Crane Dangles and So Do Insurance Questions
November 7, 2012 — CDJ Staff
Hurricane Sandy sent a construction crane dangling from the top of One57, a condo construction project in New York City. In response to the risk, the nearby Parker Meridian and other nearby buildings were evacuated until the crane could be stabilized. Businessweek reports that One57 involves “a tangle of companies,” including the developer, Extell Development and the contractor, Lend Lease Construction. Pinnacle Industries was responsible for providing and operating the crane.
The insurance claims are yet to be made, but they will likely include the costs of evacuating nearby buildings and to cover any damage to the building itself. David DeLaRue, a vice president in construction practice at Willis Group Holdings said there would be two questions: “Did our insured do anything to cause that loss? Does this policy cover it?”
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California Supreme Court Finds Associations Bound by Member Arbitration Clauses
September 13, 2012 — CDJ Staff
In a decision with great implications for construction defect suits in California, the California Supreme Court has ruled in Pinnacle Museum Tower Association v. Pinnacle Market Development that arbitration clauses binding on the members of the association are also binding on the association itself. They concluded this, even though “the association did not exist as an entity independent of the developer when the declaration was drafted and recorded.” The opinion, written by Justice Baxter, was joined by four additional justices, with two separate concurrences and a dissenting opinion by Justice Kennard.
The Pinnacle homeowners sought to bring suit over construction defect claims. In response, the developer filed a motion to compel arbitration. The association argued that the arbitration clause signed by its individual members was not binding on it. The Appeals Court invalidated the arbitration agreement “finding it marked by slight substantive unconscionability and high degree of procedural unconscionability. The Appeals Court determined that “for all intents and purposes, Pinnacle was the only party to the ‘agreement,’ and there was no independent homeowners association when Pinnacle recorded the CC&R’s.” However, the California Supreme Court said that this was “not persuasive in light of the statutory and contract principles in play.”
The opinion notes that “the Project CC&R’s provides that Pinnacle and, by accepting a deed to any portion of the Project property, the Association and each individual condominium owner agree to submit any construction dispute to binding arbitration in accordance with the FAA.” The Court noted that “settled principles of condominium law establish that an owners association, like its constituent members, must act in conformity with the terms of a recorded declaration,” which, as the Court notes, includes the CC&Rs.
After finding that the terms were binding on the Association, the Court then questioned whether the terms were “unenforceable as unconscionable,” noting that “the party resisting arbitration bears the burden of proving unconscionability.” But the Court found that “the arbitration provisions of article XVIII are not substantively unconscionable.” Additionally, they found “no support for the Association’s claims of unfairness and absence of mutuality.”
Read the court’s decision…
Appeals Court Reverses Summary Judgment over Defective Archway Construction
February 10, 2012 — CDJ Staff
A judge has ruled that a plaintiff can go forward with her suit that she was injured by a defective archway during a birthday party. A three-judge panel of the California Court of Appeals issued this ruling on January 23, 2012, in the case of Trujillo v. Cosio.
Ms. Trujillo attended a birthday party at the home of Maria Cosio and Joel Verduzco. A piñata was hung between a tree and a brick archway. Ms. Trujillo went to get candy that had fallen from the piñata, during which the archway fell on her hand. Subsequent examination of the archway showed that it had not been “properly anchored to the supporting pillars to protect the arch from falling.”
Ms. Cosio and Mr. Verduzco argued that they could not have been aware of the defective nature of the archway’s construction, as it had been built at the request of the prior property owner. The structure was constructed without building permits. Mark Burns, a civil engineer testifying for the plaintiff, said that “a reasonable property owner would have thoroughly tested the archway to ensure it was capable of withstanding such horizontal forces before allowing children to enter into the area.” Mr. Burns noted that twenty rope pulls would have been sufficient to demonstrate the structure’s instability.
The trial court rejected Mr. Burn’s statements, finding that the respondents did not have any knowledge of the defect and that a visual inspection should have sufficed. The court noted that this a triable issue, whether visual inspection suffices, or whether the property owners should have done as Mr. Burns suggested and yank a rope twenty times. The court noted that “although a jury may ultimately disagree with Burn’s opinion, it was supported by sufficient foundation and was not speculative.”
The opinion was written by Judge Flier, with Judges Rubin and Grimes concurring.
Read the court’s decison…
Cleveland Condo Board Says Construction Defects Caused Leaks
March 1, 2012 — CDJ Staff
A Cleveland condo association has sued the developer of their building, claiming that construction defects resulted in water intrusion. The K&D Group, which still owns forty units in the 160-unit building, claim that it’s a maintenance issue that they’d like to see fixed, but it’s their responsibility as the developer. Doug Price, CEO of K&D calls it a “frivolous lawsuit.” He blames a “hostile board” and told The Plain Dealer “there’s simple maintenance that they refuse to do.”
An outside company evaluated Stonebridge Towers. According to the condo board’s lawyer, Laura Hauser, the building design and construction are to blame for the water intrusion. Hauser said that the board’s “goal through this litigation is to find a resolution for the association, the building and the owners.”
David Kaman, a Cleveland attorney not involved in the lawsuit, told the Plain Dealer that construction litigation in the Cleveland area had fallen off from 2007, but he sees it on the rise, which he attributes to cost-cutting on recently finished projects. “If an owner moves in and two years later the wallpaper needs to be replaced because the wall is leaking, that’s a construction defect.”
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Time to Repair Nevada’s Construction Defect Laws?
February 10, 2012 — CDJ Staff
The Builders Magazine writes that during the previous session of the Nevada legislature, reforms sought by the building industry were stopped by the Speaker of the Nevada Assembly. The new session brings a new speaker and new hope for construction defect reform in Nevada.
Pat Hickey, a member of the Assembly and a small business owner told The Builders Magazine that “we need to apply pressure on the legislators to fix the law.” He also recommended that people “go to Governor Sandoval and ask for his help.” Builders seeks legislation that will include right to repair and it should “define construction defect in such a way that it allows for a fair process.”
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Plaintiff Not Entitled to Further Damages over Defective Decking
August 2, 2012 — CDJ Staff
The Court of Appeal of the State of California, Third Appellate District has rejected an appeal from the successful plaintiff of a construction defect case in Evilsizor v. Calaveras Lumber Company. John Evilsizor hired Scott Hunton to remove and replace the deck at the rear of his home. Subsequently, the deck, which had been constructed with a product called SmartDeck, a product of the subsequently bankrupt US Plastic Lumber, exhibited problems. Hunton made some repairs. Calaveras Lumber offered replacement decking if Evilsizor would pay the difference in price. Mr. Evilsizor hired another contractor to replace the decking and then sued for lost use and compensation for the amount he paid the second contractor. Replacing the deck a second time cost Mr. Evilsizor $113,065.44.
During the trial, the defendant conceded that the planking was defective. It has been recalled by the manufacturer. Additionally, the jury heard testimony from a construction and building codes consultant, Lonne Haughton, however the trial court found that Mr. Haughton did not have sufficient expertise in wood-plastic composite materials. Further, Haughton had been a California contractor for only three years, and though he claimed a college degree, this was “‘a distance learning diploma’ that required no in-class work.” The appeals court upheld the decision that Mr. Haughton was not qualified to testify as an expert about wood-plastic materials.
The court also upheld the trial court’s exclusion of two pieces of evidence. One was a list of SmartDeck sales. However, the witness asked about it was not able “to testify who prepared it or confirm that it had been prepared by a Cascade employee.” Further, “the fact defendant bought and sold SmartDeck was not disputed.” The other was an e-mail in which US Plastics said they had “some bad product in the field.” This e-mail went to Westmark & Associates, and the plaintiff did not establish that it was ever sent to the defendant.
Though the defense has suggested an award of $18,000 plus loss-of-use damages for one year and an additional $4,000 if the jury believed that leftover material from the front deck was used in the rear. As the plaintiff requested $100 per month of loss of use, this would have totaled $34,000. The jury awarded the cost of the decking, $6,275,82. The court cites earlier decision that the amount of the award is “a question of fact to be determined by the jury.”
In conclusion, Mr. Evilsizor was not only unable to receive a larger award, but the court ruled that he must pay the defendant’s cost on appeal.
Read the court's decision…
Water Damage Covered Under Efficient Proximate Cause Doctrine
August 2, 2012 — Tred Eyerly, Insurance Law Hawaii
A U.S. District Court in Washington found coverage in what it described as a text book study of the efficient proximate cause rule. Hiller v. Allstate Pro. & Cas. Ins. Co., 2012 U.S. Dist. LEXIS 84862 (E.D. Wash. June 19, 2012).
The Hillers purchased a newly constructed home in December 2006. They also purchased an all-risk homeowner's policy from Allstate.
In July 2010, the Hillers discovered that the carpet in the basement of the residence was saturated with water. Allstate was immediately notified. Hiller began an investigation to attempt to determine the source of the water. He poured water into a downspout drain at the northwest corner of the residence. This caused water to leak into the northwest corner of the home's basement.
An area was excavated around the northwest downspout drain. The end of the drain pipe was partially blocked by rocks and had been wrapped with fabric landscaping material. Further, a “T” pipe installed at the foot of the drain was directing water toward the house's concrete foundation. Hiller notified Allstate that the problems with the drain was due to construction defects and the system was designed to fail.
Allstate denied the claim. Based upon Hiller's information, coverage was excluded under the policy's surface water, subsurface water, inherent vice, and latent defect exclusions.
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Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
Construction Defect Not an Occurrence in Ohio
November 7, 2012 — CDJ Staff
The Ohio Supreme Court has concluded that claims of defective construction or workmanship are not an occurrence under a general liability policy. The court looked at appellate decisions and concluded that CGL policies are not intended to insure against risks under the control and management of the insured. These risks should instead be mitigated with performance bonds.
The question was raised in the case Westfield Ins. Co. v. Custom Agri Systems, Inc. The Sixth District Court of Ohio concluded it was an “open question under Ohio law whether a CGL policy covers defective construction claims.” Westfield filed a motion, granted by the Sixth Circuit, to certify the question to the state Supreme Court. The Sixth Court additionally found that the contractual liability exclusion barred coverage in the case, issues a summary judgment to Westfield.
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Insurer’s Discovery Requests Ruled to be Overbroad in Construction Defect Suit
October 28, 2011 — CDJ Staff
The US District Court has ruled in the case of D.R. Horton Los Angeles Holding Co. Inc. v. American Safety Indemnity, Co. D.R. Horton was involved in a real estate development project. Its subcontractor, Ebensteiner Co., was insured by ASIC and named D.R. Horton as an additional insured and third-party beneficiary. D.R. Horton, in response to legal complaints and cross-complaints, filed for coverage from ASIC under the Ebensteiner policy. This was refused by ASIC. ASIC claimed that “there is no potential coverage for Ebensteiner as a Named Insurer and/or D.R. Horton as an Additional Insured.” They stated that “the requirements for coverage are not satisfied.”
The case same to trial with the deadline for discovery set at March 1, 2011. ASIC stated they were seeking the developer’s “job file” for the Canyon Gate project. D.R. Horton claimed that ASIC’s discovery request was overbroad and that it would be “unduly burdensome for it to produce all documents responsive to the overbroad requests.”
D.R. Horton did agree to produce several categories of documents, which included:
“(1) final building inspection sign-offs for the homes that are the subject of the underlying litigation;(2) an updated homeowner matrix for the underlying actions; (3) the concrete subcontractor files; (4) the daily field logs for D.R. Horton’s on-site employee during Ebensteiner’s work; (5) documents relating to concrete work, including documents for concrete suppliers; (6) documents relating to compacting testing; (7) documents relating to grading; and (8) D.R. Horton’s request for proposal for grading”
The court found that the requests from ASIC were overbroad, noting that the language of the ASIC Request for Production of Documents (RFP) 3-5 would include “subcontractor files for plumbing, electric, flooring, etc. - none of these being at issue in the case.” The court denied the ASIC’s motion to compel further documents.
The court also found fault with ASIC’s RFPs 6 and 7. Here, D.R. Horton claimed the language was written so broadly it would require the production of sales information and, again, subcontractors not relevant to the case.
Further, the court found that RFPs 8, 10, 11, and 13 were also overbroad. RFP 8 covered all subcontractors. D.R. Horton replied that they had earlier complied with the documents covered in RFPs 10 and 11. The court concurred. RFP 13 was denied as it went beyond the scope of admissible evidence, even including attorney-client communication.
The court denied all of ASIC’s attempts to compel further discovery.
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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Limitations of Liability in Subcontractors’ Contracts May Not Be Enforceable in Colorado to Limit Claims by Construction Professionals.
October 23, 2012 — Heidi J. Gassman, Higgins, Hopkins, McLain & Roswell
The Colorado Homeowner Protection Act of 2007 (“HPA”), codified at C.R.S. § 13-20-806(7), specifically voids express waivers of, or limitations on, a residential property owner’s ability to enforce any rights, remedies, and damages provided by law in a construction defect case. Practically speaking, this means that limitation of liability provisions in contracts between construction professionals and residential homeowners are void and will not be enforced in Colorado. The HPA can extend even further, however, to subcontractors on residential projects, as seen in a recent District Court ruling.
The HPA was tested in Thacker v. Gallery Homes, et al., v. Terracon Consultants, Inc., et al., Larimer County District Court Case No. 2007CV1195. Gallery Homes hired Terracon to provide geotechnical and structural engineering services at the Colony Ridge subdivision in Loveland, Colorado. Terracon performed work for Gallery Homes under three separate contracts, each of which included a provision limiting Terracon’s total liability to Gallery Homes.
After the project was completed, two homeowners filed suit against Gallery Homes for alleged construction defects involving movement of their basement floor systems and foundations and damage to porches, patios, garages, and driveways. Gallery Homes sued Terracon as a third-party defendant, and Terracon sought to enforce its limitation of liability provisions via a partial summary judgment motion.
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Reprinted courtesy of Heidi J. Gassman, Higgins, Hopkins, McLain & Roswell, LLC. Ms. Gassman can be contacted at gassman@hhmrlaw.com
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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School District Settles Construction Lawsuit
November 7, 2012 — CDJ Staff
The Franklin County, Pennsylvania Public Opinion reports that an area school is coming to an end with its construction lawsuit. The school district was sued by its contractors for a combined $1.4 million, which the school district withheld when the project was not completed on schedule. Lobar Inc. claimed that the district additionally owed interest and should pay attorney fees. The school claimed that only $1.15 million was due under the contract. Under the settlement, they will be paying $1.136 million.
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Mississippi exclusions j(5) and j(6) “that particular part”
June 7, 2011 — CDCoverage.com
In Lafayete Ins. Co. v. Peerboom, No. 3:10cv336 (S.D. Miss. June 2, 2011), claimant homeowner Peerboom hired insured contractor Absolute to raise Peerboom’s house two feet to avoid future flooding. While Absolute was raising the house, it fell, resulting in physical injury to the home. Peerboom sued Absolute for negligence, breach of contract, and fraud, seeking damages for the destruction of the home. Absolute’s CGL insurer Lafayette defended under a reservation of rights and filed a declaratory judgment action.
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Reprinted courtesy of CDCoverage.com
Judge Concludes Drywall Manufacturer Sold in Florida
September 13, 2012 — CDJ Staff
A Florida judge has concluded that the Chinese drywall manufacturer Taishan actively sought to sell its products in Florida and cannot now claim that it was not involved. Judge Joseph Farnia also noted that the main distributor of the drywall was, as noted in the Miami Herald, an arm of the company. Lennar Hones has sued the firm after installing drywall manufactured by the company in hundreds of homes.
Taishan’s activities in Florida included not only distributing samples, but also hosting tours of their plants in China for construction executives, and even making customized runs. According to other reports, has lost past cases over defects in their drywall.
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Construction Defects Are Occurrences, Says Georgia Supreme Court
July 10, 2012 — CDJ Staff
Michael Bradford writes about the implications of a March decision of the Georgia Supreme Court in which the court found that “negligent construction resulting in damage to surrounding property constitutes an occurrence under a commercial general liability policy. The contractor in the case, American Empire Surplus Lines Insurance Co. Inc. vs. Hathaway Development Co. Inc, argued that a damage caused by a plumbing subcontractor’s work was covered. American Empire was the insurer for the plumbing subcontractor.
Bradford notes that this follows similar decisions in other courts. The George court ruled that “an occurrence can arise where faulty workmanship causes unforeseen or unexpected damage to other property.”
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No Choice between Homeowner Protection and Bankrupt Developers?
February 10, 2012 — CDJ Staff
Donna DiMaggio Berger, writing in the Sun Sentinel argues those may be the only current choices in Florida. A recent court case, Lakeview Reserve HOA v. Maronda Homes has caused a swift response from the legislators. Ms. Berger notes that the construction defect bill, HB 1013, “would take away a homeowner’s rights to pursue a developer for defects to the driveways, roads, sidewalks, utilities, drainage areas and other so-called ‘off-site’ improvements.” The alternative? She notes that applying the Maronda decision would “bankrupt developers who don’t build defect-free roads and sidewalks.”
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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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