Faulty Workmanship Causing Damage to Other Property Covered as Construction Defect
September 30, 2011 — Tred Eyerley, Insurance Law Hawaii
In yet another recent construction defect case, the Illinois Court of Appeal found for coverage. See Milwaukee Mut. Ins. Co. v. J.P. Larsen, Inc., 2011 Ill. App. Ct. LEXIS 872 (Ill. Ct. App. Aug. 15, 2011).
Weather-Tite, Inc. hired Larson as a subcontractor to apply sealant to windows installed by Weather-Tite in a condominium building. The windows subsequently leaked and caused water damage. The homeowner’s association sued Weather-Tite for breach of express and implied warranties. Weather-Tite filed a third-party complaint against Larsen alleging that, if it was liable to the association for breach of warranty, Larsen was liable for contribution as a joint tortfeasor. Weather-Tite and Larsen both tendered defenses to Milwaukee Insurance. The tenders were denied and Milwaukee Insurance filed suit to determine rights under the policy.
Cross-motions for summary judgment were filed by all parties. The trial court granted Milwaukee Insurance’s summary judgment motion as to Weather-Tite, but granted Larsen’s cross-motion against Milwaukee Insurance.
On appeal, the appellate court considered whether the underlying pleadings alleged facts demonstrating "property damage" resulting from an "occurrence" within the terms of the policy.
Read the full story…
Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
New Construction Laws, New Forms in California
July 10, 2012 — CDJ Staff
New construction laws came into effect in California on July 1. Writing for the Martindale-Hubble Legal Library, Glenn Mau, J. Michael McGuire, and John Tonsing, all of Archer Norris, discuss these changes. They note that the most important part of the changes to California construction law is that “all mechanics liens, stop notices and bond claims recorded after July 1, 2012 must use the new standardized forms and follow the new definitions, notice prerequisites and statutory release form language.”
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Mississippi exclusions j(5) and j(6) “that particular part”
June 7, 2011 — CDCoverage.com
In Lafayete Ins. Co. v. Peerboom, No. 3:10cv336 (S.D. Miss. June 2, 2011), claimant homeowner Peerboom hired insured contractor Absolute to raise Peerboom’s house two feet to avoid future flooding. While Absolute was raising the house, it fell, resulting in physical injury to the home. Peerboom sued Absolute for negligence, breach of contract, and fraud, seeking damages for the destruction of the home. Absolute’s CGL insurer Lafayette defended under a reservation of rights and filed a declaratory judgment action.
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Reprinted courtesy of CDCoverage.com
Florida Appeals Court Rules in Favor of Homeowners Unaware of Construction Defects and Lack of Permits
December 9, 2011 — CDJ Staff
The Florida Court of Appeals has ruled that a homeowner is not liable for defects in unpermitted alterations, reversing a lower court’s decision in Jensen v. Bailey. The Jensens sold their house to the Baileys. During the sale, the Jensens filled out a property disclosure statement, checking “no” to a question about “any improvement or additions to the property, whether by your or by others that have been constructed in violation of building codes or without necessary permits.”
After moving in, the Baileys discovered several problems with the home. One involved a defective sewer connection leading to repeated backups. The Baileys also found problems with remodeling the Jensens had done in the kitchen, master bath, and bedroom. The remodeling work was not done with required permits nor was it up to code.
The court noted that an earlier case, Johnson v. Davis, established four criteria: “the seller of a home must have knowledge of a defect in the property; the defect must materially affect the value of the property; the defect must not be readily observable and must be unknown to the buyer; and the buyer must establish that the seller failed to disclose the defect to the buyer.” The court found that the first of these criteria was crucial to determining the case.
In the Johnson ruling, the then Chief Justice dissented, fearing that the courts “would ultimately construe Johnson’s requirement of actual knowledge to permit a finding of liability based on constructive knowledge,” quoting Justice Boyd, “a rule of constructive knowledge will develop based on the reasoning that if the seller did not know of the defect, he should have known about it before attempting to sell the property.” The Appeals Court concluded that the lower court hit this point in ruling on Jensen v. Bailey.
Citing other Florida cases, the court noted that the Johnson rule does require “proof of the seller’s actual knowledge of the defect.” The court cited a case in which it was concluded that the seller “should have known” that there was circumstantial evidence was that the seller did know about the defects, as the seller had been involved in the construction of the home.
In the case of the Jensens, the lower court concluded that they did not know that the work was defective, nor did they know that they were obligated to obtain permits for it. The Appeals Court found this one fact sufficient to reverse the decision and remand the case to the lower court for a final judgment in favor of the Jensens.
Read the court’s decision…
Tucson Officials to Discuss Construction Defect Claim
July 10, 2012 — CDJ Staff
The mayor of Tucson, Arizona and the city council scheduled a meeting on June 26, 2012 in order to consult with the city’s attorneys concerning possible construction defect litigation involving the Martin Luther King, Jr. apartment building in that city. The memorandum was authored by Richard Miranda, the Tucson city manager.
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Building Boom Leads to Construction Defect Cases
August 2, 2012 — CDJ Staff
Professor Evan McKenzie of the University of Illinois at Chicago says that rise of construction defect litigation in the Las Vegas area followed the same pattern it did in other places, according to an article in the Las Vegas Review Journal. “Step one,” according to Professor McKenzie, “there was this enormous growth in construction. Then these attorneys began to swarm in from all over, especially Southern California.” McKenzie noted that during a building boom, construction “outpaces the ability of building inspectors to do their job.”
But, despite his contention that “rapid growth in housing stock” leads to “shoddy construction,” another problem of growth was that “eventually there were too many lawyers chasing too many condominium complexes and subdivisions.” What came next was that “attorneys start coming up with cases that really aren’t good cases.” It’s in the interest of these attorneys that HOA boards sue.
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Arizona Contractor Designs Water-Repellant Cabinets
September 9, 2011 — CDJ Staff
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.
Read the full story…
Appeals Court Upholds Decision by Referee in Trial Court for Antagan v Shea Homes
May 10, 2012 — CDJ Staff
In the case Antangan v. Shea Homes Ltd. Partnership (Cal. App., 2012), Plaintiffs appealed “an order vacating a judgment and entering a modified judgment in their construction defect action against defendants Shea Homes, Inc. and Shea Homes Limited Partnership,” while the Defendant, Shea Homes Limited Partnership (Shea Homes) appealed “an order of the judicial referee denying its motion to strike and tax costs.”
On the Antagon issue, the appeals court concluded that “the trial court did not err by vacating and modifying its judgment so that the cost of referee’s fees would be equally divided by the parties and consistent with a prior stipulation they filed in court.”
On the Shea Homes issue, the appeals court concluded: “1) the judicial referee did not err by ruling that plaintiffs’ offers to compromise (§ 998) were validly served on Shea Homes’ counsel, 2) the offers substantially complied with statutory requirements, 3) the offers were not required to be apportioned, and 4) the referee’s award of $5,000 as costs for a person assisting plaintiffs’ counsel was not an abuse of discretion.” The appeals court affirmed the judgment.
Here is a brief history of the trial case: “Plaintiffs Chito Antangan, Jimmy Alcova and other homeowners brought an action against defendants Shea Homes, Inc. and Shea Homes Limited Partnership for damages alleging that the properties they purchased from these ‘developer defendants’ were defective. Plaintiffs claimed numerous construction defects required them ‘to incur expenses’ for ‘restoration and repairs’ and the value of their homes had been diminished.”
In response, Shea Homes filed a motion for an order to appoint a judicial referee. The motion was granted and it was ruled that “a referee would ‘try all issues’ and ‘report a statement of decision to this court.’”
On May 10, 2010 the judicial referee (Thompson) “awarded plaintiffs damages and various costs, and ruled that ‘Shea Homes shall bear all of the Referee’s fees.’” The latter ruling would become a matter for contention later on.
In July of 2010, the plaintiffs “sought, among other things, $54,409.90 for expert fees, and $14,812.50 for the services of Melissa Fox for ‘exhibit preparation & trial presentation.’ Shea Homes filed a motion to strike and/or tax costs claiming: 1) Fox was a paralegal, 2) plaintiffs were not entitled to attorney’s fees, and 3) the fees for Fox’s services were an indirect and improper method to obtain attorney’s fees. The referee disagreed and awarded $5,000 for Fox’s services. The referee also ruled that plaintiffs had properly served valid offers to compromise (§ 998) on Shea Homes’ counsel in 2009. He said those offers to defendants in the case at that time did not have to be apportioned.”
“Antangan contends the trial court erred when it vacated and modified its original judgment, which ordered Shea Homes to pay all the referee’s fees. We disagree.”
Antagon contended that the trial court erred when it vacated and modified its original judgment regarding Shea Homes paying the referee’s fees. The appeals court disagreed: “A trial court has inherent authority to vacate or correct a judgment that is void on its face, incorrect, or entered by mistake. (§ 473; Rochin v. Pat Johnson Manufacturing Co. (1998),67 Cal.App.4th 1228; Olivera
Read the court’s decision…
Insurer Beware: Failure to Defend Ends with Hefty Verdict
June 1, 2011 — Douglas Reiser in the Builders Counsel Blog
Served with a lawsuit that you turned over to your insurer? Insurer refusing to defend you? Well, find some hope in this news. Washington’s IFCA has the claws to ensure that insurers perform their duties.
Contractors heavily rely on the defense provisions of their Commercial General Liability (CGL) policies. In construction, a legal dispute can easily rear its head when you least expect it. Luckily, Washington registered contractors are required to maintain CGL insurance. That insurance often provides contractors with adequate legal defense in the event that they are sued.
But, what if your insurer turns down the defense request? They might be staring at massive damages. A current Reiser Legal client, Australia Unlimited, Inc., recently won a large verdict against Hartford Insurance, after the insurer unreasonably denied their claim. The firm who represented Australia Unlimited Inc. in that case, Hackett Beecher and Hart, were successful in procuring a $5.43 Million verdict
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Reprinted courtesy of Douglas Reiser of Reiser Legal LLC. Mr. Reiser can be contacted at info@reiserlegal.com
School District Marks End of Construction Project by Hiring Lawyers
June 19, 2012 — CDJ Staff
A school district in northeastern Pennsylvania has retained legal services as they approach the end of a construction project. The Mid Valley School Board cited concerns about the project’s budget, but Randy Parry, Superintendent of Mid Valley schools referenced “possible litigation at the end of the project.” Mr. Parry told the Scranton Times Tribune that construction delays could be a reason for litigation.
In addition to approving an additional $20,000 for legal representation, the board also approved $21,579 for additional project costs.
Read the full story…
Minnesota Starts Wide-Ranging Registration of Contractors
July 10, 2012 — CDJ Staff
Minnesota has replaced its Independent Contractor Exemption Certificate program with the Contractor Registration Pilot Project, according to an article in the Martindale-Hubble Legal Library by Michael B. Lapicola. Mr. Lapicola notes that “it will be a violation of the law to contract with or perform construction services for another person without first being registered with the Pilot Project, or to contract with or pay another person to perform construction services if the other person is not registered with the Pilot Project. There are, however, quite a few exceptions, including those who are currently registered with the earlier program. Additionally, independent contractors who do not register can avoid the fine (up to $2,000) by registering within thirty days of fines being levied. Individuals and firms that do not perform building construction or improvements are exempt from the hiring aspects of the statute.
Minnesota’s goal is to “assist state agencies to investigate employee misclassification in the building industry.” Employees of construction firms do not individually register. Rather, the intent of the of law is to stop those who would “require any individual through coercion, misrepresentation or fraudulent means to adopt independent contractor status” or to “knowingly misrepresent or misclassify an individual as an independent contractor.”
Read the full story…
California Supreme Court to Examine Arbitration Provisions in Several Upcoming Cases
December 9, 2011 — CDJ Staff
Glen C. Hansen, writing on Abbott & Kinderman’s Land Use Law Blog looks at several cases pending before the California Supreme Court which ask if a developer can insist on arbitration of construction defect claims, based on provision in the CC&Rs. Currently, there is a split of opinions in the California appeals courts on the issue.
Four of the cases are in California’s Fourth Appellate District. In the earliest case, Villa Milano Homeowners Association v. Il Davorge, from 2000, the court concluded that the arbitration clause was sufficient to require that construction defect claims undergo arbitration. However, the Fourth Appellate District Court concluded in three later cases that the arbitration clauses did not allow the developer to compel arbitration. In two cases, argued in 2008 and 2010, the court concluded that to do otherwise would deprive the homeowners of their right to a jury trial. In the most recent case, Villa Vicenza Homeowners Association v. Nobel Court Development, the court decided that the CC&Rs did not create contractual rights for the developer.
The Second Appellate District Court came to a similar decision in Promenade at Playa Vista Homeowners Association v. Western Pacific Housing, Inc. In their decision, the court noted that CC&Rs could be enforced by homeowners and homeowners associations, but not developers.
Read the full story…
Destruction of Construction Defect Evidence Leads to Sanctions against Plaintiff
July 10, 2012 — CDJ Staff
Stating that the plaintiff’s actions have left the defendants in a situation where they “cannot properly defend the action,” a judge in the US District Court of New York has sanctioned the plaintiffs in Aktas v. JMC Dev. Co.
The plaintiffs hired JMC Development and Stephen Jung, an architect, to renovate their vacation home in Adirnodack, New York. As work progressed, “due to disagreements regarding the completion date and payments for the project, the relationship began to deteriorate.” The plaintiffs hired George Villar as an owner’s representative who “testified that he deemed the workmanship to be ‘poor.’”
Subsequently, the locks where changed on the home, preventing JMC from performing any additional work, after which drywall was removed, which Villar stated was so that “the engineer come and look at the framing.” Subsequently, Villar sent a letter to JMC stating that the work was “performed in an inadequate, negligent and un-professional manner.” Villar informed JMC that they were not to visit the property. Subsequently, the plaintiffs hired another firm. “Plaintiffs testified that the materials were ‘carted away’ and ‘thrown out.’”
The plaintiffs filed a suit against JMC and others. JMC filed a motion requesting that the plaintiffs be sanctioned for their spoliation of evidence. The court noted that “the plaintiffs recognized that litigation was imminent,” and that they “had a duty to preserve the evidence. As all of JMC’s work was destroyed, there is no evidence of whether or not the work was defective. The court concluded that it will “issue an adverse inference charge that permits the jury to infer that the missing evidence was favorable to the defendants.”
In conclusion, the court granted in part the spoliation sanctions. They granted JMC a summary judgment dismissing the plaintiffs’ claims of fraud.
Read the court’s decision…
Ensuing Loss Provision Does Not Salvage Coverage
December 9, 2011 — Tred R. Eyerly, Insurance Law Hawaii
Water intrusion caused by a construction defect was not covered under the all risk policy’s ensuing loss provision. See Friedberg v. Chubb & Son, Inc., 2011 U.S. Dist. LEXIS 123582 (D. Minn. Oct. 25, 2011).
Extensive water damage was discovered in the insureds’ home when a small hole in the exterior wall was being repaired. Chubb’s adjuster and an expert found water intrusion causing rot, mold, and damage to the home’s wood framing and insulation. Chubb denied coverage because water intruded through the roof and wall, resulting in gradual deterioration. The insureds filed suit.
The policy excluded coverage for construction defects, but insured "ensuing covered loss unless another exclusion applies."
The court agreed there was a prima facie case for coverage because the home suffered a physical loss.
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Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
California Supreme Court Binds Homeowner Associations To Arbitration Provisions In CC&Rs
September 13, 2012 — Stephen A. Sunseri and Aarti Kewalramani, Gatzke Dillon & Ballance LLP (http://www.gdandb.com).
The California Supreme Court ruled in Pinnacle Museum Tower Assn. v. Pinnacle Market Development (August 16, 2012, S186149) __ Cal.4th __ [2012 WL 3516134], that arbitration provisions within the covenants, conditions, and restrictions (“CC&Rs”) for condominium projects are enforceable against their homeowner associations. The ruling — two years in the making — was based on legislative history of laws governing common interest developments, and decades of decisional authority involving contracts and arbitration provisions.
In Pinnacle, a homeowners association sued a condominium builder for construction defects and resultant property damage to the common areas, and to the separate property interests held by the individual members. The builder moved to compel arbitration, based on a provision contained in the CC&Rs which required resolution of all construction disputes through binding arbitration. The association argued it could not be compelled to arbitrate these claims because it was not a party to the agreement to arbitrate, asserting “the Association did not bargain with [the builder] over the terms of the Project CC&R's or participate in their drafting.”
The Supreme Court rejected the association's argument on the grounds that the builder-authored CC&Rs complied with the Davis-Stirling Act (“the Act”) (Civil Code §1350, et seq.) ? the law that governs all common interest developments in California. Under the Act, builders and sellers of common interest residential units are required to provide a copy of the CC&Rs to all purchasers, as well as copies of the Department of Real Estate's public report, which informs purchasers of their rights and remedies as members of the association, and encourages each prospective purchaser to review the terms carefully before entering into any agreement. Further, the Act states all CC&Rs are enforceable, unless unreasonable, and inure to the benefit of and bind all owners in the development. (Civ. Code, §1354, subd. (a).) The Court found each owner who purchased a condominium in the project either expressly consented to the terms and provisions of the CC&Rs or was deemed to have consented to the terms at the time of purchase.
The Court also did not find the arbitration provision to be unconscionable. The Court indicated the provision was drafted and recorded in accordance with the Act, which allowed each prospective purchaser to make an informed decision prior buying a condominium unit. The provision also limited arbitration to construction defect disputes. The Court did not find any evidence the provision “shocked the conscience” or was “oppressive” in any way.
Pinnacle settles a decades-long conflict over whether arbitration provisions in CC&Rs for condominium projects are enforceable against homeowner associations and their members. It remains unclear, however, whether Pinnacle’s rationale will be applied to cases involving homeowner associations for single-family residences (as opposed to condominiums), assuming those CC&Rs have similar arbitration requirements. Regardless, the result of Pinnacle is clear, if arbitration provisions contained in condominium CC&Rs meet the fairness and unconscionability tests set out by the Court, more condominium construction defect cases brought by homeowner associations will be resolved through the arbitration process.
Read the court’s decision…
Printed courtesy of Stephen A. Sunseri and Aarti Kewalramani, Gatzke Dillon & Ballance LLP. Mr. Sunseri can be contacted at ssunseri@gdandb.com and Ms. Kewalramani can be contacted at akewalramani@gdandb.com.
A Call to Washington: Online Permitting Saves Money and the Environment
October 28, 2011 — Douglas Reiser, Builders Counsel
Here’s some good news for Oregon contractors: Electronic Permitting is here. That’s right, no more standing in line with folders full of printed submittals and waiting all day for your permit. The click of a few buttons and you are in business. Great news, right? Unfortunately, Oregon isn’t sharing that celebration with Washington. So I say - why not?
Last week, the State of Oregon released its new ePermitting online interface. The website allows contractors, owners and even local building departments to create an account, submit building plans and procure permits. With your account, you can track the progress of submissions, print documents and get posting information.
The state ran a limited test version in the City of Florence since 2009, working out the kinks. Perhaps the most impressive result of the new system is that Oregon tackled the task of coagulating a local process into one central location.
Read the full story...
Reprinted courtesy of Douglas Reiser of Reiser Legal LLC. Mr. Reiser can be contacted at info@reiserlegal.com
Pennsylvania Court Extends Construction Defect Protections to Subsequent Buyers
December 20, 2012 — CDJ Staff
The Pennsylvania courts have long held that there is an implied warranty of habitability for the initial purchaser of a home. Now, as some defects may not immediately show up, the court has extended that implied warranty to second and subsequent purchasers. As Marc D. Brookman, David I. Haas, and Christopher Bender of Duane Morris note, “this judicially created doctrine shifts the risk of a latent defect in the construction of a new home from the purchaser to the builder-vendor.”
The Pennsylvania Supreme Court concluded that a contractual relationship is not needed for an implied warranty of habitability. The court’s concern was inequalities would result when a home was sold while other homes were protected by being within the statute of repose.
Read the full story…
Ohio “property damage” caused by an “occurrence.”
May 18, 2011 — May 18, 2011 - CDCoverage.com
In JTO, Inc. v. State Automobile Mut. Ins. Co., No. 2010-L-062 (Ohio Ct. App. March 25, 2011), general contractor JTO was sued by hotel project owner Marriott for breach of contract and warranties seeking damages for the repair of construction defects resulting in moisture penetration property damage to interior components. JTO filed a third party complaint against subcontractor Farizel and also tendered its defense as an additional insured under Farizel’s State Auto CGL policy.
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Reprinted courtesy of CDCoverage.com
Census Bureau, HUD Show Declines in Residential Construction
May 17, 2011 – CDJ Staff
The U.S. Census Bureau and the Department of Housing and Urban Development released their summary of residential construction for April 2011 on May 17.
Building permits for privately owned housing units were down 4% from last month and 12% from last year. Similarly, privately-owned housing starts were down 10% from March and 23% below the previous year.
For further details, read the Census Bureau/HUD report
