Negligence Per Se Claim Based Upon Failure to Pay Benefits Fails
December 21, 2016 —
Tred R. Eyerly – Insurance Law HawaiiThe Ninth Circuit affirmed the district court's issuance of the insurer's motion for summary judgment, thereby rejecting the insureds' negligence per se claim for failure to pay benefits. Braun-Salinas v. Am Family Ins. Group, 2016 U.S. App. LEXIS 19555 (9th Cir. Oct. 28, 2016).
The insureds argued that Oregon recognized a negligence per se claim based on an insurer's failure to pay benefits in violation of the statutory standard under state law. Oregon appellate courts, however, only allowed a negligence per se claim only where a negligence claim otherwise existed. The Oregon courts had previously rejected a statutory theory, holding that a violation of the statute did not give rise to a tort action.
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Tred R. Eyerly, Insurance Law HawaiiMr. Eyerly may be contacted at
te@hawaiilawyer.com
Federal Court Ruling Bolsters the “Your Work” Exclusion in Standard CGL Policies
October 27, 2016 —
Daniel E. Levin – Florida Construction Law NewsIn Evanston Insurance Company v. Dimucci Development Corportion of Ponce Inlet, Inc., the United states District Court for the Middle District of Florida further clarified the standard CGL policy exclusion (L) – the “Your Work” exclusion, one of the several business risk exclusions in a standard CGL policy which insurers and insureds are most likely to encounter in a typical construction defect claim. No. 6:15-cv-486-Orl-37DAB, 2016 U.S. Dist. LEXIS 123678, at *26 (M.D. Fla. Sep. 13, 2016).
The lawsuit between Evanston Insurance Company and DiMucci Development Corp. of Ponce Inlet Inc. (“DiMucci”) arose out of initial claims by the homeowners’ association at the Towers Grande high rise in Daytona Beach Shores, Florida, against DiMucci for various construction defect related issues. The lawsuit alleged that DiMucci’s work was defective on a portion of the high rise condominium project, which caused property damage to other elements of the building that DiMucci was also responsible for constructing. Specifically, pertinent here, the Association alleged water damage as a result of DiMucci’s improper waterproofing of the building.
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Daniel E. Levin, Cole, Scott & Kissane, P.A.Mr. Levin may be contacted at
daniel.levin@csklegal.com
Real Estate & Construction News Round-Up 04/06/22
April 11, 2022 —
Pillsbury's Construction & Real Estate Law Team - Gravel2Gavel Construction & Real Estate Law BlogA growing proptech startup aims to pre-emptively identify needed home repairs, 3D-printed homes could become a workable solution to the housing shortage, and more.
- Concerns about a housing-market crash are growing as the Fed begins to hike interest rates, leaving industry experts to speculate on what’s next for the U.S. housing bubble. (William Edwards, Insider)
- Real-estate sales in Manhattan topped $7 billion in the first quarter of 2022, with the average price of apartments jumping 19% over the previous year. (Robert Frank, CNBC)
- Proptech startup DwellWell claims to have produced the first “check engine light” that can pre-emptively diagnose needed home repairs. (T.P. Yeatts, The Real Deal)
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Pillsbury's Construction & Real Estate Law Team
No Bad Faith in Insurer's Denial of Collapse Claim
July 15, 2024 —
Tred R. Eyerly - Insurance Law HawaiiThe Tenth Circuit affirmed the district court's grant of summary judgment to the insurer on the insured's claims for collapse and bad faith. Christopher M. Wolpert Saddletree Holding, LLC v. Evanston Ins. Co., 2024 U.S. App. LEXIS 10377 (10th Cir. April 30, 2024).
On May 7, 2019, Saddletree filed a claim with Evanston for damages sustained to its building which was used as a community events center. After a winter of heavy snowfall, Saddletree discovered that the building's steel support columns had buckled two or more inches and the roof had deflected downward approximately six inches.
Evanston retained an engineer to inspect the building. The engineer determined that the damage was the result of the building's inadequate "design and/or construction." Evanston disclaimed coverage under the policy's exclusion for damage caused by "hidden or latent defects" or "any quality in property that causes it to damage or destroy itself."
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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
Mortenson Subcontractor Fires Worker Over Meta Data Center Noose
April 19, 2022 —
James Leggate - Engineering News-RecordA worker on a data center project for Facebook parent company Meta in Utah was fired after admitting to tying a noose at the worksite where racist graffiti had also been found months earlier.
Reprinted courtesy of
James Leggate, Engineering News-Record
Mr. Leggate may be contacted at leggatej@enr.com
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Reports of the Death of SB800 are Greatly Exaggerated – The Court of Appeal Revives Mandatory SB800 Procedures
September 03, 2015 —
Steven M. Cvitanovic & David A. Harris – Haight Brown & Bonesteel LLPIn a 20 page opinion, the Court of Appeal for the Fifth District repudiated the holding of Liberty Mutual Insurance Co. v. Brookfield Crystal Cove, LLC (2013) 219 Cal.App.4th 98 (“Liberty Mutual”), and held that plaintiffs in construction defect actions must comply with the statutory pre-litigation inspection and repair procedures mandated by SB800 (the “Act”) regardless of whether they plead a cause of action for violation of the Act. The Case, McMillin Albany LLC v. Superior Court (Carl Van Tassell), (Ct. of Appeal F069370) breathes new life into the Act’s right to repair requirements, and reinforces the Act’s stated purpose of seeking to limit the number of court cases by allowing a builder to resolve construction defect claims by agreeing to repair the homeowners’ residence.
In McMillin, 37 homeowners filed a lawsuit against McMillin, the builder of their homes, alleging eight causes of action, including strict products liability, negligence, and breach of express and implied warranty. Plaintiffs’ third cause of action alleged violations of the Act. The plaintiffs did not follow the Act’s notification procedures and filed their lawsuit without providing McMillin with an opportunity to repair the alleged defects. Plaintiffs and McMillin attempted to negotiate a stay of the lawsuit to complete the Act’s prelitigation procedures. When talks broke down, plaintiffs dismissed the third cause of action and contended they were no longer required to follow the Act’s prelitigation procedures. McMillin filed a motion to stay with the trial court. The trial court denied McMillin’s motion concluding that under Liberty Mutual, “[plaintiffs] were entitled to plead common law causes of action in lieu of a cause of action for violation of the building standards set out in [the Act], and they were not required to submit to the prelitigation process of the Act when their complaint did not allege any cause of action for violation of the Act.”
Reprinted courtesy of
Steven M. Cvitanovic, Haight Brown & Bonesteel LLP and
David A. Harris, Haight Brown & Bonesteel LLP
Mr. Cvitanovic may be contacted at scvitanovic@hbblaw.com
Mr. Harris may be contacted at dharris@hbblaw.com
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Parol Evidence can be Used to Defeat Fraudulent Lien
March 27, 2019 —
David Adelstein - Florida Construction Legal UpdatesParol or extrinsic evidence can be used to defeat an argument that a lien is a fraudulent lien. And, just because a lien amount exceeds the total contract amount does not presumptively mean the lien is willfully exaggerated or recorded in bad faith. Finally, a ruling invalidating a construction lien can create the irreparable harm required to support a petition for writ of certiorari. All of these issues are important when dealing with and defending against a fraudulent lien and are explained in a recent case involving a dispute between an electrical subcontractor and its supplier.
In Farrey’s Wholesale Hardware Co., Inc. v. Coltin Electrical Services, LLC, 44 Fla.L.Weekly D130a (Fla. 2d DCA 2019), there were various revisions to the supplier’s initial purchase order, both from a qualitative and quantitative perspective, and a ninth-revised purchaser order was issued and accepted. The electrical subcontractor claimed that deliveries were late, unassembled, and did not include the required marking (likely the UL marking), to pass building inspections. As a result, the subcontractor withheld money from the supplier and the supplier recorded a lien in the amount of $853,773.16 and filed a foreclosure lawsuit.
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David Adelstein, Kirwin NorrisMr. Adelstein may be contacted at
dma@kirwinnorris.com
