Seven Tips to Manage Construction Defect Risk
July 10, 2012 — CDJ Staff
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.
Read the full story…
Surveyors Statute Trumps Construction Defect Claim in Tennessee
June 19, 2012 — CDJ Staff
The Tennessee Court of Appeals has issued an opinion in the case of Dale v. B&J Enters. (Tenn. App., 2012), affirming the ruling of the Chancery Court for Knox County. The homeowners purchased properties in Knoxville, Tennessee in 2007 and 2008. Subsequently, according to the complaint, they found “significant sink holes and depressions throughout the subdivision.” The plaintiffs determined that a previous developer in 2004 had been aware of the sink holes. The Knox County Metropolitan Planning Commission, upon giving approval, made requirements that included that sink holes, even if they were filled, had to be designated on the site plans. The developer did not indicate these locations on the final plans. The plaintiffs made claims of “failure to disclose, misrepresentation, misrepresentation by concealment, and violation of the Tennessee Consumer Protection Act.” They filed their suit in June 2009.
The defendants in the initial case, argued that they did not create the final plat, the site plan indicating the features and lot lines. This had been the work of the previous developer. In September, 2009, the plaintiffs amended their complaint to include the previous developer and its engineering firm. The engineering firm disavowed any responsibility. The developer noted that the surveyor, Benchmark Associates, had “failed to properly include the sink holes and/or depressions on the final plat.” In June, 2010, the plaintiffs added Benchmark.
Benchmark argued that the plaintiffs’ claims should be dismissed, as Tennessee has a four-year statute of limitations on claims against surveyors. The final plat was recorded on May 19, 2006, and the plaintiff filed their claims against Benchmark on June 16, 2010, slightly less than a month over four years. The plaintiffs argued that “the real issue [was] the tortious misrepresentation by Benchmark.” The Chancery Court found for Benchmark.
On appeal, the plaintiffs raised three issues. They argued that the trial court applied the wrong section of the law, and should have applied the section applying to construction and not surveyors. They also argued that the timeliness of the claim should be based on when the defects were discovered. The also raised the question of whether the laws concerning surveyors bar claims for misrepresentation. The appeals court upheld the decision of the Chancery Court.
For the plaintiff’s first claim, although the statute addressing deficiencies in construction mentions surveying, an earlier court ruling found that the legislature had removed a reference to surveyors in one part of the statute, but failed to do so in the second part. The earlier court had concluded that the “obvious intent of the legislature was to place all limits on actions against surveyors into the new statute.” As the applicable statute states that “any such action not instituted within this four (4) year period shall be forever barred,” the court held that the plaintiffs’ claims must be time barred. Further, as the intent of the legislature was determined to “place all limits on actions against surveyors into one statute,” the court felt that it could not apply the Consumer Protection Act.
Read the court’s decision…
Late Filing Contractor Barred from Involving Subcontractors in Construction Defect Claim
March 1, 2012 — CDJ Staff
The Colorado Court of Appeals looked at that state’s Construction Defect Action Reform Act in determining if a general contractor could add subcontractors as third-party defendants to a construction defect lawsuit. Shaw Construction, LLC was the general contraction of the Roslyn Court condominium complex, and was sued by the homeowners’ association in a construction defect case. United Builder Services was the drywall subcontractor on the project. MB Roofing had installed roofs, gutters, and downspouts. The certificate of occupancy for the last building was issued on March 10, 2004. The project architect certified completion of all known remaining architectural items in June, 2004.
The HOA filed a claim against the developers of the property on January, 21, 2009. A week later, the HOA amended its complaint to add Shaw, the general contractor. Shaw did not file its answer and third-party complaint until March 29, 2010, sending its notice of claim under the CDARA on March 30.
The subcontractors claimed that the six-year statute of limitations had ended twenty days prior. Shaw claimed that the statute of limitations ran until six years after the architect’s certification, or that the HOA’s suit had tolled all claims.
The trial court granted summary judgment to the subcontractors, determining that “substantial completion occurs ‘when an improvement to real property achieves a degree of completion at which the owner can conveniently utilize the improvement of the purpose it was intended.’”
The appeals court noted that “Shaw correctly points out that the CDARA does not define ‘substantial completion.’” The court argued that Shaw’s interpretation went against the history and intent of the measure. “Historically, a construction professional who received a complaint responded by ‘cross-nam[ing] or add[ing] everybody and anybody who had a part to play in the construction chain.’” The court concluded that the intent of the act was to prevent unnamed subcontractors from being tolled.
The court further rejected Shaw’s reliance on the date of the architect’s certification as the time of “substantial completion,” instead agreeing with the trial court that “the architect’s letter on which Shaw relies certified total completion.”
The appeals court upheld the trial court’s determination that the statute of limitation began to run no later than March 10, 2004 and that Shaw’s complaint of March 29, 2010 was therefore barred. The summary judgment was upheld.
Read the court’s decision…
Condo Owners Worried Despite Settlement
September 13, 2012 — CDJ Staff
KB Homes may have settled a construction defect claim with Willowbrook Condominium Association, but some of the owners are still concerned about the repair process. The Sarasota, Florida Herald Tribune reports that one homeowner’s living room “ends with a white tarp.” He told the paper, “We feel like we’re not even owners of our own home.” A neighbor wondered “what happens when people get displaced while their homes are gutted?”
As part of the agreement, the condominium association will be selecting a contractor to repair the problems, while the cost will be paid by KB Homes. Nevertheless, at least one owner fears for their ability to resell his home, noting that even after repairs have been made, “do you think someone’s going to come in here and buy?”
Read the full story…
Construction Defects as Occurrences, Better Decided in Law than in Courts
December 9, 2011 — CDJ Staff
Construction defect claims are now occurrences for insurance purposes in four states, Arkansas, Colorado, Hawaii, and South Carolina, yet there are still frustrations for commercial general liability policyholders. Business Insurance describes court decisions on whether construction defect claims are covered as “incongruous,” and this drives up coverage and litigation costs. Construction firms often find they are defending themselves on two fronts, both the construction defect claim and also whether their insurance covers it.
Frank Armstrong, the Senior Vice President and National Director of Construction Claims for Willis North America says that the problem starts with the word “occurrence,” as various state courts have different interpretations of the word. “Certain pieces of it don’t fit well, at lest according to some courts in the country, with coverage for construction defect risks.”
Another insurance executive, Julian Ehlich, the Senior Vice President of Claims for Aon Risk Solutions’ construction services group notes that “jurisdictions differ, so policyholders don’t know what they’re going to get.”
Read the full story…
Flooded Courtroom May be Due to Construction Defect
September 1, 2011 — CDJ Staff
The General Services Administration wouldn’t pin it on a construction defect, but a spokesperson said that a pipe that was misaligned during installation was the likely cause of a flood in the Thomas F. Eagleton US Courthouse on August 23. According to the St. Louis Dispatch, the burst pipe caused a 17-story waterfall in the courthouse, soaking ceilings and floors, and drenching the building’s contents.
The building was dedicated eleven years ago. During the nearly ten years before the building was complete, there were construction disputes and soil contamination issues.
Read the full story…
Former New York Governor to Head Construction Monitoring Firm
September 13, 2012 — CDJ Staff
David Paterson, who succeeded Eliot Spitzer as Governor of New York, has started a new venture after leaving the Governor’s office in construction integrity monitoring. WNYC reports that Paterson will be the majority owner of Icon Compliance Services, LLC, which will both conduct investigations and work with law enforcement officials. Paterson says that in government projects “often concessions are made for political reasons in the public sector and then you never really get a product that you paid for.”
Paterson will be working with a former vice president of Bovis Construction, Brian Aryai, who is also a former U.S. Treasury Agent. Aryai said that “it is astounding that some of the fraud that has come to the surface in the recent past,” and describes it as “almost laughable they were not detected.” Aryai tipped federal prosecutors that Bovis had been over billing on projects for at least a decade.
Read the full story…
Construction Defect Not a RICO Case, Says Court
August 4, 2011 — CDJ Staff
The US District Court of North Carolina has rejected an attempt by a homeowner to restart her construction defect claim by turning it into a RICO lawsuit. Linda Sharp, the plaintiff in the case of Sharp v. Town of Kitty Hawk, attempted to amend a claim under the Racketeer Influenced and Corrupt Organizations Act (RICO) and argued that her case belonged in the federal courts.
Ms. Sharp sued in November, 2010 claiming construction defects. She sued in federal court, although the court noted that as she and most of the defendants are citizens of North Carolina, the state court would have been the appropriate jurisdiction. Further, the court noted that one federal claim Sharp made was dismissed with prejudice, leaving only the state law claims. These the court dismissed without prejudice, declining to exercise jurisdiction over North Carolina law.
After the dismissal, Ms. Sharp attempted to amend her complaint after the deadline. To do so, according to the court, she would be required to obtain consent from defendants or leave of the court. She did neither.
In his opinion, Judge W. Earl Britt rejected her motion for leave to amend. He also granted the defendants’ motion to dismiss. The clerk was directed to close the case.
Read the court’s decision…
Homeowners Sue Over Sinkholes, Use Cash for Other Things
January 6, 2012 — CDJ Staff
Quoting one homeowner as saying that his house “can fall in the ground for all I care, I made my money,” the Tampa Bay Times looks at the issue of sinkhole claims in Florida. Homeowners “have paid off mortgages, put in pools, replaced roofs, or otherwise used money from sinkhole claims to do something besides fix sinkhole damage.
It’s been tough for insurance companies. Citizens Property Insurance took in $32 million in premiums for sinkhole coverage in 2010, but paid out $245 million in sinkhole claims. The Tampa Bay Times notes that some of those claims come from settling problems caused by their repairs, including one settlement of $350,000 for repairs to a house worth $39,000.
One couple, after receiving $217,000 from Citizens, sold the house to a company that bought unrepaired sinkhole homes for $190,000. The home has been sold since and remains unrepaired.
Sometimes the preferred solution by the insurance company isn’t the cheapest either. One couple was informed that Citizens was going to spend $150,000 to have the hole filled with grout. After they settled with the insurance company, they fixed the problem by installing steel piers, at a cost of about $45,000.
Read the full story…
Continuous Trigger of Coverage Adopted for Loss Under First Party Policy
August 2, 2012 — Tred Eyerly, Insurance Law Hawaii
The Seventh Circuit predicted that the Wisconsin Supreme Court would adopt the continuous injury trigger for first party property loss that extends over several policy periods. Miller v. Safeco Ins. Co. of Am., 2012 U.S. App. LEXIS 12940 (7th Cir. June 25, 2012).
A home inspection report performed before the Millers purchased their home showed a soft spot on the roof. The stucco's finish color was also uneven and stained. Further, some water damage was found in the study and skylights above the kitchen sink. But the report advised that the exterior walls, chimney, grass roof, flashings, floor joists/beams and columns, garage walls and floor appeared serviceable. A roof specialist determined the soft spot was not significant and could be repaired for $1,500.
The Millers purchased a homeowner's policy from Safeco on June 30, 2005. The policy went into effect the next day when the Millers closed on the property. But the Millers did not see the policy's terms until Safeco mailed them a copy of the policy at the end of July.
Before receiving the policy, the Millers discovered severe inner wall water leaks and significant water infiltration on three of the home's exterior walls.
Read the full story…
Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
Bar to Raise on Green Standard
November 7, 2012 — CDJ Staff
Next June, members of the U.S. Green Building Council will be voting on changes to the LEED green building standard. “The bar is getting raised,” said Navad Malin of BuildingGreen, a consulting and publishing firm, in an article in USA Today. Under the proposed guidelines, builders would have to project energy and water use for five years as part of the certification process. However, if the occupants aren’t as green as the builders anticipated, the buildings will not lose their certification.
The new rules will include higher energy standards, award points for avoiding potentially hazardous materials, and even determine what kind of plumbing items can be used.
Read the full story…
Homeowners Must Comply with Arbitration over Construction Defects
January 6, 2012 — CDJ Staff
The California Court of Appeals has upheld a decision by the Superior Court of Kern County that homeowners must comply with arbitration procedures in their construction defect claim. The California Court of Appeals ruled on December 14 in the case of Baeza v. Superior Court of Kern County, denying the plaintiff’s petition that the trial court vacate its order.
The plaintiffs in the case are homeowners in various developments built by Castle & Cook. The homes were sold with a contract that provided for “nonadversarial prelitigation procedures, including mediation, and judicial reference.” The homeowners made defect claims and argued that Castle & Cooke failed to comply with statutory disclosure requirements and that some of the contracts violate related statutes.
The appeals court found that there was no ground for appeal of the lower court’s order to continue with prelitigation procedures. The court noted that the plaintiffs could not seek a review of the mediation until a judgment was issued, but that then the issue would be moot. The court felt that there were issues presented that needed clarification, and so they reviewed this case. This was cleared for publication.
The court considered the intent of the legislature in passing the Right to Repair Act, noting that “under the statutory scheme, the builder has the option of contracting for an alternative nonadversarial prelitigation procedure,” as established in Chapter 4. The court noted that Chapter 4 “contains no specifics regarding what provisions the alternative nonadversarial contractual provisions may or must include.”
The plaintiffs contended that the builder was in violation of the standards set out in Section 912, however the court responded that these sections set out one set of procedures, but they concluded that “if the Legislature had intended the section 912 disclosure provisions…it could have made the requirements applicable to all builders by locating them in a section outside Chapter 4.”
Read the court’s decision…
Texas Construction Firm Files for Bankruptcy
December 20, 2012 — CDJ Staff
A Texas construction firm, founded in 1937, filed for bankruptcy, bringing twenty-two projects to a sudden halt, and resulting in the loss of jobs for hundreds of employees. Ballenger Construction told its employees to go home, as it could not complete the jobs. In some cases, work will need to be done to ensure that the work sites do not cause public safety hazards.
Read the full story…
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.
Read the full story…
Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
Joinder vs. Misjoinder in Colorado Construction Claims: Roche Constructors v. One Beacon
July 10, 2012 — David McLain, Higgins, Hopkins, McLain & Roswell, LLC
Often, those practicing in the construction defect field have faced questions concerning the joinder of a party. Recently, the U.S. District Court for the District of Colorado weighed in on the requirements for joinder under the Colorado Rules of Civil Procedure. See Roche Constructors, Inc. v. One Beacon America Ins. Co., 2012 WL 1060000 (D. Colo. 2012). Roche secured a construction contract to build a detention facility for the Lincoln County Sheriff’s Office in Lincoln County, Nebraska. In turn, Roche entered into a subcontract with Dobberstein Roofing Company, Inc. in October 2009 to install the roofing system and other related work at the detention facility. The subcontract agreement required Dobberstein to maintain adequate commercial general liability insurance and to add Roche as an additional insured under the policy. Roche maintained a builder’s risk policy issued by OneBeacon America Insurance Company and Dobberstein secured a certificate of liability insurance underwritten by Transportation Insurance Company (“TIC”). Id. at *1.
Roche alleged that Dobberstein constructed the roofing system in a negligent manner in violation of the subcontract. Roche claims it incurred additional costs to repair structural damage to the roofing system as a result of Dobberstein’s negligent work. In order to cover said damage, Roche tendered insurance claims to OneBeacon and TIC.
Read the full story…
Reprinted courtesy of David McLain, Higgins, Hopkins, McLain & Roswell, LLC. Mr. McLain can be contacted at mclain@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…
Illinois Court Determines Insurer Must Defend Negligent Misrepresentation Claim
December 9, 2011 — Tred R. Eyerly, Insurance Law Hawaii
Although the insureds disclosed flooding problems in the basement, the buyers purchased their home. USAA Cas. Ins. Co. v. McInerney, 2011 Ill. App. LEXIS 1130 (Ill Ct. App. Oct. 31, 2011). In a supplemental disclosure, the insureds reported that during heavy rains light seepage occurred in the basement.
After moving in, the buyers experienced significant water infiltration and flooding in the basement. The buyers and their children also began to experience mold-related illnesses.
The buyers sued for rescission of the contract or, in the alternative, damages. They alleged breach of contract, fraudulent misrepresentation and negligent misrepresentation. In the claim for negligent misrepresentation, the buyers alleged that the insureds carelessly omitted the fact that there were material defects in the basement and foundation when they should have known of such defects.
Read the full story…
Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
Construction Defect Lawsuits? There’s an App for That
July 10, 2012 — CDJ Staff
The website ebeeky.com reviews Picture It Settled, an app designed to help people engaged in lawsuits figure out where settlement strategies would be most successful. First available for Android and then iOS, the app is now available for Blackberry. One user of the application wrote that “anyone who has set through a construction defect mediation can immediately grasp the value of this app.
The app tracks the negotiation process, allowing users to see a history of bids and counteroffers. It also models the negotiation process in order to predict the ultimate cost of settlement. These numbers are based on past similar negotiations that the user has entered.
Read the full story…
