Federal District Court Predicts Florida Will Adopt Injury In Fact Trigger
October 23, 2012 — Tred Eyerly, Insurance Law Hawaii
The U. S. District Court for the Middle District of Florida was confronted with determining whether Florida would follow the manifestation or injury in fact trigger in Axis Surplus Ins. Co. v. Contravest Constr. Co., 2012 U.S. Dist. LEXIS 104502 (D. Fla. June 5, 2012).
The homeowner's association sued the insureds for alleged negligent construction and development of individual dwelling units and common areas of their condominium. Due to this negligence, severe damage was caused by water intrusion. The Association's members only became aware of the defects through the retention of construction experts.
The insured had CGL coverage with Axis, with policies issued from 2003 to 2007. Coverage was denied for the periods 2003-2004 and 2004-2005. Axis provided a defense under the policies issued for 2005-2006 and 2006-2007, but under a reservation of rights. Axis sought a declaration that it had no duty to defend or indemnify because the damage manifested before its policy periods.
For coverage to exist, "property damage" must have "occurred" during Axis' policy period.
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Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
Micropiles for bad soil: a Tarheel victory
March 14, 2011 — Original article by by Melissa Brumback on March 14, 2011
Despite foundation challenges, construction is almost complete on the expansion at University of North Carolina’s Kenan stadium. The project started with a deep foundation system from design-build contractor GeoStructures. Known as the Carolina Student-Athlete Center for Excellence, the addition was built on a parcel with a knotty mix of fill soils, subsurface boulders and varying depths to rock. To achieve uniform foundation support, GeoStructures designed a Micropile system (also known as a Mini pile system) which could be drilled into the variable ground conditions.
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Reprinted courtesy of Melissa Brumback of Ragsdale Liggett PLLC. Ms. Brumback can be contacted at mbrumback@rl law.com.
Couple Sues Attorney over Construction Defect Case, Loses
June 10, 2011 — CDJ Staff
The California Court of Appeals has ruled against a couple who sued their lawyer, after they were unhappy with the results of a construction defect case. Craig and Jeanne Petrik sued Mahaffey and Associates for legal malpractice and breach of contract. Their lawyer, Douglas L. Mahaffey, had settled their case for $400,000. The Petricks claimed Mahaffey did not have the authority make an offer to compromise.
In the original case, Mahaffey held back the $400,000 awarded in the settlement until he and the Petricks came to terms on how much of that was owed to Mahaffey. The lower court concluded that the Petricks were due $146,323,18. The jury did not agree with the Petrik’s claim that conditions had been met in which Mahaffey would not be charging them costs.
Judges O’Leary and Ikola wrote the opinion, with the third judge on the panel, Judge Bedworth offering a dissent only on their view of the cost waiver clause.
Read the court’s opinion
No Coverage For Construction Defects When Complaint Alleges Contractual Damages
September 1, 2011 — Tred Eyerley, Insurance Law Hawaii
The underlying plaintiff’s allegations contended the contractor was in breach of contract for construction defects caused in building her home. Accordingly, the court found no coverage.See Nat’l Builders and Contractors Ins. Co. v. Slocum, 2011 U.S. Dist. LEXIS 81694 (S.D. Miss. July 26, 2011).
Slocum Construction LLC sold a home it built to Laura Peterson. Subsequently, Peterson filed suit, alleging a breach of the contract and seeking rescission and cancellation of the contract. Peterson further alleged at least thirty-three specific defects in the construction of the house.
Slocum tendered to its insurer, National Builders and Contractors Insurance Company (NBCI). NBCI filed suit for a declaratory judgment.
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Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
Insurance Company Prevails in “Chinese Drywall” Case
June 17, 2011 — CDJ Staff
The Louisiana Court of Appeals rejected an appeal to reverse a summary judgment granted to Louisiana Citizens Property Insurance Company. Terrence and Rhonda Ross contracted for a remodel of their home in which Chinese-made drywall was used. When the drywall emitted harmful gasses, the Rosses filed a claim under their insurance policy. This claim was rejected under four exclusions: for faulty materials, latent defect, loss by corrosion, and loss by pollution. After the claim was denied, the Rosses sued Louisiana Citizens.
In April 2010, the lower court granted a summary judgment, followed by a May, 2010 order dismissing the Rosses’ claims against Louisiana Citizens. The Rosses appealed this decision. In the court’s review, they agreed with Louisiana Citizens and the lower court on all counts. Although the Rosses maintained that the drywall was not defective (as it still functioned as drywall), the court ruled that its emission of sulfuric gases was a defect. Further, as it was in place for two years before this became evident, it was also a latent defect. Damage to the Rosses’ home consisted of corrosion damage caused by the pollutants in the drywall.
The Rosses made an additional claim that since their policy covered smoke damage, this should be covered, as the harm was done by sulfuric gases. The court noted that the contract specifies “fumes or vapors from a boiler, furnace, or related equipment,” none of which apply in this case.
Read the court’s decision
Avoid Gaps in Construction Defect Coverage
July 10, 2012 — CDJ Staff
The language may be standardized, but the way different states’ courts interpret it is not. That’s the problem discussed by William F. Knowles and Brendan Winslow-Nason in an article in Business Insurance. One of the major issue through the country is whether a construction defect claim and the resultant damage are an occurrence. Additionally, there are questions whether certain exclusions apply, such as “your work” or “your product” exclusions. They note that many courts “ agree that they are intended to exclude defective construction itself, while providing coverage for unintended consequences.” They further note that these are not the only insurance issues, “making it difficult for construction companies operating across state lines to ensure adequate coverage.”
Their recommendations to contractors are that they pay careful attention to where they’ve done business and “if the states have issued decisions or if there is legislation in place address the scope of coverage under additional insured endorsements.” Additionally, they suggest determining whether a contractor can negotiate a choice of law provision in their policy. The conclude that “construction companies can take proactive steps to protect themselves by identifying the applicable states’ laws, determining whether insurance is adequate under those laws, and then taking steps to resolve any gaps in their coverage.”
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Good Signs for Housing Market in 2013
December 20, 2012 — CDJ Staff
Dan Green, a loan officer at Waterstone Mortgage, is optimistic about the construction market in 2013. He notes that the rise in building permit, housing starts, and housing completions are all good signs. Mortgage rates are still low, making these new homes attractive to buyers.
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Construction Case Alert: Appellate Court Confirms Engineer’s Duty to Defend Developer Arises Upon Tender of Indemnity Claim
January 27, 2010 — By
Steven M. Cvitanovic,
Haight Brown & Bonesteel, LLP, January 27, 2010
In the recent case of UDC-Universal Development, L.P. v. CH2M Hill, 2010 Cal.App.LEXIS 47 (filed January 15, 2010), the Sixth District Court of Appeal provided a stunning illustration of the far-reaching effects of the California Supreme Court’s holding in Crawford v. Weather Shield Manufacturing Inc. (2008) 44 Cal.4th 541. In Crawford, the Court held the duty to defend under an indemnity agreement arose upon the mere tender of defense of a claim covered by the indemnity.
In the UDC case, CH2M Hill provided engineering and environmental planning services to developer UDC on a project that ultimately wound up in a construction defect lawsuit by the homeowners association ( HOA ). UDC tendered its defense to CH2M Hill, the tender was rejected, and UDC filed a cross-complaint for negligence, breach of contract and indemnity against CH2M Hill and others. After the HOA’s construction defect claims were settled, UDC proceeded to trial against CH2M Hill. The jury found in favor of CH2M Hill on the claims for negligence and breach of contract. At the request of the parties prior to trial, the trial court ruled on the application of the indemnity agreement in light of Crawford and, in so doing, found that the defense obligation arose upon the tender and that CH2M Hill breached that duty despite the jury finding in favor of CH2M Hill.
The Court of Appeal affirmed, noting that the defense obligation arose as soon as the defense was tendered and did not depend on the outcome of the litigation, and that the HOA’s general description of the defects along with an allegation that Doe engineers were negligent triggered the duty to defend.
Although this case did not expand the crushing impact of Crawford’s holding, it is
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New Washington Law Nixes Unfair Indemnification in Construction Contracts
April 25, 2012 — Douglas Reiser, Builders Cousel
Contractual fairness ? it is part of my mantra. If you read the blog, you probably know that I preach brevity, balance and clarity in contracting. The State of Washington did well to finally eliminate something that has angered me for quite some time ? unfair indemnification.
One of my favorite construction contract revisions is mutual indemnification. Many “up the chain” contractors and owners are going to stick you with a unilateral indemnification clause that protects them for just about everything, including their own fumbling of a project. Adding mutual indemnification provides some balance, and keeps parties reliant upon each other for success on the job site.
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Reprinted courtesy of Douglas Reiser of Reiser Legal LLC. Mr. Reiser can be contacted at info@reiserlegal.com
Fourteen More Guilty Pleas in Las Vegas Construction Defect Scam
June 19, 2012 — CDJ Staff
The ongoing case over claims that a group fixed homeowner board elections in order to supply the conspirators with a stream of construction defect cases and repairs has lead to fourteen guilty pleas. The judge recently issued charges against fifteen of the accused; one defendant did not join in the group as he was recovering from pneumonia. The prosecutors have asked the judge to delay sentencing, as the investigation is continuing. Prosecutors note that another dozen people may be indicted.
Along with an earlier group who plead guilty, this brings the total number of guilty pleas in the case to twenty-five. All have promised to cooperate with authorities.
The case has also involved four deaths, although authorities have not suspected foul play in the deaths. Nancy Quon, one of the four, was the construction defect attorney suspected to be at the center of the conspiracy.
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No Coverage for Property Damage That is Limited to Work Completed by Subcontractor
April 25, 2012 — Tred Eyerly, Construction Law Hawaii
The issue before the 11th Circuit was whether, under Florida law, a general contractor had coverage for a property damage claim limited to the defective work performed by a subcontractor, and not affecting any other portion of the project. The court found no coverage in Amerisure Mut. Ins. Co. v. Auchter Co., 2012 U.S. App. LEXIS 5412 (11th Cir. March 15, 2012).
Amelia Island Company contracted with Auchter Company, a general contractor, for construction of an inn and conference room. Auchter subcontracted with Register Contracting Company to install the Inn’s roof. Pursuant to the Florida Building Code, installation of the roof required that it be able to withstand 110 m.p.h. winds.
Register completed installing the roof tiles in January 1998. Beginning in 2002, the tiles began dislodging from the roof. During the 2004 hurricane season, three hurricanes caused more tiles to come off the roof. Some of these tiles hit other tiles, cracking them.
In 2006, the parties went to arbitration over the costs of repairs for the roof.
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Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
Illinois Court Determines Insurer Must Defend Property Damage Caused by Faulty Workmanship
July 11, 2011 — Tred R. Eyerly, Insurance Law Hawaii
The Illinois Court of Appeals determined the insurer must defend allegations of property damage arising from faulty workmanship. Milwaukee Mut. Ins. Co. v. J.P. Larsen, Inc., 2011 Ill. App. Unpub. LEXIS 1443 (Ill. Ct. App. June, 20, 2011).
Larsen was a subcontractor for Weather-Tite in a condominium building. Weather-Tite installed windows on the project and hired Larsen to apply sealant to the windows. The windows subsequently leaked and caused water damage within the complex.
The homeowner’s association sued Weather-Tite for breach of express and implied warranties. Weather-Tite filed a third-party complaint against Larsen, seeking contribution and alleging that Larsen was in breach of contract by failing to add Weather-Tite as an additional insured under Larsen’s CGL policy.
Both Weather-Tite and Larsen tendered to Larsen’s insurer. Both tenders were denied because the insurer contended the complaints alleged only construction defects, and not “property damage” or an “occurrence” within the terms of the policy.
The insurer filed suit for a declaratory judgment. The trial court granted the insurer’s motion as to Weather-Tite, but granted Larsen’s cross-motion for summary judgment.
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Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii. Mr. Eyerly can be contacted at te@hawaiilawyer.com
Defect Claims as Occurrences? Check Your State Laws
July 10, 2012 — CDJ Staff
Although four states have defined construction defect claims as occurrences, contractors are still dealing with “coverage gaps for faulty work construction,” says Mike Tsikoudakis in a piece at Business Insurance. He quotes Julian Ehrlich, the senior VP of claims for Aon Risk Services that “one of the interesting and compelling aspects of the issue of coverage for defective construction is that jurisdictions differ, so policyholders don’t know what they’re going to get.” He further notes that “in context of construction defect, the term ‘occurrence’ is ambiguous.”
One problem, as noted by Jeffrey J. Vita, a partner at Saxe Doernberger & Vita, is that construction firms end up needing to simultaneously defend against defect claims and to also file suit to be certain their insurance firms will cover claims. Insurance for construction defect claims is described as “expensive and somewhat limited.” Mr. Vita expects more states to help this situation with new laws, clarifying what is an occurrence.
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Williams v. Athletic Field: Hugely Important Lien Case Argued Before Supreme Court
June 17, 2011 — Douglas Reiser, Builders Counsel
Well, it finally made it. The most important Washington lien case of recent memory was argued in front of the Washington Supreme Court on Tuesday, June 14, 2011. So, what should we all expect?
As I was reading through my RSS feeds this afternoon ? I was stopped dead in my tracks. Williams v . Athletic Field, the Division II case that has been a frequent topic here on Builders Counsel, has finally been argued before the Supreme Court. All of you who have been anxiously awaiting this day, you can check out the Supreme Court submissions by following this link.
The Williams case has been the center of attention for construction lawyers and construction organizations over the past year. Some have called for complete lien law reform, others have tried to patch a hole in the law. Now, we can expect a ruling from the highest court in the state. That ruling will have a major impact on whether the Legislature feels compelled to change lien law.
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Reprinted courtesy of Douglas Reiser of Reiser Legal LLC. Mr. Reiser can be contacted at info@reiserlegal.com
Southern California Lost $8 Billion in Construction Wages
August 17, 2011 — CDJ Staff
Los Angeles and Orange Counties are first on a list no area wants to be on. According to the Sacramento Bee, reporting on data from the U.S. Bureau of Economic Analysis, LA and Orange Counties saw an $8 billion drop in construction wages in 2010, as compared to 2006. In 2006, the region saw payrolls of $26.8 billion, but in 2010, that was reduced to $18.5 billion.
This was not the largest percentage change. Of the metropolitan areas with the largest declines in construction earnings, Las Vegas saw a $3.6 billion drop, however that represented half of their 2006 totals of $7.2 billion. Conversely, a $3.3 billion drop in the New York area represented only 10% of what had been $33.8 billion in payroll in 2006.
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Lower Court “Eminently Reasonable” but Wrong in Construction Defect Case
July 10, 2012 — CDJ Staff
Noting that “circuit court’s orders are eminently reasonable, logical and just” the Supreme Court of Appeals of West Virginia has granted a writ to halt enforcement of these orders and to compel arbitration instead in the case of State v. Tucker. The initial case concerned claims that an HVAC system had been improperly designed, constructed, manufactured, or maintained, leading to serious problems. Glenmark Holding, the owner of the Suncrest Executive Plaza brought a lawsuit against seven defendants. Three of the defendants, Morgan Keller, Inc, York International Corporation, and Johnson Controls, Inc. argued that Glenmark was obligated to enter into arbitration.
Glenmark and the other defendants argued that the motions for arbitration should be denied “so all the claims and cross-claims of the parties could be litigated in one forum, in one proceeding.” The circuit court noted that arbitration is preferred over litigation because of its supposed “expeditious, economic resolution of issues,” but that in this case, “the petitioners would expend additional, not fewer resources responding to the parties’ claims and cross-claims.” As “compulsory arbitration would be insufficient and inequitable” the court denied the request, finding the arbitration clauses “unconscionable and, therefore, unenforceable.”
Morgan Keller, York, and Johson argued that “the interpretation of arbitration clauses is governed exclusively by the Federal Arbitration Act.” The appeals court found that “the circuit court was within its authority to consider Glenmark’s claim that the arbitration clauses were unenforceable.” However, the appeals court rejected the circuit court’s conclusion about the “piecemeal” resolution of the conflict, as it contradicts a Supreme Court ruling. The Supreme Court stated in 1983 that the FAA “requires piecemeal resolution when necessary to give effect to an arbitration agreement.” In a 1985 decision, the Court held that a court could “not substitute [its] own views of economy and efficiency.”
Nor could the court find the arbitration clause to be unconscionable or unenforceable. The court noted that the contract was a standard AIA form, and was amended by the parties involved, whom the court characterized as “commercially sophisticated.” The court found that the agreement limited the rights of all parties and was not one-sided.
As the arbitration clause was neither unconscionable nor unenforceable, and Supreme Court rulings preclude a court from substituting its own procedures, even when these are “eminently reasonable, logical and just,” the appeals court halted the order of the circuit court, sending the matter to arbitration.
Read the court’s decision…
Appropriation Bill Cuts Military Construction Spending
June 15, 2011 — CDJ Staff
The Hill reports that HR 2055, the Military Construction, Veterans Affairs (VA) and Related Agencies bill, has passed with only five votes in opposition. The bill cuts the budget for military construction spending by $2.6 billion due to anticipated base closures.
The bill includes $186 million for family housing construction by the Army, $100 million for family housing construction by the Navy and Marines, and $84 million for family construction by the Air Force, with an additional $50 million allocated for the DOD outside the military branches. By the act, these funds will remain available until September 30, 2016.
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Read HR 2055
Defective Grout May Cause Trouble for Bridges
August 16, 2012 — CDJ Staff
Grout, which was used to protect the steel support cables of the Woodrow Wilson Bridge, may lead to problems instead. The Baltimore Sun reports that the Federal Highway Administration is looking at three dozen bridges in twenty-one states that were built with defective grout. The grout contains high levels of chlorides, which can lead to corrosion. The collapse of pedestrian walkway in Concord, North Carolina was attributed to chloride contamination in the grout.
The grout, SikaGrout 300PT, was advertised as "non-corrosive, does not contain chlorides," but later testing showed that it contained levels that exceeded limits by 400 percent. Throughout the country, about 16 million pounds of this were used. Sika Corp. suspended production of the grout in 2010. If repairs need to be made, it is unclear who will pay.
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