Policing Those Subcontractors: It Might Take Extra Effort To Be An Additional Insured
June 14, 2011 — Douglas Reiser, Builders Council Blog
I just came across a case that I think truly paints the insurance dilemma for contractors. Thanks to this recent Illinois case, I don’t have to make up any factual scenarios—so kudos to Attorney Robert Boylan for posting it.
In reading over my RSS feeds this weekend, I noticed a great writeup on long-time blogger Josh Glazov’s Construction Law Today. Attorney Robert Boylan’s post describes a recent Illinois case where a general contractor was denied its additional insured status on a second-tier subcontractor’s insurance. The reason for the denial: the general contractor failed to procure an agreement in writing with the second-tier subcontractor, requiring it to be listed as an additional insured.
Read the full story…
Reprinted courtesy of Douglas Reiser of Reiser Legal LLC. Mr. Reiser can be contacted at info@reiserlegal.com
When Does a Claim Against an Insurance Carrier for Failing to Defend Accrue?
November 7, 2012 — David McLain, Colorado Construction Litigation
The following is an update on our December 20, 2010 article regarding United States Fire Insurance Company v. Pinkard Construction Company, Civil Action No. 09-CV-01854-MSK-MJW, and its underlying dispute, Legacy Apartments v. Pinkard Construction Company, Case No. 2003 CV 703, Boulder County Dist. Ct. That article can be found here.
The present action, St. Paul Fire and Marine Insurance Co., et al. v. The North River Insurance Co., et al., Civil Action No. 10-CV-02936-MSK-CBS, encompasses the coverage battle that ensued between Pinkard’s insurers, Travelers Indemnity Company of America (“Travelers”) and United States Fire Insurance Company (“USFI”), following the settlement of Legacy’s construction defect claims against Pinkard. A short history of the underlying facts is as follows:
In 1995, Pinkard constructed the Legacy Apartments housing complex in Longmont, Colorado. Following construction, Legacy notified Pinkard of water leaks associated with various elements of construction. Legacy ultimately filed suit against Pinkard in 2003, and would go on to clarify and amend its defect claims in 2004, 2006, and again in 2008. Following Pinkard’s notification of Legacy’s claims, USFI provided a defense to Pinkard, but Travelers refused to do so, on the purported basis that Legacy’s allegations did not implicate property damage under the terms of Travelers’ policy.
Read the full story…
Reprinted courtesy of David M. McLain, Higgins, Hopkins, McLain & Roswell, LLC. Mr. McLain can be contacted at mclain@hhmrlaw.com
Defective Drains Covered Despite Water Intrusion Exclusion
July 10, 2012 — CDJ Staff
The US District Court in Washington State has granted a summary judgment in Hiller v. Allstate Prop. & Cas. Ins. Co. The Hillers bought a new home in Wenatchee, Washington and insured it with an “all risk” policy from Allstate. Subsequently, Mr. Hiller discovered that the carpet in the basement was saturated with water. Hiller notified Allstate who requested that he determine the source of the water intrusion. Hiller poured water into a downspout drain and found this caused water to leak into the home’s basement.
Further investigation with the homes original excavation contractor revealed that “the end of the drain pipe was partially blocked by rocks and had been wrapped with fabric landscaping material.” Additionally, “a ‘T’ pipe installed at the foot of the drain was directing water toward the house’s concrete foundation.” Allstate denied the claim “under the policy’s surface water, subsurface water, inherent vice, and latent defect exlusions.” After the denial, Hiller “discovered that the foundation had not been treated with waterproof sealant and that several concrete form pins were still in place.”
The court noted that “there is no genuine dispute about the cause of the claimed loss.” This left the court concluding that “the only relevant question for the purposes of the instant cross-motions for summary judgment is whether a loss caused by defective construction is covered under the Hillers’ ‘all risk’ insurance policy.” Under Washington’s “efficient proximate cause” rule, “where an insured risk itself sets into operation a chain of causation in which the last step may have en an excepted risk, the excepted risk will not defeat recovery.” The court found that a loss caused by defective construction is in fact covered under the policy, noting that “the policy does not contain an exclusion for defective construction.”
The court concluded that the defective drain was not an inherent vice, as it “cannot properly be characterized as defects ‘inherent [in the] nature of the commodity which will cause it to deteriorate with a lapse of time.” Nor was it a latent defect, “one that could not have been discovered by inspection.” The court concluded that “both of the construction defects at issue could have been discovered by a reasonable inspection.”
With these facts determined, the court found for the Hillers.
Read the court»s decision…
Nevada Court Adopts Efficient Proximate Cause Doctrine
February 10, 2012 — Tred Eyerly, Insurance Law Hawaii
Although the Nevada Supreme Court adopted the efficient proximate cause doctrine, it determined it did not apply to salvage coverage under an all-risk policy for a rain-damaged building. Fourth Street Place, LLC v. The Travelers Indemn. Co., 2011 Nev LEXIS 114 (Nev. Dec. 29, 2011).
Fourth Street owned an office building which was insured by an all-risk policy issued by Travelers. Fourth Street hired Above It All Roofing to repair the roof of the office building. Above It All removed the waterproof membrane on the roof and prepared to replace the membrane the following week. Over the weekend, however, substantial rain hit. On Sunday, Above It All returned to cover the exposed portions of the roof with tarps, but wind later blew the tarps away. The building suffered significant interior damage as it continued to be exposed to the rain.
Read the full story…
Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
Irene May Benefit Construction Industry
September 1, 2011 — CDJ Staff
Noting that while it wasn’t the $15 billion disaster some predicted, Hurricane Irene still caused quite a bit of damage on its path up the Eastern Seaboard. Martha White, reporting for MSNBC cites Kinetc Analysis Corp. with an estimate of $7 billion in damage. Carl Van Horn, a professor of public policy at Rutgers University expected an initial decline in construction jobs, due to projects delayed due to the storm’s arrival, but he said, “a few weeks later, employment picks up as people rebuild.”
Kinetic says that one unknown is how much of the damage is insured. They expect only $3 billion of damage will be covered by insurance. This would likely put a drag on consumer spending, as homeowners would have to dig into their own pockets to pay for repairs, according to Karl Smith, associate professor of economics and government at the University of North Carolina at Chapel Hill.
Read the full story…
Hilton Grand Vacations Defect Trial Delayed
October 23, 2012 — CDJ Staff
A settlement agreement between Conti Electric and Westgate Resorts has lead to a delay in starting the trial over construction defect claims and billing disputes over Hilton Grand Vacations a time share tower in Las Vegas. According to the Las Vegas Review-Journal, the dispute includes claims of $23.3 million owed to the general contractor against which the developer has placed $30 million in construction defect claims.
Read the full story…
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.
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.
Read the full story…
Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
Construction Defects: 2010 in Review
July 10, 2012 — CDJ Staff
Candace Matson, Harold Hammersmith, and Helen Lauderdale, all of Sheppard Mullin, recently looked at design and construction defect litigation in 2010. They look at three California construction law cases. In one prominent case, the developer’s claims were barred under California law. However, the court did allow a claim for breach of the duty to defend.
In a second case, the California Supreme Court ruled that a duty to defend is separate from a duty to indemnify. A developer sought to include its engineering subcontractor in a suit. The subcontractor unsuccessfully argued that it had no duty to defend as the homeowners had not sued it.
The third case involved a lawyer who had represented a homeowner accused a libel against a construction firm and then later represented one of the subcontractors the firm had employed. The California Court of appeals concluded that there was no conflict of interest and so the contractor could not disqualify the subcontractor’s lawyer.
Read the full story…
South Carolina Legislature Defines "Occurrence" To Include Property Damage Arising From Faulty Workmanship
May 26, 2011 — Tred R. Eyerly, Insurance Law Hawaii
On May 17, 2011, South Carolina passed legislation to combat the restrictive interpretation of what constitutes an "occurrence" under CGL policies. S.C. Code Ann. sec. 38-61-70.
The legislation reversed a decision by the state's Supreme Court issued earlier this year. See Crossman Communities of North Carolina, Inc. v. Harleysville Mut. Ins. Co., 2011 W.L. 93716 (S.C. Jan. 7, 2011). Crossman had overruled an earlier decision by the South Carolina Supreme Court that holding that defective construction was an “occurrence.” Crossman, however, reversed course, holding that damages resulting from faulty workmanship were the “natural and probable cause” of the faulty work and, as such, did not qualify as an “occurrence.”
Read the full story…
Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
Ohio Adopts Energy-Efficient Building Code
June 19, 2012 — CDJ Staff
In a compromise between environmental groups, who were looking for stricter standards, and homebuilders, who were trying to contain building costs, the state of Ohio has adopted buildings codes that will increase the energy efficiency of new homes. The estimated costs are about $1,100 with estimated annual savings of $230. According to Corey Roblee of the International Code Council, “It’s something needed in the state of Ohio.”
The Ohio Home Builders Association opposed a proposal to adopt the guidelines of the International Code Council. Builders will be able to either follow the ICC guidelines or they can use the Ohio guidelines to meet the same energy efficiency. Vincent Squillace, the executive vice president of the OHBA, said, “We came up with an equivalent code that’s more strict but is about $2,000 cheaper per home to implement than the original code.”
The new code will require that at least 75% of lighting must be high efficiency, increases the degree of insulation, and specifies more efficient windows, among other changes.
Read the full story…
Subcontractor Not Liable for Defending Contractor in Construction Defect Case
February 10, 2012 — CDJ Staff
The California Court of Appeals has ruled on January 9, 2012 in Hensel Phelps Construction Company v. Urata & Sons Cement, upholding the judgment of the lower court.
Hensel Phelps was the general contractor for a high-rise in Sacramento. They were sued by the owners of the building after problems were discovered in the concrete slabs of the building’s parking garage. Instead of welded steel wire mesh, the slabs had been constructed with fiber mesh. Hensel Phelps filed a cross-complaint against Urata Cement, the subcontractor that had performed the cement work. Urata refused to defend Hensel Phelps. The owners’ case was subsequently dismissed due to the statute of limitations.
Although the original case was over, Hensel Phelps continued in their claims against Urata. “Urata argued that a handwritten interlineation required Hensel Phelps to prove Urata was at fault for the injury alleged in the building owners’ complaint before Urata was obliged to defend Hensel Phelps in that action.”
The lower court concluded that Urata would have been obligated to defend Hensel Phelps if the owners’ lawsuit had alleged that the damage was due to the subcontractor’s work or if evidence at trial established this. The lower court found neither of these true. Instead, the use of the fiber mesh was a design issue and “that decision was outside the scope of the subcontractor’s work.”
During the trial, Hensel Phelps conceded that Urata was not at fault. The appeals court could find no reading of the contract that would cause Urata to be obligated to defend Hensel Phelps, calling Hensel Phelps’s reading of the contact as “grammatically infeasible.”
Judges Nicholson, Raye, and Butz upheld the decision of the lower court and awarded costs on appeal to Urata.
Read the court’s decision…
Former New York Governor to Head Construction Monitoring Firm
September 13, 2012 — CDJ Staff
David Paterson, who succeeded Eliot Spitzer as Governor of New York, has started a new venture after leaving the Governor’s office in construction integrity monitoring. WNYC reports that Paterson will be the majority owner of Icon Compliance Services, LLC, which will both conduct investigations and work with law enforcement officials. Paterson says that in government projects “often concessions are made for political reasons in the public sector and then you never really get a product that you paid for.”
Paterson will be working with a former vice president of Bovis Construction, Brian Aryai, who is also a former U.S. Treasury Agent. Aryai said that “it is astounding that some of the fraud that has come to the surface in the recent past,” and describes it as “almost laughable they were not detected.” Aryai tipped federal prosecutors that Bovis had been over billing on projects for at least a decade.
Read the full story…
Pipes May Be Defective, But Owners Lack Standing
September 13, 2012 — CDJ Staff
The United States District Court in Minnesota has determined that Steven and Cecilia Thundander cannot make a class-action claim against Uponor, Inc. over the plumbing in their home, as they do not have Article III standing. In this situation, the alleged defect is that Uponor made fraudulent claims that the pipes met National Sanitation Foundation (NSF) standards for use in potable water systems. Uponor submitted samples of other pipes, and their substitution was discovered when the NSF made an inspection of the manufacturing facility. The court noted that “the Thunanders contend that Uponor failed to inform homeowners, plumbers and consumers that it had been selling pipe that failed to meet NSF toxicity requirements at the time of sale and installation.”
The Court noted that the Thunanders have not tested their piping to determine if they “demonstrate toxicity or lack of compliance with the NSF 61 standards,” noting also that the Complaint seeks to require Uponor to instruct the plaintiffs on “how to test the piping and water to determine the level of risk.” Lacking testing, the Court could not find that the Thundanders have defective pipes. The Court found that the “Plaintiffs have failed to adequately plead an injury in fact sufficient to confer standing as to their product liability claims.”
The Court also concluded that it could not determine if the Plaintiff’s warranty actions could not be applied, as they “have failed to allege a plausible defect.” Even in the presence of a defect, the Court noted that more than eight years had passed before the filing of the suit, when the warranties under both Indiana and Minnesota law have a four-year statute of limitations. The Court also rejected the Thunanders tort claims, once again because “Plaintiffs have not tested their pipes,” noting that “a tort requires the existence of an injury.”
In conclusion, Judge Nelson rejected the entirety of the complaint, granting the motions to dismiss by the defendants. However, despite the problems with the Thunanders’ claims, she found that they were not “patently frivolous or groundless.” Therefore, she denied attorney fees requested by one of the defendants.
Read the court’s decision…
Delays in Filing Lead to Dismissal in Moisture Intrusion Lawsuit
September 9, 2011 — CDJ Staff
The Alabama Court of Civil Appeals has upheld a summary judgment in the case of Franklin v. Mitchell. Walter Mitchell, doing business as Southern Classic Construction built a new home for the Franklins. The Franklins moved into the home in October 2001. In April 2006 they discovered sagging floors in both the bathroom and kitchen. They contacted Mitchell who suggested the flooring might be defective. The Franklins spent eight months attempting to contact the flooring manufacturer.
In March 2007, the Franklins had the home inspected. The sagging was determined to be due to a loss of strength in the decking because of condensation from the air conditioning system. Air returns were not properly sealed and drawing moisture into the structure. There was mold on the decking and floor joints.
When Mitchell was contacted by the Franklins, he told them his one-year warranty had expired but had the HVAC subcontractor, Southern Mechanical Heating & Air (owned by Mitchell’s father, Jim Mitchell), look at the situation. SMHA replaced and braced subfloors. Later, they entered the crawl space to tape ducts, seal the air return, and insulate the air vent housing. The Franklins were not satisfied with the repairs, as not all the ducts were taped, nor were the air vent housings insulated.
Franklin complained to Walter Mitchell who again cited his one-year warranty. Jim Mitchell said he would not report complaints to his insurer, stating that the repairs were unnecessary, that the work had been done correctly in the first place, and it was only done at the request of Walter Mitchell.
In February 2009, the Franklins sued Walker Mitchell. Mitchell denied the claims, citing in part the statute of limitations. Mitchell also filed complaints against three subcontractors, including his father’s firm. Mitchell received a summary judgment as the case started after Alabama’s six-year statute of limitations.
The appeals court rejected the Franklin’s argument that the claim of damage did not start until they were aware it was due to a construction defect. The court noted that as Walter Mitchell was licensed as a “residential home builder, the statute the Franklins cite did not apply, as it concerns architects, engineers, and licensed general contactors.”
Nor did they feel that Mitchells’ claim that his warranty had expired were sufficient to override the statute of limitations, quoting an earlier case, “Vague assurances do not amount to an affirmative inducement to delay filing suit.” Their claim of subsequent negligent repairs was rejected because Mitchell did not direct the specific actions taken by his father’s firm.
Read the court’s decision…
New Washington Law Nixes Unfair Indemnification in Construction Contracts
April 25, 2012 — Douglas Reiser, Builders Cousel
Contractual fairness ? it is part of my mantra. If you read the blog, you probably know that I preach brevity, balance and clarity in contracting. The State of Washington did well to finally eliminate something that has angered me for quite some time ? unfair indemnification.
One of my favorite construction contract revisions is mutual indemnification. Many “up the chain” contractors and owners are going to stick you with a unilateral indemnification clause that protects them for just about everything, including their own fumbling of a project. Adding mutual indemnification provides some balance, and keeps parties reliant upon each other for success on the job site.
Read the full story…
Reprinted courtesy of Douglas Reiser of Reiser Legal LLC. Mr. Reiser can be contacted at info@reiserlegal.com
General Contractor/Developer May Not Rely on the Homeowner Protection Act to Avoid a Waiver of Consequential Damages in an AIA Contract
August 4, 2011 — Higgins, Hopkins, McLain & Roswell, LLC
Recently, in Caribou Ridge Homes, LLC v. Zero Energy, LLC, et al., Case No. 10CV1094, Boulder County District Court Judge Ingrid S. Bakke entered a ruling and order on the Plaintiff’s Motion for Determination of Question of Law Pursuant to C.R.C.P. 56(h) on Issue of Damages. The Order found that the Plaintiff was not a homeowner intended to be protected by the Homeowner Protection Act (the “HPA”) and thus could not pursue its claims for consequential damages against Defendant.
By way of background, on June 18, 2008, Plaintiff Caribou Ridge Homes, LLC (“Caribou”) entered into a Standard Form Agreement Between Owner and Contractor AIA Document A114-2001 (the “Contract”) with Defendant Zero Energy, LLC (“Zero Energy”). Plaintiff hired Zero Energy to serve as a general contractor for the construction of a single-family home in the Caribou Ridge subdivision in Nederland, Colorado. A provision in the contract contained a mutual waiver of consequential damages (“Waiver”).
Read the full story…
Reprinted courtesy Higgins, Hopkins, McLain & Roswell, LLC
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.
Read the full story…
Reprinted courtesy of Brady Iandiorio of Higgins, Hopkins, McClain & Roswell, LLC. Mr. Iandiorio can be contacted at iandiorio@hhmrlaw.com.
