ANAHEIM CALIFORNIA CONSTRUCTION EXPERT WITNESS
DIRECTORY AND CAPABILITIES

Anti-Concurrent Causation Clause Bars Coverage for Landslide and Water Leak

The insured unsuccessfully attempted to get around the policy’s anti-concurrent causation clause by arguing a covered cause of loss was a contributing factor. See Stor/Gard, Inc. v. Strathmore Ins. Co., 2012 U.S. Dist. LEXIS 63217 (D. Mass. May 4, 2012).

A building at the insured’s storage facility was damaged when heavy rain caused a mass of soil to slide down a slope, causing soil and a retaining wall to fall on the building. The accident caused a partial collapse of the building. The insurer hired two soil engineers, each of whom concluded that a landslide caused the accident. The reports also noted, however, that a leak from the property’s drainage system resulted in a very small percentage of water infiltrating the ground.

The insurer denied coverage based upon an exclusion for landslides.

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

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Policyholder Fails to Build Adequate Record to Support Bad Faith Claim

The importance of careful preparation and documentation was the take away lesson in a Texas bad faith case, C.K. Lee v. Catlin Specialty Ins. Co., 2011 U.S. Dist. LEXIS 19145 (S.D. Tex. Feb. 28, 2011).

C.K. Lee owned a commercial shopping center in Houston. Catlin issued a commercial property policy to Lee. On September 12, 2008, Hurricane Ike hit and caused substantial property damage throughout the Texas Gulf Coast area. On September 24, 2008, Lee submitted a claim for damage to the roof of his shopping center to Catlin.

Catlin hired Engle Martin to represent its interests in adjusting the claim. Engle Martin eventually adjusted over 200 Ike-related claims for Catlin.

In November 2008, Engle Martin and Emergency Services Inc., retained by Lee, inspected Lee’s property. Engle Martin observed evidence of roof repairs that had apparently been made both before and after Hurricane Ike. Engle Martin decided it was necessary to use an infrared scan of the roof to help identify which damages, if any, were attributable to wind and which, if any, were attributable to sub par, prior repairs or natural deterioration.

Engle Martin retained Project, Time & Cost (PT&C) to conduct the infrared inspection. PT&C’s inspection determined there was no wind-related damage to the roof and no breaches or openings created by wind. Instead, the roof had exceeded its life expectancy and was in need of replacement due to normal wear and weathering. Consequently, Catlin decided that the damage to Lee’s roof was not caused by winds from Hurricane Ike.

Meanwhile, Lee’s contractor, Emergency Services, prepared a report estimating that the total cost of repairing the roof would be $871,187. Engle Martin’s estimate for repair of the roof was $22,864.

Lee filed suit for breach of contract, breach of the duty of good faith and fair dealing, and violations of the Texas Insurance Code. Catlin moved for summary judgment on all claims but breach of contract, arguing that because there was a bona fide dispute concerning the cause of the damages and whether they were covered under the policy, there was no evidence of bad faith or violations of the Texas Insurance Code.

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

Construction Defect Not a RICO Case, Says Court

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…

Amerisure Case to be Heard by Texas Supreme Court

The Fifth Circuit Court of Appeals has withdrawn its decision in Ewing Construction Company Inc. v. Amerisure Insurance Company, according to Insurance Developments. The Fifth Circuit had concluded that “a contractor’s obligation to perform its contact in a workmanlike manner constituted an ‘assumption of liability.’” Two questions have now been certified to the Texas Supreme Court. The dissent in the case argued the majority had misread Texas Supreme Court precedent. The court will now have the opportunity to clarify this matter.

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Arbitration Clause Not Binding on Association in Construction Defect Claim

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.

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School Sues over Botched Pool

The Daily American reports that the Somerset Area School District has alleged that the contractor who repaired and renovated the district’s swimming pool “botched” the job. Now the school has filed a civil case in the Somerset County Court of Common Pleas. The contractor, Wilson Construction Co. would prefer the matter to be settled in binding arbitration.

The school district alleges that the surface installed by Wilson Construction cracked and bubbled due to improper installation. The manufacturer of the waterproofing system, Dryvit Systems, tested the installation and concluded it was an installation failure instead of a product defect. Dryvit told the district that the exterior walls would have be removed.

The school district paid Wilson Construction $591,081 for their work. In their lawsuit, they are seeking $594,596 to cover the cost of draining the pool and repairing it.

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Five Years of Great Legal Blogging at Insurance Law Hawaii

Our congratulations to Tred Eyerly who has been blogging at Insurance Law Hawaii for five years now. Over the years, he has posted more than five hundred posts and has provided us all with fascinating insights into the laws on insurance coverage. He describes his blog as “a commentary on insurance coverage issues in Hawaii and beyond.” We are grateful that the “beyond” has just in the last few weeks included Colorado, Illinois, Washington, Minnesota, and Rhode Island (about as far from the island of Hawaii as you can get).

You can read his blog at Insurance Law Hawaii.

“Details Matter” is the Foundation in a Texas Construction Defect Suit

The Court of Appeals of Texas has ruled in the case of Barzoukas v. Foundation Design. Mr. Barzoukas contracted with Heights Development to build a house. He subsequently sued Heights Developments and “numerous other defendants who participated in the construction of his house.” Barzoukas eventually settled with all but two defendants, one who went bankrupt and Foundation Design, the defendant in this case. In the earlier phase, Barzoukas made claims of “negligence, negligent misrepresentation, fraud, fraudulent inducement, conspiracy, and exemplary damages in connection with the foundation.”

Foundation Design had been hired to install 15-foot piers to support the foundation. The engineer of record, Larry Smith, sent a letter to Heights Development noting that they had encountered hard clay stone when drilling. Smith changed the specifications to 12-foot piers. Initially, the City of Houston called a halt to work on the home when an inspector concluded that the piers were too shallow. Heights Development later convinced the city to allow work to continue. Subsequently, experts concluded that the piers were too shallow.

Foundation Design filed a motion for summary judgment. The trial court granted this, “without specifying the basis for its ruling.” Barzoukas contends the court was in error. Foundation Design contends that “Barzoukas failed to proffer competent evidence establishing that their conduct proximately caused damages.” Further, they did not feel that Smith’s letter gave “rise to viable claims for fraud and fraudulent inducement.”

One problem the court had was a lack of evidence. The court noted that “the purported subcontract is entirely missing” in the pleadings. The court has no contract between Bazourkas and Heights Development, nor one between Heights Development and either Foundation Design or Smith. The court underscored the importance of this, writing, “details matter.” They found that “the details are largely missing here.” Without the contract, the court found it impossible to determine if “Smith or an entity related to him agreed to indemnify Heights Development for damages arising from Smith’s negligent performance.”

As the material facts are in dispute, the appeals court found that there were no grounds for a summary judgment in the case. “Pointing to the existence of a contract between Heights Development and Barzoukas, or to the existence of a subcontract, is the beginning of the analysis ? not the end.”

Foundation Design and Smith also claimed that Barzoukas’s expert did not proffer competent evidence and that the expert’s opinions were conclusory. The trial court did not rule on these claims and the appeals court has rejected them.

Finally, Barzoukas made a claim that the trial court should not have rejected his argument of fraud and fraudulent inducement. Here, however, the appeals court upheld the decision of the lower court. “Barzoukas did not present evidence supporting an inference that Smith or Foundation Design made a purposeful misrepresentation.

The court remanded the case to the trial court for reconsideration. One member of the panel, Judge Charles Seymore, upheld the entire decision of the trial court. He dissented with the majority, finding that the economic loss rule foreclosed the claim of negligence.

Read the court’s decision…

FHA Lists Bridges and Overpasses that May Have Defective Grout

The Federal Highway Administration has released a list of bridges and overpasses that may be prone to corrosion problems due to grout that was in chlorides when it was supposed to be completely free of them. Currently, the FHA is working with state departments of transportation to determine if the defective grout was indeed used on additional bridges and overpasses. The initial FHA list of structures determined to have been built with the defective grout lists thirty-four sites, of which four are in Ohio, the largest number for any state.

California contains only one such site, the intersection of the 55 and 405 freeways, one of the few items on the list not designated as a bridge.

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SB800 Cases Approach the Courts

California’s Right to Repair Law turns ten this year and cases under the statute are finally coming to trial, as John V. O’Meara of Bremer Whyte Brown & O’Meara writes for the Martindale-Hubble Legal Library. Mr. O’Meara notes that SB800 eliminated “the traditional definitions of construction defect,” replacing them with “functionality standards.” He argues that these standards are not uniform: “some standards require damage and others do not.” He also wonders what terms like “significant cracks,” “intended water” and “materially comply” mean in a court.

Mr. O’Meara states that “defendants in construction defect cases have a right to know the standards that apply to a case, the definitions that will be presented to the jury, and the burden of proof that attaches.”

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Wine without Cheese? (Why a construction contract needs an order of precedence clause)(Law Note)

For today’s law note, I’m addressing a comment that came to me last week from Dave O’Hern of Miller O’Hern Construction.  Dave writes:

I am a general contractor doing a fuel tank replacement project for our county. In the specifications there is a spec for a UL 142 tank, on the plans the spec references UL 2085 ? a much more expensive tank. My subcontractor bid the UL 142 tank. The specifications state that the specs and plans are on the same level of precedence.

The county wants me to furnish the more expensive tank without compensation citing the clause that states the plans and specs are complementary and what is called for by one is binding as if called by all and the most stringent requirement will apply.

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Reprinted courtesy of Melissa Brumback of Ragsdale Liggett PLLC. Ms. Brumback can be contacted at mbrumback@rl-law.com.

Statute of Repose Dependant on When Subcontractors Finished

Scott C. Sandberg of Snell and Wilmer writes a post on the JDSupra site about the Colorado Court of Appeals decision in Shaw Construction v. United Builder Services. Sanberg notes that when the general contractor was sued by an HOA, the contractor turned around and sued its subcontractors. The contractor made three claims. They claimed that “improvement” referred to the whole project, that “substantial completion” was reached when the architect certified completion, and that the statute of repose was tolled by the HOA’s service of a Construction Defect Action Reform Act notice.

The subcontractors claimed that “improvement” only referred to their specific work, which reached “substantial completion” when they finished, despite work to be done by other later, and the HOA’s notice to the contractor did not affect the subcontractors. The Colorado court agreed with the subcontractors.

Sandberg notes that some of the contractor’s were not addressed by the court, noting that “the court did not decide whether an improvement triggering the statute of repose can be determined on a trade-by-trade basis,” and that “the court did not decide whether substantial completion occurs when a certificate of occupancy is issued or when the architect certifies completion.”

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Plaintiffs In Construction Defect Cases to Recover For Emotional Damages?

A recent post to the Markusson, Green, Jarvis Blog reports on an important appeals decision which promises to impact construction defect litigation in Colorado.

The post provides analysis on the recovery of inconvenience damages. The focus of the piece is centered on Hildebrand v. New Vista Homes II, LLC, 08CA2645, 2010 WL 4492356 (Colo. Ct. App. Nov. 10, 2010), wherein it was held that " the plain language of Construction Defect Action Reform Act permits recovery of damages for inconvenience, and that the trial court did not err by allowing inconvenience damages to go to the jury".

According to the MGJ Blog "The Hildebrand decision is important because it provides Construction Defect Plaintiffs with a foothold for collecting emotional damages. While several questions of law remain as to who or under exactly what circumstances a Plaintiff may recover these types of damages, the Hildebrand case has clearly set forth that emotional damages may be considered as part of actual damages pursuant to CDARA."

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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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Mandatory Arbitration Provision Upheld in Construction Defect Case

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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Drug Company Provides Cure for Development Woes

Vertex Pharmaceuticals is poised to become the holder of Boston’s biggest commercial lease, paying $72.5 million for 1.1 million square feet on Boston’s waterfront. Vertex’s new buildings are still under construction, but the plans have spurred other development in the Fan Pier area, according to the New York Times. The Times quotes Mary A. Burke, a senior economist at the Federal Reserve Bank of Boston that the Vertex project gives “a big push” to the “momentum for economic growth.”

The Fallon Company is building Vertex’s new laboratory and office space. They are separately planning to build a high-rise with 150 luxury condominium units. According to Joseph Fallon, the chief executive and president of the Fallon Company, there is already a waiting list of 50 buyers for the condominiums.

Across the street from the Vertex site, a group including Morgan Stanley and Boston Global Investors is planning a 23-block mixed use project that would include 1.2 million square feet of retail space. Additionally, the New England Development and the Hanover Group is building a 356-unit apartment building at the adjacent Pier 4.

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Eighth Circuit Remands to Determine Applicability of Collapse Exclusion

The Eighth Circuit determined a jury instruction regarding the applicability of the "all-risk" policy’s exclusion for "collapse" was inadequate. See KAAPA Ethanol, LLC v. Affiliated FM Ins. Co., 2011 U.S. App. LEXIS 22158 (8th Cir. Nov. 3, 2011).

KAAPA had nine large, cylindrical, stainless steel tanks fabricated at its location. Soon after operations began in 2003, some of the tanks experienced unusual movement and began to shift. A geotechnical engineer found "silty clay" had been used for infill instead of compacted granular fill called for in engineering drawings. A year long plan to repair all nine tanks was implemented.

Affiliated’s "all-risk" policy excluded damage caused by faulty workmanship. It also excluded damage caused by settling or cracking. The settling exclusion went on to provide, "This exclusion will not apply to loss or damage resulting from collapse of: a building or structure; or material part of a building or structure." Affiliated denied coverage because of the faulty workmanship and settling exclusions.

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

Construction Defect Exception Does Not Lift Bar in Payment Dispute

The Court of appeals of Oregon has affirmed the ruling of a lower court, agreeing that ORS 701.131(1) bars John Pincetich from pursuing a payment dispute against his clients, Thomas and Frances Nolan. The Nolans hired Mr. Pincetich to build a home, during which time Mr. Pinchtich lost his license due to a lapse in liability insurance. Mr. Pincetich was reinstated after reestablishing insurance.

After the house was concluded, a dispute over payment arose. The Nolans claimed that Mr. Pincetich was unable to bring an action against them as ORS 701.131(1)(b) specifies that the contractor must hold a license “continuously while performing the work for which compensation is sought.” As there were fourteen days in which Mr. Pincetich did not hold a license, the trial court concluded that this law did not apply.

Mr. Pincetich claimed that in hiring him, the defendants became residential developers. Mr. Pincetich argued that developers are exempted under ORS 701.121(2)(C), but this was rejected by the trial court. This formed the basis of his appeal. The appeals court concluded that the exception he cited was motivated to “further benefit consumers by providing authority for unlicensed contractors to pursue third-party claims in construction-defect cases.” The court concluded that Mr. Pincetich’s reasoning would “allow unlicensed contractors to do the very thing that the claims bar is intended to prevent them from doing.”

Read the court’s decision…