Follow Up on Continental Western v. Shay Construction
March 28, 2012 — Brady Iandiorio, Colorado Construction Litigation
Writing in Construction Law Colorado, Brady Iandiorio revisits the case Continental Western v. Shay Construction. He promises to continue to follow cases dealing with Colorado HB 10-1394.
Recently the Court ruled on two Motions to Reconsider filed by Defendants Milender White and Shay Construction.
Procedurally, the Motions to Reconsider were ruled on by the Honorable William J. Martinez, because the day after the motions were filed the action was reassigned to Judge Martinez. In the short analysis of the Motion to Reconsider, the court leaned on Judge Walker D. Miller’s ruling on the summary judgment and his analysis of the (j)(5) and (j)(6) exclusions.
As a quick refresher regarding the grant of summary judgment, Judge Miller agreed with Continental Western’s argument that the asserted claims were excluded under the “damage to property” exclusion. The policy’s exclusions state: “(j) Damage to Property . . . (5) that particular part of real property on which you or any contractors or subcontractors working directly or indirectly on your behalf are performing operations, if the ‘property damage’ arises out of those operations; or (6) that particular part of any property that must be restored, repaired or replaced because ‘your work’ was incorrectly performed on it.” Judge Miller found that both exclusions (j)(5) and (6) applied to both Shay’s allegedly defective work.
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Reprinted courtesy of Brady Iandiorio of Higgins, Hopkins, McClain & Roswell, LLC. Mr. Iandiorio can be contacted at iandiorio@hhmrlaw.com.
No Coverage For Construction Defects When Complaint Alleges Contractual Damages
September 1, 2011 — Tred Eyerley, Insurance Law Hawaii
The underlying plaintiff’s allegations contended the contractor was in breach of contract for construction defects caused in building her home. Accordingly, the court found no coverage.See Nat’l Builders and Contractors Ins. Co. v. Slocum, 2011 U.S. Dist. LEXIS 81694 (S.D. Miss. July 26, 2011).
Slocum Construction LLC sold a home it built to Laura Peterson. Subsequently, Peterson filed suit, alleging a breach of the contract and seeking rescission and cancellation of the contract. Peterson further alleged at least thirty-three specific defects in the construction of the house.
Slocum tendered to its insurer, National Builders and Contractors Insurance Company (NBCI). NBCI filed suit for a declaratory judgment.
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Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
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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Fifth Circuit Asks Texas Supreme Court to Clarify Construction Defect Decision
November 7, 2012 — CDJ Staff
The Fifth Circuit Court has withdrawn its decision in Ewing Construction Company v. Amerisure Insurance Company, pending clarification from the Texas Supreme Court of its decision in Gilbert Texas Construction, L.P. v. Underwriters at Lloyd’s London. The Fifth Circuit had applied the Gilbert case in determining that a contractual liability exclusion barred coverage for faulty workmanship. The Insurance Journal reports that this decision was both applauded and criticized, with a concern noted that “an insurer would now have its pick of either the ‘your work’ exclusion or the contractual liability exclusion without the exception for subcontracted work.”
The Fifth Circuit is now asking the Texas Supreme Court two questions to clarify Gilbert, which Brian S. Martin and Suzanne M. Patrick see as a sign that the Court has realized that it overly expanded the scope of the earlier ruling. A response is expected from the Texas Supreme Court by spring 2013.
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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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Insurer Has Duty to Defend in Water Intrusion Case
July 10, 2012 — CDJ Staff
The Seventh Circuit Court of Appeals has upheld a summary judgment against an insurance company in a construction defect suit. Lagestee-Mulder, Incorporated (LMI) was hired by Crown Centre to construct a multi-story office building in Franfort, Illinois. LMI hired Frontrunner Glass & Metal to supply and install windows and doors. Frontrunner purchased an insurance policy from Consolidated which named LMI as an additional insured. The project experienced water intrusion and other construction defects and Crown sued LMI. Consolidated denied coverage. LMI sued Consolidated and the US District Court granted a summary judgment against Consolidated.
The appeals court reviewed the grounds for summary judgment and determined that under Illinois law, Consolidated had a duty to defend. The court cited an earlier opinion that “if the underlying compliant alleges facts within or potentially within policy coverage, an insurer is obligated to defend its insured even if the allegations are groundless, false, or fraudulent.”
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New Buildings in California Soon Must Be Greener
June 19, 2012 — CDJ Staff
The California Energy Commission has approved new energy efficiency standards for new homes and commercial buildings. The 2013 Building Energy Efficiency Standards are set to go into effect on January 1, 2014, and will require 30% more energy efficiency for non-residential construction and 25% more for homes. The standards do not affect hospitals, nursing homes, or prisons.
Buildings covered under the standard will have to have roofs that ready for the installation of solar panels. Additionally, non-residential buildings will require high-performance windows, advanced lighting controls, and cool-roof technologies. Residential requirements include insulated hot-water pipes, whole house fans, and more efficient windows.
The new standards are expected to add 3,500 new building industry jobs. One thing these construction workers won’t be building are power plants, since over the next thirty years, the standards are expected to save as much as six power plants.
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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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Hovnanian Increases Construction Defect Reserves for 2012
January 6, 2012 — CDJ Staff
In their fourth quarter earnings call, executives of Hovnanian Enterprises made some projections for investors, covering the company’s plans for 2012. During the call, Ara K. Hovnanian, the firm’s CEO, discussed their reserves to meet construction defect claims. The firm does an annual actuarial study of their construction defect reserves.
Mr. Hovnanian noted that there have been no changes for the past several years, but this year they are increasing their reserves by about $6.3 million. Additionally, the firm has added $2.5 million to their legal reserves. Mr. Hovnanian stated “we do not anticipate that changes of this magnitude will be recurring as we look forward to 2012.”
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Contractor Burns Down Home, Insurer Refuses Coverage
May 10, 2012 — CDJ Staff
InsuranceStep reports that a Connecticut insurance company has rejected a claim over a fire in a remodeling project that killed five people. Utica First Insurance states that the coverage was invalid as the insured, Tiberias Construction, had misrepresented information about the company and the work performed in applying for insurance. During a remodel, the contractor allegedly placed fireplace ashes near trash. The trash ignited, leading to the house fire.
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Continuous Trigger of Coverage Adopted for Loss Under First Party Policy
August 2, 2012 — Tred Eyerly, Insurance Law Hawaii
The Seventh Circuit predicted that the Wisconsin Supreme Court would adopt the continuous injury trigger for first party property loss that extends over several policy periods. Miller v. Safeco Ins. Co. of Am., 2012 U.S. App. LEXIS 12940 (7th Cir. June 25, 2012).
A home inspection report performed before the Millers purchased their home showed a soft spot on the roof. The stucco's finish color was also uneven and stained. Further, some water damage was found in the study and skylights above the kitchen sink. But the report advised that the exterior walls, chimney, grass roof, flashings, floor joists/beams and columns, garage walls and floor appeared serviceable. A roof specialist determined the soft spot was not significant and could be repaired for $1,500.
The Millers purchased a homeowner's policy from Safeco on June 30, 2005. The policy went into effect the next day when the Millers closed on the property. But the Millers did not see the policy's terms until Safeco mailed them a copy of the policy at the end of July.
Before receiving the policy, the Millers discovered severe inner wall water leaks and significant water infiltration on three of the home's exterior walls.
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Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
Amerisure Case to be Heard by Texas Supreme Court
August 16, 2012 — CDJ Staff
The Fifth Circuit Court of Appeals has withdrawn its decision in Ewing Construction Company Inc. v. Amerisure Insurance Company, according to Insurance Developments. The Fifth Circuit had concluded that “a contractor’s obligation to perform its contact in a workmanlike manner constituted an ‘assumption of liability.’” Two questions have now been certified to the Texas Supreme Court. The dissent in the case argued the majority had misread Texas Supreme Court precedent. The court will now have the opportunity to clarify this matter.
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Legislatures Shouldn’t Try to Do the Courts’ Job
March 1, 2012 — CDJ Staff
David Thamann, writing in Property Casualty 360, argues that current actions by legislatures on insurance coverage amount to “legislative interference or overreach.” He notes that under current Colorado law, “a court shall presume that the work of a construction professional that results in property damage — including damage to the work itself or other work — is an accident unless the property damage is intended and expected by the insured.” He argues that here legislators are stepping into the role of the courts. “Insureds and insurers are not always going to be pleased with a court ruling, but that is the system we have.”
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Fourteen More Guilty Pleas in Las Vegas Construction Defect Scam
June 19, 2012 — CDJ Staff
The ongoing case over claims that a group fixed homeowner board elections in order to supply the conspirators with a stream of construction defect cases and repairs has lead to fourteen guilty pleas. The judge recently issued charges against fifteen of the accused; one defendant did not join in the group as he was recovering from pneumonia. The prosecutors have asked the judge to delay sentencing, as the investigation is continuing. Prosecutors note that another dozen people may be indicted.
Along with an earlier group who plead guilty, this brings the total number of guilty pleas in the case to twenty-five. All have promised to cooperate with authorities.
The case has also involved four deaths, although authorities have not suspected foul play in the deaths. Nancy Quon, one of the four, was the construction defect attorney suspected to be at the center of the conspiracy.
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Builder Waits too Long to Dispute Contract in Construction Defect Claim
May 10, 2012 — CDJ Staff
The Louisiana Court of Appeals has affirmed the lower court’s judgment in the case of Richard v. Alleman. The Richards initiated this lawsuit under Louisiana’s New Home Warranty Act, claiming that they had entered into a construction contract with Mr. Alleman and that they quickly found that his materials and methods had been substandard. They sued for the cost of repairing the home and filing the lawsuit. Mr. Alleman countersued, claiming the Richards failed to pay for labor, materials, and services. By his claim, they owed him $12,838.80.
The trial court split the issues of liability and damages. In the first trial, the court concluded that there was a contact between Alleman and the Richards and that the New Home Warranty Act applied. Mr. Alleman did not appeal this trial.
The second trial was on the issue of damages. Under the New Home Warranty Act, the Richards were found to be entitled to $36,977.11 in damages. In a second judgment, the couple was awarded $18,355.59 in attorney’s fees. Mr. Alleman appealed both judgments.
In his appeal, Alleman contended that the trial court erred in determining that the Home Warranty Act applied. This was, however, not the subject of the trial, having been determined at the earlier trial. Nor did the court accept Alleman’s claim that the Richards failed to comply with the Act. The trial record made clear that the Richards provided Alleman with a list of problems with their home by certified mail.
The court did not establish whether the Richards told Alleman to never return to their home, or if Alleman said he would never return to the home, but one thing was clear: Alleman did not complete the repairs in the list.
A further repair was added after the original list. The Richards claimed that with a loud noise, a large crack appeared in their tile flooring. Mr. Alleman stated that he was not liable for this as he was not given a chance to repair the damage, the Richards hired the flooring subcontractors, and that the trial court rejected the claim that the slab was defective. The appeals court found no problem with the award. Alleman had already “refused to make any of the repairs.”
Finally Alleman made a claim on a retainage held by the Richards. Since Alleman did not bring forth proof at trial, the appeals court upheld the trial courts refusal to award a credit to Alleman.
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Michigan Supreme Court Concludes No Statute of Repose on Breach of Contract
July 19, 2011 — CDJ Staff
Judge Marilyn Kelly of the Michigan Supreme Court has remanded the case of Miller-Davis Co. v. Ahrens Constr. Inc. (Mich., 2011) to the Court of Appeals, after determining that the court had improperly applied the statute of repose. She reversed their judgment, pending a new trial.
Ahrens Construction was a subcontractor, hired by Miller-Davis to build and install a natatorium room at a YMCA camp in Kalamazoo, Michigan. After its installation, the YMCA discovered a severe condensation problem, causing moisture to “rain” from the roof. The architect, testifying for Miller-Davis, alleged that the problems were due to improper installation by Ahrens. Ahrens claimed that the condensation problem was due to a design error.
When the roof was removed and reconstructed, the moisture problem ended. Ahrens argued that the alleged defects were caused by the removal. Further, in trial Ahrens raised the issue of the statute of repose. The court found in favor of Miller-Davis and did not address the statute of repose.
The Court of Appeals reversed the trial court, determining that the statute of repose had barred the suit. This rendered the other issues moot.
The Michigan Supreme concluded that the issue at hand was “a suit for breach of contract,” and that the Michigan statute of repose is limited to tort actions. They remanded the case to the Court of Appeals to address the issues that had been mooted by the application of the statute of repose.
Read the court’s decision…
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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Negligent Construction an Occurrence Says Ninth Circuit
June 30, 2011 — CDJ Staff
One June 27, the US Court of Appeals has rejected an appeal from Mid-Continent Casualty Company. Mid-Continent had appealed a summary judgment granted to Titan Construction Company.
Titan Construction had built condominiums for the Williamsburg Condominium Association, which later filed a construction defect lawsuit against Titan and other defendants. Titan settled with the developer, Kennydale, assigning its rights against Mid-Continent to Kennydale. Mid-Continent filed suit, claiming that “it had no obligation to indemnify or defend Titan, Kennydale, or various other defendants.” The district court found in favor of Mid-Continent, granting a summary judgment, concluding that Titan’s insurance covered “occurrences,” and none had taken place.
On appeal, the court found that the negligent construction of the condominiums constituted an “occurrence” The case was remanded and the district court this time found in favor of Titan, “concluding that Mid-Continent failed to raise a triable issue as to the applicability of the remaining policy exclusions.
The Ninth Circuit Court of Appeals has now affirmed that decision and Titan’s summary judgment stands.
Read the court’s decision…
