Developer’s Fraudulent Statements Are His Responsibility Alone in Construction Defect Case
February 10, 2012 — CDJ Staff
The Texas Court of Appeals ruled on December 21 in the case of Helm v Kingston, a construction defect case. After purchasing what was described as “an extremely well-built” two-bedroom townhouse, Mr. Kingston made complaints of construction defects. Greenway Development did not repair the defects to Kingston’s satisfaction, and he filed notice of suit. In his suit, he claimed that GDI and its president, John Helm, had committed fraud and negligent misrepresentation. Kingston claimed that Helm “fraudulently induced Kingston to believe that the townhouse evidenced the highest quality of workmanship when in fact the quality of workmanship was atrocious.” Helms brought a counterclaim that Kingston’s suit was frivolous.
About four years after Kingston purchased the townhome, the suit proceeded to trial. The trial court determined that Helm was not “liable in his individual capacity,” but this was reversed at appeal.
A second trial was held ten years later on the question of whether Kingston’s unit was a townhome or an apartment. A jury found that Helm “engaged in a false, misleading or deceptive act or practice that Kingston relied on to his detriment.” Kingston was awarded $75,862.29 and an additional $95,000 in attorney fees by the jury. Helms made an unsuccessful appeal to the Appeals Court, after which Kingston was awarded an additional $10,000. Helms then made an unsuccessful appeal to the Texas Supreme Court, which lead to an additional $3,000 for Kingston. There was also a verdict of $48,770.09 in pre-judgment interest and “five percent post-judgment interest accruing from the date of the judgment until the time the judgment is paid. Helm appealed.
In his appeal, Helm raised seven issues, which the court reorganized into five Kingston raised one issue on cross-appeal.
Helms’ first claim was that Kingston “failed to satisfy the requirement of” Texas’s Residential Construction Liability Act and that by not filing under the RCLA, Kingston’s fraud and misrepresentation claims were preempted. Further Helms claimed that the RCLA limited Kingston’s damages. The court rejected this, as the RCLA deals with complaints made to a contractor and not only did Helm fail to “conclusively establish” his “status as a ‘contractor’ under the statutory definition,” Helm testified that he was “not a contactor” at the pre-trial hearing.
Helms’s second claim was that Kingston’s later claim of a misconstructed firewall should be barred, claiming that Kingston “‘had knowledge of a defect in the firewall’ as early as 1997 but did not assert them until 2007.” The court rejected this because Kingston’s claim was that “Helm ‘fraudulently induced Kingston to believe that the townhouse evidenced the highest quality of workmanship when in fact the quality of the workmanship was atrocious.’”
Helms also challenged whether his statements that the residence was of “good quality” constituted fraud and misrepresentation under Texas’s Deceptive Trade Practices-Consumer Protection Act. The court concluded that Helm was in a position to make knowledgeable statements and further that “residential housing units are not artistic works for which quality is inherently a matter of subjective judgment.” Helm also claimed that Kingston could have avoided certain repair expenses through the “exercise of reasonable care.” Helms argued that the repairs could have been made for $6,400. The court disagreed, as these claims were cited only to invoke the DTPA, and that later petitions established additional defects.
Helms’s next claim was that he was not allowed to designate responsible third parties. The court rejected this because there GDI represented matters concerning the residence only through Helm’s statements. The court noted that “Helm is correct that?third parties may be liable for fraud if they ‘participated in the fraudulent transactions and reaped the benefits,’” but they note that “Helm never specifically alleged that GDI or CREIC participated in Helm’s alleged fraudulent transactions.
The final issue in the decision was about court costs, and here the court denied claims on both sides. Helm argued that the award of legal fees were excessive, as they exceeded the actual damages. The court noted that they “may not substitute our judgment for that of the jury,” and also that “the ratio between the actual damages awarded and the attorney’s fees is not a factor that determines the reasonableness of the fees.” But the court also rejected Kingston’s claim for post-judgment interest on $10,312.30 that Helm had deposited in the trial court’s registry. The court noted that the monies were to be paid out upon final judgment, but the mandate did not include any reference to interest.
Read the court’s decision…
El Paso Increases Surety Bond Requirement on Contractors
April 25, 2011 — April 25, 2011 Beverley BevenFlorez - Construction Defect Journal
The city of El Paso has recently increased surety bonds required of contractors from $10,000 to $50,000, according to the El Paso Times. Proponents of the increase believe it was necessary to protect homeowners from fly-by-night builders, while opponents argue that the increase will have an adverse effect on an industry in that is already suffering due to the economic slowdown.
Arguments for and against the increase have been flooding the blogosphere with their views. Christian Dorobantescu on the Small Business Entrepreneur Blog claims that “only about 15% of the city’s 2,500 contractors had been able to secure a higher bond to remain eligible for work after the new requirements were announced.” However, insurance companies have a different take. “From a surety broker standpoint, most contractors will be able qualify for the bond; some will just have to pay higher premium rates to obtain it,” a recent post on the Surety1 blog argues.
While the increased bond may help homeowners deal with construction defect claims, it is not clear what effect it will have on builders in El Paso.
Read more from the El Paso Times…
Read more from the Small Business Entrepreneur Blog…
Read more from the Surety1 Blog…
Homeowner’s Policy Excludes Coverage for Loss Caused by Chinese Drywall
November 18, 2011 — Tred Eyerley, Insurance Law Hawaii
Exclusions barred the homeowners from recovering for losses caused by Chinese drywall in their home. Ross v. C. Adams Const. & Design, L.L.C., 2011 La. App. LEXIS 769 (La. Ct. App., released for publication Oct. 5, 2011).
Two years after purchasing their home, the Rosses began experiencing chronic malfunctions in the heating, ventilation and air conditioning system. After discovering the presence of gypsum drywall, or "Chinese drywall", they submitted a claim to their insurer, Louisiana Citizens Property Insurance Company, for damages caused by the Chinese drywall. Louisiana Citizens denied the claim.
The Rosses sued. The trial court granted summary judgment to Louisiana Citizens based upon exclusions in the policy.
On appeal, the appellate court first agreed the Rosses had sustained a direct physical loss. The inherent qualities of the Chinese drywall created a physical loss to the home and the drywall had to be removed and replaced.
Read the full story…
Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
Federal Court Denies Summary Judgment in Leaky Condo Conversion
August 4, 2011 — CDJ Staff
In the US District Court for Illinois, Judge William Hibber has rejected the request for summary judgment sought by the developers of a condominium building in the case of Nautilus Ins. Co. v. 1735 W. Diversey, LLC (the insureds). The insureds renovated a building at 1735 W. Diversey, Chicago, converting it into condominiums. After the project was completed and all units sold, and a condominium association form, one of the owners found that unit suffered leaks during rainstorms. The condo board hired a firm, CRI, to investigate the cause of the leakage. CRI found “water infiltration through the exterior brick masonry walls, build-up of efflorescence on the interior surfaces of the masonry, and periodic spalling of portions of the brick masonry.”
The redevelopment firm had purchased coverage from Nautilus. “Shortly after the Board filed its first complaint, the Insureds tendered the mater to Nautilus and requested that it indemnify and defend them from the Board's underlying claims. Nautilus, however, rejected the Insureds’ tender and denied coverage under both insurance policies.” Nautilus stated that the water leakage did not constitute an occurrence under the policies. The court cited these policies in which an occurrence is defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” The Illinois courts have determined that construction defects are not accidents.
The court concluded that the insured did not bring forth claims within the coverage of the policies and denied the motion for summary judgment.
Read the court’s decision…
Boston’s Tunnel Project Plagued by Water
August 11, 2011 — CDJ Staff
Boston’s Tip O’Neil Tunnel, part of the “Big Dig” project, is suffering from water leaks which has lead to millions of dollars of damage, according to an article in the Boston Globe. The report quotes Frank DePaola, the highway administrator, as likening the water leaks to “three garden hoses.” The project’s chief engineer notes that those “three garden hoses” add up to 17 million gallons a year.
Further, the chief engineer reports notes that the leaks could compromise both safety and structural integrity. Problems have included a 110-pound light fixture that fell in February, ventilation ducts clogged with ice during the winter, and mold in utility rooms and ventilation buildings.
Read the full story…
Virginia Chinese Drywall and pollution exclusion
May 27, 2011 — CDCoverage.com
In Nationwide Mut. Ins. Co. v. The Overlook, LLC, No. 4:10cv69 (E.D. Va. May 13, 2011), homeowner Edmonds sued insured developer/general contractor Overlook seeking damages resulting from defective Chinese drywall installed in Edmonds’ home. Overlook’s CGL insurer Nationwide defended Overlook under a reservation of rights and filed a declaratory judgment action. The federal district trial court granted Nationwide’s motion for summary judgment.
Read the full story…
Reprinted courtesy of CDCoverage.com
Texas Windstorm Insurance Agency Under Scrutiny
April 5, 2011 — April 5, 2011 Beverley BevenFlorez - Construction Defect Journal
Representative Larry Taylor has introduced a bill in the Texas Legislature (HB 2818) that would further regulate the Texas Windstorm Insurance Agency (TWIA). According to Taylor, “In order to be adequately prepared for future hurricane seasons, it is imperative that TWIA be operating at maximum efficiency, that the Reserve Trust Fund be solvent and that the agency have adequate management measures in place to protect consumers and ensure that claims are paid in a timely manner. House Bill 2818 is an important step in the right direction toward restoring public confidence in TWIA.”
HB 2818 includes measures that would create an expert panel that would advise the commissioner on how to evaluate loss from the storm, and a greater transparency of TWIA Board meetings and actions.
In addition, the Texas Department of Insurance (TDI) has placed TWIA on Administrative Oversight. According to TDI, “While under Administrative Oversight, the Department may require its prior review and approval of executive decisions, certain expenditures, and other transactions. The insurer is required to fully cooperate with the Department and provide complete and timely disclosure of all information responsive to Department requests.”
Read the full story (Rep. Taylor’s Press Release)...
Read the full story (Texas Department of Insurance’s Press Release)...
Ohio Court Finds No Coverage for Construction Defect Claims
March 1, 2012 — Tred Eyerly, Insurance 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 cause 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.
Read the full story…
Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
Save a Legal Fee: Prevent Costly Lawsuits With Claim Limitation Clauses
April 25, 2012 — Douglas Reiser, Builders Cousel
Ever had that lingering problem with a contracting partner that went away for awhile and then came back to bite you ? years later? In Washington, construction contract claims can be raised for up to six years after substantial completion. Six years!? Why would I want to wait that long to find out if I have a problem? You don’t have to.
Over the past few years, I have discussed the notion of “contractual claim periods” on The Builders Counsel. For today’s Save a Legal Fee column, I cannot think of a better topic. These provisions are specifically intended to save you from unnecessary legal fees that might arise if a problem goes unnoticed for too long.
Contractual claim periods are simply a way to reduce the amount of time that a contracting party has to raise a claim against its contracting partner. For example, a subcontractor might require that a general contractor raise any claim that it might have ? for defective or incomplete work, injury, damages, etc ? within a particular amount of time or forever lose the ability to raise the claim in a legal proceeding.
Read the full story…
Reprinted courtesy of Douglas Reiser of Reiser Legal LLC. Mr. Reiser can be contacted at info@reiserlegal.com
Changes To Indemnification Statute Are Here! Say Hello To Defense Duties
June 19, 2012 — Douglas Reiser, Builders Counsel
A months back, I discussed the passage of SHB 1559. The law changes the existing statutory indemnification regulation to include the costs of defense and to rid contracts of unfair indemnification for someone else’s sole negligence. The law went into effect last week!
Check back to my recent article on the changes set forth in the new law. The amendments to RCW 4.24.115 will broaden the existing law and clarify what types of indemnification are unenforceable. In short, an “up the chain” contractor (such as a general contractor) cannot expect to pass 100% of the defense and indemnification obligations downward if it is partially liable.
Read the full story…
Reprinted courtesy of Douglas Reiser of Reiser Legal LLC. Mr. Reiser can be contacted at info@reiserlegal.com
Williams v. Athletic Field: Hugely Important Lien Case Argued Before Supreme Court
June 17, 2011 — Douglas Reiser, Builders Counsel
Well, it finally made it. The most important Washington lien case of recent memory was argued in front of the Washington Supreme Court on Tuesday, June 14, 2011. So, what should we all expect?
As I was reading through my RSS feeds this afternoon ? I was stopped dead in my tracks. Williams v . Athletic Field, the Division II case that has been a frequent topic here on Builders Counsel, has finally been argued before the Supreme Court. All of you who have been anxiously awaiting this day, you can check out the Supreme Court submissions by following this link.
The Williams case has been the center of attention for construction lawyers and construction organizations over the past year. Some have called for complete lien law reform, others have tried to patch a hole in the law. Now, we can expect a ruling from the highest court in the state. That ruling will have a major impact on whether the Legislature feels compelled to change lien law.
Read the full story…
Reprinted courtesy of Douglas Reiser of Reiser Legal LLC. Mr. Reiser can be contacted at info@reiserlegal.com
More Charges in Las Vegas HOA Scandal
September 13, 2012 — CDJ Staff
The indictments continue in the Las Vegas HOA scandal. A lawyer for the Justice Department told the judge in the case that “we expect several indictments before the end of the year.” According to the Las Vegas Review Journal, “a dozen or more” additional people will be charged in the conspiracy.
The judge in the case, Senior U.S. District Judge Lloyd George, told prosecutors that he wanted to address the issue of compensation for homeowners. Currently, defendants have agreed to pay $1.5 million to compensate homeowners associations and banks. Vistana homeowners have claimed that the conspirators got the bulk of a $19 million construction defect settlement.
Read the full story…
Coverage for Construction Defects Barred by Business Risk Exclusions
September 1, 2011 — Tred Eyerley, Insurance Law Hawaii
Although the court determined there was an occurrence, coverage was excluded by the business risk exclusions. See Cont’l W. Ins. Co. v. Shay Constr. Co., 2011 U.S. Dist. LEXIS 82839 (D. Colo. July 28, 2011).
White was the general contractor on the project. White had three subcontracts with Shay to provide framing, siding, and related work on the project. Shay was insured under a CGL policy issued by Continental Western.
Two of Shay’s subcontractors furnished materials, labor and equipment to Shay. These subcontractors filed suit in state court alleging they had not been compensated for the work and materials. White and Shay were named as defendants. White cross claimed against Shay, alleging Shay had breached its obligations under the subcontracts. Several allegations sounded in contract. Other allegations, however, contended Shay had performed defective work and had damaged the work of other trades in correcting deficiencies in its own performance.
Shay sought coverage under Continental Western’s policy. Continental Western filed suit for a declaratory judgment and moved for summary judgment.
Read the full story…
Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
Georgia Law: “An Occurrence Can Arise Where Faulty Workmanship Causes Unforeseen or Unexpected Damage to Other Property”
March 5, 2011 — By
CDCoverage.com, March 5, 2011
In American Empire Surplus Lines Ins. Co. v. Hathaway Development Co., Inc., No. S10G0521 (Ga. March 7, 2011), insured plumbing subcontractor Whisnant was sued by general contractor Hathaway seeking damages for costs incurred by Hathaway in repairing damage to property other than Whisnant’s plumbing work resulting from Whisnant’s negligently performed plumbing work on three separate projects. On one project, Whisnant installed a pipe smaller
Read the full story... Reprinted courtesy of CDCoverage.com
Supreme Court of Oregon Affirms Decision in Abraham v. T. Henry Construction, et al.
April 20, 2011 — April 20, 2011 Beverley BevenFlorez - Construction Defect Journal
After reviewing the decision in Abraham v. T. Henry Construction, et al., the Oregon Supreme Court affirmed that a tort claim for property damage arising from construction defects may exist even when the homeowner and the builder are in a contractual relationship.
When the case was initially filed, the plaintiffs alleged breach of contract and negligence. The defendants moved for summary judgment arguing that one, the claim was barred by the six-year statute of limitations and two, no special relationship (such as one between a doctor and patient) existed. The court agreed with the defendants. However, the Court of Appeals while affirming the trial court’s decision on breach of contract reversed the decision on negligence. The Court of Appeals stated that an administrative or statute rule could establish a standard of care independent from the contract.
The Oregon Supreme Court gave an example of cases where a tort claim could exist when a contract is present: “If an individual and a contractor enter into a contract to build a house, which provides that the contractor will install only copper pipe, but the contractor installs PVC pipe instead (assuming both kinds of pipe comply with the building code and the use of either would be consistent with the standard of care expected of contractors), that failure would be a breach of contract only. […] If the failure to install the copper pipe caused a reduction in the value of the house, the plaintiff would be able to recover that amount in an action for breach of contract. […] On the other hand, if the contractor installed the PVC pipe in a defective manner and those pipes therefore leaked, causing property damage to the house, the homeowner would have claims in both contract and tort. […] In those circumstances, the obligation to install copper instead of PVC pipe is purely contractual; the manner of installing the pipe, however, implicates both contract and tort because of the foreseeable risk of property damage that can result from improperly installed pipes.”
Read the court’s decision…
Town Files Construction Lawsuit over Dust
August 16, 2012 — CDJ Staff
Washington Township in Ohio has filed a lawsuit against Underground Utilities for their handling of construction fill on a road project. The City of Mansfield had hired the firm to improve road safety. The lawsuit is over the company’s actions in processing soil for fill, which they are doing on three vacant lots that are zoned for residential use. Washington Township Trustee Jack Butler told the Mansfield Journal that “what brought the lawsuit to a head was the fact that the contractor did not control the dust.” Subsequent receiving notices of zoning violations, the company began to move its operation to another site.
Read the full story…
Was Jury Right in Negligent Construction Case?
September 30, 2011 — CDJ Staff
Yes, said the South Carolina Court of Appeals in Pope v. Heritage Communities, Inc. Heritage Communities developed Riverwalk, a community in South Carolina. During the earlier trial, HCI “conceded that construction defects existed at Riverwalk, and repairs needed to be made.” The trial court found that the construction was negligent, awarding the property owners association $4.25 million in actual damages and $250,000 in punitive damages, with the class of owners awarded $250,000 in actual damages and $750,000 in punitive damages. HCI appealed on nine issues. All were rejected by the appeals court.
The court rejected HCI’s claim that the judge’s instruction to the jury suggested to the jury that “the court had already determined that Appellants were willful, wanton, and reckless.” But here, the appeals court found “no reversible error.”
The general contractor for Riverwalk was BuildStar. Off-site management and sale were managed by Heritage Riverwalk, Inc., which also owned title to the property. Both these companies were owned by Heritage Communities, Inc. During the trial, an HCI employee testified that “the three corporations shared the same officers, directors, office, and telephone number.” The trial court found that the three entities were amalgamated. This was upheld by the appeals court.
Nor did the appeals agree with the HCI that the trial court had improperly certified a class. The owners were seen as properly constituting a class. Further, the court held that the property owners’ losses were properly included by the trial court. HCI objected at trial to the inclusion of evidence of subsequent remedial measures, however, as they did not object that it was inadmissible, the issue could not be addressed at appeal.
HCI argued on appeal that the trial court should not have allowed evidence of defects at other HCI developments. The appeals court noted that “the construction defects at the other HCI developments were substantially similar to those experienced by Riverwalk.”
The court additionally found that the negligence claims, the estimated damages (since full damage could not be determined until all defective wood was removed), and the award of punitive damages were all properly applied.
Read the court’s decision…
Webinar on Insurance Disputes in Construction Defects
July 10, 2012 — CDJ Staff
Seth Lamden, of the firm Neal Gerber Eisenberg will be presenting a webinar on “Insurance Coverage Disputes in Construction Defects” on July 17, 2012 at 1 p.m. EDT. Mr. Lamden’s presentation will focus on “handling both the construction and insurance components of construction defect claims.” He will be discussing recent case law and new insurance products. The presentation will present information on evaluating various types of insurance policies, explaining common issues, contract requirement, and the economic loss doctrine. Mr. Lamden will advise attendees on how to avoid getting into a construction defect case. He will conclude his presentation with a brief question-and-answer session.
Read the full story…
