Nevada District Court Dismisses Case in Construction Defect Coverage Suit
August 16, 2012 — CDJ Staff
The United States District Court of Nevada has dismissed a case filed by Maryland Casualty Company against National Fire & Marine Insurance Company. This case follows a case in which National was sued over “200 causes of action arising out of 193 separate insurance coverage disputes related to 75 different insureds and 163 unrelated construction defect or Chapter 40 proceedings across seven states.” The judge in this initial case severed the plaintiffs, as he found that allowing joinder “would make this case impossible to manage.” In this particular instance, National seeks to have the claims made by Maryland Casualty dismissed.
Maryland Casualty alleged that for insurance policies issued to 38 companies, National was obligated to defend the insured. National was, according to the plaintiff, named as defendants in 72 unrelated lawsuits to which National disclaimed coverage. However, the court found that Maryland Casualty failed “to provide enough detail regarding the relevant property damage, policies, claims, and time periods.” The court found that Maryland failed to “state a claim upoin which relief can be granted.
The court also found that “the Complaint lacks any well-pled allegations from which the Court could conclude the Plaintiff has standing since the Complaint is devoid of information about the specific policies at issue.
The court did allow Maryland Casualty up to September 3, 2012 in which to file an amended complaint.
Read the court’s decision…
Montrose Language Interpreted: How Many Policies Are Implicated By A Construction Defect That Later Causes a Flood?
March 17, 2011 — By Shaun McParland Baldwin, March 17, 2011
The Court of Appeals of Indiana recently addressed the “Montrose” language added to the CGL ISO form in 2001 in the context of a construction defect claim where a fractured storm drain caused significant flooding a year after the drain was damaged. The insuring agreement requires that “bodily injury” or “property damage” be caused by an “occurrence” and that the “bodily injury” or “property damage” occur during the policy period. The Montrose language adds that the insurance applies only if, prior to the policy period, no insured knew that the “bodily injury” or “property damage” had occurred in whole or in part. Significantly, it also states that any “bodily injury“ or “property damage” which occurs during the policy period and was not, prior to the policy period known to have occurred, includes a continuation, change or resumption of that “bodily injury” or “property damage” after the end of the policy period.
In Grange Mutual Cas. Co. v. West Bend Mut. Ins. Co., No. 29D04-0706-PL-1112 (Ct. App. IN March 15, 2011), http://www.ai.org/judiciary/opinions/pdf/03151109ehf.pdf, Sullivan was the General Contractor for a school construction project. Its subcontractor, McCurdy, installed the storm drain pipes. One of the storm pipes was fractured in 2005 while McCurdy was doing its installation work. More than a year later, the school experienced significant water damage due to flooding. It was later discovered that the flooding was due to the fractured storm drain. Sullivan’s insurer paid $146,403 for the water damage. That insurer brought a subrogation claim against McCurdy and its two insurers: West Bend and Grange. West Bend had issued CGL coverage to McCurdy while the construction was ongoing , including the date in which the storm pipe was fractured. Grange issued CGL coverage to McCurdy at the time of the flooding. Those two carriers jointly settled the subrogation claim and then litigated which insurer actually owed coverage for the loss. Significantly, the loss that was paid included only damages from the flooding, not any damages for the cost of repairing the pipe.
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Reprinted courtesy of Shaun McParland Baldwin of Tressler LLP. Ms Baldwin can be contacted at sbaldwin@tresslerllp.com
Statute of Repose Dependant on When Subcontractors Finished
July 10, 2012 — CDJ Staff
Scott C. Sandberg of Snell and Wilmer writes a post on the JDSupra site about the Colorado Court of Appeals decision in Shaw Construction v. United Builder Services. Sanberg notes that when the general contractor was sued by an HOA, the contractor turned around and sued its subcontractors. The contractor made three claims. They claimed that “improvement” referred to the whole project, that “substantial completion” was reached when the architect certified completion, and that the statute of repose was tolled by the HOA’s service of a Construction Defect Action Reform Act notice.
The subcontractors claimed that “improvement” only referred to their specific work, which reached “substantial completion” when they finished, despite work to be done by other later, and the HOA’s notice to the contractor did not affect the subcontractors. The Colorado court agreed with the subcontractors.
Sandberg notes that some of the contractor’s were not addressed by the court, noting that “the court did not decide whether an improvement triggering the statute of repose can be determined on a trade-by-trade basis,” and that “the court did not decide whether substantial completion occurs when a certificate of occupancy is issued or when the architect certifies completion.”
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Construction Company Head Pleads Guilty to Insurance and Tax Fraud
December 20, 2012 — CDJ Staff
The former head of Orients Construction Company and of Melrose Construciton Company, Herlindo Garcia-Merlos, has entered a guilty plea to charges that the gave false informoation to his insurer, New Jersey Manufacturers Insurance Group, for more than three years in order to lower his workers compensation payments. Mr. Garcia-Merlos was able to underpay by more than $315,000 as a result of this deception.
Mr. Garcia-Merlos additionally failed to file tax returns for his companies and underreported his wages on his own tax returns. The State of New Jersey is seeking an eight-year prison term and restitution of more than $400,000.
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Badly Constructed Masonry Walls Not an Occurrence in Arkansas Law
May 10, 2012 — CDJ Staff
The US District Court for Maryland has granted a summary judgment in the case Konover Construction Corp. v. ATC Associates to Massachusetts Bay Insurance Company and denied a request for dismissal from ACT. Konover (KBE) was contracted by Wal-Mart to build a Wal-Mart store and a Sam’s Club in Port Covington, Maryland. Superus, Inc. was hired by KBE to build the masonry walls. Superus purchased a policy from Massachusetts Bay Insurance which named KBE as an additional insured. Wal-Mart hired ATC Associates to independently test and inspect the concrete structural steel, and masonry.
After the building was in use, a large crack appeared which was attributed a latent construction defect. Other cracks were discovered. Upon investigation, it was discovered that there were “voids or foam in the concrete block surrounding the reinforcing steel that should have been filled with grout,” and in some cases, “reinforcing steel was missing or not installed in accordance with the specifications.” KBE paid for the repair and remediation and Wal-Mart assigned all rights and interests against ATC to KBE.
KBE filed suit against ATC. ATC called for dismissal on the grounds that Wal-Mart had no claims as the problems had been remediated. Wal-Mart then provided KBE with additional agreements to give them enforceable rights against ATC and Superus. KBE filed a fourteen claims against ATC, Superus, and Massachusetts Bay. In the current case, Massachusetts Bay sought summary judgment and ATC sought dismissal of all claims against it.
Massachusetts Bay claims that they need not indemnify Superus, as “there is no evidence adequate to establish that Superus’ defective work caused any collateral and/or resulting damage that was not subject to an Impaired Property exclusion, and that, in any event, no damage occurred during the policy period.”
As Wal-Mart is headquarted in Arkansas, certain contracts were under Arkansas law. Under the Arkansas courts, “defective workmanship, standing alone and resulting in damages only to the work product itself, is not an ‘occurrence.’” The court determined that collateral or resultant damage would be covered. The court found that “it is clear under Arkansas law, and the parties appear to agree, that Massachusetts Bay is not obligated to indemnify KBE for any repairs to the masonry walls themselves, including any cracks or gaps in the walls.” The court also found that “there is no evidence adequate to prove that any allegedly resultant property damage was caused by Superus’ faulty construction of the walls.” The court also noted that “if the building code violation and structural integrity problem were ‘property damage,’ insurance coverage would be barred by the Impaired Property Exclusion.” Based on these findings, the court concluded that Massachusetts Bay is entitled to summary judgment.
While the court dismissed the case against Massachusetts Bay, the court declined ATC’s motion to dismiss. The court noted that ACT’s alleged negligence in conducting inspections “created only a risk of economic loss for KBE.” Although hired by Wal-Mart, ATC “transmitted its daily testing and inspection reports of the Wal-Mart and Sam’s Club projects directly to KBE.” The court found that “KBE has made a plausible claim.”
ATC also claimed that KBE contributed to the negligence due to the negligence of its subcontractor. The court concluded that it was plausible that “ATC will not be able to carry its burden of proving KBE was contributorily negligent.” The court was less sanguine about KBE’s fraud claim, but though it “may not now appear likely to have merit, it is above the ‘plausibility’ line.”
In conclusion, KBE may not continue its case against Massachusetts Bay. However, the judge allowed the other proceedings to continue.
Read the court’s decision…
California Construction Bill Dies in Committee
July 21, 2011 — CDJ Staff
AB 20, which its sponsor, Linda Halderman (R-Fresno), stated would discourage class action lawsuits against builders and protect jobs in the construction industry, has died in committee. Although the Business Journal reported in June that Haldeman was promoting the bill during a talk in her district and the bill is still on her web site, the California Assembly reports that the bill failed in committee on March 15, 2011. It is possible that the bill could be reconsidered, but the Assembly Committee on Judiciary sees the bill as responding to issues quieted by SB 800 which gives builders the right to repair alleged defects before any suit can be filed.
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Guilty Pleas Draw Renewed Interest In Nevada’s Construction Defect Laws
December 9, 2011 — CDJ Staff
A report this week by David McGrath Schwarz of the Las Vegas Sun suggests that Nevada’s construction defect laws will be a point of much contention in upcoming legislative sessions. The report cites renewed interest in the state’s construction defect laws due to ongoing federal investigations of construction defect attorney Nancy Quon and construction company owner Leon Benzer. Guilty pleas have been entered by at least ten individuals including an attorney, property managers, straw purchasers, and former HOA board members.
The article suggests that Nevada’s Chapter 40 laws are easily manipulated to the detriment of Nevada’s homebuilding industry. Construction industry lobbyists have tried unsuccessfully to change the laws in past legislative sessions.
The Sun’s article speculates that the building industry might be able to gain legislative concessions due to the volume of guilty pleas and what it refers to as examples of Chapter 40 abuses. ”With federal authorities collecting guilty pleas, the construction industry has prime examples of the system being abused, and how lucrative it can be for attorneys.”
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Condo Owners Worried Despite Settlement
September 13, 2012 — CDJ Staff
KB Homes may have settled a construction defect claim with Willowbrook Condominium Association, but some of the owners are still concerned about the repair process. The Sarasota, Florida Herald Tribune reports that one homeowner’s living room “ends with a white tarp.” He told the paper, “We feel like we’re not even owners of our own home.” A neighbor wondered “what happens when people get displaced while their homes are gutted?”
As part of the agreement, the condominium association will be selecting a contractor to repair the problems, while the cost will be paid by KB Homes. Nevertheless, at least one owner fears for their ability to resell his home, noting that even after repairs have been made, “do you think someone’s going to come in here and buy?”
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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
Save A Legal Fee? Sometimes You Better Talk With Your Construction Attorney
May 10, 2012 — Douglas Reiser, Builders Counsel
I love writing this column, because I think it’s refreshing for contractors to hear that they don’t always need an attorney. Today’s post is the “Un-Save a Legal Fee” because I want to point out a specific illustration of when you definitely need your attorney. Using a construction contract template can be fine, but you always need to consider its application to each project ? or it could bite you in the rear.
Seattle attorney Paul Cressman published a prime depiction of bad contract management, last week. A Florida appellate court struck down a general contractor’s “pay if paid” clause when it became ambiguous because of some incorporated language from its prime contract. Specifically, a clause in the prime contract required the general contractor to pay all subcontractors before receiving payment from the owner, while the general contractor’s “pay if paid” clause required its subcontractors to wait for payment until it arrived from the owner.
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California Lawyer Gives How-To on Pursuing a Construction Defect Claim
September 13, 2012 — CDJ Staff
On his recently started blog, Harry Kaladjian writes about construction defect litigation in California. He notes that after taking possession, homeowners sometimes notices problems such as “slab cracks in the garage, water leaking through the ceiling, warped floors, improper framing, cracking stucco, etc.” He goes on to note that once that happens, there are series of things homeowners must do.
The first is to be concerned about the statute of limitations. Then, “once it has been established that defects exist, the homeowner must refer to the ‘Right to Repair Act’ and ‘Calderon Procedures.’” These, he notes set out the “pre-litigation procedures prior to filing a lawsuit.”
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Park District Sues over Leaky Roof
August 2, 2012 — CDJ Staff
The Glen Ellyn Park District has filed suit against multiple firms over the leaks in the Ackerman Sports and Fitness Center. The district alleges at least twenty leaks can be found throughout the facility. In order to prevent further damage, they have put in a system of “buckets, tarps and flexible piping.”
According to the Chicago Daily Herald, the park district has most recently added the project construction manager, the building designer, and insurer that issued a performance bond on the builder. T.A. Bowman Constructors, the builder of the project, sued the park district. They were first name in the district’s countersuit.
The park district isn’t waiting for the outcome of the suit to repair the roof. Instead, they are using existing funds to pay for roof repairs.
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California insured’s duty to cooperate and insurer’s right to select defense counsel
April 14, 2011 — April 14, 2011 - CDCoverage.com
In Travelers Property Casualty Co. v. Centex Homes, No. C 10-02757 (N.D. Cal. April 1, 2011), general contractor Centex was sued by homeowners for construction defects. Centex tendered its defense to Travelers as an additional insured under policies issued by Travelers to two Centex subcontractors. Travelers agreed to defend Centex under a reservation of rights and selected defense counsel to defend Centex. Centex refused to accept the defense, asserting that it was entitled to select defense counsel. Travelers filed suit against Centex seeking a declaratory judgment that Centex had breached the duty to cooperate condition in the Travelers’ policy.
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Reprinted courtesy of CDCoverage.com
Insurer Has Duty to Defend in Water Intrusion Case
July 10, 2012 — CDJ Staff
The Seventh Circuit Court of Appeals has upheld a summary judgment against an insurance company in a construction defect suit. Lagestee-Mulder, Incorporated (LMI) was hired by Crown Centre to construct a multi-story office building in Franfort, Illinois. LMI hired Frontrunner Glass & Metal to supply and install windows and doors. Frontrunner purchased an insurance policy from Consolidated which named LMI as an additional insured. The project experienced water intrusion and other construction defects and Crown sued LMI. Consolidated denied coverage. LMI sued Consolidated and the US District Court granted a summary judgment against Consolidated.
The appeals court reviewed the grounds for summary judgment and determined that under Illinois law, Consolidated had a duty to defend. The court cited an earlier opinion that “if the underlying compliant alleges facts within or potentially within policy coverage, an insurer is obligated to defend its insured even if the allegations are groundless, false, or fraudulent.”
Read the court’s decision…
Negligent Construction an Occurrence Says Ninth Circuit
June 30, 2011 — CDJ Staff
One June 27, the US Court of Appeals has rejected an appeal from Mid-Continent Casualty Company. Mid-Continent had appealed a summary judgment granted to Titan Construction Company.
Titan Construction had built condominiums for the Williamsburg Condominium Association, which later filed a construction defect lawsuit against Titan and other defendants. Titan settled with the developer, Kennydale, assigning its rights against Mid-Continent to Kennydale. Mid-Continent filed suit, claiming that “it had no obligation to indemnify or defend Titan, Kennydale, or various other defendants.” The district court found in favor of Mid-Continent, granting a summary judgment, concluding that Titan’s insurance covered “occurrences,” and none had taken place.
On appeal, the court found that the negligent construction of the condominiums constituted an “occurrence” The case was remanded and the district court this time found in favor of Titan, “concluding that Mid-Continent failed to raise a triable issue as to the applicability of the remaining policy exclusions.
The Ninth Circuit Court of Appeals has now affirmed that decision and Titan’s summary judgment stands.
Read the court’s decision…
Ohio Court Finds No Coverage for Construction Defect Claims
March 28, 2012 — Tred Eyerly, Construction Law Hawaii
Charles and Valerie Myers hired Perry Miller to build their home. Myers v. United Ohio Ins. Co., 2012 Ohio App. LEXIS 287 (Ohio Ct. App. Jan. 26, 2012). After completion of the home, Miller was again hired to construct an addition which included a full basement, staircases, bathroom, bedroom, hallway and garage.
After the addition was completed, one of the basement walls began to crack and bow. Miller began to make repairs, but eventually stopped working on the project. Other contractors were hired to make repairs, but further problems developed. A second basement wall began to bow and crack, allowing water into the basement. The wall eventually had to be replaced. Subsequently, the roof over the addition began to leak in five or six places before the drywall could be painted. The leaks caused water stains on the drywall and caused it to separate and tear. It was discovered the roof needed to be replaced.
The Myers sued Miller and his insurer, United Ohio Insurance Company. The trial court ruled that the policy did not provide coverage for faulty workmanship, but did provide coverage for consequential damages caused by repeated exposure to the elements. United Ohio conceded liability in the amount of $2,000 to repair water damage to the drywall. United Ohio was also found liable for $51,576, which included $31,000 to repair the roof and ceiling and $18,576 to replace the basement wall.
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Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
Vegas Hi-Rise Not Earthquake Safe
July 12, 2011 — CDJ Staff
If an earthquake hit Las Vegas, the Harmon Tower would not withstand it. A report from Weidlinger Associates told MGM Resorts that “in a code-level earthquake, using either the permitted or current code specified loads, it is likely that critical structural members in the tower will fail and become incapable of supporting gravity loads, leading to a partial or complete collapse of the tower.” The inspection came at the request of county officials, according to the article in Forbes.
According to Ronald Lynn, directory of the building division in the county’s development services division, “these deficiencies, in their current state, make the building uninhabitable.” The county is concerned about risks to adjacent buildings.
MGM Resorts is currently in litigation, separate from the stability issues, with Perini Corp., the builders of Harmon Tower.
Read the full story…
Court Strikes Down Reasonable Construction Defect Settlement
December 20, 2012 — CDJ Staff
The Court of Appeals of Washington has struck down a construction defect settlement between a building owner and the companies she hired to repair the siding, among other repairs to bring the building up to code. Yuan Zhang hired Hawk Construction LLC to do repair work. Hawk, in turn, hired Ready Construction LLC for some aspects of the project. Hawk and Ready were both insured by Capital Specialty Insurance Corporation.
There were several problems with Ready’s work. After removing old siding, they did not protect the building, nor did they remove all of the damaged layers. Ready covered, but did not fix, a mildew problem under the old siding. When new siding was reattached, the nails used were too short to adequately attach it.
After paying for an inspection of the work, Zhang had Hawk and Ready begin the repairs again, but the work was abandoned without being completed. Zhang sued Hawk for breach of contract. Hawk then sued Ready, claiming that “Ready was liable to Hawk to the extent that Hawk was liable to Zhang.” Capitol retained defense for both contractors.
Zhang settled with Hawk, in an agreement that gave her “the right to collect and/or pursue all costs and attorney fees paid by Hawk or its insurance company defending against the Zhang’s claims and pursuing claims against Ready.” Subsequently, she also settled with Ready. Both companies ceased operations.
Zhang had the settlements reviewed by a court, which concluded that the settlements were reasonable. Capital was allowed to appeal, claiming that the settlement included costs that were Zhang’s responsibility. The appeals court did not examine the question of the reasonableness of the settlement, concluding that Capitol’s interests were relevant only to “questions of bad faith, collusion, and fraud.”
In the case of Zhang, the court concluded that the relationship between Zhang and her former contractors was collusive. The court noted that “bad faith or collusion may exist when the evidence indicates a joint effort to create, in a non-adversarial atmosphere, a resolution beneficial to both parties, yet highly prejudicial to the insurer as intervener.” The court noted that both companies had minimal assets which were, in any case, exempted from the agreement. Further, the court found that the agreements failed to determine “what amount of the repairs related to preexisting water damage.” Zhang’s calculation of costs also included her expenses for architectural and engineering services, which the court points out, “where always Zhang’s costs to bear.”
The court concluded that “the overall structure of the settlements is highly probative of collusion, fraud, or bad faith.” Zhang’s agreements with Hawk and Ready allowed her to collect compensation from Hawk and then collect Ready’s compensation to Hawk for their portion of the settlement, allowing Zhang to collect the monies twice. Further, she was allowed to pursue Capitol for Hawk’s attorney expenses, even though Hawk had none. “The right to recover Hawk’s fees merely set up a windfall recovery for Zhang.” The court described the agreements among Zhang, Hawk, and Ready as “precisely the type of manipulation [the law] is intended to preclude.”
Read the court’s decision…
