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
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Reprinted courtesy of CDCoverage.com
Court Orders House to be Demolished or Relocated
April 26, 2011 — April 26, 2011 Beverley BevenFlorez - Construction Defect Journal
Decision Affirmed in Central Arkansas Foundation Homes, LLC v. Rebecca Choate
The Arkansas Court of Appeals affirmed the decision by the trial court in Central Arkansas Foundation Homes, LLC v. Rebecca Choate. In the trial case, Central Arkansas Foundation Homes (CAFH) sought payment for a home built for Choate, while Choate alleged that the builders committed multiple construction defects including using the wrong foundation materials and positioning the house in the wrong direction.
After the house was built, CAFH contacted Choate regarding payment, however, Choate alleged that the finished product did not match the contract. “ After CAFH completed construction, it obtained permanent home financing for Choate and tried to contact her to close the transaction. Choate did not respond until October 2005, when she sent CAFH a list of alleged construction defects, including that the house was facing in the wrong direction; that it was not built on a slab; and that the fireplace, garbage disposal, driveway, and storage area were missing. CAFH replied to Choate in writing, telling her that she had until January 6, 2006, to close on the house or CAFH would sell it. The correspondence enclosed worksheets showing that the amount Choate would owe at closing exceeded $94,000, which included interest that had accrued on the as-yet unpaid construction loan.”
Initially, the court found in favor of CAFH. “On April 18, 2007, Choate’s attorney withdrew from representing her. Soon thereafter, CAFH’s attorney asked the court to set a final hearing on the case. The attorney purportedly sent Choate a letter by regular mail on May 15, 2007, advising her that the case was set for trial on July 9, 2007. Choate, however, did not appear. CAFH did appear, and its general manager, John Oldner, testified to events leading up to the case and the amount of damages claimed. According to Oldner, the interest on the construction loan had accrued to the point that CAFH now sought $104,965.88 from Choate. The court found in favor of CAFH and entered judgment for that amount, plus attorney fees, on July 18, 2007. The court ruled that CAFH could sell the house and either remit any excess to Choate or look to Choate for the deficiency if the sales price did not cover the judgment.”
However, Choate successfully argued that she did not receive notice of the trial. A new trial was ordered, and the outcome was quite different. “On June 6, 2008, the circuit court entered judgment for Choate, ruling that the house was not in substantial compliance with the parties’ contract and that the contract should be rescinded. The court found that the house suffered from numerous construction defects, that the contract contemplated a slab rather than a concrete-pier foundation, and that CAFH ignored Choate’s complaints that the house was facing the wrong way. The judgment directed CAFH to hold Choate harmless on the construction loan, to deed Choate’s two acres back to her, and to remove the house from Choate’s property.”
The Court of Appeals “found that Choate would be unjustly enriched by retaining the benefit of the septic systems and utility lines that CAFH installed on her land. The court therefore awarded $5340 to CAFH as a quantum-meruit recovery for the value of that work. CAFH contends that the award is not sufficient, but we see no clear error.” In the end, the Court of Appeals provided this reason for declining to reverse the trial court’s decision: “The court in this case apparently concluded that the house constructed by CAFH was so fundamentally at odds with Choate’s contractual expectations that she was not unjustly enriched and should simply be, as nearly as possible, returned to the status quo ante. Accordingly, the court ordered the house removed from her property and permitted CAFH to either relocate the house or salvage the house’s materials and unused appliances. We decline to reverse the court’s weighing of the equities in this manner.”
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$5 Million Construction Defect Lawsuit over Oregon Townhomes
January 6, 2012 — CDJ Staff
A homeowners’ association in Lake Oswego, Oregon has filed a $5 million lawsuit against the developers of the luxury townhomes. The homeowners of Sunset Crossing are suing Centurion Homes and Aspen Townhomes over claims that construction defects have lead to water intrusion and structural damages. The townhomes were built in 2005.
Andy Burns, the lawyer for Phillip and Patricia Gentelmann, the owners of both Centurion Homes and Aspen Townhomes, said the Gentelmanns were “taking these allegations very seriously.” The suit says that the construction violated state and local building codes and that the firms did not repair damage caused by water intrusion.
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Ohio Court of Appeals Affirms Judgment in Landis v. Fannin Builders
April 20, 2011 — April 20, 2011 Beverley BevenFlorez - Construction Defect Journal
The Ohio Court of Appeals affirmed the judgment in Landis v. William Fannin Builders. Landis contracted Fannin Builders to build their home. The case involved staining problems on the T1-11 siding chosen by the plaintiffs.
After a year and a half of discussion on how to resolve the problem of uneven staining on the siding, Landis filed suit “against Fannin Builders, alleging claims for breach of contract, breach of the express limited warranty, and violation of the Ohio Consumer Sales Practices Act (“OCSPA”). Fannin Builders, in turn, filed a third-party complaint against 84 Lumber, alleging claims for breach of contract and indemnification. With the trial court’s leave, Fannin Builders also later amended its answer to add a counterclaim against appellees for breach of contract and unjust enrichment. In the counterclaim, Fannin Builders alleged that appellees still owed it $3,908.98 for the construction of appellees’ home.”
“In its decision, the trial court found in appellees’ favor on their breach of contract claim and against appellees on their claims for breach of the express limited warranty and violation of the OCSPA. Additionally, the trial court found in Fannin Builders’ favor on its counterclaim for breach of contract and against Fannin Builders on its third-party claims for breach of contract and indemnity. The trial court determined that appellees’ damages amounted to $66,906.24, and after setting off the $3,908.98 that appellees owed Fannin Builders under the construction contract, the trial court awarded appellees $62,997.26. The trial court reduced its decision to judgment on May 18, 2010.”
Fannin Builders appealed this judgment and assigned the following errors:
[1.] The Trial Court Erred as a Matter of Law by Concluding that Appellant Breached its Contract with Appellees when it provided a Semi-Transparent Oil-Based Stain that Simply did not Meet their Approval.
[a.] The Contract does not Contain a Satisfaction Clause.
[b.] Even if the Court Implies a Satisfaction Clause, the Court Should Apply an Objective Standard.
[2.] The Trial Court Erred as a Matter of Law by Failing to Consider Appellant’s Right to Cure.
[3.] The Trial Court committed Reversible Error by not Assessing Damages Using “Diminished Value Standard,” and by Creating a Remedy that Constitutes Economic Waste.
[4.] The Trial Court Erred as a Matter of Law by Concluding that Appellant is Barred from Seeking Indemnification When 84 [Lumber] Never Fulfilled its Obligations Pursuant to the Settlement Agreement Entered on August 2, 2005.
In response to the first assigned error, the Court of Appeals stated: “Because the failure to provide siding of a uniform color, not appellees’ displeasure, breached the contract, we reject Fannin Builders’ contention that the trial court implied a satisfaction clause into the contract and found a breach of that clause. Accordingly, we overrule Fannin Builders’ first assignment of error.”
The Court of Appeals overruled the second assignment of error and provided the following reasoning: “Although Fannin Builders depends upon a term of the limited warranty for its right to cure, the trial court concluded that no breach of the limited warranty occurred. Fannin Builders breached the duty of workmanlike conduct implicit in the construction contract, not the limited warranty requiring it to satisfy the BIA’s Quality Standards. Consequently, the limited warranty does not apply to this case, and thus, it does not prevent appellees’ recovery of damages.”
The Appeals Court found “the trial court’s award of damages” was “both reasonable and supported by competent, credible evidence,” and therefore concluded “that the trial court did not err in setting appellees’ damages at $62,997.26.” The Fannin Builders third assignment of error was overruled.
The fourth and final assignment of error was also overruled by the Court of Appeals. “While Fannin Builders correctly asserts that 84 Lumber never installed the replacement siding, it ignores the fact that it ordered 84 Lumber to remove the replacement siding from appellees’ property. Thus, Fannin Builders precluded 84 Lumber from completely performing under the August 2, 2005 letter agreement. […] Consequently, Fannin Builders cannot now claim that the letter agreement is unenforceable or that it is entitled to indemnification from 84 Lumber. Because Fannin Builders assumed all liability for the defective siding in the letter agreement, it is responsible for appellees’ damages.”
James A. Zitesman, Columbus, Ohio Business Attorney, compared the case to Jones v. Centex (Ohio App. 2010), which had a different verdict:
“The common thread is the implied warranty of good workmanship. In the Jones case, the Court found that the buyers had in fact waived all implied warranties, including the implied warranty of good workmanship. In the contract between Jones and Centex, the builder stated that it “…would not sell the property to Purchasers without this waiver.” Probably should have been a sign to the buyers.
In the Landis case, the Court stated, “Contracts for the future construction of a residence include a duty, implied by law, that the builder must perform its work in a workmanlike manner.” The Court gave significant weight to the concept of the implied warranty of good workmanship. The builder relied upon the BIA Warranty which limits builders’ liability and exposure to legal issues. The trial court concluded there was no breach of the limited warranty, rather the builder “breached the duty of workmanlike conduct implicit in the construction contract, not the limited warranty requiring it to satisfy the BIAs Quality Standards.”
The Supreme Court of Ohio has accepted the Jones v. Centex Homes case for review.
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Home Repair Firms Sued for Fraud
September 30, 2011 — CDJ Staff
The Illinois Attorney General has filed a lawsuit in Cook County Circuit Court alleging that two connected firms took money from homeowners and then failed to perform the contracted work. One of the three defendants, Chris Bidigare, was an owner of agent of both Fairway Construction and Maintenance Services, LLC, and Rock Construction Management, LLC.
In once case, according to the article on the OakPark Patch, one homeowner provided a $111,000 down payment, only to have the company cancel the job and refuse to return the money. One homeowner was told by Fairway that she should contact their insurance provider. The insurance provider told her that Fairway’s insurance had been cancelled due to non-payment.
The suit seeks to bar the three defendants from working in home repair in Illinois.
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Construction Company Head Pleads Guilty to Insurance and Tax Fraud
December 20, 2012 — CDJ Staff
The former head of Orients Construction Company and of Melrose Construciton Company, Herlindo Garcia-Merlos, has entered a guilty plea to charges that the gave false informoation to his insurer, New Jersey Manufacturers Insurance Group, for more than three years in order to lower his workers compensation payments. Mr. Garcia-Merlos was able to underpay by more than $315,000 as a result of this deception.
Mr. Garcia-Merlos additionally failed to file tax returns for his companies and underreported his wages on his own tax returns. The State of New Jersey is seeking an eight-year prison term and restitution of more than $400,000.
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Water Is the Enemy
August 16, 2012 — CDJ Staff
So says Melissa Mitchell, writing in the blog of Community Association Consultants. She cites the nightmare scenario of “an unseen presence lurking behind the walls.” Not a horror movie, but water intrusion, which she notes can cause hundreds of thousands of dollars in damage. Eric Hoff, of Western Architectural, is quoted that “it only takes a hole one-eighth inch diameter in a building’s exterior to allow the intrusion of 35 gallons of water over twelve months.” Destructive testing on a building in in the Pacific Northwest revealed that water intrusion had lead to structural failure of the building. The wet wood had made a home for carpenter ants. Repairs exceeded $100,000.
Mitchell notes that “deferred maintenance can be costly” and cites the importance of preventative maintenance or the development of a maintenance plan. She concludes that “if you own or are responsible for maintaining a condominium complex, apartment building or commercial structure, it’s simply good business sense to have a building envelope assessment conducted by experts in the field.”
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No Coverage Under Ensuing Loss Provision
September 9, 2011 — Tred Eyerley, Construction Law Hawaii
The cost of removing and replacing cracked flanges to prevent future leakage was not covered as an ensuing loss under a builder’s risk policy in RK Mechanical, Inc. v. Travelers Prop. Casualty Co. of Am., 2011 U.S. Dist. LEXIS 83958 (D. Colo. Aug. 1, 2011).
The insured, RK Mechanical Inc., was a subcontractor hired to install plumbing for a residential construction project. RK was an additional insured on the general contractor’s policy with Travelers. RK installed approximately 170 CPVC flanges on the project. Subsequently, two of the flanges cracked, allowing water to overflow and causing water damage to the project. Travelers was notified of the flange failure and resulting water damage.
RK subsequently removed and replaced the two cracked flanges and began water remediation. Travelers paid for the cost of the water damage due to the cracked flanges.
RK then examined all of the flanges installed in the project and discovered many were cracked and/or showed signs of potential failure. RK removed and replaced the cracked flanges. RK tendered a claim and demand for indemnity to Travelers for these repair costs. Travelers denied the claim. RK then sued for breach of contract and declaratory relief. The parties filed cross motions for summary judgment.
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Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
No Coverage for Construction Defects Under Alabama Law
June 19, 2012 — Tred Eyerely, Insurance Law Hawaii
The federal district court determined that under Alabama law, there was no coverage for breach of contract claims arising from alleged construction defects. Owners Ins. Co. v. Shep Jones Constr., Inc., 2012 U.S. Dist. LEXIS 62085 (N.D. Ala. May 3, 2012).
The insured entered a contract with the homeowner to remodel her home. After construction was completed, the homeowner sued the insured, alleging damages arising form breach of contract, negligence and negligent supervision.
The insured had a policy with Owners Insurance Company. Owners Insurance defended under a reservation rights.
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Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
Architectural Firm Disputes Claim of Fault
May 27, 2011 — CDJ Staff
Lake-Flato Architects has disputed the arbitration panel’s conclusion that problems with the home of Tom Hanks and Rita Wilson were due to design flaws. The firm settled with the couple for $900,000, however the Idaho Mountain Express reports that David Lake said, “the settlement in the case in no way represents that Lake Flato was responsible for faulty design.” The Express reported that “the arbitrators found that problems at the home were attributable to design errors that did not take into account the cold winter climate of the Sun Valley area.”
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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.
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Reprinted courtesy of CDCoverage.com
Underpowered AC Not a Construction Defect
November 7, 2012 — CDJ Staff
After buying a home in Louisiana, Mike Gines determined that the home’s air conditioning unit was insufficient to maintain an appropriate temperature. He contacted the home builder, D.R. Horton, Inc., which worked with the air conditioning installer, Reliant Heating & Air Conditioning, in order to repair the system. When the problems persisted, Gines filed a class action petition against Horton and Reliant in state court. Horton and Reliant moved the case to the federal courts, whereupon Gines asserted the defendants were in violation of the Louisiana New Home Warranty Act (NHWA). Horton stated that the claim under the NHWA was invalid, because Gines had not alleged actual physical damage to his home.
The district court granted Horton’s motion to dismiss. Gines sought a reversal from the Fifth Circuit Court of Appeals and sought to have two questions of state law addressed by the Louisiana Supreme Court.
The district court ruled that the NHWA was the “sole remedy under Louisiana law for a purchaser of a new home with construction defects. Gines argued that court erred in this, but also conceded that this was the conclusion of the Louisiana Supreme Court.
Further, Gines argued that a provision in the NHWA that allows the inclusion of construction defects that do not cause damage was satisfied by paragraph 6 of the contract. The court noted that Gines did not attach a copy of the contract to either the original or amended complaint, and so the court does not need to address these claims. However, the court cautioned that if a copy had been included, they still would have rejected the claim, as “the cited language does not indicate a waiver of the physical damage requirement.” They also note that “paragraph 13 of the contract shows that Gines was aware to the absence of any such waiver in the contract.”
The court concludes that “the moral of this story is that in order to avoid the harsh result that has obtained here, the buyer of a newly constructed home in Louisiana should seek to obtain in the contract of sale an express waiver of the actual damage requirement of the NHWA.” The appeals court affirmed the decision of the circuit court and denied the application to certify questions to the Louisiana Supreme Court.
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Policyholder Fails to Build Adequate Record to Support Bad Faith Claim
May 19, 2011 — May 19, 2011 -
Tred R. Eyerly,
Insurance Law HawaiiThe importance of careful preparation and documentation was the take away lesson in a Texas bad faith case, C.K. Lee v. Catlin Specialty Ins. Co., 2011 U.S. Dist. LEXIS 19145 (S.D. Tex. Feb. 28, 2011).
C.K. Lee owned a commercial shopping center in Houston. Catlin issued a commercial property policy to Lee. On September 12, 2008, Hurricane Ike hit and caused substantial property damage throughout the Texas Gulf Coast area. On September 24, 2008, Lee submitted a claim for damage to the roof of his shopping center to Catlin.
Catlin hired Engle Martin to represent its interests in adjusting the claim. Engle Martin eventually adjusted over 200 Ike-related claims for Catlin.
In November 2008, Engle Martin and Emergency Services Inc., retained by Lee, inspected Lee’s property. Engle Martin observed evidence of roof repairs that had apparently been made both before and after Hurricane Ike. Engle Martin decided it was necessary to use an infrared scan of the roof to help identify which damages, if any, were attributable to wind and which, if any, were attributable to sub par, prior repairs or natural deterioration.
Engle Martin retained Project, Time & Cost (PT&C) to conduct the infrared inspection. PT&C’s inspection determined there was no wind-related damage to the roof and no breaches or openings created by wind. Instead, the roof had exceeded its life expectancy and was in need of replacement due to normal wear and weathering. Consequently, Catlin decided that the damage to Lee’s roof was not caused by winds from Hurricane Ike.
Meanwhile, Lee’s contractor, Emergency Services, prepared a report estimating that the total cost of repairing the roof would be $871,187. Engle Martin’s estimate for repair of the roof was $22,864.
Lee filed suit for breach of contract, breach of the duty of good faith and fair dealing, and violations of the Texas Insurance Code. Catlin moved for summary judgment on all claims but breach of contract, arguing that because there was a bona fide dispute concerning the cause of the damages and whether they were covered under the policy, there was no evidence of bad faith or violations of the Texas Insurance Code.
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Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
Defense for Additional Insured Not Barred By Sole Negligence Provision
August 11, 2011 — Tred Eyerly, Insurance Law Hawaii
A general contractor was entitled to a defense as an additional insured when the underlying complaint did not allege it was solely negligent. A-1 Roofing Co. v. Navigators Ins. Co., 2011 Ill. App. LEXIS 656 (Ill. Ct. App. June 24, 2011).
A-1 was the general contractor for a roof resurfacing job at a high school. Jack Frost Iron Works Inc. (“Frost”) was one of A-1’s subcontractors. Frost had a CGL policy with Navigators Insurance Company under which A-1 was an additional insured.
An employee of Frost’s subcontractor Midwest Sheet Metal Inc. was killed at the job site when a boom-lift he was operating flipped over. The boom-lift had been leased by another Frost subcontractor, Bakes Steel Erectors, Inc. (BSE). The deceased's estate filed suit against A-1, BSE and two other defendants.
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Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
AFL-CIO Joins in $10 Billion Infrastructure Plan
June 30, 2011 — CDJ Staff
The AFL-CIO has announced plans to generate up to $10 billion in funding for infrastructure development, training construction workers, and making buildings more energy efficient, pledging $20 million to retrofit buildings. Bloomberg News reports that union officials made the announcement in Chicago at the Clinton Global Initiative, releasing a statement from Richard Trumka, president of the union, “we, at the AFL-CIO, believe that together, with our partners in business and government, we can profitably invest significant resources to make America more competitive and energy efficient.” A foot injury prevented Mr. Trumka from attending the event.
The statement also quoted Mark Ayers, president of the Building and Construction Trades Department of the AFL-CIO, “the time is now to become intensely focused on the creation of jobs.”
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Preparing For the Worst with Smart Books & Records
November 7, 2012 — Douglas Reiser, Builders Counsel
Contractors are often too caught up in keeping the wheel of business churning to recognize deficiencies in how their records are managed. Working hard and working often tend to leave little time for consideration of your documents. But all too often I see the unthinkable, a contractor gets into trouble and has to call on its surety for help. At that point, you might finally get your first dose of reality about your records ?Äì and it can cost you.
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Reprinted courtesy of Douglas Reiser of Reiser Legal LLC. Mr. Reiser can be contacted at info@reiserlegal.com
Virginia Homebuilding Slumps After Last Year’s Gain
June 19, 2012 — CDJ Staff
As of May, only 61 residential construction permits have been issues in Roanoke County, Virginia, leaving officials doubtful that this year will meet last year’s mark of 179 permits. Residential construction was at its highest in the county in 2004. The worst year since then was 2009, when the county issued 143 permits. The county is in the western end of the state, near the border with West Virginia, and far from the D.C. metropolitan area.
Arnold Covey, the Director of Community Development for the county said that “it may be until 2014 before we really see a difference. The article by WDBJ7.com notes that a “key part” of the county budget comes from real estate.
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Joinder vs. Misjoinder in Colorado Construction Claims: Roche Constructors v. One Beacon
July 10, 2012 — David McLain, Higgins, Hopkins, McLain & Roswell, LLC
Often, those practicing in the construction defect field have faced questions concerning the joinder of a party. Recently, the U.S. District Court for the District of Colorado weighed in on the requirements for joinder under the Colorado Rules of Civil Procedure. See Roche Constructors, Inc. v. One Beacon America Ins. Co., 2012 WL 1060000 (D. Colo. 2012). Roche secured a construction contract to build a detention facility for the Lincoln County Sheriff’s Office in Lincoln County, Nebraska. In turn, Roche entered into a subcontract with Dobberstein Roofing Company, Inc. in October 2009 to install the roofing system and other related work at the detention facility. The subcontract agreement required Dobberstein to maintain adequate commercial general liability insurance and to add Roche as an additional insured under the policy. Roche maintained a builder’s risk policy issued by OneBeacon America Insurance Company and Dobberstein secured a certificate of liability insurance underwritten by Transportation Insurance Company (“TIC”). Id. at *1.
Roche alleged that Dobberstein constructed the roofing system in a negligent manner in violation of the subcontract. Roche claims it incurred additional costs to repair structural damage to the roofing system as a result of Dobberstein’s negligent work. In order to cover said damage, Roche tendered insurance claims to OneBeacon and TIC.
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Reprinted courtesy of David McLain, Higgins, Hopkins, McLain & Roswell, LLC. Mr. McLain can be contacted at mclain@hhmrlaw.com
