Colorado Supreme Court Issues Decisions on Statute of Limitations for Statutory Bad Faith Claims and the Implied Waiver of Attorney-Client Privilege
July 11, 2018 —
Jennifer Arnett-Roehrich - Gordon & Rees Insurance Coverage Law BlogThe Colorado Supreme Court has been busy the past two weeks, issuing a couple rulings that should be of interest to the insurance industry:
Statute of Limitations for Bad Faith Statute: In Rooftop Restoration, Inc. v. American Family Mutual Insurance Co., 2018 CO 44 (May 29, 2018), the Colorado Supreme Court held that the one-year statute of limitations that applies to penalties, does not apply to claims brought under C.R.S. 10-3-1116, Colorado’s statutory cause of action for unreasonable delay or denial of benefits. Section 10-3-1116 provides that a first-party claimant whose claim for payment of benefits has been unreasonably delayed or denied may seek to recover attorney fees, costs, and two times the covered benefit, in addition to the covered benefit. A separate Colorado statute, CRS 13-80-103(1)(d) provides a one-year statute of limitations for “any penalty or forfeiture of any penal statutes.” To arrive at the conclusion that the double damages available under section 10-3-1116 is not a penalty, the Court looked at yet another statutory provision, governing accrual of causes of action for penalties, which provides that a penalty cause of action accrues when “the determination of overpayment or delinquency . . . is no longer subject to appeal.” The Court stated that because a cause of action under 10-3-1116 “never leads to a determination of overpayment or delinquency . . . the claim would never accrue, and the statute of limitations would be rendered meaningless.” Para. 15. Presumably, the default two-year statute of limitations, provided by CRS 13-80-102(1)(i), will now be found to apply to causes of action seeking damages for undue delay or denial of insurance benefits.
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Jennifer Arnett-Roehrich, Gordon & Rees Scully MansukhaniMs. Arnett-Roehrich may be contacted at
jarnett-roehrich@grsm.com
Fifth Circuit Certifies Eight-Corners Duty to Defend Issue to Texas Supreme Court
June 21, 2021 —
Jeremy S. Macklin - Traub Lieberman Insurance Law BlogIn the recent case of Bitco Gen. Ins. Corp. v. Monroe Guar. Ins. Co., No. 19-51012, 2021 WL 955155 (5th Cir. Mar. 12, 2021), certified question accepted (Mar. 19, 2021), the Fifth Circuit Court of Appeals certified to the Texas Supreme Court the question of whether a court can consider extrinsic evidence when determining an insurer’s duty to defend. The underlying lawsuit stems from a construction contract in which J&B Farms of Texas hired 5D, a construction company, to drill a commercial irrigation well through the Edwards Aquifer. Two years after beginning the project, J&B Farms sued 5D and its President for breach of contract and negligence. J&B Farms alleged that while drilling, 5D “stuck the drilling bit in the bore hole, rendering the well practically useless for its intended/contracted for purpose.” 5D then “failed and refused to plug the well, retrieve the drill bit, and drill a new well.” J&B Farms asserted that 5D drilled the well “with unacceptable deviation” and then “abandon[ed] the well.”
5D notified its insurers, BITCO and Monroe, of the lawsuit and demanded a defense from both. BITCO agreed to provide a defense to 5D, but Monroe refused arguing that the alleged property damage fell outside the relevant policy period, and therefore, it had no duty to defend 5D. BITCO then filed a declaratory judgment action seeking a finding that Monroe owed 5D a duty to defend.
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Jeremy S. Macklin, Traub LiebermanMr. Macklin may be contacted at
jmacklin@tlsslaw.com
Insurer Has Duty to Defend Faulty Workmanship Claim
January 22, 2024 —
Tred R. Eyerly - Insurance Law HawaiiThe magistrate judge recommended a determination that the insurer owed a defense to the subcontractor sued for faulty workmanship. Hanover Lloyds Ins Co. v. Donegal Mut. Ins. Co., 2023 U.S. Dist. LEXIS 180877 (W.D. Texas Oct. 5, 2023).
Poe Investments, Ltd. entered into an agreement with Jordan Foster Construction, LLC for construction of an auto sales and service facility ("Facility"). Jordan hired multiple subcontractors, including Texas Electrical Contractors, LLC ("TEC"). Subsequently, Poe sold the Facility to 6330 Montana, LLC ("Montana").
Montana filed suit against Jordan for breach of express warranties, breach of contract, and negligence. Jordon filed a third-party complaint against its subcontractors, including TEC. Jordan alleged that TEC provided "defective and negligent construction work" while carrying out the provision and installation of electrical and fire alarm systems at the Facility.
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Tred R. Eyerly, Damon Key Leong Kupchak HastertMr. Eyerly may be contacted at
te@hawaiilawyer.com
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
Remodel Gets Pricey for Town
December 30, 2013 —
CDJ STAFFUsually when home gets remodeled, it’s the homeowners who encounter unexpected expenses, but in Clearwater, Florida, it’s the town. Clearview has spent about $40,000 trying to determine if changes to a home are a “substantial improvement,” and the bill could get bigger, according to TBNweekly.com.
The home in question, that of David and Aileen Blair, is in a flood zone, and city rules would require the alterations to comply with flood drainage-resistance provisions, but only if it is a “substantial improvement.” The Blairs applied for the remodel permit in April 2001, and it was granted more than 10 years later, in July 2011. Work started soon after until the city put a stop to it.
The Blairs sued, claiming that as the city issued the permit, they assumed the plans were approved, and that the partially-completed renovation now diminishes the value of their home. The city has approved an additional $160,000 in outside legal counsel to respond to the Blair’s lawsuit.
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DHS Awards Contracts for Border Wall Prototypes
September 20, 2017 —
Engineering News-RecordThe Dept. of Homeland Security has awarded eight contracts to companies to develop prototypes for the Trump administration’s proposed wall along sections of the nearly 2,000-mile U.S.-Mexico border. The contracts are divided evenly between concrete and nonconcrete options. DHS’s Customs and Border Protection agency didn’t specify what sort of materials would be used in the nonconcrete barriers.
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Engineering News-RecordENR staff may be contacted at
ENR.com@bnpmedia.com
Mississippi Sues Over Public Health Lab Defects
October 29, 2014 —
Beverley BevenFlorez-CDJ STAFFThe state of Mississippi “is suing architects and designers of a new Public Health Lab, saying the $28 million lab wasn't up to containing deadly diseases, biohazards and chemicals,” reported The Clarion-Ledger.
Dale Partners Architects, Earl Walls Associates, Eldridge and Associates, and Environmental Management Plus have been named as defendants.
"The estimated damages are $3 million," attorney Dorsey Carson told The Clarion-Ledger. "This building is where they test tuberculosis, or where they would test anthrax or any other (biohazards). You don't have a choice – it has to meet rigorous standards."
Charlie Alexander, a partner with Dale Partners, stated that “any allegations of design defects by his company and its team ‘are unfounded,’” reported The Clarion-Ledger.
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Insured's Motion for Reconsideration on Denial of Coverage Unsuccessful
September 28, 2017 —
Tred R. Eyerly - Insurance Law HawaiiThe insured's motion to reconsider an order granting the insurer summary judgment challenges the insured's theory it was an additional insured was rejected by the federal district court. Hanover Ins. Co. v. Superior Labor Servs., 2017 U.S. Dist. LEXIS 133127 (E.D. La. Aug. 21, 2017).
The court previously granted Lexington Insurance Company's motion for summary judgment, finding Allied Shipyard, Inc. was not an additional insured and was not entitled to a defense in the underlying actions. On reconsideration, Allied argued the court ruled it was not a "certificate holder" under the Lexington policy, but Allied was not given the opportunity to conduct discovery with respect to whether it was a "certificate holder." Summary judgment was granted before Allied answered Lexington's amended complaint in intervention. Allied submitted its answer could have raised a genuine issue of material fact because it was entitled to coverage under the policy if it was a certificate holder.
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Tred R. Eyerly, Insurance Law HawaiiMr. Eyerly may be contacted at
te@hawaiilawyer.com
