ANAHEIM CALIFORNIA CONSTRUCTION EXPERT WITNESS
DIRECTORY AND CAPABILITIES

Congress Addresses Homebuilding Credit Crunch

The National Association of Home Builders (NAHB) reports that Representatives Gary Miller (CA), Brad Miller (NC) and twenty-nine cosponsors have put forth a bill with bipartisan support to “address the severe credit crunch for acquisition, development, and construction (AD&C) financing.” They report in addition to more than 1.4 million construction workers who have been “idled since 2006,” the housing slump has cost 3 million jobs and $145 million in wages.

NAHB reports that they worked closely with lawmakers on the bill. The association had members meet with legislators both in D.C. and in their home districts. They state that HR 1755 would help homebuilders “find the credit they need to move forward with new or existing projects.”

The bill would allow lenders to use the value upon completion when assessing loan collateral and ban the use of foreclosed or distressed sale properties in assessing values of projects. The would bill would also lessen restrictions by banking regulators, which the lead sponsors said “have hindered federal and state chartered banks and thrifts’ ability to make and maintain loans to qualified small home builders that have viable projects.”

The NAHB is urging members of Congress to cosponsor the bill and is urging the Senate to introduce a companion bill.

Read the full story…

Read HR 1755

Statutes of Limitations May be the Colorado Contractors’ Friend

Albert Wolf, a principal in Wolf Slatkin & Madison P. C., has written an interesting article on statutes of limitations in construction defect claims in Colorado. While Wolf states that in most cases, “construction defect claims against construction industry participants (contractors, subcontractors, architects, engineers, etc.) requires that suits be started within two years after construction defects have been or should have been—in the exercise of reasonable diligence (care)—discovered,” if a project used the AIA General Conditions (AIA Document A2010) before the 2007 edition, the “statutes of limitations begin to run (accrue) at either substantial completion or breach by the contractor (installation of defective work), depending on the circumstances.”

“That’s a huge difference,” Wolf writes in his article. “For example, if the structural defect caused by faulty foundation work is not discovered or discoverable until walls begin to exhibit cracking more than two years after the building is completed, the owner’s claim against the contractor may be barred if the AIA provision is applied.”

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Colorado Statutes of Limitations and Repose, A First Step in Construction Defect Litigation

Grund Dagner, a law firm operating in Denver and Boulder, Colorado notes on their blog that when defending a construction defect claim, one of their first steps is to determine if the claims are affected by the statutes of limitations or repose, and that they “have had much success raising these defenses with the court before trial.”

Colorado has a two-year statute of limitations, starting from when the homeowner discovers the defect. Further, Colorado’s statute of repose precludes lawsuits beginning “more than six years after the substantial completion of the improvement to the real property.”

Grund Dagner notes that they “recently obtained dismissal of claims related to eight of 22 buildings in a condominium project, where the homeowners in those building observed the defects more than two years before the HOA initiated its claims against our client.”

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No Third-Quarter Gain for Construction

The Associated Builders and Contractors released their analysis of construction work under contract and found that there was no increase in construction backlog from the second quarter of 2011. There was still improvement, however, over 2010, as the third quarter backlog is 16.3 percent higher than that of a year ago.

The current backlog is 8.1 months, which according to Anirban Basu, the chief economist of the ABC, “is consistent with flat construction spending.” He noted that less than 8 months indicated a decline.

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Construction Workers Unearth Bones

While digging for a new steam line at Eastern Michigan University, workers unearthed some old bones. Experts have yet to determine if the bones are human or animal, however Walter Kraft, the EMU vice president of communications, noted that a handle also unearthed might have come from a casket. Cindy Heflin, reporting in AnnArbor.com notes that until 1900 a Catholic cemetery was located in the area. Although the bodies were relocated, these may have been left behind.

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Nevada Assembly Sends Construction Defect Bill to Senate

In a 26 to 16 vote, the Nevada Assembly has passed Assembly Bill 401, which extends the time limit for legal action over home construction defects. According to the Las Vegas Sun, Assembly member Marcus Conklin, Democrat of Las Vegas, said the bill was about “keeping the consumer whole.” However, Ira Hansen, Republican of Sparks, told the sun that suits are happening before contractors can make repairs. The bill would allow attorney fees even if repairs are made.

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Safe Harbors- not just for Sailors anymore (or, why advance planning can prevent claims of defective plans & specs) (law note)

Have you ever considered a “Safe Harbor Provision” for your Owner-Architect or Owner-Engineer contract? Maybe it is time that you do.

As you are (probably too well) aware, on every construction project there are changes. Some of these are due to the owner’s change of heart, value engineering concerns, contractor failures, and material substitutions. Some may be because of a design error, omission, or drawing conflict. It happens.

A “Safe Harbor Provision” is a provision that establishes an acceptable percentage of increased construction costs (that is, a percentage of the project’s contingency). The idea is that if the construction changes attributable to the designer is within this percentage, no claim will be made by the Owner for design defects.

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

Supreme Court of New York Denies Motion in all but One Cause of Action in Kikirov v. 355 Realty Assoc., et al.

In the construction defect suit Kikirov v. 355 Realty Associates, LLC, et al., the Supreme Court of the State of New York granted a dismissal of the plaintiff’s fourth cause of action, but denied the defendants’ motion in all other respects. The plaintiff alleged breach of contract, among other claims. “355 Realty was the sponsor of 355 Kings Highway Condominium, a condominium project located at 355 Kings Highway, in Brooklyn, New York. The condominium units were allegedly marketed as ‘ultra luxury condos,’ and a ‘Manhattan style condominium building,’ which would be the ‘epitome of luxury and quality.’ The construction of the six-story 28 unit residential condominium building began in approximately November 2003. […] Plaintiff entered into a purchase agreement, dated December 21, 2005, with 355 Realty (which was executed on behalf of 355 Realty by Michael Marino, as its member) for the purchase of Unit 2G in the building.”

The plaintiff alleged that construction defects emerged soon after moving into the unit: “After taking occupancy of his condominium unit, plaintiff allegedly experienced serious leakage and moisture problems in his unit, which caused a dangerous mold condition to develop, in addition to causing actual damage to the structural elements of his unit. According to plaintiff, the walls, moldings, and wood floors of his unit are constantly wet and moist, and there is severe buckling of the wood floors. Plaintiff claims that these problems have caused his unit to be uninhabitable. Plaintiff alleges that he has been forced to remove all of his personal belongings from his unit and has been unable to occupy his unit.”

According to the plaintiff, Foremost attempted to repair the defects, but only made the situation worse: “Specifically, plaintiff asserts that Foremost’s contractors opened his walls to remove the stained drywall, but never corrected the cause of the leaks, destroyed the walls, and never properly taped and painted the sheet rock. Plaintiff alleges that Foremost repaired the openings in a defective manner. Plaintiff also claims that his floor was repaired at that time by a subcontractor hired by Foremost, but the basic structural problem was never resolved and the leaks continued, compromising the beams and causing the mold conditions, in addition to all of the physical damage present in the unit. On or about July 16, 2009, plaintiff allegedly sent a notice of the defects to 355 Realty and to the managing agent designated by the condominium board, by certified mail, return receipt requested. Plaintiff asserts that defendants have failed and refused to repair and remedy the defective condition, and that the damage is extensive and requires major structural repairs.”

The plaintiff filed suit on May 4, 2010, and the original complaint asserted eight causes of action. “By decision and order dated September 13, 2010, the court granted a motion by defendants to dismiss plaintiff’s second cause of action for breach of implied covenants of good faith and fair dealing, his third cause of action for breach of implied warranties, his fifth cause of action for negligence as against 355 Realty, Michael Marino, Anthony Piscione, Ahron Hersh, and Toby Hersh, his seventh cause of action for negligence as against Vision, Foremost, and MMJ, and his eighth cause of action for violations of General Business Law § 349 and § 350, and granted plaintiff leave to replead his first cause of action for breach of contract as against 355 Realty, Michael Marino, Anthony Piscione, Ahron Hersh, and Toby Hersh, his fourth cause of action for breach of statutory warranties, and his sixth cause of action for breach of contract as against Vision, Foremost, and MMJ.”

The plaintiff amended their complaint on October 18, 2010, and “has repleaded these three causes of action by asserting a first cause of action for breach of contract as against 355 Realty, Michael Marino, Anthony Piscione, Ahron Hersh, and Toby Hersh, a second cause of action for breach of statutory warranties, and a third cause of action for breach of contract as against Vision, Foremost, and MMJ. In addition, plaintiff, in his amended complaint, has added a fourth cause of action for fraud.”

The defendants, on the other hand, “argue that each of the four causes of action alleged by plaintiff in his amended complaint fail to state a claim upon which relief may be granted, and that plaintiff’s amended complaint must be dismissed pursuant to CPLR 3211 (a) (7). Defendants also cite to CPLR 3211 (a) (1), and (5), asserting that dismissal is also required based upon documentary evidence and the Statute of Limitations contained in the limited warranty.”The defendants’ motion to dismiss the first cause of action, breach of contract against 355 Realty, was denied: “While defendants dispute that the alleged defects are actually structural in nature, plaintiff’s allegations as to their structural nature are sufficient, at this juncture, to withstand defendants’ motion to dismiss. Thus, dismissal of plaintiff’s first cause of action must be denied.”

Next, the court reviewed the second cause of action, which was breach of statutory warranties: “Defendants’ motion also seeks dismissal of plaintiff’s second cause of action for breach of statutory warranties, which alleges that, under applicable law, including General Business Law § 777-a, et seq., the sponsor warranted to purchasers of units that the units would be constructed in a skillful, careful, and workmanlike manner, consistent with proper design, engineering, and construction standards and practices, and free of material latent, design, and structural defects. Defendants argue that General Business Law § 777-a, known as the housing merchant implied warranty, is inapplicable to this case because it is limited to the construction of a ‘new home,’ defined in General Business Law § 777 (5) as ‘any single family house or for-sale unit in a multi-unit residential structure of five stories or less.’ As noted above, the building in which plaintiff’s condominium unit is located is a six-story building.”

The motion to dismiss the second cause of action is denied. The court provided this reasoning: “the full text of the offering plan has not been provided, the court is unable to examine the entire written agreement so as to determine the purpose of the inclusion of the text of General Business Law § 777.”

In the third cause of action, the plaintiff alleges “a breach of contract claim as against Vision, Foremost, and MMJ based upon their contract with 355 Realty, pursuant to which they agreed to be the general contractors/construction managers for the condominium, to undertake oversight responsibility for the design and construction of the condominium, to prepare and/or review drawings, plans, and specifications for the condominium, and to otherwise manage and oversee the project. Plaintiff alleges that Vision, Foremost, and MMJ breached their contractual obligations in that the condominium units were improperly and inadequately designed and constructed, and completed in an incompetent and unworkmanlike manner, with material design and construction defects.”

The motion to dismiss the third cause of action was denied as well: “Plaintiff alleges, in his amended complaint, that Vision, Foremost, and MMJ have acknowledged notice of the defects and have not denied that they are responsible for providing a warranty to plaintiff. Plaintiff also refers to this warranty, in his amended complaint, by noting that paragraph 16 of the purchase agreement stated that the ‘[s]eller shall not be liable to . . . the [p]urchaser for any matter as to which an assignable warranty . . . has been assigned . . . to [p]urchaser and in such case the sole recourse of such . . . [p]urchaser . . . shall be against the warrantor . . . except that in the event a contractor or subcontractor is financially unable or refuses to perform its warranty . . . [s]eller shall not be excused from its obligations enumerated in the [offering p]lan under Rights and Obligations of Sponsor.’ Consequently, the court finds that dismissal of plaintiff’s third cause of action as against Foremost and MMJ must also be denied.”

In the fourth cause of action, the plaintiff alleges “that defendants made false statements and representations orally, in advertisements, and in the purchase agreement, that the condominium was properly and adequately designed and constructed and completed in a competent and workmanlike manner, in accordance with the condominium plans and specifications and proper design, engineering, and construction standards and practices consistent with applicable standards for a first class, luxury condominium in Brooklyn.”

The court dismissed the fourth cause of action stating, “it must be dismissed because it is duplicative of his first cause of action for breach of contract.” Therefore, “defendants’ motion to dismiss plaintiff’s amended complaint is granted to the extent that it seeks dismissal of plaintiff’s fourth cause of action, and it is denied in all other respects.”

Repair of Part May Necessitate Replacement of Whole

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…

Construction Defects Lead to Demolition

Ten years after it was built, demolition of Seattle’s McGuire Building has begun, as Jeanne Lang Jones reports in the Puget Sound Business Journal. Construction defects had rendered the 25-story apartment building uninhabitable. The major problem was corroded steel cabling. According to the report, “the building’s owners reached an undisclosed settlement last year with St. Louis-based contractor McCarthy Building Companies.”

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Allowing the Use of a General Verdict Form in a Construction Defect Case Could Subject Your Client to Prejudgment Interest

A recent opinion from the Colorado Court of Appeals is a cautionary tale concerning the calculation of pre-judgment interest. See Hendricks v. Allied Waste Transportation, Inc., 2012 WL 1881004 (Colo. App. 2012). The Hendricks sued Allied after one of its drivers backed into the corner of their home with an Allied garbage truck. At trial, a jury awarded the Hendricks $160,100 in damages. Although the jury was instructed on the cost of repairs, diminution in value, and non-economic damages, the parties agreed to a general verdict form that did not ask the jury to specify the types of damages awarded. The Hendricks sought to amend the judgment to include prejudgment interest and costs, which the trial court granted.

Allied appealed, arguing that the trial court erred by awarding the Hendricks prejudgment interest from the date their property was damaged. Id. at *7. The Colorado Court of Appeals found no error, and affirmed.

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Reprinted courtesy of Heather Anderson, Higgins, Hopkins, McLain & Roswell, LLC. Ms. Anderson can be contacted at anderson@hhmrlaw.com

Analysis of the “owned property exclusion” under Panico v. State Farm

The U.S. Court of Appeals for the Tenth Circuit recently concluded that the “owned property exclusion” applied to bar coverage for claims of property damage. See Panico v. State Farm Fire and Cas. Co., 2011 WL 322830 (10th Cir. 2011). In Panico, the plaintiffs sold property in Aspen, Colorado to the Taylors, who sued the Panicos upon discovering the property was not as represented. After refusing to defend, the Panicos sued State Farm for breach of contract. The district court concluded that the Taylors’ claims were not covered under the Panicos insurance policies and granted summary judgment in State Farm’s favor. The U.S. Court of Appeals for the Tenth Circuit affirmed.

Mr. Panico built the house on the property as well as several additions to the house. As the Taylors lived in Florida, they primarily relied on their real estate agent and an inspector to ensure the property was acceptable. According to their complaint, the Taylors discovered that the house was “virtually uninhabitable due to serious design and construction defects, mold, rodents, and drainage problems.” Id. at *1. In their complaint, the Taylors asserted three claims for relief against the Panicos based upon misrepresentation and fraudulent concealment about the condition of the property.

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Reprinted courtesy of Heather M. Anderson of Higgins, Hopkins, McClain & Roswell, LLP. Ms Anderson can be contacted at anderson@hhmrlaw.com

Defective Shingle Claims Valid Despite Bankruptcy

The Third Circuit Court has allowed claims to go forward against Owens Corning for making allegedly defective shingles. The shingles split, leading to leaking roofs. The building products manufacturer filed for bankruptcy in 2000, which “extinguished” claims against it. The company was facing millions in liabilities over asbestos lawsuits.

The lawsuit was filed in 2009. The courts initially found the lawsuit timely, but the Third Circuit Court later applied determined the exposure stated before the bankruptcy. On appeal, the court has reversed this and is again allowing the suit to proceed.

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CC&Rs Not the Place for Arbitration Agreement, Court Rules

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

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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Condominium Exclusion Bars Coverage for Construction Defect

Coverage was denied under the policy’s condominium exclusion in California Traditions, Inc. v. Claremont Liability Ins. Co.,2011 Cal. App.LEXIS912 (Cal. Ct. App., ordered published July 11, 2011).

California Traditions was the developer and general contractor for a housing development. California Traditions subcontracted with Ja-Con to perform the rough framing work for 30 residential units. The project had 146 separate residences that were freestanding with no shared walls, roof, halls, or plumbing or electrical lines. To allow a higher density development, the project was developed, marketed and sold as condominiums.

The purchaser of one of the units filed a complaint against California Traditions alleging property damage from the defective construction. California Traditions cross-complained against Ja-Con.

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

Colorado statutory “property damage” caused by an “occurrence”

Colorado General Assembly House Bill 10-1394 was signed into law by the Governor on May 21, 2010, codified at Colo. Rev. Stat. § 13-20-808 (2010)

13-20-808. Insurance policies issued to construction professionals

(1) (a) The general assembly finds and determines that:

(I) The interpretation of insurance policies issued to construction professionals is of vital importance to the economic and social welfare of the citizens of Colorado and in furthering the purposes of this part 8.

(II) Insurance policies issued to construction professionals have become increasingly complex, often containing multiple, lengthy endorsements and exclusions conflicting with the reasonable expectations of the insured.

(III) The correct interpretation of coverage for damages arising out of construction defects is in the best interest of insurers, construction professionals, and property owners.

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Reprinted courtesy of CDCoverage.com

Nebraska Man Sentenced for Insurance Fraud in Construction Projects

Thomas Herink has been ordered to repay more than $5 million to his victims and will be serving three years of probation after 18 months in jail for defrauding banks and insurance companies, according to a report in the Insurance Journal. Herink falsified financial statements to lenders and insurers so that his company, Golf Services Group Inc. could participate in construction projects.

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