Florida trigger
May 18, 2011 — May 18, 2011 - CDCoverage.com
In Johnson-Graham-Malone, Inc. v. Austwood Enterprises, Inc., No. 16-2009-CA-005750-XXXX-MA (Fla. 4th Cir. Ct. Duval County, April 29, 2011), insured JGM was the general contractor for an apartment project completed in 1998. In 2007, the project owner sued JGM seeking damages for defective construction resulting in moisture penetration property damage. JGM tendered its defense to Amerisure. Amerisure denied a defense. JGM defended and settled the underlying suit and then filed suit against Amerisure seeking recovery of defense and settlement costs. The trial court granted JGM’s motion for partial summary judgment. The court first addressed Amerisure’s duty to defend. Applying Florida law, the court held that, although the underlying complaint alleged that the property damage was not discovered until after expiration of the Amerisure policies
Read the full story…
Reprinted courtesy of CDCoverage.com
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
After Construction Defect Case, Repairs to Austin Building
August 2, 2012 — CDJ Staff
The Austin Business Journal reports that remediation is about to begin on Met Center 10, a building that was “at the center of a complex structural defect case.” Claims were made that Grubb & Ellis failed to disclose known structural defects to a group of investors who purchased the building. The brokerage was ordered to pay $6.75 million. Repairs will take an estimated six months at a cost of $3.7 million.
Read the full story…
Negligent Construction an Occurrence Says Ninth Circuit
June 30, 2011 — CDJ Staff
One June 27, the US Court of Appeals has rejected an appeal from Mid-Continent Casualty Company. Mid-Continent had appealed a summary judgment granted to Titan Construction Company.
Titan Construction had built condominiums for the Williamsburg Condominium Association, which later filed a construction defect lawsuit against Titan and other defendants. Titan settled with the developer, Kennydale, assigning its rights against Mid-Continent to Kennydale. Mid-Continent filed suit, claiming that “it had no obligation to indemnify or defend Titan, Kennydale, or various other defendants.” The district court found in favor of Mid-Continent, granting a summary judgment, concluding that Titan’s insurance covered “occurrences,” and none had taken place.
On appeal, the court found that the negligent construction of the condominiums constituted an “occurrence” The case was remanded and the district court this time found in favor of Titan, “concluding that Mid-Continent failed to raise a triable issue as to the applicability of the remaining policy exclusions.
The Ninth Circuit Court of Appeals has now affirmed that decision and Titan’s summary judgment stands.
Read the court’s decision…
California Assembly Bill Proposes an End to Ten Year Statute of Repose
May 9, 2011 — May 9, 2011 Beverley BevenFlorez - Construction Defect Journal
California Assemblyman Furutani has introduced a bill that if passed would eliminate the ten year statute of repose in certain construction defect cases. The statute of repose would not apply when “an action in tort to recover damages for damage to real or personal property, or for personal injury or wrongful death from exposure to hazardous or toxic materials, pollution, hazardous waste, or associates environmental remediation activities,” according to the latest amended version of AB 1207.
When Furutani first introduced the bill, it was aimed at small businesses only. However, the description of the bill, which read, “An act to amend Section 14010 of the Corporations Code, relating to small businesses” has been stricken from the bill, and it has been amended to read, “An act to amend Section 337.15 of the Code of Civil Procedure, relating to civil actions.”
The change in the bill’s intent has caused some outcry among attorneys in the blogosphere. For instance, Sean Sherlock of Snell & Wilmer stated that “the proposed amendment is unnecessary, and would upset nearly 50 years of deliberative legislation and judicial precedent on construction defects liability and the 10–year statute — all apparently motivated by a decision in a single, isolated Superior Court lawsuit that has not yet been reviewed by the court of appeal.” Sherlock is referring to Acosta v. Shell Oil Company, in which the Superior Court agreed to dismiss the plaintiffs’ claims against the developer based in part on the ten year statute of repose. AB 1207 was amended five days after the ruling in Acosta v. Shell Oil Company.
California AB 1207 has been re-referred to the Judiciary Committee.
Read the full story…
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…
Exclusion Bars Coverage for Mold, Fungus
October 23, 2012 — Tred Eyerly, Insurance Law Hawaii
The court considered whether rain damage to a house was barred by the policy's mold exclusion. Stewart v. State Farm Fire & Cas. Co., 2012 U.S. Dist LEXIS 127804 (D. S.D. Sept. 7, 2012).
The insureds hired DJ Construction to build a new home. Before construction was completed, it was discovered that DJ Construction and some of its subcontractors had failed to protect the partially constructed house from the elements, which allowed melting snow and rain to intrude into the house. Soon after this discovery, DJ Construction abandoned the project. The house remained incomplete and uninhabitable.
The insureds sued DJ Construction.
Read the full story…
Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
Texas “your work” exclusion
January 6, 2012 — CDCoverage.com
In American Home Assurance Co. v. Cat Tech, L.L.C., No. 10-20499 (5th Cir. Oct. 5, 2011), claimant Ergon hired insured Cat Tech to perform service on a reactor at Ergon’s refinery. During a start-up of the reactor after Cat Tech had completed its work, the reactor suffered damage. Cat Tech performed additional service and repairs. However, again upon start-up of the reactor, it suffered additional damage. Ergon hired another contractor to repair the reactor. Ergon initiated arbitration proceedings against Cat Tech. Cat Tech’s CGL insurer American Home defended Cat Tech against the Ergon arbitration under a reservation of rights.
Read the full story…
Reprinted courtesy of CDCoverage.com
Texas exclusions j(5) and j(6).
April 27, 2011 — April 27, 2011, by CDCoverage.com
In Evanston Ins. Co. v. D&L Masonry of Lubbock, Inc., No. 07-10-00358-CV (Tex. Ct. App. April 18, 2011), insured masonry subcontractor D&L sued its CGL insurer Evanston to recover costs incurred by D&L for the replacement of window frames damaged by D&L while performing masonry work adjacent to the window frames. The trial court granted summary judgment for D&L.
Read the full story…
Reprinted courtesy of CDCoverage.com
Illinois Court Determines Insurer Must Defend Property Damage Caused by Faulty Workmanship
July 11, 2011 — Tred R. Eyerly, Insurance Law Hawaii
The Illinois Court of Appeals determined the insurer must defend allegations of property damage arising from faulty workmanship. Milwaukee Mut. Ins. Co. v. J.P. Larsen, Inc., 2011 Ill. App. Unpub. LEXIS 1443 (Ill. Ct. App. June, 20, 2011).
Larsen was a subcontractor for Weather-Tite in a condominium building. Weather-Tite installed windows on the project and hired Larsen to apply sealant to the windows. The windows subsequently leaked and caused water damage within the complex.
The homeowner’s association sued Weather-Tite for breach of express and implied warranties. Weather-Tite filed a third-party complaint against Larsen, seeking contribution and alleging that Larsen was in breach of contract by failing to add Weather-Tite as an additional insured under Larsen’s CGL policy.
Both Weather-Tite and Larsen tendered to Larsen’s insurer. Both tenders were denied because the insurer contended the complaints alleged only construction defects, and not “property damage” or an “occurrence” within the terms of the policy.
The insurer filed suit for a declaratory judgment. The trial court granted the insurer’s motion as to Weather-Tite, but granted Larsen’s cross-motion 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
Preparing for Trial on a Cause of Action for Violation of Civil Code section 895, et seq.
May 10, 2012 — Samir R. Patel, Esq., Lorber, Greenfield, & Polito, LLP
In 2002, the California Legislature enacted the Right to Repair Act (hereinafter “SB-800”), as codified in Title VII of the Civil Code. As set forth in Civil Code section 895, et seq., SB-800 established a set of standards for residential construction, and provides a statutory protocol to address alleged violations of those standards. SB-800 applies to all new single family homes sold after January 1, 2003, and it created its own cause of action governed completely by its own terms, in that in order to state a cause of action under SB-800, a plaintiff may only allege a violation of the Act. (Civ. Code, § 938.) Under Civil Code sections 896, 897, 943, and 944, the Legislature made it clear that it intended to create a single cause of action for construction defects in homes that fall under the purview of SB-800. By passing SB-800, the Legislature eliminated multiple and often redundant or conflicting causes of action, burdens of proof, statutes of limitations, and types of damages that were common in construction defect actions prior to the enactment of the same.
Civil Code section 895, et seq. has significantly changed the landscape of construction defect lawsuits. Yet, for years, the only attention given to the statutes focused solely on the codified pre-litigation process that requires plaintiffs and builders to meet and confer regarding defects and attempt a process to repair the alleged defects before litigation is pursued. A major impediment to the implementation of the pre-litigation procedures has often been that the statutes specifically state that the information obtained during the pre-litigation process is admissible at trial. Hence, through use of the pre-litigation process, plaintiffs’ counsel can engage in a builder funded fishing expedition and later use the information obtained to advance their litigation goals. As such, many builders have chosen to opt out of codified pre-litigation process altogether, an option which the builder can elect within their Purchase and Sale Agreements.
Recently, counsel for builders throughout California have turned their attention to the “exclusive remedy” aspect of SB-800 by seeking, often successfully, to limit plaintiffs to a single cause of action for violation of SB-800. Civil Code section 943 makes clear that a cause of action for violation of SB-800 performance standards is a plaintiff’s sole remedy for a residential construction defect action. Civil Code section 943 states:
Except as provided in this title, no other cause of action for a claim covered by this title or for damages recoverable under 944 is allowed. (Civ. Code, § 943.) Â
The question remains: what is the benefit of requiring plaintiffs to trim down their complaint and eliminate their tried and true common law causes of action, and requiring them to pursue only a single cause of action for violation of SB800?
The construction standards enumerated within SB-800 include fifty-plus functionality standards. On their face, any benefit to pursuing a construction defect action under a single cause of action for violation of SB-800 initially appears trivial at best, in light of the fact that a jury may be very confused with the complexity of the functionality standards set forth within the Civil Code. Nevertheless, Title VII of the Civil Code actually contains numerous provisions that builders can utilize to their benefit throughout the process of construction defect litigation, including during preparation for trial.
First and foremost, counsel for builders can assert numerous affirmative defenses that will be beneficial if the matter proceeds to trial. These affirmative defenses, as codified in Civil Code section 945.5, include mitigation, in whole or in part, for damages caused by: an unforeseen act of nature; a homeowner’s failure to allow reasonable and timely access for inspections and repair under the pre-litigation procedures; the homeowner’s failure to follow the builder’s recommendations and commonly accepted homeowner maintenance obligations; ordinary wear and tear; misuse; abuse; or neglect. Builders should include these affirmative defenses within their responsive pleadings and as trial approaches, prepare appropriate motions in limine and request special jury instructions regarding the same. As frustrated builders and their attorneys are well aware, many construction defect suits result from a homeowner’s failure to properly maintain their property in a manner that is consistent with normal maintenance procedures and guidelines. Furthermore, within the ten year statute of limitations for most defects, ordinary wear and tear is often attributable to numerous deficiencies alleged by plaintiffs. The affirmative defense for a homeowner’s failure to allow inspections and repairs is also vital, as plaintiffs’ counsel may encourage a homeowner to forego the repair and seek monetary damages, allowing plaintiffs’ counsel to ultimately obtain their share of attorney’s fees. Therefore, the SB-800 statutes provide the builder with recourse and distinctive mitigation defenses that were previously and confusingly mixed into tort and contract related defenses. These affirmative defenses can also be utilized by counsel during the cross-examination of plaintiff homeowners and expert witnesses. Defense counsel should fully grasp these defenses and utilize them as defense themes throughout litigation.
As a plaintiff is limited to a single cause of action for violation of SB-800, if defense counsel has failed to properly eliminate excessive tort and contract causes of action prior to trial, a motion for summary adjudication, or at the very least, a motion for judgment on the pleadings should be brought to limit the introduction of evidence outside of a single cause of action for violation of SB-800. Practical judges are always looking for ways to streamline and expedite trials, and they are currently ruling that SB-800 is the exclusive remedy available to plaintiffs. In fact, plaintiffs’ firms in SB-800 matters are now voluntarily limiting their complaints to this one cause of action.
Special jury instructions can also be crafted to limit a jury’s computation of damages pursuant to Civil Codesection 944, which provides the method for computing damages within a construction defect action, as follows:
If a claim for damages is made under this title, the homeowner is only entitled to damages for the reasonable value of repairing any violation of the standards set forth in this title, the reasonable cost of repairing any damages caused by the repair efforts, the reasonable cost of repairing and rectifying any damages resulting from the failure of the home to meet the standards, the reasonable cost of removing and replacing any improper repair by the builder, reasonable relocation and storage expenses, lost business income if the home was used as a principal place of a business licensed to be operated from the home, reasonable investigative costs for each established violation, and all other costs or fees recoverable by contract or statute. (Civ. Code, § 944.) [Emphasis added.]
Civil Code section 944 specifically prohibits recovery for damages outside the scope of its explicit language as it states “the homeowner is only entitled to ... damages for the reasonable value of repairing any violation of the standards set forth in this title....” [Emphasis added.] The statute ultimately provides a “reasonableness” standard for the computation of damages that did not exist when computing damages on traditional common law tort and contract claims. Therefore, defense counsel should prepare special jury instructions to limit evidence of damages introduced at trial to the reasonable value of repairing any violation of the standards, and to exclude any evidence of damages beyond the reasonableness standard. Defense counsel should seize the opportunity to utilize the theme of “reasonableness” when attacking plaintiffs’ allegations and plaintiffs’ proposed repair methodology throughout the discovery process and at trial.
Defense counsel may also prepare a motion in limine or special jury instruction regarding the limitation of evidence regarding defects that did not cause resultant damage. Civil Code section 897 states:
Intent of Standards
The standards set forth in this chapter are intended to address every function or component of a structure. To the extent that a function or component of a structure is not addressed by these standards, it shall be actionable if it causes damage. (Civ. Code, § 897.) [Emphasis added.]
Defense counsel can argue that the introduction of any evidence supporting a claim for construction-related deficiencies that are not enumerated within Civil Code section 896, or for deficiencies where no damage has occurred is prohibited and must be excluded at trial. This requirement of resultant damages is familiar as the general rule was previously established in Aas v. Superior Court (2000) 24 Cal.4th 627, in which the California Supreme Court held that there is no tort recovery for construction defects that have not actually caused property damage. The legislature effectively codified this rule within Civil Code section 897.
A motion in limine can also be crafted to limit expert testimony to the standards enumerated in Civil Code section 896, and to deficiencies that caused damage pursuant to Civil Code 897. The motion in limine can be based upon Civil Code section 943 and the fact that claims for defects in homes which were sold after January 1, 2003 may only be pursued under a single cause of action for violation of SB-800. As such, expert testimony should be controlled by the standards set forth in Civil Code section 896. Furthermore, throughout a construction defect matter, defense counsel should ensure that their experts are well versed with the standards and that they can provide testimony that utilizes the same. Defense counsel’s knowledge of the standards will also be helpful during the cross-examination of plaintiffs’ expert witnesses.
If, despite the efforts of defense counsel, the complaint still has numerous causes of action, or if only some homes fall under the purview of SB-800 while others do not, defense counsel can utilize a motion to bifurcate trial. The motion’s basis is that a cause of action for violation of SB-800 will require the introduction of evidence regarding the violations of the fifty-plus standards, and the tort and contract-based claims would also require the introduction of a wide range of evidence to prove each cause of action. For example, in order to prove the tort causes of action, plaintiffs must prove elements such as: duty, breach, proximate and actual causation, and that the builder placed the homes into the stream of commerce. (See Richards v. Stanley (1954) 43 Cal.2d 60, 63; Kriegler v. Eichler Homes, Inc. (1969) 269 Cal.App.2d 224, 227.) On the contract causes of action, plaintiffs must prove the existence of a valid written contract for the sale of the home, including proof regarding the existence of basic contractual elements such as offer, acceptance, and consideration. (Civ. Code, § 1624 subd. (a); Roth v. Malson (1997) 67 Cal.App.4th 552, 557.) Defense counsel can argue that exposing the jury to elements that may or may not be applicable to all of the homes in the action will complicate and confuse the jury. Thus, concurrently exposing the jury to the SB-800 claims and the non-SB-800 claims will necessitate undue consumption of time, and create the substantial danger of undue prejudice of confusing the issues or misleading the jury.
One of the most important and relevant features of the SB-800 statutes is that they include shortened statutes of limitation as to certain enumerated defects. The codified statutes of limitations apply from the date of “close of escrow,” and are much more definitive than statutes of limitations regarding tort and contract claims. Therefore, they can be utilized within a motion for summary adjudication in cases where only one or a few defects are alleged. For example, under Civil Code section 896, et seq., there is a five year limitation on paint (Civ. Code, § 896, subd. (g)(1)); a four year limitation on plumbing fixtures (Civ. Code, § 896, subd. (e)); a three year limitation on landscaping (Civ. Code § 896, subd. (g)(12)); and a one year limitation on irrigation systems and drainage (Civ. Code, § 896, subd. (g)(7)). The non-SB-800 claims are subject to a four year statute of limitation for patent defects and a ten year statute of limitation for latent defects. (See Code of Civ. Proc., §§ 337.1, 337.15.) The contrast between the statute of limitations for the SB-800 claims and non-SB-800 claims can complicate a matter at trial, further establishing the necessity to limit plaintiffs to a single cause of action for violation of SB-800. Hence, defense counsel should also utilize a motion to bifurcate the statute of limitations issues from the issue of liability if a question of fact exists. If successful on the motion to bifurcate, plaintiff’s counsel will be barred from the introducing evidence at trial regarding a defect where the statute of limitations has run.
Defense counsel should also seek to simplify the construction standards for the jury. Ultimately, by drafting jury instructions and a special verdict form that is easy to navigate, counsel can promote an easy interpretation of the standards enumerated within the Civil Code. The best route for drafting a special verdict form is to draft it as a check-list, similar to a traditional real estate walk-through check-list. By incorporating the shortened statutes of limitations into the special verdict form, defense counsel can effectively frame the case for the jury. The special verdict form should also allow the jury to easily eliminate any claim for damages that is mitigated, in whole or in part, through the codified affirmative defenses. Defense counsel should also consider drafting a trial brief that effectively and simplistically provides the trial court judge with an understanding of the specific defects before the court, and simultaneously notes which Civil Code standards are implicated and the scope of the same. If the trial judge is not well versed in construction defect litigation, defense counsel should be all the more careful in breaking down the parameters and limitations codified within SB-800 for the court.
The strategies outlined within this article are only a few tactics that can be utilized to defend a construction defect suit. Depending on the defect allegations within any particular case, defense counsel should become intimately familiar with Title VII of the Civil Code and use all aspects of the same to their advantage. If not, plaintiffs’ counsel will have the advantage during “court-house step” settlement discussions and at trial.
Printed courtesy of Samir R. Patel, Esq. of Lorber, Greenfield, & Polito, LLP. Mr. Patel can be contacted at spatel@lorberlaw.com.
South Carolina Contractors Regain General Liability Coverage
May 20, 2011 — CDJ Staff
PR Newswire reports that the Carolinas Associated General Contractors (CAGC) have successfully persuaded the South Carolina legislature to pass a bill restoring commercial general liability (CGL) coverage. Governor Nikki Hartley signed the legislation on May 17.
A South Carolina Supreme Court decision given on January 7, 2011, had ended commercial general liability coverage in the state. Senate Bill 431 addressed this decision, restoring the ability of home builders to obtain CGL coverage.
PR Newswire quotes South Carolina homebuilder, Allen Amsler: “We have seen a lot of legislation with substantial impact to our business over the years. However, I would place this in the same level of importance with the original tort reform legislation. The effects of the Supreme Court’s ruling could have been catastrophic to our industry in South Carolina had it not been for this bill. Thanks to all those in the House, Senate and the Governor’s office who assisted us.”
Read the full story…
Contractor Underpaid Workers, Pocketed the Difference
February 10, 2012 — CDJ Staff
Property Casualty 360 reports that the owner of a construction company in California’s Bay Area has been arraigned in San Francisco Superior Court. The fifty-seven felony counts include charges of payroll theft and insurance fraud.
San Francisco District Attorney, George Gascon is quoted as saying that Doherty’s actions “hurts the honest businesses that were unable to successfully compete for these projects which the defendant was able to underbid and win as a result of this scheme.”
Frances Ann Doherty, owner of Doherty Painting & Construction has been charged with submitting false documentation as to what wages she paid her workers. It is alleged that over three years she pocketed $600,000. Additionally, she is charged with underpaying her insurer by more than $100,000 by submitting to them the fake payroll information.
Read the full story…
A Performance-Based Energy Code in Seattle: Will It Save Existing Buildings?
August 11, 2011 — Douglas Reiser, Builders Counsel
The City of Seattle has one of the most stringent energy codes in the nation. Based upon the Washington State Energy Code (which has been embroiled in litigation over its high standards), the code demands a lot from commercial developers. But, does it prevent developers from saving Seattle?s classic and old buildings? Perhaps.
The general compliance procedure requires buildings to be examined during the permitting process. This means that buildings are examined before they begin operating. The procedure is not malleable and is applicable to all buildings, old and new, big and small.
The downside of this procedure is that it eliminates awarding compliance to those buildings exhibiting a number of passive features, such as siting, thermal mass, and renewable energy production. This problem has prevented a number of interesting and architecturally pleasing existing building retrofits from getting off the ground. The cost of complying with the current system can be 20% more, and it might prevent builders from preserving a building?s historical integrity.
Read the full story…
Reprinted courtesy of Douglas Reiser of Reiser Legal LLC. Mr. Reiser can be contacted at info@reiserlegal.com
LEED Certified Courthouse Square Negotiating With Insurers, Mulling Over Demolition
June 6, 2011 — Douglas Reiser in the Builders Counsel Blog
Apparently, Courthouse Square is still unresolved. The County hasnow hired an attorney to handle its insurance claim against Affiliated FM. Is there a lawsuit coming?
Right now, no lawsuit is expected. According to officials, the insurer has been acting in good faith. But, its been quite a while since Salem officials learned that the Courthouse Square building had significant concrete issues that would result in probable demolition of the LEED certified building.
If you have yet to hear about Courthouse Square, let me fill you in briefly. The Salem building was substantially completed in 2000 and LEED certified by the US Green Building Council in 2002. The project cost more than $30 Million to complete and the building was revered for its innovation as a crowning achievement for city leaders.
But, structural problems in the building’s core were discovered as early as 2002, writes Chris Cheatham of Green Building Law Update. Final tests earlier in the year, determined that the building had to be vacated. The building has been clear since July 2010.
Read the full story…
Reprinted courtesy of Douglas Reiser of Reiser Legal LLC. Mr. Reiser can be contacted at info@reiserlegal.com
Arbitration Clause Found Ambiguous in Construction Defect Case
October 28, 2011 — CDJ Staff
The California Court of Appeals ruled on September 28 in the case of Burch v. Premier Homes. Ms. Burch bought a home after negotiating various addendums to the contract. The contract was a standard California Association of Realtors contract to which both the buyer and seller made additions. At issue in this case was paragraph 17 of the contract which included that “Buyer and Seller agree that any dispute or claim in Law or equity arising between them out of this Agreement or resulting transaction, which is not settled through mediation, shall be decided by neutral, binding arbitration.”
The seller/defendant’s Addendum 2 “included provisions relating to the arbitration of disputes that may arise.” Ms. Burch’s realtor, Lisa Morrin, told Burch that “she had never seen a proposed contractual provision that would require a home buyer to agree to arbitrate with a builder over construction defects.” Ms. Burch told Morrin that she did not want to buy the property if she would have to give up her rights under California law.
As part of Addendum 2, the buyer had to buy a warranty from the Home Buyers Warranty Corporation. The sale was held up for a while, as Ms. Burch waited for a copy of the warranty. When she received it, she took further exception to Addendum 2. Scott Warren of Premier Homes said he could not sell the property without Addendum 2. Ms. Burch told her realtor that despite the claims made by Mr. Warren that this was for her benefit, she felt it was more to the benefit of Premier Homes. Don Aberbrook of HBW agreed to the clause, contained in the final sentence of Addendum 2, being struck.
Subsequent to buying the home, Burch submitted a claim concerning construction defects. HBW denied the claim and Burch began an action against the defendants. Premier filed a motion to compel arbitration which Burch opposed.
The trial court ruled that the striking out of the arbitration clause at the end of Addendum 2 “created a conflict with respect to the parties’ intent as to the scope of arbitration.” The trial court found that “the parties’ intention was to preserve Burch’s right to make state law claims including her right to a jury trial for any non-warranty claims against the builder.”
The appeals court in their ruling looked at the standard of review and concluded that the purchase agreement was ambiguous and that extrinsic evidence was required to resolve that ambiguity. As the contract contained contradictory provisions as to whether or not arbitration was required, it was necessary for the trial court to examine these claims. The appeals court found that the evidence supported the conclusions of the trial court.
Finally, the appeals court found that “there was no valid agreement to arbitrate disputes.” The court noted that arbitration can only happen by mutual consent and “it is clear that Burch did not enter into an agreement to arbitrate any construction defect disputes she might have.”
Read the court’s decision…
Court Grants Summary Judgment to Insurer in HVAC Defect Case
August 4, 2011 — CDJ Staff
The US District Court in Colorado has determined in the case of RK Mechanical, Inc. v. Travelers Property Casualty Company of America that Travelers did not breach its insurance contract when it refused to cover RK Mechanical.
RK Mechanical performed an HVAC installation for a residential project for which J.E. Dunn Rocky Mountain was the general contractor. As part of the work, RK “installed approximately one hundred seventy-one CPVC flanges, which were manufactured by Charlotte Pipe and Foundry Company.” Two of these flanges failed in June, 2009 leading to water damage. RK replaced the cracked flanges and engaged in water remediation. “Travelers paid Dunn and RK for the costs associated with the water damage associated with the Flange Failure.” The court notes that Travelers did not pay for the cracked flanges, however.
Subsequently, RK examined the remaining flanges, finding many cracked ones. These were replaced with new ones. Later, all the Charlotte flanges were replaced with ones from another manufacturer. RK applied for coverage.
All sides brought in their experts: “Microbac Laboratories, Inc. prepared a report on behalf of RK concluding that the Flange Failure was due, in part, to an assembly or workmanship defect in addition to manufacturing defects in the flanges. Higgins & Associates prepared a report on behalf of Travelers concluding that the flanges failed due to improper installation. Plastic Failure Labs prepared a report on behalf of the flange manufacturer concluding that the flanges failed due to improper installation by RK.”
At this point, Travelers denied coverage. RK sued alleging that the coverage for flange failure and water damage implicitly includes mitigation costs. The court rejected this claim, noting it would do so even if Travelers had paid for the replacement of the first two flanges. Nor did the court find that replacement of the faulty flanges is not "a covered cause of loss." RK also argued that as it was required to mitigate, Travelers was obligated to cover costs. However, the court found that “the mitigation costs expended by RK were not incurred in an effort to avoid damages from a potential breach of contract by Travelers.” The court additionally noted that despite RK’s claims, the Colorado courts have not found a common law duty to mitigate. Finally, the court found that the exclusions in the policy were not in violation of public policy.
Read the court’s decision…
Illinois Court Determines Insurer Must Defend Negligent Misrepresentation Claim
December 9, 2011 — Tred R. Eyerly, Insurance Law Hawaii
Although the insureds disclosed flooding problems in the basement, the buyers purchased their home. USAA Cas. Ins. Co. v. McInerney, 2011 Ill. App. LEXIS 1130 (Ill Ct. App. Oct. 31, 2011). In a supplemental disclosure, the insureds reported that during heavy rains light seepage occurred in the basement.
After moving in, the buyers experienced significant water infiltration and flooding in the basement. The buyers and their children also began to experience mold-related illnesses.
The buyers sued for rescission of the contract or, in the alternative, damages. They alleged breach of contract, fraudulent misrepresentation and negligent misrepresentation. In the claim for negligent misrepresentation, the buyers alleged that the insureds carelessly omitted the fact that there were material defects in the basement and foundation when they should have known of such defects.
Read the full story…
Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
