The Evolution of Construction Defect Trends at West Coast Casualty Seminar
May 24, 2018 —
Don MacGregor – Bert L. Howe & Associates, Inc.Twenty-five years ago. 1993. On January 23rd, Bill Clinton was sworn in as the 42nd President of the United States. The average cost of a gallon of gasoline was $1.16, a movie ticket cost $4.00, and the average cost of a new home was $113,200.00.
1993 also marked the first of what would be a quarter century of annual seminars hosted by West Coast Casualty Service, and provided to the combined professionals within the Construction Defect Community. As the seminar has grown both in attendance and prominence within this community under the watchful stewardship of David and Coral Stern, much has changed both with regard to the content of the seminar and the climate within which it was presented. A quick look at the topics addressed over the past 25 years of the Construction Defect Seminar provides one with a veritable history of construction defect litigation and insurance coverage trends across the United States and beyond.
While the first seminar was hosted in 1993, my first attendance didn’t occur until 1999, and the first time I was honored to be a panelist would have to wait until 2007. In the subsequent years, I’ve had the opportunity to sit on panels an additional three times, and each one I gained rare and valuable insights into the Construction Defect Community, its willingness to challenge itself, and the amazing professionals we all have the distinct pleasure of working with every day (and whom we sometimes take too much for granted).
In the mid to late 90’s, topics at the seminar included such subjects as the Montrose Chemical Corp v. Superior Court decision (Montrose) regarding a carrier’s duty to defend and the subsequent Stonewall Insurance case that examined the duty to indemnify in the context of construction defect claims. The California Calderon Act of 1997, laying out the roadmap for HOA’s filing construction defect lawsuits was also a topic of discussion and debate within the West Coast “arena.”
The new millennium saw the landmark Aas v. William Lyon decision, which disallowed negligence claims for construction defects in the absence of actual resultant damage. This was followed by Presley Homes v. American States Insurance wherein the court ruled that a duty to defend applies where there is mere potential for coverage and the duty to defend applies to the entire action. Each of these bellwether decisions was addressed contemporaneously by panels at the West Coast seminar, contemporaneously bringing additional dialog to the CD community, from within the community.
2002 brought what has become the defining legislation in California regarding construction defect litigation and a builder’s right to repair. Senate Bill 800 (SB800), and its subsequent codification as Title 7, Part 2 of Division 2 of the California Civil Code, Sections 895 through 945.5 would become the defining framework for similar legislation across the United States. During the course of its drafting, movement through the legislature, and final adoption in January of 1993, many of the questions raised and debated in committees in Sacramento, had already been and were continuing to be addressed by panelists at the West Coast Seminar. How does SB800 work with Calderon? How does it affect the prior Aas decision? What now constitutes a defect, and what are timeframes established within the complex pre-litigation process? Open the pages of the 2002 – 2004 Seminar invitations and you’ll see panels comprised of the finest members of the insurance law and coverage communities addressing those very questions (and more)!
As the first decade of the new century drew to a close, a brief review of the WCC invitations from that period suggests a trend towards programmatic analyses of key themes selected for the seminar. In 2008, my second opportunity as a guest speaker, topics included a review of the state of construction defect litigation in a post-SB 800 environment. Panelists offered retrospective insight into the state of right to repair statutes in multiple states, while others offered a glimpse at where the industry might be headed, as similar legislation was enacted across the country. As always, pertinent court decisions bearing on construction defect, both in California, and elsewhere were given unique perspective and additional clarity by multiple panels of gifted speakers. In 2009, claims and coverage were examined from multiple unique perspectives, including that of plaintiff, the policyholder, and the insurer. Wrap policies and the gaps in due to self-insured retention obligations were examined.
As we rapidly approach the end of the second decade of the 21st Century, West Coast Casualty’s Construction Defect Seminar continues to lead the Construction Defect Community as the premier source for information and peer dialog on all matters relating to construction law, coverage, and emerging trends. In 2017, the Seminar tackled such broad subjects as the role of women in the construction industry, claims management, and risk management, challenges raised by wrap versus non-wrap litigation, and the emergent trend of apartment to condo conversions (and the attendant coverage challenges).
On May 16th at the Disneyland Resort, in Anaheim California, America’s largest Construction Defect event kicked off its 25th Anniversary celebration. As has been every year since 1993, the Seminar provided insurance, legal, and industry professionals an exciting and informative array of salient and timely panel topics, as well as a stellar faculty of gifted panelists. This year’s West Coast Casualty’s Construction Defect Seminar, like the past 25 years, was not only informative and educational, but also a promise for another 25 years of peerless service to the Construction Defect Community.
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Acquisition, Development, and Construction Lending Conditions Ease
May 21, 2014 —
Beverley BevenFlorez-CDJ STAFFAccording to the National Association of Home Builders’ (NAHB) Eye on Housing, “[b]uilders and developers continue to report easing credit conditions for acquisition, development, and construction (AD&C) loans according to NAHB’s survey on AD&C financing.”
Eye on Housing stated that while “commercial banks remain the primary source of credit for AD&C by a wide margin, private individual investors have emerged as a viable alternative, especially for A&D loans.”
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Construction Defect Leads to Death, Jury Awards $39 Million
November 27, 2013 —
CDJ STAFFA failure in the installation of a 13-ton concrete panel in Milwaukee County lead to the death of a 15-year-old boy in 201; two others were also injured. A lawsuit over this has concluded with the contractor, Advance Cast Stone, found culpable due to their concealing that the panel was not installed as prescribed. The incident happened at a parking garage operated by the county.
Advanced Cast Stone made the claim that the method they used to secure the panel had been approved by other in the project. The jury awarded $6.3 million to the estate of Jared Kellner, $1.5 million each to the young man who was injured, Eric Wosniki, and his parents. The county was also awarded $6 million for lost revenue in the parking garage and for repairs.
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Creating a Custom Home Feature in the Great Outdoors
July 09, 2014 —
Beverley BevenFlorez-CDJ STAFFWhen a resort designer and a spa director join together to create a custom home, what do you get? An outdoor tub that resides on a balcony overlooking the San Francisco Bay.
According to Custom Home, Scott Lee, president of SB Architects, and his wife had the “custom cast concrete tub…craned into place on the third-story deck while avoiding an established oak tree.” A radiant heat lamp makes the outdoor bathing area practical, while the curved backrest, remote controlled dimmable lights, and music make the experience luxurious.
“Tubs are more about relaxing then getting clean,” Lee told Custom Home. “Being out here among the branches with views of San Francisco, it really is like a resort.”
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Recent Opinions Clarify Enforceability of Pay-if-Paid Provisions in Construction Contracts
May 29, 2023 —
Patrick McKnight - The Dispute ResolverSeveral recent opinions and legislative actions have brought the controversial nature of pay-if-paid provisions into focus in early 2023. Pay-if-paid provisions are contractual mechanisms designed to shift the risk of non-payment from General Contractors to lower-tier subcontractors. In other words, pay-if-paid provisions generally do not require payment to downstream subs until after the GC or Prime are themselves paid in-full by the owner. Recent developments reflect the differing approaches taken by courts when addressing pay-if-paid provisions, ranging broadly from prohibition to full enforceability. Other jurisdictions fall somewhere in the middle, viewing such provisions with varying amounts of skepticism on the grounds heir impact on smaller downstream subs is disproportionate and unfair.
Pay-if-paid provisions are often contrasted against “pay-when-paid” provisions. Pay-when-paid provisions may require payment within a specified duration but remove the upstream contractor’s payment in-full as a condition precedent. The brief discussion below will not explore pay-when-paid, no damage for delay provisions, or statutory prompt payment acts. Instead, this article serves as a primer on recent legal developments related to pay-if-paid provisions exclusively.
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Patrick McKnight, Fox Rothschild LLPMr. McKnight may be contacted at
pmcknight@foxrothschild.com
Recent Supreme Court Decision Could Have Substantial Impact on Builders
January 23, 2023 —
Cassidy Ingram - Ahlers Cressman & SleightOn October 27, 2022, the Washington State Supreme Court issued a decision which could have a substantial impact on the enforceability of contract clauses that require litigation to be commenced within a stated period of time from project completion. In Tadych v. Noble Ridge Construction, Inc.,the Supreme Court held that the contractual one-year statute of limitations for bringing claims against the contractor was substantively unconscionable and reversed the Court of Appeals.
In Tadych, plaintiff owners (the Tadychs) contracted with defendant contractor (Noble Ridge Construction, Inc., or NRC) for the construction of a custom home in 2012. The contract included a one-year claim limitations clause that required claims to be raised within a one year period from project completion and that any claims not raised during the one-year period would be waived. In December 2013, as the project neared completion, the Tadychs met with NRC to identify any outstanding project issues. The Tadychs noted several, including rainwater pools at the landing at the bottom of the stairs and several nicks and cracks on the stucco exterior walls.
The Tadychs moved into the home on April 8, 2014, and the City of Seattle Department of Planning and Development conducted its final site inspection on April 15 and approved the residence for occupancy on April 23. In January or February of 2015, the Tadychs began to notice a shift in their home. In February of 2015, the Tadychs engaged the Construction Dispute Resolution (CDR) to review NRC’s work. CDR raised concerns about the adequacy of the home’s construction and prepared a written report in March 2015 indicating several deviations from the architectural plans and building codes. The Tadychs sent this report to NRC, who assured the Tadychs that NRC’s work followed all requirements and rejected any claims that there were deviations from the plans. The Tadychs continued to notice issues with the home through October 2016.
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Cassidy Ingram, Ahlers Cressman & SleightMs. Ingram may be contacted at
cassidy.ingram@acslawyers.com
Auburn Woods Homeowners Association v. State Farm General Insurance Company
January 11, 2021 —
Michael Velladao - Lewis BrisboisIn Auburn Woods HOA v. State Farm Gen. Ins. Co., 56 Cal.App.5th 717 (October 28,2020) (certified for partial publication), the California Third District Court of Appeal affirmed the trial court’s entry of judgment in favor of State Farm General Insurance Company (“State Farm”) regarding a lawsuit for breach of contract and bad faith brought by Auburn Woods Homeowners Association (“HOA”) and property manager, Frei Real Estate Services (“FRES”) against State Farm and the HOA’s broker, Frank Lewis. The parties’ dispute arose out of the tender of two different lawsuits filed against the HOA and FRES by Marva Beadle (“Beadle”). The first lawsuit was filed by Beadle as the owner of a condominium unit against the HOA and FRES for declaratory relief, injunctive relief, and an accounting related to amounts allegedly owed by Beadle to the HOA as association fees. The second lawsuit filed by Beadle was for the purpose of setting aside a foreclosure sale, cancelling the trustee’s deed and quieting title, and for an accounting and injunctive relief against an unlawful detainer action filed by Sutter Group, LP against Beadle. The complaint filed in the second lawsuit alleged that Allied Trustee Services caused Beadle’s property to be sold at auction and that Sutter Capital Group, LP purchased the unit and obtained a trustee’s deed upon sale. Beadle claimed the assessments against her were improper and the trustee’s deed upon sale was wrongfully executed. Beadle sought an order restoring possession of her unit and damages.
The HOA and FRES tendered both lawsuits to State Farm. As respects the first lawsuit, State Farm denied coverage of the lawsuit based on the absence of alleged “damages” covered by the policy issued to the HOA affording liability and directors and officers (“D&O”) coverages. State Farm agreed to defend the HOA under the D&O coverage in the second lawsuit. However, State Farm denied coverage of FRES in both lawsuits as it did not qualify as an insured under the State Farm policy issued to the HOA. Subsequently, the HOA and FRES filed an action against State Farm arguing that a duty to defend was triggered under its policy for the first lawsuit and a duty to defend FRES was also owed under the D&O policy for the second lawsuit. After a bench trial, the trial court entered summary judgment in favor of State Farm based on the failure of the first lawsuit to allege damages covered by the State Farm policy under the liability and D&O coverages afforded by the policy. As respects the second lawsuit, the trial court held that FRES did not qualify as an insured and State Farm did not act in bad faith by refusing to pay the HOA’s alleged defense costs in the second lawsuit before it agreed to defend the HOA against such lawsuit.
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Michael Velladao, Lewis BrisboisMr. Velladao may be contacted at
Michael.Velladao@lewisbrisbois.com
California Governor Signs SB 496 Amending California’s Anti-Indemnity Statute
June 05, 2017 —
William S. Bennett - Saxe Doernberger & Vita, P.C.The bill amends Cal. Civ. Code § 2782.8 as it applies to indemnity agreements with design professionals. The pre-existing § 2782.8 prohibited public agencies from requiring indemnity from design professionals for anything other than claims arising out of, pertaining to, or relating to the negligence, recklessness, or willful misconduct of the design professional.
Under the newly passed bill, the indemnity restrictions imposed on public agencies when contracting with design professionals will now apply to all parties contracting with design professionals for professional services (effective Jan. 1, 2018). These restrictions also apply to a party contractually imposing a defense obligation on the design professional.
The revised statute specifically identifies architects, landscape architects, professional engineers, and professional land surveyors as included within the meaning of “design professional,” however it is unclear whether that is the extent of the phrase’s meaning.
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William S. Bennett, Saxe Doernberger & Vita, P.C.Mr. Bennett may be contacted at
wsb@sdvlaw.com
