Bar to Raise on Green Standard
November 7, 2012 — CDJ Staff
Next June, members of the U.S. Green Building Council will be voting on changes to the LEED green building standard. “The bar is getting raised,” said Navad Malin of BuildingGreen, a consulting and publishing firm, in an article in USA Today. Under the proposed guidelines, builders would have to project energy and water use for five years as part of the certification process. However, if the occupants aren’t as green as the builders anticipated, the buildings will not lose their certification.
The new rules will include higher energy standards, award points for avoiding potentially hazardous materials, and even determine what kind of plumbing items can be used.
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Gut Feeling Does Not Disqualify Expert Opinion
July 6, 2011 — CDJ Staff
The New Jersey Supreme Court issued a ruling in June on the case of Nevins v. Toll in which they reversed an earlier decision and remanded the case to a lower court for retrial. At issue in the case was the testimony of the plaintiff’s expert, J. Anthony Dowling. In depositions, Mr. Dowling said that his estimates for repair were based on a “gut feeling.” Dowling said he had “very little” experience in cost estimates for single-family homes. The defendants sought to bar Dowling’s testimony which was granted by the judge. Without an expert, Ms. Nevin’s case was dismissed.
Describing Dowling’s report as “far from a model of how an expert’s opinion in a construction case should be presented,” the court noted that Dowling is not a professional expert witness. However, the court did note that Dowling is a professional cost estimator. Despite Mr. Dowling using his “gut feeling” to construct his estimate, the New Jersey Supreme Court felt that whether his estimate is convincing is “a question for the jury.”
Read the court’s opinion…
Defective Grout May Cause Trouble for Bridges
August 16, 2012 — CDJ Staff
Grout, which was used to protect the steel support cables of the Woodrow Wilson Bridge, may lead to problems instead. The Baltimore Sun reports that the Federal Highway Administration is looking at three dozen bridges in twenty-one states that were built with defective grout. The grout contains high levels of chlorides, which can lead to corrosion. The collapse of pedestrian walkway in Concord, North Carolina was attributed to chloride contamination in the grout.
The grout, SikaGrout 300PT, was advertised as "non-corrosive, does not contain chlorides," but later testing showed that it contained levels that exceeded limits by 400 percent. Throughout the country, about 16 million pounds of this were used. Sika Corp. suspended production of the grout in 2010. If repairs need to be made, it is unclear who will pay.
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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…
Texas “your work” exclusion
January 6, 2012 — CDCoverage.com
In American Home Assurance Co. v. Cat Tech, L.L.C., No. 10-20499 (5th Cir. Oct. 5, 2011), claimant Ergon hired insured Cat Tech to perform service on a reactor at Ergon’s refinery. During a start-up of the reactor after Cat Tech had completed its work, the reactor suffered damage. Cat Tech performed additional service and repairs. However, again upon start-up of the reactor, it suffered additional damage. Ergon hired another contractor to repair the reactor. Ergon initiated arbitration proceedings against Cat Tech. Cat Tech’s CGL insurer American Home defended Cat Tech against the Ergon arbitration under a reservation of rights.
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Reprinted courtesy of CDCoverage.com
Texas exclusions j(5) and j(6).
April 27, 2011 — April 27, 2011, by CDCoverage.com
In Evanston Ins. Co. v. D&L Masonry of Lubbock, Inc., No. 07-10-00358-CV (Tex. Ct. App. April 18, 2011), insured masonry subcontractor D&L sued its CGL insurer Evanston to recover costs incurred by D&L for the replacement of window frames damaged by D&L while performing masonry work adjacent to the window frames. The trial court granted summary judgment for D&L.
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Reprinted courtesy of CDCoverage.com
Are Construction Defects Covered by Your General Liability Policy?
July 10, 2012 — CDJ Staff
Construction firms are finding that their insurers are denying construction defect claims and the courts are siding with the insurers, according to Kelly M. Gindele, writing in the Martindale-Hubble Legal Library. Ms. Gindele notes that when construction defect claims are not covered, firms can end up with “multi-million dollar claims” that it has to pay “out of its own pocket.” She notes that in Kentucky and Ohio, if “the insured’s work causes an unforeseen and unintended event to occur?Ķthere is not occurrence under the policy.” Further, if there is an occurrence, the court will “look for an exception to coverage.”
She also notes that contractors may not hold sufficient coverage, either by limiting the amounts or the time. She notes that while “insurers generally try to limit coverage for defect claims to one year,” that “construction defects may not be found in a year’s time.”
Ms. Ginele recommends that contractors “hire an insurance company with extensive experience in this field” and “independent legal counsel with insurance knowledge,” to avoid finding themselves “with limited or even no coverage when it needs it most.”
Read the full story…
Condo Board May Be Negligent for not Filing Construction Defect Suit in a Timely Fashion
December 9, 2011 — CDJ Staff
The Maryland Court of Special Appeals has ruled that condominium association boards have a duty to “properly pursue any claims,” overturning the decision of a lower court that said that it had no legal duty to file suit. Tom Schild, writing at Marylandcondominiumlaw.net, writes about Greenstein v. Avalon Courts Six Condominium, Inc.
In this case, the condominium board waited six years after residents complained about water intrusion problems before suing the developer. The court ruled that the suit could not be filed, as the statute of limitations was only three years. After residents were assessed for the repairs, homeowners sued the board, arguing that their delay lead to the need for the special assessment.
After overturning the decision, the Court of Special Appeals has asked the trial court to review the negligence claim.
Read the full story…
Supreme Court of New York Denies Motion in all but One Cause of Action in Kikirov v. 355 Realty Assoc., et al.
April 28, 2011 — April 28, 2011 Beverley BevenFlorez - Construction Defect Journal
In the construction defect suit Kikirov v. 355 Realty Associates, LLC, et al., the Supreme Court of the State of New York granted a dismissal of the plaintiff’s fourth cause of action, but denied the defendants’ motion in all other respects. The plaintiff alleged breach of contract, among other claims. “355 Realty was the sponsor of 355 Kings Highway Condominium, a condominium project located at 355 Kings Highway, in Brooklyn, New York. The condominium units were allegedly marketed as ‘ultra luxury condos,’ and a ‘Manhattan style condominium building,’ which would be the ‘epitome of luxury and quality.’ The construction of the six-story 28 unit residential condominium building began in approximately November 2003. […] Plaintiff entered into a purchase agreement, dated December 21, 2005, with 355 Realty (which was executed on behalf of 355 Realty by Michael Marino, as its member) for the purchase of Unit 2G in the building.”
The plaintiff alleged that construction defects emerged soon after moving into the unit: “After taking occupancy of his condominium unit, plaintiff allegedly experienced serious leakage and moisture problems in his unit, which caused a dangerous mold condition to develop, in addition to causing actual damage to the structural elements of his unit. According to plaintiff, the walls, moldings, and wood floors of his unit are constantly wet and moist, and there is severe buckling of the wood floors. Plaintiff claims that these problems have caused his unit to be uninhabitable. Plaintiff alleges that he has been forced to remove all of his personal belongings from his unit and has been unable to occupy his unit.”
According to the plaintiff, Foremost attempted to repair the defects, but only made the situation worse: “Specifically, plaintiff asserts that Foremost’s contractors opened his walls to remove the stained drywall, but never corrected the cause of the leaks, destroyed the walls, and never properly taped and painted the sheet rock. Plaintiff alleges that Foremost repaired the openings in a defective manner. Plaintiff also claims that his floor was repaired at that time by a subcontractor hired by Foremost, but the basic structural problem was never resolved and the leaks continued, compromising the beams and causing the mold conditions, in addition to all of the physical damage present in the unit. On or about July 16, 2009, plaintiff allegedly sent a notice of the defects to 355 Realty and to the managing agent designated by the condominium board, by certified mail, return receipt requested. Plaintiff asserts that defendants have failed and refused to repair and remedy the defective condition, and that the damage is extensive and requires major structural repairs.”
The plaintiff filed suit on May 4, 2010, and the original complaint asserted eight causes of action. “By decision and order dated September 13, 2010, the court granted a motion by defendants to dismiss plaintiff’s second cause of action for breach of implied covenants of good faith and fair dealing, his third cause of action for breach of implied warranties, his fifth cause of action for negligence as against 355 Realty, Michael Marino, Anthony Piscione, Ahron Hersh, and Toby Hersh, his seventh cause of action for negligence as against Vision, Foremost, and MMJ, and his eighth cause of action for violations of General Business Law § 349 and § 350, and granted plaintiff leave to replead his first cause of action for breach of contract as against 355 Realty, Michael Marino, Anthony Piscione, Ahron Hersh, and Toby Hersh, his fourth cause of action for breach of statutory warranties, and his sixth cause of action for breach of contract as against Vision, Foremost, and MMJ.”
The plaintiff amended their complaint on October 18, 2010, and “has repleaded these three causes of action by asserting a first cause of action for breach of contract as against 355 Realty, Michael Marino, Anthony Piscione, Ahron Hersh, and Toby Hersh, a second cause of action for breach of statutory warranties, and a third cause of action for breach of contract as against Vision, Foremost, and MMJ. In addition, plaintiff, in his amended complaint, has added a fourth cause of action for fraud.”
The defendants, on the other hand, “argue that each of the four causes of action alleged by plaintiff in his amended complaint fail to state a claim upon which relief may be granted, and that plaintiff’s amended complaint must be dismissed pursuant to CPLR 3211 (a) (7). Defendants also cite to CPLR 3211 (a) (1), and (5), asserting that dismissal is also required based upon documentary evidence and the Statute of Limitations contained in the limited warranty.” The defendants’ motion to dismiss the first cause of action, breach of contract against 355 Realty, was denied: “While defendants dispute that the alleged defects are actually structural in nature, plaintiff’s allegations as to their structural nature are sufficient, at this juncture, to withstand defendants’ motion to dismiss. Thus, dismissal of plaintiff’s first cause of action must be denied.”
Next, the court reviewed the second cause of action, which was breach of statutory warranties: “Defendants’ motion also seeks dismissal of plaintiff’s second cause of action for breach of statutory warranties, which alleges that, under applicable law, including General Business Law § 777-a, et seq., the sponsor warranted to purchasers of units that the units would be constructed in a skillful, careful, and workmanlike manner, consistent with proper design, engineering, and construction standards and practices, and free of material latent, design, and structural defects. Defendants argue that General Business Law § 777-a, known as the housing merchant implied warranty, is inapplicable to this case because it is limited to the construction of a ‘new home,’ defined in General Business Law § 777 (5) as ‘any single family house or for-sale unit in a multi-unit residential structure of five stories or less.’ As noted above, the building in which plaintiff’s condominium unit is located is a six-story building.”
The motion to dismiss the second cause of action is denied. The court provided this reasoning: “the full text of the offering plan has not been provided, the court is unable to examine the entire written agreement so as to determine the purpose of the inclusion of the text of General Business Law § 777.”
In the third cause of action, the plaintiff alleges “a breach of contract claim as against Vision, Foremost, and MMJ based upon their contract with 355 Realty, pursuant to which they agreed to be the general contractors/construction managers for the condominium, to undertake oversight responsibility for the design and construction of the condominium, to prepare and/or review drawings, plans, and specifications for the condominium, and to otherwise manage and oversee the project. Plaintiff alleges that Vision, Foremost, and MMJ breached their contractual obligations in that the condominium units were improperly and inadequately designed and constructed, and completed in an incompetent and unworkmanlike manner, with material design and construction defects.”
The motion to dismiss the third cause of action was denied as well: “Plaintiff alleges, in his amended complaint, that Vision, Foremost, and MMJ have acknowledged notice of the defects and have not denied that they are responsible for providing a warranty to plaintiff. Plaintiff also refers to this warranty, in his amended complaint, by noting that paragraph 16 of the purchase agreement stated that the ‘[s]eller shall not be liable to . . . the [p]urchaser for any matter as to which an assignable warranty . . . has been assigned . . . to [p]urchaser and in such case the sole recourse of such . . . [p]urchaser . . . shall be against the warrantor . . . except that in the event a contractor or subcontractor is financially unable or refuses to perform its warranty . . . [s]eller shall not be excused from its obligations enumerated in the [offering p]lan under Rights and Obligations of Sponsor.’ Consequently, the court finds that dismissal of plaintiff’s third cause of action as against Foremost and MMJ must also be denied.”
In the fourth cause of action, the plaintiff alleges “that defendants made false statements and representations orally, in advertisements, and in the purchase agreement, that the condominium was properly and adequately designed and constructed and completed in a competent and workmanlike manner, in accordance with the condominium plans and specifications and proper design, engineering, and construction standards and practices consistent with applicable standards for a first class, luxury condominium in Brooklyn.”
The court dismissed the fourth cause of action stating, “it must be dismissed because it is duplicative of his first cause of action for breach of contract.” Therefore, “defendants’ motion to dismiss plaintiff’s amended complaint is granted to the extent that it seeks dismissal of plaintiff’s fourth cause of action, and it is denied in all other respects.”
Read the court’s decision…
Texas Construction Firm Files for Bankruptcy
December 20, 2012 — CDJ Staff
A Texas construction firm, founded in 1937, filed for bankruptcy, bringing twenty-two projects to a sudden halt, and resulting in the loss of jobs for hundreds of employees. Ballenger Construction told its employees to go home, as it could not complete the jobs. In some cases, work will need to be done to ensure that the work sites do not cause public safety hazards.
Read the full story…
Architect Not Liable for Balcony’s Collapse
September 13, 2012 — CDJ Staff
The Texas Supreme Court declined to hear an appeal from a woman who was partially paralyzed due to the collapse of a balcony. She had sued the architect of her friends’ home, but the Texas Third Circuit Court of Appeals had reversed a jury ruling against the architect, Sinclair Black. Black’s firm, Black + Vernooy, had designed the home and had supervised “administration of the construction contract.” Despite a contractual obligation to “endeavor to guard the owner against defects and deficiencies,” the balcony builder had not followed the architect’s specifications, including in the construction of the balcony.
While the jury found Black liable for ten percent of the blame, Black argued that he could not be held liable for the contractor’s negligence, nor did he have any duty to third parties.
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Construction Workers Unearth Bones
June 28, 2011 — CDJ Staff
While digging for a new steam line at Eastern Michigan University, workers unearthed some old bones. Experts have yet to determine if the bones are human or animal, however Walter Kraft, the EMU vice president of communications, noted that a handle also unearthed might have come from a casket. Cindy Heflin, reporting in AnnArbor.com notes that until 1900 a Catholic cemetery was located in the area. Although the bodies were relocated, these may have been left behind.
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Bad Faith and a Partial Summary Judgment in Seattle Construction Defect Case
February 10, 2012 — CDJ Staff
The US District Court of Washington has issued a ruling in the case of Ledcor Industries v. Virginia Surety Company, Inc. Ledcor was the builder of a mixed-use real estate project in Seattle called the Adelaide Project. Ledcor purchased an insurance policy from Virginia Surety covering the project. After the completion of the project, Ledcor received complaints of construction defects from the homeowners, which they forwarded to Virginia Surety.
Virginia Surety denied coverage on several grounds. Absent any lawsuit, Virginia claimed that there was “not yet any duty to defend or indemnify.” Further, as the policy commenced ten days after work on the project was substantially completed, Virginia cited a provision in the policy that excluded coverage for damage that occurred before the policy began. As problems included water intrusion, Virginia noted an exclusion for fungal damage. Finally, Virginia noted that it was not clear whether damage was due to Ledcor’s own actions.
The homeowners sued over the construction defects. Ledcor settled these suits before trial. In this, they were defended by, and settlements were paid by American Home, another of Ledcor’s insurers. Ledcor claims that Virginia Surety acted in bad faith by denying coverage and by its failure to investigate the ongoing nature of the work at the project.
The judge determined that Virginia Surety acted in bad faith when it invoked the fungus exclusion. Virginia noted that fungal damage “‘would have been’ referenced in the list of construction defects,” however, the HOAs claimed only “water stains” and “water damage,” and made no mention of mold or fungus. The court found that Virginia Surety “was not entitled to deny coverage simply because it may have suspected that mold or fungus damage existed.” The court noted that further proceedings would be needed to determine what portion of the settlement Virginia is obligated to pay.
The court found that there were matters of fact to be determined on the further issues in the case. The judge wrote that although Virginia acted in bad faith in invoking the fungus exclusion, it still had to be determined if they were in breach of contract by failing to defend Ledcor. Ledcor still needs to show that the damages claimed by the HOA were due to work actually covered by Virginia Surety.
Ledcor made an additional claim that Virginia Surety violated Washington’s laws concerning the insurance industry. Here, the court noted that the improper exclusion for fungus issues “constitutes a per se unfair trade practice.” Six other claims were made under this law. The court found that Virginia Surety did not misrepresent “pertinent facts or insurance policy provisions.” It also issued its denial letter promptly, satisfying the fifth provision. However, Virginia Surety did violate the second provision, in that it failed “to acknowledge and act reasonably promptly upon communications with respect to claims.” Two other issues could not be determined.
Judge Martinez’s decision granted a summary judgment to Ledcor on the issue of bad faith. An additional summary judgment was granted that Virginia Surety violated Washington’s Insurance Fair Conduct Act. Judge Martinez did not grant summary judgment on any of the other issues Ledcor raised.
Read the court’s decision…
Judge Okays Harmon Tower Demolition, Also Calls for More Testing
August 2, 2012 — CDJ Staff
Vegas.Inc reports that Clark County District Court Judge Elizabeth Gonzalez has permitted the demolition the tower, which MGM Resorts has claimed is a safety hazard. Perini Building Co. claims that the building does not need to be demolished. CityCenter claims that repairing the building would take nearly a year longer than a demolition and cost about $200 million. Further, CityCenter assumes that the building’s reputation would cost it another $30 million.
Subsequently, Judge Gonzalez ruled that the pattern of destructive testing would not support a claim that there were an estimated 1,400 defective items in the building. An attorney for CityCenter, Steve Morris, has suggested that they may seek more testing, impossible to do once the building is demolished. CityCenter issued a statement that “nearly every time CityCenter has chipped away concrete to review structural work at the Harmon, we have found defects.” They describe the building as “unusable.”
Tutor Perini contends that it “remains confident that it will prevail when the issues of safety, reparability and responsibility for the issues facing the Harmon tower are considered.
Read the full story…
Insurance for Defective Construction Now in Third Edition
November 7, 2012 — CDJ Staff
Available both in print and online, the International Risk Management Institute, Inc has brought out a third edition of Insurance for Defective Construction. The work is written by Patrick J. Wielinski of Cokinos, Bosien & Young, a Dallas-Fort Worth law firm. Mr. Wielinski practice focuses on insurance coverage. Insurance for Defective Construction is described as “a must read for anyone who buys, sell, or underwrites construction insurance or who becomes involved in construction claims.”
Read the full story…
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…
Boyfriend Pleads Guilty in Las Vegas Construction Defect Scam Suicide
November 7, 2012 — CDJ Staff
One of the odder twists of the Las Vegas construction defect scandal was the charge that Nancy Quon’s boyfriend helped her in an initial suicide attempt. Quon, implicated by not charged in the case of taking control of homeowner boards in order to profit from construction defect settlements. William Webb was alleged to have bought the drug GBH in order to allow Quon, his girlfriend, to commit suicide. Ms. Quon later overdosed on a combination of alcohol and prescription drugs.
In addition to pleading guilty to the drug charges, Webb also made a plea bargain with prosecutors in which he did not admit guilt in an insurance fraud charge, but acknowledged that prosecutors would likely be successful at obtaining a conviction. Webb will be sentenced February 7 and is expected to receive a sentence of six years imprisonment.
Read the full story…
South Carolina Legislature Defines "Occurrence" To Include Property Damage Arising From Faulty Workmanship
May 26, 2011 — Tred R. Eyerly, Insurance Law Hawaii
On May 17, 2011, South Carolina passed legislation to combat the restrictive interpretation of what constitutes an "occurrence" under CGL policies. S.C. Code Ann. sec. 38-61-70.
The legislation reversed a decision by the state's Supreme Court issued earlier this year. See Crossman Communities of North Carolina, Inc. v. Harleysville Mut. Ins. Co., 2011 W.L. 93716 (S.C. Jan. 7, 2011). Crossman had overruled an earlier decision by the South Carolina Supreme Court that holding that defective construction was an “occurrence.” Crossman, however, reversed course, holding that damages resulting from faulty workmanship were the “natural and probable cause” of the faulty work and, as such, did not qualify as an “occurrence.”
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Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
