Contractor Sues License Board
June 30, 2011 — CDJ Staff
Judge Kendall J. Newman of the US District Court handed down a decision on June 24 on the case of Kent v California Department of Consumer Affairs. Mr. Kent, appearing as his own counsel, had brought the suit against the California Department of Consumer Affairs and the Contractors State Licensing Board after he was arrested in a sting operation and, as the plaintiff put it, “was absurdly arrested and uncooperatively detained for a time longer than necessary or allowed by law under the false pretense of contracting with out a license.” Mr. Kent’s alleged that Rick Lopez, one of the defendants, formed him to read allow from the California Business and Professions Code. He said he was later handcuffed and placed in an uncomfortable chair, “enduring physical pain and emotional agony.”
Although Kent was given a Notice to Appear, he alleged that a further defendant, Stuart Rind, “closed the plaintiff’s case marked citation A7773 without giving written notice to anyone.” As a result, the Placer County District Attorney’s Office had no record of his Notice to Appear.
Kent alleged that subsequently his firm was essentially shut down for two years and that he was prevented from “legally contracting or selling services for any other contractor or qualifying for any other licensed capacity governed by the CSLB.” After this, the CSLB suspended the license for his firm, DSI Construction. He was assessed a $1,500 fine, after which he claims he sent a letter to the CSLB demanding money damages. The judge noted that the letter was not included in the plaintiff’s Ninth Amended Complaint.
Judge Kendall recommended that the plaintiff’s Complaints be dismissed, although he did allow that sixth, and perhaps the eighth and ninth, could be amended with a tenth amended complaint.
Read the court’s decision…
All Risk Policy Only Covers Repair to Portion of Dock That Sustains Damage
January 6, 2012 — Tred Eyerly, Insurance Law Hawaii
A portion of a dock on Lack Michigan operated by the Ports of Indiana suffered visible damage. See Ports of Indiana v. Lexington Ins. Co., 2011 U.S. Dist. LEXIS 130979 (S.D. Ind. Nov. 14, 2011). Lexington Insurance Company insured the port. Lexington agreed that a portion of the dock was damaged and paid $1.2 million for repairs. A dispute arose, however, over whether additional sections of the dock were damaged and whether the damage was the result of more than one "occurrence."
An expert report opined that a significant drop creating record lows in the water level of Lake Michigan in 2007 caused damage to the dock. Lexington maintained that only 128 feet of the dock was damaged; other portions of the dock did not sustain "direct physical loss or damage."
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Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
Insurance Firm Under No Duty to Defend in Hawaii Construction Defect Case
September 13, 2012 — CDJ Staff
The US District Court for Hawaii has granted a motion for summary judgment in Evanston Insurance v. Nagano. The case is related to a construction defect claim, Hu v. Nagano, and the issue at hand is whether Evanston Insurance is obligated to defend the Naganos in the underlying case.
The Hus hired Eric Nagano and his firm PMX to construct a house. Mr. Nagano’s firm was insured by Evanston, however, he lost his contractor’s license in “approximately March 2006.” Mr. Nagano sought the Hus’ authorization to allow HC Builders to take over the contract. HC Builders is headed by Mr. Nagano’s wife, Hiroko, who has held a contractor’s license since “approximately September 2006.” Ms. Nagano and HC Builders were also insured by Evanston Insurance. The house, started by PMX was finished by HC Builders.
The Hus authorized construction to begin in July 2003, but “construction did not commence until approximately October 2004 and, even after commencement, there were numerous delays resulting in months of inactivity on the Project.” The Hus had expressed to Mr. Nagano and PMX “that the construction period could not exceed twelve months after July 1, 2003.” As a result of the delays, “the Hus’ community association fined them because of the prolonged construction and the Hus’ construction lender assessed extension fees and fines for exceeding the term of the loan.”
The Hus noted that the project did not have a licensed contractor from March through September 2006. In the end, the Hus “allege that Defendants did not fulfill the obligations under the Construction Contract,” and that “the Project was ‘grossly delayed’ and the construction was ‘riddled with defects.’” Despite an Owner’s Notice of Completion filed in December 2007, the residence “had no electricity, no hot water, ... no installed appliances” and “parts of the flooring were either missing or incomplete.” And then it leaked.
The Naganos tendered the defense to Evanston. The Naganos “allege the defense is limited because Evanston: allowed default to be entered against the Naganos (the default was later set aside); delayed retaining experts; and limited the ability of the Naganos’ retained counsel to perform necessary actions to advance the case.” Evanston argues that it “does not have a duty to defend or indemnify Defendants against the Hus’ claims,” as the Hus’ claims are not covered under the policy. Further, the PMX policies have an exclusion for breach of contract.
The court concluded that all of the claims made by the Hus were based in contract and therefore were outside of the terms of the Naganos insurance coverage, as the courts have "construed Hawaii law as not providing for insurance coverage for contract related claims." Therefore, Evanston does not have a duty to defend the Naganos.
Read the court’s decision…
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.
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The Complete and Accepted Work Doctrine and Construction Defects
August 16, 2012 — CDJ Staff
Matthew C. Bouchard of Lewis & Roberts PLLC, writes how North Carolina is “bucking the trend” on the “complete and accepted work doctrine.” As he notes, in most states “a contractor can be found liable for personal injuries suffered by third parties from accidents occurring after the contractor’s work is completed and accepted.” But one exception is North Carolina.
He gives the example of a case, Lamb v. D.S. Duggins Welding, Inc., in which a site superintendent was “injured by the alleged negligence of the project’s steel deck installer, a sub-subcontractor in the contractual chain” “after the sub-sub’s work had been completed and accepted.” The trial court held that the “completed and accepted work doctrine” ended the subcontractor’s liability. The case noted that “employees of the general contractor had modified the installation of the perimeter safety cable in question after the sub-sub had demobilized from the site.”
Mr. Bouchard notes that “once a project is accepted and turned over, the contractor typically loses control over maintenance of the new facility.” However, he notes that “where the contractor’s work constitutes negligence ?Ķ the doctrine may not apply.” Nor does it end breach of contract claims. It only covers third parties.
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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.
BHA Expands Construction Experts Group
October 28, 2011 — Bert L. Howe & Associates, Inc. - Corporate Offices
Bert L. Howe & Associates, Inc., one of the nation’s leading construction forensics firms is pleased to announce the expansion of the company’s civil and structural engineering capabilities.
JERRY M. MILES, PE - Mr. Miles has been a licensed civil engineer in California since 1987 and has served as the lead civil engineer on many projects in several states. His experience includes contract administration services as the owner’s representative on a variety of projects including mastered planned communities, residential subdivisions, shopping centers and multi-family residential projects. He has also been involved in providing water quality management plans and storm water pollution prevention plans. Mr. Miles has also served on the Town of Apple Valley’s Building Department Dispute Resolution Board.
His more than 26 years of engineering experience includes geotechnical evaluations, structural design of wood-framed, masonry, and concrete tilt-up buildings, small and large subdivision engineering construction/improvements plans, hydrology/hydraulic reports and design, forensic investigation and expert witness testimony. Mr. Miles has qualified as an expert in numerous jurisdictions and Federal court. He has been called upon to provide deposition testimony on more than twenty-five occasions and has successfully testified at arbitration and trial. Click here to view Mr. Miles’ Current CV.
MATTHEW J. STIEFEL, PE - With a background that spans a multitude of design and new construction projects to catastrophic claims analysis, Mr. Stiefel brings a unique set of credentials and experience to the construction experts group at Bert L. Howe & Associates. Mr. Stiefel has more than 13 years’ experience in civil, structural, and geotechnical engineering; providing design and construction consulting services on a variety of projects that include multi-family and single family dwellings, commercial buildings, transportation facilities, industrial facilities, storm drain channels, water and wastewater pipelines. His engineering experience encompasses multiple disciplines of civil engineering including geotechnical design and evaluation, foundation design, structural design of wood-framed buildings, preparation of grading plans and site drainage analysis. He has provided cause and origin analysis for insurance adjusters on many residential and commercial sites related to issues involving moisture intrusion and mold, foundation movement, site drainage, soil movement, wind damage, and other various losses. Click here to view Mr. Stiefel’s Current CV.
MGM Seeks to Demolish Harmon Towers
September 1, 2011 — CJD Staff
Citing public safety concerns and the cost of repair, MGM Resorts International is seeking to demolish the unfinished hotel tower. The company has a few hurdles to go through before they start laying the charges to implode the structure. Any plans would have to be approved by not only Clark County officials, but also the district court has an order blocking any activity during litigation between MGM and the general contractor on the project, Perini Building Company.
Architectural Record reports that MGM states it would take “approximately 18 months to conduct test and come up with an approved, permitted design to fix the Harmon.” MGM feels that repairs would then take another two to three years. Perini contends that they could “provide stamped drawings detailing all necessary repairs within three months.” They attribute MGM’s desire to demolish the building as “buyer’s remorse.”
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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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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
Pipes May Be Defective, But Owners Lack Standing
September 13, 2012 — CDJ Staff
The United States District Court in Minnesota has determined that Steven and Cecilia Thundander cannot make a class-action claim against Uponor, Inc. over the plumbing in their home, as they do not have Article III standing. In this situation, the alleged defect is that Uponor made fraudulent claims that the pipes met National Sanitation Foundation (NSF) standards for use in potable water systems. Uponor submitted samples of other pipes, and their substitution was discovered when the NSF made an inspection of the manufacturing facility. The court noted that “the Thunanders contend that Uponor failed to inform homeowners, plumbers and consumers that it had been selling pipe that failed to meet NSF toxicity requirements at the time of sale and installation.”
The Court noted that the Thunanders have not tested their piping to determine if they “demonstrate toxicity or lack of compliance with the NSF 61 standards,” noting also that the Complaint seeks to require Uponor to instruct the plaintiffs on “how to test the piping and water to determine the level of risk.” Lacking testing, the Court could not find that the Thundanders have defective pipes. The Court found that the “Plaintiffs have failed to adequately plead an injury in fact sufficient to confer standing as to their product liability claims.”
The Court also concluded that it could not determine if the Plaintiff’s warranty actions could not be applied, as they “have failed to allege a plausible defect.” Even in the presence of a defect, the Court noted that more than eight years had passed before the filing of the suit, when the warranties under both Indiana and Minnesota law have a four-year statute of limitations. The Court also rejected the Thunanders tort claims, once again because “Plaintiffs have not tested their pipes,” noting that “a tort requires the existence of an injury.”
In conclusion, Judge Nelson rejected the entirety of the complaint, granting the motions to dismiss by the defendants. However, despite the problems with the Thunanders’ claims, she found that they were not “patently frivolous or groundless.” Therefore, she denied attorney fees requested by one of the defendants.
Read the court’s decision…
Defective Shingle Claims Valid Despite Bankruptcy
June 19, 2012 — CDJ Staff
The Third Circuit Court has allowed claims to go forward against Owens Corning for making allegedly defective shingles. The shingles split, leading to leaking roofs. The building products manufacturer filed for bankruptcy in 2000, which “extinguished” claims against it. The company was facing millions in liabilities over asbestos lawsuits.
The lawsuit was filed in 2009. The courts initially found the lawsuit timely, but the Third Circuit Court later applied determined the exposure stated before the bankruptcy. On appeal, the court has reversed this and is again allowing the suit to proceed.
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Fifth Circuit Asks Texas Supreme Court to Clarify Construction Defect Decision
November 7, 2012 — CDJ Staff
The Fifth Circuit Court has withdrawn its decision in Ewing Construction Company v. Amerisure Insurance Company, pending clarification from the Texas Supreme Court of its decision in Gilbert Texas Construction, L.P. v. Underwriters at Lloyd’s London. The Fifth Circuit had applied the Gilbert case in determining that a contractual liability exclusion barred coverage for faulty workmanship. The Insurance Journal reports that this decision was both applauded and criticized, with a concern noted that “an insurer would now have its pick of either the ‘your work’ exclusion or the contractual liability exclusion without the exception for subcontracted work.”
The Fifth Circuit is now asking the Texas Supreme Court two questions to clarify Gilbert, which Brian S. Martin and Suzanne M. Patrick see as a sign that the Court has realized that it overly expanded the scope of the earlier ruling. A response is expected from the Texas Supreme Court by spring 2013.
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Building Boom Leads to Construction Defect Cases
August 2, 2012 — CDJ Staff
Professor Evan McKenzie of the University of Illinois at Chicago says that rise of construction defect litigation in the Las Vegas area followed the same pattern it did in other places, according to an article in the Las Vegas Review Journal. “Step one,” according to Professor McKenzie, “there was this enormous growth in construction. Then these attorneys began to swarm in from all over, especially Southern California.” McKenzie noted that during a building boom, construction “outpaces the ability of building inspectors to do their job.”
But, despite his contention that “rapid growth in housing stock” leads to “shoddy construction,” another problem of growth was that “eventually there were too many lawyers chasing too many condominium complexes and subdivisions.” What came next was that “attorneys start coming up with cases that really aren’t good cases.” It’s in the interest of these attorneys that HOA boards sue.
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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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Lawsuit over Construction Defects Not a Federal Case
August 16, 2012 — CDJ Staff
The United State District Court in California has dismissed the claims of a contractor against the United States government, on the grounds that it was not within the subject matter jurisdiction of the court. The origins of the case are in a related construction defect claim. The current plaintiff, Performance Contracting, Inc., did the lath and plaster work for a building for the Department of Veterans Affairs. After the building was completed, the Veterans Affairs complained to the general contractor, Wynema, Inc., of water intrusion problems.
Wyema and Performance conducted testing and the water intrusion was found to be due to “a variety of design defects and omissions, including: 1) omission of proper window flashing; 2) inadequate waterproof membrane around the windows; 3) inadequate T-molding around the windows; 4) lack of a window sill pan for the windows; 5) lack of any backing in the window framing; 6) lack of any backing for the stucco expansion joints and seams; and 7) failure to require that a performance mock-up of the window assembly and adjacent areas be built and water tested.” Wyema filed a construction defect action against Performance and other subcontractors.
In the current case, Performance claims that Veteran Affairs was negligent, that it “breached its duty to Plaintiff when it provided deficient plants and specifications” and “failed to properly oversee construction and inspect Project work.” The court determined that it could not hear this case, noting that “Federal Courts are presumptively without jurisdiction over civil actions.”
Performance raised its claims under the Federal Tort Claims Act. The judge was not persuaded by this claim, noting that the FTCA does not apply to purported breach of the General Contract. The FTCA waives the government’s sovereign immunity in cases of “injury or loss of property, or personal injury or death caused by the negligent or wrongful act or omission of an employee of the Government while acting within the scope of his office or employment, under circumstances where the United States, if a private person, would be liable to the claimant in accordance with the law of the place where the act or omission occurred.”
Performance was unable to pursue its claims in the Court of Federal Claims as there was no contract between Performance and the government. However, the court noted that Performance’s inability to file suit in the Court of Federal Claims does not open up a path to the District Court. “Litigants are not guaranteed a forum in which to sue the United States.” The court further noted that “if this Court were to accept Plaintiff’s logic, non-parties to contracts, but not parties, would be free to pursue contract claims in the fora of their choosing.”
Read the court’s decision…
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
Judge Rejects Extrapolation, Harmon Tower to Remain Standing
November 7, 2012 — CDJ Staff
CityCenter has filed an emergency motion asking the Nevada Supreme Court to intervene in Judge Elizabeth Gonzalez’ order that the building’s defects cannot be extrapolated from those tested. CityCenter’s structural engineering expert “evaluated 397 of the Harmon’s critical structural elements and found all but one defective,” according to the article on Vegas.Inc. Judge Gonzalez would not permit this to be extrapolated to the untested 1,072, as the locations tested were not random.
Judge Gonzalez also ruled that if CityCenter does additional testing, they may not appeal her order that ruled the extrapolation inadmissible. CityCenter argued to the Nevada Supreme Court that “the notion that CityCenter should be forced to incur additional millions of dollars in testing costs and sanctions ?Äì on the condition that it waive its right to appeal this ruling ?Äì just to be permitted to present its own damages evidence, shocks the conscience.”
Gonzalez gave the okay to CityCenter to demolish the building, but its demolition would make any further testing impossible. Under Gonzalez’ ruling, the untested structural elements cannot b assumed to be defective.
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