Insurer Not Entitled to Summary Judgment on Construction Defect Claims
February 10, 2012 — Tred Eyerly, Insurance Law Hawaii
The insurer unsuccessfully moved for summary judgment, contending it had no obligation to defend two related underlying construction defect cases. Amerisure Ins. Co. v. R.L.Lantana Boatyard, Ltd., 2012 U.S. Dist. LEXIS 2466 (S.D. Fla. Jan. 9, 2012).
An engineering report noted design construction defects and deficiencies in visible, physical improvements at The Moorings at Lantana Condominium. In two lawsuits, The Moorings sued the developer, R.L. Lantana Boatyard ("RLLB"), and the contractor, Current Builders of Florida.
Current Builders was insured by Amerisure. RLLB was named as an additional insured under the Amerisure policy.
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Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
Mississippi exclusions j(5) and j(6) “that particular part”
June 7, 2011 — CDCoverage.com
In Lafayete Ins. Co. v. Peerboom, No. 3:10cv336 (S.D. Miss. June 2, 2011), claimant homeowner Peerboom hired insured contractor Absolute to raise Peerboom’s house two feet to avoid future flooding. While Absolute was raising the house, it fell, resulting in physical injury to the home. Peerboom sued Absolute for negligence, breach of contract, and fraud, seeking damages for the destruction of the home. Absolute’s CGL insurer Lafayette defended under a reservation of rights and filed a declaratory judgment action.
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Reprinted courtesy of CDCoverage.com
Construction Defects Not Occurrences under Ohio Law
November 7, 2012 — CDJ Staff
Concluding the “claims of defective construction or workmanship brought by a property owners are not claims for ‘property damage’ caused by an ‘occurrence’ under a commercial general liability policy,” the Supreme Court of Ohio has ruled in Westfield Insurance Co. v. Custom Agri Systems, Inc. In the underlying case, Custom Agri Systems, Inc. built a grain bin as a subcontractor to Younglove Construction, LLC. Younglove had been contracted by PSD Development, which withheld payment, claiming it had suffered damages due to defects in Custom Agri System’s work. Younglove filed a complaint against Custom Agri, which filed complaints against its subcontractors. Custom Agri also requested that its insurer, Westfield Insurance Company, defend and indemnify it. Westfield claimed that it had no such duty. The Ohio Supreme Court concurred.
The decision notes that “Custom was being sued under two general theories: defective construction and consequential damages resulting from the defective construction.” Westfield argued that none of the claims were “for ‘property damage’ caused by an ‘occurrence” and therefore none of the claims were covered under the CGL policy.” Further, Westfield argued that “even if the claims were for property damage caused by an occurrence, they were removed from coverage by an exclusion in the policy.”
The case was filed in the US District Court which issued a summary judgment for Westfield. The plaintiff appealed and Sixth Circuit Court of Appeals certified the questions to the Supreme Court of Ohio.
The court noted that “all of the claims against which Westfield is being asked to defect and indemnify Custom relate to Custom’s work itself.” And so, the court concluded that they “must decide whether Custom’s alleged defective construction of and workmanship on the steel grain bin constitute property damage caused by an ‘occurrence.’” However, the court noted that under the terms of the insurance contract, an occurrence is defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions,” and the court noted that the “natural and commonly accepted meaning” of “accident” is something “unexpected, as well as unintended.”
The Ohio Supreme Court also looked at court decisions in other places, and found that in many similar cases, courts have concluded that construction defects are not occurrences.
In a dissenting opinion, Justice Pfeifer argues that “if the defective construction is accidental, it constitutes an ‘occurrence’ under a CGL policy.” Justice Pfeifer characterized the majority’s definition of “accidental” as “broad, covering unexpected, unintentional happenings.”
Read the court’s decision…
Mobile Home Owners Not a Class in Drainage Lawsuit
March 1, 2012 — CDJ Staff
Comparing it to a “complex construction defect action,” the California Court of Appeals for Orange County has rejected the claims of a group of mobile home owners that they should be certified as a class in their lawsuit against Huntington Shorecliffs Mobilehome Park. The Appeals court sustained the judgment of the lower court. The court issued a decision in the case of Criswell v. MMR Family LLC on January 17, 2012.
The claims made by the group were that the owners and operators of the mobile home park had known of an “on-going and potentially worsening shallow groundwater condition on the property” and had “exacerbated the problem by changing ‘the configuration and drainage related to the hillside that abuts’ the park.” The homeowners claimed that the class should consist of “any past or current homeowner during the same time frame” who had experienced “the accumulation of mold, fungus, and/or other toxins,” “property damage to his/her mobilehome and/or other property resulting from drainage problems, water seepage, water accumulation, moisture build-up, mold, fungus, and/or other toxins,” emotional distress related to drainage problems or mold, and finally health problems “resulting from exposure to drainage problems, water seepage, water accumulation, moisture build-up, mold, fungus, and/or other toxins, in or around one’s home, lot, or common areas of the park.”
The lower court concluded that while the limits of the class were identifiable, they failed to constitute a class in other ways. First, the people affected were small enough in number that they could be brought together. They “are not so numerous that it would be impracticable to bring them all before the Court.”
The court noted that while many of the homeowners would have issues in common, they did not find “a well-defined community of interest among the class members.” The Appeals Court wrote that “the individual issues affecting each mobile home and homeowner will predominate over the common issue of the presence of standing or pooling water in and around the park.” The court noted that each home would be affected differently by water and “the ‘accumulation of mold, fungus, and/or other toxins.’”
While the court conceded that there would be common issues, such as the “defendants’ alleged concealment of excess moisture conditions and their allegedly negligent roadwork and landscaping,” they noted that “these common issues would be swamped by the swarm of individual determinations of property damage, emotional distress, and personal injury.” The Appeals Court cited an earlier case that ruled against certification “if a class action ‘will splinter into individual trials.’” The court affirmed the judgment of the lower court that they could not proceed as a class.
Read the court’s decision…
Loose Bolts Led to Sagging Roof in Construction Defect Claim
February 10, 2012 — CDJ Staff
Though the sagging roof is neither leaking nor a safety hazard, the town of Waynesville, North Carolina is suing the builder of its new fire station, as reported in the Smoky Mountain News. The engineers who examined the roof found a substantial number of loose bolts in the roof trusses. Additionally, the trusses themselves have become bent.
Tom Galloway, Waynesville’s Town Manager said “it needs to be remedied and fixed.” He said that the builder, Construction Logic, “never indicated a willingness to fix the roof.” The town is seeking the cost of repair, which Galloway estimated could be $400,000, and an additional $30,000 in damages. The suit states that Construction Logic failed to follow the plan specifications for the roof.
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Court Clarifies Sequence in California’s SB800
December 20, 2012 — CDJ Staff
As California’s Right-To-Repair law, SB800, nears its ninth birthday, it has remained “largely untested in the legal system” as noted by Megan MacNee of Wood, Smith, Henning & Berman LLP on the site RealEstateRama. She writes that some homeowners have requested documents prior to filing a claim, which she describes as an attempt to “game the system,” and “analogous to requiring a party to litigation to comply with discovery before a complaint is filed.”
The court determined that homeowners may not request documents from the builder until they have actually filed a claim. The court noted that SB800 lacks any clear indication that homeowners may request documents before filing a claim (and also does not indicate that a builder would have to provide documents in these circumstances). The court concluded that the section that sets up the prelitigation procedures occurs before they section on documents discovery.¬? “Because the document request is part of the prelitigation procedure, and the prelitigation procedure does not begin until the homeowner has served notice of a claim, it follows that there can be no prelitigation obligation to produce documents under section 912, subdivision (a) unless the homeowner has commenced the prelitigation procedure by serving notice of a claim.”
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Repair of Part May Necessitate Replacement of Whole
February 10, 2012 — CDJ Staff
Judge Gleuda E. Edmonds, a magistrate judge in the United States District Court of Arizona issued a ruling in Guadiana v. State Farm on January 25, 2012. Judge Edmonds recommended a partial summary judgment in favor of the plaintiff.
Ms. Guandiana’s home had water damage due to pluming leaks in September 2004. She was informed that polybutylene pluming in her house could not be repaired in parts “it must be completely replaced.” She had had the plumbing replaced. State Farm denied her claim, arguing that “the tear-out provision did not cover the cost of accessing and replacing those pipes that were not leaking.”
In September 2007, State Farm filed a motion to dismiss. The court rejected this motion, stating that “If Guadiana can establish as a matter of fact that the system that caused the covered loss included all the pipes in her house and it was necessary to replace all the pipes to repair that system, State Farm is obligated to pay the tear-out costs necessary to replace all the pipes, even those not leaking.”
In March 2009, State Farm filed for summary judgment, which the court granted. State Farm argued that “the tear-out provision only applied to ‘repair’ and not ‘replace’ the system that caused the covered leak.” As for the rest of the piping, State Farm argued that “the policy does not cover defective materials.”
In December 2011, Ms. Guadiana filed for summary judgment, asking the court to determine that “the policy ‘covers tear-out costs necessary to adequately repair the plumbing system, even if an adequate repair requires replacing all or part of the system.”
In her ruling, Judge Edmonds noted that Ms. Guadiana’s claim is that “the water damage is a covered loss and she is entitled to tear-out costs necessary to repair the pluming system that caused that covered loss.” She rejected State Farm’s claim that it was not obligated to replace presumably defective pipes. Further, she rejected State Farm’s argument that they were only responsible for the leaking portion, noting “Guadiana intends to prove at trial that this is an unusual case where repair of her plumbing system requires replacement of all the PB plumbing.”
Judge Edmonds concluded by directing the District Court to interpret the tear out issue as “the tear-out provision in State Farm’s policy requires State Farm to pay all tear-out costs necessary to repair the plumbing system (that caused the covered loss) even if repair of the system requires accessing more than the leaking portion of the system.”
Read the court’s decision…
Arizona Supreme Court Confirms Eight-Year Limit on Construction Defect Lawsuits
July 18, 2011 — CDJ Staff
Acting on the case of Albano v. Shea Homes Ltd. Partnership, the Arizona Supreme Court has ruled that Arizona’s eight-year statute of repose applies. The case was referred to the court by the Ninth Circuit Court of Appeals which had asked for a clarification of Arizona law. The case focused on three questions:
1. Does the filing of a motion for class certification in an Arizona court toll the statute of limitations for individuals, who are included within the class, to file individual causes of action involving the same defendants and the same subject matter? 2. If so, does this class-action tolling doctrine apply to statutes of repose, and more specifically, to the statute of repose for construction defects set forth in Arizona Revised Statutes ("A.R.S.") § 12-552? 3. If the doctrine applies to statutes of repose, and specifically § 12-552, may a court weigh the equities of the case in determining whether, and to what extent, an action is tolled?
The litigation at hand has a lengthy history, starting with a case referred to as “Hoffman” in 2003. The Albano plaintiffs were not able to join in Hoffman, and they filed their own lawsuit in 2006. An additional lawsuit was filed by the Albano plaintiffs in 2007. The courts decided that the Albano plaintiffs’ lawsuit was untimely.
The Arizona Supreme Court concluded that the statute of repose was the appropriate standard for this case. They noted that “the eight-year statute of repose period began to run on November 6, 1997, the date of the Town of Gilbert’s final inspection. Albano II was filed on November 5, 2007.”
The court found that the plaintiffs had waited too long for start their suit. As a result, they found it unnecessary to answer the first or third questions. Justice A. John Pelander of the Arizona Supreme Court wrote the opinion, dated June 30, 2011.
Read the court’s decision…
Colorado “occurrence”
January 6, 2012 — CDCoverage.com
In Greystone Construction, Inc. v. National Fire & Marine Insurance Co., No. 09-1412 (10th Cir. November 1, 2011), general contractors Greystone and Branan were each sued by purchases of homes built by each alleging defective construction performed by subcontractors. CGL insurer American Family Mutual Insurance Company defended both Greystone and Brannon while co-insurer National Fire & Marine Insurance Company denied a defense. Greystone, Branan, and American Family sued National Fire for contribution towards defense costs. The federal district trial court entered summary judgment for National Fire.
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Reprinted courtesy of CDCoverage.com
Washington Supreme Court Sides with Lien Claimants in Williams v. Athletic Field
September 30, 2011 — Douglas Reiser, Builders Counsel
The Washington Supreme Court issued their opinion today on Williams v. Athletic Field, perhaps the most talked about construction law case in the past few years. I have discussed this case exhaustively here on Builders Counsel. Today we have a resolution.
In an unanimous opinion issued today, the high court sided with lien filers who followed a sample form provided in RCW 60.04.091. Additionally, the court found that a lien company - and presumably other persons - could sign the lien for the lien claimant, as an agent, without invalidating the lien.
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Reprinted courtesy of Douglas Reiser of Reiser Legal LLC. Mr. Reiser can be contacted at info@reiserlegal.com
Arbitration Clause Not Binding on Association in Construction Defect Claim
June 19, 2012 — CDJ Staff
Determining that a community’s CC&Rs do not form an agreement to arbitrate, the California Court of Appeals has reversed the decision of the Superior Court inVerano Condo. Homeowners the Ass’n v. La Cima Dev., LLC (Cal. App., 2012). La Cima purchased an apartment complex in December 2004, which they converted into condominiums. In the process, La Cima created the CC&Rs, under which the Verano Condominium Homeowners Association came into being. One section of the CC&Rs included arbitration clauses. Additionally, the purchase agreements for individual condominium units also contained arbitration clauses. Subsequently, the owners became aware of construction defect both in units and in the common areas. The Association sued La Cima both in its own interest and on behalf of its members. La Cima moved to compel arbitration, which was denied by the trial court. La Cima appealed.
The court concluded that “CC&Rs are insufficient to form an agreement to arbitrate between La Cima and the Association.” The court noted that “no evidence exists to show the Association consented to the terms of the CC&Rs, either explicitly or implicitly.”
The court agreed with La Cima that the arbitration agreement applied to those owners who had purchased their units directly from La Cima. Moreover, as the conversion to condominiums involved interstate commerce, in part because a Delaware company was selling condominiums located in California, the court held that the Federal Arbitration Act (FAA) applied, and as such “even a state constitutional standard, such as the the jury waiver provision requirements of the California Constitution, cannot be used to circumvent the FAA in the face of an otherwise valid arbitration agreement.”
However, the court also held that there was “no agreement in the CC&Rs between La Cima and owners who did not purchase units directly from La Cima,” adding that “no meeting of the minds between La Cima and these later purchasers and their successors occurred.” The court did not believe that “the Legislature intended that CC&Rs would be used to provide continuing and irrevocable contractual development or role as a representative of the owners of the development.”
The purpose of the CC&Rs, according to the court are to “protect owners from one another and permit enforcement of its terms by the Association.” The court stated that “La Cima relinquished its interests in the land by selling its property and may not assert any rights under the CC&Rs following the transfer of its ownership interest.
In its conclusion, the court determined that claims must be organized in three classes. The claims the association made against La Cima for defects in the common area “are not subject to any valid agreement to arbitrate.” The second category are those owners who did not purchase their units directly from La Cima. Here, also, the court found that the units “are similarly not subject to a valid arbitration agreement.”
The third category, however, was “owners who purchased units directly from La Cima.” The court held that these arbitration agreements were valid, and if the claims were to be taken up by the association, the association could only submit these claims to arbitration. The lower court was instructed to separate these claims, as here La Cima’s motion could be granted.
Read the court’s decision…
Foundation Arbitration Doesn’t Preclude Suing Over Cracks
March 28, 2012 — CDJ Staff
The Louisiana Court of Appeals has reversed the decision of a lower court, allowing a construction defect case to go through. In Greer v. Town Construction Company, the Greers hired Town Construction to build a home in Baton Rouge. The business relationship went sour, with disputes over “costs, change orders, workmanship, and timeliness issues.”
Town Construction filed an arbitration claim for the unpaid contract balance. In the counterclaim, the Greers made claims of mold and mildew problems, and wall cracks that they attributed to a “structural defect in the foundation.” In arbitration, Town Construction was awarded the full contract balance plus extra costs and interest, while the Greers were awarded for their structural claims.
Three years later, the Greers found additional cracks and filed a suit against Town Construction. Town Construction argued that the Greer’s lawsuit should be dismissed, as the claims had already been through the arbitration process. The district court agreed with Town Construction and dismissed the suit.
The appeals court noted that the Greers would have no ground for a suit if the arbitration was a “valid and final judgment,” and went on to note that there was no evidence in the trial record that the arbitration met this qualification. The court noted that although it was clear that both parties had agreed to the decisions of the arbiter, under Louisiana law, arbitration is not final until it has been “rendered by a court with jurisdiction over subject mater and over parties.”
The court remanded the case to the lower court, noting that “the district court is obligated to first determine whether a valid arbitration award is in existence and had been confirmed before considering the merits of the exception. The court noted that their decision “should not be read to express any opinion as to the merits of the claims or as to the propriety of damages sought in the Greer’s lawsuit.”
Read the court’s decision…
Harmon Tower Construction Defects Update: Who’s To Blame?
August 17, 2011 — CDJ Staff
Reporting on the site VegasInc.com, Liz Benton notes that “nobody wants to take the fall for what happened at Harmon.” Work on the Harmon hotel building in Las Vegas’s CityCenter stopped in 2008 after 26 of the planned 49 stories were completed. Lorence Slutzky, a construction law professor at John Marshall Law School and a partner with the Chicago firm Robbins Schwartz Nicholas Lifton & Taylor told Benton that while inspectors and others are complicit, “the real responsibility rests with Perini, which has an obligation to comply with the plan specifications.” Perini’s claim is that they were given faulty design drawings. MGM disputes this.
Perini has offered to repair the building defects, however MGM has released a statement that they have “zero confidence or trust that Perini can and will properly fix a building it has so badly constructed thus far.” One MGM spokesperson likened these requests from Perini to “the director of ‘Ishar’ demanding a sequel.” “Ishtar,’ cost Columbia Pictures $55 million dollars and earned only $4.2 million in its initial run. Perini claims that MGM halted work because of the economy.
Read the full story…
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.”
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CC&Rs Not the Place for Arbitration Agreement, Court Rules
May 24, 2011 — CDJ Staff
In January, the California Court of Appeals ruled that an arbitration clause inserted in a development’s CC&Rs by the developer could not be enforced. The case, Villa Vicenza Homeowners Association v. Noble Court Development, involved a case in which, according to the opinion, “following the first sale Nobel controlled the board of directors of the Association and because the initial condominium buyers noticed defects in common areas and common facilities and did not believe Nobel had provided a reserve fund sufficient to repair the defects, the condominium owners brought a derivative action on behalf of the Association against Nobel.”
The court concluded, “The use of CC&R's as a means of providing contractual rights to parties with no interest in or responsibility for a common interest development is also problematic from the standpoint of determining what if any consideration would support such third-party agreements. By their terms the CC&R's bind all successors, even those with whom a third party such as Nobel has never had any contractual relationship and to whom Nobel has not provided any consideration.” The court determined that “the trial court did not err in denying Nobel's motion to compel arbitration.”
Read the court’s decision
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…
Nevada District Court Dismisses Case in Construction Defect Coverage Suit
August 16, 2012 — CDJ Staff
The United States District Court of Nevada has dismissed a case filed by Maryland Casualty Company against National Fire & Marine Insurance Company. This case follows a case in which National was sued over “200 causes of action arising out of 193 separate insurance coverage disputes related to 75 different insureds and 163 unrelated construction defect or Chapter 40 proceedings across seven states.” The judge in this initial case severed the plaintiffs, as he found that allowing joinder “would make this case impossible to manage.” In this particular instance, National seeks to have the claims made by Maryland Casualty dismissed.
Maryland Casualty alleged that for insurance policies issued to 38 companies, National was obligated to defend the insured. National was, according to the plaintiff, named as defendants in 72 unrelated lawsuits to which National disclaimed coverage. However, the court found that Maryland Casualty failed “to provide enough detail regarding the relevant property damage, policies, claims, and time periods.” The court found that Maryland failed to “state a claim upoin which relief can be granted.
The court also found that “the Complaint lacks any well-pled allegations from which the Court could conclude the Plaintiff has standing since the Complaint is devoid of information about the specific policies at issue.
The court did allow Maryland Casualty up to September 3, 2012 in which to file an amended complaint.
Read the court’s decision…
Residential Construction: Shrinking Now, Growing Later?
August 17, 2011 — CDJ Staff
Jim Haugey, the Chief Economist for Reed Construction Data noted that new residential construction spending fell 0.2% in June and a slightly larger drop of 0.5% in residential remodeling. While economic growth is still low, Haugey states that homebuilders have “record low inventories.” He forecasts a shrinkage of 1.5% in 2011, followed by about 20% growth in 2012.
Read the full story…
