Steps to Curb Construction Defect Actions for Homebuilders
June 15, 2017 —
Jason Daniel Feld – Kahana & Feld, LLPThe homebuilding and construction industries in California are at a record high in 2017 according to the National Homebuilders Association. While there is finally prosperity and growth for builders, developers and contractors after suffering from the recession of 2008, there is also a growth in construction defect claims. As with every industry and especially with construction, there are several risk prevention methods that can help curb this litigation.
Time Frames for Pursuing Construction Defect Claims
It is important to know and understand the time frames for which construction defect claims can be pursued by homeowners. There is a hard cut-off for construction defect litigation in California known as the Statute of Repose of 10 years. California Code of Civil Procedure (“CCP”) §337.15 provides a statute of repose that bars actions to recover damages for construction defects more than 10 years after substantial completion of the work of improvement. This provision is limited to property damage claims and does not extend to personal injuries (See, Geertz v. Ausonio, 4 Cal.App.4th 1363 (1992) and willful misconduct or fraudulent concealment claims. (See, Acosta v. Glenfed Development Corp., 128 Cal.App. 4th 1278 (2005).
There are also interim statutes of limitations for “patent” and “latent” defects discovered at the home also from the date of substantial completion. CCP §337.1(e) provides for a four year window to bring suit for deficiencies that are apparent by reasonable inspection (patent deficiencies). CCP §337.15(b) provides for deficiencies that are not apparent by reasonable inspection or hidden defects that require invasive testing to become apparent (latent deficiencies). A latent defect can become patent after it “manifests itself” (i.e. becomes observant – for example a roof leak) for which the four year window from the date of discovery would become the applicable statute of limitations.
The discovery rule effectively acts to toll the statute of limitation period on construction defect claims until they become reasonably apparent. (See, Regents of the University of CA v.Harford Accident & Indemnity, Co., 21 Cal.3d 624, 630 (1978). This is similar to a breach of contract claim, also a four year statute of limitation. Finally, the California Right to Repair Statute (SB800) – Civil Code §§895, et seq. specifically Civil Code §896 sets forth the “Functionality Standards” or a list of actionable defect items, including items affecting the component’s “useful life” and a catch-all provision for all items not expressed listed as defects in the statute. (Civil Code §897). The majority of the defects alleged have a 10 year statute of limitations. However, there are shortened statute of limitations for the following items:
| Functionality Standards | Statute of Limitations |
|---|
| Noise Transmission |
1 year from original occupancy of adjacent unit |
| Irrigation |
1 year from close of escrow |
| Landscaping Systems & Wood Posts (untreated) |
2 years from close of escrow |
| Electrical systems, pluming/sewer systems, steel fences (untreated), flatwork cracks |
4 years from close of escrow |
| Paint/Stains |
5 years from close of escrow |
| All other functionality standards (Civil Code §941(a)) |
10 years after substantial completion(date of recordation of valid NOC) |
Preventative Measures to Curb Construction Defect Litigation
Once the builder knows the time frames for construction defect claims, the following are some preventive measures to limit construction defect claims. As a reminder, homeowners are less likely to bring construction defect action if they feel that the builders are taking care of them.
1. Communicate With Homeowners Prior to Claims
It is imperative to communicate with the homeowners throughout the ten years statute of repose period. For example, most builders provide a limited warranty to the homeowners at the time of purchase. Homeowners are generally confused as to the length of the warranty and what the warranty covers. A practical tip to help curb construction defect claims is for the builder to send postcards or letters to the homeowners at the six month, one year and nine-year marks to advise the homeowner of: (1) the existence of the warranty and what is covered at each time frame; (2) the maintenance obligations of the homeowner at the various time frames; and (3) the fact that the home is approaching the ten-year mark. Most builders would rather deal directly with the homeowners through customer service than defend a construction defect litigation action where the costs to defend the claim will vastly exceed the cost to address the individual homeowner issues. The more the builder communicates with the homeowner in advance, the less likely it is that the homeowner engages in litigation against the builder.
2. Timely Response to Homeowner Claims
During the purchase process, provide the homeowners instructions on how to send in a customer service or warranty requests. Provide multiple methods for notification to the builder by the homeowner when issues arise in their home (fax, email, website forms, etc.). The builder should provide a timely response – within 48 hours of the notice if possible. The homeowner wants to receive some notification from the builder that they received their request and, at the very least, will investigate the claim. Even if it is determined to be a maintenance item or homeowner caused damage, the homeowner should receive: (1) an acknowledgement of the claim; (2) an investigation report of the issue; and (3) an action plan or conclusion statement – this can be a declination of repairs with an explanation as to the cause not being the result of original construction. Sometimes even sending a customer service representative to the home to listen to the homeowner claims and explaining that there are not repairs required is sufficient to satisfy the homeowner. The goal is to make sure the homeowner’s claims are acknowledged and that the builder is standing behind its product. In my experience, the fact that the builder failed to respond in a timely fashion to the homeowner is a significant motivating factor as to why the homeowner elected to enter formal litigation against the builder.
3. Be Proactive When Litigation Ensues Despite the fact that the homeowner has engaged an attorney and joined a construction defect action, the builder is not precluded from continuing to communicate with its homeowners. Several builders send letters to the non-plaintiff homeowners reminding them to contact the builder should they have issues at their homes rather than join the ongoing construction defect action. Under the law, clients can always talk to clients even if they are represented by counsel. While the attorneys for the builders cannot speak to the represented construction defect homeowners, the builder can communicate directly with its homeowners offering to honor its warranty and customer service procedures in lieu of the homeowner proceeding with the litigation. Both of these builder attempts to communicate with homeowners post-litigation have a dual effect – some homeowners elect to contact the builder to effectupate repairs and drop the litigation; while others elect to continue with the litigation. So proceed cautiously in this regard.
It is noted, there are many motivating factors for homeowners to bring a lawsuit against homebuilders that have nothing to do with the construction practices or customer service and are merely economically driven. However, these small steps in addition to providing solid construction practices should help curb construction defect litigation by homeowners.
Jason Daniel Feld is a founding partner of Kahana & Feld LLP, an AV Preeminent boutique litigation firm in Orange County specializing in construction defect, insurance defense, employment and general business litigation matters. The firm was founded with the goal of providing high-quality legal services at fair and reasonable rates. The firm believes that what defines attorneys is not their billing rates, but their record of success, which speaks for itself. For more information, please visit: www.kahanafeld.com.
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Allegations Versus “True Facts”: Which Govern the Duty to Defend? Bonus! A Georgia Court Clears Up What the Meaning of “Is” Is
December 11, 2023 —
Rachel E. Hudgins & Syed S. Ahmad - Hunton Insurance Recovery BlogCourts scrutinize a complaint’s factual allegations to decide whether the allegations trigger a duty to defend.
[1] If the facts unambiguously exclude coverage, there is no duty to defend.
[2] But what if the factual allegations fall within a policy exclusion, but the allegations are untrue or questionable? What if the true facts would mean the exclusion doesn’t apply? In that case, many courts have found that the insurer should base its decision on the policyholder’s version of the “true facts.”
[3] An insurer can’t rely on the complaint’s allegations to deny coverage when the facts that the insurer knows or can ascertain show that the claim is covered.
[4]
A recent case,
United Minerals & Properties Inc. v. Phoenix Insurance Co., No. 4:23-cv-00050 (N.D. Ga.), illustrates these policy interpretation principles.
Reprinted courtesy of
Rachel E. Hudgins, Hunton Andrews Kurth and
Syed S. Ahmad, Hunton Andrews Kurth
Ms. Hudgins may be contacted at rhudgins@HuntonAK.com
Mr. Ahmad may be contacted at sahmad@HuntonAK.com
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Insurers Subrogating in Arkansas Must Expend Energy to Prove That Their Insureds Have Been Made Whole
July 30, 2019 —
Michael J. Ciamaichelo - The Subrogation StrategistArkansas employs the “made whole” doctrine, which requires an insured to be fully compensated for damages (i.e., to be “made whole”) before the insurer is entitled to recover in subrogation.[1] As the Riley court established, an insurer cannot unilaterally determine that its insured has been made whole (in order to establish a right of subrogation). Rather, in Arkansas, an insurer must establish that the insured has been made whole in one of two ways. First, the insurer and insured can reach an agreement that the insured has been made whole. Second, if the insurer and insured disagree on the issue, the insurer can ask a court to make a legal determination that the insured has been made whole.[2] If an insured has been made whole, the insurer is the real party in interest and must file the subrogation action in its own name.[3] However, when both the insured and an insurer have claims against the same tortfeasor (i.e., when there are both uninsured damages and subrogation damages), the insured is the real party in interest.[4]
In EMC Ins. Cos. v. Entergy Ark., Inc., 2019 U.S. App. LEXIS 14251 (8th Cir. May 14, 2019), EMC Insurance Companies (EMC) filed a subrogation action in the District Court for the Western District of Arkansas alleging that its insureds’ home was damaged by a fire caused by an electric company’s equipment. EMC never obtained an agreement from the insureds or a judicial determination that its insureds had been made whole. In addition, EMC did not allege in the complaint that its insureds had been made whole and did not present any evidence or testimony at trial that its insureds had been made whole. After EMC presented its case-in-chief, the District Court ruled that EMC lacked standing to pursue its subrogation claim because “EMC failed to obtain a legal determination that its insureds had been made whole . . . prior to initiating this subrogation action.” Thus, the District Court granted Entergy Ark., Inc.’s motion for judgment as a matter of law and EMC appealed the decision.
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Michael J. Ciamaichelo, White and Williams LLPMr. Ciamaichelo may be contacted at
ciamaichelom@whiteandwilliams.com
Claims against Broker for Insufficient Coverage Fail
May 10, 2021 —
Tred R. Eyerly - Insurance Law HawaiiAfter a coverage dispute for damage caused by Hurricane Harvey was settled, the insured's claims against its insurance broker for providing insufficient coverage were dismissed. Hitchcock Indep. Sch. Dist. v. Arthur J. Gallagher & Co., 2021 U.S. Dist. LEXIS 57452 (S.D. Texas Feb. 26, 2021).
The School District suffered $3.5 million in property damage after Hurricane Harvey struck. Its insurers denied coverage and the School District sued. During the litigation, the School District learned that the policies contained an arbitration clause and a New York choice of law provision. Rather than pursue its claims in arbitration, the School District settled with its insurers and sued its broker for failing to obtain insurance without arbitration or choice of law provisions. The broker moved to dismiss
The School District claimed that it had to settle with the insurers for less than what it would have settled had the arbitration and choice of law provisions not been in its policies. The court found this novel theory to be based upon pure speculation
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Tred R. Eyerly, Damon Key Leong Kupchak HastertMr. Eyerly may be contacted at
te@hawaiilawyer.com
Caterpillar Said to Be Focus of Senate Overseas Tax Probe
March 26, 2014 —
Richard Rubin and Jesse Drucker - BloombergA U.S. Senate investigative panel is examining Caterpillar Inc. (CAT) and whether the company improperly avoided U.S. taxes by moving profits outside the country, said three people familiar with the inquiry.
The Senate’s Permanent Subcommittee on Investigations will hold a hearing in early April, said two of the people. They spoke on condition of anonymity before an official announcement.
Rachel Potts, a spokeswoman for Caterpillar, declined to comment. Two staff members for the subcommittee declined to comment.
In 2009, Daniel Schlicksup, an employee who had worked on tax strategy, alleged in a lawsuit in federal court that Caterpillar used a “Swiss structure” to shift profits to offshore companies and avoid more than $2 billion in U.S. taxes. He also alleged that Caterpillar used a “Bermuda structure” involving shell companies to return profits to the U.S. without paying required taxes.
Mr. Rubin may be contacted at rrubin12@bloomberg.net; Mr. Drucker may be contacted at jdrucker4@bloomberg.net
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Richard Rubin and Jesse Drucker, Bloomberg
Pennsylvania Supreme Court Dismisses Appeal of Attorney Fee Award Under the Contractor and Subcontractor Payment Act
February 16, 2016 —
William J. Taylor – White and Williams LLPIn late December, the Supreme Court of Pennsylvania dismissed, as improvidently granted, the appeal in Waller Corporation v. Warren Plaza, Inc., No. 6 WAP 2015 (December 21, 2015). As a result, the Superior Court’s holding in that case that there is no good faith exception to the attorney fee provision of the Pennsylvania Contractor and Subcontractor Payment Act (CASPA), 73 P.S. §§ 501-516, remains intact.
In its decision in Waller, 95 A.3d 313 (Pa. Super. 2014), the Superior Court considered if there was a “good faith” exception to the interest and penalties provision of CASPA, 73 P.S. § 512(a), and whether there was a similar good faith exception to the attorney fee provision of the statute, 73 P.S. § 512(b). The court held that while an award of interest and penalties under § 512(a) could be denied if a party had a good faith basis for withholding payments due under a construction contract, no such exception exists for an award of attorney fees under § 512(b). Rather, an award of attorney fees is appropriate for the “substantially prevailing party” under a CASPA claim, and a claimant can be the substantially prevailing party even if the other party withheld payments in good faith.
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William J. Taylor, White and Williams LLPMr. Taylor may be contacted at
taylorw@whiteandwilliams.com
Iowa Tornado Flattens Homes, Businesses and Wind Turbines
June 17, 2024 —
Annemarie Mannion - Engineering News-RecordBusiness owners and residents are picking up the pieces after a tornado tore through south-central Iowa May 21, devastating the town of Greenfield, about 60 miles southwest of Des Moines, by destroying homes and businesses, toppling MidAmerican Energy Co. wind turbines and damaging the Adair County Memorial Hospital.
Reprinted courtesy of
Annemarie Mannion, Engineering News-Record
Ms. Mannion may be contacted at manniona@enr.com
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Maximizing Contractual Indemnity Rights: Problems with Common Law
December 02, 2015 —
William Kennedy – White and Williams LLPAt its core, the concept of tort law is simple: you pay for the damages you negligently cause. In reality, tort law can sometimes require a party to pay far more than just its share of causal damages. Tort law can even require a party to pay when it was not actually negligent, but rather is related to the actually-negligent actor.
The vagaries of tort law suggest that the allocation of the “risk of loss” is a vital detail in any contract. Without effective contractual provisions, parties to a contract may find that common law tort principles yield harsh or unexpected results. Properly written contractual provisions can define which party bears the risk of which losses. Both the party receiving the financial protection (the Indemnitee) and the party providing the protection (the Indemnitor) have an interest in obtaining insurance to cover the risk that is being borne.
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William Kennedy, White and Williams LLPMr. Kennedy may be contacted at
kennedyw@whiteandwilliams.com
