Assignment of Insured's Policy Ineffective
April 06, 2016 —
Tred R. Eyerly – Insurance Law HawaiiAn assignment of policy rights made before the policy was issued was ineffective. W. Alliance Bank v. Nat'l Union Fire Ins. Co., 2016 U.S. Dist. LEXIS 19936 (N.D. Cal. Feb. 18, 2016).
The bank issued a loan to Sorrento Networks, Inc. in 2011. As collateral, Sorrento gave the bank a continuing security interest in all of Sorrento's personal property, including its inventory, commercial tort claims and insurance proceeds. The loan agreement authorized the back to act on Sorrento's behalf in collecting any money owed to Sorrento and prosecuting any claims that Sorrento might have.
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Tred R. Eyerly, Insurance Law HawaiiMr. Eyerly may be contacted at
te@hawaiilawyer.com
Insurers May Not Be Required to Defend Contractors In a Florida §558 Proceeding
November 06, 2018 —
Erik Simpson - Gordon & Rees Construction Law BlogIn recent holding, the Florida Supreme Court held that an insurer may not have a duty to defend a contractor in a Florida §558 proceeding.
Chapter 558 of the Florida Statutes sets forth procedural requirements which must be met before a claimant may file a construction defect action. These requirements include serving a contractor, subcontractor or supplier with written notice of the claim. The contractor, in turn, must serve a written response to the notice of claim in which the contractor provides either an offer to repair the alleged construction defect at no cost to the claimant, resolution of the claim through a monetary payment, a statement disputing the claim, or a statement that any monetary payment will be determined by the recipient’s insurer. The claimant may file suit if the contractor disputes the claim and refuses to remedy the alleged defect or provide monetary compensation.
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Erik Simpson, Gordon & ReesMr. Simpson may be contacted at
esimpson@grsm.com
Co-Housing Startups Fly in the Face of Old-School NYC Housing Law
December 18, 2022 —
Amelia Pollard & Diego Lasarte - BloombergA room in an eight-bedroom Bed-Stuy brownstone with “charming views.” A five-bedroom “modern Manhattan” home. In a housing market as hot as New York City’s, these units advertised on co-housing companies’ websites sound promising. According to the city’s housing regulations, however, neither is legal.
That hasn’t stopped companies from offering the rooms, as renters clamor for affordable living space. With the average studio apartment in Manhattan going for nearly $3,100 a month, newcomers to the city often find living with multiple roommates to be their best affordable-housing option. It’s a trend that startups have jumped on, and one some experts endorse as a way to quickly scale up affordable housing — even though municipal housing laws aren’t on board yet.
The reality is that in many cities, housing laws that limit the number of unrelated individuals in a dwelling are still in place. New York, for instance, doesn’t allow more than three unrelated people to live in the same unit. To be sure, New Yorkers often break that law, as expensive housing forces people to find roommates through friends or on sites like Craigslist. But multimillion-dollar companies breaking that law is new.
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Amelia Pollard, Bloomberg and
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Defective Stairways can be considered a Patent Construction Defect in California
September 24, 2014 —
William M. Kaufman – Construction Lawyers BlogStairs are not safe! At least the Court of Appeal in the Second Appellate District of California doesn’t think so.
A rail station in Los Angeles was completed by the Los Angeles County Metropolitan Transportation Authority (“MTA”) in 1993. The rail station was part of the development of the Southern California Rapid Transit District Metro Rail Project. In 2011, the plaintiff fell on a stairway at the station. In August 2012, Plaintiff sued the MTA for dangerous condition of public property, statutory liability, and negligence. Among other defects, plaintiff alleged the banister of the stairwell was “too low” and the stairwell “too small” given the number, age, and volume of people habitually entering and exiting the rail station. In addition, plaintiff alleged that MTA “failed to provide adequate safeguards against the known dangerous condition by, among other acts and omissions, failing to properly design, construct, supervise, inspect and repair the Premises causing the same to be unsafe and defective for its intended purposes.” MTA, in turn, cross-complained against Hampton- the entity that provided design and construction services at the station.
Hampton demurred to the first amended cross-complaint, asserting a four year statute of limitations defense pursuant to California Code of Civil Procedure section 337.1, claiming the alleged deficiencies were patent defects. On September 11, 2013, the trial court overruled the demurrer finding that the defect was not patent. Hampton appealed.
The appellate court overruled the trial court’s ruling and in fact, granted Hampton’s writ of mandate and even directed the trial court to sustain the demurrer without leave to amend! (Delon Hampton & Associates v. Sup. Ct. (Los Angeles County Metropolitan Transportation Authority) (Cal. App. Second Dist., Div. 3; June 23, 2014) 227 Cal.App.4th 250, [173 Cal.Rptr.3d 407].)
The appellate court found that the purpose of section 337.1 is to “provide a final point of termination, to proctect some groups from extended liability.” A “patent deficiency” has been defined as a deficiency which is apparent by reasonable inspection. See Tomko Woll Group Architects, Inc. v. Superior Court (1996) 46 Cal.App.4th 1326, 1336. The court found a patent defect can be discovery by the kind of inspection made in the exercise of ordinary care and prudence, whereas a latent defect is hidden and would not be discovered by a reasonably careful inspection. See Preston v. Goldman (1986) 42 Cal.3d 108, 123. The test to determine whether a construction defect is patent is an objective test that asks “whether the average consumer, during the course of a reasonable inspection, would discover the defect…” See Creekbridge Townhome Owners Assn., Inc. v. C. Scott Whitten, Inc. (2009) 177 Cal.App.4th 251, 256.
Mr. Kaufman may be contacted at wkaufman@lockhartpark.com, and you may visit the firm's website at www.lockhartpark.com
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William M. Kaufman, Lockhart Park LP
The Condo Conundrum: 10 Reasons Why There's a 'For Sale' Shortage in Seattle
December 20, 2017 —
Dave Suggs - CDJ STAFFSeattle Washington is experiencing a shortage of in-city condos. Of the 27,000 units of new housing being built in downtown Seattle, 94 percent will be rentals. As housing prices are rising in the US’s fastest-growing large city, the median home price is $660,000. Dean Jones of the Seattle Magazine reports on why consumers consider condos, but home developers don’t in his article “The Condo Conundrum: 10 Reasons Why There's a 'For Sale' Shortage in Seattle.”
Reason 1, condominiums don’t always offer high returns and can be riskier for the home developer. Reason 2, the Washington State Condo Act “overprotects” buyers of condos with over-the-top warranties that makes everyone in the industry afraid to work with condos. Reason 3, the cost of condo building is increased because of the risk of defect litigation. Reason 4, condo presale buyers are not required to deposit a percentage to invest in a new development and before closing could decide to walk away. Reason 5, there is a lot of interest in apartment buildings from investment groups.
Reason 6, investors whose goal is to own “trophy” assets in rising markets can’t wait the years it takes developers to plan and construct a new multistory community. Reason 7, since rent prices have risen 50 percent on average in the last 7 years, it’s profitable to be a landlord. Reason 8, the millennials who live and work in this tech oriented region prefer to rent because of living through the rise and fall of the housing market. Reason 9, the costs is rising each year to deliver new projects. Reason 10, high-rise zoning was adopted 2 years before the recession, so just as condo development was gearing up, apartment building took over.
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Were Condos a Bad Idea?
June 13, 2022 —
Tyler P. Berding - Berding & Weil LLPIntroduction
Condominiums are a nice idea, but their execution has been less than perfect. Long before the fatal Berkeley, California balcony failure in 2015 or the 2021 Champlain Towers South collapse that killed 98 people in Surfside, Florida, we suspected that all was not right with the basic condo concept. Years ago, there were already signs this "cooperative" housing model was anything but. Whether due to owner apathy, internal disputes, or failure to fund future repairs, sustaining these projects for the long-term has been difficult, leaving their future in doubt. Can this be fixed, or is the concept inherently flawed?
Every enterprise has an organizational "model" to run the business. For-profit corporations obtain revenue from the sale of products or services. The revenue of non-profit condominium corporations are the assessments paid by the owners of the individual units. While these assessments are “mandatory” in the sense they must be paid, they are also “voluntary” since the amount is left to the board of directors to determine. Condos are cheaper to buy, but the sales price may not reflect the real cost of ownership. They are "cooperative" because costs and space are shared, but internal disputes and funding shortfalls operate to shorten the life of these buildings in ways few owners understand.
Internal Disputes
Why is condominium life frequently not “cooperative?” Disputes. Disputes between condominium owners and their associations; among board members; and between individual owners and their neighbors. There are arguments over the right to put a flag on the balcony. There are arguments over swimming pool hours. The right to paint their front door some color other than everyone else's. The right to be free of noise, smoke, or view-blocking plants. And sometimes, the claimed right not to pay assessments needed to maintain the project—all notwithstanding the governing documents to the contrary. The right to use one's property as the owner sees fit is a concept imported from the single-family home experience but not replicated in condominiums where common ownership requires rules to avoid chaos.
But a condominium association's most important concern should not be the color of someone's front door or when they can swim but sustaining the building and keeping owners safe. Maybe we care someone has painted their front door bright green, but should that concern have priority over finding rot that may cause a balcony to collapse with someone on it? Resolving conflicts and enforcing the governing documents have a reasonable success rate. Still, the effort required to do that often distracts the board from more critical issues—damage that can sink the ship. Directors can waste a lot of time re-arranging the deck chairs on the Titanic when, if they look closely, the iceberg is coming.
Maintenance Lacks Priority
Why can't we enforce the rules and do what’s necessary to sustain the building and keep occupants safe? Unfortunately, juggling both behavioral and sustainability issues has proven difficult for many volunteer boards of directors. Rule disputes are always in their face, crowding their agenda, while the damage that could lead to structural failure often remains unknown. Also, enforcing—or resisting—rules can involve a clash of egos that keep those matters front and center. Or, and I suspect this is a primary culprit, the cost of adequate inspections, maintenance, and repair is so high that boards cannot overcome owner resistance to that expense.
While boards and management must sustain the project and protect people, raising the funds to do that is another matter. Directors must leap hurdles to increase regular assessments. Imposing large, unexpected, special assessments for major repairs can be political suicide. Unfortunately, few owners realize how deadly serious proper maintenance is until there is a Berkeley or a Surfside, and everyone is stunned by the loss of life and property. While those are extreme cases of faulty construction, inadequate maintenance, natural causes, or all the above, they will not be the last. We know that because experts have seen precursors to those same conditions in other projects.
Our concern for sustainability arises from examining newer projects during construction defect litigation when forensic experts open walls to inspect waterproofing and structural components. It also comes from helping our clients with the re-construction of older buildings and dealing with many years or decades of neglect for which little or no reserves have been allocated.
The economic impact of repairing long-term damage is huge. Rot lying hidden within walls slowly damages the structural framing. Moisture seeping into balcony supports weakens them sometimes to the point of collapse. The cost to repair this damage is frequently out of reach of most condominium associations. In newer projects, when experts find problems early, claims are possible. The Berkeley balcony failure occurred in an eight-year-old building[1], and there was recourse available from the builder. But with older projects, it is often difficult to hold anyone responsible other than the owners themselves.
Is The Condo Model Flawed?
Suppose this is true—and our experience representing condominium projects for over forty years tells us it is—then we are not dealing only with the inexperience of some volunteer directors but rather with a flawed organization model. Board members want to succeed but are constrained by an income stream that depends almost entirely on the will of the individual owners—essentially voluntary funding.
Under most state laws, funding for condominium operations and maintenance is not mandatory[2], and relies instead on the willingness of the directors to assess owners for whatever is needed, and on the willingness of owners to accept the board’s decisions. When a board of directors can set assessments at whatever level is politically comfortable, without adequate consideration, or even knowledge, of long-term maintenance needs, systemic underfunding can result[3]. What the members want are the lowest assessments possible, and directors often accede to those demands. When these factors conspire to underfund maintenance, they will drastically shorten the service life of a building. They also make it potentially unsafe.
Commercial buildings incentivize their owners for good maintenance with increased rents and market value. That incentive is not relevant to a condominium owner because the accumulating deficit is rarely understood at the time of sale and not reflected in the unit’s sales price. With a single-family home, deferred maintenance is more easily identified and is reflected in the purchase price. But condo home inspections are usually confined to the interior of a unit, and do not assess the overall condition of the entire building or project or review any deficit in the funding needed to attend to deficiencies. Thus, market value is not affected by reality.
In most states that require that reserves be maintained for future maintenance and repairs, the statutes require nothing other than cursory surface inspections. Damage beneath the skin of a building is not investigated, and no reserves are recommended for what is not known. California recently enacted legislation that will require condominium associations inspect specific elevated structures for safety, including intrusive testing where indicated. But no other state requires this level of inspection, and few even require a reserve study to determine how much money to save for the obvious problems, never mind those no one knows about[4].
This situation leads to unfair consequences for those owners who find themselves unlucky enough to own a unit when the damage and deficits are finally realized. Damage discovered, say, in year 35 didn’t just happen in year 35. That deterioration likely began earlier in the building's life and lay hidden for decades. It is costly to repair when it finally becomes obvious or dangerous. No prior owner, those who owned and sold their units years ago, will pay any part of the cost of the eventual rehabilitation of that building due to past lack of adequate inspections and years of artificially low assessments. Instead, the present owners will be handed the entire tab for the shortfall from several decades of deferred maintenance or hidden damage—the last people standing when the music stops.
Can this trend be reversed? As condominium buildings age and deterioration continues, the funding deficit increases dramatically. But to reverse that trend and reduce the deficit, someone must know it exists and be willing to address it. That requires more robust inspections early in the building's life and potentially higher assessments to stay even with any decay.
Conclusion
It would not be wrong to blame this on the failure of the basic condominium model. Volunteers rarely have sufficient training or expertise to oversee complex infrastructure maintenance, especially without mandatory funding to pay for it. The model also does not insist that board members have a talent for resolving conflicts. While condominium boards can leverage fines or legal action to enforce the rules, that lacks finesse and can create greater antagonism—a distraction from the more critical job of raising funds to inspect and maintain the building.
Unit owner-managed, voluntarily funded, multi-million-dollar condominium projects were probably a bad idea from the beginning. But sadly, it is way too late to reverse course on the millions of such projects built in the past sixty years. Many are already reaching the end of their service lives, with no plan to deal with that. Robust inspection standards on new and existing projects and enforceable minimum funding for maintenance and repairs should be considered by state legislatures. But whatever the approach, the present system is not staying even with the deterioration of many buildings, and that is just not safe anymore.
- The collapse of the balcony in Berkeley occurred on an apartment building. But the construction of that building is similar or identical to the construction of most multi-story wood-frame condominiums.
- Boards of directors are empowered by statute or contract to assess members for operation and maintenance costs. However, there are few statutes that set minimum funding or otherwise require boards to exercise that authority.
- Even in states that require reserve studies, the physical inspections are inadequate to uncover some of the costliest damage. California’s reserve study statute—Civil Code Section 5550—only requires inspection of those components that are visible and accessible, leaving damage within walls and other structural components undiscovered and funding for the eventual repairs, unaddressed.
- In May 2022, in response to the Champlain Towers South collapse, Florida enacted mandatory structural inspections for buildings 30 years and older, repeating every 10 years thereafter. The law also includes mandatory reserve funding for structural components.
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Tyler P. Berding, Berding & Weil LLPMr. Berding may be contacted at
tberding@berdingweil.com
Hawaii Court of Appeals Finds Insured AOAO Not Liable for Securing Inadequate Insurance
March 04, 2024 —
Tred R. Eyerly - Insurance Law HawaiiThe Hawaii Intermediate Court of Appeals (ICA) affirmed the trial court's finding that the insured Association of Apartment Owners (AOAO) was not liable for securing a policy with inadequate coverage. AOAO Queen Emma Gardens, et al v. Wa, 2023 Haw. App. LEXIS 400 (Haw. Ct. App. Dec. 19, 2023).
In October 2002, the Was purchased a condominium located in the Queen Emma Gardens Condominium. The AOAO's bylaws provided that it would procure and maintain insurance "to insure the Board, the Association, and each apartment owner against claims for personal injury, death, and property damage arising out of the condition of the property or activities thereon . . ." The AOAO secured a CGL policy from Insurance Association, Inc., with coverage limits for bodily injury at $1,000,000 and an umbrella policy providing an additional $5,000,000 of coverage. Each of the policies "insured each individual insurance owner of the insured condominium, but only with respect to liability arising out of the ownership, maintenance or repair of that portion of the premises which is not reserved for that unit owner's exclusive use or occupancy."
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Tred R. Eyerly, Damon Key Leong Kupchak HastertMr. Eyerly may be contacted at
te@hawaiilawyer.com
Surfside Condo Collapse Investigators Uncover More Pool Deck Deviations
September 12, 2023 —
James Leggate - Engineering News-RecordThe investigation into the 2021 collapse of the Champlain Towers South condominium in Surfside, Fla., has uncovered more deviations between the as-built conditions of the pool deck and the building’s design. But investigators emphasize their data are still preliminary as they continue to gather and test evidence from the collapse that killed 98 people.
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James Leggate, Engineering News-Record
Mr. Leggate may be contacted at leggatej@enr.com
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