Although Property Damage Arises From An Occurrence, Coverage Barred By Business Risk Exclusions
July 8, 2011 — Tred R. Eyerly, Insurance Law Hawaii
The homeowners hired the insured to raise the structure of their home twenty-four inches above the flood zone. Lafayette Ins. Co. v. Peerboom, 2011 U.S. Dist. LEXIS 58985 (S.D. Miss. June 2, 2011). When the insured’s crew returned from lunch one day, they found the house had fallen from hydraulic jacks being used to raise the structure a few inches at a time. There was substantial damage to the entire structure.
The homeowners sued, asserting several claims, including negligence and breach of contract. The complaint alleged the homeowners entered a contract with the insured to raise their structure while maintaining its integrity. However, the insured failed to use proper equipment, which caused the house to fall and be completely destroyed.
The insured tendered the claim to its insurer, Lafayette Insurance Company. Lafayette defended under a reservation of rights and filed suit for a declaratory judgment. Lafayette’s subsequent motion for summary judgment contended there was no “occurrence” alleged in the underlying complaint and, even if there was, the business risk exclusions barred coverage.
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Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
Cogently Written Opinion Finds Coverage for Loss Caused By Defective Concrete
November 7, 2012 — Tred Eyerly, Insurance Law Hawaii
If ever in need of a concise, well-reasoned opinion on “occurrence,” “property damage” and applicability of the business risk exclusions, turn to Pamperin Rentals II, LLC v. R.G. Hendricks & Sons Construction, Inc., 2012 Wis Ct. App. LEXIS 698 (Wis. Ct. App. Sept. 5, 2012).
A contractor was hired to install concrete during construction of seven gas stations. Red-D-Mix provided the concrete. The contractor and Red-D-Mix were eventually sued by the gas stations, based upon allegations that the concrete was defectively manufactured and installed. The gas stations alleged that Red-D-Mix supplied concrete that was defective and resulted in damages, including the need to repair nearby asphalt.
Red-D-Mix tendered to its insurers, who denied coverage. Suit was filed and the insurers moved for summary judgment. The trial court determined there were no allegations of either “property damage” or an “occurrence.” Therefore, there was no duty to defend or indemnify Red-D-Mix.
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Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
Joinder vs. Misjoinder in Colorado Construction Claims: Roche Constructors v. One Beacon
July 10, 2012 — David McLain, Higgins, Hopkins, McLain & Roswell, LLC
Often, those practicing in the construction defect field have faced questions concerning the joinder of a party. Recently, the U.S. District Court for the District of Colorado weighed in on the requirements for joinder under the Colorado Rules of Civil Procedure. See Roche Constructors, Inc. v. One Beacon America Ins. Co., 2012 WL 1060000 (D. Colo. 2012). Roche secured a construction contract to build a detention facility for the Lincoln County Sheriff’s Office in Lincoln County, Nebraska. In turn, Roche entered into a subcontract with Dobberstein Roofing Company, Inc. in October 2009 to install the roofing system and other related work at the detention facility. The subcontract agreement required Dobberstein to maintain adequate commercial general liability insurance and to add Roche as an additional insured under the policy. Roche maintained a builder’s risk policy issued by OneBeacon America Insurance Company and Dobberstein secured a certificate of liability insurance underwritten by Transportation Insurance Company (“TIC”). Id. at *1.
Roche alleged that Dobberstein constructed the roofing system in a negligent manner in violation of the subcontract. Roche claims it incurred additional costs to repair structural damage to the roofing system as a result of Dobberstein’s negligent work. In order to cover said damage, Roche tendered insurance claims to OneBeacon and TIC.
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Reprinted courtesy of David McLain, Higgins, Hopkins, McLain & Roswell, LLC. Mr. McLain can be contacted at mclain@hhmrlaw.com
Fifth Circuit Reverses Insurers’ Summary Judgment Award Based on "Your Work" Exclusion
November 18, 2011 — Tred Eyerley, Insurance Law Hawaii
Application of the facts to the "your work" exclusion was the key to resolving coverage issued in Am. Home Assurance Co. v. Cat Tech L.L.C., 2011 U.S. App. LEXIS 21076 (5th Cir. Oct. 5, 2011).
Ergon Refining, Inc. hired Cat Tech L.L.C. to service a hydrotreating reactor. In January 2005, Cat Tech replaced certain parts in the reactor. After Cat Tech finished the job and left, Ergon noticed a high pressure drop in the reactor, forcing it to be shut down. Cat Tech returned in February 2005, removed, repaired and replaced the damaged parts, and loaded new parts. After completion, a second large pressure drop occurred during the reactor’s start-up process. The reactor was shut down until October 2005, when Ergon hired a different contractor to perform the repair work. Additional damage to the reactor was found.
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Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
Tennessee Court: Window Openings Too Small, Judgment Too Large
November 18, 2011 — CDJ Staff
The Tennessee Court of Appeals has issued a ruling in the case of Dayton v. Ackerman, upholding the decision of the lower court, even as they found that the award was incorrectly computed. The Daytons purchased a house that had been designed and built by the Ackermans, who operated a construction business. The court noted that the warranty with the house promised that “for a period of 60 days, the following items will be free of defects in materials or workmanship: doors (including hardware); windows; electric switches; receptacles; and fixtures; caulking around exterior openings; pluming fixtures; and cabinet work.”
Soon, the Daytons began to experience problems with the house. Many were addressed by the Ackermans, but the Daytons continued to have problems with the windows. Neither side could specify a firm date when the Ackermans were contacted by the Daytons about the window problems. The Ackermans maintained that more than two years passed before the Daytons complained about the windows. The lower court found the Daytons more credible in this.
Initially, the Daytons included the window manufacturer in their suit, but after preliminary investigations, the Daytons dropped Martin Doors from their suit. Martin Doors concluded that the windows were improperly installed, many of them “jammed into openings that were too small for them.”
After the Daytons dismissed Martin Doors, the Ackermans sought to file a third party complaint against them. This was denied by the court, as too much time had elapsed. The Ackermans also noted that not all of the window installations were defective, however, the courts found that the Daytons ought not to have mismatched windows.
Unfortunately for the Daytons, the window repair was done incorrectly and the windows were now too small for the openings. The firm that did the repair discounted the windows and Daytons concealed the problem with plantation shutters, totalling $400 less than the original lowest estimate. However, the appeals court noted that it was here that the trial court made their computation error. Correcting this, the appeals court assessed the Ackermans $12,016.20 instead of $13,016.20.
Finally, the Ackerman’s expert was excluded as he had changed his testimony between deposition and trial. The trial reviewed the expert’s testimony and had it been admissible, it would not have changed the ruling.
Read the court’s decision…
State Farm Too Quick To Deny Coverage, Court Rules
July 22, 2011 — CDJ Staff
On July 13, 2011, Judge Sarah S. Vance of the US District Court issued a rule in the case of Travelers Cas. & Surety Co. of Am. v. Univ. Facilities, Inc. (E.D. La., 2011). In this case, Stanley Smith Drywall was contracted by Capstone Building Corporation to “perform undisclosed work at the facility believed to involve the installation of drywall.” The project involved the design and construction of student residences for the Southeastern Louisiana University in Hammond, Louisiana. In May, 2009, University Facilities, Inc. (UFI) sued Capstone Development Corporation and Capstone On-Campus Management.
State Farm insured Stanley Smith Drywall and they sought a declaration that they have no duty: “(1) to insure Stanley Smith or CBC, or (2) to defend or indemnify any party against UFI's claims in the pending arbitration.” State Farm contends “(1) there is no "occurrence" to trigger coverage under the policy; (2) only breach of contract claims are asserted; (3) there is no property damage alleged; and (4) various coverage limitations and exclusions apply to prevent coverage.’
The court concluded that “whether State Farm has a duty to defend in the arbitration must be determined by considering the claims asserted in the arbitration.” However, the arbitration claims were not made part of the record. There, “, the Court cannot determine as a matter of law State Farm's duty to defend on the present record.” The same was true of State Farm’s duty to indemnify. “Stanley Smith and CBC assert that State Farm's motion for summary judgment was filed before any discovery was conducted in the arbitration proceeding or in this case. The Court finds that State Farm has failed to develop the record sufficiently to establish that there is no genuine issue of material fact as to its duty to indemnify Stanley Smith or CBC in the arbitration.’
The court denied State Farm’s motion for a summary judgment on its duty to defend and indemnify.
Read the court’s decision…
Senate Committee Approves Military Construction Funds
June 29, 2011 — CDJ Staff
With a decrease in funding, as compared to the House bill, the Military Construction and Veteran’s Affairs subcommittee of the Senate moved on a $72 billion construction bill. The House version had approved an additional half billion dollars in funding. Senator Tim Johnson, Democrat of South Carolina, said that he expected easy reconciliation with the House version. The Senate bill will move to the full Senate Appropriations Committee on June 30.
The bill, S 1255, includes funding for construction and remodeling of military housing, as well as construction and remodeling of base facilities.
Read the full story… Read S1255
New Web Site Tracks Settled Construction Defect Claims
June 19, 2012 — CDJ Staff
Peter Lissner, a former Nevada homebuilder, has created a new site to help track homes that have been involved in construction defect litigation. His site, housefaxreview.com, collections documentation about homes where claims of construction defects have been made. He told The Builders Magazine concerns about “the number of homes that have been served notices, received compensation, yet the homes weren’t repaired.” On the site, the creator is identified as “a family owned builder.” According to the site, “the builder had no claims until the neighborhood reached the statutory claims limit 10 years.”
Lissner also claims that in many cases, after settling construction defect lawsuits, the homeowners sell to subsequent buyers without disclosing the lawsuit or their failure to repair. “Who is going to let the new homeowner know about the issue?” he asks.
Documents on the site are priced according to their relevance. Lissner notes that those who provide documents to the site will receive free access.
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Landmark San Diego Hotel Settles Defects Suit for $6.4 Million
March 4, 2011 — April 4, 2011 Beverley BevenFlorez - Construction Defect Journal
After five years of legal battles, the condo owners of the El Cortez Hotel building in downtown San Diego settled for $6.4 million, as reported by The San Diego Union-Tribune on March 28, 2011. The Homeowners Association will net just over $3 million from the settlement.
The litigation may have had an adverse effect on the value of the condos within the El Cortez Hotel building. According to an article by Kelly Bennett of Voice of San Diego, “Many condos in the building originally sold for more than $600,000. Currently, the three units on the market are asking for just more than $200,000, the U-T said.”
Andrew Berman, the owners’ attorney, told The San Diego Union-Tribune that the five years of litigation included six lawsuits, 200 depositions, and multiple construction tests.
Read the full story... (San Diego Union Tribune)
Read the full story... (Voice of San Diego)
Background Owner of Property Cannot Be Compelled to Arbitrate Construction Defects
November 7, 2012 — CDJ Staff
In Truppi v. Pasco Engineering, John Quattro sued Property Management Contractors, Inc. over construction defects in William Truppi’s home. All parties are named in the suit. The California Court of Appeals ruled that Property Management Contractors, Inc. (PMCI) could not compel Mr. Quattro to arbitration.
The background of the case involves two houses built in Encinitas, California by PCMI: one for Mr. Truppi at 560 Neptune, and one for Mr. Quattro at 566 Neptune. Both contracts contained an arbitration provision. Mr. Quattro signed the contract for his residence and Mr. Truppi signed the other. Mr. Quattro then sued PCMI and its principal, William Gregory. Mr. Quattro claimed to be the true contracting party for the 560 Neptune residence and a third party beneficiary of the contract Mr. Truppi signed, and stated that PCMI was aware of this.
PCMI in a demurrer stated that Quattro “had only a ‘prospective beneficial interest in the property upon its eventual sale or lease.’” Mr. Quattro amended his complaint to account for the issues raised by PCMI. The court rejected PCMI’s demurrer to the amended complaint.
Finally, PCMI and Gregory asserted that Quattro was “not the real party in interest” and could not sue. PCMI continues to assert that Quattro lacks standing, but their attorney sent Quattro an e-mail stating, “While my client disputes that you are a party, and that you lack standing to assert the claim, to the extent you do so I believe you are obligated to proceed by way of arbitration.”
The court did not cover the issue of Quattro’s standing in the case, only if he could be compelled to arbitration. The court affirmed the lower court’s finding that Quattro could not be compelled to arbitrate the construction defect claim as neither he nor Gregory signed the contract in an individual capacity. Further, the court noted that PCMI and Gregory “denied the existence of an agreement between themselves and Quattro on the 560 contract,” and cannot compel arbitration on a non-existent agreement. And while non-signatories can, in some situations be compelled to arbitrate, the court found that “these cases are inapplicable because here they seek to have the alleged third party beneficiary (Quattro) compelled by a nonsignatory (Gregory).” The arbitration clause in question “expressly limited its application to persons or entities that signed the 560 contract.”
As Mr. Quattro was not a signatory to that agreement, the court found that he could not be held to its arbitration provision.
Read the court’s decision…
Limitations of Liability in Subcontractors’ Contracts May Not Be Enforceable in Colorado to Limit Claims by Construction Professionals.
October 23, 2012 — Heidi J. Gassman, Higgins, Hopkins, McLain & Roswell
The Colorado Homeowner Protection Act of 2007 (“HPA”), codified at C.R.S. § 13-20-806(7), specifically voids express waivers of, or limitations on, a residential property owner’s ability to enforce any rights, remedies, and damages provided by law in a construction defect case. Practically speaking, this means that limitation of liability provisions in contracts between construction professionals and residential homeowners are void and will not be enforced in Colorado. The HPA can extend even further, however, to subcontractors on residential projects, as seen in a recent District Court ruling.
The HPA was tested in Thacker v. Gallery Homes, et al., v. Terracon Consultants, Inc., et al., Larimer County District Court Case No. 2007CV1195. Gallery Homes hired Terracon to provide geotechnical and structural engineering services at the Colony Ridge subdivision in Loveland, Colorado. Terracon performed work for Gallery Homes under three separate contracts, each of which included a provision limiting Terracon’s total liability to Gallery Homes.
After the project was completed, two homeowners filed suit against Gallery Homes for alleged construction defects involving movement of their basement floor systems and foundations and damage to porches, patios, garages, and driveways. Gallery Homes sued Terracon as a third-party defendant, and Terracon sought to enforce its limitation of liability provisions via a partial summary judgment motion.
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Reprinted courtesy of Heidi J. Gassman, Higgins, Hopkins, McLain & Roswell, LLC. Ms. Gassman can be contacted at gassman@hhmrlaw.com
Cleveland Condo Board Says Construction Defects Caused Leaks
March 1, 2012 — CDJ Staff
A Cleveland condo association has sued the developer of their building, claiming that construction defects resulted in water intrusion. The K&D Group, which still owns forty units in the 160-unit building, claim that it’s a maintenance issue that they’d like to see fixed, but it’s their responsibility as the developer. Doug Price, CEO of K&D calls it a “frivolous lawsuit.” He blames a “hostile board” and told The Plain Dealer “there’s simple maintenance that they refuse to do.”
An outside company evaluated Stonebridge Towers. According to the condo board’s lawyer, Laura Hauser, the building design and construction are to blame for the water intrusion. Hauser said that the board’s “goal through this litigation is to find a resolution for the association, the building and the owners.”
David Kaman, a Cleveland attorney not involved in the lawsuit, told the Plain Dealer that construction litigation in the Cleveland area had fallen off from 2007, but he sees it on the rise, which he attributes to cost-cutting on recently finished projects. “If an owner moves in and two years later the wallpaper needs to be replaced because the wall is leaking, that’s a construction defect.”
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Ambitious Building Plans in Boston
November 18, 2011 — CDJ Staff
Although most are unlikely to change the Boston skyline, there are several large projects on the drawing boards. The site BostInnovation covered ten of them in a recent post. Downtown Boston will be the site of several of these large projects, including three towers to be added to the Christian Science Plaza, a 404-unit residential tower in the Theater District, and perhaps the largest of these projects, a 47-story tower to be built over Copley Plaza, which will tower over the adjacent buildings. None of the planned buildings will challenge the Hancock Tower’s 60 stories.
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Wine without Cheese? (Why a construction contract needs an order of precedence clause)(Law Note)
August 11, 2011 — Melissa Brumback
For today’s law note, I’m addressing a comment that came to me last week from Dave O’Hern of Miller O’Hern Construction. Dave writes:
I am a general contractor doing a fuel tank replacement project for our county. In the specifications there is a spec for a UL 142 tank, on the plans the spec references UL 2085 ? a much more expensive tank. My subcontractor bid the UL 142 tank. The specifications state that the specs and plans are on the same level of precedence.
The county wants me to furnish the more expensive tank without compensation citing the clause that states the plans and specs are complementary and what is called for by one is binding as if called by all and the most stringent requirement will apply.
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Reprinted courtesy of Melissa Brumback of Ragsdale Liggett PLLC. Ms. Brumback can be contacted at mbrumback@rl-law.com.
Exclusion Bars Coverage for Mold, Fungus
October 23, 2012 — Tred Eyerly, Insurance Law Hawaii
The court considered whether rain damage to a house was barred by the policy's mold exclusion. Stewart v. State Farm Fire & Cas. Co., 2012 U.S. Dist LEXIS 127804 (D. S.D. Sept. 7, 2012).
The insureds hired DJ Construction to build a new home. Before construction was completed, it was discovered that DJ Construction and some of its subcontractors had failed to protect the partially constructed house from the elements, which allowed melting snow and rain to intrude into the house. Soon after this discovery, DJ Construction abandoned the project. The house remained incomplete and uninhabitable.
The insureds sued DJ Construction.
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Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
Federal District Court Predicts Florida Will Adopt Injury In Fact Trigger
October 23, 2012 — Tred Eyerly, Insurance Law Hawaii
The U. S. District Court for the Middle District of Florida was confronted with determining whether Florida would follow the manifestation or injury in fact trigger in Axis Surplus Ins. Co. v. Contravest Constr. Co., 2012 U.S. Dist. LEXIS 104502 (D. Fla. June 5, 2012).
The homeowner's association sued the insureds for alleged negligent construction and development of individual dwelling units and common areas of their condominium. Due to this negligence, severe damage was caused by water intrusion. The Association's members only became aware of the defects through the retention of construction experts.
The insured had CGL coverage with Axis, with policies issued from 2003 to 2007. Coverage was denied for the periods 2003-2004 and 2004-2005. Axis provided a defense under the policies issued for 2005-2006 and 2006-2007, but under a reservation of rights. Axis sought a declaration that it had no duty to defend or indemnify because the damage manifested before its policy periods.
For coverage to exist, "property damage" must have "occurred" during Axis' policy period.
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Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
Boston’s Tunnel Project Plagued by Water
August 11, 2011 — CDJ Staff
Boston’s Tip O’Neil Tunnel, part of the “Big Dig” project, is suffering from water leaks which has lead to millions of dollars of damage, according to an article in the Boston Globe. The report quotes Frank DePaola, the highway administrator, as likening the water leaks to “three garden hoses.” The project’s chief engineer notes that those “three garden hoses” add up to 17 million gallons a year.
Further, the chief engineer reports notes that the leaks could compromise both safety and structural integrity. Problems have included a 110-pound light fixture that fell in February, ventilation ducts clogged with ice during the winter, and mold in utility rooms and ventilation buildings.
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BUILD Act Inching Closer To Reality
July 8, 2011 — Douglas Reiser, Builders Counsel
A select group of Senators have launched a marketing campaign for the BUILD Act. If this is the first you are hearing about the BUILD Act, do not fret. The Act still has a long way to go, but if successful it would bring a national infrastructure bank.
I have been fascinated with the concept of a national infrastructure bank for quite some time. The idea has been around since the Clinton years ? and perhaps beyond. The Act’s purpose is to create a national bank (American Infrastructure Financing Authority) to provide loans and loan guarantees to encourage private investment in upgrading America’s infrastructure. For a number of years, we have seen similar legislation float around Congress. But, none of those initiatives have gained as much traction as BUILD.
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Reprinted courtesy of Douglas Reiser of Reiser Legal LLC. Mr. Reiser can be contacted at info@reiserlegal.com
