In Colorado, Repair Vendors Can Bring First-Party Bad Faith Actions For Amounts Owed From an Insurer
December 20, 2012 — Brady Iandiorio, Higgins, Hopkins, McLain & Roswell
With the aftermath of Sandy still being felt up and down the Eastern seaboard, the question of many victims turns to how they can rebuild their lives and homes. One of the first things many people do is call on their insurance carriers to help rebuild whatever damaged property they have. In a recent case here in Colorado, those rebuilding efforts got reaffirmed by a Court of Appeals case, Kyle W. Larson Enterprises, Inc., Roofing Experts, d/b/a The Roofing Experts v. Allstate Insurance Company, --- P.3d ----, 2012 WL 4459112 (Colo. App. September 27, 2012).
The facts of the case are pretty straightforward and could describe many repair vendors in numerous situations. Roofing Experts contracted with four homeowners insured by Allstate to repair their damaged roofs. The contracts provided that repair costs would be paid from insurance proceeds. The contracts also allowed Roofing Experts full authority to communicate with Allstate regarding all aspects of the insurance claims. Before work began, Roofing Experts met with adjusters from Allstate to discuss the four homes and the amount of each claim. After receiving approval for the claims, Roofing Experts began the repairs. During construction, Roofing Experts discovered additional repairs were necessary to maintain certain manufacturer’s warranties and to conform to applicable building codes.
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Reprinted courtesy of Brady Iandorio, Higgins, Hopkins, McLain & Roswell, LLC. Mr. Iandorio can be contacted at iandiorio@hhmrlaw.com
Preparing For the Worst with Smart Books & Records
November 7, 2012 — Douglas Reiser, Builders Counsel
Contractors are often too caught up in keeping the wheel of business churning to recognize deficiencies in how their records are managed. Working hard and working often tend to leave little time for consideration of your documents. But all too often I see the unthinkable, a contractor gets into trouble and has to call on its surety for help. At that point, you might finally get your first dose of reality about your records ?Äì and it can cost you.
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Reprinted courtesy of Douglas Reiser of Reiser Legal LLC. Mr. Reiser can be contacted at info@reiserlegal.com
Insurance Firm Under No Duty to Defend in Hawaii Construction Defect Case
September 13, 2012 — CDJ Staff
The US District Court for Hawaii has granted a motion for summary judgment in Evanston Insurance v. Nagano. The case is related to a construction defect claim, Hu v. Nagano, and the issue at hand is whether Evanston Insurance is obligated to defend the Naganos in the underlying case.
The Hus hired Eric Nagano and his firm PMX to construct a house. Mr. Nagano’s firm was insured by Evanston, however, he lost his contractor’s license in “approximately March 2006.” Mr. Nagano sought the Hus’ authorization to allow HC Builders to take over the contract. HC Builders is headed by Mr. Nagano’s wife, Hiroko, who has held a contractor’s license since “approximately September 2006.” Ms. Nagano and HC Builders were also insured by Evanston Insurance. The house, started by PMX was finished by HC Builders.
The Hus authorized construction to begin in July 2003, but “construction did not commence until approximately October 2004 and, even after commencement, there were numerous delays resulting in months of inactivity on the Project.” The Hus had expressed to Mr. Nagano and PMX “that the construction period could not exceed twelve months after July 1, 2003.” As a result of the delays, “the Hus’ community association fined them because of the prolonged construction and the Hus’ construction lender assessed extension fees and fines for exceeding the term of the loan.”
The Hus noted that the project did not have a licensed contractor from March through September 2006. In the end, the Hus “allege that Defendants did not fulfill the obligations under the Construction Contract,” and that “the Project was ‘grossly delayed’ and the construction was ‘riddled with defects.’” Despite an Owner’s Notice of Completion filed in December 2007, the residence “had no electricity, no hot water, ... no installed appliances” and “parts of the flooring were either missing or incomplete.” And then it leaked.
The Naganos tendered the defense to Evanston. The Naganos “allege the defense is limited because Evanston: allowed default to be entered against the Naganos (the default was later set aside); delayed retaining experts; and limited the ability of the Naganos’ retained counsel to perform necessary actions to advance the case.” Evanston argues that it “does not have a duty to defend or indemnify Defendants against the Hus’ claims,” as the Hus’ claims are not covered under the policy. Further, the PMX policies have an exclusion for breach of contract.
The court concluded that all of the claims made by the Hus were based in contract and therefore were outside of the terms of the Naganos insurance coverage, as the courts have "construed Hawaii law as not providing for insurance coverage for contract related claims." Therefore, Evanston does not have a duty to defend the Naganos.
Read the court’s decision…
Differing Rulings On Construction Defect Claims Leave Unanswered Questions For Builders, and Construction Practice Groups. Impact to CGL Carriers, General Contractors, Builders Remains Unclear
March 7, 2011 — March 7, 2011 Construction Defect Journal Staff
In the past year a number of state and federal courts have rendered a number of conflicting decisions that promise to alter or perhaps shift entirely the paradigm, of how builders manage risk.
According to a report today by Dave Lenckus in Property Casualty 360 “Nine state and federal courts and one state legislature over the past year have addressed whether a construction defect a defective product or faulty workmanship is fortuitous and therefore an occurrence under the commercial general liability insurance policy. Four jurisdictions determined it is; three said no; two ruled that a construction defect that causes consequential damage to property other than the work product is an occurrence; and one federal court contributed its conflicting case law that has developed in Oregon since its high court ruled in 2000 that a construction defect is not an occurrence”.
The article strongly suggests that in the absence of a clear consensus over what the recent rulings mean for builders and contractors coverage disputes will intensify and continue to proliferate.
Doing this on a state-by-state basis has caused a lot of confusion among buyers and sellers, said Jeffrey A. Segall, a Tampa-based senior vice president and the Florida Construction Practice leader at Willis of Florida, a unit of Willis Group Holdings.
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District Court Awards Summary Judgment to Insurance Firm in Framing Case
August 4, 2011 — CDJ Staff
In the case of Continental Western Insurance Company v. Shay Construction Inc., Judge Walker Miller has granted a summary judgment against Shay Construction and their co-defendant, Milender White Construction Company.
Shay was the framing subcontractor for Milender White on what the court described as “a major construction project in Grand County, Colorado.” Two of Shay’s subcontractors, Wood Source Inc. and Chase Lumber Company furnished materials, labor, and equipment to Shay. They subsequently sued for nonpayment and sought to enforce mechanic’s liens, naming both Shay and Milender as defendants. Milender White alleged that Shay had “breached its obligation under its subcontracts with Milender White.”
Shay’s insurance provider, Continental Western, stated that its coverage did not include “the dispute between Shay, its subcontractors, particularly the cross claims asserted by Milender White.” Shay then sued Continental Western, alleging breach of contract and statutory bad faith.
The court, however, has found with Continental Western and has granted them a summary judgment. They found “no genuine issue as to any material fact.” The judge did not side with Continental Western on their interpretation of the phrase “those sums that the insured becomes legally obligated to pay as damages.” The court found that the Colorado courts have not limited this to tort actions only. However, as Milender’s cross claim included claims of faulty workmanship on the part of Shay, Judge Miller found for Continental.
Read the court’s decision…
Construction Defect Not an Occurrence in Ohio
November 7, 2012 — CDJ Staff
The Ohio Supreme Court has concluded that claims of defective construction or workmanship are not an occurrence under a general liability policy. The court looked at appellate decisions and concluded that CGL policies are not intended to insure against risks under the control and management of the insured. These risks should instead be mitigated with performance bonds.
The question was raised in the case Westfield Ins. Co. v. Custom Agri Systems, Inc. The Sixth District Court of Ohio concluded it was an “open question under Ohio law whether a CGL policy covers defective construction claims.” Westfield filed a motion, granted by the Sixth Circuit, to certify the question to the state Supreme Court. The Sixth Court additionally found that the contractual liability exclusion barred coverage in the case, issues a summary judgment to Westfield.
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Insurance for Defective Construction Now in Third Edition
November 7, 2012 — CDJ Staff
Available both in print and online, the International Risk Management Institute, Inc has brought out a third edition of Insurance for Defective Construction. The work is written by Patrick J. Wielinski of Cokinos, Bosien & Young, a Dallas-Fort Worth law firm. Mr. Wielinski practice focuses on insurance coverage. Insurance for Defective Construction is described as “a must read for anyone who buys, sell, or underwrites construction insurance or who becomes involved in construction claims.”
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California insured’s duty to cooperate and insurer’s right to select defense counsel
April 14, 2011 — April 14, 2011 - CDCoverage.com
In Travelers Property Casualty Co. v. Centex Homes, No. C 10-02757 (N.D. Cal. April 1, 2011), general contractor Centex was sued by homeowners for construction defects. Centex tendered its defense to Travelers as an additional insured under policies issued by Travelers to two Centex subcontractors. Travelers agreed to defend Centex under a reservation of rights and selected defense counsel to defend Centex. Centex refused to accept the defense, asserting that it was entitled to select defense counsel. Travelers filed suit against Centex seeking a declaratory judgment that Centex had breached the duty to cooperate condition in the Travelers’ policy.
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Reprinted courtesy of CDCoverage.com
Plaintiffs In Construction Defect Cases to Recover For Emotional Damages?
March 16, 2011 — March 16, 2011 - Construction Defect Journal Staff
A recent post to the Markusson, Green, Jarvis Blog reports on an important appeals decision which promises to impact construction defect litigation in Colorado.
The post provides analysis on the recovery of inconvenience damages. The focus of the piece is centered on Hildebrand v. New Vista Homes II, LLC, 08CA2645, 2010 WL 4492356 (Colo. Ct. App. Nov. 10, 2010), wherein it was held that " the plain language of Construction Defect Action Reform Act permits recovery of damages for inconvenience, and that the trial court did not err by allowing inconvenience damages to go to the jury".
According to the MGJ Blog "The Hildebrand decision is important because it provides Construction Defect Plaintiffs with a foothold for collecting emotional damages. While several questions of law remain as to who or under exactly what circumstances a Plaintiff may recover these types of damages, the Hildebrand case has clearly set forth that emotional damages may be considered as part of actual damages pursuant to CDARA."
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Time to Repair Nevada’s Construction Defect Laws?
February 10, 2012 — CDJ Staff
The Builders Magazine writes that during the previous session of the Nevada legislature, reforms sought by the building industry were stopped by the Speaker of the Nevada Assembly. The new session brings a new speaker and new hope for construction defect reform in Nevada.
Pat Hickey, a member of the Assembly and a small business owner told The Builders Magazine that “we need to apply pressure on the legislators to fix the law.” He also recommended that people “go to Governor Sandoval and ask for his help.” Builders seeks legislation that will include right to repair and it should “define construction defect in such a way that it allows for a fair process.”
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Construction Company Head Pleads Guilty to Insurance and Tax Fraud
December 20, 2012 — CDJ Staff
The former head of Orients Construction Company and of Melrose Construciton Company, Herlindo Garcia-Merlos, has entered a guilty plea to charges that the gave false informoation to his insurer, New Jersey Manufacturers Insurance Group, for more than three years in order to lower his workers compensation payments. Mr. Garcia-Merlos was able to underpay by more than $315,000 as a result of this deception.
Mr. Garcia-Merlos additionally failed to file tax returns for his companies and underreported his wages on his own tax returns. The State of New Jersey is seeking an eight-year prison term and restitution of more than $400,000.
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Nevada Bill Aims to Reduce Legal Fees For Construction Defect Practitioners
March 21, 2011 — March 21, 2011 Construction Defect Journal Staff
Assemblyman Ira Hansen and twelve additional members of Nevada’s Assembly are sponsoring Assembly Bill 285. AB 285 Revises provisions governing an award of attorney’s fees in causes of action for constructional defects. Existing law generally provides that a claimant may recover reasonable attorney’s fees as part of the claimant’s damages in a cause of action for constructional defects. (NRS 40.655)
This bill removes this provision and instead authorizes a court to award reasonable attorney’s fees to a prevailing party involved in such a cause of action if an independent basis for the award exists pursuant to existing law which authorizes a court to award attorney’s fees in certain circumstances, or Rule 68 of the Nevada Rules of Civil Procedure, which provides for the payment of reasonable attorney’s fees by an offeree who rejects an offer and subsequently fails to obtain a more favorable judgment.
In an AP report published in Business Week it is suggested that the target objective of legislators centers on what it refers to as Nevada’s "Rampant construction defect lawsuits".
According to Business Week "The suits bring in hundreds of millions of dollars for lawyers and have put construction companies out of business. Hansen says fewer construction firms mean higher prices for Nevada consumers."
Click Here To Read Full Text and Revisions of Assembly Bill 285
Construction Firm Sues City and Engineers over Reservoir Project
October 28, 2011 — CDJ Staff
The city of Fremont, Ohio and Arcadis have been sued by Trucco Construction. Trucco had been hired by the city to build a reservoir designed by Arcadis, the News-Messenger reports. Peter Welin, attorney for Trucco, said that he found “startling evidence of the company’s negligence” when he deposed Arcadis engineers. “This project could never be built the way they bid it.”
Their suit alleges that Arcadis and the city were aware that the site was not conducive to construction and also that Arcadis failed to be a neutral party in discussions between Trucco and the city regarding compensation.
Sam Wamper, an attorney for Fremont, said he was going to file a motion which would include “quite an interesting story,” but declined to elaborate.
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Webinar on Insurance Disputes in Construction Defects
July 10, 2012 — CDJ Staff
Seth Lamden, of the firm Neal Gerber Eisenberg will be presenting a webinar on “Insurance Coverage Disputes in Construction Defects” on July 17, 2012 at 1 p.m. EDT. Mr. Lamden’s presentation will focus on “handling both the construction and insurance components of construction defect claims.” He will be discussing recent case law and new insurance products. The presentation will present information on evaluating various types of insurance policies, explaining common issues, contract requirement, and the economic loss doctrine. Mr. Lamden will advise attendees on how to avoid getting into a construction defect case. He will conclude his presentation with a brief question-and-answer session.
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Crane Dangles and So Do Insurance Questions
November 7, 2012 — CDJ Staff
Hurricane Sandy sent a construction crane dangling from the top of One57, a condo construction project in New York City. In response to the risk, the nearby Parker Meridian and other nearby buildings were evacuated until the crane could be stabilized. Businessweek reports that One57 involves “a tangle of companies,” including the developer, Extell Development and the contractor, Lend Lease Construction. Pinnacle Industries was responsible for providing and operating the crane.
The insurance claims are yet to be made, but they will likely include the costs of evacuating nearby buildings and to cover any damage to the building itself. David DeLaRue, a vice president in construction practice at Willis Group Holdings said there would be two questions: “Did our insured do anything to cause that loss? Does this policy cover it?”
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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 Rules Issues Were Not Covered in Construction Defect Suit
December 9, 2011 — CDJ Staff
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…
Contractor Underpaid Workers, Pocketed the Difference
February 10, 2012 — CDJ Staff
Property Casualty 360 reports that the owner of a construction company in California’s Bay Area has been arraigned in San Francisco Superior Court. The fifty-seven felony counts include charges of payroll theft and insurance fraud.
San Francisco District Attorney, George Gascon is quoted as saying that Doherty’s actions “hurts the honest businesses that were unable to successfully compete for these projects which the defendant was able to underbid and win as a result of this scheme.”
Frances Ann Doherty, owner of Doherty Painting & Construction has been charged with submitting false documentation as to what wages she paid her workers. It is alleged that over three years she pocketed $600,000. Additionally, she is charged with underpaying her insurer by more than $100,000 by submitting to them the fake payroll information.
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