South Carolina “occurrence” and allocation
September 1, 2011 — CDCoverage.com
In Crossman Communities of North Carolina, Inc. v. Harleysville Mutual Insurance Co., No. 26909 (S.C. Aug. 22, 2011), insured Crossman was the developer and general contractor of several condominium projects constructed by Crossman’s subcontractors over multiple years. After completion, Crossman was sued by homeowners alleging negligent construction of exterior components resulting in moisture penetration property damage to non-defective components occurring during multiple years. Crossman settled the underlying lawsuit and then filed suit against its CGL insurers to recover the settlement amount. Crossman settled with all of the insurers except for Harleysville. Crossman and Harleysville stipulated that the only coverage issue was whether there was an “occurrence.” The trial court subsequently entered judgment in favor of Crossman, determining that there was an “occurrence.” The trial court also ruled that Harleysville was liable for the entire settlement amount without offset for the amounts paid by the other insurers.
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Reprinted courtesy of CDCoverage.com
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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School Sues over Botched Pool
October 23, 2012 — CDJ Staff
The Daily American reports that the Somerset Area School District has alleged that the contractor who repaired and renovated the district’s swimming pool “botched” the job. Now the school has filed a civil case in the Somerset County Court of Common Pleas. The contractor, Wilson Construction Co. would prefer the matter to be settled in binding arbitration.
The school district alleges that the surface installed by Wilson Construction cracked and bubbled due to improper installation. The manufacturer of the waterproofing system, Dryvit Systems, tested the installation and concluded it was an installation failure instead of a product defect. Dryvit told the district that the exterior walls would have be removed.
The school district paid Wilson Construction $591,081 for their work. In their lawsuit, they are seeking $594,596 to cover the cost of draining the pool and repairing it.
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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.
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Follow Up on Continental Western v. Shay Construction
March 28, 2012 — Brady Iandiorio, Colorado Construction Litigation
Writing in Construction Law Colorado, Brady Iandiorio revisits the case Continental Western v. Shay Construction. He promises to continue to follow cases dealing with Colorado HB 10-1394.
Recently the Court ruled on two Motions to Reconsider filed by Defendants Milender White and Shay Construction.
Procedurally, the Motions to Reconsider were ruled on by the Honorable William J. Martinez, because the day after the motions were filed the action was reassigned to Judge Martinez. In the short analysis of the Motion to Reconsider, the court leaned on Judge Walker D. Miller’s ruling on the summary judgment and his analysis of the (j)(5) and (j)(6) exclusions.
As a quick refresher regarding the grant of summary judgment, Judge Miller agreed with Continental Western’s argument that the asserted claims were excluded under the “damage to property” exclusion. The policy’s exclusions state: “(j) Damage to Property . . . (5) that particular part of real property on which you or any contractors or subcontractors working directly or indirectly on your behalf are performing operations, if the ‘property damage’ arises out of those operations; or (6) that particular part of any property that must be restored, repaired or replaced because ‘your work’ was incorrectly performed on it.” Judge Miller found that both exclusions (j)(5) and (6) applied to both Shay’s allegedly defective work.
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Reprinted courtesy of Brady Iandiorio of Higgins, Hopkins, McClain & Roswell, LLC. Mr. Iandiorio can be contacted at iandiorio@hhmrlaw.com.
Federal District Court Continues to Find Construction Defects do Not Arise From An Occurrence
May 10, 2012 — CDJ Staff
Coverage for construction defects continues to be hotly contested in Hawaii state and federal courts. In a recent decision, Judge Mollway felt bound to follow the Ninth Circuit’s decision in Burlington Ins. Co. v. Oceanic Design & Constr., Inc., 383 F.3d 940, 944 (9th Cir. 2004), where the court found construction defect claims arise from breach of contract, not from an occurrence. Judge Mollway’s most recent decision on the issue is Illinois Nat. Ins. Co. v. Nordic PCL Constr., Inc., 2012 U.S. Dist. LEXIS 58464 (D. Haw. April 26, 2012).
Nordic constructed a grocery store for Safeway. In addition to the grocery store, Nordic built a 165-space rooftop parking deck, retail shops and related improvements. After opening for business in 2007, Safeway experienced significant leaks. Safeway demanded that Nordic repair the parking deck. Nordic sent the demand letter to the insurer, who agreed to appoint counsel subject to a reservation of rights.
Safeway filed suit against Nordic in state court alleging, among other things, breach of contract and negligence. The insurer provided Nordic with a defense, but Nordic hired independent counsel.
The insurer filed for declaratory relief in federal district court.
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Claims Under Colorado Defect Action Reform Act Count as Suits
July 10, 2012 — CDJ Staff
The Colorado Court of Appeals has affirmed the judgment of the lower court in Melssen v. Auto-Owners Insurance. The Melssens built a custom home for the Holleys, during which time the Melssens retained a comprehensive general liability policy from Auto-Owners, which “obligated Auto-Owerns to defend the Melssens with respect to any ‘suit’ seeking damages for ‘property damage’ during the policy period.” Soon after the house was constructed, cracks developed in the drywall, then outside stucco and basement slab. The Holleys contended that “approximately $300,000 of damages to the Holleys’ property was caused by the Melssens’ engineering and construction defects” and filed a claim under the Colorado Defect Action Reform Act (CDARA). The Melssens “demanded Auto-Owners defend and indemnify the Melssens and forwared Auto-Owners the notice of claim.”
Although the Melssens notified Auto-Owners in June 2008, it was not until October 2008 that Auto-Owners denied coverage stating that the claims were sustained outside the policy period. The Melssens filed an action against Auto-Owners. At trial, the jury ruled in favor of the Melssens awarding them damages, to which the trial court added costs and attorney fees.
On appeal, Auto-Owners contended that the trial court erred in allowing the Melssens to argue that the CDARA notice of claim “was the functional equivalent of a complaint commencing a suit.” The appeals court found that “the CDARA notice of claim process constituted an alternative dispute resolution proceeding under the policy.” The court agreed that jury should not have been asked to determine if a CDARA action is a “suit,” but as the jury found for the Melssens, the concluding it “constituted harmless error.” Further, the court found that an action under the CDARA satisfied the definition of a “suit.”
The court found for the Melssens, affirming the lower court’s decision and remanding the case to the lower court for the awarding of appeals costs to the Melssens.
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Construction Defect Bill Introduced in California
June 10, 2011 — CDJ Staff
Linda Halderman (R-Fresno) has introduced a bill which would require lawyers soliciting clients for construction defect cases to provide their prospective clients with a statement including that sellers may be required to disclose that they were engaged in a construction lawsuit. Further, the bill would require lawyers to disclose that they cannot guarantee financial recovery.
Halderman was quoted by The Business Journal as saying, “Lawsuit abuse has been very damaging, especially to homeowners in the Valley.” Halderman hopes that her bill will discourage class action lawsuits against builders and that this will protect jobs in the construction industry.
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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.
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Florida Chinese drywall, pollution exclusion, “your work” exclusion, and “sistership” exclusion.
May 26, 2011 — CDCoverage.com
In Auto-Owners Ins. Co. v. American Building Materials, Inc., No. 8:10-CV-313-T-24-AEP (M.D. Fla. May 17, 2011), insured drywall supplier ABM was sued by general contractor KB Homes seeking damages because property damage to houses built by KB Homes using defective Chinese drywall supplied by ABM. ABM’s CGL insurer Auto-Owners defended ABM under a reservation of rights and filed suit against ABM and KB Homes seeking a judicial declaration of no to duty to defend or indemnify ABM against the KB Homes lawsuit. On cross motions for summary, the federal district trial court directed entry of judgment in favor of ABM and KB Homes and against Auto-Owners, holding that Auto-Owners had a duty to defend and indemnify ABM against the KB Homes lawsuit.
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Reprinted courtesy of CDCoverage.com
Godfather Charged with Insurance Fraud
July 1, 2011 — CDJ Staff
Texas-based Godfather Construction is a recipient of a fraud suit from the Cook County state attorney’s office. The firm incorporated in Illinois in April 2010, moving there to do business after storms damaged homes in the Chicago suburbs, according to a report in the Chicago Tribune. The state attorney alleges that Godfather brought unlicensed out-of-state workers and the work they performed was “incomplete or shoddy.” Godfather is claimed to have received about $60,000 from Illinois homeowners. The prosecutors are seeking restitution for Godfather’s clients and seek to forbid the firm from doing business in Illinois.
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Georgia Law: “An Occurrence Can Arise Where Faulty Workmanship Causes Unforeseen or Unexpected Damage to Other Property”
March 5, 2011 — By
CDCoverage.com, March 5, 2011
In American Empire Surplus Lines Ins. Co. v. Hathaway Development Co., Inc., No. S10G0521 (Ga. March 7, 2011), insured plumbing subcontractor Whisnant was sued by general contractor Hathaway seeking damages for costs incurred by Hathaway in repairing damage to property other than Whisnant’s plumbing work resulting from Whisnant’s negligently performed plumbing work on three separate projects. On one project, Whisnant installed a pipe smaller
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Texas res judicata and co-insurer defense costs contribution
March 23, 2011 — Original story by CDCoverage.com, March 23, 2011
In Truck Ins. Exchange v. Mid-Continent Casualty Co., No. 03-08-00526-CV (Tex. App. 3d Aug. 27, 2010), insured contractor DCI was sued by the project owner seeking damages for defective construction. DCI tendered its defense to its CGL insurers Truck and Mid-Continent. Truck agreed to defend while Mid-Continent denied a defense. While the underlying suit was pending, Mid-Continent sued DCI, but not Truck, and obtained a judicial declaration of no duty to defend or indemnify DCI in the underlying suit. After settling the underlying suit, Truck sued Mid-Continent seeking contribution towards defense costs and indemnity payments. The state trial court entered summary judgment for Mid-Continent. The intermediate appellate court affirmed.
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Reprinted courtesy of CDCoverage.com
Arizona Supreme Court Confirms Eight-Year Limit on Construction Defect Lawsuits
July 18, 2011 — CDJ Staff
Acting on the case of Albano v. Shea Homes Ltd. Partnership, the Arizona Supreme Court has ruled that Arizona’s eight-year statute of repose applies. The case was referred to the court by the Ninth Circuit Court of Appeals which had asked for a clarification of Arizona law. The case focused on three questions:
1. Does the filing of a motion for class certification in an Arizona court toll the statute of limitations for individuals, who are included within the class, to file individual causes of action involving the same defendants and the same subject matter? 2. If so, does this class-action tolling doctrine apply to statutes of repose, and more specifically, to the statute of repose for construction defects set forth in Arizona Revised Statutes ("A.R.S.") § 12-552? 3. If the doctrine applies to statutes of repose, and specifically § 12-552, may a court weigh the equities of the case in determining whether, and to what extent, an action is tolled?
The litigation at hand has a lengthy history, starting with a case referred to as “Hoffman” in 2003. The Albano plaintiffs were not able to join in Hoffman, and they filed their own lawsuit in 2006. An additional lawsuit was filed by the Albano plaintiffs in 2007. The courts decided that the Albano plaintiffs’ lawsuit was untimely.
The Arizona Supreme Court concluded that the statute of repose was the appropriate standard for this case. They noted that “the eight-year statute of repose period began to run on November 6, 1997, the date of the Town of Gilbert’s final inspection. Albano II was filed on November 5, 2007.”
The court found that the plaintiffs had waited too long for start their suit. As a result, they found it unnecessary to answer the first or third questions. Justice A. John Pelander of the Arizona Supreme Court wrote the opinion, dated June 30, 2011.
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Colorado Senate Bill 12-181: 2012’s Version of a Prompt Pay Bill
May 10, 2012 — W. Berkeley Mann, Jr., Higgins, Hopkins, McLain & Roswell, LLC
A potentially important legislative bill has been introduced in waning days of the 2012 legislative session, which would change many of the commercial practices that prevail in the construction industry. Senate Bill 12-181 applies to all building and construction contracts and would prohibit any contract provision that requires a contractor, subcontractor, or supplier to waive their lien in advance of payment. It also would ban any “choice of law” provisions that make a Colorado-based construction contract subject to enforcement only in another state, or under the laws of another state.
The bill also seeks to change many existing commercial practices between contractors, subcontractors, and suppliers. It is presently unclear whether the bill allows parties to contract around these payment procedure provisions, or whether these requirements are simply “gap filling” provisions that pertain if there are no written contract terms specified on these issues. The proposed statute would mandate payment to subcontractors and material suppliers due within seven days in the absence of a dispute about the work or materials being billed. After this seven day period, the bill would require the payment of interest at the rate of 1.5% monthly (18% annually). In any later suit for payment, the creditor would also be able to collect reasonable attorneys’ fees. Additionally, non-payment to a subcontractor or supplier who is later found to be entitled to prompt payment would excuse the subcontractor or supplier, and its surety bond provider, from any further performance under the contract.
It is presently unclear whether the bill allows parties to contract around these payment procedure provisions. However, it is clear that the bill provides some leeway for change orders, as long as there is (1) negotiation in good faith between the parties concerning the changed scope of work, and (2) a 50% payment of a subcontractor’s costs by the changing party within 30 days of the change order work being done. Additionally, the bill provides for retainage, but in an amount of no more than 5%.
The bill is presently set for hearing before the Colorado Senate Committee on Business, Labor, and Technology Committee on May 2, 2012 at 1:30 p.m.
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Reprinted courtesy of W. Berkeley Mann, Jr. of Higgins, Hopkins, McLain & Roswell, LLC. Mr. Mann can be contacted at mann@hhmrlaw.com.
Homeowner’s Policy Excludes Coverage for Loss Caused by Chinese Drywall
November 18, 2011 — Tred Eyerley, Insurance Law Hawaii
Exclusions barred the homeowners from recovering for losses caused by Chinese drywall in their home. Ross v. C. Adams Const. & Design, L.L.C., 2011 La. App. LEXIS 769 (La. Ct. App., released for publication Oct. 5, 2011).
Two years after purchasing their home, the Rosses began experiencing chronic malfunctions in the heating, ventilation and air conditioning system. After discovering the presence of gypsum drywall, or "Chinese drywall", they submitted a claim to their insurer, Louisiana Citizens Property Insurance Company, for damages caused by the Chinese drywall. Louisiana Citizens denied the claim.
The Rosses sued. The trial court granted summary judgment to Louisiana Citizens based upon exclusions in the policy.
On appeal, the appellate court first agreed the Rosses had sustained a direct physical loss. The inherent qualities of the Chinese drywall created a physical loss to the home and the drywall had to be removed and replaced.
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Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
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.
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Water Drainage Case Lacks Standing
March 28, 2012 — CDJ Staff
The Texas Court of Appeals has ruled in the case La Tierra de Simmons Familia Ltd. V. Main Event Entertainment, LP. The trial court had found for Main Event. On appeal, the court threw out some of the grounds on which the trial court had reached its decision.
The case involved two commercial lots in northwest Austin, Texas. The uphill tract (Phase III of the Anderson Arbor development) diverts its runoff onto the lower tract (the “Ballard tract”). The owners of the Ballard tract claim that “the drainage system was designed or constructed in a manner that has damaged and continues to damage the Ballard tract.”
Both tracts have undergone changes of ownership since the construction of the drainage system in 2004. At the time the drainage system was constructed, the parcel was owned by Sears Roebuck and Co. Sears later sold the property. Main Event Entertainment is the current tenant. Likewise, the Ballard tract was previously owned by the Ballard Estate which sold the property to La Tierra on an “as is” basis in 2007.
After La Tierra bought the Ballard tract, La Tierra’s engineer “witnessed and videotaped what he described as ‘flooding’ on the Ballard tract caused by storm water discharge from the Anderson Arbor drainage system during a rainfall event.” La Tierra determined that an adequate drainage system would cost about $204,000. Development plans were put on hold.
La Tierra sued Main Event and various other parties associated with the uphill tract, seeking “actual damages for (1) decrease and loss in rental income due to delay in obtaining the development permit, (2) interest on carrying costs during that time period, (3) the cost to build a water conveyance system on the Ballard tract, (4) engineering fees incurred to redesign the water conveyance system, (5) unspecified out-of-pocket real estate expenses, and (6) property devaluation occasioned by the need to construct an expensive water conveyance system.” The trial court never reached these claims, ruling instead that La Tierra lacked standing, that its claims were barred under the statute of limitations, and that there was no evidence of damage.
La Tierra appealed, arguing that “(1) the summary-judgment evidence does not conclusively establish that property damage claims accrued or were discovered prior to September 11, 2007, which is within the limitations period and was after La Tierra purchased the property; (2) even if the property was damaged before La Tierra acquired ownership of the Ballard tract, standing exists based on the assignments of interest from the Ballard Estate heirs, and the discovery rule tolls limitations until the injury was discovered on September 11, 2007; (3) limitations does not bar La Tierra's request for injunctive relief; (4) La Tierra's water code claim against Main Event and M.E.E.P. is viable based on their control over the drainage system, which makes them necessary and indispensable parties for injunctive relief; (5) La Tierra presented more than a scintilla of evidence to raise a fact issue on damages, causation, and other essential elements of its causes of action; and (6) the trial court abused its discretion when it sustained the defendants' objections to La Tierra's summary-judgment evidence.”
The appeals court concluded that La Tierra’s second claim was irrelevant to standing, as La Tierra “obtained assignments from the Ballard Estate heirs ? nearly one year after the lawsuit was initially filed.” Nor did the court accept their first point. The water system had been operating unaltered since January, 2004, with monthly maintenance and inspection to maintain its designed operation. Further, a feasibility report La Tierra received stated that “over sixteen acres drain into those ponds, and thus onto this site.” The court noted that “the underlying facts giving rise to a cause of action were known before La Tierra acquired ownership of the Ballard tract.”
The court concluded that the drainage issue is a permanent injury, but that it “accrued before La Tierra acquired an ownership interest in the property.” As La Tierra has standing, the appeals court ruled that it was improper for the trial court to rule on the issues. The appeals court dismissed the questions of whether the case was barred under the statute of limitation and also the question of whether or not La Tierra had damages.
As the issue of standing would not allow La Tierra to bring the suit, the appeals court found for the defendants, dismissing the case for this single reason, and otherwise affirming the ruling of the lower court.
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