Seller Cannot Compel Arbitration for Its Role in Construction Defect Case<
March 1, 2012 — CDJ Staff
The buyer of a leaky home in Venice, California cannot be compelled to arbitration with the seller in a construction defect lawsuit, according to a decision in Lindemann v. Hume, which was heard in the California Court of Appeals. Lindemann was the trustee of the Schlei Trust which bought the home and then sued the seller and the builder for construction defects.
The initial owner was the Hancock Park Trust, a real estate trust for Nicholas Cage. Richard Hume was the trustee. In 2002, Cage agreed to buy the home which was being built by the Lee Group. Cage transferred the agreement to the Hancock Park Trust. Hancock had Richard Nazarin, a general contractor, conduct a pre-closing walk through. They also engaged an inspector. Before escrow closed, the Lee Group agreed to provide a ten-year warranty “to remedy and repair any and all damage resulting from water infiltration, intrusion, or flooding due to the fact that the door on the second and third floors of the residence at the Property were not originally installed at least one-half inch (1/2”) to one inch (1”) above the adjacent outside patio tile/floor on each of the second and third floors.”
Cage moved in and experienced water intrusion and flooding. The Lee Group was unable to fix the problems. Hume listed the home for sale. The Kamienowiczs went as far as escrow before backing out of the purchase over concerns about water, after the seller’s agent disclosed “a problem with the drainage system that is currently being addressed by the Lee Group.”
The house was subsequently bought by the Schlei Trust. The purchase agreement included an arbitration clause which included an agreement that “any dispute or claim in Law or equity arising between them out of this Agreement or any resulting transaction, which is not settled through mediation, shall be decided by neutral, binding arbitration.” The warranty the Lee Group had given to Hancock was transferred to the Schlei trust and Mr. Schlei moved into the home in May 2003.
Lindemann enquired as to whether the work done would prevent future flooding. Nazarin sent Schlei a letter that said that measures had been taken “to prevent that situation from recurring.” In February, 2004, there was flooding and water intrusion. Lindemann filed a lawsuit against the Lee Group and then added the Hancock Park defendants.
The Hancock Park defendants invoked the arbitration clause, arguing that Lindemann’s claims “were only tangentially related to her construction defect causes of action against the Lee Group.” On June 9, 2010, the trial court rejected this claim, ruling that there was a possibility of conflicting rulings on common issues of law. “With respect to both the developer defendants and the seller defendants, the threshold issue is whether there was a problem with the construction of the property in the first instance. If there was no problem with the construction of the property, then there was nothing to fail to disclose.” Later in the ruling, the trial court noted that “the jury could find there was no construction defect on the property, while the arbitration finds there was a construction defect, the sellers knew about it, and the sellers failed to disclose it.” The appeals court noted that while Hancock Park had disclosed the drainage problems to the Kamienowiczs, no such disclosure was made to Sclei.
The appeals court described Hancock Park’s argument that there is no risk of inconsistent rulings as “without merit.” The appeals court said that the issue “is not whether inconsistent rulings are inevitable but whether they are possible if arbitration is ordered.” Further, the court noted that “the Hancock Park defendants and the Lee Group have filed cross-complaints for indemnification against each other, further increasing the risk of inconsistent rulings.”
The court found for Lindemann, awarding her costs.
Read the court’s decision…
2011 West Coast Casualty Construction Defect Seminar – Recap
June 1, 2011 — CDJ Staff
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| Event exhibitors and sponsors contribute to an informative and engaging environment |
This year’s meeting was the best yet for the industry-leading construction defect and claims event.
This year’s seminar concluded on May 13, 2011 with the Construction Defect Community Charitable Foundation Golf Tournament, held at Strawberry Farms Golf Course.
The Disneyland Hotel in Anaheim, California was the place where more than 1,500 attendees convened for two days of professional development activities and seminars that included CLE workshops and panel discussions of special interest to legal and insurance professionals concerned with construction defect and claims litigation. Key events included “Challenges for Experts in Construction Defect Claims and Litigation,” “Keeping Up with Construction Defect Coverage,” and “Tips for Avoiding the ‘Perfect Storm’ in Handling of Wrap Claims.”
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| Supporting the golf tournament at the 15th hole |
This year’s Ollie award was given to George D. Calkins II, Esq. The West Coast Casualty Jerrold S. Oliver Award of Excellence was named in honor of the late Judge Jerrold S. Oliver, and recognizes an individual who is outstanding or has contributed to the betterment of the construction community.
In addition to being the most comprehensive professional development seminar in the area of construction defects, this year’s seminar was equally valuable as a networking opportunity for members of the industry. People participated in professional development events during the day and then continued networking in the evening at numerous social events. The Lawn Party as well as the legendary Wood, Smith, Henning & Berman events were very well attended. Additional valuable networking events were hosted by a number of industry professionals at the House of Blues, and Tortilla Joe’s.
As of this writing the 2011, West Coast Casualty's Construction Defect Seminar has applied for or has already received the following continuing education accreditation in the following areas;
Read the full story…
For more information about next year’s event, visit West Coast Casualty.
California Bill Would Notify Homeowners on Construction Defect Options
October 23, 2012 — CDJ Staff
The California Building Industry Association supported Assembly Bill 1892, but its goals of informing homeowners of their rights under SB800 have been accomplished through the administrative process. The Department of Consumer Affairs has now posted text on its web site noting that “prior to pursuing legal action or responding to a construction defect solicitation, you must first contact your home builder.” The text goes on to note that “if the homebuilder fails to follow any of the procedures, the homeowner is entitled to proceed with the filing of an action.”
Read the full story…
Mobile Home Owners Not a Class in Drainage Lawsuit
March 1, 2012 — CDJ Staff
Comparing it to a “complex construction defect action,” the California Court of Appeals for Orange County has rejected the claims of a group of mobile home owners that they should be certified as a class in their lawsuit against Huntington Shorecliffs Mobilehome Park. The Appeals court sustained the judgment of the lower court. The court issued a decision in the case of Criswell v. MMR Family LLC on January 17, 2012.
The claims made by the group were that the owners and operators of the mobile home park had known of an “on-going and potentially worsening shallow groundwater condition on the property” and had “exacerbated the problem by changing ‘the configuration and drainage related to the hillside that abuts’ the park.” The homeowners claimed that the class should consist of “any past or current homeowner during the same time frame” who had experienced “the accumulation of mold, fungus, and/or other toxins,” “property damage to his/her mobilehome and/or other property resulting from drainage problems, water seepage, water accumulation, moisture build-up, mold, fungus, and/or other toxins,” emotional distress related to drainage problems or mold, and finally health problems “resulting from exposure to drainage problems, water seepage, water accumulation, moisture build-up, mold, fungus, and/or other toxins, in or around one’s home, lot, or common areas of the park.”
The lower court concluded that while the limits of the class were identifiable, they failed to constitute a class in other ways. First, the people affected were small enough in number that they could be brought together. They “are not so numerous that it would be impracticable to bring them all before the Court.”
The court noted that while many of the homeowners would have issues in common, they did not find “a well-defined community of interest among the class members.” The Appeals Court wrote that “the individual issues affecting each mobile home and homeowner will predominate over the common issue of the presence of standing or pooling water in and around the park.” The court noted that each home would be affected differently by water and “the ‘accumulation of mold, fungus, and/or other toxins.’”
While the court conceded that there would be common issues, such as the “defendants’ alleged concealment of excess moisture conditions and their allegedly negligent roadwork and landscaping,” they noted that “these common issues would be swamped by the swarm of individual determinations of property damage, emotional distress, and personal injury.” The Appeals Court cited an earlier case that ruled against certification “if a class action ‘will splinter into individual trials.’” The court affirmed the judgment of the lower court that they could not proceed as a class.
Read the court’s decision…
Allowing The Use Of a General Verdict Form in a Construction Defect Case Could Subject Your Client to Prejudgment Interest
August 16, 2012 — Heather Anderson, Higgins, Hopkins, McLain & Roswell, LLC
A recent opinion from the Colorado Court of Appeals is a cautionary tale concerning the calculation of pre-judgment interest. See Hendricks v. Allied Waste Transportation, Inc., 2012 WL 1881004 (Colo. App. 2012). The Hendricks sued Allied after one of its drivers backed into the corner of their home with an Allied garbage truck. At trial, a jury awarded the Hendricks $160,100 in damages. Although the jury was instructed on the cost of repairs, diminution in value, and non-economic damages, the parties agreed to a general verdict form that did not ask the jury to specify the types of damages awarded. Id. at *1. The Hendricks sought to amend the judgment to include prejudgment interest and costs, which the trial court granted.
Allied appealed, arguing that the trial court erred by awarding the Hendricks prejudgment interest from the date their property was damaged. Id. at *7. The Colorado Court of Appeals found no error, and affirmed.
Read the full story…5
Reprinted courtesy of Heather Anderson, Higgins, Hopkins, McLain & Roswell, LLC. Ms. Anderson can be contacted at anderson@hhmrlaw.com
General Contractors Must Plan to Limit Liability for Subcontractor Injury
May 18, 2011 — May 18, 2011 - Douglas Reiser in the Builders Counsel Blog
It takes more than a hard hat, but safety checks, a good policy and a smart contract might save you some problems.If you are a general contractor, you will want to pay close attention to this article. A new Washington appellate decision showcases a general contractor’s liability to subcontractors who are injured on the job, when security barriers fail. But can a general limit this liability? Will its contract help?
In Wrought Corporation, Inc., Appellant V. Mario Interiano (quick note: this opinion is unpublished, but we are here to talk about an issue that was not determined on appeal – WISHA compliance), a subcontractor was injured when a security barrier failed and he fell into an elevator shaft.
A jury awarded a $1.56 million verdict against the general contractor, and the court of appeals affirmed on the basis that the general contractor has a non-delegable duty to ensure compliance with the Washington Industrial Safety and Health Act of 1973, codified under RCW 49.17 (WISHA).
Read the full story… Reprinted courtesy of Douglas Reiser of Reiser Legal LLC. Mr. Reiser can be contacted at info@reiserlegal.com
Continuous Trigger of Coverage Adopted for Loss Under First Party Policy
August 2, 2012 — Tred Eyerly, Insurance Law Hawaii
The Seventh Circuit predicted that the Wisconsin Supreme Court would adopt the continuous injury trigger for first party property loss that extends over several policy periods. Miller v. Safeco Ins. Co. of Am., 2012 U.S. App. LEXIS 12940 (7th Cir. June 25, 2012).
A home inspection report performed before the Millers purchased their home showed a soft spot on the roof. The stucco's finish color was also uneven and stained. Further, some water damage was found in the study and skylights above the kitchen sink. But the report advised that the exterior walls, chimney, grass roof, flashings, floor joists/beams and columns, garage walls and floor appeared serviceable. A roof specialist determined the soft spot was not significant and could be repaired for $1,500.
The Millers purchased a homeowner's policy from Safeco on June 30, 2005. The policy went into effect the next day when the Millers closed on the property. But the Millers did not see the policy's terms until Safeco mailed them a copy of the policy at the end of July.
Before receiving the policy, the Millers discovered severe inner wall water leaks and significant water infiltration on three of the home's exterior walls.
Read the full story…
Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
Harmon Towers Duty to Defend Question Must Wait, Says Court
March 1, 2012 — CDJ Staff
The Harmon Towers project in Las Vegas was eventually halted short of the planned forty-seven stories after “it was determined that there was substantial defective construction, including defective installation of reinforcing steel throughout the Harmon.” The American Home Insurance Company and Lexington Insurance Company put forth a claim that they had no duty to defend Perini Construction, the builder of the defective Harmon Towers. Further, American Home seeks to recover the monies American reimbursed Perini. The United States District Court of Nevada ruled in the case of American Home Assurance Co. v. Perini Building on February 3, 2012.
The two insurance companies covered Perini and its subcontractors, Century Steel, Pacific Coast Steel, and Ceco Concrete Construction. Century Steel was the initial subcontractor for the reinforcing steel; they were later acquired by Pacific Coast Steel. In this current case, Perini Construction is the sole defendant.
Perini sought a dismissal of these claims, arguing that without the subcontractors joined to the case, “the Court cannot afford complete relief among existing parties.” The court rejected this claim, noting that the court can determine the duties of the insurance companies to Perini, which the court described as “separate and distinct from those of the subcontractors.” The subcontractors “have not claimed an interest in the subject matter of the action.” The court concluded that it could determine whether Perini was entitled or not to coverage without affecting the subcontractors. The court rejected Perini’s claim.
Perini also asked the court to abstain from the case, arguing that it was better heard in a state court. The court noted that several considerations cover whether a case is heard in state or federal courts. The court noted that if the case weighed heavily on state law, the state courts would be the obvious location. Further, if there were a parallel action in the state courts, “there is a presumption that the whole suit should be heard in state courts.” This is, however, no parallel state suit, although the court noted that Perini has “threatened” to do so.
However, the issue of who is to blame for the problems at Harmon Towers has not been resolved. The court concluded that until the “underlying action” was concluded, it was premature to consider the issues raised in this case while the earlier lawsuit was still in progress. The court denied Perini’s motion to dismiss the case. Given that the outcome of the earlier construction defect case may lead to further litigation in state court, the District Court granted Perini’s motion to abstain, but staying their judgment until the construction defect case is resolved.
Read the court’s decision…
Arbitration Clause Not Binding on Association in Construction Defect Claim
June 19, 2012 — CDJ Staff
Determining that a community’s CC&Rs do not form an agreement to arbitrate, the California Court of Appeals has reversed the decision of the Superior Court inVerano Condo. Homeowners the Ass’n v. La Cima Dev., LLC (Cal. App., 2012). La Cima purchased an apartment complex in December 2004, which they converted into condominiums. In the process, La Cima created the CC&Rs, under which the Verano Condominium Homeowners Association came into being. One section of the CC&Rs included arbitration clauses. Additionally, the purchase agreements for individual condominium units also contained arbitration clauses. Subsequently, the owners became aware of construction defect both in units and in the common areas. The Association sued La Cima both in its own interest and on behalf of its members. La Cima moved to compel arbitration, which was denied by the trial court. La Cima appealed.
The court concluded that “CC&Rs are insufficient to form an agreement to arbitrate between La Cima and the Association.” The court noted that “no evidence exists to show the Association consented to the terms of the CC&Rs, either explicitly or implicitly.”
The court agreed with La Cima that the arbitration agreement applied to those owners who had purchased their units directly from La Cima. Moreover, as the conversion to condominiums involved interstate commerce, in part because a Delaware company was selling condominiums located in California, the court held that the Federal Arbitration Act (FAA) applied, and as such “even a state constitutional standard, such as the the jury waiver provision requirements of the California Constitution, cannot be used to circumvent the FAA in the face of an otherwise valid arbitration agreement.”
However, the court also held that there was “no agreement in the CC&Rs between La Cima and owners who did not purchase units directly from La Cima,” adding that “no meeting of the minds between La Cima and these later purchasers and their successors occurred.” The court did not believe that “the Legislature intended that CC&Rs would be used to provide continuing and irrevocable contractual development or role as a representative of the owners of the development.”
The purpose of the CC&Rs, according to the court are to “protect owners from one another and permit enforcement of its terms by the Association.” The court stated that “La Cima relinquished its interests in the land by selling its property and may not assert any rights under the CC&Rs following the transfer of its ownership interest.
In its conclusion, the court determined that claims must be organized in three classes. The claims the association made against La Cima for defects in the common area “are not subject to any valid agreement to arbitrate.” The second category are those owners who did not purchase their units directly from La Cima. Here, also, the court found that the units “are similarly not subject to a valid arbitration agreement.”
The third category, however, was “owners who purchased units directly from La Cima.” The court held that these arbitration agreements were valid, and if the claims were to be taken up by the association, the association could only submit these claims to arbitration. The lower court was instructed to separate these claims, as here La Cima’s motion could be granted.
Read the court’s decision…
Product Exclusion: The Big Reason Behind The Delay of LEED 2012
July 10, 2012 — Douglas Reiser, Builders Counsel
By now, you have probably heard that the USGBC has decided to delay implementation of its previously named “LEED 2012” rating system. What you might not know is exactly why this is happening. Rest assured that the decision was not made willy nilly ?Äì LEED 2012 had many industrial groups running for the hills.
I have spent the past few weeks reading a number of articles on the backlash. LEED 2012 was intended to create a seismic shift; it was not a mere update. A strict focus on reduction of chemicals, created mass panic that a large number of material providers’ products would essentially be banned from green projects ?Äì meaning most local, state and federal projects.
Read the full story…
Reprinted courtesy of Douglas Reiser of Reiser Legal LLC. Mr. Reiser can be contacted at info@reiserlegal.com
Plans Go High Tech
April 25, 2012 — CDJ Staff
One construction executive described it as “the wave of the future.” What is it? Accessing building plans on an iPad. According to an article in MacWorld, several companies are now offering solutions to distribute and update construction plans on iPads. Changes to plans and notes can be distributed quickly through cloud computing.
Alan Dillon, a senior superintendent at DPR Construction told MacWorld, “I can take my iPad into the field and have my whole set of drawings.” He described a set of drawings for a large construction project as “five or six inches thick.” Danielle Douthet, of Level 10 Construction said it “can help everyone be on the same page more quickly, and make sure that everybody is working off the most current set of documents.”
And it’s not just building plans. Other firms offer building management applications designed to be taken into the field on mobile devices.
Read the full story…
Nebraska Man Sentenced for Insurance Fraud in Construction Projects
July 10, 2012 — CDJ Staff
Thomas Herink has been ordered to repay more than $5 million to his victims and will be serving three years of probation after 18 months in jail for defrauding banks and insurance companies, according to a report in the Insurance Journal. Herink falsified financial statements to lenders and insurers so that his company, Golf Services Group Inc. could participate in construction projects.
Read the full story…
BUILD Act Inching Closer To Reality
July 8, 2011 — Douglas Reiser, Builders Counsel
A select group of Senators have launched a marketing campaign for the BUILD Act. If this is the first you are hearing about the BUILD Act, do not fret. The Act still has a long way to go, but if successful it would bring a national infrastructure bank.
I have been fascinated with the concept of a national infrastructure bank for quite some time. The idea has been around since the Clinton years ? and perhaps beyond. The Act’s purpose is to create a national bank (American Infrastructure Financing Authority) to provide loans and loan guarantees to encourage private investment in upgrading America’s infrastructure. For a number of years, we have seen similar legislation float around Congress. But, none of those initiatives have gained as much traction as BUILD.
Read the full story…
Reprinted courtesy of Douglas Reiser of Reiser Legal LLC. Mr. Reiser can be contacted at info@reiserlegal.com
Hospital Construction Firm Settles Defect Claim for $1.1 Million
September 13, 2012 — CDJ Staff
Law360 reports that Bovis Lend Lease has settled claims of $10 million in damages for $1.1 million. Bovis was building three annexes to a hospital in Oklahoma. The hospital alleged that a faulty moisture barrier system lead to damage throughout the hospital.
Bovis is a division of the Lend Lease Group, a multinational construction firm based Sydney, Australia.
Read the full story…
Construction Law Client Alert: California Is One Step Closer to Prohibiting Type I Indemnity Agreements In Private Commercial Projects
June 15, 2011 — Haight Brown & Bonesteel, LLP
On June 1, 2011 by majority vote, the California Senate passed Senate Bill 474, which would amend Civil Code section 2782, and add Civil Code section 2782.05. The passage of this new law is a critical development for real estate developers, general contractors and subcontractors because it will affect how these projects are insured and how disputes are resolved.
Civil Code section 2782 was amended in 2007 to prohibit Type I indemnity agreements for residential projects only. Since 2007, various trade associations and labor unions have lobbied to expand those very same restrictions to other projects. These new provisions apply to contracts, entered into after January 1, 2013, that are not for residential projects, and that are not executed by a public entity. The revisions provide that any provision in a contract purporting to indemnify, hold harmless, and defend another for their negligence or other fault is against public policy and void. These provisions cannot be waived.
A provision in a contract requiring additional insured coverage is also void and unenforceable to the extent it would be prohibited under the new law. Moreover, the new law does not apply to wrap-up insurance policies or programs, or a cause of action for breach of contract or warranty that exists independently of the indemnity obligation.
The practical impact of this new law is that greater participation in wrap-up insurance programs will likely result. While many wrap-up programs suffer from problems such as insufficient limits, and disputes about funding the self-insured retention, the incentive for the developer or general contractor to utilize wrap-up insurance will be greater than ever before because they will no longer be able to spread the risk of the litigation to the trades and the trade carriers.
Read the full story…
Reprinted courtesy of Steve Cvitanovic of Haight Brown & Bonesteel, LLP.
In Colorado, Primary Insurers are Necessary Parties in Declaratory Judgment Actions
December 9, 2011 — Heather M. Anderson, Colorado Construction Litigation
The United States District Court for the District of Colorado recently ruled that primary insurers are necessary parties, under Fed. R. Civ. P. 19, in a declaratory judgment action being pursued by an excess carrier. See Insurance Co. of State of Pennsylvania v. LNC Communities II, LLC, 2011 WL 5548955 (D. Colo. 2011). Federal Rule of Civil Procedure 19 is almost identical to Colorado Rule of Civil Procedure 19 and pertains to the joinder of persons needed for “just adjudication.” The Insurance Co. of the State of Pennsylvania (“ICSOP”) sought a declaratory judgment that it did not have a duty to defend or indemnify the defendants (collectively referred to as “Lennar Companies”) with regard to the underlying lawsuit brought by The Falls at Legend Trail Owners Association, Inc. (the “HOA”). Id. at *2. In its lawsuit, the HOA alleged Lennar Companies were liable for construction defects at The Falls at Legend Trail residential development.
Lennar Companies held two primary insurance policies, one issued by OneBeacon Insurance Company f/k/a General Accident Insurance Company (“General Accident”) and the other issued by American Safety Risk Retention Group, Inc. (“American Safety”). Lennar Companies also carried excess policies issued by ICSOP and Ohio Casualty Insurance Company (“Ohio Casualty”).
Read the full story…
Reprinted courtesy of Heather M. Anderson of Higgins, Hopkins, McClain & Roswell, LLP. Ms Anderson can be contacted at anderson@hhmrlaw.com
Although Property Damage Arises From An Occurrence, Coverage Barred By Business Risk Exclusions
July 8, 2011 — Tred R. Eyerly, Insurance Law Hawaii
The homeowners hired the insured to raise the structure of their home twenty-four inches above the flood zone. Lafayette Ins. Co. v. Peerboom, 2011 U.S. Dist. LEXIS 58985 (S.D. Miss. June 2, 2011). When the insured’s crew returned from lunch one day, they found the house had fallen from hydraulic jacks being used to raise the structure a few inches at a time. There was substantial damage to the entire structure.
The homeowners sued, asserting several claims, including negligence and breach of contract. The complaint alleged the homeowners entered a contract with the insured to raise their structure while maintaining its integrity. However, the insured failed to use proper equipment, which caused the house to fall and be completely destroyed.
The insured tendered the claim to its insurer, Lafayette Insurance Company. Lafayette defended under a reservation of rights and filed suit for a declaratory judgment. Lafayette’s subsequent motion for summary judgment contended there was no “occurrence” alleged in the underlying complaint and, even if there was, the business risk exclusions barred coverage.
Read the full story…
Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
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.”
Read the full story…
