Florida “get to” costs do not constitute damages because of “property damage”
August 11, 2011 — CDCoverage.com
In Palm Beach Grading, Inc. v. Nautilus Ins. Co., No. 10-12821 (11th Cir. July 14, 2011), claimant general contractor Palm Beach Grading (?PBG?) subcontracted with insured A-1 for construction of a sewer line for the project.  A-1 abandoned its work and PBG hired another subcontractor to complete construction of the sewer line.  The new subcontractor discovered that A-1?s work was defective requiring repair and replacement of portions of the sewer line which also required the destruction and replacement of surrounding work.
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Reprinted courtesy of CDCoverage.com
Construction Spending Dropped in July
September 13, 2012 — CDJ Staff
Bloomberg News reports that after four months of gains in construction spending, July saw a drop of 0.9 percent, wiping out June’s gain of 0.4 percent. Despite the overall decline in spending, there was an increase of 1.5 percent in expenditure on building new single-family homes and 2.8 percent on multifamily residential construction.
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Homeowners Sue Over Sinkholes, Use Cash for Other Things
January 6, 2012 — CDJ Staff
Quoting one homeowner as saying that his house “can fall in the ground for all I care, I made my money,” the Tampa Bay Times looks at the issue of sinkhole claims in Florida. Homeowners “have paid off mortgages, put in pools, replaced roofs, or otherwise used money from sinkhole claims to do something besides fix sinkhole damage.
It’s been tough for insurance companies. Citizens Property Insurance took in $32 million in premiums for sinkhole coverage in 2010, but paid out $245 million in sinkhole claims. The Tampa Bay Times notes that some of those claims come from settling problems caused by their repairs, including one settlement of $350,000 for repairs to a house worth $39,000.
One couple, after receiving $217,000 from Citizens, sold the house to a company that bought unrepaired sinkhole homes for $190,000. The home has been sold since and remains unrepaired.
Sometimes the preferred solution by the insurance company isn’t the cheapest either. One couple was informed that Citizens was going to spend $150,000 to have the hole filled with grout. After they settled with the insurance company, they fixed the problem by installing steel piers, at a cost of about $45,000.
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Construction Defect Not a RICO Case, Says Court
August 4, 2011 — CDJ Staff
The US District Court of North Carolina has rejected an attempt by a homeowner to restart her construction defect claim by turning it into a RICO lawsuit. Linda Sharp, the plaintiff in the case of Sharp v. Town of Kitty Hawk, attempted to amend a claim under the Racketeer Influenced and Corrupt Organizations Act (RICO) and argued that her case belonged in the federal courts.
Ms. Sharp sued in November, 2010 claiming construction defects. She sued in federal court, although the court noted that as she and most of the defendants are citizens of North Carolina, the state court would have been the appropriate jurisdiction. Further, the court noted that one federal claim Sharp made was dismissed with prejudice, leaving only the state law claims. These the court dismissed without prejudice, declining to exercise jurisdiction over North Carolina law.
After the dismissal, Ms. Sharp attempted to amend her complaint after the deadline. To do so, according to the court, she would be required to obtain consent from defendants or leave of the court. She did neither.
In his opinion, Judge W. Earl Britt rejected her motion for leave to amend. He also granted the defendants’ motion to dismiss. The clerk was directed to close the case.
Read the court’s decision…
Florida County Suspends Impact Fees to Spur Development
November 18, 2011 — CDJ Staff
Hernando County, just north of Tampa on Florida’s west coast, has suspended impact fees for a year, hoping to spur development. Hernando Today reports that the move drew applause from the audience at the county commissioners meeting. Many of those in attendance were builders or members of the Greater Hernando Chamber of Commerce.
Not all were convinced. Frankie Burnett, the mayor of Brooksville, told the commissioners that his city council were not convinced that this would spur development. “Development should pay its fair share, even in slow economic times.” Burnett’s letter to the board warned that “if lowering impact fees succeeded in stimulating more residential overbuilding, it would only further depress the current real estate market.”
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Kentucky Court Upholds Arbitration Award, Denies Appeal
June 15, 2011 — CDJ Staff
The Kentucky Court of Appeals has ruled in Lake Cumberland Community Action Agency v. CMW, Inc. affirming the arbitration award. CMW, Inc. was responsible for the construction of a facility to be used for pre-school students and the housing of Alzheimer patients and senior citizens. An agreement was made that any disputes would be heard by an arbitrator selected by the construction industry.
The plaintiff alleged that there were design and construction defects in the building trusses, violation of the Kentucky Building Code, and problems with the HVAC system. The arbitrator awarded $106,000 to the plaintiff which then sought to vacate the award. The circuit court upheld the arbitrator’s decision.
The Court of Appeals found that there was no basis for rejecting the arbitrator’s decision, noting “there is nothing to show that there was any fraud or bias on the part of the arbitrator.” The appeals court, with all three judges concurring, upheld the arbitration award.
Read the court’s decision
Construction Defects Lead to Demolition
May 26, 2011 — CDJ Staff
Ten years after it was built, demolition of Seattle’s McGuire Building has begun, as Jeanne Lang Jones reports in the Puget Sound Business Journal. Construction defects had rendered the 25-story apartment building uninhabitable. The major problem was corroded steel cabling. According to the report, “the building’s owners reached an undisclosed settlement last year with St. Louis-based contractor McCarthy Building Companies.”
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Mandatory Arbitration Provision Upheld in Construction Defect Case
May 18, 2011 — May 18, 2011 Beverley BevenFlorez - Construction Defect Journal
The Superior Court of New Jersey reversed the decision in Frumer v. National Home Insurance Company (NHIC) and the Home Buyers Warranty Corporation (HBW), stating that the mandatory arbitration provision within the Frumer’s home warranty policy was binding.
The Frumers alleged that the construction defects were discovered immediately after moving into their million dollar home. After failing to achieve any results from dealing with the builder, they turned to their home warranty. There was some dispute over claims, and a settlement offer was rejected by the Frumers. The Frumers elected to commence litigation rather than utilize the binding arbitration.
The NHIC and the HBW filed a motion to compel arbitration, however, the motion judge denied the motion: “…the Warranty leaves open the option for [plaintiffs] to commence litigation, which [plaintiffs have] done in this case. The clause also states that ‘the filing of a claim against this limited Warranty shall constitute the election of remedy and shall bar the Homeowner from all other remedies.’ However, the provision does not state that the filing of a claim elects arbitration as the exclusive remedy, and any ambiguity in the language must be inferred against the drafter.”
The NHIC and the HBW appealed the decision. The Superior Court reversed the decision: “Where, such as here, the homeowner files a claim against the warranty for workmanship/systems defects, the warranty clearly and unequivocally establishes binding arbitration as the exclusive remedy. There is, however, no election of remedies for a dispute involving a major structural defect claim. The warranty clearly and unequivocally establishes binding arbitration as the exclusive remedy.”
Charles Curley of Halberstadt Curley in Conshohocken, Pa., the local counsel for National Home and Home Buyers, told the New Jersey Law Journal that “the ruling reaffirms New Jersey’s commitment to enforcing arbitration agreements and requiring people to go to mandatory arbitration when the contracts call for it.”
“At this point, their hope is that the warranty company will do what it's supposed to do — repair covered defects,” Eric McCullough, the Frumer’s lawyer said to the New Jersey Law Journal.
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Texas Windstorm Insurance Agency Under Scrutiny
April 5, 2011 — April 5, 2011 Beverley BevenFlorez - Construction Defect Journal
Representative Larry Taylor has introduced a bill in the Texas Legislature (HB 2818) that would further regulate the Texas Windstorm Insurance Agency (TWIA). According to Taylor, “In order to be adequately prepared for future hurricane seasons, it is imperative that TWIA be operating at maximum efficiency, that the Reserve Trust Fund be solvent and that the agency have adequate management measures in place to protect consumers and ensure that claims are paid in a timely manner. House Bill 2818 is an important step in the right direction toward restoring public confidence in TWIA.”
HB 2818 includes measures that would create an expert panel that would advise the commissioner on how to evaluate loss from the storm, and a greater transparency of TWIA Board meetings and actions.
In addition, the Texas Department of Insurance (TDI) has placed TWIA on Administrative Oversight. According to TDI, “While under Administrative Oversight, the Department may require its prior review and approval of executive decisions, certain expenditures, and other transactions. The insurer is required to fully cooperate with the Department and provide complete and timely disclosure of all information responsive to Department requests.”
Read the full story (Rep. Taylor’s Press Release)...
Read the full story (Texas Department of Insurance’s Press Release)...
Alabama “occurrence” and subcontractor work exception to the “your completed work” exclusion
November 18, 2011 — CDCoverage.com
In Town & Country Property, LLC v. Amerisure Ins. Co., No. 1100009 (Ala. Oct. 21, 2010), property owner Town & Country contracted with insured general contractor Jones-Williams for the construction of a car dealership. All of the construction work was performed by Jones-Williams subcontractors. After completion, Town & Country sued Jones-Williams for defective construction. Jones-Williams’ CGL insurer Amerisure defended. The case was tried and a judgment was entered against Jones-Williams in favor of Town & Country. After Amerisure denied any obligation to pay the judgment, Town & Country sued Amerisure in a statutory direct action.
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Reprinted courtesy of CDCoverage.com.
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.
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General Contractors Must Plan to Limit Liability for Subcontractor Injury
May 18, 2011 — May 18, 2011 - Douglas Reiser in the Builders Counsel Blog
It takes more than a hard hat, but safety checks, a good policy and a smart contract might save you some problems.If you are a general contractor, you will want to pay close attention to this article. A new Washington appellate decision showcases a general contractor’s liability to subcontractors who are injured on the job, when security barriers fail. But can a general limit this liability? Will its contract help?
In Wrought Corporation, Inc., Appellant V. Mario Interiano (quick note: this opinion is unpublished, but we are here to talk about an issue that was not determined on appeal – WISHA compliance), a subcontractor was injured when a security barrier failed and he fell into an elevator shaft.
A jury awarded a $1.56 million verdict against the general contractor, and the court of appeals affirmed on the basis that the general contractor has a non-delegable duty to ensure compliance with the Washington Industrial Safety and Health Act of 1973, codified under RCW 49.17 (WISHA).
Read the full story… Reprinted courtesy of Douglas Reiser of Reiser Legal LLC. Mr. Reiser can be contacted at info@reiserlegal.com
Insurer Unable to Declare its Coverage Excess In Construction Defect Case
January 6, 2012 — CDJ Staff
The Ninth Circuit Court of Appeals has upheld a summary judgment in the case of American Family Mutual Insurance Co. v. National Fire & Marine Insurance Co. Several other insurance companies were party to this case. In the earlier case, the US District Court of Appeals for Arizona had granted a summary judgment to Ohio Casualty Group and National Fire & Marine Insurance Company. At the heart of it, is a dispute over construction defect coverage.
The general contractor for Astragal Luxury Villas, GFTDC, contracted with American Family to provide it with a commercial liability policy. Coverage was issued to various subcontractors by Ohio Casualty and National Fire. These policies included blanket additional insured endorsements that provided coverage to GFTDC. The subcontractor policies had provisions making their coverage excess over other policies available to GFTDC.
The need for insurance was triggered when the Astragal Condominium Unit Owners Association filed a construction defect claim in the Arizona Superior Court. CFTDC filed a third-party claim against several subcontractors. The case was settled with American Family paying the settlement, after which it filed seeking reimbursement from the subcontractor’s insurers. The court instead granted summary judgment in favor of Ohio Casualty and National Fire.
American Family appealed to the Ninth Circuit for a review of the summary judgment, arguing that the “other insurance” clauses were “mutually repugnant and unenforceable.” The Ninth Circuit cited a case from the Arizona Court of Appeals that held that “where two policies cover the same occurrence and both contain ‘other insurance’ clauses, the excess insurance provisions are mutually repugnant and must be disregarded. Each insurer is then liable for a pro rate share of the settlement or judgment.”
The court noted that unlike other “other insurance” cases, the American Family policy “states that it provides primary CGL coverage for CFTDC and is rendered excess only if there is ‘any other primary insurance’ available to GFTDC as an additional insured.” They note that “the American Family policy purports to convert from primary to excess coverage only if CFTDC has access to other primary insurance as an additional insured.”
In comparison, the court noted that “the ‘other insurance’ language in Ohio Casualty’s additional insured endorsement cannot reasonably be read to contradict, or otherwise be inconsistent with, the ‘other primary insurance’ provision in the American Family policy.” They find other reasons why National Fire’s coverage did not supersede American Family’s. In this case, the policy is “written explicitly to apply in excess.”
Finally, the Astragal settlement did not exhaust American Family’s coverage, so they were obligated to pay out the full amount. The court upheld the summary dismissal of American Family’s claims.
Read the court’s decision…
Sometimes It’s Okay to Destroy Evidence
August 17, 2011 — CDJ Staff
The Minnesota Supreme Court has ruled in the case of Miller v. Lankow that Mr. Miller was within his rights to remediate his home, even though doing so destroyed the evidence of water intrusion.
Linda Lankow built a home in 1992. In 2001 or 2002, Lankow discovered a stucco problem at the garage which she attributed to moisture intrusion. She asked the original contractor to fix the wall. In 2003, Lankow attempted to sell her home, but the home inspection revealed fungal growth in the basement. Lankow made further repairs, including alterations to the landscaping.
In 2004, Lankow put her house on the market once again and entered into an agreement with David Miller. Miller declined to have an independent inspection, as the home had been repaired by professional contractors.
In 2005, Miller put the house on the market. A prospective buyer requested a moisture inspection. The inspection firm, Private Eye, Inc. found “significant moisture intrusion problems.”
Miller hired an attorney who sent letters to the contractors and to Lankow and her husband. Lankow’s husband, Jim Betz, an attorney, represented his wife and sent a letter to Miller’s attorney that Miller had declined an opportunity to inspect the home.
In 2007, Miller’s new attorney sent letters to all parties that Miller had decided to begin remediation work on the house. All stucco was removed. Miller then filed a lawsuit against the prior owners, the builders, and the realtors.
Two of the contractors and the prior owners moved for summary judgment on the grounds that Miller had spoliated evidence by removing the stucco. They requested that Miller’s expert reports be excluded. The district court found for the defendants and imposed sanctions on Miller.
The Minnesota Supreme court found that “a custodial party’s duty to preserve evidence is not boundless,” stating that “it may be particularly import to allow remediation in cases such as the one before us.” Their reasoning was that “remediation of the moisture intrusion problem in the home may be necessary, even essential, to address immediate health concerns.”
Given that Miller needed to remediate the problem in order to continue living there, and that he had given the other parties a “full and fair opportunity to inspect,” the court found that he was within his rights. The court reversed the judgment of the lower court and remanded it to them for review.
Read the court’s decision…
Illinois Court Determines Insurer Must Defend Negligent Misrepresentation Claim
December 9, 2011 — Tred R. Eyerly, Insurance Law Hawaii
Although the insureds disclosed flooding problems in the basement, the buyers purchased their home. USAA Cas. Ins. Co. v. McInerney, 2011 Ill. App. LEXIS 1130 (Ill Ct. App. Oct. 31, 2011). In a supplemental disclosure, the insureds reported that during heavy rains light seepage occurred in the basement.
After moving in, the buyers experienced significant water infiltration and flooding in the basement. The buyers and their children also began to experience mold-related illnesses.
The buyers sued for rescission of the contract or, in the alternative, damages. They alleged breach of contract, fraudulent misrepresentation and negligent misrepresentation. In the claim for negligent misrepresentation, the buyers alleged that the insureds carelessly omitted the fact that there were material defects in the basement and foundation when they should have known of such defects.
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Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
Can Negligent Contractors Shift Blame in South Carolina?
July 10, 2012 — CDJ Staff
Clay Olson looks back to a 1991 Carolina case, Nelson v. Concrete Supply Company. The court concluded in that case that “a plaintiff in South Carolina may recover only if his/her negligence does not exceed that of the defendant’s and amount of plaintiff’s recovery shall be reduced in proportion to amount of his or her negligence; if there is more than one defendant, plaintiff’s negligence shall be compared to combined negligence of all defendants.” In 2005, he reports, as part of tort reform in South Carolina, the legislature further addressed this.
He then suggests a possible outcome of this is that negligent contractors may be able to shift some of the blame (and cost of the settlement) to other defendants who may not be to blame. He offers a scenario in which a contractor is sued for construction defects and a jury has to allocate responsibility for indivisible damage. “A jury need only find the two subcontractors to have each contributed 15% of the indivisible damage.” He adds in another 15% for claims against the architect. Minor blame is given to the manufacturers, and suddenly the negligent contractor is paying less than 50% of the total settlement.
He notes that the previous system in place also had its problems, but notes that this one may not be “fair and equitable.”
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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…
Webinar on Insurance Disputes in Construction Defects
July 10, 2012 — CDJ Staff
Seth Lamden, of the firm Neal Gerber Eisenberg will be presenting a webinar on “Insurance Coverage Disputes in Construction Defects” on July 17, 2012 at 1 p.m. EDT. Mr. Lamden’s presentation will focus on “handling both the construction and insurance components of construction defect claims.” He will be discussing recent case law and new insurance products. The presentation will present information on evaluating various types of insurance policies, explaining common issues, contract requirement, and the economic loss doctrine. Mr. Lamden will advise attendees on how to avoid getting into a construction defect case. He will conclude his presentation with a brief question-and-answer session.
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