Ensuing Loss Provision Does Not Salvage Coverage
December 9, 2011 — Tred R. Eyerly, Insurance Law Hawaii
Water intrusion caused by a construction defect was not covered under the all risk policy’s ensuing loss provision. See Friedberg v. Chubb & Son, Inc., 2011 U.S. Dist. LEXIS 123582 (D. Minn. Oct. 25, 2011).
Extensive water damage was discovered in the insureds’ home when a small hole in the exterior wall was being repaired. Chubb’s adjuster and an expert found water intrusion causing rot, mold, and damage to the home’s wood framing and insulation. Chubb denied coverage because water intruded through the roof and wall, resulting in gradual deterioration. The insureds filed suit.
The policy excluded coverage for construction defects, but insured "ensuing covered loss unless another exclusion applies."
The court agreed there was a prima facie case for coverage because the home suffered a physical loss.
Read the full story…
Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
Lawsuit over Construction Defects Not a Federal Case
August 16, 2012 — CDJ Staff
The United State District Court in California has dismissed the claims of a contractor against the United States government, on the grounds that it was not within the subject matter jurisdiction of the court. The origins of the case are in a related construction defect claim. The current plaintiff, Performance Contracting, Inc., did the lath and plaster work for a building for the Department of Veterans Affairs. After the building was completed, the Veterans Affairs complained to the general contractor, Wynema, Inc., of water intrusion problems.
Wyema and Performance conducted testing and the water intrusion was found to be due to “a variety of design defects and omissions, including: 1) omission of proper window flashing; 2) inadequate waterproof membrane around the windows; 3) inadequate T-molding around the windows; 4) lack of a window sill pan for the windows; 5) lack of any backing in the window framing; 6) lack of any backing for the stucco expansion joints and seams; and 7) failure to require that a performance mock-up of the window assembly and adjacent areas be built and water tested.” Wyema filed a construction defect action against Performance and other subcontractors.
In the current case, Performance claims that Veteran Affairs was negligent, that it “breached its duty to Plaintiff when it provided deficient plants and specifications” and “failed to properly oversee construction and inspect Project work.” The court determined that it could not hear this case, noting that “Federal Courts are presumptively without jurisdiction over civil actions.”
Performance raised its claims under the Federal Tort Claims Act. The judge was not persuaded by this claim, noting that the FTCA does not apply to purported breach of the General Contract. The FTCA waives the government’s sovereign immunity in cases of “injury or loss of property, or personal injury or death caused by the negligent or wrongful act or omission of an employee of the Government while acting within the scope of his office or employment, under circumstances where the United States, if a private person, would be liable to the claimant in accordance with the law of the place where the act or omission occurred.”
Performance was unable to pursue its claims in the Court of Federal Claims as there was no contract between Performance and the government. However, the court noted that Performance’s inability to file suit in the Court of Federal Claims does not open up a path to the District Court. “Litigants are not guaranteed a forum in which to sue the United States.” The court further noted that “if this Court were to accept Plaintiff’s logic, non-parties to contracts, but not parties, would be free to pursue contract claims in the fora of their choosing.”
Read the court’s decision…
Avoid Gaps in Construction Defect Coverage
July 10, 2012 — CDJ Staff
The language may be standardized, but the way different states’ courts interpret it is not. That’s the problem discussed by William F. Knowles and Brendan Winslow-Nason in an article in Business Insurance. One of the major issue through the country is whether a construction defect claim and the resultant damage are an occurrence. Additionally, there are questions whether certain exclusions apply, such as “your work” or “your product” exclusions. They note that many courts “ agree that they are intended to exclude defective construction itself, while providing coverage for unintended consequences.” They further note that these are not the only insurance issues, “making it difficult for construction companies operating across state lines to ensure adequate coverage.”
Their recommendations to contractors are that they pay careful attention to where they’ve done business and “if the states have issued decisions or if there is legislation in place address the scope of coverage under additional insured endorsements.” Additionally, they suggest determining whether a contractor can negotiate a choice of law provision in their policy. The conclude that “construction companies can take proactive steps to protect themselves by identifying the applicable states’ laws, determining whether insurance is adequate under those laws, and then taking steps to resolve any gaps in their coverage.”
Read the full story…
Equipment Costs? It’s a Steal!
July 8, 2011 — CDJ Staff
KCBD reports on the problems of a Lubbock, Texas contractor. It’s hard to do the job when your tools keep getting stolen. Corey Meadows, owner of Top Cut Interiors, told KCBD that he had chained an air compressor to a table saw. Since the thieves couldn’t cut the chain, they cut the table saw “and just took the air compressor and the chain.” Meadows estimates the thieves cost him $2,000 in damaged or stolen equipment and time lost.
Read the full story…
New Web Site Tracks Settled Construction Defect Claims
June 19, 2012 — CDJ Staff
Peter Lissner, a former Nevada homebuilder, has created a new site to help track homes that have been involved in construction defect litigation. His site, housefaxreview.com, collections documentation about homes where claims of construction defects have been made. He told The Builders Magazine concerns about “the number of homes that have been served notices, received compensation, yet the homes weren’t repaired.” On the site, the creator is identified as “a family owned builder.” According to the site, “the builder had no claims until the neighborhood reached the statutory claims limit 10 years.”
Lissner also claims that in many cases, after settling construction defect lawsuits, the homeowners sell to subsequent buyers without disclosing the lawsuit or their failure to repair. “Who is going to let the new homeowner know about the issue?” he asks.
Documents on the site are priced according to their relevance. Lissner notes that those who provide documents to the site will receive free access.
Read the full story…
Federal District Court Continues to Find Construction Defects do Not Arise From An Occurrence
May 10, 2012 — CDJ Staff
Coverage for construction defects continues to be hotly contested in Hawaii state and federal courts. In a recent decision, Judge Mollway felt bound to follow the Ninth Circuit’s decision in Burlington Ins. Co. v. Oceanic Design & Constr., Inc., 383 F.3d 940, 944 (9th Cir. 2004), where the court found construction defect claims arise from breach of contract, not from an occurrence. Judge Mollway’s most recent decision on the issue is Illinois Nat. Ins. Co. v. Nordic PCL Constr., Inc., 2012 U.S. Dist. LEXIS 58464 (D. Haw. April 26, 2012).
Nordic constructed a grocery store for Safeway. In addition to the grocery store, Nordic built a 165-space rooftop parking deck, retail shops and related improvements. After opening for business in 2007, Safeway experienced significant leaks. Safeway demanded that Nordic repair the parking deck. Nordic sent the demand letter to the insurer, who agreed to appoint counsel subject to a reservation of rights.
Safeway filed suit against Nordic in state court alleging, among other things, breach of contract and negligence. The insurer provided Nordic with a defense, but Nordic hired independent counsel.
The insurer filed for declaratory relief in federal district court.
Read the full story…
Minnesota Starts Wide-Ranging Registration of Contractors
July 10, 2012 — CDJ Staff
Minnesota has replaced its Independent Contractor Exemption Certificate program with the Contractor Registration Pilot Project, according to an article in the Martindale-Hubble Legal Library by Michael B. Lapicola. Mr. Lapicola notes that “it will be a violation of the law to contract with or perform construction services for another person without first being registered with the Pilot Project, or to contract with or pay another person to perform construction services if the other person is not registered with the Pilot Project. There are, however, quite a few exceptions, including those who are currently registered with the earlier program. Additionally, independent contractors who do not register can avoid the fine (up to $2,000) by registering within thirty days of fines being levied. Individuals and firms that do not perform building construction or improvements are exempt from the hiring aspects of the statute.
Minnesota’s goal is to “assist state agencies to investigate employee misclassification in the building industry.” Employees of construction firms do not individually register. Rather, the intent of the of law is to stop those who would “require any individual through coercion, misrepresentation or fraudulent means to adopt independent contractor status” or to “knowingly misrepresent or misclassify an individual as an independent contractor.”
Read the full story…
State Farm Too Quick To Deny Coverage, Court Rules
July 22, 2011 — CDJ Staff
On July 13, 2011, Judge Sarah S. Vance of the US District Court issued a rule in the case of Travelers Cas. & Surety Co. of Am. v. Univ. Facilities, Inc. (E.D. La., 2011). In this case, Stanley Smith Drywall was contracted by Capstone Building Corporation to “perform undisclosed work at the facility believed to involve the installation of drywall.” The project involved the design and construction of student residences for the Southeastern Louisiana University in Hammond, Louisiana. In May, 2009, University Facilities, Inc. (UFI) sued Capstone Development Corporation and Capstone On-Campus Management.
State Farm insured Stanley Smith Drywall and they sought a declaration that they have no duty: “(1) to insure Stanley Smith or CBC, or (2) to defend or indemnify any party against UFI's claims in the pending arbitration.” State Farm contends “(1) there is no "occurrence" to trigger coverage under the policy; (2) only breach of contract claims are asserted; (3) there is no property damage alleged; and (4) various coverage limitations and exclusions apply to prevent coverage.’
The court concluded that “whether State Farm has a duty to defend in the arbitration must be determined by considering the claims asserted in the arbitration.” However, the arbitration claims were not made part of the record. There, “, the Court cannot determine as a matter of law State Farm's duty to defend on the present record.” The same was true of State Farm’s duty to indemnify. “Stanley Smith and CBC assert that State Farm's motion for summary judgment was filed before any discovery was conducted in the arbitration proceeding or in this case. The Court finds that State Farm has failed to develop the record sufficiently to establish that there is no genuine issue of material fact as to its duty to indemnify Stanley Smith or CBC in the arbitration.’
The court denied State Farm’s motion for a summary judgment on its duty to defend and indemnify.
Read the court’s decision…
Background Owner of Property Cannot Be Compelled to Arbitrate Construction Defects
November 7, 2012 — CDJ Staff
In Truppi v. Pasco Engineering, John Quattro sued Property Management Contractors, Inc. over construction defects in William Truppi’s home. All parties are named in the suit. The California Court of Appeals ruled that Property Management Contractors, Inc. (PMCI) could not compel Mr. Quattro to arbitration.
The background of the case involves two houses built in Encinitas, California by PCMI: one for Mr. Truppi at 560 Neptune, and one for Mr. Quattro at 566 Neptune. Both contracts contained an arbitration provision. Mr. Quattro signed the contract for his residence and Mr. Truppi signed the other. Mr. Quattro then sued PCMI and its principal, William Gregory. Mr. Quattro claimed to be the true contracting party for the 560 Neptune residence and a third party beneficiary of the contract Mr. Truppi signed, and stated that PCMI was aware of this.
PCMI in a demurrer stated that Quattro “had only a ‘prospective beneficial interest in the property upon its eventual sale or lease.’” Mr. Quattro amended his complaint to account for the issues raised by PCMI. The court rejected PCMI’s demurrer to the amended complaint.
Finally, PCMI and Gregory asserted that Quattro was “not the real party in interest” and could not sue. PCMI continues to assert that Quattro lacks standing, but their attorney sent Quattro an e-mail stating, “While my client disputes that you are a party, and that you lack standing to assert the claim, to the extent you do so I believe you are obligated to proceed by way of arbitration.”
The court did not cover the issue of Quattro’s standing in the case, only if he could be compelled to arbitration. The court affirmed the lower court’s finding that Quattro could not be compelled to arbitrate the construction defect claim as neither he nor Gregory signed the contract in an individual capacity. Further, the court noted that PCMI and Gregory “denied the existence of an agreement between themselves and Quattro on the 560 contract,” and cannot compel arbitration on a non-existent agreement. And while non-signatories can, in some situations be compelled to arbitrate, the court found that “these cases are inapplicable because here they seek to have the alleged third party beneficiary (Quattro) compelled by a nonsignatory (Gregory).” The arbitration clause in question “expressly limited its application to persons or entities that signed the 560 contract.”
As Mr. Quattro was not a signatory to that agreement, the court found that he could not be held to its arbitration provision.
Read the court’s decision…
When is a Construction Project truly “Complete”? That depends. (law note)
August 2, 2012 — Melissa Dewey Brumback, Construction Law North Carolina
Long-time readers of the blog may remember my earlier post on substantial completion. However, in looking over my blog stats to see what search terms lead people here, it looks like this is hot topic. The blog searches came in two general categories:
1. Those searching strictly for a definition of substantial completion. Some examples:
- What does “substantial completion” mean?
- when does a building achieve substantial completion
- contracts “substantial completion”
- substantial completion undefined
- when is a project substantially complete
Read the full story…
Reprinted courtesy of Melissa Dewey Brumback of Ragsdale Liggett PLLC. Ms. Brumback can be contacted at mbrumback@rl-law.com.
Was Jury Right in Negligent Construction Case?
September 30, 2011 — CDJ Staff
Yes, said the South Carolina Court of Appeals in Pope v. Heritage Communities, Inc. Heritage Communities developed Riverwalk, a community in South Carolina. During the earlier trial, HCI “conceded that construction defects existed at Riverwalk, and repairs needed to be made.” The trial court found that the construction was negligent, awarding the property owners association $4.25 million in actual damages and $250,000 in punitive damages, with the class of owners awarded $250,000 in actual damages and $750,000 in punitive damages. HCI appealed on nine issues. All were rejected by the appeals court.
The court rejected HCI’s claim that the judge’s instruction to the jury suggested to the jury that “the court had already determined that Appellants were willful, wanton, and reckless.” But here, the appeals court found “no reversible error.”
The general contractor for Riverwalk was BuildStar. Off-site management and sale were managed by Heritage Riverwalk, Inc., which also owned title to the property. Both these companies were owned by Heritage Communities, Inc. During the trial, an HCI employee testified that “the three corporations shared the same officers, directors, office, and telephone number.” The trial court found that the three entities were amalgamated. This was upheld by the appeals court.
Nor did the appeals agree with the HCI that the trial court had improperly certified a class. The owners were seen as properly constituting a class. Further, the court held that the property owners’ losses were properly included by the trial court. HCI objected at trial to the inclusion of evidence of subsequent remedial measures, however, as they did not object that it was inadmissible, the issue could not be addressed at appeal.
HCI argued on appeal that the trial court should not have allowed evidence of defects at other HCI developments. The appeals court noted that “the construction defects at the other HCI developments were substantially similar to those experienced by Riverwalk.”
The court additionally found that the negligence claims, the estimated damages (since full damage could not be determined until all defective wood was removed), and the award of punitive damages were all properly applied.
Read the court’s decision…
Nevada Assembly Sends Construction Defect Bill to Senate
June 6, 2011 — CDJ Staff
In a 26 to 16 vote, the Nevada Assembly has passed Assembly Bill 401, which extends the time limit for legal action over home construction defects. According to the Las Vegas Sun, Assembly member Marcus Conklin, Democrat of Las Vegas, said the bill was about “keeping the consumer whole.” However, Ira Hansen, Republican of Sparks, told the sun that suits are happening before contractors can make repairs. The bill would allow attorney fees even if repairs are made.
Read the full story…
Who Is To Blame For Defective — And Still LEED Certified — Courthouse Square?
September 1, 2011 — Douglas Reiser, Builders Counsel
Remember Courthouse Square? I sure do. We have talked about the closed and evacuated LEED certified building a couple of times here on Builders Counsel. Well, it’s back in the news. This time building professionals are pointing fingers — but there is some talk about a fix. Still, its LEED certification remains.
If you read my past articles about Courthouse Square, you can get caught up on this mess. The short of it is that Salem, Oregon had the five-story government building and bus mall completed in 2000 for $34 Million. It was awarded LEED certification during the USGBC’s infancy. Last year, it became public that the building had significantly defective concrete and design. The Salem-Keizer Transit District worked with the City of Salem to shut the building down, and it has not been occupied since.
Last fall, Courthouse Square failed thorough forensic testing leading to a lengthy bout with a number of insurers. The contractors and designers had been hauled into court, but the Transit District was able to settle with the architect and contractors. The only remaining party involved in the lawsuit appears to be the engineering firm, Century West Engineering. Most expert reports have pinned the responsibility for the poor design and materials on Century West’s shoulders.
Read the full story…
Reprinted courtesy of Douglas Reiser of Reiser Legal LLC. Mr. Reiser can be contacted at info@reiserlegal.com
Discovery Ordered in Nevada Construction Defect Lawsuit
August 16, 2012 — CDJ Staff
Gemstone LVS was sued by the Manhattan Homeowners Association in Las Vegas, after which Chartis Specialty Insurance informed Gemstone that they “had no duty to defend or indemnify Gemstone under the Commercial Umbrella Liability Policy.” Gemstone “asserts that at the time the Policy was purchased, it was understood that Chartis would provide insurance coverage for a construction defect lawsuit” and now seeks discovery “to prove Chartis’ bad faith purpose in drafting an illusory Policy.”
The opinion notes that “the Court conducted a preliminary peek at the pending motion for partial summary judgment and finds that Chartis has not made the strong showing necessary to support the requested stay.” Further, the court notes that “when ambiguity in the language of a policy exists, the court may consider not only the language of the policy but also the ‘intent of the parties, the subject matter of the policy, and the circumstances surrounding its issuance.’” The court concludes that “this type of discovery is relevant to understanding the intent of the parties, more specifically, whether it was understood that Chartis would provide insurance coverage given the construction defect lawsuit.”
Accordingly, the court denied Chartis’ motion for stay of discovery and established a schedule for discovery, expert designations, rebuttal expert designations, and other matters related to the trial.
Read the court’s decision…
Insurance Firm Under No Duty to Defend in Hawaii Construction Defect Case
September 13, 2012 — CDJ Staff
The US District Court for Hawaii has granted a motion for summary judgment in Evanston Insurance v. Nagano. The case is related to a construction defect claim, Hu v. Nagano, and the issue at hand is whether Evanston Insurance is obligated to defend the Naganos in the underlying case.
The Hus hired Eric Nagano and his firm PMX to construct a house. Mr. Nagano’s firm was insured by Evanston, however, he lost his contractor’s license in “approximately March 2006.” Mr. Nagano sought the Hus’ authorization to allow HC Builders to take over the contract. HC Builders is headed by Mr. Nagano’s wife, Hiroko, who has held a contractor’s license since “approximately September 2006.” Ms. Nagano and HC Builders were also insured by Evanston Insurance. The house, started by PMX was finished by HC Builders.
The Hus authorized construction to begin in July 2003, but “construction did not commence until approximately October 2004 and, even after commencement, there were numerous delays resulting in months of inactivity on the Project.” The Hus had expressed to Mr. Nagano and PMX “that the construction period could not exceed twelve months after July 1, 2003.” As a result of the delays, “the Hus’ community association fined them because of the prolonged construction and the Hus’ construction lender assessed extension fees and fines for exceeding the term of the loan.”
The Hus noted that the project did not have a licensed contractor from March through September 2006. In the end, the Hus “allege that Defendants did not fulfill the obligations under the Construction Contract,” and that “the Project was ‘grossly delayed’ and the construction was ‘riddled with defects.’” Despite an Owner’s Notice of Completion filed in December 2007, the residence “had no electricity, no hot water, ... no installed appliances” and “parts of the flooring were either missing or incomplete.” And then it leaked.
The Naganos tendered the defense to Evanston. The Naganos “allege the defense is limited because Evanston: allowed default to be entered against the Naganos (the default was later set aside); delayed retaining experts; and limited the ability of the Naganos’ retained counsel to perform necessary actions to advance the case.” Evanston argues that it “does not have a duty to defend or indemnify Defendants against the Hus’ claims,” as the Hus’ claims are not covered under the policy. Further, the PMX policies have an exclusion for breach of contract.
The court concluded that all of the claims made by the Hus were based in contract and therefore were outside of the terms of the Naganos insurance coverage, as the courts have "construed Hawaii law as not providing for insurance coverage for contract related claims." Therefore, Evanston does not have a duty to defend the Naganos.
Read the court’s decision…
Summary Judgment in Construction Defect Case Cannot Be Overturned While Facts Are Still in Contention in Related Cases
September 9, 2011 — CDJ Staff
The Alabama Court of Civil Appeals has dismissed an appeal of a summary judgment in the case Bella Investments, Inc. v. Multi Family Services, Inc. MFS was hired by Bella to be the general contractor for a hotel in Gardendale, Alabama. MFS hired various subcontractors, including the architect for the project. After completion of the hotel in April, 2006, Bella made requests for MFS to repair cracked floor tiles.
In August, 2008, Bella sued MFS, the architect, and various fictitiously named defendants. Subsequently, Bella amended its complaint, naming some of the fictitiously named defendants.
MFS in turn claimed that Bella’s claims were void under the statute of limitations and that Bella was in beach of contact by failing to pay MFS the full amount owed. MFS moved for summary judgment under the statute of limitations, which was granted by the court.
Bella requested that the court “alter, amend, or vacate its summary judgment order.” When this was denied, Bella appealed to the Alabama Supreme Court, which transferred the appeal to the Court of Civil Appeals. The Court of Appeals refused to vacate the summary judgment as claims that form part of the case against MFS are also part of Bella’s claims against the other defendants. For this reason, the court upheld the summary judgment.
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.
Read the full story…
The Year 2010 In Review: Design And Construction Defects Litigation
February 25, 2011 — Candace Matson, Harold Hamersmith, and Helen Lauderdale -
Construction & Infrastructure Law Blog - February 25, 2011
This article is the first in a series summarizing construction law developments for 2010
1. Centex Homes v. Financial Pacific Life Insurance Co., 2010 U.S. Dist. LEXIS 1995 (E.D. Cal. 2010)
After settling numerous homeowners’ construction defect claims — and more than ten years after the homes were substantially completed — a home developer brought suit against one of the concrete fabrication subcontractors for the development seeking indemnity for amounts paid to the homeowners, as well as for damages for breach of the subcontractor’s duties to procure specific insurance and to defend the developer against the homeowners’ claims. The subcontractor brought a motion for summary adjudication on the ground the developer’s claims were barred by the ten year statute of repose contained in Code of Civil Procedure Section 337.15.
The District Court agreed the developer’s claim for indemnity was barred by Section 337.15. And it held that because the damages recoverable for breach of the subcontractor’s duty to purchase insurance are identical to the damages recoverable through the developer’s indemnity claim, the breach of duty to procure insurance claim also was time-barred. The District Court, however, allowed the claim for breach of the duty to defend to proceed. The categories of losses associated with such a claim (attorneys’ fees and other defense costs) are distinct from the damages recoverable through claims governed by Section 337.15 (latent deficiency in the design and construction of the homes and injury to property arising out of the latent deficiencies).
2. UDC — Universal Development v. CH2M Hill, 181 Cal. App. 4th 10 (6th Dist. Jan. 2010)
Indemnification clauses in construction agreements often state that one party to the agreement — the “indemnitor” — will defend and indemnify the other party from particular types of claims. Of course, having a contract right to a defense is not the same as actually receiving a defense. Any indemnitor attempting to avoid paying for defense costs can simply deny the tender of defense with the hope that when the underlying claim is resolved the defense obligations will be forgotten. In the past, when parties entitled to a defense — the “indemnitees” — had long memories and pressed to recover defense costs, indemnitors attempted to justify denying the tender by claiming their defense obligations coincided with their indemnity obligations and neither arose until a final determination was made that the underlying claim was one for which indemnity was owed.
Read the full story...
Reprinted courtesy of Candace Matson, Harold Hamersmith, and Helen Lauderdale, Sheppard Mullin Richter & Hampton LLP. Ms. Matson can be contacted at cmatson@sheppardmullin.com, Mr. Hamersmith can be contacted at hhamersmith@sheppardmullin.com, and Ms. Lauderdale can be contacted at hlauderdale@sheppardmullin.com.
