ANAHEIM CALIFORNIA CONSTRUCTION EXPERT WITNESS
DIRECTORY AND CAPABILITIES

Battle of “Other Insurance” Clauses

The New York Court of Appeals considered the impact of competing “other insurance” provisions located in both a CGL policy and a D&O policy. See Fieldston Property Owners Assoc., Inc. v. Hermitage Ins. Co., Inv., 2011 N.Y. LEXIS 254 (N.Y. Feb. 24, 2011).

In the underlying case, Fieldston’s officers were charged with making false statements and fraudulent claims with respect to a customer's right to access its property from adjacent streets. Suit was eventually filed against Fieldston and its officers, alleging several causes of action including injurious falsehood. Damages were sought.

Fieldston’s CGL policy was issued by Hermitage. The “other insurance” provision stated, “If other valid and collectible insurance is available to the insured for a loss we cover . . . our obligations are limited,” but also stated it would share with all other insurance as a primary policy.

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

Recent Case Brings Clarity and Questions to Statute of Repose Application

I have often chatted about the Washington Statute of Repose on this blog. The Statute of Repose prevents construction claims, for the most part, from being raised 6 years from the date of substantial completion or termination. Well, a recent Court of Appeals case dove deep into the specific determinative factors that tell us when to start the clock. It certainly raises questions about how long we really have to file suit.

The Statute of Repose has been a frequent topic here, so I will simply direct you to my prior post for further information on how this law works. A recent post was published about a lawsuit that might raise some questions about when and how the clock begins to roll, and claim periods begin to diminish.

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

Florida Contractor on Trial for Bribing School Official

Lloyd Whann, an executive in M. M. Parrish Construction, a Gainesville, Florida firm, is going to trial over claims that he bribed a school district official with more than $50,000 in gifts. The trial has been pushed to March of 2012, in order for his defense to review documents.

Bob Williams, the former school official, plead guilty to conspiracy to commit bribery. He agreed to testify against Whann and M.M. Parrish Construction.

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Florida Law: Defects in Infrastructure Improvements Not Covered in Home Construction Warranties

In April 2012, Governor Rick Scott signed into law House Bill 1013, despite lobbying from homeowner and condominium associations among others. The law was in response to a case in which the court had found that implied warranties covered external subdivision improvements. Prior to the court decision, these were not thought to be covered.

According to an article in the Martindale-Hubble Legal Library, under the new law, road and drainage improvements will not be included implied warranty of a new home. The law took effect on July 1.

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Court Consolidates Cases and Fees in Soil Construction Defect Case

The California Court of Appeals has ruled in Burrow v. JTL Development. JTL Development had appealed a judgement in a construction defect case in which JTL Development and Highland Development were found liable for damage due to homes built on unstable and improperly compacted soil. The two companies were sued by the two sets of homeowners, the Burrows and the Balls, and their cases were consolidated at trial. Each family was awarded $700,000 in damages. This judgement had also been appealed and affirmed by the appeals court. In the current case, an additional $235,800 in cost-of-proof sanctions had been awarded to the two families.

Before the trial, Dale Burrows, Charles Ball, and Laurie Ball “asked JTL and Highland to admit that they ‘approved grading plans’ for the Burrows’ and Balls’ properties; ‘had knowledge that the [properties] contained improperly compacted fill’; ‘had knowledge that the [properties were’ not properly prepared for structures’; and ‘did not provide Plaintiffs with a complete soils report’ prepared by Gorian & Associates.” These were requests 14, 19, 20, and 22. JTL and Highland denied all of these.

At trial, the Burrows and Balls proved that all these were true. JTL and Highland’s geotechnical subcontractor, Gorian & Associates, had “recommended that Highland remove and re-compact the entire tract to a depth of 25 feet.” JTL and Highland did not follow this recommendation, “in order to avoid expense.”

After judgment, the Burrows and Balls moved for $582,587.45 for “attorneys’ fees and costs incurred proving the truth of requests for admission.” JTL and Highland claimed that only Dale Burrows could recover fees, but that also the fees were not recoverable. Joe Lynch of Highland “declared that he always believed the soils under the Burrows and Balls homes were properly compacted.” The Burrows and Balls responded with six identical sets of requests for admissions and the court awarded each of them twenty-five percent of $235,800, with JTL and Highland each responsible for fifty percent.

The appeals court noted that JTL and Highland filed a timely appeal and goes on to notes the four circumstances under which a responding party does not have to pay costs and fees. The court concluded that none of these were met. Instead of waiving the request, JTL and Highland denied the request, stating “without in any manner waiving the foregoing objection, responding party denies the request for admission.”

Nor was the admission “of no substantial importance,” instead the court said that the matters were of “substantial importance,” and the “trial would have been shortened by their admission. Highland and JTL “relied on Gorian when it denied the request,” but the trial court “discredited Lynch’s assertions,” finding that “Highland knew the soil was improperly compacted.”

As all plaintiffs had identical discovery requests, the court rejected the claim that only Dale Burrows was entitled to an award.

Read the court’s decision…

Arizona Court of Appeals Rules Issues Were Not Covered in Construction Defect Suit

The Arizona Court of Appeals has ruled in the case of Peters v. Marque Homes. In this case, Walter Peters provided the land and funding for Marque Homes to build a luxury residence in Glendale, Arizona. By the terms of the “Joint Venture Agreement,” Peters provided the land and funding, while Marque would not charge Peters for overhead, profits, or supervision fees. The agreement specified that profits would be divided equally.

Two years later, Marque sued Peters claiming he had breached his obligations by refusing several offers for the home. Peters replied that Marque had “failed to complete the home so it is habitable to prospective purchasers.” Peters stated he had “retained an expert inspector who had identified numerous defects.” The court appointed a Special Commissioner to list the home for sale. Peters purchased the home with two stipulations ordered by the court. At this point, the earlier case was dismissed with prejudice.

Peters then sued Marque “asserting express and implied warranty claims arising out of alleged construction defects in the home.” Marque claimed that Peters’s claims were “precluded by the prior joint venture dispute.” The court granted Marque’s motion.

The appeals court reversed the lower court’s decision, determining that Peters’s claims were not precluded by the agreement. Although there had been a prior case between the two parties, warranty issues did not form a part of that case. “Peters never raised these allegations nor presented this evidence in support of any warranty claim.”

The court also noted that the “parties never agreed to preclude future warranty claims.” Marque and Peters “agreed in the stipulated sale order that ‘the sale of the property to a third party shall be “as is” with a 10-year structural warranty.’” The court noted that the agreement said nothing about one of the parties buying the house.

The appeals court left open a claim by Marque that there are no implied or express warranties available to Peters. They asked the Superior Court to address this.

Read the court’s decision…

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

Lien Claimant’s Right to Execute against Bond Upheld in Court of Appeals

Stonewood v. Infinity Homes is a simple construction dispute over a matter of about $9,000.00. But sometimes these tiny little disputes turn into expensive legal battles over mere procedural quivering. In Stonewood, a small subcontractor won a big victory yesterday when the Divison 1 Court of Appeals upheld its judgment against a lien release bond posted by an owner.

Infinity Homes contracted with Stonewood Design to lay tile in one of its customer’s homes. Stonewood did the work, but Infinity withheld roughly $9,000.00 of the contract sums for what it alleged were trade damages left on the tile. The two parties were unable to come to an agreement over payment and Stonewood proceeded with a lien under RCW 60.04. It then filed an action to enforce the lien against the homeowner, Infinity and its bonding company.

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

Insurer’s Motion for Summary Judgment Based on Earth Movement Exclusion Denied

After carefully dissecting the earth movement exclusion, the court denied the insurer’s motion for summary judgment. High Street Lofts Condominium Assoc., Inc. v. Am. Family Mut. Ins. Co., 2011 U.S. Dist. LEXIS 109043 (D. Colo. Sept. 26, 2011).

The City of Boulder performed road repair work near High Street’s property, some of which involved the use of a vibrating compactor to compact and set the roadbed. High Street noticed damage to its building, such as cracks in walls, sloping of floors and separations of porches from the building itself. High Street contacted the City of Boulder, who forwarded the complaint to its contractor, Concrete Express, Inc.

High Street also filed a claim with its business insurer, American Family, who denied the claim. American Family relied on an opinion letter by High Street’s engineer. The letter indicated that the damage was the result of "soil consolidation/settlement," in response to the construction activities. Based on this letter American Family concluded the claim was excluded under the policy’s earth movement exclusion.

High Street sued American Family, who moved for summary judgment.

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

Cogently Written Opinion Finds Coverage for Loss Caused By Defective Concrete

If ever in need of a concise, well-reasoned opinion on “occurrence,” “property damage” and applicability of the business risk exclusions, turn to Pamperin Rentals II, LLC v. R.G. Hendricks & Sons Construction, Inc., 2012 Wis Ct. App. LEXIS 698 (Wis. Ct. App. Sept. 5, 2012).

A contractor was hired to install concrete during construction of seven gas stations. Red-D-Mix provided the concrete. The contractor and Red-D-Mix were eventually sued by the gas stations, based upon allegations that the concrete was defectively manufactured and installed. The gas stations alleged that Red-D-Mix supplied concrete that was defective and resulted in damages, including the need to repair nearby asphalt.

Red-D-Mix tendered to its insurers, who denied coverage. Suit was filed and the insurers moved for summary judgment. The trial court determined there were no allegations of either “property damage” or an “occurrence.” Therefore, there was no duty to defend or indemnify Red-D-Mix.

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

Gut Feeling Does Not Disqualify Expert Opinion

The New Jersey Supreme Court issued a ruling in June on the case of Nevins v. Toll in which they reversed an earlier decision and remanded the case to a lower court for retrial. At issue in the case was the testimony of the plaintiff’s expert, J. Anthony Dowling. In depositions, Mr. Dowling said that his estimates for repair were based on a “gut feeling.” Dowling said he had “very little” experience in cost estimates for single-family homes. The defendants sought to bar Dowling’s testimony which was granted by the judge. Without an expert, Ms. Nevin’s case was dismissed.

Describing Dowling’s report as “far from a model of how an expert’s opinion in a construction case should be presented,” the court noted that Dowling is not a professional expert witness. However, the court did note that Dowling is a professional cost estimator. Despite Mr. Dowling using his “gut feeling” to construct his estimate, the New Jersey Supreme Court felt that whether his estimate is convincing is “a question for the jury.”

Read the court’s opinion…

Negligent Misrepresentation in Sale of Building Altered without Permits

The Supreme Court of New Hampshire has ruled in the case Wyle v. Lees. The Leeses owned a two-unit apartment building in North Conway, New Hampshire. They hired a contractor to add a third, larger apartment, including a two-car garage. The Leeses and their contractor submitted a building permit application. They were informed that site plan review was required. After receiving approval on the site plan, construction started. At no point did they obtain a building permit and the construction was never inspected. The Leeses subsequently added more space to the unit, reducing parking spaces below the minimum required. Again, they did not obtain a building permit.

In 2007, three years after all these changes were complete, the Leeses sold their building to Mr. Wyle. To the question “are you aware of any modifications or repairs made without the necessary permits?” they answered “no.” About six weeks after closing, Wyle “received a letter from the town code enforcement officer regarding the legality of the removal of a garage door from the new unit.” A subsequent inspection revealed “numerous building and life safety code violations.”

Mr. Wyle brought a claim against the Leeses for negligent misrepresentation. The defendants filed a motion “seeking to preclude economic loss damages.” At a two-day bench trial, Mr. Wyle won. The Leeses appealed.

The appeals court found that “the defendants negligently misrepresented that the premises were licensed for immediate occupancy and that the defendants had obtained all necessary permits,” and thus upheld the lower court’s finding of negligent misrepresentation. The appeals court also rejected the Leeses’ argument that damages must be apportioned on all parties, including “the plaintiff himself, the plaintiff’s building inspector, and the defendant’s contractor,” finding a lack of “adequate evidence.”

The Leeses further argued that they were unaware that modifications and repairs were accomplished without the required permits. The appeals court noted that “the trial court found that both the conditional approval and final approval for the site plan stated that a building permit and a certificate of occupancy were required prior to any use.” The court concluded that the Leeses “knew or should have known of the falsity of their representation.”

The appeals affirmed the findings of the trial court.

Read the court’s decision…

Fifth Circuit Reverses Insurers’ Summary Judgment Award Based on "Your Work" Exclusion

Application of the facts to the "your work" exclusion was the key to resolving coverage issued in Am. Home Assurance Co. v. Cat Tech L.L.C., 2011 U.S. App. LEXIS 21076 (5th Cir. Oct. 5, 2011).

Ergon Refining, Inc. hired Cat Tech L.L.C. to service a hydrotreating reactor. In January 2005, Cat Tech replaced certain parts in the reactor. After Cat Tech finished the job and left, Ergon noticed a high pressure drop in the reactor, forcing it to be shut down. Cat Tech returned in February 2005, removed, repaired and replaced the damaged parts, and loaded new parts. After completion, a second large pressure drop occurred during the reactor’s start-up process. The reactor was shut down until October 2005, when Ergon hired a different contractor to perform the repair work. Additional damage to the reactor was found.

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

Former New York Governor to Head Construction Monitoring Firm

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.

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Arizona Court of Appeals Decision in $8.475 Million Construction Defect Class Action Suit

In the case of Leflet v. Fire (Ariz. App., 2011), which involved an $8.475 million settlement in a construction defect class action suit, the question put forth to the Appeals court was “whether an insured and an insurer can join in a Morris agreement that avoids the primary insurer’s obligation to pay policy limits and passes liability in excess of those limits on to other insurers.” The Appeals court provided several reasons for their decision to affirm the validity of the settlement agreement as to the Non-Participatory Insurers (NPIs) and to vacate and remand the attorney fee awards.

First, the Appeals court stated, “The settlement agreement is not a compliant Morris agreement and provides no basis for claims against the NPIs.” They conclude, “Appellants attempt to avoid the doctrinal underpinnings of Morris by arguing that ‘the cooperation clause did not prohibit Hancock from assigning its rights to anyone, including Appellants.’ This narrow reading of the cooperation clause ignores the fact that Hancock did not merely assign its rights — it assigned its rights after stipulating to an $8.475 million judgment that neither it nor its Direct Insurers could ever be liable to pay. Neither Morris nor any other case defines such conduct as actual ‘cooperation’—rather, Morris simply defines limited circumstances in which an insured is relieved of its duty to cooperate. Because Morris agreements are fraught with risk of abuse, a settlement that mimics Morris in form but does not find support in the legal and economic realities that gave rise to that decision is both unenforceable and offensive to the policy’s cooperation clause.”

The Appeals court further concluded that “even if the agreement had qualified under Morris, plaintiffs did not provide the required notice to the NPIs.” The court continued, “Because an insurer who defends under a reservation of rights is always aware of the possibility of a Morris agreement, the mere threat of Morris in the course of settlement negotiations does not constitute sufficient notice. Instead, the insurer must be made aware that it may waive its reservation of rights and provide an unqualified defense, or defend solely on coverage and reasonableness grounds against the judgment resulting from the Morris agreement. The NPIs were not given the protections of this choice before the agreement was entered, and therefore can face no liability for the resulting stipulated judgment.”

Next, the Appeals court declared that “the trial court abused its discretion in awarding attorney’s fees under A.R.S § 12-341.” The Appeals court reasoned, “In this case, the NPIs prevailed in their attack on the settlement. But the litigation did not test the merits of their coverage defenses or the reasonableness of the settlement amount. And Plaintiffs never sued the NPIs, either in their own right or as the assignees of Hancock. Rather, the NPIs intervened to test the conceptual validity of the settlement agreement (to which they were not parties) before such an action could commence. In these circumstances, though it might be appropriate to offset a fee award against some future recovery by the Plaintiff Leflet v. Fire (Ariz. App., 2011) class, the purposes of A.R.S. § 12-341.01 would not be served by an award of fees against them jointly and severally. We therefore conclude that the trial court abused its discretion in awarding fees against Plaintiffs ‘jointly and severally.’”

The Appeals court made the following conclusion: “we affirm the judgment of the trial court concerning the validity of the settlement agreement as to the NPIs. We vacate and remand the award of attorney’s fees. In our discretion, we decline to award the NPIs the attorney’s fees they have requested on appeal pursuant to A.R.S. § 12-341.01(A).”

Read the court’s decision…

Is There a Conflict of Interest When a CD Defense Attorney Becomes Coverage Counsel Post-Litigation?

In Weitz Co., LLC v. Ohio Cas. Ins. Co., the U.S. District Court for the District of Colorado was asked to rule on a motion to disqualify counsel in an insurance coverage action. 11-CV-00694-REB-BNB, 2011 WL 2535040 (D. Colo. June 27, 2011). Motions to disqualify counsel are viewed with suspicion, as courts “must guard against the possibility that disqualification is sought to ‘secure a tactical advantage in the proceedings.’” Id. at *2 (citing Religious Technology Center v. F.A.C.T. Net, Inc., 945 F. Supp. 1470, 1473 (D. Colo. 1996).

Weitz Company, LLC (“Weitz”) is a general contractor and defendant in an underlying construction defect suit which had concluded before the action bringing rise to this order. In the underlying action, Weitz made third-party claims against subcontractors, including NPW Contracting (“NPW”). Weitz was listed as an additional insured under NPW’s policies with both Ohio Casualty Insurance Company and Mountain States Mutual Casualty Company (collectively “the Carriers”). The Carriers accepted Weitz’s tender of defense under a reservation of rights. However, neither insurance carrier actually contributed to Weitz’s defense costs in the underlying action. At the conclusion of the construction defect action, the parties unsuccessfully attempted to apportion the attorney’s fees and costs. Eventually, Weitz brought suit against the recalcitrant carriers. The Lottner firm, which had previously represented Weitz in the underlying construction defect action, continued to represent Weitz in this coverage action. 

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Reprinted courtesy of Higgins, Hopkins, McLain & Roswell, LLC. Mr. Johnson can be contacted at johnson@hhmrlaw.com

Building Boom Leads to Construction Defect Cases

Professor Evan McKenzie of the University of Illinois at Chicago says that rise of construction defect litigation in the Las Vegas area followed the same pattern it did in other places, according to an article in the Las Vegas Review Journal. “Step one,” according to Professor McKenzie, “there was this enormous growth in construction. Then these attorneys began to swarm in from all over, especially Southern California.” McKenzie noted that during a building boom, construction “outpaces the ability of building inspectors to do their job.”

But, despite his contention that “rapid growth in housing stock” leads to “shoddy construction,” another problem of growth was that “eventually there were too many lawyers chasing too many condominium complexes and subdivisions.” What came next was that “attorneys start coming up with cases that really aren’t good cases.” It’s in the interest of these attorneys that HOA boards sue.

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Illinois Court Determines Insurer Must Defend Property Damage Caused by Faulty Workmanship

The Illinois Court of Appeals determined the insurer must defend allegations of property damage arising from faulty workmanship. Milwaukee Mut. Ins. Co. v. J.P. Larsen, Inc., 2011 Ill. App. Unpub. LEXIS 1443 (Ill. Ct. App. June, 20, 2011).

Larsen was a subcontractor for Weather-Tite in a condominium building. Weather-Tite installed windows on the project and hired Larsen to apply sealant to the windows. The windows subsequently leaked and caused water damage within the complex.

The homeowner’s association sued Weather-Tite for breach of express and implied warranties. Weather-Tite filed a third-party complaint against Larsen, seeking contribution and alleging that Larsen was in breach of contract by failing to add Weather-Tite as an additional insured under Larsen’s CGL policy.

Both Weather-Tite and Larsen tendered to Larsen’s insurer. Both tenders were denied because the insurer contended the complaints alleged only construction defects, and not “property damage” or an “occurrence” within the terms of the policy.

The insurer filed suit for a declaratory judgment. The trial court granted the insurer’s motion as to Weather-Tite, but granted Larsen’s cross-motion for summary judgment.

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