable to the extent it would be prohibited under the new law. Moreover, the new law does not apply to wrap-up insurance policies or programs, or a cause of action for breach of contract or warranty that exists independently of the indemnity obligation.
The practical impact of this new law is that greater participation in wrap-up insurance programs will likely result. While many wrap-up programs suffer from problems such as insufficient limits, and disputes about funding the self-insured retention, the incentive for the developer or general contractor to utilize wrap-up insurance will be greater than ever before because they will no longer be able to spread the risk of the litigation to the trades and the trade carriers.
Read the full story…
Reprinted courtesy of Steve Cvitanovic of Haight Brown & Bonesteel, LLP.
Nebraska Man Sentenced for Insurance Fraud in Construction Projects
July 10, 2012 — CDJ Staff
Thomas Herink has been ordered to repay more than $5 million to his victims and will be serving three years of probation after 18 months in jail for defrauding banks and insurance companies, according to a report in the Insurance Journal. Herink falsified financial statements to lenders and insurers so that his company, Golf Services Group Inc. could participate in construction projects.
Read the full story…
Condominium Exclusion Bars Coverage for Construction Defect
August 17, 2011 — Tred Eyerley, Insurance Law Hawaii
Coverage was denied under the policy’s condominium exclusion in California Traditions, Inc. v. Claremont Liability Ins. Co.,2011 Cal. App.LEXIS912 (Cal. Ct. App., ordered published July 11, 2011).
California Traditions was the developer and general contractor for a housing development. California Traditions subcontracted with Ja-Con to perform the rough framing work for 30 residential units. The project had 146 separate residences that were freestanding with no shared walls, roof, halls, or plumbing or electrical lines. To allow a higher density development, the project was developed, marketed and sold as condominiums.
The purchaser of one of the units filed a complaint against California Traditions alleging property damage from the defective construction. California Traditions cross-complained against Ja-Con.
Read the full story…
Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
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…
Battle of “Other Insurance” Clauses
March 23, 2011 —
Tred R. Eyerly -
Insurance Law Hawaii - March 23, 2011
The New York Court of Appeals considered the impact of competing “other insurance” provisions located in both a CGL policy and a D&O policy. See Fieldston Property Owners Assoc., Inc. v. Hermitage Ins. Co., Inv., 2011 N.Y. LEXIS 254 (N.Y. Feb. 24, 2011).
In the underlying case, Fieldston’s officers were charged with making false statements and fraudulent claims with respect to a customer's right to access its property from adjacent streets. Suit was eventually filed against Fieldston and its officers, alleging several causes of action including injurious falsehood. Damages were sought.
Fieldston’s CGL policy was issued by Hermitage. The “other insurance” provision stated, “If other valid and collectible insurance is available to the insured for a loss we cover . . . our obligations are limited,” but also stated it would share with all other insurance as a primary policy.
Read the full story... Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
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.
Timing of Insured’s SIR Payment Has No Effect on Non-Participating Insurer’s Equitable Contribution to Co-Insurer
April 25, 2012 — Aarti Kewalramani, Gatzke Dillon & Balance LLP
In a case of first impression, the California Court of Appeal, Fourth District, Division One, examined whether a non-participating insurer can evade its defense and indemnity obligations because the insured only paid the policy’s self-insured retention ("SIR") as part of a settlement. In Axis Surplus Lines Insurance Company v. Glencoe Insurance LTD. (April 11, 2012, D058963) __ Cal.App.4th __ [2012 WL 11903203], the critical issue for the Court was whether an insurer, with full notice and continued investigation of a claim, can "hide behind the SIR requirement in its policy." The Court declined to "sanction such gamesmanship."
The dispute involved an equitable contribution claim between two insurers. Axis Surplus Insurance Company provided commercial general liability insurance to Pacifica Pointe L.P. During the same time period, Glencoe Insurance Ltd. provided an owner-controlled insurance policy (i.e., wrap policy) to Pacifica Pointe L.P. Both policies included provisions requiring co-carriers to split the defense and indemnity on equal shares. Pacifica was sued in a construction defect lawsuit, involving alleged resultant damages to condominiums it converted and sold. Pacifica tendered the claim to both Axis and Glencoe. While Axis agreed to defend Pacifica, subject to a reservation of rights, Glencoe declined to participate until Pacifica satisfied the $250,000 SIR on the policy. Glencoe continued to monitor the litigation from the sidelines.
Axis and Pacifica settled the underlying construction defect lawsuit for $1 million. Pacifica advised Glencoe of the settlement, and received Glencoe’s approval to contribute its $250,000 SIR towards the settlement. Axis contributed $750,000 towards the settlement. After the settlement, Axis sued Glencoe for declaratory relief and equitable contribution, to recover a portion of the defense and indemnity it paid. The trial court found in favor of Axis and allocated Glencoe 60% of the settlement payment. Glencoe appealed.
On appeal, the Court scrutinized whether Glencoe, as the non-participating insurer, had a legal obligation to provide a defense and indemnity to the insured, despite the timing of the SIR’s satisfaction. The Court determined that in an equitable contribution action, the participating insurer has the burden of proving merely the potential for coverage under the non-participating insurer’s policy. On this showing, the burden of proof shifts to the non-participating insurer to prove the absence of actual coverage under its policy. The Court emphasized that the timing of the SIR’s payment was inconsequential to either insurer’s burden. Because Glencoe admitted coverage existed under its policy, the Court affirmed the trial court’s decision.
As a result, the result ultimately turned on whether the non-participating carrier had full notice of the claim and cannot use the timing of the satisfaction of the SIR to shield itself from an equitable contribution claim from the participating co-carrier.
Published courtesy of Aarti Kewalramani of Gatzke Dillon & Balance LLP. Ms. Kewalramani can be contacted at akewalramani@gdandb.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.
Read the full story…
California Appeals Court Remands Fine in Late Completion Case
November 18, 2011 — CDJ Staff
The California Court of Appeals in Stanislaus County has reversed the decision of the lower court in Greg Opinski Construction Inc. v. City of Oakdale. The earlier court had awarded the city of judgment of $54,000 for late completion, $3,266 for repair of construction defects and interest, and $97,775 in attorneys’ fees. The late completion of the project was due to actions by the City of Oakdale, however, the court rejected Opinski’s argument that the California Supreme Court decision in Kiewit did not allow this, as his contract with the city established a procedure for claiming extensions.
The appeals court noted that the Kiewit decision has been “criticized as an unwarranted interference in the power of contracting parties to shift the risk of delays caused by one party onto the other party by forcing the second party to give the first notice of any intention to claim an extension of time based on delays caused by first.” They cited Sweet, a professor at Boalt Hall, UC Berkeley’s law school, that Kiewit “gutted” the “provision that conditions the contractor’s right to claim an extension of time for delays beyond his control.”
Further changes in California law in response to the Kiewit decision lead to the current situation which the court characterized as “if the contractor wished to claim it needed an extension of time because of delays caused by the city, the contractor was required to obtain a written change order by mutual consent or submit a claim in writing requesting a formal decision by the engineer.”
Opinski also argued that the lower court misinterpreted the contract. The Appeals court replied that “Opinski is mistaken.” He cited parts of the contract regarding the increase of time, but the court rejected these, noting that “an inability to agree is not the same as an express rejection.”
The court also rejects Opinski’s appeal that “the evidence the project was complete earlier than September 30, 2005, is weightier than the evidence to the contrary,” which they describe as “not a winning appellate argument.” The court points out that the role of an appeals court is not to reweigh the evidence, but to determine “whether the record contains substantial evidence in support of the judgment.”
The court did side with Opinski on one question of the escrow account. They rejected most of his arguments, repeating the line “Opinski is mistaken” several times. They decided that he was mistaken on the timing of the setoff decision and on whether the city was the prevailing party. However, the appeals court did find that Opinski was not liable for interest on the judgment.
The appeals court rejected the awarding of prejudgment interest to the city as the funds from which the judgment was drawn was held in an escrow account. The court noted that the city had access to the funds and could “access the funds when it determined that Opinski had breached the contract.” The appeals court noted that the judgment exhausted the escrow balance and remanded the case to the lower court to determine the amount own to Opinski.
Read the court’s decision…
Loss Caused by Seepage of Water Not Covered
July 10, 2012 — Tred Eyerly, Insurance Law Hawaii
The anti-concurrent clause in a homeowner’s policy barred coverage for damage caused by hidden seepage. Boazova v. Safety Ins. Co., 2012 Mass. LEXIS 462 (Mass. May 29, 2012).
The insured had a concrete patio built along the rear wall of her house at a grade higher than the home’s foundation. Years later, severe deterioration was discovered in the floor joists, wall studs and other parts of the home. The insured held a homeowner’s policy with Safety. An inspector hired by Safety determined the deterioration was caused by the placement of the concrete patio slab adjacent to the wall of the house, allowing water to seep onto the top of the foundation.
Safety denied coverage because the damage was caused by a combination of surface water, deterioration, settling and improper construction of the concrete patio.
Read the full story…
Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
Tampa Condo Owners Allege Defects
October 23, 2012 — CDJ Staff
Owners in the Bel Mare towers have filed a lawsuit alleging that the building have construction defects that could lead to problems during periods with high winds. The Tampa Bay Business Journal reports that the condo association has sued the developer, the general contractor, the architects, the structural engineers, and subcontractors.
Read the full story…
Hawaii State Senate Requires CGL Carriers to Submit Premium Information To State Legislature
March 20, 2011 — March 20, 2011 Construction Defect Journal Staff
In light of the decision in Hawaii’s Intermediate Court of Appeals in Group Builders, Inc.,v. Admiral Insurance Company, 231 P.3d 67(2010), Hawaii’s state senate is requesting that "every domestic and foreign insurance company that has ever issued commercial general liability policies in the State is requested to submit information to the Legislature on the total premiums received for their commercial general liability policies during the past ten years"
Read Full Text of Hawaii State Senate Resolution
Unit Owners Have No Standing to Sue under Condominium Association’s Policy
February 10, 2012 — Tred Eyerly, Insurance Law Hawaii
If a condominium owner suffers damage caused by a leak from another unit, may it sue the insurer for the Association of Apartment Owner (AOAO) for coverage? The federal district court for Hawaii said "no" in a decision by Judge Mollway. See Peters v. Lexington Ins. Co., 2011 U.S. Dist. LEXIS 148734 (D. Haw. December 27, 2011).
Two cases were consolidated. In each case, Plaintiffs owned condominium units at the Watercrest Resort on Molokai. Water leaking from another unit damaged Plaintiffs’ units.
Watercrest Resort was insured by Lexington pursuant to a policy maintained by the AOAO. Plaintiffs filed claims with Lexington. Lexington hired an adjustor.
Unhappy with the adjustment of their claims, Plaintiffs sued Lexington and the adjustor.
Read the full story…
Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
No Duty to Indemnify When Discovery Shows Faulty Workmanship Damages Insured’s Own Work
November 7, 2012 — Tred Eyerly, Insurance Law Hawaii
Our post last week addressed the duty to defend when alleged faulty workmanship caused loss to property adjacent to where the insured was working. See Pamerin Rentals II, LLC v. R.G. Hendricks & Sons Constr., Inc., 2012 Wis. App. LEXIS 698 (Wis. Ct. App. Sept. 5, 2012) [post here]. Today, we report on recent developments in the same case where the court determined, despite earlier finding the insurer owed a defense, it had no duty to indemnify. Pamperin Rentals II, LLC v. R.G. Hendricks & Sons Constr., Inc., 2012 Wisc. App. LEXIS 793 (Wis. Ct. App. Oct. 10, 2012).
Hendricks contracted to “prepare the site and supply and install concrete, tamped concrete, and colored concrete” at several service stations. The owner sued Hendricks, alleging the concrete “was defective and/or the work performed was not done in a workman-like manner and resulted in damages, and will require replacement.”
Pekin Insurance Company agreed to defend Hendricks subject to a reservation of rights.
Read the full story…
Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
Judge Concludes Drywall Manufacturer Sold in Florida
September 13, 2012 — CDJ Staff
A Florida judge has concluded that the Chinese drywall manufacturer Taishan actively sought to sell its products in Florida and cannot now claim that it was not involved. Judge Joseph Farnia also noted that the main distributor of the drywall was, as noted in the Miami Herald, an arm of the company. Lennar Hones has sued the firm after installing drywall manufactured by the company in hundreds of homes.
Taishan’s activities in Florida included not only distributing samples, but also hosting tours of their plants in China for construction executives, and even making customized runs. According to other reports, has lost past cases over defects in their drywall.
Read the full story…
