Garlock Five Years Later: Recent Decisions Illustrate Ongoing Obstacles to Asbestos Trust Transparency
September 03, 2019 —
Amy E. Vulpio - Complex Insurance Coverage ReporterIn In re Garlock Sealing Technologies, LLC, 504 B.R. 71 (Bankr. W.D.N.C. 2014), the court confirmed what many asbestos defendants and their insurers long suspected: that “the withholding of exposure evidence by plaintiffs and their lawyers was significant and had the effect of unfairly inflating the recoveries against Garlock” and other defendants. This “startling pattern of misrepresentation” included plaintiffs’ attorneys who, out of “perverted ethical duty,” counseled their clients to file claims against multiple trusts without valid factual grounds for so doing. Such “double dipping” and other abuse not only harms asbestos defendants and insurers, but also dilutes recoveries for legitimate claims. Now – five years after Garlock – the Department of Justice (DOJ) has launched a coordinated initiative to fight asbestos trust fraud and mismanagement. However, a series of recent bankruptcy court rulings suggests that this initiative stumbled out of the gate by focusing on the wrong issues. Asbestos defendants and their insurers can learn from the DOJ’s missteps.
In November 2017, invoking Garlock, 20 state attorneys general wrote to then-Attorney General Jeff Sessions asking him to devote DOJ resources to fighting asbestos trust abuse. A September 13, 2018 DOJ press release announced an initiative to increase the transparency and accountability of asbestos trusts. Through its United States Trustee Program (UST), the DOJ objected to the debtors’ proposed legal representative for future claims (FCR) in several Chapter 11 cases involving asbestos liabilities: Lawrence Fitzpatrick in Duro Dyne and James L. Patton, Jr. in Maremont, Fairbanks and Imerys Talc.
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Amy E. Vulpio, White and Williams LLPMs. Vulpio may be contacted at
vulpioa@whiteandwilliams.com
Benford’s Law: A Seldom Used Weapon in Forensic Accounting
March 05, 2015 —
Roger Hughes – California Construction Law BlogWhat is Digit Analysis and Why it Should be of Interest to Construction Attorneys?
Benford’s Law was named after Frank Benford, a General Electric physicist. Mr. Benford was the first to discover that “leading digits” do not follow a uniform distribution pattern as suggested by intuition. If you are like me, the response to such a statement is “huh”? But stick with me because this is important stuff to anyone who suspects a claim presentation may have been rigged, a bit here or a bit there, or maybe all over. It turns out that calculations purportedly based upon naturally, randomly occurring numbers may have been contrived. By “randomly occurring” we mean numbers that occur naturally without human interference as opposed to a contrived selection. Said another way, it is now accepted as a mathematical truth that the pattern of numbers randomly generated can be distinguished from numbers influenced by human intervention. Yikes, glad you told me that before I prepared my taxes.
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Roger Hughes, Wendel Rosen Black & Dean LLPMr. Hughes may be contacted at
rhughes@wendel.com
Life After McMillin: Do Negligence and Strict Liability Causes of Action for Construction Defects Still Exist?
January 24, 2018 —
Thomas Balestreri and Amanda Crawley - Balestreri, Potocki, & HolmesThe ruling is in but the battle will likely continue over the practical application of SB 800. On January 18, 2018 the California Supreme Court issued its decision in
McMillin Albany, LLC v. Superior Court (Van Tassel) (January 18, 2018, S229762) __ Cal.4th __, holding that the statutory prelitigation scheme in The Right to Repair Act (“the Act”) that provides for notice and an opportunity for the Builder to repair defects applies to all claims for construction defects in residential construction sold on or after January 1, 2003, regardless whether the claim is founded on a violation of the Act’s performance standards or a common law claim for negligence or strict liability. (
McMillin Albany, LLC v. Superior Court (Van Tassel) (January 18, 2018, S229762) __ Cal.4th __.) With this holding, has the Court ruled that common law causes of action for construction defect still survive? If so, what will they look like and what standards will be applied?
The short answer is that it appears that common law causes of action still survive, at least for now, but it is not clear from this decision what they will look like and what standards will apply.
Portions of the decision seem to suggest that the Act is the sole and exclusive remedy for construction defect claims: “…even in some areas where the common law had supplied a remedy for construction defects resulting in property damage but not personal injury, the text and legislative history [of the statute] reflect a
clear and unequivocal intent to supplant common law negligence and strict product liability actions under the Act.” (
McMillin (January 18, 2018, S229762) __Cal.4th.__ [p. 6].) (Italics added for emphasis) However, at the end of the decision, the Court seems to be saying that there may still be a place for common law claims for negligence and strict liability alongside the Act but that these causes of action may be subject to the performance standards in the Act.
The
McMillin case went up to the Supreme Court on a procedural issue: whether a common law action alleging construction defects resulting in both economic loss and property damage is subject to the Act’s prelitigation notice and cure procedures. The Van Tassels had dismissed their claims under the Act opting to proceed solely on their common law claims including negligence and strict liability. McMillin sought a stay to force the Van Tassels to comply with the Act’s prelitigation procedures. The Supreme Court held that the Van Tassels must comply with the statutory procedures and affirmed the stay issued by the trial court. But the question remained: now that the Van Tassels were left only with common law claims, how would they proceed under the Act?
To understand how the Court dealt with this question, one must first understand how the Court dealt with the narrow procedural question presented by the case. The Court provides a very detailed, clear explanation of the reasons why it felt the Legislature intended for all construction defect claims involving residential construction must comply with the prelitigation requirements of the Act. In summing up its conclusions the Court makes three definitive holdings.
First, for claims involving economic loss only—the kind of claims involved in
Aas—the Court holds that the Legislature intended to supersede
Aas and provide a statutory basis for recovery. (
McMillin (January 18, 2018, S229762) __Cal.4th.__ [p. 10].) In other words, the Court clearly agrees that the Act was meant to allow recovery of damages based solely on economic damages. No surprise there. Second, the Court held for personal injuries, the Legislature made no changes to existing law that provides common law remedies for the injured party. (Id.) Nobody has ever contested that. Finally, the Court held that for construction defect claims involving property damage and not just economic loss “the Legislature replaced the common law
methods of recovery with the new statutory scheme.” (
Id.,) (Italics added for emphasis.)
In other words, the Court is not saying that negligence and strict liability are not permitted causes of action. The Court is merely stating that these causes of action must comply with the Act’s statutory scheme just as the same as a claim for economic loss. Here the Court is focusing on the procedure that must be followed. “The Act, in effect, provides that construction defect claims not involving personal injury will be treated the same procedurally going forward whether or not the underlying claims gave rise to any property damage.” (
Id.)
Having laid out its fundamental premise, the Court then deals with Plaintiff’s arguments regarding the intent of the Legislature and makes light work of them all. In the process, the Court disapproves
Liberty Mutual Ins. Co. v. Brookfield Crystal Cove LLC (2013) 219 Cal. App. 4th 98, and
Burch v. Superior Court (2014) 223 Cal. App. 4th 1411, to the extent they are inconsistent with the views expressed in the
McMillin opinion.
This is where the decision gets interesting. The Court reminds us that the Van Tassels had dismissed their statutory causes of action for violation of the performance standards under Section 896. One would think at that point that Plaintiffs had to be wondering if they had any claims left given that the Court had ruled that the Act was the sole means of recovery for construction defects. Not so fast. The Court points out that the complaint still rests on allegations of defective construction and that the suit remains an “ ‘action seeking recovery of damages arising out of, or related to deficiencies in, the residential construction’ of the plaintiffs’ homes (§896)
and McMillin’s liability under the Van Tassels’ negligence and strict liability claims depends on the extent to which it [McMillin] violated the standards of sections 896 and 897.” (
McMillin (January 18, 2018, S229762) __Cal.4th.__ [p. 19].) (Emphasis added.) WHAT DID THE COURT JUST SAY? Did the Court just say that a plaintiff could bring a common law cause of action for negligence or strict liability based on a violation of the performance standards under Section 896? What exactly would that claim look like? What would be the elements of such a cause of action?
To answer these questions, the Court states in the very next paragraph, which also happens to be the last paragraph in the decision: “In holding that claims seeking recovery for construction defect damages are subject to the Act’s prelitigation procedures regardless of how they are pleaded,
we have no occasion to address the extent to which a party might rely upon common law principles in pursuing liability under the Act.” (
McMillin (January 18, 2018, S229762) __Cal.4th.__ [p. 19].) (Italics added for emphasis) Is the Court answering “No” to the questions posed above? Probably not. It is simply following the age old rule that an appellate court will
not rule on an issue that is not specifically presented by an appeal, leaving that question for another day.
All we know for sure from
McMillin is that every claim for construction defects falling within the scope of the Act must follow the prelitigation procedure. There are no hall passes for negligence and strict liability. The larger question posed by the last two paragraphs in the decision, is whether the law recognizes a cause of action for negligence and strict liability for construction defects based on the standards in Section 896. The answer will have to be worked out by judges and trial attorneys in courtrooms across the State! The parameters of this hybrid cause of action that the Court seems to have posited will need more careful consideration than can be offered on first reading of
McMillin v. Superior Court.
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New Jersey Court Adopts Continuous Trigger for Construction Defect Claims
November 15, 2017 —
Tred R. Eyerly - Insurance Law HawaiiThe New Jersey Superior Court, Appellate Division, adopted the continuous trigger for establishing which insurers were on the risk for construction defect claims. Air Master & Cooling, Inc. v. Selective Ins. Co. of Am., 2017 N.J. Super. LEXIS 144 (N.J. Super. Ct., App. Div. Oct. 10, 2017).
The insured, Air Master, worked as a subcontractor on the construction of a condominium building. Air Master performed HVAC work in the building between November 2005 and April 2008. Air Master's work consisted of installing condenser units on rails on the building's roof, and also HVAC devices within each individual unit.
Starting in early 2008, some of the unit owners began to notice water infiltration and damage in their windows, ceilings, and other portions of their units. On April 29, 2010, an expert consultant, Jersey Infrared Consultants, performed a moisture survey of the roof for water damage. A report identified 111 spots on the roof damaged by moisture from water infiltration. The report noted it was impossible to determine when moisture infiltration occurred. The expert recommended that these damaged areas of the roof be removed and replaced.
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Tred R. Eyerly, Insurance Law HawaiiMr. Eyerly may be contacted at
te@hawaiilawyer.com
"Multiple Claims" Provisions on Contractor's Professional Liability Policy Creates a Trap for Policyholders
May 24, 2021 —
Michael V. Pepe - Saxe Doernberger & VitaIn Berkley Assurance Company v. Hunt Construction Group, Inc., 465 F.Supp.3d 370 (S.D.N.Y., 2020), professional liability insurer Berkley sued its insured, Hunt, a construction management firm, seeking a declaration that it did not owe Hunt a duty to defend and indemnify against breach of contract claims. The United States District Court for the Southern District of New York granted Berkley’s motion for summary judgment and denied Hunt’s motion for partial summary judgment. Among other things, the court held that the policy’s automatic extended reporting period did not apply to Hunt’s first claim. The multiple claims provision barred Hunt’s second claim because the claims were related.
The court’s holding creates a potential trap for policyholders who wait to see how a claim develops before reporting it to their insurance carrier. This case demonstrates that waiting to see how a claim develops can result in a loss of coverage. Policyholders need to be aware of this trap and report all claims and circumstances immediately.
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Michael V. Pepe, Saxe Doernberger & VitaMr. Pepe may be contacted at
MPepe@sdvlaw.com
MDL Panel Grants Consolidation for One Group of COVID-19 Claims
November 02, 2020 —
Tred R. Eyerly - Insurance Law HawaiiPreviously denying consolidation of all COVID-19 business interruption claims [post here], the Judicial Panel on Multidistrict Litigation allowed consolidation of one group of cases against Society Insurance Company while denying consolidation of four other groups of cases. In re Soc'y Ins. Co. COVID-19 Bus. Interruption Protection Ins. Litigation, 2020 U.S. Dist. LEXIS 183678 (J.P.M.L. Oct. 2, 2020).
Claims against Society encompassed 34 actions filed in Illinois, Indiana, Iowa, Minnesota, Wisconsin, and Tennessee. The court found that centralization of the Society actions would serve the convenience of the parties and witnesses and further the just and efficient conduct of the litigation. The actions shared common factual allegations that Society wrongfully denied policy holders' claims for business interruption coverage. Plaintiffs contended that Society preemptively decided to deny their claims.
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Tred R. Eyerly, Damon Key Leong Kupchak HastertMr. Eyerly may be contacted at
te@hawaiilawyer.com
Jean Nouvel’s NYC ‘Vision Machine’ Sued Over Construction Defects
December 10, 2015 —
Beverley BevenFlorez-CDJ STAFFThe Telegraph reported that the developers of famed architect Jean Nouvel’s futuristic building are being sued over alleged window pane defects. The building contains a customized, “curving curtain wall of different sized panes of colorless glass—each set in a unique angle and torque,” according to Nouvel’s firm. However, some residents reported “wind whistling through the panes of glass, and water seeping in.” Furthermore, “[t]he draft is so severe in some places that hydronic heating pipes have frozen and burst, according to court papers.”
Attorney for the developer told the Telegraph, “Our clients will be vigorously defending this matter and we believe we will prevail in the case.”
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Green Buildings Could Lead to Liabilities
March 28, 2012 —
CDJ STAFFAttempts to build “green,” reducing energy costs and increasing the use of sustainable building materials, may lead to more lawsuits, according to a report issued by the British Columbia Construction Association. The report warned those who were going to build green look into the implications. The report looked at the result of green building practices and requirements adopted in the United States.
The report warns that “the use of novel, less harmful building material or new construction techniques may give rise to liability due to: contractor inexperience with installation; lack of long-term evaluation of green materials; lack of understanding of how new building materials may impact existing traditional building systems; or warranties provided unintentionally about the durability or effectiveness of unproven materials or techniques.”
Manley McLachlan, president of the BCAA noted that they are aware of “legal action around the performance of the buildings,” noting that while fast-growing trees help toward LEED certification, their wood is more prone to mold. He also felt that low-VOC paints needed more testing to prove their durability as exterior finishes.
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