Insurer Not Liable for Construction Defect Revealed by Woodpecker
September 13, 2012 — CDJ Staff
The Eighth Circuit Court of Appeals has ruled that an insurance provision that excluded construction defects must stand in Friedberg v. Chubb, granting a summary judgment to the insurance firm.
The Friedbergs discovered extensive water damage to their home after a woodpecker drilled a hole in a vertical support. They sought insurance coverage under their Chubb “Masterpiece” policy. The decision quotes the policy as covering “all risk of physical loss” “unless stated otherwise or an exclusion applies.” These exclusions included “gradual or sudden loss,” “structural movement,” and “faulty planning, construction or maintenance,” but the policy covered “ensuing covered loss unless another exclusion applies.”
Chubb’s expert determined that the Friedbergs’ home had defective construction, and “attributed the damage to the beams and walls below the beam to a failure to install control joints.” After Chubb denied coverage, the Friedbergs sued, although the court ruled that “even under the Friedbergs’ theory, the water damage was a loss caused by faulty construction and therefore excluded under the policy.”
On appeal, the Friedbergs argued that “the loss resulted from the combination of both faulty construction and the presence of water” and that Minnesota’s “concurrent causation” doctrine must apply, which according to the decision, “when a loss results from both a covered peril and an excluded peril, coverage exists unless the excluded peril is the ‘overriding cause’ of the loss.” The court rejected this reasoning, noting that “once the house was plagued with faulty construction, it was a foreseeable and natural consequence that water would enter.”
The Friedbergs also contended that “the damage caused by the intrusion of water into their home is an ‘ensuing covered loss’ for which they are due coverage.” The court also rejected this claim, noting that Minnesota law excludes defective construction from the ensuing loss provision. The court said that “the Friedbergs’ reading of their ensuing-loss clause, by contrast, would dramatically limit their policy’s faulty-construction exclusion, because almost ‘any loss cause by’ faulty construction could also be characterized as an ensuing loss under an all-risk policy.”
Read the court’ decision…
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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One Colorado Court Allows Negligence Claim by General Contractor Against Subcontractor
December 20, 2012 — Heather Anderson , Higgins, Hopkins, McLain & Roswell
Judge Paul King of the Douglas County District Court recently confirmed that subcontractors in residential construction owe an independent duty, separate and apart from any contractual duties, to act without negligence in the construction of a home in Colorado. See Order, dated September 7, 2010, Sunoo v. Hickory Homes, Inc. et al., Case No. 2007CV1866; see alsoCosmopolitan Homes, Inc. v. Weller, 663 P.2d 1041 (Colo. 1983); A.C. Excavating v. Yacht Club II Homeowners Ass’n, Inc., 114 P.3d 862 (Colo. 2005). He also verified that the holding in the B.R.W. Inc. v. Dufficy & Sons, Inc., 99 P.3d 66 (Colo. 2004)[1] case does not prohibit general contractors, such as Hickory Homes, from enforcing a subcontractor’s independent duty to act without negligence in the construction of a home.
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Reprinted courtesy of Heather Anderson, Higgins, Hopkins, McLain & Roswell, LLC. Ms. Anderson can be contacted at anderson@hhmrlaw.com
Construction Law Client Alert: Hirer Beware - When Exercising Control Over a Job Site’s Safety Conditions, You May be Held Directly Liable for an Independent Contractor’s Injury
April 6, 2011 — April 6, 2011 - By Mark VonderHaar and Yvette Davis in the Haight Brown & Bonesteel Blog
On February 24, 2011, the California Court of Appeal held in Jeffrey Tverberg, et al v. Fillner Construction, Inc. that the imposition of direct liability on a hirer turns on whether the hirer exercised retained control of worksite safety in such a manner that affirmatively contributed to the independent contractor’s injury. Twice, Tverberg, an independent contractor hired by a general contractor's subcontractor, asked the general contractor to make the job site safe by covering up open holes created by another unrelated subcontractor while Tverberg was working at the site. After Tverberg was injured at the site by falling in a hole, he sued both the general contractor and the subcontractor which had hired him.
The Court of Appeal reasoned that when the general contractor instructed another subcontractor to create a condition that was potentially dangerous (i.e., creating open and uncovered bollard holes), and simultaneously required Tverberg to perform unrelated work near the open holes, the general contractor s conduct may have constituted a negligent exercise of its retained control which affirmatively contributed to Tverberg’s injury. The Court also reasoned that the general contractor affirmatively assumed responsibility for the safety of the workers near the holes by only requiring stakes and safety ribbon, and negligently discharged that responsibility which resulted in injury.
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Reprinted courtesy of Mark VonderHaar and Yvette Davis of Haight Brown & Bonesteel. Mr. VonderHaar can be contacted at mvonderhaar@hbblaw.com and Ms. Davis at ydavis@hbblaw.com.
Homebuilders Go Green in Response to Homebuyer Demand
May 10, 2012 — CDJ Staff
McGrawHill Construction reports that 17 percent of new homes and remodels in 2011 were done with green building practices. Their report estimates that by 2016, this will rise to 29 to 38 percent of the market for home construction and remodeling.
Consumers see the green buildings as more desirable, particularly where they are more energy efficient. Two thirds of builders noted their customers were interested in features that would lower the energy use of their homes. Consumers also feel that green building materials are more durable and see green homes as higher quality.
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Will They Blow It Up?
March 28, 2012 — CDJ Staff
The issues concerning the Harmon Towers building in Las Vegas continue to make their way through the courts. As we noted in a previous piece, Cook County building officials stated that the building could be a hazard if Las Vegas were struck by an earthquake. The question of whether the building will continue to stand is just one of the issues in front of a judge.
MGM Resorts International argued at a March 13 hearing for permission to implode the Harmon hotel building. They claim that more than 1,700 defects have been discovered in the building and that the building is a public safety hazard. Arguing against demolition, Perini Building Company, the general contractor for the hotel, and its subcontractors are claiming that imploding the building would destroy evidence and prejudice juries in the ongoing construction defect claims. They claim that MGM Resorts wishes to abandon the building due to the economic slowdown. Perini Corp, the contractor for the project, claims that the building can be fixed. Perini claims that MGM’s position in the construction trial would be improved if the building is demolished.
After Judge Elizabeth Gonzalez heard the four days of testimony on the Harmon Towers building and whether it should be demolished, she scheduled more testimony, with two days in April and an entire week in July. Judge Gonzalez will be deciding whether the building will be torn down, imploded, or left in place.
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Colorado “property damage” caused by an “occurrence” and exclusions j(5) and j(6) “that particular part”
August 11, 2011 — CDCoverage.com
In Continental Western Ins. Co. v. Shay Construction, Inc., No. 10-cv-02126 (D. Col. July 28. 2011), general contractor Milender White subcontracted with insured Shay for framing work.  Shay in turn subcontracted some of its work to others. When Shay?s subcontractors filed suit against Shay and Milender White seeking payment for their work, Milender White cross-claimed against Shay for breach of contract alleging that,Milender White notified Shay during construction that some of Shay?s work was defective and that when Shay repaired its defective work, it damaged work performed by others. Shay’s CGL insurer Continental Western filed suit against Milender White and Shay seeking a judicial declaration of no coverage. The federal district trial court granted Continental Western?s motion for summary judgment.
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Reprinted courtesy of CDCoverage.com
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…
Florida Appeals Court Rules in Favor of Homeowners Unaware of Construction Defects and Lack of Permits
December 9, 2011 — CDJ Staff
The Florida Court of Appeals has ruled that a homeowner is not liable for defects in unpermitted alterations, reversing a lower court’s decision in Jensen v. Bailey. The Jensens sold their house to the Baileys. During the sale, the Jensens filled out a property disclosure statement, checking “no” to a question about “any improvement or additions to the property, whether by your or by others that have been constructed in violation of building codes or without necessary permits.”
After moving in, the Baileys discovered several problems with the home. One involved a defective sewer connection leading to repeated backups. The Baileys also found problems with remodeling the Jensens had done in the kitchen, master bath, and bedroom. The remodeling work was not done with required permits nor was it up to code.
The court noted that an earlier case, Johnson v. Davis, established four criteria: “the seller of a home must have knowledge of a defect in the property; the defect must materially affect the value of the property; the defect must not be readily observable and must be unknown to the buyer; and the buyer must establish that the seller failed to disclose the defect to the buyer.” The court found that the first of these criteria was crucial to determining the case.
In the Johnson ruling, the then Chief Justice dissented, fearing that the courts “would ultimately construe Johnson’s requirement of actual knowledge to permit a finding of liability based on constructive knowledge,” quoting Justice Boyd, “a rule of constructive knowledge will develop based on the reasoning that if the seller did not know of the defect, he should have known about it before attempting to sell the property.” The Appeals Court concluded that the lower court hit this point in ruling on Jensen v. Bailey.
Citing other Florida cases, the court noted that the Johnson rule does require “proof of the seller’s actual knowledge of the defect.” The court cited a case in which it was concluded that the seller “should have known” that there was circumstantial evidence was that the seller did know about the defects, as the seller had been involved in the construction of the home.
In the case of the Jensens, the lower court concluded that they did not know that the work was defective, nor did they know that they were obligated to obtain permits for it. The Appeals Court found this one fact sufficient to reverse the decision and remand the case to the lower court for a final judgment in favor of the Jensens.
Read the court’s decision…
California Assembly Bill Proposes an End to Ten Year Statute of Repose
May 9, 2011 — May 9, 2011 Beverley BevenFlorez - Construction Defect Journal
California Assemblyman Furutani has introduced a bill that if passed would eliminate the ten year statute of repose in certain construction defect cases. The statute of repose would not apply when “an action in tort to recover damages for damage to real or personal property, or for personal injury or wrongful death from exposure to hazardous or toxic materials, pollution, hazardous waste, or associates environmental remediation activities,” according to the latest amended version of AB 1207.
When Furutani first introduced the bill, it was aimed at small businesses only. However, the description of the bill, which read, “An act to amend Section 14010 of the Corporations Code, relating to small businesses” has been stricken from the bill, and it has been amended to read, “An act to amend Section 337.15 of the Code of Civil Procedure, relating to civil actions.”
The change in the bill’s intent has caused some outcry among attorneys in the blogosphere. For instance, Sean Sherlock of Snell & Wilmer stated that “the proposed amendment is unnecessary, and would upset nearly 50 years of deliberative legislation and judicial precedent on construction defects liability and the 10–year statute — all apparently motivated by a decision in a single, isolated Superior Court lawsuit that has not yet been reviewed by the court of appeal.” Sherlock is referring to Acosta v. Shell Oil Company, in which the Superior Court agreed to dismiss the plaintiffs’ claims against the developer based in part on the ten year statute of repose. AB 1207 was amended five days after the ruling in Acosta v. Shell Oil Company.
California AB 1207 has been re-referred to the Judiciary Committee.
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Construction on the Rise in Denver
September 13, 2012 — CDJ Staff
In another sign of a recovery in the housing industry, the Denver Business Journal reports that the pace of new home construction has accelerated in the Denver area. According to the article, in the first seven months of 2012, forty-eight percent more permits were issued than in the first seven months of 2011. In July, 2012, there were sixty-six percent more permits than a year previously. For the Denver metropolitan area, July was the sixteenth consecutive month in which permits were up from a year previously.
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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…
Record-Setting Construction in Fargo
November 7, 2012 — CDJ Staff
Prairie Business reports that Fargo is experiencing the most new construction it has ever seen, totaling $434 million in value, which exceeds the previous high in 2006 of $428 million. Many of the construction starts are for single family homes, although there is also an increase in construction of apartments and townhomes.
The Home Builders Association of Fargo-Moorhead also noted that there was also a large of remodeling projects. Terry Becker, the president of the HBA, said that “remodeling is just huge right now.”
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Arbitrator May Use Own Discretion in Consolidating Construction Defect Cases
September 1, 2011 — CJD Staff
The Mississippi Court of Appeals has ruled in the case of Harry Baker Smith Architects II, PLLC v. Sea Breeze I, LLC. Sea Breeze contracted with Harry Baker Smith Architects II, PLLC (HBSA) to design a condominium complex, which would be built by Roy Anderson Corporation. All parties agreed to arbitration.
Subsequently, Sea Breeze alleged defects and sought arbitration against the architectural firm and started a separate arbitration proceeding against the contractor. The special arbitrator appointed by the American Arbitrators Association determined that it would be proper to consolidate the two actions “since they arose from a common question of fact or law.” HBSA filed in chancery court seeking injunctive relief and a reversal of the decision. Sea Breeze and Roy Anderson filed a motion to compel the consolidated arbitration.
The court noted that the special arbitrator “established that the contract between Sea Breeze and Roy Anderson expressly allowed for consolidation of the two cases.” Further, the arbitrator “concluded that HBSA expressly agreed to consolidation by written consent through its 2008 letter, through which it insisted upon Roy Anderson’s involvement ‘in any mediation and/or arbitration.’”
The court concluded that the chancery court “did not have the power to fulfill HBSA’s request.” The court affirmed the chancery court’s judgment.
Read the court’s decision…
Tucson Officials to Discuss Construction Defect Claim
July 10, 2012 — CDJ Staff
The mayor of Tucson, Arizona and the city council scheduled a meeting on June 26, 2012 in order to consult with the city’s attorneys concerning possible construction defect litigation involving the Martin Luther King, Jr. apartment building in that city. The memorandum was authored by Richard Miranda, the Tucson city manager.
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Save A Legal Fee? Sometimes You Better Talk With Your Construction Attorney
May 10, 2012 — Douglas Reiser, Builders Counsel
I love writing this column, because I think it’s refreshing for contractors to hear that they don’t always need an attorney. Today’s post is the “Un-Save a Legal Fee” because I want to point out a specific illustration of when you definitely need your attorney. Using a construction contract template can be fine, but you always need to consider its application to each project ? or it could bite you in the rear.
Seattle attorney Paul Cressman published a prime depiction of bad contract management, last week. A Florida appellate court struck down a general contractor’s “pay if paid” clause when it became ambiguous because of some incorporated language from its prime contract. Specifically, a clause in the prime contract required the general contractor to pay all subcontractors before receiving payment from the owner, while the general contractor’s “pay if paid” clause required its subcontractors to wait for payment until it arrived from the owner.
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HOA Has No Claim to Extend Statute of Limitations in Construction Defect Case
October 28, 2011 — CDJ Staff
The California Court of Appeals ruled on September 20, 2011 in the case of Arundel Homeowners Association v. Arundel Green Partners, a construction defect case involving a condominium conversion in San Francisco. Eight years after the Notice of Completion was filed, the homeowners association filed a lawsuit alleging a number of construction defects, including “defective cabinets, waterproofing membranes, wall-cladding, plumbing, electrical wiring, roofing (including slope, drainage and flashings), fire-rated ceilings, and chimney flues.” Three years of settlement negotiations followed.
Negotiations ended in the eleventh year with the homeowners association filing a lawsuit. Arundel Green argued that the suit should be thrown out as California’s ten-year statute of limitations had passed. The court granted judgment to Arundel Green.
The homeowners then filed for a new trial and to amend its complaint, arguing that the statute of limitations should not apply due to the doctrine of equitable estoppel as Arundel Green’s actions had lead them to believe the issues could be solved without a lawsuit. “The HOA claimed that it was not until after the statute of limitations ran that the HOA realized Arundel Green would not keep its promises; and after this realization, the HOA promptly brought its lawsuit.” The trial court denied the homeowners association’s motions, which the homeowners association appealed.
In reviewing the case, the Appeals Court compared Arundel to an earlier California Supreme Court case, Lantzy. (The homeowners also cited Lantzy as the basis of their appeal.) In Lantzy, the California Supreme Court set up a four-part test as to whether estoppel could be applied. The court applied these tests and found, as was the case in Lantzy, that there were no grounds for estoppel.
In Arundel, the court noted that “there are simply no allegations that Arundel Green made any affirmative statement or promise that would lull the HOA into a reasonable belief that its claims would be resolved without filing a lawsuit.” The court also cited Lesko v. Superior Court which included a recommendation that the plaintiffs “send a stipulation?Ķextending time.” This did not happen and the court upheld the dismissal.
Read the court’s decision…
Changes to Arkansas Construction and Home Repair Laws
September 30, 2011 — CDJ Staff
A new law, set to take effect in 2012, lowers the ceiling on when work must be done by a licensed contractor. Through the end of the year, projects costing $20,000 or more had to be done by an Arkansas licensed contractor. As of January 1, 2012, that new limit will be $2,000.
This will apply to all single-family residences and according to Lovely County Citizen, covers “construction, alteration, renovation, repair, modification, improvement, removal, demotion, or addition to a pre-existing structure.” Residential building contractors will be required to have workers compensation insurance, as will home improvement contactors if they take jobs worth more than $20,000.
Morris Dillow, a building inspector in Holiday Island, said, “It will get these scammers out of here who are ripping people off.” He cited the example of a contractor who after getting paid for roof repairs and painting, left the job unfinished.
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