Construction Defect Destroys Home, Forty Years Later
June 19, 2012 — CDJ Staff
Fire investigators in Monroe, North Carolina have blamed a nail as the source of a fire that lead to a home being declared a total loss. The nail, part of the original construction, nicked a wire within a wall, causing a short, which started a fire. The home was built in the late 1960s.
WBTV reported that the homeowner was awakened by a power outage. He went outside and saw flames coming from a vent in the roof. He was unable to contain the fire with a garden hose. Neighbors called firemen who were able to stop the blaze.
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Hovnanian Sees Second-Quarter Profit, Points to Recovery
June 19, 2012 — CDJ Staff
Hovnanian Enterprises has shown a profit in the second quarter, which the company attributes to recovery in the homebuilding industry. Apart from a sales promotion in 2007, the company sold more homes per community in April than it has in any other month since 2006. Ara K. Hovnanian said that “the sales improvements we have experienced are fairly wide-based in terms of geography, price points and buyer profiles.”
The quarter’s profit was $1.8 million. In the year prior, Hovnanian faced losses of $72.7 million. The Wall Street Journal’s Marketwatch reported that Hovnanian’s stock price recently went up 19%.
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The Flood Insurance Reform Act May be Extended to 2016
April 7, 2011 — April 7, 2011 Beverley BevenFlorez - Construction Defect Journal
The Flood Insurance Reform Act of 2011 (H. R. 1309) has been referred to the House Committee on Financial Services—the first step in the legislative process. The bill, if passed, would extend the program to September 30, 2016. It is currently slated to be terminated September 30 of this year. The bill also contains changes to premium rates, mapping protocols, and privatization initiatives.
H. R. 1309 has garnered the support of several Insurance organizations. Leigh Ann Pusey, president and CEO of the American Insurance Association (AIA), sent a letter of support to the Chair and Ranking member of the House Financial Services Subcommittee. “AIA has advocated for a long term reauthorization of the NFIP to protect consumers and help increase stability for real estate transactions and policyholders,” Pusey said. “AIA believes the five-year extension contained in HR 1309, will provide certainty in the flood program thereby increasing consumer and business confidence in the NFIP.”
Jimi Grande, senior vice president of federal and political affairs for the National Association of Mutual Insurance Companies (NAMIC) spoke out in support of the bill. “For the NFIP to survive, the prices for flood insurance must reflect the actual costs of flood risk for a property,” Grande said. “HR 1309 will provide that transparency. In addition, the Technical Mapping Advisory Council will give communities a voice in the flood mapping process, fostering a better understanding of what flood maps represent and how they are made.”
Read H. R. 1309...
Read the American Insurance Association statement...
Read the NAMIC Press Release...
Going Green for Lower Permit Fees
October 23, 2012 — CDJ Staff
Clay County, Kansas is offering rebates on building permits for green homes. According to the Kansas City Star, building permits in the county are typically $2,500. The county will rebate anything from half to all of the permit fee, depending on how well the builder meets green standards. The county will monitor and inspect the process to make certain that builders adhere to their promises for green construction. The county hopes this will encourage green building by offsetting the cost.
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Another Colorado District Court Refuses to Apply HB 10-1394 Retroactively
October 28, 2011 — David M. McLain, Colorado Construction Litigation
In Martinez v. Mike Wells Construction Company, 09CV227, Teller County District Court Judge Edward S. Colt refused to apply C.R.S. § 13-20-808 retroactively to provide coverage for the underlying construction defect allegations. According to the recitation of facts in Judge Colt’s March 2011 order, Martinez contracted with Mike Wells Construction to serve as the general contractor for the construction of a home. At that time, Mike Wells Construction was insured through ProBuilders Specialty Insurance Company, RRG. Disputes arose between Martinez and Mike Wells Construction, resulting in Martinez ordering it off of the project in mid-November 2007 and terminating its right to work there by letter dated November 28, 2007.
Mike Wells, the owner of the corporation, subsequently died. Martinez sued Mike Wells Construction in July 2009 for breach of contract and various claims relating to alleged defecting workmanship. Martinez provided notice of the suit to the special administrator of the probate estate. No answer having been filed, the court entered a default judgment against Mike Wells Construction and Martinez sought to garnish Mike Wells Construction’s ProBuilders insurance policy.
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Reprinted courtesy of Higgins, Hopkins, McLain & Roswell, LLC. Mr. McClain can be contacted at mclain@hhmrlaw.com
Ohio Adopts Energy-Efficient Building Code
June 19, 2012 — CDJ Staff
In a compromise between environmental groups, who were looking for stricter standards, and homebuilders, who were trying to contain building costs, the state of Ohio has adopted buildings codes that will increase the energy efficiency of new homes. The estimated costs are about $1,100 with estimated annual savings of $230. According to Corey Roblee of the International Code Council, “It’s something needed in the state of Ohio.”
The Ohio Home Builders Association opposed a proposal to adopt the guidelines of the International Code Council. Builders will be able to either follow the ICC guidelines or they can use the Ohio guidelines to meet the same energy efficiency. Vincent Squillace, the executive vice president of the OHBA, said, “We came up with an equivalent code that’s more strict but is about $2,000 cheaper per home to implement than the original code.”
The new code will require that at least 75% of lighting must be high efficiency, increases the degree of insulation, and specifies more efficient windows, among other changes.
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Arizona Court of Appeals Rules Issues Were Not Covered in Construction Defect Suit
December 9, 2011 — CDJ Staff
The Arizona Court of Appeals has ruled in the case of Peters v. Marque Homes. In this case, Walter Peters provided the land and funding for Marque Homes to build a luxury residence in Glendale, Arizona. By the terms of the “Joint Venture Agreement,” Peters provided the land and funding, while Marque would not charge Peters for overhead, profits, or supervision fees. The agreement specified that profits would be divided equally.
Two years later, Marque sued Peters claiming he had breached his obligations by refusing several offers for the home. Peters replied that Marque had “failed to complete the home so it is habitable to prospective purchasers.” Peters stated he had “retained an expert inspector who had identified numerous defects.” The court appointed a Special Commissioner to list the home for sale. Peters purchased the home with two stipulations ordered by the court. At this point, the earlier case was dismissed with prejudice.
Peters then sued Marque “asserting express and implied warranty claims arising out of alleged construction defects in the home.” Marque claimed that Peters’s claims were “precluded by the prior joint venture dispute.” The court granted Marque’s motion.
The appeals court reversed the lower court’s decision, determining that Peters’s claims were not precluded by the agreement. Although there had been a prior case between the two parties, warranty issues did not form a part of that case. “Peters never raised these allegations nor presented this evidence in support of any warranty claim.”
The court also noted that the “parties never agreed to preclude future warranty claims.” Marque and Peters “agreed in the stipulated sale order that ‘the sale of the property to a third party shall be “as is” with a 10-year structural warranty.’” The court noted that the agreement said nothing about one of the parties buying the house.
The appeals court left open a claim by Marque that there are no implied or express warranties available to Peters. They asked the Superior Court to address this.
Read the court’s decision…
Mortar Insufficient to Insure Summary Judgment in Construction Defect Case
January 6, 2012 — CDJ Staff
The US District Court of Nevada issued a summary judgment in the case of R&O Construction Company V. Rox Pro International Group, Ltd. on December 19, 2011. The case involved the installation of stone veneer at a Home Depot location (Home Depot was not involved in the case). R&O’s subcontractor, New Creation Masonry, purchased the stone veneer from Arizona Stone. Judge Larry Hicks noted that “the stone veneer failed and R&O was forced to make substantial structural repairs to the Home Depot store.”
Rox Pro asked the court for a summary judgment, which the court granted only in part. The court looked at two issues in the case, whether the installation instructions constituted a breach of implied warranty of merchantability, and whether there was a breach of an implied warranty of fitness for a particular purpose.
Judge Hicks found that there was a breach of implied warranty of merchantability. The instructions drafted by Real Stone and distributed by Arizona Stone were not sufficient for affixing the supplied stones, according to R&O’s expert, a claim the plaintiffs dispute. “Because there is an issue of material fact concerning the installation guidelines, the court shall deny Arizona Stone’s motion for a summary judgment on this issue.”
On the other hand, the judge did not find that the instructions had any bearing as to whether R&O bought the stone, since the stone was selected by the shopping center developer. This issue was, in the view of the judge, appropriately dismissed.
Read the court’s decision…
Subcontractor Not Liable for Defending Contractor in Construction Defect Case
February 10, 2012 — CDJ Staff
The California Court of Appeals has ruled on January 9, 2012 in Hensel Phelps Construction Company v. Urata & Sons Cement, upholding the judgment of the lower court.
Hensel Phelps was the general contractor for a high-rise in Sacramento. They were sued by the owners of the building after problems were discovered in the concrete slabs of the building’s parking garage. Instead of welded steel wire mesh, the slabs had been constructed with fiber mesh. Hensel Phelps filed a cross-complaint against Urata Cement, the subcontractor that had performed the cement work. Urata refused to defend Hensel Phelps. The owners’ case was subsequently dismissed due to the statute of limitations.
Although the original case was over, Hensel Phelps continued in their claims against Urata. “Urata argued that a handwritten interlineation required Hensel Phelps to prove Urata was at fault for the injury alleged in the building owners’ complaint before Urata was obliged to defend Hensel Phelps in that action.”
The lower court concluded that Urata would have been obligated to defend Hensel Phelps if the owners’ lawsuit had alleged that the damage was due to the subcontractor’s work or if evidence at trial established this. The lower court found neither of these true. Instead, the use of the fiber mesh was a design issue and “that decision was outside the scope of the subcontractor’s work.”
During the trial, Hensel Phelps conceded that Urata was not at fault. The appeals court could find no reading of the contract that would cause Urata to be obligated to defend Hensel Phelps, calling Hensel Phelps’s reading of the contact as “grammatically infeasible.”
Judges Nicholson, Raye, and Butz upheld the decision of the lower court and awarded costs on appeal to Urata.
Read the court’s decision…
Godfather Charged with Insurance Fraud
July 1, 2011 — CDJ Staff
Texas-based Godfather Construction is a recipient of a fraud suit from the Cook County state attorney’s office. The firm incorporated in Illinois in April 2010, moving there to do business after storms damaged homes in the Chicago suburbs, according to a report in the Chicago Tribune. The state attorney alleges that Godfather brought unlicensed out-of-state workers and the work they performed was “incomplete or shoddy.” Godfather is claimed to have received about $60,000 from Illinois homeowners. The prosecutors are seeking restitution for Godfather’s clients and seek to forbid the firm from doing business in Illinois.
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Local Government Waives Construction Fees to Spur Jobs
June 19, 2012 — CDJ Staff
Warren Township in New Jersey has waived building and electrical permit fees, up to $5,000, for businesses that create at least five new jobs. The fee reductions are available for construction in areas zones under various designations. Buildings that have received a zoning variance are not eligible. The Echoes-Sentinel notes that other towns in Somerset County, New Jersey have adopted similar ordinances.
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Seven Tips to Manage Construction Defect Risk
July 10, 2012 — CDJ Staff
Jody T. Wright looks at “seven strategies being used around the country to identify, manage and mitigate your exposures” in a piece in Business Insurance. Wright, Senior VP, Construction Department Manager for Lockton Companies in Denver, gives seven simple steps from the perspective of a insurer.
His first step is to match your project to your insurance. He suggests keeping the riskier projects separate, noting that from an insurer’s point-of-view, “any project that creates a homeowners association carries a higher potential threat of future litigation.” This leads to his second point: you need to “determine what makes your liability insurer nervous.” In other words, talk with your insurer.
His third point suggests that builders look back and see if there is a pattern of problems that have lead to payouts from your insurer. Keep your insurer happier by making sure these areas don’t continue to be problems. Nor should you look for new problems. He suggests against leading in new technologies.
Three more points deal with being careful about with whom you associate. He tells builders to negotiate their contracts, avoiding clauses that would obligate a builder to “indemnify the owner for the negligent work of others that they did not control.” Avoid subcontractors “with loss patterns that might affect your project and reputation.” Builders should identify “owners with a pattern of suing contractors” adding that risk to the cost of the job. They should also identify “the most effective attorneys and expert witnesses” and get them involved before the litigation starts.
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West Hollywood Building: Historic Building May Be Defective
August 16, 2012 — CDJ Staff
The Sunset Lanai apartment building in West Hollywood, California has its fans, it also has its detractors. Designed by Edward H. Flickett and built in 1952 by George Alexander, the building isn’t wearing its years lightly. Its owner has opposed a move by the West Hollywood Preservation Commission that the building is a “local cultural resource.” Instead, Edwin Silver, the building’s owner says the group has overstated the building’s significance. His lawyer points to “design and construction flaws,” and says the building is prone to flooding and leaks. Repairs to the building have an estimated cost of $2.3 million, according to the L.A. Times.
The West Hollywood City Council decided to table the question of a historical designation as that might impede repairs. However, they did decide that if Silver seeks to demolish the building, they will grant the protection.
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Hilton Grand Vacations Defect Trial Delayed
October 23, 2012 — CDJ Staff
A settlement agreement between Conti Electric and Westgate Resorts has lead to a delay in starting the trial over construction defect claims and billing disputes over Hilton Grand Vacations a time share tower in Las Vegas. According to the Las Vegas Review-Journal, the dispute includes claims of $23.3 million owed to the general contractor against which the developer has placed $30 million in construction defect claims.
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Timing of Insured’s SIR Payment Has No Effect on Non-Participating Insurer’s Equitable Contribution to Co-Insurer
April 25, 2012 — Aarti Kewalramani, Gatzke Dillon & Balance LLP
In a case of first impression, the California Court of Appeal, Fourth District, Division One, examined whether a non-participating insurer can evade its defense and indemnity obligations because the insured only paid the policy’s self-insured retention ("SIR") as part of a settlement. In Axis Surplus Lines Insurance Company v. Glencoe Insurance LTD. (April 11, 2012, D058963) __ Cal.App.4th __ [2012 WL 11903203], the critical issue for the Court was whether an insurer, with full notice and continued investigation of a claim, can "hide behind the SIR requirement in its policy." The Court declined to "sanction such gamesmanship."
The dispute involved an equitable contribution claim between two insurers. Axis Surplus Insurance Company provided commercial general liability insurance to Pacifica Pointe L.P. During the same time period, Glencoe Insurance Ltd. provided an owner-controlled insurance policy (i.e., wrap policy) to Pacifica Pointe L.P. Both policies included provisions requiring co-carriers to split the defense and indemnity on equal shares. Pacifica was sued in a construction defect lawsuit, involving alleged resultant damages to condominiums it converted and sold. Pacifica tendered the claim to both Axis and Glencoe. While Axis agreed to defend Pacifica, subject to a reservation of rights, Glencoe declined to participate until Pacifica satisfied the $250,000 SIR on the policy. Glencoe continued to monitor the litigation from the sidelines.
Axis and Pacifica settled the underlying construction defect lawsuit for $1 million. Pacifica advised Glencoe of the settlement, and received Glencoe’s approval to contribute its $250,000 SIR towards the settlement. Axis contributed $750,000 towards the settlement. After the settlement, Axis sued Glencoe for declaratory relief and equitable contribution, to recover a portion of the defense and indemnity it paid. The trial court found in favor of Axis and allocated Glencoe 60% of the settlement payment. Glencoe appealed.
On appeal, the Court scrutinized whether Glencoe, as the non-participating insurer, had a legal obligation to provide a defense and indemnity to the insured, despite the timing of the SIR’s satisfaction. The Court determined that in an equitable contribution action, the participating insurer has the burden of proving merely the potential for coverage under the non-participating insurer’s policy. On this showing, the burden of proof shifts to the non-participating insurer to prove the absence of actual coverage under its policy. The Court emphasized that the timing of the SIR’s payment was inconsequential to either insurer’s burden. Because Glencoe admitted coverage existed under its policy, the Court affirmed the trial court’s decision.
As a result, the result ultimately turned on whether the non-participating carrier had full notice of the claim and cannot use the timing of the satisfaction of the SIR to shield itself from an equitable contribution claim from the participating co-carrier.
Published courtesy of Aarti Kewalramani of Gatzke Dillon & Balance LLP. Ms. Kewalramani can be contacted at akewalramani@gdandb.com.
Building Inspector Jailed for Taking Bribes
September 30, 2011 — CDJ Staff
The LA Times reports that Raoul Germain, a city Los Angeles building inspector has been sentenced to 21 months in prison after pleading guilty to taking bribes. Germain was caught as part of an FBI sting operation in which he approved work in exchange for thousands of dollars in bribes. The Times notes that that in some cases, Germain never visited the construction sites. Germain was offered a chance to cooperate with investigators. His lawyer, Steve Cron asked the Times, “What do you think happens to someone who cooperates?”
In addition to Germain, another city inspector has pleaded guilty to taking bribes and two more employees of the Department of Building and Safety have been fired in connection with the investigation.
Read the full story…
OSHA Extends Delay of Residential Construction Fall Protection Requirements
September 13, 2012 — CDJ Staff
OSHA has announced a fourth delay in full implementation of requiring fall protection in residential construction. The requirements, which would obligate those in residential construction to use the same degree of fall protection as is used in commercial construction, were originally set to go into effect in September 2011. As part of the phasing in of the new requirements, penalties were reduced, originally until March 2012. This has now been extended until December 15, 2012.
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Loss Caused by Seepage of Water Not Covered
July 10, 2012 — Tred Eyerly, Insurance Law Hawaii
The anti-concurrent clause in a homeowner’s policy barred coverage for damage caused by hidden seepage. Boazova v. Safety Ins. Co., 2012 Mass. LEXIS 462 (Mass. May 29, 2012).
The insured had a concrete patio built along the rear wall of her house at a grade higher than the home’s foundation. Years later, severe deterioration was discovered in the floor joists, wall studs and other parts of the home. The insured held a homeowner’s policy with Safety. An inspector hired by Safety determined the deterioration was caused by the placement of the concrete patio slab adjacent to the wall of the house, allowing water to seep onto the top of the foundation.
Safety denied coverage because the damage was caused by a combination of surface water, deterioration, settling and improper construction of the concrete patio.
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Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
