ANAHEIM CALIFORNIA CONSTRUCTION EXPERT WITNESS
DIRECTORY AND CAPABILITIES

Arizona Contractor Designs Water-Repellant Cabinets

Dubbing his product “Baltic Duck,” a Mesa, Arizona building contractor is offering household cabinets made with specially treated water-repellent plywood instead of the usual particle board. Pete Celano calls his product Baltic Duck because the plywood is made in the Baltic region of Eastern Europe. To further protect the cabinets from moisture, a silicone-based sealant is applied to the corners and edges.

Celano’s cabinets use standard decorative fronts. The design of the cabinets allows spilled liquids to drain away without encountering the decorative wood.

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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

Construction Defects Lead to Demolition

Ten years after it was built, demolition of Seattle’s McGuire Building has begun, as Jeanne Lang Jones reports in the Puget Sound Business Journal. Construction defects had rendered the 25-story apartment building uninhabitable. The major problem was corroded steel cabling. According to the report, “the building’s owners reached an undisclosed settlement last year with St. Louis-based contractor McCarthy Building Companies.”

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Limiting Plaintiffs’ Claims to a Cause of Action for Violation of SB-800

There has been a fair share of publicity about the SB-800 amendments to the Civil Code (Civil Code section 896, et seq.) that codified construction defect litigation in 2002. Most of the publicity is geared toward the pre-litigation standards allowing a builder the right to repair before litigation is commenced by a homeowner. Less focus and attention has been given to the fact that violation of the SB-800 performance standards is being used by plaintiff’s counsel as an additional tool in the plaintiff’s pleading tool box against builders. Closer scrutiny to SB-800 reveals that those provisions should in fact act as a limitation to the pleading tools available to plaintiffs and an additional tool for builders in the defense of cases governed by SB-800.

The typical construction defect complaint contains the boiler plate versions of numerous causes of action. These causes of action include Strict Liability, Negligence, Negligence Per Se, Breach of Contract, Breach of Contract – Third-Party Beneficiary, Breach of Express Warranties, Breach of Implied Warranties, among others. The wide array of causes of action leave a defendant “pinned to the wall” because they require a complex defense on a multitude of contract and tort related causes of action. Furthermore, the statutes of limitations as to these claims widely differ depending upon if the particular defect is considered latent or patent. The truth of the matter remains, no matter what the circumstances, if a construction defect matter ultimately goes to trial, it is inevitable that plaintiffs will obtain a judgment on at least one of these causes of action.

On its own, the Strict Liability cause of action can be a thorn in a defendant’s side. A builder is obviously placing a product into the stream of commerce and strict liability is a tough standard to defend against, particularly when it concerns intricate homes comprised of multiple components that originally sold for hundreds of thousands of dollars. A Negligence cause of action can also be difficult to defend because the duty of care for a builder is what a “reasonable” builder would have done under the circumstances. An interpretation of this duty of care can easily sway a jury that will almost always consist of sympathetic homeowners. A Negligence Per Se cause of action can also leave a defendant vulnerable to accusations that a builder violated the Uniform Building Code or a multitude of other obscure municipal construction-related code provisions during the construction of the home. Lastly, the Breach of Contract cause of action leaves a builder relying on dense and intricate purchase and sale agreements with dozens of addenda which leave the skeptical jurors turned off by what they view as one-side, boilerplate provisions. Ultimately, when a matter is about to go to trial, the complexity of these complaints can benefit a plaintiff and increase a plaintiff’s bargaining power against a defendant who is attempting to avoid a potentially large judgment.

Enter the SB-800 statutes. The SB-800 statutes apply to all homes sold after January 1, 2003. Civil Code section 938 specifically states that “[t]his title applies only to new residential units where the purchase agreements with the buyer was signed by the seller on or after January 1, 2003.” (Civil Code §, 938.) As time progresses, more residential construction defect cases will exclusively fall under the purview of SB-800. Slowly but surely more SB-800 governed litigation is being filed, and its exclusive application is looming on the horizon.

On its surface, this “right to repair” regime has left builders with a lot to be desired despite the fact that it is supposed to allow the builder the opportunity to cure any deficiencies in their product before litigation can be filed by potential plaintiffs. However, the application of the time line for repair has shown to be impractical for anything but the most minor problems involving only small numbers of residential units. Moreover, the fact that the fruits of the builder’s investigation into the claimed defects in the pre-litigation context can freely be used as evidence against it in litigation makes builders proceed with trepidation in responding with a repair. For these reasons, more SB-800 litigation can be expected to result due to the shortcomings of the pre-litigation procedures, and savvy defense counsel should anticipate the issues to be dealt with in presenting the defense of such cases at trial.

This fact should not necessarily be met with fear or disdain. Within the SB-800 statutes, the legislature made it clear that they were creating a new cause of action for construction defect claims, but it further made it clear that this cause of action is a plaintiff’s exclusive remedy. The legislature giveth, but at the same time, the legislature taketh away. Throughout numerous provisions within the SB-800 statutes, the Civil Code states that claims for construction defects as to residential construction are exclusively governed by the Civil Code, and that the Civil Code governs any and all litigation arising under breaches of these provisions. Civil Code section 896 specifically states:

In any action seeking recovery of damages arising out of, or related to deficiencies in, the residential construction … the claimant’s claims or causes of action shall be limited to violation of, the following standards, except as specifically set forth in this title. (Civil Code §, 896.)

Civil Code section 896 then provides approximately fifty-plus standards by which a construction defect claim is assessed under that provision. Civil Code section 896 covers everything from plumbing to windows, and from foundations to decks, and in several instances expressly dictates statutes of limitations as to specific areas of construction that severely truncate the 10-year latent damage limitations period. As for any construction deficiencies that are not enumerated within Civil Code section 896, Civil Code section 897 explicitly defines the intent of the standards and provides a method to assess deficiencies that are not addressed in Civil Code section 896. Civil Code section 897 states:

Intent of Standards

The standards set forth in this chapter are intended to address every function or component of a structure. To the extent that a function or component of a structure is not addressed by these standards, it shall be actionable if it causes damage. (Civil Code §, 897.)

Therefore, Civil Code section 897 acts as a catch-all by which defects that are not covered within Civil Code section 896 can be evaluated on a damage standard mirroring the Aas case (damages must be present and actual). The result of sections 896 and 897 being read in combination is a comprehensive, all-inclusive set of performance standards by which any defect raised by Plaintiffs can be evaluated and resolved under a single SB-800 based cause of action.

Civil Code section 943 makes clear that a cause of action for violation of SB-800 performance standards is a plaintiff’s sole remedy for a residential construction defect action. Specifically, Civil Code section 943 states:

Except as provided in this title, no other cause of action for a claim covered by this title or for damages recoverable under 944 is allowed. In addition to the rights under this title, this title does not apply to any action by a claimant to enforce a contract or express contractual provision, or any action for fraud, personal injury, or violation of a statute. (Civil Code §, 943.)

Civil Code section 944 provides the method for computing damages within a construction defect action, as follows:

If a claim for damages is made under this title, the homeowner is only entitled to damages for the reasonable value of repairing any violation of the standards set forth in this title, [and] the reasonable cost of repairing any damages caused by the repair efforts… . (Civil Code §, 944.)

A cursory review of these statutes yields the conclusion that the legislature was attempting to create an exclusive cause of action that trumps all other causes of action where SB-800 applies. The remedy available to plaintiffs is limited to that allowed by the Civil Code. As noted above, “[n]o other cause of action for a claim covered by this title…is allowed.” (Civil Code §, 943.) Therefore, Civil Code sections 896, 897, 943, and 944 specifically prohibit the contract-based and tort-based causes of action typically pled by plaintiffs.

Plaintiff’s counsel has seized upon the language of section 943 to advance the argument that SB-800 still allows a plaintiff to advance typical contract and tort based causes of action. On the surface, this argument may seem compelling, but a minimum of scrutiny of the express language of section 943 dispels this notion. Section 943 says that it provides rights “[i]n addition” to those under the SB-800 Civil Code provisions. Clearly, the language in section 943 is intended to expressly underscore the fact that a plaintiff is not precluded from seeking relief in addition to that allowed under SB-800 for damages not arising from a breach of the SB-800 standards or for damages in addition to those recoverable under Section 944. This language does not provide an unfettered license to bring a Strict Liability, Negligence or other cause of action against a builder where SB-800 applies.

In fact, this language only keeps the door open for plaintiffs to pursue such causes of action not arising from a breach of the SB-800 standards should there be such supporting allegations. For example, if a plaintiff alleges that a builder breached an “express contractual provision” related to the timing of the completion of the home and close of escrow, and the contract specifies damages in this regard, a plaintiff may have a viable separate cause of action for Breach of Contract for recovery of those damages precisely because that is not an issue expressly dealt with in SB-800 in the performance standards under sections 896 and 897, or in the damage recovery terms under 944. As it stands, the vast majority of complaints are seeking redress for violation of the same primary right; that is, defects specifically outlined in Section 896 and 897 or which result in damages as stated in Section 944.

So, how does a builder defend against a complaint that contains multiple causes of action regarding construction defects for a home sold after January 1, 2003? There are numerous ways to approach this. First and foremost, these superfluous and improper causes of action can be attacked by demurrer seeking dismissal of all causes of action other than the cause of action alleging violation of SB-800. If the the time period within which to file a demurrer has passed already, a motion for judgment on the pleadings can be utilized to attack the improper causes of action in the same way as a demurrer can be used for this purpose.

The limitation to a demurrer or motion for judgment on the pleadings is that the judge is restricted to viewing only the four corners of the pleading when making a ruling. It is typical for plaintiffs’ counsel to cleverly (or one might even say, disingenuously) leave the complaint purposely vague to avoid a successful defense attack on the pleadings by not including the original date the residence was sold. In that instance, a motion for summary adjudication can be used to attack a plaintiff’s complaint. By simply providing evidence that the homes were originally sold after January 1, 2003, the improper causes of action should be subject to dismissal by summary adjudication. If the plaintiff is a subsequent purchaser, the builder still has recourse to enforce the pleading limitations under SB-800. Civil Code section 945 states that “[t]he provisions, standards, rights, and obligations set forth in this title are binding upon all original purchasers and their successors-in-interest.” (Civil Code §, 945.)

Attacking a plaintiff’s complaint to eliminate multiple causes of action can have numerous benefits. The practical result is that a plaintiff will only have one viable cause of action. The advantage is that the SB-800 performance standards include the defined performance standards and shortened statutes of limitations periods with regard to specific issues. Furthermore, as to defects which are not specifically provided for in Civil Code section 896, Civil Code section 897 requires a proof of actual damages. Therefore, a plaintiff must provide evidence of current damages and not simply conditions that may potentially cause damage in the future.

The Appellate Courts have yet to directly address and interpret these SB-800 provisions. The time for that is undoubtedly drawing near. For now, however, plaintiffs will have to find ways to accurately plead construction defect claims within the confines of one cause of action for breach of the performance standards enumerated within the Civil Code.

Printed courtesy of Lorber, Greenfield & Polito, LLP. Mr. Patel can be contacted at spatel@lorberlaw.com and Mr. Verbick at tverbick@lorberlaw.com.

Architect Not Responsible for Injuries to Guests

The Texas Court of Appeals has ruled, with one dissent, that the architectural firm that designed a home was not responsible to the injuries caused to guests when a balcony collapsed. Judge David Puryear wrote the majority opinion in Black + Vernooy Architects v. Smith.

Black + Vernooy designed a vacation home for Robert and Kathy Maxfield in 2000. The Maxfields hired a general contractor to build the home. The general contractor hired a subcontractor to build a balcony; however, the subcontractor did not follow the architect’s design in building the balcony.

A year after the house was completed; the Maxfields were visited by Lou Ann Smith and Karen Gravely. The balcony collapsed under the two women. Ms. Gravely suffered a broken finger, a crushed toe, and bruises. Ms. Smith was rendered a paraplegic as a result of the fall. They sued the Maxfields, the general contractor, and the architects for negligence. The Maxfields and the general contractor settled. A jury found that the architects held 10% of the responsibility. The architects appealed the judgment of the district court.

The Appeals Court reversed this judgment, noting that “there has been no allegation that the Architects negligently designed the balcony or that the Architects actually created the defects at issue.” Further, “the Smiths allege that the defect was caused by the construction practices of the contractor and subcontractor when the balcony was not built in accordance with the design plans of the Architects.”

The court found that even though the architects had a duty “to endeavor to guard against defects and deficiencies in the construction of the home and to generally ascertain whether the home was being built in compliance with the construction plans,” this duty did not extend to third parties.

Read the court’s decision…

Construction Defect Lawsuits? There’s an App for That

The website ebeeky.com reviews Picture It Settled, an app designed to help people engaged in lawsuits figure out where settlement strategies would be most successful. First available for Android and then iOS, the app is now available for Blackberry. One user of the application wrote that “anyone who has set through a construction defect mediation can immediately grasp the value of this app.

The app tracks the negotiation process, allowing users to see a history of bids and counteroffers. It also models the negotiation process in order to predict the ultimate cost of settlement. These numbers are based on past similar negotiations that the user has entered.

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History of Defects Leads to Punitive Damages for Bankrupt Developer

The South Carolina Court of Appeals has ruled that evidence of construction defects at a developer’s other projects were admissible in a construction defect lawsuit. They issued their ruling on Magnolia North Property Owners’ Association v. Heritage Communities, Inc. on February 15, 2012.

Magnolia North is a condominium complex in South Carolina. The initial builder, Heritage Communities, had not completed construction when they filed for bankruptcy protection under Chapter 11. The remaining four buildings were completed by another contractor. The Property Owners’ Association subsequently sued Heritage Communities, Inc. (HCI) alleging defects. The POA also sued Heritage Magnolia North, and the general contractor, BuildStar.

The trial court ruled that all three entities were in fact one. On appeal, the defendants claimed that the trial court improperly amalgamated the defendants. The appeals court noted, however, that “all these corporations share officers, directors, office space, and a phone number with HCI.” Until Heritage Communities turned over control of the POA to the actual homeowners, all of the POA’s officers were officers of HCI. The appeals court concluded that “the trial court’s ruling that Appellants’ entities were amalgamated is supported by the law and the evidence.”

Heritage also claimed that the trial court should not have allowed the plaintiffs to produce evidence of construction defects at other Heritage properties. Heritage argued that the evidence was a violation of the South Carolina Rules of Evidence. The court cited a South Carolina Supreme Court case which made an exception for “facts showing the other acts were substantially similar to the event at issue.” The court noted that the defects introduced by the plaintiffs were “virtually identical across all developments.” This included identical use of the same products from project to project. Further, these were used to demonstrate that “HCI was aware of water issues in the other projects as early as 1998, before construction on Magnolia North had begun.”

The trial case ended with a directed verdict. Heritage charged that the jury should have determined whether the alleged defects existed. The appeals court noted that there was “overwhelming evidence” that Heritage failed “to meet the industry standard of care.” Heritage did not dispute the existence of the damages during the trial, they “merely contested the extent.”

Further, Heritage claimed in its appeal that the case should have been rejected due to the three-year statute of limitations. They note that the first meeting of the POA was on March 8, 2000, yet the suit was not filed until May 28, 2003, just over three years. The court noted that here the statute of limitation must be tolled, as Heritage controlled the POA until September 9, 2002. The owner-controlled POA filed suit “approximately eight months after assuming control.”

The court also applied equitable estoppel to the statute of limitations. During the time in which Heritage controlled the board, Heritage “assured the unit owners the construction defects would be repaired, and, as a result, the owners were justified in relying on those assurances.” Since “a reasonable owner could have believed that it would be counter-productive to file suit,” the court found that also prevented Heritage from invoking the statute of limitations. In the end, the appeals court concluded that the even apart from equitable tolling and equitable estoppel, the statute of limitations could not have started until the unit owners took control of the board in September, 2002.

Heritage also contested the jury’s awarding of damages, asserting that “the POA failed to establish its damages as to any of its claims.” Noting that damages are determined “with reasonable certainty or accuracy,” and that “proof with mathematical certainty of the amount of loss or damage is not required,” the appeals court found a “sufficiently reasonable basis of computation of damages to support the trial court’s submission of damages to the jury.” Heritage also claimed that the POA did not show that the damage existed at the time of the transfer of control. The court rejected this claim as well.

Finally, Heritage argued that punitive damages were improperly applied for two reasons: that “the award of punitive damages has no deterrent effect because Appellants went out of business prior to the commencement of the litigation” and that Heritages has “no ability to pay punitive damages.” The punitive damages were upheld, as the relevant earlier decision includes “defendant’s degree of culpability,” “defendants awareness or concealment,” “existence of similar past conduct,” and “likelihood of deterring the defendant or others from similar conduct.”

The appeals court rejected all of the claims made by Heritage, fully upholding the decision of the trial court.

Read the court’s decision…

Builder Cannot Receive Setoff in Construction Defect Case

The California Court of Appeals has dismissed an appeal in a San Diego construction defect case. In Smith v. Walters Group, Christopher and Maud Smith sued The Walters Group, a real estate developer, and Galen C. Pavelko, Inc, the builder of their home. Walters had bought five lots and hired Pavelko to build houses on them, selling one of these homes to the Smiths. “After moving in, the Smiths noticed a strong and obnoxious odor permeating the house.” The Smiths sued but were ordered to arbitrate instead, pursuant to a clause in the purchase contract. The Smiths were awarded $1.5 million at arbitration.

Walters requested that the arbitration remain open to determine if Walters was entitled to a setoff for settlements from defendants not involved in the arbitration. During this time, Pavelko made a settlement with the Smiths, which the court found was in good faith. At the same time, the arbitrator “reached the opposite conclusion.” The arbitrator concluded that “only settlements made ‘in good faith before verdict or judgment’ qualified for setoff.”

Walters moved that the trial court “‘correct’ the award,” but the trial court declined to do so and confirmed the award. In the appeal, Walters raised the issue of “whether Pavelko’s settlement occurred ‘before verdict or judgment.’” The appeals court dismissed the appeal, noting that “Walters would not be entitled to a $500,000 setoff if we reversed the trial court’s order determining the Smith-Pavelko settlement was made in good faith because Pavelko’s $500,000 payment was expressly conditioned on such an order.” They add that “were we to reverse the trial court’s order, Pavelko would have no obligation to pay the Smiths the $500,000.” This would then “deprive Walters of the corresponding statutory right to a setoff.”

Read the court’s decision…

Partial Settlement in DeKalb Construction Management Case

The DeKalb County School District has made a partial settlement in a lawsuit over their claims of mismanagement of construction projects. The Atlanta Journal-Constitution reports that the school board settled with E. R. Mitchell & Co., the smaller of two firms that they have sued. As part of the settlement, Mitchell will be testifying against their former partner. Claims from the other side of the lawsuit are that the school board improperly fired the Heery/Mitchell partnership. The superintendant who fired the company, Crawford Lewis, and his chief operations office, Pat Reid, have since been charged with criminal conspiracy to defraud the construction program. A lawyer for Heery said that “we believe that when presented to a jury, Heery will be vindicated.”

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Statute of Repose Dependant on When Subcontractors Finished

Scott C. Sandberg of Snell and Wilmer writes a post on the JDSupra site about the Colorado Court of Appeals decision in Shaw Construction v. United Builder Services. Sanberg notes that when the general contractor was sued by an HOA, the contractor turned around and sued its subcontractors. The contractor made three claims. They claimed that “improvement” referred to the whole project, that “substantial completion” was reached when the architect certified completion, and that the statute of repose was tolled by the HOA’s service of a Construction Defect Action Reform Act notice.

The subcontractors claimed that “improvement” only referred to their specific work, which reached “substantial completion” when they finished, despite work to be done by other later, and the HOA’s notice to the contractor did not affect the subcontractors. The Colorado court agreed with the subcontractors.

Sandberg notes that some of the contractor’s were not addressed by the court, noting that “the court did not decide whether an improvement triggering the statute of repose can be determined on a trade-by-trade basis,” and that “the court did not decide whether substantial completion occurs when a certificate of occupancy is issued or when the architect certifies completion.”

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Water District Denied New Trial in Construction Defect Claim

The United District Court in Tampa, Florida has rejected the motion by Tampa Bay Water for a new trial in their claims that HDR Engineering negligently designed the C.W. Bill Young Regional Reservoir. The claims went to a jury trial, at the end of nineteen days, the jury deliberated for four hours, finding for HDR Engineering. In rejecting Tampa Bay’s motion, the judge noted that “on close examination, TBW’s contentions have little to do with the factual determinations of the jury, which evidently concluded that TBW did not meet its burden of proof, an unsurprising conclusion, considering HDR’s evidence and the weaknesses in TBW’s evidence.”

The court cited an earlier decision that “a new trial may be granted where the jury’s ‘verdict is against the great, not merely the greater weight of the evidence.’” However, the court found that the jury’s verdict “was well supported by the evidence” and that “TBW’s case showed signs of weakness at virtually every turn.” TBW’s expert “changed his opinion late in the case concerning the culpability of the contractor.” As a result, “Brumund’s change in opinions effectively bolstered HDR’s faulty construction defense.”

TBW also raised claims a pre-trial order prevented it “from introducing evidence that HDR did not fulfill its contractual quality control responsibilities” and that evidentiary rulings prevented “TBW from introducing evidence concerning quality control.” However, TBW dismissed its claims over quality control, then “attempted no less than three times during ?Ķ testimony to introduce evidence of the purpose of the quality control requirement and quality control assurance.”

TBW also contended “that it was precluded from introducing evidence that HDR’s inspectors never reported that the protective layer exceeded three feet after inspecting the work as part of HDR’s quality control duties.” The court noted that “TBW asked these very questions of HDR’s Engineer of Record.” The court also found that testimony regarding photographs of the construction was properly excluded as TBW never entered the photos into evidence.

TBW had made an argument for a jury view. Prior the trial “after discussion, and to their credit, the parties agreed to a jointly-prepared helicopter ‘flyover’ video.” The court noted that “the size and physical characteristics of the reservoir were adequately and effectively depicted in the video.” The hazards the jury did not, then, have to encounter included the narrow, unpaved rim of the reservoir, snakes, and alligators.

Read the court’s decision…

Although Property Damage Arises From An Occurrence, Coverage Barred By Business Risk Exclusions

The homeowners hired the insured to raise the structure of their home twenty-four inches above the flood zone. Lafayette Ins. Co. v. Peerboom, 2011 U.S. Dist. LEXIS 58985 (S.D. Miss. June 2, 2011). When the insured’s crew returned from lunch one day, they found the house had fallen from hydraulic jacks being used to raise the structure a few inches at a time. There was substantial damage to the entire structure.

The homeowners sued, asserting several claims, including negligence and breach of contract. The complaint alleged the homeowners entered a contract with the insured to raise their structure while maintaining its integrity. However, the insured failed to use proper equipment, which caused the house to fall and be completely destroyed.

The insured tendered the claim to its insurer, Lafayette Insurance Company. Lafayette defended under a reservation of rights and filed suit for a declaratory judgment. Lafayette’s subsequent motion for summary judgment contended there was no “occurrence” alleged in the underlying complaint and, even if there was, the business risk exclusions barred coverage.

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

Cabinetmaker Exceeds Expectations as Conditions Improve

American Woodmark, the manufacturer of several national brands of cabinets and vanities, saw greater than anticipated earnings in its most recent quarter. Their revenue was $148.3 million, an increase of 13% over the same quarter a year prior. They saw a 40% increase in sales. As a result, their per-share earnings were 7 cents, instead of the projected loss of 3 cents per share. Forbes reports that the share price for American Woodmark has been rising in August 2012.

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Florida: No Implied Warranties for Neighborhood Improvements

A new law in Florida ends suits from homeowners associations from suing over damages from off-site improvements on the basis of implied warranties. Rob Samouch, writing for the Naples Daily News quotes House Biill 1013: “There is no cause of action in law or equity available to a purchaser of a home or to a homeowners’ association based upon the doctrine or theory of implied warranty of fitness and merchantability or habitability for damages to off-site improvements." The off-site improvements are defined as: "The street, road, driveway, sidewalk, drainage, utilities, or any other improvement or structure that is not located on or under the lot on which a new home is constructed.”

Mr. Samouch notes that “there are no statutory warrant rights in homeowner associations of fitness and merchantability or habitability like there is for condominium associations.” He predicts that the Florida legislature will have to address this issue “once new homeowners start screaming and yelling to them about their shoddy infrastructure for which they have no legal remedy.”

The bill took effect on July 1, 2012 and applies to “all cases accruing before, pending on, or filed after July 1, 2012.”

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Coverage Rejected Under Owned Property and Alienated Property Exclusions

The insured’s request for a defense when sued in a construction defect action was denied under the owned property exclusion and the alienated property exclusion in1777 Lafayette Partners v. Golden Gate Ins. Co., 2011 U.S. Dist. LEXIS 48562 (N.D. Cal. April 29, 2011).

In 1999, Lafayette Partners purchased an abandoned walnut processing factory to convert into living and working units. The property was developed into a rental property from 2000-2001, and thereafter rented. In May 2003, Lafayette Partners entered into a sales agreement with Wolff Enterprises LLC. The sale closed in February 2005. Wolff then converted the rental units into condominiums.

In December 2007, the Walnut Factory Owners Association sued Wolff for construction defects. In Lafayette Partners was added to the suit in 2009. The suit alleged a variety of defective conditions, including the roofs, exteriors, windows, electrical , plumbing, and mechanical components and systems.

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

Harsh New Time Limits on Construction Defect Claims

A recent Colorado Supreme Court decision, Smith v. Executive Custom Homes, Inc., 230 P.3d 1186 (Colo. 2010), considerably shortens the time limit for bringing many construction defect lawsuits. Homeowners and homeowner associations risk losing the right to seek reimbursement from builders, developers and other construction professionals unless they carefully and quickly act upon discovery of evidence of any potential construction defect.

The Statute of Limitations for Construction Defect Claims
Colorado’s construction defect statute of limitations limits the time for homeowners and homeowners associations to bring lawsuits for construction defects against “construction professionals,” including developers, general contractors, builders, engineers, architects, other design professionals, inspectors and subcontractors. The statute requires homeowners and associations to file suit within two years “after the claim for relief arises.” A claim for relief “arises” when a homeowner or association discovers or reasonably should have discovered the physical manifestation of a construction defect.

The two-year time limitation applies to each construction defect separately, and will begin to run upon the appearance of a “manifestation” of a construction defect (which may include, for example, a condition as simple as a roof leak or drywall cracks), even if the homeowner or association does not know the cause of the apparent problem.

The Smith Opinion and its Effect on the Statute of Limitations
In Smith v. Executive Custom Homes, Inc., the plaintiff homeowner, Mrs. Smith, slipped on ice that had accumulated on her sidewalk because of a leaking gutter and suffered injury. When she first noticed the leak, she reported it to her property manager, who reported it to the builder. The builder attempted to repair the gutter, unbeknownst to Mrs. Smith, and she did not notice further problems until approximately one year after she first observed the leak, when she fell and suffered serious injury. She sued the builder within two years of her injury, but nearly three years after she first learned of the leak.

The Colorado Supreme Court dismissed Mrs. Smith’s claims as untimely and held that under the construction defect statute of limitations, the two-year period for suing for injuries due to construction defects begins when the homeowner first observes the physical manifestation of the defect, even if the resulting injury has not yet occurred. The court acknowledged that this ruling could result in “unfair results,” especially if a serious and unforeseeable injury occurs more than two years after the first time the homeowner noticed the problem, and as a result the victim is unable to seek redress from those responsible for the defect.

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Reprinted courtesy of Scott F. Sullan, Esq., Mari K. Perczak, Esq., and Leslie A. Tuft, Esq. of Sullan², Sandgrund, Smith & Perczak, P.C., and they can be contacted through their web site.

Contractor Sues Supplier over Defective Products

Fast Track Specialties has sued RJF International after needing to remove wall protection units at Methodist West Houston Hospital, according to an article in the Houston Chronicle. Fast Track claims that contractors had to disconnect gas, water, and electric from the area to facilitate removal of corner guards, handrails, and crash guards from the hospital. This cost the contractor more than $135,000.

Fast Track is claiming that RJD International has committed breach of contract, breach of warranty, and negligent representation.

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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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