The Connecticut Supreme Court is presently considering whether claims for breach of contract against a contractor for failing to properly construct a building may constitute an “occurrence” under a commercial general liability policy.  At issue in Capstone Development Corp. v. American Motorists Ins. Co., No. SC 18886 are various questions certified from a federal district court in Alabama concerning the availability of insurance coverage for defects in the construction of buildings an the University of Connecticut.

Meanwhile, the U.S. Court of Appeals for the Second Circuit has issued a new ruling calling into question an earlier precedent that insurers have relied on in disputing such claims.  In Scottsdale Ins. Co. v. R.I. Pools, Inc., No. 11-3529 (2d Cir. March 21, 2013), the Second Circuit reversed a Connecticut District Court’s declaration that a liability insurer did not owe coverage for claims brought against its insured by purchasers of swimming pools for damage the purchasers sustained when cracks developed in their pools.  

The District Court had ruled in Scottsdale Ins. Co. v. R.I. Pools, Inc., No. 09-1319 (D. Conn. August 15, 2011) that the insurer had no duty either to indemnify or defend the insured, and was furthermore entitled to the return of funds it had previously expended in the defense of the insured.  On appeal, however, the Court of Appeals recently ruled that the District Court had erroneously relied on a distinguishable Second Circuit precedent and therefore remanded the matter for further proceedings in the District Court.

The District Court had relied on Jakobson Shipyard, Inc. v. Aetna Cas. & Sur. Co., 961 9 F.2d 387 (2d Cir. 1992) in finding that the cracking of the concrete resulting from defects in the insured’s work could not constitute an “accident” or “occurrence.”  The Second Circuit found, however, that there was a crucial difference between the CGL policy that Scottsdale had issued to R.I. Pools and the Aetna policy as issue in Jakobson.  In this case, the Scottsdale “your work” exclusion contained an “exclusion [from coverage] does not apply if the damaged work . . . was performed on [the insured’s] behalf by a sub-contractor.”  The court noted:

Whereas Jakobson held that the insured's faulty workmanship could not be a covered occurrence under the policy, the present policies expressly provide that in some circumstances the insured's own work is covered. As coverage is limited by the policy to “occurrences” and defects in the insured's own work in some circumstances are covered, these policies, unlike the Jakobson policy, unmistakably include defects in the insured's own work within the category of an “occurrence.” 

While therefore remanding the case for further findings as to whether the underlying claims fell within the sub-contractor exception, the Second Circuit held that there was a duty to defend up until the point at which it is legally determined that there is no possibility for coverage under the policies and that Scottsdale therefore had no right to recoup the defense costs up until then.

Bookmark and Share

Categories: Construction Law | State Law

Actions: E-mail | Comments

 

Legacy Equipment Challenges

Posted on March 19, 2012 02:07 by J.K. Leonard

We are witnessing advances in technology and machine design at a dizzying rate.  Products that were purchased new can literally be “old” within months, as new features and enhanced safety and utility features are rolled out.  What, then, is one to do with true “legacy equipment” – machines that have been in place for years and, often times, decades?  When accidents occur on this equipment, or when manufacturers are called upon to repair them, questions about retrofitting, warnings and/or recommending the equipment be taken out of service often arise.  This can be a tremendous challenge for defense counsel in defending legacy equipment – even more so for in-house counsel that must answer the calls from service personnel in multiple jurisdictions.   Also, what is it that in-house counsel really need, want and appreciate from their outside lawyers in defending and reporting cases?

To hear the answers to these important questions, you must hurry and register for DRI’s 2012 Product Liability Conference, April 11-13 at the Venetian Palazzo Hotel in Las Vegas and attend the ACMIE (Agricultural, Construction, Mining and Industrial Equipment) SLG break-out session, which will take place on Friday, April 13 at 8:30 a.m.  These issues will be discussed by a panel of in-house counsel comprised of Emily Muceus of Deere & Company, Jamie Myers of Caterpillar, Inc. and Diane Scialabba of CNH America, LLC.  The panel discussions will be moderated by Mike McWilliams of Butler Snow O’Mara Stevens & Cannada (Jackson MS) and Kevin Owens of Johnson & Bell (Chicago IL).  We will also hear ACMIE’s annual list of the top 10 cases of the past year, presented by Jennifer Johnson of Ice Miller (Indianapolis IN).   We hope to see you there!
 
 

Bookmark and Share

 

 

Two recent rulings denying motions to remand in chemical exposure cases by demonstrate that a complaint must contain sufficient facts to show legitimate claims against all parties.  A failure to properly plead causes of action allows a federal court to conclude a claim does not exist and therefore maintain jurisdiction over the case under the doctrine of fraudulent joinder.  

 

Bayer CropScience LP was sued by two individuals who live near the Institute, West Virginia, plant and who claim illness as a result of exposures during a ten day period in 2009. Sue Ferguson Davis v. Bayer AG, et al., Civil Action No. 2:11-cv-00879 and Donna Willis v. Bayer AG, et al., Civil Action No. 2:22-cv-00880.  Both filed virtually identical complaints in state court naming Bayer CropScience and others, including West Virginia Paving, Inc., a West Virginia corporation, as defendants.  The plaintiffs claimed exposure to toxic fumes “negligently released into the atmosphere..." caused a variety of personal injuries.  Bayer CropScience removed the cases to federal court arguing that both Complaints did not contain particular factual allegations justifying claims against the non-diverse party, West Virginia Paving.  Inclusion of that company as a defendant destroyed diversity, precluding removal to federal court.  Both plaintiffs filed motions to remand.

 

On the issue of diversity jurisdiction the Court found all of the defendants except West Virginia Paving were from different states or countries than the two West Virginia plaintiffs.  Only if West Virginia Paving was fraudulently joined to prevent federal jurisdiction, could the case remain in federal court.

 

Recognizing well-settled law, Judge Joseph R. Goodwin explained that the doctrine of fraudulent joinder allows federal courts to disregard the citizenship of non-diverse defendants for jurisdictional purposes.  A heavy burden is placed on parties who seek federal jurisdiction, as they must demonstrate there is “no possibility” that plaintiff can establish a case against the in-state defendant or there is outright fraud in the facts pled in the complaint.  

 

The judge concluded the complaints lacked even a “glimmer of hope” of establishing claims against West Virginia Paving and denied remand in both cases.  He found the complaints simply did not link West Virginia Paving to the specific chemical leak described in both complaints, and concluded (as admitted by plaintiffs) that “West Virginia Paving’s conduct could not have caused the plaintiff’s injuries, ….because [it] was not operating a chemical facility at any point around that date.” Without West Virginia Paving as a defendant, there was complete diversity between the parties, and the court therefore denied plaintiffs’ motion to remand.


Bookmark and Share

 

In its 2011 legislative session, the Alabama Legislature made significant changes affecting the construction industry, specifically relating to the Prompt Payment Act and the Statute of Repose.  This article provides practitioners with an update on those amendments.

A.      Prompt Payment Act

Since 1995, Alabama law has provided a Prompt Payment Act, Ala. Code § 8-29-1 et seq., to assist contractors and subcontractors with recovering prompt payment for their services on construction jobs.  The 2011 amendments modified the maximum retainage provisions included in the Act.  These amendments went into effect on September 1, 2011, and apply to contracts entered into on or after that date. 

The maximum retainage allowed to be withheld by the owner is 10% of the estimated amount of work properly done and the value of materials stored onsite or suitably stored and insured offsite.  Ala. Code § 8-29-3(i).  After 50% project completion has been accomplished, no further retainage may be withheld.  Id.

In practical terms, therefore, an owner is limited to retaining 5% of the total contract sum as security for proper completion of the job (10% of earned payments for the first half of the job). 

Contractors and subcontractors are limited by the same caps.  Any retainage withheld in excess of the allowable amount will accrue interest at the rate of 1% per month (12% per annum).

The owner is required to release and pay retainage to the contractor for work completed on any construction contract no later than sixty (60) days after completion of the contractor's work as defined in its contract or "substantial completion" of the project, whichever occurs first.  Ala. Code § 8-29-3(l)(1).  "Substantial completion" means "the stage in the progress of the project when the project or designated portion thereof is sufficiently complete in accordance with the contract documents with all necessary certificates of occupancy having been issued so that the owner may occupy or use the project for its intended purpose."  Ala. Code § 8-29-3(l)(2).

The contractor is required to release and pay retainage to its subcontractors for work completed in accordance with the payment terms agreed to in the parties' contract, but if payment terms are not agreed to, then within seven (7) days of receipt of payment from the owner.  Ala. Code § 8-29-3(l)(1); Ala. Code § 8-29-3(b).  Owners, contractors, and subcontractors may condition payment on the receipt of a full release of any lien of the contractor, subcontractor, or sub-subcontractor for the amount of work being paid.  Ala. Code § 8-29-3(n).

The Prompt Payment Act does not apply to:  (1) residential home builders; (2) improvements to real property intended for residential purposes which consist of 16 or fewer residential units; (3) contracts, subcontracts, or sub-subcontracts in the amount of $10,000.00 or less; or (4) contracts with state or local governments (although these contracts do have the benefit of payment bonds under Alabama's Little Miller Act, Ala. Code § 39-1-1 et seq.).  Ala. Code § 8-29-7. 

In addition, the Prompt Payment Act is not applicable in civil actions to enforce mechanics' or materialmen's liens under Ala. Code § 35-11-210 et seq.  Ala. Code § 8-29-8.  Finally, the retainage caps and 60-day rule do not apply to construction projects for or by an electric utility regulated by the Public Service Commission.  Ala. Code § 8-29-3(m).

B.      Statute of Repose.

The 2011 legislative session also saw amendments to the Statute of Repose that significantly limit the potential liability of architects, engineers, and general contractors for damages relating to their work on construction projects.  Ala. Code § 6-5-220 et seq.

The amendments provide that no lawsuit may be filed against any architect, engineer, or licensed general contractor for any cause of action (whether in contract, tort, or otherwise) which arises more than seven (7) years after substantial completion of the construction project.  Ala. Code § 6-5-221(a).  (Formerly, lawsuits could be filed up to thirteen (13) years after substantial completion of a project.) 

Under the statute, a cause of action "arises" at the time of injury or, where the injury is latent in nature, at the time the injury should reasonably be discovered.  Ala. Code § 6-5-220(e).  In general, a lawsuit must be brought within two (2) years after the cause of action arises, Ala. Code § 6-5-221(a), but a latent defect may not cause any actual injury or be discovered for many years after the project has been completed. 

Before the current legislation, a latent defect could create a situation where potential liability could go on almost indefinitely.  Under the amended Statute of Repose, however, if the cause of action does not arise within seven (7) years of substantial completion of the project, then the injured party is forever barred from filing a lawsuit against the architect, engineer, and general contractor on the project. 

The amendments are not retroactive, so the new time limits will only apply to projects that are substantially completed on or after September 1, 2011.

Jaime W. Betbeze
Hand Arendall LLC
Mobile, AL
jbetbetbeze@handarendall.com

Bookmark and Share

 

Two undeniable and interconnected facts: the U.S. housing market remains virtually stagnant and the number of lawsuits against real estate professionals is on the rise.  Existing home sales have dropped steadily since 2005.  There is a glut of product on the market, yet relatively few ready, willing and able buyers.  During the same period, delinquency and foreclosure rates have grown at an alarming rate.  Real estate professionals have been under considerable pressure to adapt to the conditions of this weak and sputtering market.  Many have not fared so well, as there has been a noticeable increase in lawsuits filed against agents, brokers, inspectors and other real estate professionals.

 
A Deeply Troubled Housing Market

There is no concrete formula to calculate when the American housing “bubble” burst.   What we do know is that the market was thriving in or around 2004 – 2007 then began to fizzle in the following years.  New home inventory, whether completed or under construction, grew at a gradual rate between 1997 and 2003.  Then, in or around January 2003, new home development skyrocketed.  By 2005, Americans built more new homes than they had since the late ‘70’s.  By most indicators, American real estate was booming in the summer months of 2005 and 2006.

Based on the vast number of new homes built at the turn of the century, it would be fair to assume that this development was catered to a growing number of eager would-be homeowners on the market for a new home.  However, the supply far exceeded the demand.  Every year beginning in 2005 through 2008 resulted in a significant drop in existing home sales compared to the prior year.  In other words, Americans were not purchasing homes at the rate those homes were built.  By way of example, Americans purchased approximately 100,000 less homes in June 2007 than they had in June 2006.  During that same stretch, however, developers continued to build new homes at a staggering rate.  As a result, the market could not support itself and soon collapsed. 

Following the peak in 2007 – 2008, new home inventory dropped dramatically.  That drop continued until today when new home inventory nationwide is significantly lower than that recorded in decades.  As a result of that rapid decline, new homeowners found themselves living in property valued far less than the price they recently paid.  Houses were rapidly losing value nationwide.  By some accounts over 10 percent of mortgaged homes in 2008 – 2009 were “underwater”; or, the mortgaged amount exceeded the actual value of the property.  Some suggest that the number of underwater homes continues to climb.

Sub-prime lending, of course, also played a significant role in the rise, and fall in the real estate market.  Sub-prime financing, or high-interest loans, is catered toward high-risk borrowers.  As the market reached its peak, sub-prime lending also increased.  Only two percent of mortgages issued in 2000 were classified as sub-prime compared to nearly 30 percent in 2006.  When the market was healthy, lenders were willing to take on more risk and perhaps were more creative with their lending agreements.  Less documentation, reduced or zero down-payment, low initial interest rates that ballooned over time and other strategies were developed to get buyers in the door.  The problem: aggressive lending programs invited Americans to purchase homes that they literally could not afford.  What naturally followed was rampant delinquency and foreclosure.

During the good years, between 1995 and mid-2006, approximately 5 percent of all active loans were considered “delinquent” and about 1 percent was the subject of foreclosure proceedings. The delinquency started to slowly climb in ‘06 and ‘07 then took off in 2008 to a high of nearly 10 percent  of all active loans as of year-end 2009.  Foreclosures also increased to over 4 percent of all active loans.  In 2008 and particularly 2009 – 2010, a higher percentage of delinquent properties resulted in foreclosure proceedings which, in turn, resulted in more short sales and REO properties.  A disproportionate number of these foreclosures were the result of sub-prime financing.  Of course, real estate professionals suffered as a result.

Increased Claims Against Real Estate Professionals

No doubt due, at least in part, to the distressed real estate market, claims against real estate professionals have risen over the past several years.  Moreover, the types of claims against real estate professionals have changed due to the peculiarities of the recent rise and dramatic fall of the market.  Agency issues, mortgage rescue scams, breach of fiduciary duty, fraud, negligence, breach of contract, and false representation issues are among the classes of claims on the rise against real estate professionals.  Why the rise in claims?  Here are several plausible explanations: 

Dabbling: Due to the reduced work-load, the real estate professional may be more willing to take on work outside of his/her comfort zone in order to generate revenue, including property or construction management or providing credit counseling or quasi-legal advice as opposed to selling real estate.
 
Loan and Investment Fraud: Knowingly or unwittingly modifying transactional documents to mischaracterize the nature of a purchase to obtain more favorable loan terms.  For example, denoting the purchase of a Bed and Breakfast as a “residential” property rather than an “income producing” property to generate better financing terms and, hence, close a deal.
 
Lay Offs:  The termination of the most experienced (and most highly compensated) staff in order to reduce expenses while retaining a staff less able to meet the needs of their customers.
 
Misrepresentation:   Even good faith reliance on a desperate seller’s disclosures, which turn out to be false, may result in a fraudulent or negligent misrepresentation claim against a real estate agent for allegedly ignoring red flags.
 
Referrals: A real estate professional may be subject to “negligent referral” liability by suggesting that her client retain the services of a particular vendor of some kind (e.g. inspector or title agency) of there are flubs on the job.
 
Unauthorized practice of law:  A real estate professional walks a fine line between representation of her client, providing general advice and performing a legal function especially with respect to the financial end of a transaction.  Should an agent provide advice outside of her scope of expertise, she may be subject to a claim of negligence, misrepresentation as well as the unauthorized practice of law.
 
Short sales and foreclosures:  Perhaps more than any other cause, the most significant increase in real estate disputes of late is due to the foreclosure crisis.  Short sales lead to difficulties regarding property condition disclosures.  For example, since short sales can be a lengthy process, the condition of a property may change while the transaction is pending.  Often, lenders and sales agents insist on listing short sales “as is” which may result in unreliable or non-existent disclosures and surprises following settlement.  These surprises all too often lead to lawsuits. Moreover, these sales are overlayed with transactional complexity beyond the ken of less experienced real estate professionals, a hazard in and of itself.  By way of example, short sales and foreclosures may force a real estate professional to address priorities amongst multiple liens or lending and listing problems as a result of the fact that prior owners are typically not involved in these transactions.

What Lies Ahead?

Signals of a recovery remain distant and weak.  Fiscal policy at the macroeconomic level suggests continued pessimism and caution, as seen in sustained historic low borrowing rates, but these low rates continue to be foiled by far more rigorous underwriting standards.  What one hears is: there’s plenty of money to borrow for people who don’t need it.  So, those who earn a living off of the sale of real estate will find themselves under stress for the foreseeable future.
Bookmark and Share

 

ACMIE SLG Break-out

Posted on March 5, 2010 03:12 by Nick Pappas

If you have ever defended warning labels on construction, agricultural or industrial equipment, you won't want to miss the ACMIE break-out session in Las Vegas on Wednesday, April 7 at 3:45. Our main presentation will be a panel discussion by Wendy Dawson of Caterpillar, Mark Kircher of Quarles & Brady and Dr. Tyler Kress of BEST Engineering. The panel will discuss the impact of "pictogram only" warning decals on product liability litigation. Mark will give the perspective of a trial lawyer who has defended the design of ACMIE products all over the country. Wendy will share her thoughts as in-house counsel for one of the largest construction and agricultural equipment manufacturers in the world. And Tyler will add his perspective as an expert with experience testifying in litigation and drafting warnings. This talented panel will give a unique perspective on this important product liability issue. We look forward to seeing you in Vegas!

Bookmark and Share

Categories: Construction Law

Actions: E-mail | Comments

 

On February 11, 2010, the Mississippi supreme court issued its opinion in Architex Ass'n, Inc. v. Scottsdale Ins. Co., --- So. 3d ---, 2010 WL 457236 (Miss. 2010), thereby joining an increasing number of courts who have interpreted the standard form general liability policy to provide coverage to a general contractor for defective construction. In Architex, the insured general contractor was sued after a hotel it built for a client suffered serious structural problems, most notably, the alleged absence of re-bar in the foundation. The trial court found that the allegations of the complaint failed to describe an "occurrence" and therefore granted summary judgment against the contractor. The Mississippi supreme court, however, reversed and remanded the case for a determination of remaining factual issues. More...


Categories: Construction Law

Actions: E-mail | Comments

 

Construction Law committee

Posted on December 29, 2009 03:35 by Matthew Haynes

Happy Holidays! The Construction Law Committee is pleased to announce the following upcoming events:

On January 12, 2010, at 1:00 p.m., a live webcast on the latest developments in green building construction litigation is scheduled to take place. The live webcast will include speakers from the Construction Law Committee, Sean Martin and Kathy Davis. In addition, a representative of the National Association of Home Builders (NAHB) will provide an update on federal, state and local government roles, the National Green Building Program and the Model Green Home Building Guidelines. He will also address specific green-building standards, such as ICC-700-2008 National Green Building Standard and Leadership in Energy and Design Guidelines (LEED). The webcast will also focus on construction with green-building materials and product liability claims, and offer contract-drafting tips to protect contractors. Further, the webcast is slated to address anticipated insurance coverage issues and available green-building insurance products on the market. 

More...


Categories: Construction Law

Actions: E-mail | Comments

 

Proposed legislation could reduce the city's totalcarbon output by 5 percent.

The Big Apple wants its skyscrapers to turn greener.

That's greener in terms of the environment, not in terms of money.

On a grassy rooftop in midtown Manhattan, Mayor Michael Bloomberg announcedWednesday - Earth Day - that the city will try to pass legislation mandatingenvironmental changes that could reduce the city's total carbon output by 5percent. The proposed legislation is aimed at getting significant-sizedbuildings to meet tougher energy requirements anytime they renovate, to conductan energy audit every 10 years, and to make energy improvements that will payfor themselves within five years. According to the city, the energyimprovements could save landlords $750 million a year - assuming they upgradeeverything from their lighting systems to boilers.

New York's effort comes at a time when Congress is considering legislation tocap carbon emissions and then allow emitters to trade in carbon credits orallowances. The proposal, which had its first day of hearings on Wednesday, isconsidered to be President Obama's second greatest legislative priority afterhealthcare reform.

On Wednesday, Mr. Obama, visiting a wind-power plant in Newton, Iowa, called onAmerica to view a green emphasis as a way to lead the global economy in the21st century.

For its part, New York is looked to by other cities as an environmental leader.Its latest effort is being watched by other cities, and if they adopt suchplans, too, the impact could be big: The New York model requires olderbuildings, not just new ones, to become energy-efficient.

"This is a game-changer, because it's the first large-scale citywideprogram to cut emissions from existing buildings. It includes the privatesector, and it focuses on efficiency upgrades that have a financial costsavings," writes Fred Krupp, president of Environmental Defense Fund inNew York, in an e-mail. "And it does all that at the scale of New YorkCity - harnessing billions of square feet of real estate to help solve globalwarming."

According to the US Green Building Council, buildings in the US are responsiblefor 39 percent of the nation's carbon emissions and 32 percent of the energyusage. In New York, which has a low transportation carbon footprint because ofmass transit, buildings represent 80 percent of carbon emissions.

"Buildings must be a part of the solution to the climate crisis and theeconomic crisis," says Richard Fedrizzi, CEO of the council, which isknown for bestowing green status on buildings.

Despite the endorsement of some of America's most well-known environmentalgroups and some City Council leaders, it's not a given that the council willadopt the legislation.

Two years ago, the City Council considered requiring buildings to use biodieselto cut down on emissions. But that effort ran into opposition because there wasconcern that the biofuel would cause food prices to rise.

In addition, landlords in the city are starting to feel the effects of theeconomic downturn. Office vacancy rates are rising. Some prominent buildingowners, who purchased properties at the wrong time, are defaulting on payments.

Mayor Bloomberg's latest initiative is part of his plaNYC, an effort now 2years old to substantially reduce the city's carbon footprint. New York hasalready planted 174,189 trees (with a goal of 1 million), added 80.9 miles ofbike lanes, and launched 224 energy-efficiency projects for city buildings.

Among the major points of the new proposal:

 A new energy code that must be met byexisting buildings of 50,000 square feet (approximately equivalent to 50apartment units) whenever they make reservations. This would go into effect in2010.

 The requirement for an energy auditevery 10 years, which would go into effect in 2012.

 A requirement for buildings to upgradetheir lighting by 2010.

To try to increase support for these moves, Bloomberg is characterizing them ascreating 19,000 construction jobs. At the announcement on Wednesday, a host ofunion leaders endorsed the plan.

The jobs would come as building owners replaced light fixtures, addedenergy-efficient faucets and showers, and cleaned and tuned their boilers. Some$16 million in federal funds would go toward training such workers.

Bookmark and Share

Categories: Construction Law

Actions: E-mail | Comments

 

Greenwashing the Construction Industry

Posted on April 28, 2009 05:29 by Sean W. Martin

Greenwash is a term used to describe the practice ofcompanies disingenuously spinning their products and policies asenvironmentally friendly. Every year for the past decade, Earth Day Resourcesfor Living Green has released a report called "Don't Be Fooled." Thereport calls attention to the year's 10 worst greenwashers. This years reporthightlights how greenwashing is used in the construction industry

-- Comanche Trace, a commercial developer, bills its golf courses as"great habitats," even though golf courses deplete natural habitatsand use pesticides that poison groundwater.

In the rush to gain a competitive edge developers, contractors, and buildingmaterial suppliers may overstate the "green" qualities of theirproducts or services to keep pace with consumer demand. Problems will arisewhen they do not live up to their claims and expectations are not met.

Bookmark and Share

Categories: Construction Law

Actions: E-mail | Comments

 
 

Submit Blog

If you wish to submit a blog posting for DRI Today, send an email to today@dri.org with "Blog Post" in the subject line. Please include article title and any tags you would like to use for the post.
 
 
 

Search Blog


Recent Posts

Categories

Authors

Blogroll



Staff Login