Loss Caused by Seepage of Water Not Covered
July 10, 2012 — Tred Eyerly, Insurance Law Hawaii
The anti-concurrent clause in a homeowner’s policy barred coverage for damage caused by hidden seepage. Boazova v. Safety Ins. Co., 2012 Mass. LEXIS 462 (Mass. May 29, 2012).
The insured had a concrete patio built along the rear wall of her house at a grade higher than the home’s foundation. Years later, severe deterioration was discovered in the floor joists, wall studs and other parts of the home. The insured held a homeowner’s policy with Safety. An inspector hired by Safety determined the deterioration was caused by the placement of the concrete patio slab adjacent to the wall of the house, allowing water to seep onto the top of the foundation.
Safety denied coverage because the damage was caused by a combination of surface water, deterioration, settling and improper construction of the concrete patio.
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Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
Construction Defects Lead to Demolition of Seattle’s 25-story McGuire Apartments Building
March 16, 2011 — March 16, 2011 Construction Defect Journal Staff
According to a story published last Thursday in Seattle PI: " The 25-story McGuire Apartments, at Second Avenue and Wall Street, would cost more to fix than the building is worth, according to its owners. Its most serious defect involves steel cables that are corroding inside of concrete slabs because the ends weren’t properly treated with a rust-proof coating and a pocket in the edge of the concrete that wasn’t properly sealed"
The report by Aubrey Cohen outlines the demolition plans which are expected to take between 12 and 18 months, and will utilize robotic Brokk Machines. The demolition plan calls for one story at a time to be demolished, with the debris to be trucked offsite. Demolition plans aim to minimize disruption to residents and businesses in the area by Limiting work 7 a.m. to 6 p.m. on weekdays and 9 a.m. to 6 p.m. Saturdays with "impact and percussive activities" limited to 8 a.m to 5 p.m weekdays.
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Construction Law: Unexpected, Fascinating, Bizarre
April 25, 2012 — CDJ Staff
Guy Randles offers an amusing set of odd construction law cases in the Daily Journal of Commerce, which he describes as “the unexpected, the fascinating and even the bizarre.” He noted that in one case “a whistleblower claimed he was terminated for reporting to the owner that the contractor’s painters had not applied the required coating thickness.” The whistleblower was the project manager and “was responsible for ensuring the proper coating thickness.”
A less amusing case was that of an architect who was arrested for manslaughter. Gerard Baker “told investigators that the considered the fireplaces to be merely decorative.” Randles notes that “the mansion’s fireplaces were built of wood framing and lined with combustible drywall.” Further, a “gas fireplace even vented into the house’s interior.” Building officials called the house “a death trap.” According to the LA police chief this may be the only case in which building defects lead to a manslaughter charge.
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California Appeals Court Remands Fine in Late Completion Case
November 18, 2011 — CDJ Staff
The California Court of Appeals in Stanislaus County has reversed the decision of the lower court in Greg Opinski Construction Inc. v. City of Oakdale. The earlier court had awarded the city of judgment of $54,000 for late completion, $3,266 for repair of construction defects and interest, and $97,775 in attorneys’ fees. The late completion of the project was due to actions by the City of Oakdale, however, the court rejected Opinski’s argument that the California Supreme Court decision in Kiewit did not allow this, as his contract with the city established a procedure for claiming extensions.
The appeals court noted that the Kiewit decision has been “criticized as an unwarranted interference in the power of contracting parties to shift the risk of delays caused by one party onto the other party by forcing the second party to give the first notice of any intention to claim an extension of time based on delays caused by first.” They cited Sweet, a professor at Boalt Hall, UC Berkeley’s law school, that Kiewit “gutted” the “provision that conditions the contractor’s right to claim an extension of time for delays beyond his control.”
Further changes in California law in response to the Kiewit decision lead to the current situation which the court characterized as “if the contractor wished to claim it needed an extension of time because of delays caused by the city, the contractor was required to obtain a written change order by mutual consent or submit a claim in writing requesting a formal decision by the engineer.”
Opinski also argued that the lower court misinterpreted the contract. The Appeals court replied that “Opinski is mistaken.” He cited parts of the contract regarding the increase of time, but the court rejected these, noting that “an inability to agree is not the same as an express rejection.”
The court also rejects Opinski’s appeal that “the evidence the project was complete earlier than September 30, 2005, is weightier than the evidence to the contrary,” which they describe as “not a winning appellate argument.” The court points out that the role of an appeals court is not to reweigh the evidence, but to determine “whether the record contains substantial evidence in support of the judgment.”
The court did side with Opinski on one question of the escrow account. They rejected most of his arguments, repeating the line “Opinski is mistaken” several times. They decided that he was mistaken on the timing of the setoff decision and on whether the city was the prevailing party. However, the appeals court did find that Opinski was not liable for interest on the judgment.
The appeals court rejected the awarding of prejudgment interest to the city as the funds from which the judgment was drawn was held in an escrow account. The court noted that the city had access to the funds and could “access the funds when it determined that Opinski had breached the contract.” The appeals court noted that the judgment exhausted the escrow balance and remanded the case to the lower court to determine the amount own to Opinski.
Read the court’s decision…
Court Requires Adherence to “Good Faith and Fair Dealing” in Construction Defect Coverage
September 30, 2011 — CDJ Staff
The California Court of Appeals has ruled in the case of Allied Framers, Inc. v. Golden Bear Insurance Company. Allied had been sued in a construction defect case and its primary insurer had become insolvent. Coverage for Allied’s defense was paid for by the California Insurance Guarantee Association through June 8, 2006. When warned that CIGA’s involvement was ending, Allied notified Golden Bear, which declined to provide coverage.
In the matters that followed, Golden Bear claimed that Allied had not exhausted its $1 million in primary insurance. Allied then showed that $1 million had already been paid out in the case. A few months thereafter, Golden Bear offered a $500,000 settlement on behalf of Allied which was rejected. Thereafter, Golden Bear hired new counsel to defend Allied. Golden Bear received, but allegedly did not pay, invoices Allied sent from their former counsel. Golden Bear finally settled the construction defect case for $2 million.
Allied’s original counsel sued Allied for payment. Golden Bear declined coverage. Allied then claimed that Golden Bear liable on several counts, arising from its failure to settle the construction defect action earlier than it did and its failure to pay Allied’s counsel. Golden Bear demurred, arguing that Allied had now exhausted is coverage with the $2 million settlement. The lower court sustained Golden Bear’s demurrer, dismissing Allied’s complaints.
The appeal court reviewed Allied’s seven complaints and sustained most of them. However, the court did reverse the trial court’s order in regard to Allied’s complaint that Golden Bear breached an implied covenant of good faith and fair dealing. The appeals court was not convinced that Golden Bear properly evaluated the settlement demand in the underlying construction defect case. The court found three other ways in which Golden Bear’s actions might show bad faith, in refusing to pay defense fees “after promising [Allied] such costs would be paid in full,” “failing to advise Allied about ‘actual or potential negative consequences of agreeing to the proposed settlement,’” and that their choice of counsel “failed to protect [Allied’s] interests in the negotiation.”
Read the court’s decision…
Drug Company Provides Cure for Development Woes
November 18, 2011 — CDJ Staff
Vertex Pharmaceuticals is poised to become the holder of Boston’s biggest commercial lease, paying $72.5 million for 1.1 million square feet on Boston’s waterfront. Vertex’s new buildings are still under construction, but the plans have spurred other development in the Fan Pier area, according to the New York Times. The Times quotes Mary A. Burke, a senior economist at the Federal Reserve Bank of Boston that the Vertex project gives “a big push” to the “momentum for economic growth.”
The Fallon Company is building Vertex’s new laboratory and office space. They are separately planning to build a high-rise with 150 luxury condominium units. According to Joseph Fallon, the chief executive and president of the Fallon Company, there is already a waiting list of 50 buyers for the condominiums.
Across the street from the Vertex site, a group including Morgan Stanley and Boston Global Investors is planning a 23-block mixed use project that would include 1.2 million square feet of retail space. Additionally, the New England Development and the Hanover Group is building a 356-unit apartment building at the adjacent Pier 4.
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Mandatory Arbitration Provision Upheld in Construction Defect Case
May 18, 2011 — May 18, 2011 Beverley BevenFlorez - Construction Defect Journal
The Superior Court of New Jersey reversed the decision in Frumer v. National Home Insurance Company (NHIC) and the Home Buyers Warranty Corporation (HBW), stating that the mandatory arbitration provision within the Frumer’s home warranty policy was binding.
The Frumers alleged that the construction defects were discovered immediately after moving into their million dollar home. After failing to achieve any results from dealing with the builder, they turned to their home warranty. There was some dispute over claims, and a settlement offer was rejected by the Frumers. The Frumers elected to commence litigation rather than utilize the binding arbitration.
The NHIC and the HBW filed a motion to compel arbitration, however, the motion judge denied the motion: “…the Warranty leaves open the option for [plaintiffs] to commence litigation, which [plaintiffs have] done in this case. The clause also states that ‘the filing of a claim against this limited Warranty shall constitute the election of remedy and shall bar the Homeowner from all other remedies.’ However, the provision does not state that the filing of a claim elects arbitration as the exclusive remedy, and any ambiguity in the language must be inferred against the drafter.”
The NHIC and the HBW appealed the decision. The Superior Court reversed the decision: “Where, such as here, the homeowner files a claim against the warranty for workmanship/systems defects, the warranty clearly and unequivocally establishes binding arbitration as the exclusive remedy. There is, however, no election of remedies for a dispute involving a major structural defect claim. The warranty clearly and unequivocally establishes binding arbitration as the exclusive remedy.”
Charles Curley of Halberstadt Curley in Conshohocken, Pa., the local counsel for National Home and Home Buyers, told the New Jersey Law Journal that “the ruling reaffirms New Jersey’s commitment to enforcing arbitration agreements and requiring people to go to mandatory arbitration when the contracts call for it.”
“At this point, their hope is that the warranty company will do what it's supposed to do — repair covered defects,” Eric McCullough, the Frumer’s lawyer said to the New Jersey Law Journal.
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OSHA Cites Construction Firm for Safety Violations
August 16, 2012 — CDJ Staff
S.J. Louis Construction of Texas Ltd. has been cited by OHSH for one serious and one repeat safety violation, according to a report in Insurance Journal. OSHA officials saw S.J. Louis employees working in an unshored trench along a highway service road. The company had cited for this violation previously. Without shoring of trenches deeper than five feet there is a risk of serious injury or death.
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An Upward Trend in Commercial Construction?
March 28, 2012 — Melissa Dewey Brumback, Construction Law North Carolina
Year-end economic indicators demonstrate that private commercial construction may be increasing in 2012, primarily as demand grows for new projects built in the United States.
According to an article in Businessweek, the Architecture Billings Index held at 52 in December, indicating a modest expansion in the market. The American Institute of Architects said that the commercial and industrial component of the number climbed to 54.1 in December, the highest in 10 months.
The monthly survey of U.S.-based architecture firms is one of the main indicators of nonresidential construction, and these numbers suggest that modest improvement may be on the horizon.
The information is confirmed by data from the Census Bureau that shows that spending on lodging, office, commercial and manufacturing buildings grew 8.2 percent in November to $9.2 billion from a year ago. These types of commercial and industrial projects are historically canaries in the mine and are usually the first part of the industry to improve as the economy expands.
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Reprinted courtesy of Melissa Dewey Brumback of Ragsdale Liggett PLLC. Ms. Brumback can be contacted at mbrumback@rl-law.com.
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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Contractor Liable for Soils Settlement in Construction Defect Suit
February 10, 2012 — CDJ Staff
The California Court of Appeals ruled on January 9 in Burrow v. JTL Dev. Corp., a construction defect case in which houses suffered damage due to improperly compacted soil, upholding the decision of the lower court.
Turf Construction entered into a deal with JTL to develop a parcel they acquired. A third firm, Griffin Homes, withdrew from the agreement “when a geotechnical and soils engineering firm reported significant problems with soil stability on 14 of the lots.” Turf Construction then took over compacting and grading the lots. Turf “had never compacted or graded a residential tract before.” Robert Taylor, the owner of Turf, “testified he knew there was a significant problem with unstable soils.”
After homes were built, the plaintiffs bought homes on the site. Shortly thereafter, the homes suffered damage from soil settlement “and the damage progressively worsened.” They separately filed complaints which the court consolidated.
During trial, the plaintiff’s expert said that there had been an inch and a half in both homes and three to five inches in the backyard and pool areas. “He also testified that there would be four to eight inches of future settlement in the next fifteen to twenty years.” The expert for Turf and JTL “testified that soil consolidation was complete and there would be no further settlement.”
Turf and JTL objected to projections made by the plaintiffs’ soil expert, William LaChappelle. Further, they called into question whether it was permissible for him to rely on work by a non-testifying expert, Mark Russell. The court upheld this noting that LaChappelle “said that they arrived at the opinion together, through a cycle of ‘back and forth’ and peer review, and that the opinion that the soil would settle four to eight inches in fifteen to twenty years was his own.”
Turf and JTL contended that the court relied on speculative damage. The appeals court disagreed, stating that the lower court based its award “on evidence of reasonably certain damage.”
Turf also that it was not strictly liable, since it did not own or sell the properties. The court wrote that they “disagree because Turf’s grading activities rendered it strictly liable as a manufacturer of the lots.” The court concluded that “Turf is strictly liable as a manufacturer of the lots.”
Judge Coffee upheld the decision of the lower court with Judges Yegan and Perren concurring.
Read the court’s decision…
General Contractor/Developer May Not Rely on the Homeowner Protection Act to Avoid a Waiver of Consequential Damages in an AIA Contract
August 4, 2011 — Higgins, Hopkins, McLain & Roswell, LLC
Recently, in Caribou Ridge Homes, LLC v. Zero Energy, LLC, et al., Case No. 10CV1094, Boulder County District Court Judge Ingrid S. Bakke entered a ruling and order on the Plaintiff’s Motion for Determination of Question of Law Pursuant to C.R.C.P. 56(h) on Issue of Damages. The Order found that the Plaintiff was not a homeowner intended to be protected by the Homeowner Protection Act (the “HPA”) and thus could not pursue its claims for consequential damages against Defendant.
By way of background, on June 18, 2008, Plaintiff Caribou Ridge Homes, LLC (“Caribou”) entered into a Standard Form Agreement Between Owner and Contractor AIA Document A114-2001 (the “Contract”) with Defendant Zero Energy, LLC (“Zero Energy”). Plaintiff hired Zero Energy to serve as a general contractor for the construction of a single-family home in the Caribou Ridge subdivision in Nederland, Colorado. A provision in the contract contained a mutual waiver of consequential damages (“Waiver”).
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Reprinted courtesy Higgins, Hopkins, McLain & Roswell, LLC
Construction Defects Leave Animal Shelter Unusable
October 23, 2012 — CDJ Staff
The Press Democrat reports that the Healdsburg Animal Shelter is proceeding in its lawsuit against the architect, general contractor, and subcontractors of its unfinished new facility. Shelter officials described the building as “effectively uninhabitable,” and the board has suggested that the building might have to be demolished. The chair of the shelter board told donors that “your investment is protected.”
The defects in the building include cracked concrete slabs and gaps around windows. However, even without these defects, the shelter alleges that the architect failed to correct design flaws.
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Florida trigger
August 4, 2011 — CDCoverage.com
In Mid-Continent Casualty Co. v. Siena Home Corp., No. 5:08-CV-385-Oc-10GJK (M.D. Fla. July 8, 2011), insured residential real estate developer Siena was sued by homeowners seeking damages for moisture penetration property damage resulting from exterior wall construction defects. Siena’s CGL insurer Mid-Continent filed suit seeking a declaratory judgment of no duty to defend or indemnify in part on the basis that the alleged “property damage” did not manifest during the Mid-Continent policy period.
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Reprinted courtesy of CDCoverage.com
Kansas Man Caught for Construction Scam in Virginia
December 20, 2012 — CDJ Staff
A Virginia court sent charges of construction fraud against a Kansas man to a grand jury. Larry Foster visited homes in Bedford County, Virginia, tested the water, and told homeowners that they needed new water filtration systems. The homeowners paid, but Mr. Foster never delivered. One homeowner who testified paid him $1,690. Another paid even more, giving $3,090 to Mr. Foster. In order to dupe his victims, Foster used the address of a chiropractor as a business address, unbeknownst to the actual business there.. He is wanted for charges in other states as well.
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Construction Demand Unsteady, Gains in Some Regions
June 29, 2011 — CDJ Staff
The Associated General Contractors of America reported Tuesday, June 28 that construction employment increased in 120 of the 337 metropolitan areas surveyed between May 2010 and May 2011.
‘While construction employment has stopped plunging, any sign of a recovery remains spotty at best,” said Ken Simonson, the association’s chief economist. ‘The close to even split between areas adding and losing jobs is a reminder that for every market doing well, there is another market that is still hurting.”
The largest number of jobs created was in the Dallas, Texas region, with 5,600 new jobs, a five percent increase. The northern Massachusetts/southern New Hampshire region near Haverhill saw the greatest percentage increase, although that twenty-two percent increase represents only 800 new jobs. The Chicago, Illiinois area added 4,600 jobs, a four percent increase.
Other regions were not so lucky. The Atlanta, Georgia area saw a loss of 7,400 jobs, an eight percent loss. Las Vegas also lost 7,400 jobs, which there represented a sixteen percent decline. The New York City area lost 6,700 jobs, a six percent reduction. The Riverside, California area lost 5,300 jobs, a nine percent loss.
Stephen E. Sandherr, the association’s chief executive officer, blamed a combination of regulation and budget squeezes. "Some in Washington never met a regulation they didn’t like and others never found a penny they didn’t want to pinch. Together that makes for a bad way to boost employment and a great way to stifle the private sector and neglect critical economic infrastructure.”
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Cabinetmaker Exceeds Expectations as Conditions Improve
October 23, 2012 — CDJ Staff
American Woodmark, the manufacturer of several national brands of cabinets and vanities, saw greater than anticipated earnings in its most recent quarter. Their revenue was $148.3 million, an increase of 13% over the same quarter a year prior. They saw a 40% increase in sales. As a result, their per-share earnings were 7 cents, instead of the projected loss of 3 cents per share. Forbes reports that the share price for American Woodmark has been rising in August 2012.
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Harmon Hotel Construction Defect Update
July 18, 2011 — CDJ Staff
Coverage of the ongoing litigation concerning the Harmon Hotel continues to proliferate. Architectural Record and a number of other news outlets continue to provide additional details and coverage of the matter. Chief among the conditions alleged are improperly installed reinforcing steel inside link beams on 15 floors. MGM Claims that the conditions amount to hundreds of millions of dollars in damages, while Perini (the builder) indicated in a July 12th statement that the buildings problems are related to the design, and the they are “fixable.”
There is significant speculation that MGM Resorts International isn’t interested in repairing the hotel due to a glut of hotel rooms attendant to the troubled economy. In a statement Tuesday Perini reportedly stated that “Repairing and opening the Harmon would only create a greater glut of unused hotel rooms for MGM,” “If market conditions were better and MGM found that demand existed for the Harmon hotel rooms, MGM would not be claiming that the Harmon is unstable.”
MGM asserts that Perini failed to ”properly construct” the project. Clark County’s Department of Development Services has reportedly asked MGM to provide a plan to fix the project by August 15th.
The Harmon is part of the $8.5 billion CityCenter project that opened in the fourth quarter of 2009 and is jointly owned by MGM Resorts and Dubai World.
Prior reports indicated that the owner (MGM) had considered razing the entire project. The future of the project remains uncertain.
