ANAHEIM CALIFORNIA CONSTRUCTION EXPERT WITNESS
DIRECTORY AND CAPABILITIES

Texas covered versus uncovered allocation and “legally obligated to pay.”

In Markel American Ins. Co. v. Lennar Corp., No. 14-10-00008-CV (Tex. Ct. App. April 19, 2011), insured homebuilder Lennar filed suit against its insurer Markel seeking recovery of costs incurred by Lennar to repair water damage to homes resulting from defective EIFS siding. Following a jury trial, judgment was entered in favor of Lennar and against Markel. On appeal, the intermediate appellate court reversed. Applying Texas law, the court first held that Lennar failed to satisfy its burden of allocating damages between covered and uncovered. In a prior decision, the court had held that, while the costs incurred by Lennar for the repair of the resulting water damage

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Reprinted courtesy of CDCoverage.com

Mississippi exclusions j(5) and j(6) “that particular part”

In Lafayete Ins. Co. v. Peerboom, No. 3:10cv336 (S.D. Miss. June 2, 2011), claimant homeowner Peerboom hired insured contractor Absolute to raise Peerboom’s house two feet to avoid future flooding. While Absolute was raising the house, it fell, resulting in physical injury to the home. Peerboom sued Absolute for negligence, breach of contract, and fraud, seeking damages for the destruction of the home. Absolute’s CGL insurer Lafayette defended under a reservation of rights and filed a declaratory judgment action.

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Reprinted courtesy of CDCoverage.com

Water Drainage Case Lacks Standing

The Texas Court of Appeals has ruled in the case La Tierra de Simmons Familia Ltd. V. Main Event Entertainment, LP. The trial court had found for Main Event. On appeal, the court threw out some of the grounds on which the trial court had reached its decision.

The case involved two commercial lots in northwest Austin, Texas. The uphill tract (Phase III of the Anderson Arbor development) diverts its runoff onto the lower tract (the “Ballard tract”). The owners of the Ballard tract claim that “the drainage system was designed or constructed in a manner that has damaged and continues to damage the Ballard tract.”

Both tracts have undergone changes of ownership since the construction of the drainage system in 2004. At the time the drainage system was constructed, the parcel was owned by Sears Roebuck and Co. Sears later sold the property. Main Event Entertainment is the current tenant. Likewise, the Ballard tract was previously owned by the Ballard Estate which sold the property to La Tierra on an “as is” basis in 2007.

After La Tierra bought the Ballard tract, La Tierra’s engineer “witnessed and videotaped what he described as ‘flooding’ on the Ballard tract caused by storm water discharge from the Anderson Arbor drainage system during a rainfall event.” La Tierra determined that an adequate drainage system would cost about $204,000. Development plans were put on hold.

La Tierra sued Main Event and various other parties associated with the uphill tract, seeking “actual damages for (1) decrease and loss in rental income due to delay in obtaining the development permit, (2) interest on carrying costs during that time period, (3) the cost to build a water conveyance system on the Ballard tract, (4) engineering fees incurred to redesign the water conveyance system, (5) unspecified out-of-pocket real estate expenses, and (6) property devaluation occasioned by the need to construct an expensive water conveyance system.” The trial court never reached these claims, ruling instead that La Tierra lacked standing, that its claims were barred under the statute of limitations, and that there was no evidence of damage.

La Tierra appealed, arguing that “(1) the summary-judgment evidence does not conclusively establish that property damage claims accrued or were discovered prior to September 11, 2007, which is within the limitations period and was after La Tierra purchased the property; (2) even if the property was damaged before La Tierra acquired ownership of the Ballard tract, standing exists based on the assignments of interest from the Ballard Estate heirs, and the discovery rule tolls limitations until the injury was discovered on September 11, 2007; (3) limitations does not bar La Tierra's request for injunctive relief; (4) La Tierra's water code claim against Main Event and M.E.E.P. is viable based on their control over the drainage system, which makes them necessary and indispensable parties for injunctive relief; (5) La Tierra presented more than a scintilla of evidence to raise a fact issue on damages, causation, and other essential elements of its causes of action; and (6) the trial court abused its discretion when it sustained the defendants' objections to La Tierra's summary-judgment evidence.”

The appeals court concluded that La Tierra’s second claim was irrelevant to standing, as La Tierra “obtained assignments from the Ballard Estate heirs ? nearly one year after the lawsuit was initially filed.” Nor did the court accept their first point. The water system had been operating unaltered since January, 2004, with monthly maintenance and inspection to maintain its designed operation. Further, a feasibility report La Tierra received stated that “over sixteen acres drain into those ponds, and thus onto this site.” The court noted that “the underlying facts giving rise to a cause of action were known before La Tierra acquired ownership of the Ballard tract.”

The court concluded that the drainage issue is a permanent injury, but that it “accrued before La Tierra acquired an ownership interest in the property.” As La Tierra has standing, the appeals court ruled that it was improper for the trial court to rule on the issues. The appeals court dismissed the questions of whether the case was barred under the statute of limitation and also the question of whether or not La Tierra had damages.

As the issue of standing would not allow La Tierra to bring the suit, the appeals court found for the defendants, dismissing the case for this single reason, and otherwise affirming the ruling of the lower court.

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Continuous Trigger of Coverage Adopted for Loss Under First Party Policy

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.

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

Construction Suit Ends with Just an Apology

After suing a contractor for failing to complete the remodeling of their home, an Orange County couple has settled for an apology. Douglas J. Pettibone represented the contractor, who had lost his business after a broken neck, multiple surgeries, and an addiction to pain medicine. Mr. Pettibone represented his client pro bone. The case was settled in arbitration by JAMS.

Mr. Pettibone noted that his client gave “a heartfelt and very moving apology.” The remodeling was completed by another contractor, two years after Thorp Construction stopped work on the project. After the apology, the case was dismissed.

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Public Relations Battle over Harmon Tower

Tutor Pernini claims that CityCenter is portraying the construction firm as “the scum of the earth” in an attempt to influence eventual jurors, according to an article at Vegas Inc. The contractor’s attorneys have requested information regarding the public relations efforts of MGM Resorts and CityCenter, characterizing CityCenter’s PR as a “litigation spin doctor.”

CityCenter has requested that at least one subpoena be canceled. Judge Elizabeth Gonzales has already allowed one to go through, although she has noted that Perini cannot request documents from CityCenter’s lawyers to the litigation consultants under attorney/client privilege. Tutor Perini claims that in 2010, Patricia Glaser, who has represented CityCenter, said her goal was to portray Perini as “the scum of the earth,” and make that certain that judges and juries would not “adopt the world view espoused by the opposing party.”

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United States District Court Confirms That Insurers Can Be Held Liable Under The CCPA.

In D.R. Horton, Inc.-Denver v. The Travelers Indem. Co. of Am., 10-CV-02826-WJM-KMT, 2012 WL 527204 (D. Colo. Feb. 16, 2012), the court was asked to rule on Travelers’[1] motion to dismiss D.R. Horton, Inc. ?Äì Denver’s (“DRH”) claim that Travelers violated the Colorado Consumer Protection Act (“CCPA”).

In the underlying construction defect case (“CD case”), DRH, as the developer and general contractor of a construction project, tendered the defense of the CD case to certain subcontractors and to Travelers as an insurer to those subcontractors. Travelers accepted the duty to defend DRH. DRH hired counsel to defend it, and the attorney fees and costs of suit were billed to Travelers. However, for a period of over five years, Travelers failed to actually pay any portion of the defense of DRH. Finally, on October 31, 2008, Travelers offered checks for payment of only 4% of the costs and fees incurred. DRH then returned the checks to Travelers and provided Travelers with authority to support its position that the amounts in Travelers’ checks were inadequate. Thereafter, Travelers dug its heels in, and resubmitted the same checks.

DRH was then forced to file a coverage action against Travelers for declaratory judgment, breach of contract, bad faith breach of insurance contract, and deceptive trade practices under the CCPA. In its motion to dismiss DRH’s CCPA claim, Travelers’ argued that DRH failed to plead specific facts that Travelers engaged in a deceptive trade practice under C.R.S. § 6-1-105, and DRH failed to plead sufficient facts showing that Travelers’ actions significantly affect the public ?Äì a necessary element of a CCPA claim.

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

Former Zurich Executive to Head Willis North America Construction Insurance Group

Insurance Journal reports that Sean McGroarty will be directing surety operations for their construction practice in North America. Previously, Mr. McGroarty was the senior vice president and head of international surety with Zurich Financial Services. He has also worked for Liberty Mutual Group and the St. Paul Companies.

Mr. McGroarty will be leading a team of professionals offering brokerage services for contract and commercial surety.

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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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Texas contractual liability exclusion

In Ewing Construction Co., Inc. v. Amerisure Ins. Co., No. C-10-256 (S.D. Tex. April 28, 2011), insured Ewing was the general contractor for an athletic facility constructed for a school district. The school district sued Ewing alleging defective construction of the project. The underlying complaint included contract and negligence causes of action, and sought damages for the repair of the damages and loss of the use of the project. The complaint did not allege damage to any property other than the project itself. Ewing tendered its defense to its CGL insurer Amerisure. Amerisure denied a defense and Ewing filed suit against Amerisure. The federal district trial court entered summary judgment for Amerisure. Applying Texas law, the court held that all of the damages fell within the “contractual liability” exclusion precluding any duty to defend or indemnify.

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Reprinted courtesy of CDCoverage.com

Bill Seeks to Protect Legitimate Contractors

The California construction industry sees Senate Bill 863 as a needed help to legitimate construction businesses. The bill introduces regulations that will help shut down fraudulent contractors and help reduce workers’ compensation fraud. John Upshaw of the Independent Roofing Contractors of California described the revenue lost to California and other states as “phenomenal,” saying that “we need to continue the coordinated efforts if we are to see true workers’ compensation reform.”

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Failure to Meet Code Case Remanded to Lower Court for Attorney Fees

Judge Patricia J. Cottrell, ruling on the case Roger Wilkes, et al. v. Shaw Enterprises, LLC, in the Tennessee Court of Appeals, upheld the trial court’s conclusion that “the builder constructed the house in accordance with good building practices even though it was not in strict conformance with the building code.” However, Judge Cottrell directed the lower court to “award to Appellants reasonable attorneys' fees and costs incurred in their first appeal, as determined by the trial court.”

Judge Cottrell cited in her opinion the contract which specified that the house would be constructed “in accordance with good building practices.” However, after the Wilkes discovered water leakage, the inspections revealed that “that Shaw had not installed through-wall flashing and weep holes when the house was built.” The trial court concluded that:

“Separate and apart from the flashing and weep holes, the trial court concluded the Wilkeses were entitled to recover damages for the other defects they proved based on the cost of repair estimates introduced during the first and second trials, which the court adjusted for credibility reasons. Thus, the trial court recalculated the amount the Wilkeses were entitled to recover and concluded they were entitled to $17,721 for the value of repairs for defects in violation of good business practices, and an additional 15%, or $2,658.15, for management, overhead, and profit of a licensed contractor. This resulted in a judgment in the amount of $20,370.15. The trial court awarded the Wilkeses attorneys” fees through the Page 9 first trial in the amount of $5,094.78 and discretionary costs in the amount of $1,500. The total judgment following the second trial totaled $26,973.93.”

In this second appeal, Judge Cottrell concluded, that “the trial court thus did not have the authority to decide the Wilkeses were not entitled to their attorneys” fees and costs incurred in the first appeal.”

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The U.S. Tenth Circuit Court of Appeals Rules on Greystone

On November 1, 2011, the Tenth Circuit Court of Appeals ruled on the certified question of whether property damage caused by a subcontractor’s faulty workmanship is an “occurrence” for purposes of a commercial general liability (CGL) insurance policy. In Greystone Const., Inc. v. National Fire & Marine Ins. Co., No. 09-1412 (10th Cir. Nov. 1, 2011), the Tenth Circuit determined that because damage to property caused by poor workmanship is generally neither expected nor intended, it may qualify under Colorado law as an occurrence and liability coverage should apply. Id. at 2.

The short history of the Greystone case is as follows. In Greystone Const., Inc. v. National Fire & Marine Ins. Co., 649 F. Supp. 2d 1213 (D. Colo. 2009), two contractors and one of their insurers brought an action against a second insurer after the second insurer refused to fund the contractors’ defense in construction defect actions brought by separate homeowners. Id. at 1215. The U.S. District Court for the District of Colorado, relying on General Sec. Indem. Co. of Arizona v. Mountain States Mut. Cas. Co., 205 P.3d 529 (Colo. App. 2009), granted summary judgment in favor of the second insurer on the basis that the homeowners’ complaints did not allege accidents that would trigger covered occurrences under the second insurer’s policies. Id. at 1220. Notably, the Greystone, General Security, and other similar decisions prompted the Colorado General Assembly to enact C.R.S. § 13-20-808, which was designed to provide guidance for courts interpreting perceived coverage conflicts between insurance policy provisions and exclusions. The statute requires courts to construe insurance policies to favor coverage if reasonably and objectively possible. C.R.S. § 13-20-808(5).

The Tenth Circuit began its analysis by determining whether C.R.S. § 13-20-808, which defines the term “accident” for purposes of Colorado insurance law, would have a retroactive effect, and thereby settle the question before the court. The Tenth Circuit gave consideration to several Colorado district court orders issued since the enactment of C.R.S. § 13-20-808 which have suggested that the statute does not apply retroactively, including Martinez v. Mike Wells Constr., No. 09cv227 (Colo. Dist. Ct., Mar. 1, 2011), and Colo. Pool. Sys., Inv. V. Scottsdale Ins. Co., No. 09cv836 (Colo. Dist. Ct., Oct. 4, 2010). The Tenth Circuit also attempted to ascertain the General Assembly’s intent behind the term “all insurance policies currently in existence...” Greystone, No. 09-1412, at 12. The Tenth Circuit determined that the General Assembly would have more clearly stated its intentions for the term if it was supposed to apply retroactively to expired policies, rather than those still running. Id. at 12-13. Ultimately, the Tenth Circuit decided that C.R.S. § 13-20-808 did not apply retroactively, but noted that “the retrospective application of the statute is not necessarily unconstitutional.” Id. at 9, 11-14. As such, the Tenth Circuit advised that it was required to decide the question presented in the appeal under the principles of Colorado insurance law. Id. at 15.

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

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).”

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Construction Defect Case Not Over, Despite Summary Judgment

The Supreme Court of Oregon has concluded in an en banc decision that a motion to reconsider a summary judgment is not a motion for a new trial. In coming to their conclusion the court overturned an earlier Oregon Supreme Court case, Carter v. U.S. National Bank. Although the decision does not bear on construction defects, the underlying case did. Due to the decision, these claims can now be evaluated in a trial.

The case, Association of Unit Owners of Timbercrest Condominiums v. Warren, came about after an apartment complex was converted into condominium units. The developers hired Big Al’s Construction for some of the remodeling work. The condominium association later sued the developer and the contractor over claims of construction defects. The defendants filed a motion for summary judgment, which the court granted.

But that wasn’t the end of things. The plaintiff soon filed a “motion to reconsider,” noting that the summary judgment seemed to be in conflict with both law and other recent rulings, and additionally, the grounds for the decision were not in the order. The judge then notified the parties that the court had “pulled the trigger too quickly” and had seven questions for the parties to answer.

The court dismissed all claims against the defendants. The defendants filed their responses, objecting that that “‘there is no such thing’ as a motion for reconsideration.” Further, while “the rules do allow for post-judgment review of pre-judgment rulings through a motion for a new trial,” the plaintiffs had not filed for a new trial. But did they need one? They did file an appeal.

The judge in the case admitted that there was no such thing as a motion to reconsider, and felt bad about prematurely signing the judgment. The case was sent to the Court of Appeals to determine if the motion to reconsider was a request for a new trial. The Court of Appeals concurred.

In reviewing the decision, the Oregon Supreme Court concluded that there were a maximum of three questions to address. Was the motion for reconsideration a motion for a new trial? If so, was the later notice of appeal premature? And if so, was the plaintiff required to file a new appeal? The court determined that the answer to the first question was no.

Prior decisions pointed to the conclusion “that a motion for reconsideration of a summary judgment amounts to a motion for a new trial,” but here the court concluded that “our prior cases erred,” and turned to the summary judgment rule for clarification. The court noted that “the rule contemplates that summary judgment and trial are separate and distinct events.” With this conclusion, the Oregon Supreme Court remanded the case to the Court of Appeals for further proceedings.

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Nevada Court Adopts Efficient Proximate Cause Doctrine

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

California Assembly Bill Proposes an End to Ten Year Statute of Repose

California Assemblyman Furutani has introduced a bill that if passed would eliminate the ten year statute of repose in certain construction defect cases. The statute of repose would not apply when “an action in tort to recover damages for damage to real or personal property, or for personal injury or wrongful death from exposure to hazardous or toxic materials, pollution, hazardous waste, or associates environmental remediation activities,” according to the latest amended version of AB 1207.

When Furutani first introduced the bill, it was aimed at small businesses only. However, the description of the bill, which read, “An act to amend Section 14010 of the Corporations Code, relating to small businesses” has been stricken from the bill, and it has been amended to read, “An act to amend Section 337.15 of the Code of Civil Procedure, relating to civil actions.”

The change in the bill’s intent has caused some outcry among attorneys in the blogosphere. For instance, Sean Sherlock of Snell & Wilmer stated that “the proposed amendment is unnecessary, and would upset nearly 50 years of deliberative legislation and judicial precedent on construction defects liability and the 10–year statute — all apparently motivated by a decision in a single, isolated Superior Court lawsuit that has not yet been reviewed by the court of appeal.” Sherlock is referring to Acosta v. Shell Oil Company, in which the Superior Court agreed to dismiss the plaintiffs’ claims against the developer based in part on the ten year statute of repose. AB 1207 was amended five days after the ruling in Acosta v. Shell Oil Company.

California AB 1207 has been re-referred to the Judiciary Committee.

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Boston’s Tunnel Project Plagued by Water

Boston’s Tip O’Neil Tunnel, part of the “Big Dig” project, is suffering from water leaks which has lead to millions of dollars of damage, according to an article in the Boston Globe. The report quotes Frank DePaola, the highway administrator, as likening the water leaks to “three garden hoses.” The project’s chief engineer notes that those “three garden hoses” add up to 17 million gallons a year.

Further, the chief engineer reports notes that the leaks could compromise both safety and structural integrity. Problems have included a 110-pound light fixture that fell in February, ventilation ducts clogged with ice during the winter, and mold in utility rooms and ventilation buildings.

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