Kansas Man Caught for Construction Scam in Virginia
December 20, 2012 — CDJ Staff
A Virginia court sent charges of construction fraud against a Kansas man to a grand jury. Larry Foster visited homes in Bedford County, Virginia, tested the water, and told homeowners that they needed new water filtration systems. The homeowners paid, but Mr. Foster never delivered. One homeowner who testified paid him $1,690. Another paid even more, giving $3,090 to Mr. Foster. In order to dupe his victims, Foster used the address of a chiropractor as a business address, unbeknownst to the actual business there.. He is wanted for charges in other states as well.
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Claims Under Colorado Defect Action Reform Act Count as Suits
July 10, 2012 — CDJ Staff
The Colorado Court of Appeals has affirmed the judgment of the lower court in Melssen v. Auto-Owners Insurance. The Melssens built a custom home for the Holleys, during which time the Melssens retained a comprehensive general liability policy from Auto-Owners, which “obligated Auto-Owerns to defend the Melssens with respect to any ‘suit’ seeking damages for ‘property damage’ during the policy period.” Soon after the house was constructed, cracks developed in the drywall, then outside stucco and basement slab. The Holleys contended that “approximately $300,000 of damages to the Holleys’ property was caused by the Melssens’ engineering and construction defects” and filed a claim under the Colorado Defect Action Reform Act (CDARA). The Melssens “demanded Auto-Owners defend and indemnify the Melssens and forwared Auto-Owners the notice of claim.”
Although the Melssens notified Auto-Owners in June 2008, it was not until October 2008 that Auto-Owners denied coverage stating that the claims were sustained outside the policy period. The Melssens filed an action against Auto-Owners. At trial, the jury ruled in favor of the Melssens awarding them damages, to which the trial court added costs and attorney fees.
On appeal, Auto-Owners contended that the trial court erred in allowing the Melssens to argue that the CDARA notice of claim “was the functional equivalent of a complaint commencing a suit.” The appeals court found that “the CDARA notice of claim process constituted an alternative dispute resolution proceeding under the policy.” The court agreed that jury should not have been asked to determine if a CDARA action is a “suit,” but as the jury found for the Melssens, the concluding it “constituted harmless error.” Further, the court found that an action under the CDARA satisfied the definition of a “suit.”
The court found for the Melssens, affirming the lower court’s decision and remanding the case to the lower court for the awarding of appeals costs to the Melssens.
Read the court’s decision…
New Buildings in California Soon Must Be Greener
June 19, 2012 — CDJ Staff
The California Energy Commission has approved new energy efficiency standards for new homes and commercial buildings. The 2013 Building Energy Efficiency Standards are set to go into effect on January 1, 2014, and will require 30% more energy efficiency for non-residential construction and 25% more for homes. The standards do not affect hospitals, nursing homes, or prisons.
Buildings covered under the standard will have to have roofs that ready for the installation of solar panels. Additionally, non-residential buildings will require high-performance windows, advanced lighting controls, and cool-roof technologies. Residential requirements include insulated hot-water pipes, whole house fans, and more efficient windows.
The new standards are expected to add 3,500 new building industry jobs. One thing these construction workers won’t be building are power plants, since over the next thirty years, the standards are expected to save as much as six power plants.
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Construction Defect Journal Seeks Article Submissions Regarding SB800 and Other Builders Right to Repair Laws
October 28, 2011 — CDJ Staff
As we approach the tenth anniversary of the passage and signing of SB800, California’s right-to-repair law, we’d like to hear your reactions to the law, your experiences with it, and your thoughts on it and right-to-repair laws in other states.
We invite you to submit articles either reacting to SB800 or on other matters relevant to construction defect and claims issues. You can promote your firm’s capabilities and get valuable exposure through the publication of your articles. Construction Defect Journal is widely read by our highly targeted audience of decision makers, construction attorneys, builders, owners, and claims professionals.
Articles may contain relevant images, your firm’s name, and links to your corporate website or third parties and can be submitted through e-mail to submitstory@constructiondefectjournal.com. Please remember to include your contact information if you would like it to be published with your content. If you are submitting photos or PDF documents with your article, please send them as e-mail attachments. Items submitted are assumed to be cleared for publishing upon receipt by CDJ.
Normally articles are published in full, although we reserve the right to edit content for space purposes. All articles submitted are considered for publication. For additional questions please contact editor@constructiondefectjournal.com.
Broker Not Liable for Failure to Reveal Insurer's Insolvency After Policy Issued
March 28, 2012 — Tred Eyerly, Insurance Law Hawaii
Faced with an issue of first impression in California, the Court of Appeals held that a broker was not liable for failing to reveal the insurer's insolvency occurring after issuance of the policy. Pacific Rim Mechanical Contractors, Inc. v. Aon Risk Ins. Serv. West, Inc., 2012 Cal. App. LEXIS 232 (Cal. Ct. App. Feb. 28, 2012).
The developer for a construction project in downtown San Diego retained Aon as its broker to secure coverage. Aon procured a general liability policy for the project with Legion Indemnity Company. Legion was solvent when it issued the policy.
The developer hired Pacific Rim (“PacRim”) as one of several subcontractors on the project. The parties entered into a contract in which the developer agreed to provide PacRim with liability insurance through an Owner Controlled Insurance Program (“OCIP”). Aon was not a party to the contract and PacRim was never its client. PacRim, however, enrolled in the OCIP by contacting Aon and providing all necessary paperwork.
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Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
Nevada District Court Dismisses Case in Construction Defect Coverage Suit
August 16, 2012 — CDJ Staff
The United States District Court of Nevada has dismissed a case filed by Maryland Casualty Company against National Fire & Marine Insurance Company. This case follows a case in which National was sued over “200 causes of action arising out of 193 separate insurance coverage disputes related to 75 different insureds and 163 unrelated construction defect or Chapter 40 proceedings across seven states.” The judge in this initial case severed the plaintiffs, as he found that allowing joinder “would make this case impossible to manage.” In this particular instance, National seeks to have the claims made by Maryland Casualty dismissed.
Maryland Casualty alleged that for insurance policies issued to 38 companies, National was obligated to defend the insured. National was, according to the plaintiff, named as defendants in 72 unrelated lawsuits to which National disclaimed coverage. However, the court found that Maryland Casualty failed “to provide enough detail regarding the relevant property damage, policies, claims, and time periods.” The court found that Maryland failed to “state a claim upoin which relief can be granted.
The court also found that “the Complaint lacks any well-pled allegations from which the Court could conclude the Plaintiff has standing since the Complaint is devoid of information about the specific policies at issue.
The court did allow Maryland Casualty up to September 3, 2012 in which to file an amended complaint.
Read the court’s decision…
Nevada Court Adopts Efficient Proximate Cause Doctrine
February 10, 2012 — Tred Eyerly, Insurance Law Hawaii
Although the Nevada Supreme Court adopted the efficient proximate cause doctrine, it determined it did not apply to salvage coverage under an all-risk policy for a rain-damaged building. Fourth Street Place, LLC v. The Travelers Indemn. Co., 2011 Nev LEXIS 114 (Nev. Dec. 29, 2011).
Fourth Street owned an office building which was insured by an all-risk policy issued by Travelers. Fourth Street hired Above It All Roofing to repair the roof of the office building. Above It All removed the waterproof membrane on the roof and prepared to replace the membrane the following week. Over the weekend, however, substantial rain hit. On Sunday, Above It All returned to cover the exposed portions of the roof with tarps, but wind later blew the tarps away. The building suffered significant interior damage as it continued to be exposed to the rain.
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Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
Window Manufacturer Weathers Recession by Diversifying
October 28, 2011 — CDJ Staff
American Openings, a Tuscon-based window manufacturer, has responded to the loss of its sales of windows for new home construction by moving into new markets. The Arizona Daily Star reports that American Openings used to see providing windows for new homes as half their business. Now, Tom Regina, the founder and president says “single family is just dead.”
Their products are insulated windows, designed to comply with Energy Star standards. Without new homes being built, now the company is focusing on homeowners and building owners looking for more energy efficient windows. As the windows have two or three panes and special coatings, homeowners using them are eligible for tax credits.
One of their newer products combines their energy-saving coatings with “break resistant” glass. The article notes that the windows repel “all but the most determined burglars.” However, the company is still awaiting special equipment to cut the glass.
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Celebrities Lose Case in Construction Defect Arbitration
May 26, 2011 — CDJ Staff
An arbitration panel has ruled that problems with the Idaho home of actors Tom Hanks and Rita Wilson were not due to construction defects but rather to “poor design and bad architectural advice.” The couple had settled with the architectural firm, Lake Flato of San Antonio, Texas for $900,000 and was subsequently seeking $3 million from Storey Construction of Ketchum, Idaho.
Problems with the couple’s home “included leaking roofs, inadequate drainage, fireplaces that did not vent properly and an inadequate air-conditioning system. In 2003, sliding snow from the roof damaged kitchen windows and roof components.”
The arbitration panel, according to the report in the Idaho Mountain Express and Guide, noted that “Hanks and Wilson were responsible for the full $167,623 cost of arbitration, but further denied a Storey Construction counterclaim that alleged Hanks and Wilson filed their claim out of malice.”
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No Coverage for Construction Defects Under Alabama Law
June 19, 2012 — Tred Eyerely, Insurance Law Hawaii
The federal district court determined that under Alabama law, there was no coverage for breach of contract claims arising from alleged construction defects. Owners Ins. Co. v. Shep Jones Constr., Inc., 2012 U.S. Dist. LEXIS 62085 (N.D. Ala. May 3, 2012).
The insured entered a contract with the homeowner to remodel her home. After construction was completed, the homeowner sued the insured, alleging damages arising form breach of contract, negligence and negligent supervision.
The insured had a policy with Owners Insurance Company. Owners Insurance defended under a reservation rights.
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Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
Colorado Court of Appeals Rejects Retroactive Application of C.R.S. § 13-20-808.
April 25, 2012 — Chad W. Johnson, Higgins, Hopkins, McClain & Roswell, LLC
In TCD, Inc. v. American Family Mutual Insurance Company, TCD appealed the district court’s summary judgment ruling in favor of American Family. TCD, Inc. v. American Family Mutual Insurance Company Colo. App. No. 11CA1046 (April 12, 2012). TCD was the general contractor on a project to construct a building for Frisco General Gateway Center, LLC (“Gateway”). TCD subcontracted with a roofer named Petra Roofing and Remodeling Company (“Petra”) to performing the roofing work for the building. The subcontract required Petra to defend and indemnify TCD and to name TCD as an additional insured under its CGL policy. American Family issued a CGL policy to Petra that named TCD as an additional insured from 2006-2007.
TCD filed suit against Gateway seeking payment for its work at the project. Gateway counterclaimed against TCD for breach of contract, negligence, and violation of the CCPA. TCD demanded that American Family defend it from the counterclaims pursuant to Petra’s policies. American Family denied coverage and a separate coverage suit ensued. At the trial court level, the court entered summary judgment for American Family because the counterclaims of Gateway did not trigger the duty to defend or indemnify TCD as an additional insured.
On appeal, TCD argued that: 1) the counterclaims raise a genuine issue of material fact regarding American Family’s duty to defend; 2) the court should hear evidence beyond the four corners of the complaint; and, 3) the court should apply C.R.S. § 13-20-808 retroactively.
Read the full story… Reprinted courtesy of Chad W. Johnson of Higgins, Hopkins, McClain & Roswell, LLC. Mr. Johnson can be contacted at johnson@hhmrlaw.com.
Arizona Court of Appeals Decision in $8.475 Million Construction Defect Class Action Suit
May 9, 2011 — May 9, 2011 Beverley BevenFlorez - Construction Defect Journal
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…
Florida “get to” costs do not constitute damages because of “property damage”
August 11, 2011 — CDCoverage.com
In Palm Beach Grading, Inc. v. Nautilus Ins. Co., No. 10-12821 (11th Cir. July 14, 2011), claimant general contractor Palm Beach Grading (?PBG?) subcontracted with insured A-1 for construction of a sewer line for the project.  A-1 abandoned its work and PBG hired another subcontractor to complete construction of the sewer line.  The new subcontractor discovered that A-1?s work was defective requiring repair and replacement of portions of the sewer line which also required the destruction and replacement of surrounding work.
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Reprinted courtesy of CDCoverage.com
Insurer Rejects Claim on Dolphin Towers
July 22, 2011 — CDJ Staff
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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Parking Garage Collapse May Be Due to Construction Defect
November 7, 2012 — CDJ Staff
A parking garage under construction at the Doral campus of Miami Dade College collapsed on October 9. Experts state that the collapse may have been due to errors in the construction process, either in the fabrication of the pre-cast components or in their assembly. The Bradenton Herald quotes Mark Santos, a structural engineer, who “would look at erection procedures ?Äì that’s probably the one question to ask first.”
During the failure, floors separated from the south wall of the structure. The contractor responsible for the garage, Ajax Building Corp, said there was “no indication of any potential cause.”
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Preventing Costly Litigation Through Your Construction Contract
August 17, 2011 — Douglas Reiser, Builders Counsel
It’s Tuesday, which means it ’s the middle of your work week. Tuesday is a great time to take an hour to look over your contracts, while the crews are pushing through their scheduled work. Today’s food for thought: How do you use your contract to reduce your litigation burden?
Your contract should do many things. It should discuss the scope of work, scheduling of work, quality of work, coverage for liabilities and conditions and timeliness for payment. But often overlooked is how your contract can lend to dispute resolution.
Commonly, you will see a simple provision that covers governing law, venue for disputes and the awarding of attorneys’ fees. But you can do better. Remember, a contract is enforced to the maximum extent possible in Washington state.
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Reprinted courtesy of Douglas Reiser of Reiser Legal LLC. Mr. Reiser can be contacted at info@reiserlegal.com
Reference to "Man Made" Movement of Earth Corrects Ambiguity
December 20, 2012 — Tred Eyerly, Insurance Law Hawaii
In Pioneer Tower Owners Assn. v. State Farm Fire & Cas. Co., 12 NY3d 302 (2009), the New York Court of Appeals found an "earth movement" exclusion was ambiguous when applied to an excavation. The court now considered whether a similar exclusion, expressly made applicable to "man made" movement of earth, eliminated the ambiguity when loss was created by excavation. Bentoria Holdings, Inc. v. Travelers Indem. Co., 2012 N.Y. LEXIS 3087 (N.Y. Oct. 25, 2012).
Plaintiff's building suffered cracks due to an excavation being conducted on the lot next door. A claim was submitted to Travelers, plaintiff's insurer. Travelers rejected the claim, relying on the earth movement exclusion.
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Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
Hospital Construction Firm Settles Defect Claim for $1.1 Million
September 13, 2012 — CDJ Staff
Law360 reports that Bovis Lend Lease has settled claims of $10 million in damages for $1.1 million. Bovis was building three annexes to a hospital in Oklahoma. The hospital alleged that a faulty moisture barrier system lead to damage throughout the hospital.
Bovis is a division of the Lend Lease Group, a multinational construction firm based Sydney, Australia.
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