Colorado Senate Bill 12-181: 2012’s Version of a Prompt Pay Bill
May 10, 2012 — W. Berkeley Mann, Jr., Higgins, Hopkins, McLain & Roswell, LLC
A potentially important legislative bill has been introduced in waning days of the 2012 legislative session, which would change many of the commercial practices that prevail in the construction industry. Senate Bill 12-181 applies to all building and construction contracts and would prohibit any contract provision that requires a contractor, subcontractor, or supplier to waive their lien in advance of payment. It also would ban any “choice of law” provisions that make a Colorado-based construction contract subject to enforcement only in another state, or under the laws of another state.
The bill also seeks to change many existing commercial practices between contractors, subcontractors, and suppliers. It is presently unclear whether the bill allows parties to contract around these payment procedure provisions, or whether these requirements are simply “gap filling” provisions that pertain if there are no written contract terms specified on these issues. The proposed statute would mandate payment to subcontractors and material suppliers due within seven days in the absence of a dispute about the work or materials being billed. After this seven day period, the bill would require the payment of interest at the rate of 1.5% monthly (18% annually). In any later suit for payment, the creditor would also be able to collect reasonable attorneys’ fees. Additionally, non-payment to a subcontractor or supplier who is later found to be entitled to prompt payment would excuse the subcontractor or supplier, and its surety bond provider, from any further performance under the contract.
It is presently unclear whether the bill allows parties to contract around these payment procedure provisions. However, it is clear that the bill provides some leeway for change orders, as long as there is (1) negotiation in good faith between the parties concerning the changed scope of work, and (2) a 50% payment of a subcontractor’s costs by the changing party within 30 days of the change order work being done. Additionally, the bill provides for retainage, but in an amount of no more than 5%.
The bill is presently set for hearing before the Colorado Senate Committee on Business, Labor, and Technology Committee on May 2, 2012 at 1:30 p.m.
Read the full story…
Reprinted courtesy of W. Berkeley Mann, Jr. of Higgins, Hopkins, McLain & Roswell, LLC. Mr. Mann can be contacted at mann@hhmrlaw.com.
The King of Construction Defect Scams
June 19, 2012 — CDJ Staff
Echoing Businessweek, the Las Vegas Sun agrees that the Nevada HOA scandal is the “king of all Vegas real estate scams,” and says that the Nevada legislatures should take action. The Sun notes that the case involves only 12 out of 2,356 HOAs in Southern Nevada.
To date, 25 people have plead guilty in the case. At the center were an attorney and contractor who allegedly referred work to each other. To enable this, they assembled a wider conspiracy of people who enriched by the process. In the words of the Sun, those involved “upended the concept of a ‘common interest’ community.”
Read the full story…
History of Defects Leads to Punitive Damages for Bankrupt Developer
March 1, 2012 — CDJ Staff
The South Carolina Court of Appeals has ruled that evidence of construction defects at a developer’s other projects were admissible in a construction defect lawsuit. They issued their ruling on Magnolia North Property Owners’ Association v. Heritage Communities, Inc. on February 15, 2012.
Magnolia North is a condominium complex in South Carolina. The initial builder, Heritage Communities, had not completed construction when they filed for bankruptcy protection under Chapter 11. The remaining four buildings were completed by another contractor. The Property Owners’ Association subsequently sued Heritage Communities, Inc. (HCI) alleging defects. The POA also sued Heritage Magnolia North, and the general contractor, BuildStar.
The trial court ruled that all three entities were in fact one. On appeal, the defendants claimed that the trial court improperly amalgamated the defendants. The appeals court noted, however, that “all these corporations share officers, directors, office space, and a phone number with HCI.” Until Heritage Communities turned over control of the POA to the actual homeowners, all of the POA’s officers were officers of HCI. The appeals court concluded that “the trial court’s ruling that Appellants’ entities were amalgamated is supported by the law and the evidence.”
Heritage also claimed that the trial court should not have allowed the plaintiffs to produce evidence of construction defects at other Heritage properties. Heritage argued that the evidence was a violation of the South Carolina Rules of Evidence. The court cited a South Carolina Supreme Court case which made an exception for “facts showing the other acts were substantially similar to the event at issue.” The court noted that the defects introduced by the plaintiffs were “virtually identical across all developments.” This included identical use of the same products from project to project. Further, these were used to demonstrate that “HCI was aware of water issues in the other projects as early as 1998, before construction on Magnolia North had begun.”
The trial case ended with a directed verdict. Heritage charged that the jury should have determined whether the alleged defects existed. The appeals court noted that there was “overwhelming evidence” that Heritage failed “to meet the industry standard of care.” Heritage did not dispute the existence of the damages during the trial, they “merely contested the extent.”
Further, Heritage claimed in its appeal that the case should have been rejected due to the three-year statute of limitations. They note that the first meeting of the POA was on March 8, 2000, yet the suit was not filed until May 28, 2003, just over three years. The court noted that here the statute of limitation must be tolled, as Heritage controlled the POA until September 9, 2002. The owner-controlled POA filed suit “approximately eight months after assuming control.”
The court also applied equitable estoppel to the statute of limitations. During the time in which Heritage controlled the board, Heritage “assured the unit owners the construction defects would be repaired, and, as a result, the owners were justified in relying on those assurances.” Since “a reasonable owner could have believed that it would be counter-productive to file suit,” the court found that also prevented Heritage from invoking the statute of limitations. In the end, the appeals court concluded that the even apart from equitable tolling and equitable estoppel, the statute of limitations could not have started until the unit owners took control of the board in September, 2002.
Heritage also contested the jury’s awarding of damages, asserting that “the POA failed to establish its damages as to any of its claims.” Noting that damages are determined “with reasonable certainty or accuracy,” and that “proof with mathematical certainty of the amount of loss or damage is not required,” the appeals court found a “sufficiently reasonable basis of computation of damages to support the trial court’s submission of damages to the jury.” Heritage also claimed that the POA did not show that the damage existed at the time of the transfer of control. The court rejected this claim as well.
Finally, Heritage argued that punitive damages were improperly applied for two reasons: that “the award of punitive damages has no deterrent effect because Appellants went out of business prior to the commencement of the litigation” and that Heritages has “no ability to pay punitive damages.” The punitive damages were upheld, as the relevant earlier decision includes “defendant’s degree of culpability,” “defendants awareness or concealment,” “existence of similar past conduct,” and “likelihood of deterring the defendant or others from similar conduct.”
The appeals court rejected all of the claims made by Heritage, fully upholding the decision of the trial court.
Read the court’s decision…
Ohio Casualty’s and Beazer’s Motions were Granted in Part, and Denied in Part
May 10, 2012 — CDJ Staff
The case Trinity Homes LLC and Beazer Homes Investments LLC has reached the summary judgment stage. The remaining plaintiffs are Trinity Homes LLC (Trinity) and Beazer Homes Investments LLC (Beazer), and the only defendant remaining is Ohio Casualty Insurance Company (Ohio Casualty). “Ohio Casualty has filed a motion for summary judgment (Dkt. #409) on all claims against it, and Trinity and Beazer have filed a cross-motion seeking partial summary judgment (Dkt. #431) in their favor.” Ohio Casualty’s Motion for Summary Judgment was granted in part and denied in part, and Beazer’s motion was granted in part and denied in part.
The court’s ruling presented a bit of background on the companies involved in the litigation: “Trinity is an Indiana limited liability company with its principal place of business in Indiana and is one of several construction related companies owned by Beazer, which is a limited liability company incorporated under the laws of Delaware having its principal place of business in Atlanta, Georgia. Beazer’s predecessor, Beazer Homes Investment Corporation, acquired the stock of Crossman Communities, Inc. in 2002. Crossman and its subsidiary owned all interests in Trinity. Beazer and Trinity are in the business of residential real estate development and construction.”
Furthermore, “Ohio Casualty’s home office is in Ohio, where it is incorporated. It sells insurance policies to commercial entities such as Plaintiffs. It purchased a book of business from Great American Insurance Company, a subsidiary of which had sold commercial general liability policies (‘CGL’) and umbrella liability policies to Trinity, covering the period of time between May 1, 1994 through May 1, 1999. For ease of reference, we will refer to these policies as the Ohio Casualty policies. Trinity sold and acted as a general contractor for the construction of new homes in Central Indiana throughout the period of time in which the Ohio Casualty policies were in place.”
The court disagreed with almost every argument put forth by Ohio Casualty. However, they did concede “that Ohio Casualty is obligated to indemnify Trinity only for damages arising during its policy periods for pro rata liability as opposed to several and indivisible, by reason of its having limited its indemnity obligation to ‘those sums’ that Trinity becomes liable to pay for property damage which ‘occurs during the policy period.’”
Finally, the court ruled that “Ohio Casualty Company’s Motion For Summary Judgment (Dkt. #409) is GRANTED IN PART, that is, to the extent that Beazer is not an insured under the Ohio Casualty insurance policies, but the motion is DENIED in all other respects.”
The court further ruled that “Trinity and Beazer’s Motion For Partial Summary Judgment (Dkt. #431) is GRANTED IN PART, that is: (1) Trinity is an insured under the Ohio Casualty CGL and umbrella policies in effect for the time period from May 1, 1994 to May 1, 1999; (2) the claims at issue in the Underlying Lawsuits are "property damage" claims resulting from an "occurrence" and are therefore within the policy coverage provided under the Ohio Casualty Policy; and (3) none of the exclusions in the Ohio Casualty Policy bars coverage. Trinity and Beazer’s Motion is DENIED in all other respects. Moreover, material questions of fact remain with respect to whether payments made to the 54 homeowners, who were part of the putative class in the underlying Colon class action but were not included in the certified settlement class, were voluntary payments and as such do not qualify for indemnification. Material questions of fact also preclude a summary ruling on the issue of whether Ohio Casualty is estopped from raising their voluntary nature as a defense to indemnity.”
Read the court’s decision…
Faulty Workmanship Causing Damage to Other Property Covered as Construction Defect
September 30, 2011 — Tred Eyerley, Insurance Law Hawaii
In yet another recent construction defect case, the Illinois Court of Appeal found for coverage. See Milwaukee Mut. Ins. Co. v. J.P. Larsen, Inc., 2011 Ill. App. Ct. LEXIS 872 (Ill. Ct. App. Aug. 15, 2011).
Weather-Tite, Inc. hired Larson as a subcontractor to apply sealant to windows installed by Weather-Tite in a condominium building. The windows subsequently leaked and caused water damage. The homeowner’s association sued Weather-Tite for breach of express and implied warranties. Weather-Tite filed a third-party complaint against Larsen alleging that, if it was liable to the association for breach of warranty, Larsen was liable for contribution as a joint tortfeasor. Weather-Tite and Larsen both tendered defenses to Milwaukee Insurance. The tenders were denied and Milwaukee Insurance filed suit to determine rights under the policy.
Cross-motions for summary judgment were filed by all parties. The trial court granted Milwaukee Insurance’s summary judgment motion as to Weather-Tite, but granted Larsen’s cross-motion against Milwaukee Insurance.
On appeal, the appellate court considered whether the underlying pleadings alleged facts demonstrating "property damage" resulting from an "occurrence" within the terms of the policy.
Read the full story…
Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
El Paso Increases Surety Bond Requirement on Contractors
April 25, 2011 — April 25, 2011 Beverley BevenFlorez - Construction Defect Journal
The city of El Paso has recently increased surety bonds required of contractors from $10,000 to $50,000, according to the El Paso Times. Proponents of the increase believe it was necessary to protect homeowners from fly-by-night builders, while opponents argue that the increase will have an adverse effect on an industry in that is already suffering due to the economic slowdown.
Arguments for and against the increase have been flooding the blogosphere with their views. Christian Dorobantescu on the Small Business Entrepreneur Blog claims that “only about 15% of the city’s 2,500 contractors had been able to secure a higher bond to remain eligible for work after the new requirements were announced.” However, insurance companies have a different take. “From a surety broker standpoint, most contractors will be able qualify for the bond; some will just have to pay higher premium rates to obtain it,” a recent post on the Surety1 blog argues.
While the increased bond may help homeowners deal with construction defect claims, it is not clear what effect it will have on builders in El Paso.
Read more from the El Paso Times…
Read more from the Small Business Entrepreneur Blog…
Read more from the Surety1 Blog…
A Performance-Based Energy Code in Seattle: Will It Save Existing Buildings?
August 11, 2011 — Douglas Reiser, Builders Counsel
The City of Seattle has one of the most stringent energy codes in the nation. Based upon the Washington State Energy Code (which has been embroiled in litigation over its high standards), the code demands a lot from commercial developers. But, does it prevent developers from saving Seattle?s classic and old buildings? Perhaps.
The general compliance procedure requires buildings to be examined during the permitting process. This means that buildings are examined before they begin operating. The procedure is not malleable and is applicable to all buildings, old and new, big and small.
The downside of this procedure is that it eliminates awarding compliance to those buildings exhibiting a number of passive features, such as siting, thermal mass, and renewable energy production. This problem has prevented a number of interesting and architecturally pleasing existing building retrofits from getting off the ground. The cost of complying with the current system can be 20% more, and it might prevent builders from preserving a building?s historical integrity.
Read the full story…
Reprinted courtesy of Douglas Reiser of Reiser Legal LLC. Mr. Reiser can be contacted at info@reiserlegal.com
Hawaii Building Codes to Stay in State Control
March 1, 2012 — CDJ Staff
The Hawaii State Senate voted down Senate Bill 2692. Had it been passed, the State Building Code Council would have been abolished and building codes would have become the responsibility of county governments. The bill was opposed by the Insurance Institute for Business and Home Safety. Their director of code development, Wanda Edwards said that the bill “would have undermined key components that are essential to an effective state building code regime.”
Read the full story…
Contractor Liable for Soils Settlement in Construction Defect Suit
February 10, 2012 — CDJ Staff
The California Court of Appeals ruled on January 9 in Burrow v. JTL Dev. Corp., a construction defect case in which houses suffered damage due to improperly compacted soil, upholding the decision of the lower court.
Turf Construction entered into a deal with JTL to develop a parcel they acquired. A third firm, Griffin Homes, withdrew from the agreement “when a geotechnical and soils engineering firm reported significant problems with soil stability on 14 of the lots.” Turf Construction then took over compacting and grading the lots. Turf “had never compacted or graded a residential tract before.” Robert Taylor, the owner of Turf, “testified he knew there was a significant problem with unstable soils.”
After homes were built, the plaintiffs bought homes on the site. Shortly thereafter, the homes suffered damage from soil settlement “and the damage progressively worsened.” They separately filed complaints which the court consolidated.
During trial, the plaintiff’s expert said that there had been an inch and a half in both homes and three to five inches in the backyard and pool areas. “He also testified that there would be four to eight inches of future settlement in the next fifteen to twenty years.” The expert for Turf and JTL “testified that soil consolidation was complete and there would be no further settlement.”
Turf and JTL objected to projections made by the plaintiffs’ soil expert, William LaChappelle. Further, they called into question whether it was permissible for him to rely on work by a non-testifying expert, Mark Russell. The court upheld this noting that LaChappelle “said that they arrived at the opinion together, through a cycle of ‘back and forth’ and peer review, and that the opinion that the soil would settle four to eight inches in fifteen to twenty years was his own.”
Turf and JTL contended that the court relied on speculative damage. The appeals court disagreed, stating that the lower court based its award “on evidence of reasonably certain damage.”
Turf also that it was not strictly liable, since it did not own or sell the properties. The court wrote that they “disagree because Turf’s grading activities rendered it strictly liable as a manufacturer of the lots.” The court concluded that “Turf is strictly liable as a manufacturer of the lots.”
Judge Coffee upheld the decision of the lower court with Judges Yegan and Perren concurring.
Read the court’s decision…
Contractor Removed from Site for Lack of Insurance
October 28, 2011 — CDJ Staff
The MetroWest Daily News reports that a demolition firm was told to leave the construction site at Natick High School since their failure to have workers compensation insurance makes them unable to work on the project. The contractor, Atlantic Dismantling and Site Construction, Inc. may have been working illegally since September.
The equipment that Atlantic had rented for the job was repossessed in August. Brait Builders Corp, the general contractor for the site had rented equipment so Atlantic could continue their work.
Their lack of insurance was discovered when a worker had a minor job-related injury. The state had issued a stop-work order for the firm and they could not legally bid on public projects. The school system did not receive any notice of this, and the school’s facilities director said of the general contractor, “chances are Brait never heard of anything either.”
Read the full story...
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.
Read the full story…
Allowing The Use Of a General Verdict Form in a Construction Defect Case Could Subject Your Client to Prejudgment Interest
August 16, 2012 — Heather Anderson, Higgins, Hopkins, McLain & Roswell, LLC
A recent opinion from the Colorado Court of Appeals is a cautionary tale concerning the calculation of pre-judgment interest. See Hendricks v. Allied Waste Transportation, Inc., 2012 WL 1881004 (Colo. App. 2012). The Hendricks sued Allied after one of its drivers backed into the corner of their home with an Allied garbage truck. At trial, a jury awarded the Hendricks $160,100 in damages. Although the jury was instructed on the cost of repairs, diminution in value, and non-economic damages, the parties agreed to a general verdict form that did not ask the jury to specify the types of damages awarded. Id. at *1. The Hendricks sought to amend the judgment to include prejudgment interest and costs, which the trial court granted.
Allied appealed, arguing that the trial court erred by awarding the Hendricks prejudgment interest from the date their property was damaged. Id. at *7. The Colorado Court of Appeals found no error, and affirmed.
Read the full story…5
Reprinted courtesy of Heather Anderson, Higgins, Hopkins, McLain & Roswell, LLC. Ms. Anderson can be contacted at anderson@hhmrlaw.com
Allowing the Use of a General Verdict Form in a Construction Defect Case Could Subject Your Client to Prejudgment Interest
August 2, 2012 — Heather Anderson, Higgins, Hopkins, McLain & Roswell, LLC
A recent opinion from the Colorado Court of Appeals is a cautionary tale concerning the calculation of pre-judgment interest. See Hendricks v. Allied Waste Transportation, Inc., 2012 WL 1881004 (Colo. App. 2012). The Hendricks sued Allied after one of its drivers backed into the corner of their home with an Allied garbage truck. At trial, a jury awarded the Hendricks $160,100 in damages. Although the jury was instructed on the cost of repairs, diminution in value, and non-economic damages, the parties agreed to a general verdict form that did not ask the jury to specify the types of damages awarded. The Hendricks sought to amend the judgment to include prejudgment interest and costs, which the trial court granted.
Allied appealed, arguing that the trial court erred by awarding the Hendricks prejudgment interest from the date their property was damaged. Id. at *7. The Colorado Court of Appeals found no error, and affirmed.
Read the full story…
Reprinted courtesy of Heather Anderson, Higgins, Hopkins, McLain & Roswell, LLC. Ms. Anderson can be contacted at anderson@hhmrlaw.com
Ensuing Loss Found Ambiguous, Allowing Coverage
August 16, 2012 — Tred Eyerly, Insurance Law Hawaii
The court determined the ensuing loss provision was ambiguous and found coverage for the home owners in Platek v. Town of Hamburg, 2012 N.Y. App. Div. LEXIS 5371 (N.Y. App. Div. July 6, 2012).
The burst of a water main caused water damage to the insureds' basement. Allstate disclaimed coverage under exclusion 4 for losses caused by "[w]ater . . . on or below the surface of the ground, regardless of its source . . . [,] includ[ing] water . . . which exerts pressure on or flows, seeps or leaks through any part of the residence premises."
Another policy provision covered "sudden and accidental direct physical loss caused by fire, explosion or theft resulting from item []. . . 4 . . . ." Plaintiffs argued that this exception applied because their claimed loss was caused by an "explosion" of the water main.
Read the full story…
Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
Counterpoint: Washington Supreme Court to Rule on Resulting Losses in Insurance Disputes
September 1, 2011 — Douglas Reiser, Builders Counsel
This is the fourth installment of posts on Vision One v. Philadelphia Indemnity, a Washington Supreme Court case touching on Washington construction and insurance law. After Williams v. Athletic Field got so much coverage, I wished that I had provided a forum for argument on Builders Counsel. While we await that opinion from the Supreme Court, I decided to let a few good writers have at Vision One here on the blog. Last week, attorney Chris Carr weighed in. Today, insurance expert David Thayer returns to give his final impression. David provided an initial peak at the case earlier this year. Thanks to both Chris and David for contributing to the debate.
In August 2011 the Washington Supreme Court will rule on a pair of joined cases that involve critical insurance coverage issues. The outcome of the ruling will impact a large swath of policyholders in Washington State including builders, developers, and homeowners to name a few.
The cases are Vision One vs. Philadelphia Indemnity Insurance and Sprague vs. Safeco. The Vision one case comes from Division Two of the Appellate Court which overturned a lower court decision in favor the plaintiff, Vision One. Division Two decided that the collapse of a concrete pour during the course of construction did not constitute a resulting loss due to faulty workmanship. They further went on to redefine efficient proximate cause in a way that is harmful to policyholders by broadening rather than narrowing the meaning of exclusionary language in Philadelphia’s Builders Risk Policy.
Read the full story…
Reprinted courtesy of Douglas Reiser of Reiser Legal LLC. Mr. Reiser can be contacted at info@reiserlegal.com
Nevada Assembly Sends Construction Defect Bill to Senate
June 6, 2011 — CDJ Staff
In a 26 to 16 vote, the Nevada Assembly has passed Assembly Bill 401, which extends the time limit for legal action over home construction defects. According to the Las Vegas Sun, Assembly member Marcus Conklin, Democrat of Las Vegas, said the bill was about “keeping the consumer whole.” However, Ira Hansen, Republican of Sparks, told the sun that suits are happening before contractors can make repairs. The bill would allow attorney fees even if repairs are made.
Read the full story…
Nevada Assembly Bill Proposes Changes to Construction Defect Litigation
April 14, 2011 — April 14, 2011 Beverley BevenFlorez - Construction Defect Journal
Assemblyman John Oceguera has written a bill that would redefine the term Construction Defect, set statutory limitations, and force the prevailing party to pay for attorney’s fees. Assembly Bill 401 has been referred to the Committee on Judiciary.
Currently, the law in Nevada states that “a defect in the design, construction, manufacture, repair or landscaping of a new residence, of an alteration of or addition to an existing residence, or of an appurtenance, which is done in violation of law, including in violation of local codes or ordinances, is a constructional defect.” However, AB401 “provides that there is a rebuttable presumption that workmanship which exceeds the standards set forth in the applicable law, including any applicable local codes or ordinances, is not a constructional defect.”
The Nevada courts may award attorney fees to the prevailing party today. However, AB401 mandates that attorney fees must be awarded, and the exact award is to be determined by the Court. “(1) The court shall award to the prevailing party reasonable attorney’s fees, which must be an element of costs and awarded as costs; and (2) the amount of any attorney’s fees awarded must be determined by and approved by the court.”
AB401 also sets a three year statutory limit “for an action for damages for certain deficiencies, injury or wrongful death caused by a defect in construction if the defect is a result of willful misconduct or was fraudulently concealed.”
This Nevada bill is in the early stages of development.
Read the full story...
Liability policy covers negligent construction: GA high court
October 31, 2010 — Original article by
Michael Bradford in Business Insurance
ATLANTA—Negligent construction that results in damage to surrounding property constitutes an occurrence under a commercial general liability policy, the Georgia Supreme Court has ruled.
In a 6-1 opinion Monday in
American Empire Surplus Lines Insurance Co. Inc. vs. Hathaway Development Co. Inc., the Georgia high court upheld a lower court ruling that the general contractor’s claim for damage caused by a subcontractor’s faulty plumbing work was covered.
The ruling on construction defects is the latest in number of such cases across the United States
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Reprinted courtesy of Michael Bradford of Business Insurance.
