Ohio Court Finds No Coverage for Construction Defect Claims
March 1, 2012 — Tred Eyerly, Insurance Law Hawaii
Charles and Valerie Myers hired Perry Miller to build their home. Myers v. United Ohio Ins. Co., 2012 Ohio App. LEXIS 287 (Ohio Ct. App. Jan. 26, 2012). After completion of the home, Miller was again hired to construct an addition which included a full basement, staircases, bathroom, bedroom, hallway and garage.
After the addition was completed, one of the basement walls began to crack and bow. Miller began to make repairs, but eventually stopped working on the project. Other contractors were hired to make repairs, but further problems developed. A second basement wall began to bow and crack, allowing water into the basement. The wall eventually had to be replaced. Subsequently, the roof over the addition began to leak in five or six places before the drywall could be painted. The leaks caused water stains on the drywall and cause it to separate and tear. It was discovered the roof needed to be replaced.
The Myers sued Miller and his insurer, United Ohio Insurance Company. The trial court ruled that the policy did not provide coverage for faulty workmanship, but did provide coverage for consequential damages caused by repeated exposure to the elements. United Ohio conceded liability in the amount of $2,000 to repair water damage to the drywall. United Ohio was also found liable for $51,576, which included $31,000 to repair the roof and ceiling and $18,576 to replace the basement wall.
Read the full story…
Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
Court Strikes Down Reasonable Construction Defect Settlement
December 20, 2012 — CDJ Staff
The Court of Appeals of Washington has struck down a construction defect settlement between a building owner and the companies she hired to repair the siding, among other repairs to bring the building up to code. Yuan Zhang hired Hawk Construction LLC to do repair work. Hawk, in turn, hired Ready Construction LLC for some aspects of the project. Hawk and Ready were both insured by Capital Specialty Insurance Corporation.
There were several problems with Ready’s work. After removing old siding, they did not protect the building, nor did they remove all of the damaged layers. Ready covered, but did not fix, a mildew problem under the old siding. When new siding was reattached, the nails used were too short to adequately attach it.
After paying for an inspection of the work, Zhang had Hawk and Ready begin the repairs again, but the work was abandoned without being completed. Zhang sued Hawk for breach of contract. Hawk then sued Ready, claiming that “Ready was liable to Hawk to the extent that Hawk was liable to Zhang.” Capitol retained defense for both contractors.
Zhang settled with Hawk, in an agreement that gave her “the right to collect and/or pursue all costs and attorney fees paid by Hawk or its insurance company defending against the Zhang’s claims and pursuing claims against Ready.” Subsequently, she also settled with Ready. Both companies ceased operations.
Zhang had the settlements reviewed by a court, which concluded that the settlements were reasonable. Capital was allowed to appeal, claiming that the settlement included costs that were Zhang’s responsibility. The appeals court did not examine the question of the reasonableness of the settlement, concluding that Capitol’s interests were relevant only to “questions of bad faith, collusion, and fraud.”
In the case of Zhang, the court concluded that the relationship between Zhang and her former contractors was collusive. The court noted that “bad faith or collusion may exist when the evidence indicates a joint effort to create, in a non-adversarial atmosphere, a resolution beneficial to both parties, yet highly prejudicial to the insurer as intervener.” The court noted that both companies had minimal assets which were, in any case, exempted from the agreement. Further, the court found that the agreements failed to determine “what amount of the repairs related to preexisting water damage.” Zhang’s calculation of costs also included her expenses for architectural and engineering services, which the court points out, “where always Zhang’s costs to bear.”
The court concluded that “the overall structure of the settlements is highly probative of collusion, fraud, or bad faith.” Zhang’s agreements with Hawk and Ready allowed her to collect compensation from Hawk and then collect Ready’s compensation to Hawk for their portion of the settlement, allowing Zhang to collect the monies twice. Further, she was allowed to pursue Capitol for Hawk’s attorney expenses, even though Hawk had none. “The right to recover Hawk’s fees merely set up a windfall recovery for Zhang.” The court described the agreements among Zhang, Hawk, and Ready as “precisely the type of manipulation [the law] is intended to preclude.”
Read the court’s decision…
Counterpoint: Washington Supreme Court to Rule on Resulting Losses in Insurance Disputes
September 1, 2011 — Douglas Reiser, Builders Counsel
This is the fourth installment of posts on Vision One v. Philadelphia Indemnity, a Washington Supreme Court case touching on Washington construction and insurance law. After Williams v. Athletic Field got so much coverage, I wished that I had provided a forum for argument on Builders Counsel. While we await that opinion from the Supreme Court, I decided to let a few good writers have at Vision One here on the blog. Last week, attorney Chris Carr weighed in. Today, insurance expert David Thayer returns to give his final impression. David provided an initial peak at the case earlier this year. Thanks to both Chris and David for contributing to the debate.
In August 2011 the Washington Supreme Court will rule on a pair of joined cases that involve critical insurance coverage issues. The outcome of the ruling will impact a large swath of policyholders in Washington State including builders, developers, and homeowners to name a few.
The cases are Vision One vs. Philadelphia Indemnity Insurance and Sprague vs. Safeco. The Vision one case comes from Division Two of the Appellate Court which overturned a lower court decision in favor the plaintiff, Vision One. Division Two decided that the collapse of a concrete pour during the course of construction did not constitute a resulting loss due to faulty workmanship. They further went on to redefine efficient proximate cause in a way that is harmful to policyholders by broadening rather than narrowing the meaning of exclusionary language in Philadelphia’s Builders Risk Policy.
Read the full story…
Reprinted courtesy of Douglas Reiser of Reiser Legal LLC. Mr. Reiser can be contacted at info@reiserlegal.com
Insurer Not Liable for Construction Defect Revealed by Woodpecker
September 13, 2012 — CDJ Staff
The Eighth Circuit Court of Appeals has ruled that an insurance provision that excluded construction defects must stand in Friedberg v. Chubb, granting a summary judgment to the insurance firm.
The Friedbergs discovered extensive water damage to their home after a woodpecker drilled a hole in a vertical support. They sought insurance coverage under their Chubb “Masterpiece” policy. The decision quotes the policy as covering “all risk of physical loss” “unless stated otherwise or an exclusion applies.” These exclusions included “gradual or sudden loss,” “structural movement,” and “faulty planning, construction or maintenance,” but the policy covered “ensuing covered loss unless another exclusion applies.”
Chubb’s expert determined that the Friedbergs’ home had defective construction, and “attributed the damage to the beams and walls below the beam to a failure to install control joints.” After Chubb denied coverage, the Friedbergs sued, although the court ruled that “even under the Friedbergs’ theory, the water damage was a loss caused by faulty construction and therefore excluded under the policy.”
On appeal, the Friedbergs argued that “the loss resulted from the combination of both faulty construction and the presence of water” and that Minnesota’s “concurrent causation” doctrine must apply, which according to the decision, “when a loss results from both a covered peril and an excluded peril, coverage exists unless the excluded peril is the ‘overriding cause’ of the loss.” The court rejected this reasoning, noting that “once the house was plagued with faulty construction, it was a foreseeable and natural consequence that water would enter.”
The Friedbergs also contended that “the damage caused by the intrusion of water into their home is an ‘ensuing covered loss’ for which they are due coverage.” The court also rejected this claim, noting that Minnesota law excludes defective construction from the ensuing loss provision. The court said that “the Friedbergs’ reading of their ensuing-loss clause, by contrast, would dramatically limit their policy’s faulty-construction exclusion, because almost ‘any loss cause by’ faulty construction could also be characterized as an ensuing loss under an all-risk policy.”
Read the court’ decision…
Construction Law Client Alert: California Is One Step Closer to Prohibiting Type I Indemnity Agreements In Private Commercial Projects
June 15, 2011 — Haight Brown & Bonesteel, LLP
On June 1, 2011 by majority vote, the California Senate passed Senate Bill 474, which would amend Civil Code section 2782, and add Civil Code section 2782.05. The passage of this new law is a critical development for real estate developers, general contractors and subcontractors because it will affect how these projects are insured and how disputes are resolved.
Civil Code section 2782 was amended in 2007 to prohibit Type I indemnity agreements for residential projects only. Since 2007, various trade associations and labor unions have lobbied to expand those very same restrictions to other projects. These new provisions apply to contracts, entered into after January 1, 2013, that are not for residential projects, and that are not executed by a public entity. The revisions provide that any provision in a contract purporting to indemnify, hold harmless, and defend another for their negligence or other fault is against public policy and void. These provisions cannot be waived.
A provision in a contract requiring additional insured coverage is also void and unenforceable to the extent it would be prohibited under the new law. Moreover, the new law does not apply to wrap-up insurance policies or programs, or a cause of action for breach of contract or warranty that exists independently of the indemnity obligation.
The practical impact of this new law is that greater participation in wrap-up insurance programs will likely result. While many wrap-up programs suffer from problems such as insufficient limits, and disputes about funding the self-insured retention, the incentive for the developer or general contractor to utilize wrap-up insurance will be greater than ever before because they will no longer be able to spread the risk of the litigation to the trades and the trade carriers.
Read the full story…
Reprinted courtesy of Steve Cvitanovic of Haight Brown & Bonesteel, LLP.
Georgia Supreme Court Rules Construction Defects Can Constitute an Occurrence in CGL Policies
April 5, 2011 — April 5, 2011 Beverley BevenFlorez - Construction Defect Journal
Recently, the Supreme Court of Georgia reversed the decision in American Empire Surplus Lines Insurance Company v Hathaway Development Company, Inc. stating that because Whisnant’s faulty workmanship caused damage to the surrounding properties, the construction defects constituted “occurrences” under the Commercial General Liability (CGL) policy. Unlike the South Carolina Supreme court ruling in the case of Crossman Communities v Harleysville Mutual, the Georgia Supreme Court stated that an accident can happen intentionally if the effect is not the intended result.
Interestingly, the only dissenting judge, J. Melton, disagreed with his colleagues on the basis that “although the term ‘accident’ is not specifically defined in the policy, it is axiomatic that an ‘accident’ cannot result from ‘intentional’ behavior.” It is clear that what constitutes an occurrence in CGL policies is still being hotly debated.
Read the full story...
Plans Go High Tech
April 25, 2012 — CDJ Staff
One construction executive described it as “the wave of the future.” What is it? Accessing building plans on an iPad. According to an article in MacWorld, several companies are now offering solutions to distribute and update construction plans on iPads. Changes to plans and notes can be distributed quickly through cloud computing.
Alan Dillon, a senior superintendent at DPR Construction told MacWorld, “I can take my iPad into the field and have my whole set of drawings.” He described a set of drawings for a large construction project as “five or six inches thick.” Danielle Douthet, of Level 10 Construction said it “can help everyone be on the same page more quickly, and make sure that everybody is working off the most current set of documents.”
And it’s not just building plans. Other firms offer building management applications designed to be taken into the field on mobile devices.
Read the full story…
Architectural Firm Disputes Claim of Fault
May 27, 2011 — CDJ Staff
Lake-Flato Architects has disputed the arbitration panel’s conclusion that problems with the home of Tom Hanks and Rita Wilson were due to design flaws. The firm settled with the couple for $900,000, however the Idaho Mountain Express reports that David Lake said, “the settlement in the case in no way represents that Lake Flato was responsible for faulty design.” The Express reported that “the arbitrators found that problems at the home were attributable to design errors that did not take into account the cold winter climate of the Sun Valley area.”
Read the full story…
El Paso Increases Surety Bond Requirement on Contractors
April 25, 2011 — April 25, 2011 Beverley BevenFlorez - Construction Defect Journal
The city of El Paso has recently increased surety bonds required of contractors from $10,000 to $50,000, according to the El Paso Times. Proponents of the increase believe it was necessary to protect homeowners from fly-by-night builders, while opponents argue that the increase will have an adverse effect on an industry in that is already suffering due to the economic slowdown.
Arguments for and against the increase have been flooding the blogosphere with their views. Christian Dorobantescu on the Small Business Entrepreneur Blog claims that “only about 15% of the city’s 2,500 contractors had been able to secure a higher bond to remain eligible for work after the new requirements were announced.” However, insurance companies have a different take. “From a surety broker standpoint, most contractors will be able qualify for the bond; some will just have to pay higher premium rates to obtain it,” a recent post on the Surety1 blog argues.
While the increased bond may help homeowners deal with construction defect claims, it is not clear what effect it will have on builders in El Paso.
Read more from the El Paso Times…
Read more from the Small Business Entrepreneur Blog…
Read more from the Surety1 Blog…
Boston’s Tunnel Project Plagued by Water
August 11, 2011 — CDJ Staff
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.
Read the full story…
Georgia Law: “An Occurrence Can Arise Where Faulty Workmanship Causes Unforeseen or Unexpected Damage to Other Property”
March 5, 2011 — By
CDCoverage.com, March 5, 2011
In American Empire Surplus Lines Ins. Co. v. Hathaway Development Co., Inc., No. S10G0521 (Ga. March 7, 2011), insured plumbing subcontractor Whisnant was sued by general contractor Hathaway seeking damages for costs incurred by Hathaway in repairing damage to property other than Whisnant’s plumbing work resulting from Whisnant’s negligently performed plumbing work on three separate projects. On one project, Whisnant installed a pipe smaller
Read the full story... Reprinted courtesy of CDCoverage.com
Homebuilding Still on the Rise
December 20, 2012 — CDJ Staff
The National Association of Home Builders reports that spending on private homes was up three percent in October 2012, bringing it to a four-year high. This was part of a trend in which fourteen of the last fifteen months have seen increases in spending on residential construction. Likewise, multifamily residences have seen thirteen months of increased spending, putting it 82% higher than its low, two years ago. ¬?In addition to new homes, remodeling is also up, reaching its highest point in five years.
Read the full story…
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.
Read the full story…
Reprinted courtesy of CDCoverage.com
Legislatures Shouldn’t Try to Do the Courts’ Job
March 1, 2012 — CDJ Staff
David Thamann, writing in Property Casualty 360, argues that current actions by legislatures on insurance coverage amount to “legislative interference or overreach.” He notes that under current Colorado law, “a court shall presume that the work of a construction professional that results in property damage — including damage to the work itself or other work — is an accident unless the property damage is intended and expected by the insured.” He argues that here legislators are stepping into the role of the courts. “Insureds and insurers are not always going to be pleased with a court ruling, but that is the system we have.”
Read the full story…
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.
Read the full story…
Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
Ohio Casualty’s and Beazer’s Motions were Granted in Part, and Denied in Part
May 10, 2012 — CDJ Staff
The case Trinity Homes LLC and Beazer Homes Investments LLC has reached the summary judgment stage. The remaining plaintiffs are Trinity Homes LLC (Trinity) and Beazer Homes Investments LLC (Beazer), and the only defendant remaining is Ohio Casualty Insurance Company (Ohio Casualty). “Ohio Casualty has filed a motion for summary judgment (Dkt. #409) on all claims against it, and Trinity and Beazer have filed a cross-motion seeking partial summary judgment (Dkt. #431) in their favor.” Ohio Casualty’s Motion for Summary Judgment was granted in part and denied in part, and Beazer’s motion was granted in part and denied in part.
The court’s ruling presented a bit of background on the companies involved in the litigation: “Trinity is an Indiana limited liability company with its principal place of business in Indiana and is one of several construction related companies owned by Beazer, which is a limited liability company incorporated under the laws of Delaware having its principal place of business in Atlanta, Georgia. Beazer’s predecessor, Beazer Homes Investment Corporation, acquired the stock of Crossman Communities, Inc. in 2002. Crossman and its subsidiary owned all interests in Trinity. Beazer and Trinity are in the business of residential real estate development and construction.”
Furthermore, “Ohio Casualty’s home office is in Ohio, where it is incorporated. It sells insurance policies to commercial entities such as Plaintiffs. It purchased a book of business from Great American Insurance Company, a subsidiary of which had sold commercial general liability policies (‘CGL’) and umbrella liability policies to Trinity, covering the period of time between May 1, 1994 through May 1, 1999. For ease of reference, we will refer to these policies as the Ohio Casualty policies. Trinity sold and acted as a general contractor for the construction of new homes in Central Indiana throughout the period of time in which the Ohio Casualty policies were in place.”
The court disagreed with almost every argument put forth by Ohio Casualty. However, they did concede “that Ohio Casualty is obligated to indemnify Trinity only for damages arising during its policy periods for pro rata liability as opposed to several and indivisible, by reason of its having limited its indemnity obligation to ‘those sums’ that Trinity becomes liable to pay for property damage which ‘occurs during the policy period.’”
Finally, the court ruled that “Ohio Casualty Company’s Motion For Summary Judgment (Dkt. #409) is GRANTED IN PART, that is, to the extent that Beazer is not an insured under the Ohio Casualty insurance policies, but the motion is DENIED in all other respects.”
The court further ruled that “Trinity and Beazer’s Motion For Partial Summary Judgment (Dkt. #431) is GRANTED IN PART, that is: (1) Trinity is an insured under the Ohio Casualty CGL and umbrella policies in effect for the time period from May 1, 1994 to May 1, 1999; (2) the claims at issue in the Underlying Lawsuits are "property damage" claims resulting from an "occurrence" and are therefore within the policy coverage provided under the Ohio Casualty Policy; and (3) none of the exclusions in the Ohio Casualty Policy bars coverage. Trinity and Beazer’s Motion is DENIED in all other respects. Moreover, material questions of fact remain with respect to whether payments made to the 54 homeowners, who were part of the putative class in the underlying Colon class action but were not included in the certified settlement class, were voluntary payments and as such do not qualify for indemnification. Material questions of fact also preclude a summary ruling on the issue of whether Ohio Casualty is estopped from raising their voluntary nature as a defense to indemnity.”
Read the court’s decision…
Certificate of Merit to Sue Architects or Engineers Bill Proposed
May 3, 2011 — May 3, 2011 Beverley BevenFlorez - Construction Defect Journal
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
No Resulting Loss From Deck Collapsing Due to Rot
July 10, 2012 — Tred Eyerly, Insurance Law Hawwaii
The Washington Supreme Court reversed the Court of Appeals’ decision that the ensuing loss provision provided coverage for a deck that collapsed due to rot and decay. Sprague v. Safeco Ins. Co. of Am., 2012 Wash. LEXIS 375 (Wash. May 17, 2012). Our prior post on the Court of Appeals’ decision is here.
The Sprague’s home had a deck supported by six "fin walls." The fin walls were encased in a foam and stucco coating. Twenty years after they purchased the home, it was discovered that the fin walls were in an advanced state of decay. Engineers discovered that construction defects caused the supports to rot. The deck was in danger of imminent collapse.
Safeco denied coverage. The all-risk policy did not exclude collapse, but did exclude coverage for losses causes by mold, wet or dry rot.
Read the full story…
Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
