ANAHEIM CALIFORNIA CONSTRUCTION EXPERT WITNESS
DIRECTORY AND CAPABILITIES

Loss Caused by Seepage of Water Not Covered

The anti-concurrent clause in a homeowner’s policy barred coverage for damage caused by hidden seepage. Boazova v. Safety Ins. Co., 2012 Mass. LEXIS 462 (Mass. May 29, 2012).

The insured had a concrete patio built along the rear wall of her house at a grade higher than the home’s foundation. Years later, severe deterioration was discovered in the floor joists, wall studs and other parts of the home. The insured held a homeowner’s policy with Safety. An inspector hired by Safety determined the deterioration was caused by the placement of the concrete patio slab adjacent to the wall of the house, allowing water to seep onto the top of the foundation.

Safety denied coverage because the damage was caused by a combination of surface water, deterioration, settling and improper construction of the concrete patio.

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

Mark Van Wonterghem To Serve as Senior Forensic Consultant in the Sacramento Offices of Bert L. Howe & Associates, Inc.

Sacramento, CA — Bert L. Howe and Associates, Inc., is pleased to announce that Mark Van Wonterghem - General Contractor, has joined the firm as Senior Forensic Consultant. Mark will be responsible for leading the firm’s expansion in the newly formed Sacramento headquarters.

His focus will continue to be working with construction practice groups and claims professionals in the Sacramento and Bay Area markets. He will utilize the resources of the Construction Experts Group at Bert L. Howe & Associates in furthering the litigation support needs attendant to the firm’s Northern California clientele.

Mr. Van Wonterghem possesses extensive consulting and testimony experience. Through 32 years of experience in the construction industry he leverages extensive practical experience with multiple trades including concrete foundations, walls and flatwork, structural wood and steel framing, finish carpentry, drywall, lath & plaster/stucco, window & door installations, deck coating systems, metal and membrane flashings and above/below grade waterproofing. This trade experience encompasses both the commercial and residential construction sectors and has been vital in his ability to provide concise explanation of construction industry standards, as well as trade-specific standards of care.

Mr. Van Wonterghem has broad experience with all types of building construction ranging from concrete and steel commercial construction to high-end custom residential construction.

In connection with the Construction Experts Group at BHA, Mr. Van Wonterghem provides construction consulting and litigation support services to a wide variety of recognized construction claims professionals, owners, and publicly traded builders.

The firm’s Sacramento offices are located at the Gateway Oaks III office complex, 2520 Venture Oaks Way, Suite 435, Sacramento, CA 95833. Mr. Van Wonterghem can be reached via e mail at mvanwonterghem@berthowe.com or at (800) 783-1822.

Homeowners Not Compelled to Arbitration in Construction Defect Lawsuit

A California appeals court has ruled that developers cannot enforce CC&Rs in a case where a developer cited an arbitration clause it had inserted into the CC&R. The homeowners are alleging construction defect and wished to sue the developer who claimed a right to this under the CC&Rs.

The Marina del Rey Argonaut reports that particular appeal dealt only with whether the developer could compel arbitration. The underlying construction defect issues will subsequently have to be determined at trial.

The attorney for the homeowners’ association, Dan Clifford, noted that “arbitration has to be agreed to by both parties.” The covenant was drafted by the developer and in addition to requiring arbitration, it had a clause that it could not be amended without the consent of the developers. The court ruled that CC&Rs “can be enforced only by the homeowners association, the owner of a condominium or both.”

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Good Signs for Housing Market in 2013

Dan Green, a loan officer at Waterstone Mortgage, is optimistic about the construction market in 2013. He notes that the rise in building permit, housing starts, and housing completions are all good signs. Mortgage rates are still low, making these new homes attractive to buyers.

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Ninety-Day Extension Denied to KB Home in Construction Defect Insurance Claim

A magistrate judge has denied a request by KB Home Nevada to extend the time for service an additional ninety days. KB claims that St. Paul Fire & Marine Insurance Company has failed to defend them in a construction defect claim. However, the judge did grant KB an additional twenty days to effectuate service, noting that the request for additional time may be renewed.

Read the court’s decision…

Exact Dates Not Needed for Construction Defect Insurance Claim

The Texas Court of Appeals reversed the decision of the trial court in Vines-Herrin Custom Homes v Great American Lloyds Insurance Company on December 21, 2011. Vines-Herrin Custom Homes built a single-family home in Plano, Texas in 1999. They obtained a commercial general liability policy from Great American, later purchasing coverage from Mid-Continent, which the decision describes as “a sister company of Great American.”

While the home was under construction, Emil G. Cerullo sought to purchase it. At the time, it was under contract to another buyer. Two months later, Vines-Herrin told Cerullo that the deal had “fell through.” Cerullo bought the house with modifications from the original plan. Upon moving in, Cerullo began having water intrusion and other problems. “Cerullo noticed water gathering on window sills and damage to the sheetrock and baseboard.” Additional problems followed, including cracks, leaks, “and in early 2002, the ceiling and roof began to sag.”

Cerullo sued Vines-Herrin, claiming negligent construction. Vines-Herrin filed a claim seeking defense and indemnification under the insurance policies. Coverage was denied and Vines-Herrin filed suit to require coverage and also bringing claims for “breach of the duty of good faith and fair dealing, breach of contract, and DTPA and insurance code violations.”

In May, 2006 Vines-Herrin stated that it had no more defense funds and went into arbitration with Cerullo. The underlying construction defect action was settled for about $2.5 million. As part of the settlement, “Cerullo became the rightful owner of all remaining claims, rights, and causes of action against” Vines-Herrin’s insurers. He then joined the coverage lawsuit.

The non-jury trial was held under the controlling law of the time which “imposed a duty to defend only if the property damage manifested or became apparent during the policy period.” The court concluded in Cerullo’s favor. During the post-judgment motions, the Texas Supreme Court rejected the manifestation rule. Under this ruling, the trial court set aside its judgment and found in favor of the insurance companies. The trial court noted that although “the Residence was covered by an uninterrupted period of insurance (which began before the Residence was constructed) and that the damages to the Residence manifested during the uninterrupted period of insurance coverage,” “Mr. Cerullo failed to allege the date when actual physical damage to the property occurred.”

The first claim by Cerullo and Vines-Herrin was that the “Final Judgment” occurred in October 2004, and that all proceedings thereafter were void. The court rejected this as the “final judgment” is not “final for the purposes of an appeal unless it actually disposes of every pending claim and party or unless it clearly and unequivocally states that it finally disposes of all claims and all parties.” Despite the use of the word “final,” the trial court’s decision did not do this.

The second issue was the application of the Texas Supreme Court case Don’s Building Supply Inc. v. OneBeacon Insurance. In this case, framing rot due to defective stucco was not discovered until after the end of the policy period. The Supreme Court noted that “the key date is when injury happens, not when someone happens on it.”

The appeals court found that the trial court misapplied the Don’s Building Supply decision. Rather than an exact date, “so long as that damage occurred within the policy period, coverage was provided.” The appeals court noted that “Cerullo alleged the house was constructed in 1999 and he purchased it in May 2000.” “By April of 2001, Cerullo noticed that the windowsills in the study were showing signs of leakage and water damage.” As the court put it, “the petitions then alleged a litany of defects.”

The court noted that coverage by Great American was in effect from November 9, 1999 to November 9, 2000. In May of 2000, the house suffered “substantial flooding from a rainstorm that caused damage.” This was during the policy period. “As a matter of law, actual damages must occur no later than when they manifest.”

The court concluded that as damage manifested during the period of coverage, so must have the damage. The court ruled that “contrary to the trial court’s determination otherwise, the evidence showed Great American’s duty to indemnify was triggered, and expert testimony establishing the exact date of injury was not required to trigger the duty.”

Read the court’s decision…

Houses Can Still Make Cents: Illinois’ Implied Warranty of Habitability

In a report published earlier this week Marisa L. Saber writes about the implied warranty of habitability in the context of construction defect litigation. The piece speaks of the difficulties in alleging tort theories against builders and vendors in light of Illinois’ expansion of the economic loss doctrine, and how the implied warranty of habitability may provide another avenue for recovery.

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Certificate of Merit to Sue Architects or Engineers Bill Proposed

North Carolina may become the twelfth state to require a Certificate of Merit to sue an architect or engineer. If North Carolina Senate Bill 435 (SB435) passes, then plaintiffs when filing a complaint will need to also attach an affidavit of a third-party licensed professional engineer or architect stating that the case has merit.

SB435 is a short two pages in its current form. The bill states that the “third-party licensed professional engineer or licensed architect shall (i) be competent to testify and hold the same professional license and practice in the same area of practice as the defendant design professional and (ii) offer testimony based upon knowledge, skill, experience, education, training, and practice. The affidavit shall specifically state for each theory of recovery for which damages are sought, the negligence, if any, or other action, error, or omission of the design professional in providing the professional service, including any error or omission in providing advice, judgment, opinion, or a similar professional skill claimed to exist and the factual basis for each such claim. The third-party licensed professional engineer or licensed architect shall be licensed in this State and actively engaged in the practice of engineering or architecture respectively.”

A few of the amendments allude to disciplining design professionals who certify civil actions that are without merit. The bill has been referred to the Committee on Judiciary I.

While North Carolina is considering enacting a Certificate of Merit law, eleven other states already require one, including Arizona, California, Colorado, Georgia, Maryland, Minnesota, New Jersey, Oregon, Pennsylvania, South Carolina, and Texas. Christopher D. Montez, a partner with Thomas, Feldman & Wilshusen, LLP, has written a useful summary for each state’s certificate of merit scheme.

Read the text of SB435

Track the progress of SB435

Read more from Christopher D. Montez’s article on Thomas, Feldman & Wilshusen, LLP site

Judge Rejects Extrapolation, Harmon Tower to Remain Standing

CityCenter has filed an emergency motion asking the Nevada Supreme Court to intervene in Judge Elizabeth Gonzalez’ order that the building’s defects cannot be extrapolated from those tested. CityCenter’s structural engineering expert “evaluated 397 of the Harmon’s critical structural elements and found all but one defective,” according to the article on Vegas.Inc. Judge Gonzalez would not permit this to be extrapolated to the untested 1,072, as the locations tested were not random.

Judge Gonzalez also ruled that if CityCenter does additional testing, they may not appeal her order that ruled the extrapolation inadmissible. CityCenter argued to the Nevada Supreme Court that “the notion that CityCenter should be forced to incur additional millions of dollars in testing costs and sanctions ?Äì on the condition that it waive its right to appeal this ruling ?Äì just to be permitted to present its own damages evidence, shocks the conscience.”

Gonzalez gave the okay to CityCenter to demolish the building, but its demolition would make any further testing impossible. Under Gonzalez’ ruling, the untested structural elements cannot b assumed to be defective.

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California Posts Nation’s Largest Gain in Construction Jobs

California added about 8,900 construction jobs in January, 2012, as compared to December, 2011, leading the nation in the number of added construction jobs. Thirty-four other states also saw added construction jobs. A year prior, only twenty-eight states added construction jobs. The Associated General Contractors of America analyzed the monthly report from the Labor Department. Ken Simonson, the chief economist for the Associated General Contractors of America noted that “the gains this January partly reflect very mild weather this winter and exceptionally cold and snowy conditions a year before.”

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Ohio subcontractor work exception to the “your work” exclusion

In Mosser Construction, Inc. v. Travelers Indem. Co., No. 09-4449 (6th Cir. July 14, 2011)(unpublished), claimant project owner Port Clinton contracted with insured general contractor Mosser for the construction of a building.  Following completion, Port Clinton sued Mosser for breach of contract seeking damages because of physical injury to the project occurring after completion resulting from defective backfill material that settled improperly.

Mosser’s CGL insurer Travelers denied a defense and Mosser filed suit against Travelers seeking a declaratory judgment. Mosser and Travelers filed cross-motions for summary judgment on the issue of whether the supplier of the backfill material?Gerken?qualified as a subcontractor for purposes of the subcontractor work exception to the “your work” exclusion—exclusion l.—for property damage to or arising out of Mosser’s completed work.   Mosser had purchased the backfill material from Gerken pursuant to a purchase order specifying that Gerken was to supply Mosser with an industry standard grade of backfill for use in the Port Clinton project.

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Reprinted courtesy of CDCoverage.com

Contractor’s Coverage For Additional Insured Established by Unilateral Contract

The contractor was covered as an additional insured under the subcontractor’s policy even though the parties had never actually signed an agreement to add the contractor to the policy. Evanston Ins. Co. v. Westchester Surplus Lines Ins. Co., 2011 U.S. App. LEXIS 20081 (9th Cir. Oct. 3, 2011).

The policies held by Bellevue Master, the general contractor, required it to be an additional insured under any subcontractor’s liability policy. Northwest Tower Crane Services was a subcontractor. Bellevue Master LLC, faxed a message that Northwest could continue to be a subcontractor on the project if it complied with Bellevue Master’s insurance requirements. Northwest contacted its insurance broker and requested an insurance certificate be issued to Bellevue Master so that it would be an additional insured under Northwest’s policy.

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

Condominium Communities Must Complete Construction Defect Repairs, Says FHA

Laura K. Sanchez of HindmanSanchez writes that the FHA “will not approve or recertify” any condominium community “where there are any pending or incomplete repairs within the community which are a result of a construction defect claim, regardless of whether the litigation has been resolved and regardless of whether there are funds in the bank paid by the developer to pay for the repairs.” The FHA notes that failure to complete or fund repairs could “put FHA insured loans at risk.” Communities must disclose all maintenance and repair issues to the FHA. Sanchez notes that the FHA has stated that incomplete repairs could put FHA-insured loans at risk.

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Insurer Has Duty to Defend Despite Construction Defects

In a case the judge attributed to “shoddy masonry work,” the US District Court of Illinois has rendered a decision in AMCO Insurance Company v. Northern Heritage Builders. Northern Heritage built a home in Chicago for Michael McGrath (who joined Northern Heritage as a defendant). According to the decision, “seven months after he moved into the house, McGrath noticed water coming in the house and warped millwork.” This was attributed to porous block, installed by the mason with Northern Heritage’s knowledge.

McGrath sued National Heritage for both the damage to his house and its contents. The court rejected his claim for the contents. For the damages to his house, he was awarded $601,570.50 in damages. He also sued his homeowner’s insurance carrier for damages not covered in his suit against National Heritage. There he was awarded $1,130,680.16.

AMCO informed National Heritage that it had neither duty to defend nor duty to indemnify. The judge considered whether AMCO had a duty to defend. Under Illinois law, “damage to a construction project resulting from construction defects is not an ‘accident’ or ‘occurrence’ because it represents the natural and ordinary consequence of faulty construction.” However, it is noted that while if the defects lead only to damage to the project itself, there is no occurrence, “if the building owner asserts damages to other property besides the construction itself, there is an ‘occurrence’ and ‘property damage.’” The judge further noted that were construction defects an occurrence, “shoddy work” would be rewarded by double pay, once by the homeowner and a second time by the insurer. Judge Kendall concluded that as McGrath had alleged damage to the contents of his house, AMCO had a duty to defend National Heritage.

She then looked at the issue of whether AMCO had a duty to indemnify. Should they pay the $601,570.50? Judge Kendall noted that “the duty to indemnify is narrower than the duty to defend.” The key point here was that once McGrath’s insurance carrier covered him for the damage to the contents of his house, “AMCO’s duty to defend ended.” Once McGrath “only sought damages for the natural consequences of faulty workmanship” there was no occurrence, hence nothing for AMCO to cover.

Judge Kendall granted a summary dismissal of AMCO’s claim that they had no duty to defend while upholding their claim that they had no duty to indemnify.

Read the court’s decision…

Construction Defect Claim Did Not Harm Homeowner, Court Rules

The Minnesota Court of Appeals has ruled in Creswell v. Estate of Howe, a case in which a woman bought a home and then sued the seller’s estate, both sets of real estate agents, and the homeowner’s association over construction defects. A district court ruled against her, granting summary judgment to the other parties.

After buying a townhome “as is,” Catherine Creswell claims to have shared a thought with her agent that the homeowners association was, in the words of her agent, “trying to hide something.” Later, Creswell found that a few days before her closing, the board had discussed problems with “roofs, siding and soundproofing of the townhomes.” The court noted that “it was clear from the documents that appellant [Creswell] received that the association had known about various construction defects for many years, some of which affected [her] unit.”

Creswell initially sued the estate, the man who negotiated the sale for his mother’s estate, the real estate companies and the agents involved, the homeowners association, and four board members. Later she sued for punitive damages, dropped a claim for interference with contractual relations, and dismissed her claims against the individual board members. The court dismissed all of Creswell’s claims awarding costs to those she sued.

The appeals court has affirmed the decision of lower court, noting that Creswell “did not provide us with any argument why the district court erred in dismissing her unjust-enrichment, breach of contract, or rescission claims against the various respondents.” Nor did she provide evidence to support her claims of “breach of duty, fraud, and violation of consumer protection statutes.”

The court noted that Creswell could not sue the homeowners association over the construction defects because she “failed to prove that she was damaged by the association’s nondisclosure.” The court noted that “there are no damages in this case,” as Creswell “was never assessed for any repairs, she had not paid anything out-of-pocket for repairs, and she has presented no evidence that the value of her individual unit has declined because of the alleged undisclosed construction defects.”

The court granted the other parties motion to dismiss and denied Creswell’s motion to supplement the record. Costs were awarded to the respondents.

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Colorado Court of Appeals holds that insurance companies owe duty of prompt and effective communication to claimants and repair subcontractors

In Dunn v. American Family Insurance, 09CA2173, 2010 WL 4791948 (Colo. App. Nov. 24, 2010), the Dunns reported a claim to American Family on their homeowners insurance policy after sewer and water backup caused sewage to flood their basement. American Family gave the Dunns contact information for a contractor (ICA) to remediate the flooding. However, ICA was unsuccessful and sewage began to infiltrate the Dunns’ HVAC system. Subsequently, black mold was detected in the HVAC system, the Dunns suffered health and respiratory problems, and they soon after vacated the home. The Dunns hired and fired two more contractors for unsatisfactory work throughout the winter before hiring a fourth to finish the job. Because the home remained vacant and unheated throughout the winter, the water pipes ruptured. The mold spread throughout the entire home and all of the contents needed to be replaced, which amounted to a claim of $340,000 on the policy.

American Family agreed to pay the full $340,000. However, the Dunns brought suit claiming that American Family breached the implied duty of good faith and fair dealing by: 1) failing to screen ICA for expertise; 2) failing to screen ICA for liability insurance coverage; 3) failing to monitor ICA’s work; 4) failing to advise them that flooding can cause further damage, including freezing pipes and mold; and, 5) failing to adequately and promptly communicate with them and remediation subcontractors in the course of investigating and handling their claim.The trial court found no duty owed by American Family beyond adjustment and timely payment of claims. Because American Family paid timely and in full, they dismissed all of the Dunns’ claims. However, the Court of Appeals reversed in part.

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

Claims Under Colorado Defect Action Reform Act Count as Suits

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…

Construction Defect Lawsuit Stayed by SB800

The California Court of Appeals has reversed the decision of the lower court and has stayed, instead of dismissed, a claim of construction defects. A group of Victorville homeowners sued their homebuilder, K. Hovnanian Communities on a claim of construction defects. Hovnanian argued that under the procedures set forth in SB800, the suit should be dismissed, and that the claims should undergo arbitration. The trial agreed, dismissing the claims of 82 plaintiffs under a first motion, and then granted a second motion to dismiss, which affected a further 21 plaintiffs. The homeowners appealed.

The Court noted that “the parties disagree about the standard of review,” with the Court determining that as the facts were not in dispute, they would use “an independent standard of review.”

Reviewing the relevant statues, the Court concluded that the terms of the limited warranty set out the pre-litigation procedure, noting that “plaintiffs admit they did not comply with the limited warranty because they challenge its validity and enforceability.” The Court concluded that “plaintiffs’ action was premature.”

The Court further noted that “a civil action will not be filed until after the contractual procedures have been followed.” Until these procedures have been followed, the Court said that they “decline to resolve issues about validity and enforceability.” However, as these issues could arise after the limited warranty procedures, the court stayed, rather than dismissed the claims.

Read the court’s decision…