Colorado Court of Appeals Finds Damages to Non-Defective Property Arising From Defective Construction Covered Under Commercial General Liability Policy
December 20, 2012 — Heidi Gassman, Higgins, Hopkins, McLain & Roswell
The recently decided case of Colorado Pool Systems, Inc. v. Scottsdale Insurance Company (Colo. Ct. App. 10CA2638, October 25, 2012), confirms that absent specific exclusions in the policy, a commercial general liability (“CGL”) policy covers damages to non-defective property arising from a builder’s own defective workmanship.
Colorado Pool Systems, Inc. (“Colorado Pool”) was hired as a subcontractor to install a swimming pool at Founders Village Pool and Community Center (“Founders Village”) in Castle Rock, Colorado. After the concrete shell of the pool was placed, some of the rebar frame was found to be too close to the surface. Founders Village demanded that Colorado Pool remove and replace the pool, and Colorado Pool contacted its insurance carrier, Scottsdale Insurance Company (“Scottsdale”), with which Colorado Pool held a CGL policy. After inspecting the pool, Scottsdale’s claims adjuster stated that the insurance policy would cover losses associated with removing and replacing the pool.
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Reprinted courtesy of Heidi Gassman, Higgins, Hopkins, McLain & Roswell, LLC. Ms. Gassman can be contacted at gassman@hhmrlaw.com
Contractor Manslaughter? Safety Shortcuts Are Not Worth It
August 11, 2011 — Douglas Reiser, Builders Counsel
It’s been a while since I discussed the importance of safety. But, a recent article on ENR.com compelled this brief article. Don’t shortcut safety — you could be facing serious criminal repercussions.
A New York crane company owner and one of his employees are each facing a second-degree manslaughter charge for the death of two construction workers.  The charges stem from the collapse of a crane in New York City. The district attorney determined that the crane owner cut a few corners to reduce its operation costs, significantly sacrificing safety.
Another example was the 2010 trial of another New York crane operator who was charged with manslaughter. In that case, the criminal charges failed to stick, but an administrative judge found that the contractor used a damaged sling to support the steel collar binding the tower-crane mast to the 18th floor of a high-rise building being constructed. The company also used four slings instead of the eight, as specified by the crane manufacturer; improperly attached the slings and failed to pad or soften them.
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Reprinted courtesy of Douglas Reiser of Reiser Legal LLC. Mr. Reiser can be contacted at info@reiserlegal.com
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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FHA Lists Bridges and Overpasses that May Have Defective Grout
September 13, 2012 — CDJ Staff
The Federal Highway Administration has released a list of bridges and overpasses that may be prone to corrosion problems due to grout that was in chlorides when it was supposed to be completely free of them. Currently, the FHA is working with state departments of transportation to determine if the defective grout was indeed used on additional bridges and overpasses. The initial FHA list of structures determined to have been built with the defective grout lists thirty-four sites, of which four are in Ohio, the largest number for any state.
California contains only one such site, the intersection of the 55 and 405 freeways, one of the few items on the list not designated as a bridge.
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Homeowners May Not Need to Pay Lien on Defective Log Cabin
July 1, 2011 — CDJ Staff
The Idaho Supreme Court has ruled in the case of Perception Construction Management v. Bell. The Bells hired PCM to build a log home, agreeing to play monthly invoices in full within ten days. The Bells paid the first four invoices in full, part of the fifth, and ceased payment after that. Beofre seventh invoice, the Bells terminated the contract and hired a new contractor. PCM filed a claim of lien and ceased work.
The Bells responded that PCM was in breach of contract and had failed to fulfill the contract in a workmanlike manner. They claimed construction defects and in the lien suit, sought to include testimony from an architect and a plumber reviewing PCM’s work. The court only allowed the architect to testify as to whether the amount of the lien was reasonable. No testimony was permitted from the plumber.
The Idaho Supreme Court concluded that the claims of construction defects were important to case and remanded it to the lower court for a new trial taking into evidence that Bell’s contention that PCM’s work was defective.
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…
Good and Bad News on Construction Employment
February 10, 2012 — CDJ Staff
The construction industry hit a two-year high in January, with 21,000 jobs added that month. The mild winter is assumed to have helped. According to the General Contractors of America, the construction industry currently employs about 5.57 million people. This is a 21 percent gain over January 2010. Ken Simonson, the chief economist of GCA, noted that “the unemployment rate in construction is still double that of the overall economy.” He said it was not currently clear if “the recent job growth reflects a sustained pickup or merely acceleration of homebuilding and highway projects that normally halt when the ground freezes in December and January.”
Stephen Sandherr, the chief executive officer of the GCA, said that the federal government had to make infrastructure funding a top priority. “Without adequate long-term funding for infrastructure, competitive tax rates and fewer costly regulatory hurdles, the construction industry may lose some of the jobs it gained in the last year.”
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Don MacGregor To Speak at 2011 West Coast Casualty Construction Defect Seminar
January 1, 2011 — February 08, 2011 CDJ Staff
“Challenges for Experts in Construction Defect Claims and Litigation” will be held Thursday May 13, 2011 between 1:30 and 3:00 PM at this year’s West Coast Casualty Construction Defect Seminar. Among the various topics covered will be of Right to Repair/Opportunity to Repair statutes, improper testing methodologies, new challenges where a case involves a Wrap Policy, OCIPS, CCIPS, and other owner controlled insurance programs, as well as the need for realistic testing protocols for the party the expert is retained to represent.
During the presentation Mr. MacGregor will be working in connection with a group of construction and design experts each of which have extensive experience with construction defect and claims related litigation. This particular session is expected to attract a standing-room only crowd, drawing in excess of 1700 attendees.
The West Coast Casualty Construction Defect Seminar is the largest seminar of its type. This year’s event is scheduled for will take place on May 12 and 13, 2011, at The Disneyland Hotel and Resort. For more information regarding the years event please visit http://www.westcoastcasualty.com/dyncat.cfm?catid=3322
http://www.westcoastcasualty.com/dyncat.cfm?catid=3322
Condo Buyers Seek to Void Sale over Construction Defect Lawsuit
November 7, 2012 — CDJ Staff
A Michigan couple seeks to void their purchase of a condo in Texas after discovering that the complex was undergoing a construction defect lawsuit. ABQ Journal reports that Charles M. Lea and Olga Y. Ziabrikova said that they would not have purchased the condo if they had known the association was already alleging construction defects. The condo association discovered the defects “by at least late 2010,” according to the suit. The couple bought their condo in August 2011 and heard of the defects only in March 2012.
The couple notes that no one involved with the sale informed them of the construction defect complaints. The community association’s lawsuit states that problems have lead to $2.5 million in damages. The developer, Vegas Verde Condo Partners, have filed a general denial of the construction problems.
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Does the New Jersey Right-To-Repair Law Omit Too Many Construction Defects?
January 6, 2012 — CDJ Staff
A post on the blog of Liberty Building Forensics Group find fault with the New Jersey Home Warranty and Builders’ Registration Act for not being stringent enough. The poster notes the coverage given under the bill. In the first year, builders are responsible to remedy faulty workmanship and materials and major structural defects. While other protections expire in the first or second year, there is a ten year coverage of major construction defects.
The blogger finds fault with the exclusion New Jersey law places on these claims, arguing that “due to the stringent definition of ‘major construction defects,” the warranty affords no coverage unless the house is practically collapsing.” The bill excludes leaks, cracks, and mold, and further limits claims if the homeowner has failed to inform the builder or insurer of defects, failure to maintain the home, and alterations made by the homeowner.
The intent of the New Jersey law is given as “requiring that newly constructed homes conform to certain construction and quality standards as well as to provide buyers of new homes with insurance-backed warranty protection in the event such standards are not met.” It’s argued in the piece that it instead serves to “strip homeowners of any meaningful means of recovery for discovered construction defects.”
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Appeals Court Reverses Summary Judgment over Defective Archway Construction
February 10, 2012 — CDJ Staff
A judge has ruled that a plaintiff can go forward with her suit that she was injured by a defective archway during a birthday party. A three-judge panel of the California Court of Appeals issued this ruling on January 23, 2012, in the case of Trujillo v. Cosio.
Ms. Trujillo attended a birthday party at the home of Maria Cosio and Joel Verduzco. A piñata was hung between a tree and a brick archway. Ms. Trujillo went to get candy that had fallen from the piñata, during which the archway fell on her hand. Subsequent examination of the archway showed that it had not been “properly anchored to the supporting pillars to protect the arch from falling.”
Ms. Cosio and Mr. Verduzco argued that they could not have been aware of the defective nature of the archway’s construction, as it had been built at the request of the prior property owner. The structure was constructed without building permits. Mark Burns, a civil engineer testifying for the plaintiff, said that “a reasonable property owner would have thoroughly tested the archway to ensure it was capable of withstanding such horizontal forces before allowing children to enter into the area.” Mr. Burns noted that twenty rope pulls would have been sufficient to demonstrate the structure’s instability.
The trial court rejected Mr. Burn’s statements, finding that the respondents did not have any knowledge of the defect and that a visual inspection should have sufficed. The court noted that this a triable issue, whether visual inspection suffices, or whether the property owners should have done as Mr. Burns suggested and yank a rope twenty times. The court noted that “although a jury may ultimately disagree with Burn’s opinion, it was supported by sufficient foundation and was not speculative.”
The opinion was written by Judge Flier, with Judges Rubin and Grimes concurring.
Read the court’s decison…
An Upward Trend in Commercial Construction?
March 28, 2012 — Melissa Dewey Brumback, Construction Law North Carolina
Year-end economic indicators demonstrate that private commercial construction may be increasing in 2012, primarily as demand grows for new projects built in the United States.
According to an article in Businessweek, the Architecture Billings Index held at 52 in December, indicating a modest expansion in the market. The American Institute of Architects said that the commercial and industrial component of the number climbed to 54.1 in December, the highest in 10 months.
The monthly survey of U.S.-based architecture firms is one of the main indicators of nonresidential construction, and these numbers suggest that modest improvement may be on the horizon.
The information is confirmed by data from the Census Bureau that shows that spending on lodging, office, commercial and manufacturing buildings grew 8.2 percent in November to $9.2 billion from a year ago. These types of commercial and industrial projects are historically canaries in the mine and are usually the first part of the industry to improve as the economy expands.
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Reprinted courtesy of Melissa Dewey Brumback of Ragsdale Liggett PLLC. Ms. Brumback can be contacted at mbrumback@rl-law.com.
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
Contractor Sues License Board
June 30, 2011 — CDJ Staff
Judge Kendall J. Newman of the US District Court handed down a decision on June 24 on the case of Kent v California Department of Consumer Affairs. Mr. Kent, appearing as his own counsel, had brought the suit against the California Department of Consumer Affairs and the Contractors State Licensing Board after he was arrested in a sting operation and, as the plaintiff put it, “was absurdly arrested and uncooperatively detained for a time longer than necessary or allowed by law under the false pretense of contracting with out a license.” Mr. Kent’s alleged that Rick Lopez, one of the defendants, formed him to read allow from the California Business and Professions Code. He said he was later handcuffed and placed in an uncomfortable chair, “enduring physical pain and emotional agony.”
Although Kent was given a Notice to Appear, he alleged that a further defendant, Stuart Rind, “closed the plaintiff’s case marked citation A7773 without giving written notice to anyone.” As a result, the Placer County District Attorney’s Office had no record of his Notice to Appear.
Kent alleged that subsequently his firm was essentially shut down for two years and that he was prevented from “legally contracting or selling services for any other contractor or qualifying for any other licensed capacity governed by the CSLB.” After this, the CSLB suspended the license for his firm, DSI Construction. He was assessed a $1,500 fine, after which he claims he sent a letter to the CSLB demanding money damages. The judge noted that the letter was not included in the plaintiff’s Ninth Amended Complaint.
Judge Kendall recommended that the plaintiff’s Complaints be dismissed, although he did allow that sixth, and perhaps the eighth and ninth, could be amended with a tenth amended complaint.
Read the court’s decision…
Wisconsin “property damage” caused by an “occurrence.”
April 4, 2011 — April 4, 2011 in CDCoverage.com
In American Family Mut. Ins. Co. v. American Girl, Inc., 673 N.W.2d 65 (Wis. 2004), the insured general contractor was hired by the owner to design and build a warehouse on the owner s property. The general contractor hired a soil engineer to do a soil analysis and make site preparation recommendations. The soil engineer determined that the soil conditions were poor and recommended a compression process which the general contractor followed. After the warehouse was completed and the owner took possession, excessive soil settlement caused the foundation to sink which in turn caused structural damage to the warehouse. The warehouse had to be torn down.
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Reprinted courtesy of CDCoverage.com
Court Strikes Down Reasonable Construction Defect Settlement
December 20, 2012 — CDJ Staff
The Court of Appeals of Washington has struck down a construction defect settlement between a building owner and the companies she hired to repair the siding, among other repairs to bring the building up to code. Yuan Zhang hired Hawk Construction LLC to do repair work. Hawk, in turn, hired Ready Construction LLC for some aspects of the project. Hawk and Ready were both insured by Capital Specialty Insurance Corporation.
There were several problems with Ready’s work. After removing old siding, they did not protect the building, nor did they remove all of the damaged layers. Ready covered, but did not fix, a mildew problem under the old siding. When new siding was reattached, the nails used were too short to adequately attach it.
After paying for an inspection of the work, Zhang had Hawk and Ready begin the repairs again, but the work was abandoned without being completed. Zhang sued Hawk for breach of contract. Hawk then sued Ready, claiming that “Ready was liable to Hawk to the extent that Hawk was liable to Zhang.” Capitol retained defense for both contractors.
Zhang settled with Hawk, in an agreement that gave her “the right to collect and/or pursue all costs and attorney fees paid by Hawk or its insurance company defending against the Zhang’s claims and pursuing claims against Ready.” Subsequently, she also settled with Ready. Both companies ceased operations.
Zhang had the settlements reviewed by a court, which concluded that the settlements were reasonable. Capital was allowed to appeal, claiming that the settlement included costs that were Zhang’s responsibility. The appeals court did not examine the question of the reasonableness of the settlement, concluding that Capitol’s interests were relevant only to “questions of bad faith, collusion, and fraud.”
In the case of Zhang, the court concluded that the relationship between Zhang and her former contractors was collusive. The court noted that “bad faith or collusion may exist when the evidence indicates a joint effort to create, in a non-adversarial atmosphere, a resolution beneficial to both parties, yet highly prejudicial to the insurer as intervener.” The court noted that both companies had minimal assets which were, in any case, exempted from the agreement. Further, the court found that the agreements failed to determine “what amount of the repairs related to preexisting water damage.” Zhang’s calculation of costs also included her expenses for architectural and engineering services, which the court points out, “where always Zhang’s costs to bear.”
The court concluded that “the overall structure of the settlements is highly probative of collusion, fraud, or bad faith.” Zhang’s agreements with Hawk and Ready allowed her to collect compensation from Hawk and then collect Ready’s compensation to Hawk for their portion of the settlement, allowing Zhang to collect the monies twice. Further, she was allowed to pursue Capitol for Hawk’s attorney expenses, even though Hawk had none. “The right to recover Hawk’s fees merely set up a windfall recovery for Zhang.” The court described the agreements among Zhang, Hawk, and Ready as “precisely the type of manipulation [the law] is intended to preclude.”
Read the court’s decision…
One World Trade Center Due to Be America’s Tallest and World’s Priciest
February 10, 2012 — CDJ Staff
As One World Trade Center rises, so does the price tag. After construction delays and cost overruns, the cost of the building at the site of the September 11 attacks has risen to $3.8 billion. Part of the expense of the skyscraper is the heavily reinforced base of the building. The elevator shafts are also heavily reinforced, all part of guarding against future terrorist attacks.
In comparison, the world’s tallest tower, the Burj Khalifa in Dubai, cost only $1.5 billion, less than half the cost of One World Trade Center. As a result, the Port Authority does not see the building as being profitable in near future. In order to fund it, the agency is raising tolls on bridge and tunnel traffic.
Currently, about the half the unfinished building is leased. Construction is expected to conclude in 2013.
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Changes To Indemnification Statute Are Here! Say Hello To Defense Duties
June 19, 2012 — Douglas Reiser, Builders Counsel
A months back, I discussed the passage of SHB 1559. The law changes the existing statutory indemnification regulation to include the costs of defense and to rid contracts of unfair indemnification for someone else’s sole negligence. The law went into effect last week!
Check back to my recent article on the changes set forth in the new law. The amendments to RCW 4.24.115 will broaden the existing law and clarify what types of indemnification are unenforceable. In short, an “up the chain” contractor (such as a general contractor) cannot expect to pass 100% of the defense and indemnification obligations downward if it is partially liable.
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Reprinted courtesy of Douglas Reiser of Reiser Legal LLC. Mr. Reiser can be contacted at info@reiserlegal.com
