ANAHEIM CALIFORNIA CONSTRUCTION EXPERT WITNESS
DIRECTORY AND CAPABILITIES

Ohio Court of Appeals Affirms Judgment in Landis v. Fannin Builders

The Ohio Court of Appeals affirmed the judgment in Landis v. William Fannin Builders. Landis contracted Fannin Builders to build their home. The case involved staining problems on the T1-11 siding chosen by the plaintiffs.

After a year and a half of discussion on how to resolve the problem of uneven staining on the siding, Landis filed suit “against Fannin Builders, alleging claims for breach of contract, breach of the express limited warranty, and violation of the Ohio Consumer Sales Practices Act (“OCSPA”). Fannin Builders, in turn, filed a third-party complaint against 84 Lumber, alleging claims for breach of contract and indemnification. With the trial court’s leave, Fannin Builders also later amended its answer to add a counterclaim against appellees for breach of contract and unjust enrichment. In the counterclaim, Fannin Builders alleged that appellees still owed it $3,908.98 for the construction of appellees’ home.”

“In its decision, the trial court found in appellees’ favor on their breach of contract claim and against appellees on their claims for breach of the express limited warranty and violation of the OCSPA. Additionally, the trial court found in Fannin Builders’ favor on its counterclaim for breach of contract and against Fannin Builders on its third-party claims for breach of contract and indemnity. The trial court determined that appellees’ damages amounted to $66,906.24, and after setting off the $3,908.98 that appellees owed Fannin Builders under the construction contract, the trial court awarded appellees $62,997.26. The trial court reduced its decision to judgment on May 18, 2010.”

Fannin Builders appealed this judgment and assigned the following errors:

[1.] The Trial Court Erred as a Matter of Law by Concluding that Appellant Breached its Contract with Appellees when it provided a Semi-Transparent Oil-Based Stain that Simply did not Meet their Approval.

[a.] The Contract does not Contain a Satisfaction Clause.

[b.] Even if the Court Implies a Satisfaction Clause, the Court Should Apply an Objective Standard.

[2.] The Trial Court Erred as a Matter of Law by Failing to Consider Appellant’s Right to Cure.

[3.] The Trial Court committed Reversible Error by not Assessing Damages Using “Diminished Value Standard,” and by Creating a Remedy that Constitutes Economic Waste.

[4.] The Trial Court Erred as a Matter of Law by Concluding that Appellant is Barred from Seeking Indemnification When 84 [Lumber] Never Fulfilled its Obligations Pursuant to the Settlement Agreement Entered on August 2, 2005.

In response to the first assigned error, the Court of Appeals stated: “Because the failure to provide siding of a uniform color, not appellees’ displeasure, breached the contract, we reject Fannin Builders’ contention that the trial court implied a satisfaction clause into the contract and found a breach of that clause. Accordingly, we overrule Fannin Builders’ first assignment of error.”

The Court of Appeals overruled the second assignment of error and provided the following reasoning: “Although Fannin Builders depends upon a term of the limited warranty for its right to cure, the trial court concluded that no breach of the limited warranty occurred. Fannin Builders breached the duty of workmanlike conduct implicit in the construction contract, not the limited warranty requiring it to satisfy the BIA’s Quality Standards. Consequently, the limited warranty does not apply to this case, and thus, it does not prevent appellees’ recovery of damages.”

The Appeals Court found “the trial court’s award of damages” was “both reasonable and supported by competent, credible evidence,” and therefore concluded “that the trial court did not err in setting appellees’ damages at $62,997.26.” The Fannin Builders third assignment of error was overruled.

The fourth and final assignment of error was also overruled by the Court of Appeals. “While Fannin Builders correctly asserts that 84 Lumber never installed the replacement siding, it ignores the fact that it ordered 84 Lumber to remove the replacement siding from appellees’ property. Thus, Fannin Builders precluded 84 Lumber from completely performing under the August 2, 2005 letter agreement. […] Consequently, Fannin Builders cannot now claim that the letter agreement is unenforceable or that it is entitled to indemnification from 84 Lumber. Because Fannin Builders assumed all liability for the defective siding in the letter agreement, it is responsible for appellees’ damages.”

James A. Zitesman, Columbus, Ohio Business Attorney, compared the case to Jones v. Centex (Ohio App. 2010), which had a different verdict:

“The common thread is the implied warranty of good workmanship. In the Jones case, the Court found that the buyers had in fact waived all implied warranties, including the implied warranty of good workmanship. In the contract between Jones and Centex, the builder stated that it “…would not sell the property to Purchasers without this waiver.” Probably should have been a sign to the buyers.

In the Landis case, the Court stated, “Contracts for the future construction of a residence include a duty, implied by law, that the builder must perform its work in a workmanlike manner.” The Court gave significant weight to the concept of the implied warranty of good workmanship. The builder relied upon the BIA Warranty which limits builders’ liability and exposure to legal issues. The trial court concluded there was no breach of the limited warranty, rather the builder “breached the duty of workmanlike conduct implicit in the construction contract, not the limited warranty requiring it to satisfy the BIAs Quality Standards.”

The Supreme Court of Ohio has accepted the Jones v. Centex Homes case for review.

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Insurer Rejects Claim on Dolphin Towers

A year after residents were forced to leave Dolphin Towers in Sarasota, Florida because of concrete problems, some residents are defaulting on their obligations, abandoning their units. In June, the building’s insurer, Great American, rejected a claim, arguing that the building’s problems were due to latent defects, not covered under the policy. Repair estimates, previously put at $8.2 million, have now risen to $11.5 million. If homeowners cover this cost, it would require an assessment of about $100,000 for each unit.

About thirty owners are in arrears on dues and fees. Charlotte Ryan, the president of the Dolphin Tower board, wrote to owners, that “the board will have no choice but to lien your property and pursue foreclosure if you do nothing to bring your delinquencies up to date.” However, as homeowners default, the funding for repairs is imperiled. The board has already spent more than $500,000 on shoring up the building and hiring consultants. Their lawyers, on the other hand, are working on a contingency basis.

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Florida: No Implied Warranties for Neighborhood Improvements

A new law in Florida ends suits from homeowners associations from suing over damages from off-site improvements on the basis of implied warranties. Rob Samouch, writing for the Naples Daily News quotes House Biill 1013: “There is no cause of action in law or equity available to a purchaser of a home or to a homeowners’ association based upon the doctrine or theory of implied warranty of fitness and merchantability or habitability for damages to off-site improvements." The off-site improvements are defined as: "The street, road, driveway, sidewalk, drainage, utilities, or any other improvement or structure that is not located on or under the lot on which a new home is constructed.”

Mr. Samouch notes that “there are no statutory warrant rights in homeowner associations of fitness and merchantability or habitability like there is for condominium associations.” He predicts that the Florida legislature will have to address this issue “once new homeowners start screaming and yelling to them about their shoddy infrastructure for which they have no legal remedy.”

The bill took effect on July 1, 2012 and applies to “all cases accruing before, pending on, or filed after July 1, 2012.”

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Contractors Admit Involvement in Kickbacks

Two New Jersey contractors have pleaded guilty to charges that they made false representations for a government contract in a case related to kickbacks for construction work done in two school districts. New Jersey is recommending that the two men, Martin Starr and Stephen Gallagher, will each pay $50,000 in penalties, serve up to a year in jail, and be unable to accept public contracts for five years.

Last month, another individual in the case, Kenneth Disko, who had been the engineer for the school district, pleaded guilty on a similar charge. In addition to a $50,000 penalty, he will be serving three to five years in prison. A fourth conspirator, Robert Berman, the former business administrator for one of the school districts, has to pay a $13,000 fine and cooperate with the investigation. He is also barred from public employment in New Jersey and has been terminated from his position.

Starr admitted to preparing fictitious quotes which appeared to be from other contractors in order that his firm would seem to be the lowest bidder. Gallagher helped in preparing the fictitious bids and also provided cash kickbacks to Disko.

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Montrose Language Interpreted: How Many Policies Are Implicated By A Construction Defect That Later Causes a Flood?

The Court of Appeals of Indiana recently addressed the “Montrose” language added to the CGL ISO form in 2001 in the context of a construction defect claim where a fractured storm drain caused significant flooding a year after the drain was damaged. The insuring agreement requires that “bodily injury” or “property damage” be caused by an “occurrence” and that the “bodily injury” or “property damage” occur during the policy period. The Montrose language adds that the insurance applies only if, prior to the policy period, no insured knew that the “bodily injury” or “property damage” had occurred in whole or in part. Significantly, it also states that any “bodily injury“ or “property damage” which occurs during the policy period and was not, prior to the policy period known to have occurred, includes a continuation, change or resumption of that “bodily injury” or “property damage” after the end of the policy period.

In Grange Mutual Cas. Co. v. West Bend Mut. Ins. Co., No. 29D04-0706-PL-1112 (Ct. App. IN March 15, 2011), http://www.ai.org/judiciary/opinions/pdf/03151109ehf.pdf, Sullivan was the General Contractor for a school construction project. Its subcontractor, McCurdy, installed the storm drain pipes. One of the storm pipes was fractured in 2005 while McCurdy was doing its installation work. More than a year later, the school experienced significant water damage due to flooding. It was later discovered that the flooding was due to the fractured storm drain. Sullivan’s insurer paid $146,403 for the water damage. That insurer brought a subrogation claim against McCurdy and its two insurers: West Bend and Grange. West Bend had issued CGL coverage to McCurdy while the construction was ongoing , including the date in which the storm pipe was fractured. Grange issued CGL coverage to McCurdy at the time of the flooding. Those two carriers jointly settled the subrogation claim and then litigated which insurer actually owed coverage for the loss. Significantly, the loss that was paid included only damages from the flooding, not any damages for the cost of repairing the pipe.

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Reprinted courtesy of Shaun McParland Baldwin of Tressler LLP. Ms Baldwin can be contacted at sbaldwin@tresslerllp.com

General Contractors Must Plan to Limit Liability for Subcontractor Injury

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).

Reprinted courtesy of Douglas Reiser of Reiser Legal LLC. Mr. Reiser can be contacted at info@reiserlegal.com

Harsh New Time Limits on Construction Defect Claims

A recent Colorado Supreme Court decision, Smith v. Executive Custom Homes, Inc., 230 P.3d 1186 (Colo. 2010), considerably shortens the time limit for bringing many construction defect lawsuits. Homeowners and homeowner associations risk losing the right to seek reimbursement from builders, developers and other construction professionals unless they carefully and quickly act upon discovery of evidence of any potential construction defect.

The Statute of Limitations for Construction Defect Claims
Colorado’s construction defect statute of limitations limits the time for homeowners and homeowners associations to bring lawsuits for construction defects against “construction professionals,” including developers, general contractors, builders, engineers, architects, other design professionals, inspectors and subcontractors. The statute requires homeowners and associations to file suit within two years “after the claim for relief arises.” A claim for relief “arises” when a homeowner or association discovers or reasonably should have discovered the physical manifestation of a construction defect.

The two-year time limitation applies to each construction defect separately, and will begin to run upon the appearance of a “manifestation” of a construction defect (which may include, for example, a condition as simple as a roof leak or drywall cracks), even if the homeowner or association does not know the cause of the apparent problem.

The Smith Opinion and its Effect on the Statute of Limitations
In Smith v. Executive Custom Homes, Inc., the plaintiff homeowner, Mrs. Smith, slipped on ice that had accumulated on her sidewalk because of a leaking gutter and suffered injury. When she first noticed the leak, she reported it to her property manager, who reported it to the builder. The builder attempted to repair the gutter, unbeknownst to Mrs. Smith, and she did not notice further problems until approximately one year after she first observed the leak, when she fell and suffered serious injury. She sued the builder within two years of her injury, but nearly three years after she first learned of the leak.

The Colorado Supreme Court dismissed Mrs. Smith’s claims as untimely and held that under the construction defect statute of limitations, the two-year period for suing for injuries due to construction defects begins when the homeowner first observes the physical manifestation of the defect, even if the resulting injury has not yet occurred. The court acknowledged that this ruling could result in “unfair results,” especially if a serious and unforeseeable injury occurs more than two years after the first time the homeowner noticed the problem, and as a result the victim is unable to seek redress from those responsible for the defect.

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Reprinted courtesy of Scott F. Sullan, Esq., Mari K. Perczak, Esq., and Leslie A. Tuft, Esq. of Sullan², Sandgrund, Smith & Perczak, P.C., and they can be contacted through their web site.

Denver Court Rules that Condo Owners Must Follow Arbitration Agreement

Prior to initiating a construction defect lawsuit, the Glass House Residential Association voted to invalidate the arbitration agreement that had been written into its declaration and bylaws by the developer and general contractor. After the association started their construction defect claims, the developer and general contractor argued that the case must go to arbitration, as the arbitration clause contained a provision that it could not be altered without the agreement of the developer and general contractor.

The Denver District Court has ruled against that association, determining that the res triction was not in violation of Colorado condominium law. And, as a post from Polsinelli Shughart PC on JDSupra notes, the Colorado Common Interest Ownership Act encourages the use of arbitration procedures to settle disputes. The CCIOA does prohibit “certain restrictions on the homeowners association’s ability to amend the condominium declarations,” however, preserving an arbitration agreement is not one of them.

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Was Jury Right in Negligent Construction Case?

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…

Orange County Home Builder Dead at 93

Randall E. Presley was a homebuilder in Southern California for more than thirty years, acting as head of Presley Development Company from 1956 until selling the firm to Lyon Homes in 1987. The two companies merged in 1991 as the Presley Cos. Mr. Presley saw the need in the 1950s to provide people in Southern California with low- to medium-priced quality homes.

His firm built more than 160 communities and was among the ten largest homebuilding firms in the country, expanding beyond California. Mr. Presley was 93 when he succumbed to pneumonia. He is survived by a wife, three children, seven grandchildren, and 11 great-grandchildren.

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Court Clarifies Sequence in California’s SB800

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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Seven Tips to Manage Construction Defect Risk

Jody T. Wright looks at “seven strategies being used around the country to identify, manage and mitigate your exposures” in a piece in Business Insurance. Wright, Senior VP, Construction Department Manager for Lockton Companies in Denver, gives seven simple steps from the perspective of a insurer.

His first step is to match your project to your insurance. He suggests keeping the riskier projects separate, noting that from an insurer’s point-of-view, “any project that creates a homeowners association carries a higher potential threat of future litigation.” This leads to his second point: you need to “determine what makes your liability insurer nervous.” In other words, talk with your insurer.

His third point suggests that builders look back and see if there is a pattern of problems that have lead to payouts from your insurer. Keep your insurer happier by making sure these areas don’t continue to be problems. Nor should you look for new problems. He suggests against leading in new technologies.

Three more points deal with being careful about with whom you associate. He tells builders to negotiate their contracts, avoiding clauses that would obligate a builder to “indemnify the owner for the negligent work of others that they did not control.” Avoid subcontractors “with loss patterns that might affect your project and reputation.” Builders should identify “owners with a pattern of suing contractors” adding that risk to the cost of the job. They should also identify “the most effective attorneys and expert witnesses” and get them involved before the litigation starts.

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Anti-Assignment Provision Unenforceable in Kentucky

On a certified question from the Federal District Court, the Supreme Court of Kentucky decided that an anti-assignment provision in a policy is unenforceable.Wehr Constructors v. Paducah Div. Assur. Co. of Am., 2012 Ky. LEXIS 183 (Ky. Oct. 25, 2012).

Before building an addition to its hospital, Murray Calloway County Hospital purchased a builder's risk policy from Assurance Company of America.The policy provided, "Your rights and duties under this policy may not be transferred without Assurance's written consent . . . ." The Hospital contracted with Wehr Constructors to install concrete subsurfaces and vinyl floors in order to expand the hospital. After installation, a portion of the floors and subsurface work was damaged. The Hospital submitted a claim to Assurance for $75,000, but the claim was denied.

Wehr sued the Hospital to recover money for its work on the construction project. In settling the case, the Hospital assigned to Wehr any claim or rights the Hospital had against Assurance.

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Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com

Nevada Supreme Court Reverses Decision against Grader in Drainage Case

The Nevada Supreme Court has issued an opinion in the case of Rayburn Lawn & Landscape Designers v. Plaster Development Corporation, reversing the decision of the lower court and remanding the case for a new trial.

The case originated in a construction defect suit in which Plaster Development Corporation was sued by homeowners. Plaster filed a third-party complaint against its subcontractor, Reyburn. The testimony of Reyburn’s owner was considered to be admission of liability and so the court limited the scope of Reyburn’s closing argument and did not allow the jury to determine the extent of Reyburn’s liability. Reyburn appealed.

Plaster, in their case, cited California’s Crawford v. Weather Sheild MFG, Inc. The court held the application of these standards, but noted that the “an indemnitor’s duty to defend an indemnitee is limited to those claims directly attributed to the indemnitor’s scope of work and does not include defending against claims arising from the negligence of other subcontractors and the indemnittee’s own negligence.”

On the matter of law against Reyburn, the court concluded, “Given the conflicting evidence at trial as to whether Reyburn’s work was implicated in the defective retaining walls and sidewalls, and viewing the evidence and inferences in Reyburn’s favor, we conclude that a reasonable jury could have granted relief in favor of Reyburn.” The Nevada Supreme Court conduced that the district court should not have granted Plaster’s motion for judgement.

Further, the Nevada Supreme Court found that the district court should have apportioned the fees and costs to those claims directly attributed to Reyburn’s scope of work, “if any,” and should not have assigned all attorney costs and court fees to Reyburn.

Read the court’s decision…

Insurer Must Defend Claims for Diminution in Value of Damaged Property

The insurer’s duty to defend a developer sued by purchasers of homes for damages for diminution in value of homes was at issue in Mid-Continent Cas. Co. v. Academy Dev., Inc., 2012 WL 1382459 (5th Cir. April 20, 2012).

In the underlying action, plaintiffs alleged the developer knew when it sold the homes that the lake walls were falling and that water was leaking from the lakes onto adjacent home sites. They sought damages for diminution in the value of their homes resulting from the defective lakes. The action was tried in 2008, and the jury returned a verdict for the developer.

Mid-Continent initially defended under a reservation of rights.

Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com

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Colorado Court of Appeals Finds Damages to Non-Defective Property Arising From Defective Construction Covered Under Commercial General Liability Policy

The recently decided case of Colorado Pool Systems, Inc. v. Scottsdale Insurance Company (Colo. Ct. App. 10CA2638, October 25, 2012), confirms that absent specific exclusions in the policy, a commercial general liability (“CGL”) policy covers damages to non-defective property arising from a builder’s own defective workmanship.

Colorado Pool Systems, Inc. (“Colorado Pool”) was hired as a subcontractor to install a swimming pool at Founders Village Pool and Community Center (“Founders Village”) in Castle Rock, Colorado.  After the concrete shell of the pool was placed, some of the rebar frame was found to be too close to the surface.  Founders Village demanded that Colorado Pool remove and replace the pool, and Colorado Pool contacted its insurance carrier, Scottsdale Insurance Company (“Scottsdale”), with which Colorado Pool held a CGL policy.  After inspecting the pool, Scottsdale’s claims adjuster stated that the insurance policy would cover losses associated with removing and replacing the pool.

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Reprinted courtesy of Heidi Gassman, Higgins, Hopkins, McLain & Roswell, LLC. Ms. Gassman can be contacted at gassman@hhmrlaw.com

Construction Defects and Contractor-Owners

On the expert advice site Avvo.com, a user asks if he can be sued for construction defects by the new owner of a building for which he served as general contractor and then owned for four years. He had construction insurance, but does not think he had construction defect insurance.

A lawyer responding to his question says that “you could be sued.” In the event of a suit, “you would have to bring claims against all of your subcontractors.”

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Construction Defects Are Occurrences, Says South Carolina High Court

The South Carolina Supreme Court has left the legislature’s new, expanded definition of “occurrence” in place, declining to declare it unconstitutional. South Carolina included faulty workmanship as an occurrence in response to a Supreme Court decision, which the court later reversed. One of the parties in that earlier decision, Harleysville Insurance, challenged the new law, claiming that the legislature didn’t have the power to pass a law to overturn a court ruling. The court did not concur.

However, the court did determine that the law was not retroactive and covered only claims filed after the law became effective in May 2011. The Chief Justice of South Carolina noted that “insurance coverage for construction liability lacks clarity, particularly with respect to whether construction defects constitute ‘occurrences’ under construction general insurance policies.”

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