Court Orders House to be Demolished or Relocated
April 26, 2011 — April 26, 2011 Beverley BevenFlorez - Construction Defect Journal
Decision Affirmed in Central Arkansas Foundation Homes, LLC v. Rebecca Choate
The Arkansas Court of Appeals affirmed the decision by the trial court in Central Arkansas Foundation Homes, LLC v. Rebecca Choate. In the trial case, Central Arkansas Foundation Homes (CAFH) sought payment for a home built for Choate, while Choate alleged that the builders committed multiple construction defects including using the wrong foundation materials and positioning the house in the wrong direction.
After the house was built, CAFH contacted Choate regarding payment, however, Choate alleged that the finished product did not match the contract. “ After CAFH completed construction, it obtained permanent home financing for Choate and tried to contact her to close the transaction. Choate did not respond until October 2005, when she sent CAFH a list of alleged construction defects, including that the house was facing in the wrong direction; that it was not built on a slab; and that the fireplace, garbage disposal, driveway, and storage area were missing. CAFH replied to Choate in writing, telling her that she had until January 6, 2006, to close on the house or CAFH would sell it. The correspondence enclosed worksheets showing that the amount Choate would owe at closing exceeded $94,000, which included interest that had accrued on the as-yet unpaid construction loan.”
Initially, the court found in favor of CAFH. “On April 18, 2007, Choate’s attorney withdrew from representing her. Soon thereafter, CAFH’s attorney asked the court to set a final hearing on the case. The attorney purportedly sent Choate a letter by regular mail on May 15, 2007, advising her that the case was set for trial on July 9, 2007. Choate, however, did not appear. CAFH did appear, and its general manager, John Oldner, testified to events leading up to the case and the amount of damages claimed. According to Oldner, the interest on the construction loan had accrued to the point that CAFH now sought $104,965.88 from Choate. The court found in favor of CAFH and entered judgment for that amount, plus attorney fees, on July 18, 2007. The court ruled that CAFH could sell the house and either remit any excess to Choate or look to Choate for the deficiency if the sales price did not cover the judgment.”
However, Choate successfully argued that she did not receive notice of the trial. A new trial was ordered, and the outcome was quite different. “On June 6, 2008, the circuit court entered judgment for Choate, ruling that the house was not in substantial compliance with the parties’ contract and that the contract should be rescinded. The court found that the house suffered from numerous construction defects, that the contract contemplated a slab rather than a concrete-pier foundation, and that CAFH ignored Choate’s complaints that the house was facing the wrong way. The judgment directed CAFH to hold Choate harmless on the construction loan, to deed Choate’s two acres back to her, and to remove the house from Choate’s property.”
The Court of Appeals “found that Choate would be unjustly enriched by retaining the benefit of the septic systems and utility lines that CAFH installed on her land. The court therefore awarded $5340 to CAFH as a quantum-meruit recovery for the value of that work. CAFH contends that the award is not sufficient, but we see no clear error.” In the end, the Court of Appeals provided this reason for declining to reverse the trial court’s decision: “The court in this case apparently concluded that the house constructed by CAFH was so fundamentally at odds with Choate’s contractual expectations that she was not unjustly enriched and should simply be, as nearly as possible, returned to the status quo ante. Accordingly, the court ordered the house removed from her property and permitted CAFH to either relocate the house or salvage the house’s materials and unused appliances. We decline to reverse the court’s weighing of the equities in this manner.”
Read the court’s decision…
Insurers Reacting to Massachusetts Tornadoes
August 11, 2011 — CDJ Staff
The Patriot-Ledger reports that insurers could pay out as much as $200 million to cover homes damaged or destroyed in the tornadoes that hit central and southern Massachusetts in June, 2011. Joseph Murphy, Commissioner of the State Division of Insurance didn?t foresee problems with insurers covering these claims. “At this point, there doesn’t seem to be any one company overexposed in that area,” he told the Patriot-Ledger.
Insurance executives did not think the tornadoes would cause them to raise rates. Steve Chevalier, CEO of NLC Companies, said, “it’s a major event for those impacted by it, but it’s not close to a financial hit to us.”
One insurer noted that the winter weather generated more claims; however the cumulative value of those claims was $15 million.
Read the full story…
Defect Claims as Occurrences? Check Your State Laws
July 10, 2012 — CDJ Staff
Although four states have defined construction defect claims as occurrences, contractors are still dealing with “coverage gaps for faulty work construction,” says Mike Tsikoudakis in a piece at Business Insurance. He quotes Julian Ehrlich, the senior VP of claims for Aon Risk Services that “one of the interesting and compelling aspects of the issue of coverage for defective construction is that jurisdictions differ, so policyholders don’t know what they’re going to get.” He further notes that “in context of construction defect, the term ‘occurrence’ is ambiguous.”
One problem, as noted by Jeffrey J. Vita, a partner at Saxe Doernberger & Vita, is that construction firms end up needing to simultaneously defend against defect claims and to also file suit to be certain their insurance firms will cover claims. Insurance for construction defect claims is described as “expensive and somewhat limited.” Mr. Vita expects more states to help this situation with new laws, clarifying what is an occurrence.
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Broker Not Liable for Failure to Reveal Insurer's Insolvency After Policy Issued
March 28, 2012 — Tred Eyerly, Insurance Law Hawaii
Faced with an issue of first impression in California, the Court of Appeals held that a broker was not liable for failing to reveal the insurer's insolvency occurring after issuance of the policy. Pacific Rim Mechanical Contractors, Inc. v. Aon Risk Ins. Serv. West, Inc., 2012 Cal. App. LEXIS 232 (Cal. Ct. App. Feb. 28, 2012).
The developer for a construction project in downtown San Diego retained Aon as its broker to secure coverage. Aon procured a general liability policy for the project with Legion Indemnity Company. Legion was solvent when it issued the policy.
The developer hired Pacific Rim (“PacRim”) as one of several subcontractors on the project. The parties entered into a contract in which the developer agreed to provide PacRim with liability insurance through an Owner Controlled Insurance Program (“OCIP”). Aon was not a party to the contract and PacRim was never its client. PacRim, however, enrolled in the OCIP by contacting Aon and providing all necessary paperwork.
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Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
California Bill Would Notify Homeowners on Construction Defect Options
October 23, 2012 — CDJ Staff
The California Building Industry Association supported Assembly Bill 1892, but its goals of informing homeowners of their rights under SB800 have been accomplished through the administrative process. The Department of Consumer Affairs has now posted text on its web site noting that “prior to pursuing legal action or responding to a construction defect solicitation, you must first contact your home builder.” The text goes on to note that “if the homebuilder fails to follow any of the procedures, the homeowner is entitled to proceed with the filing of an action.”
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Home Repair Firms Sued for Fraud
September 30, 2011 — CDJ Staff
The Illinois Attorney General has filed a lawsuit in Cook County Circuit Court alleging that two connected firms took money from homeowners and then failed to perform the contracted work. One of the three defendants, Chris Bidigare, was an owner of agent of both Fairway Construction and Maintenance Services, LLC, and Rock Construction Management, LLC.
In once case, according to the article on the OakPark Patch, one homeowner provided a $111,000 down payment, only to have the company cancel the job and refuse to return the money. One homeowner was told by Fairway that she should contact their insurance provider. The insurance provider told her that Fairway’s insurance had been cancelled due to non-payment.
The suit seeks to bar the three defendants from working in home repair in Illinois.
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Legislatures Shouldn’t Try to Do the Courts’ Job
March 1, 2012 — CDJ Staff
David Thamann, writing in Property Casualty 360, argues that current actions by legislatures on insurance coverage amount to “legislative interference or overreach.” He notes that under current Colorado law, “a court shall presume that the work of a construction professional that results in property damage — including damage to the work itself or other work — is an accident unless the property damage is intended and expected by the insured.” He argues that here legislators are stepping into the role of the courts. “Insureds and insurers are not always going to be pleased with a court ruling, but that is the system we have.”
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Application of Efficient Proximate Cause Doctrine Supports Coverage
January 6, 2012 — Tred Eyerly, Insurance Law Hawaii
Relying on the efficient proximate cause doctrine, the court determined coverage potentially existed for damage caused by water. Union Sav. Bank v. Allstate Indem. Co., 2011 U.S. Dist. LEXIS 134398 (S.D. Ind. Nov. 21, 2011).
The Tods purchased property that was mortgaged by Union Savings. The Tods obtained a Landlords Policy for the property from Allstate. When the Tods were in default on their loan, Union Savings notified them that foreclosure proceedings would commence. Union Savings sent an appraiser to the property who discovered water in the basement. Water and electricity to the building were off. Union Savings notified Allstate and later filed a formal claim under the mortgagee clause in the Landlords Policy. This clause stated, "A covered loss will be payable to the mortgagees named on the policy declaration. . . ."
Allstate denied coverage, citing exclusions for water damage.
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Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
Lawsuit over Construction Defects Not a Federal Case
August 16, 2012 — CDJ Staff
The United State District Court in California has dismissed the claims of a contractor against the United States government, on the grounds that it was not within the subject matter jurisdiction of the court. The origins of the case are in a related construction defect claim. The current plaintiff, Performance Contracting, Inc., did the lath and plaster work for a building for the Department of Veterans Affairs. After the building was completed, the Veterans Affairs complained to the general contractor, Wynema, Inc., of water intrusion problems.
Wyema and Performance conducted testing and the water intrusion was found to be due to “a variety of design defects and omissions, including: 1) omission of proper window flashing; 2) inadequate waterproof membrane around the windows; 3) inadequate T-molding around the windows; 4) lack of a window sill pan for the windows; 5) lack of any backing in the window framing; 6) lack of any backing for the stucco expansion joints and seams; and 7) failure to require that a performance mock-up of the window assembly and adjacent areas be built and water tested.” Wyema filed a construction defect action against Performance and other subcontractors.
In the current case, Performance claims that Veteran Affairs was negligent, that it “breached its duty to Plaintiff when it provided deficient plants and specifications” and “failed to properly oversee construction and inspect Project work.” The court determined that it could not hear this case, noting that “Federal Courts are presumptively without jurisdiction over civil actions.”
Performance raised its claims under the Federal Tort Claims Act. The judge was not persuaded by this claim, noting that the FTCA does not apply to purported breach of the General Contract. The FTCA waives the government’s sovereign immunity in cases of “injury or loss of property, or personal injury or death caused by the negligent or wrongful act or omission of an employee of the Government while acting within the scope of his office or employment, under circumstances where the United States, if a private person, would be liable to the claimant in accordance with the law of the place where the act or omission occurred.”
Performance was unable to pursue its claims in the Court of Federal Claims as there was no contract between Performance and the government. However, the court noted that Performance’s inability to file suit in the Court of Federal Claims does not open up a path to the District Court. “Litigants are not guaranteed a forum in which to sue the United States.” The court further noted that “if this Court were to accept Plaintiff’s logic, non-parties to contracts, but not parties, would be free to pursue contract claims in the fora of their choosing.”
Read the court’s decision…
Death of Construction Defect Lawyer Ruled a Suicide
June 19, 2012 — CDJ Staff
The Clark County Coroner’s Office has concluded that Nancy Quon, the construction defect attorney implicated in the wide-ranging HOA scandal, died by her own hand. The cause of death was a combination of anti-anxiety and insomnia medication mixed with alcohol. Quon survived an earlier incident in which she took GHB and her apartment was set on fire. Quon denied that it was a suicide attempt.
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Construction Employment Rises in Half of the States
December 9, 2011 — CDJ Staff
The Labor Department has noted that half the states and the District of Columbia saw increases in construction employment during the month of October. During the same month, twenty-three states lost construction jobs.
The biggest gains were in North Dakota, Oklahoma, DC, Texas, and California. The biggest losses were in Georgia, New Mexico, Wisconsin, and Florida. There was no change for Alabama.
The chief executive officer of the Association of General Contractors of America, Stephen E. Sandherr, called for more infrastructure development. “Allowing water, transportation and energy networks to deteriorate will hurt construction employment and force taxpayers to spend more later, to fix broken infrastructure.”
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.”
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Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
David McLain to Speak at the CDLA 2012 Annual Conference
June 19, 2012 — CDJ Staff
The Colorado Dense Lawyers Association will be holding their 2012 Annual Conference from July 26 through the 28, in Crested Butte, Colorado. The CDLA provides benefits to its member defense trial lawyers, including educational and information resources.
David McLain of Higgins, Hopkins, McLain & Roswell, LLC will be joining in a discussion with William J. McConnell, PE of Vertex Engineering on Saturday, July 28. Their topic will be common building code violations alleged in construction defect cases and how to respond to these allegations.
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Insurance for Defective Construction Now in Third Edition
November 7, 2012 — CDJ Staff
Available both in print and online, the International Risk Management Institute, Inc has brought out a third edition of Insurance for Defective Construction. The work is written by Patrick J. Wielinski of Cokinos, Bosien & Young, a Dallas-Fort Worth law firm. Mr. Wielinski practice focuses on insurance coverage. Insurance for Defective Construction is described as “a must read for anyone who buys, sell, or underwrites construction insurance or who becomes involved in construction claims.”
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High School Gym Closed by Construction Defects
October 28, 2011 — CDJ Staff
The high school gym in Lake Oswego, Oregon has been shut down because testing has revealed that the construction defects have lead to deterioration of the structural integrity of the roof. The school district noted that there was a chance of collapse if there were a “significant seismic event or heavy rain and winds and snow.” The school district has been in a lawsuit with the builders since 2008, which was recently settled for $600,000.
The school board is still determining whether the original contractor will be asked to correct the defect or if they will bid the job out.
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Construction Defects and Contractor-Owners
July 10, 2012 — CDJ Staff
On the expert advice site Avvo.com, a user asks if he can be sued for construction defects by the new owner of a building for which he served as general contractor and then owned for four years. He had construction insurance, but does not think he had construction defect insurance.
A lawyer responding to his question says that “you could be sued.” In the event of a suit, “you would have to bring claims against all of your subcontractors.”
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The Year 2010 In Review: Design And Construction Defects Litigation
February 25, 2011 — Candace Matson, Harold Hamersmith, and Helen Lauderdale -
Construction & Infrastructure Law Blog - February 25, 2011
This article is the first in a series summarizing construction law developments for 2010
1. Centex Homes v. Financial Pacific Life Insurance Co., 2010 U.S. Dist. LEXIS 1995 (E.D. Cal. 2010)
After settling numerous homeowners’ construction defect claims — and more than ten years after the homes were substantially completed — a home developer brought suit against one of the concrete fabrication subcontractors for the development seeking indemnity for amounts paid to the homeowners, as well as for damages for breach of the subcontractor’s duties to procure specific insurance and to defend the developer against the homeowners’ claims. The subcontractor brought a motion for summary adjudication on the ground the developer’s claims were barred by the ten year statute of repose contained in Code of Civil Procedure Section 337.15.
The District Court agreed the developer’s claim for indemnity was barred by Section 337.15. And it held that because the damages recoverable for breach of the subcontractor’s duty to purchase insurance are identical to the damages recoverable through the developer’s indemnity claim, the breach of duty to procure insurance claim also was time-barred. The District Court, however, allowed the claim for breach of the duty to defend to proceed. The categories of losses associated with such a claim (attorneys’ fees and other defense costs) are distinct from the damages recoverable through claims governed by Section 337.15 (latent deficiency in the design and construction of the homes and injury to property arising out of the latent deficiencies).
2. UDC — Universal Development v. CH2M Hill, 181 Cal. App. 4th 10 (6th Dist. Jan. 2010)
Indemnification clauses in construction agreements often state that one party to the agreement — the “indemnitor” — will defend and indemnify the other party from particular types of claims. Of course, having a contract right to a defense is not the same as actually receiving a defense. Any indemnitor attempting to avoid paying for defense costs can simply deny the tender of defense with the hope that when the underlying claim is resolved the defense obligations will be forgotten. In the past, when parties entitled to a defense — the “indemnitees” — had long memories and pressed to recover defense costs, indemnitors attempted to justify denying the tender by claiming their defense obligations coincided with their indemnity obligations and neither arose until a final determination was made that the underlying claim was one for which indemnity was owed.
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Reprinted courtesy of Candace Matson, Harold Hamersmith, and Helen Lauderdale, Sheppard Mullin Richter & Hampton LLP. Ms. Matson can be contacted at cmatson@sheppardmullin.com, Mr. Hamersmith can be contacted at hhamersmith@sheppardmullin.com, and Ms. Lauderdale can be contacted at hlauderdale@sheppardmullin.com.
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.
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Reprinted courtesy of Douglas Reiser of Reiser Legal LLC. Mr. Reiser can be contacted at info@reiserlegal.com
