Construction Defects Uncertain Role in Coverage in Pennsylvania
February 04, 2013 —
CDJ STAFFDouglas E. Cameron, Jay M. Levin, and Traci S. Rea look at the implications of a pair of Pennsylvania court decisions from 2012. The judge in both cases, Judge Wettick of the Allegheny County Court of Common Pleas held that comprehensive general liability policies do not cover any claims that arise from faulty workmanship.
The three conclude that "these holdings may preclude coverage for any tort claims asserted against your company if the allegations involve construction defects, even if you are sued for property damage or personal injury by a third party to your construction contract." They note that both decisions have been appealed to the Pennsylvania Superior Court.
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Defense Victory in Breach of Fiduciary Action
February 26, 2015 —
Beverley BevenFlorez-CDJ STAFFEarlier this month, Scott Calkins and Anthony Gaeta of Collinsworth, Specht, Calkins & Giampaoli, LLP obtained a defense verdict in a breach of fiduciary duty action involving a high-rise condominium in downtown San Diego, California. The Association asked for excess of over $3 million, however, the jury returned with a 10-2 defense verdict in favor of K. Hovnanian.
Cortez Blu Community Association, Inc. v. K. Hovnanian at Cortez Hill, LLC, et al. initially involved construction defect claims against the developer, K. Hovnanian, and the general contractor, Turner Construction, as well as a claim of breach of fiduciary duty. However, the construction defect claims settled prior to trial leaving only the breach of fiduciary claim.
“While it is now becoming ever more common for attorneys representing homeowners associations to allege a breach of fiduciary duty by the developer, there has been little actual litigation of the issues surrounding those claims which test the viability of the allegations or the defenses to them,” defense attorney Anthony Gaeta stated. “A breach of a fiduciary duty by a developer, which is demonstrated to damage the viability of an HOA either to perform regularly scheduled maintenance, or replace building components from its reserves, has the potential in economic terms to surpass the damages from purported construction defects.
The Plaintiff argued that K. Hovnanian breached its fiduciary duty to the Association by failing to set adequate reserves within the initial Department of Real Estate budget (“DRE”) for painting, caulking, and power washing the exterior of the building, referencing Raven’s Cove Townhomes, Inc. v. Knuppe Development Co., Inc. (1981) 114 Cal. App. 3d 783. In response, K. Hovnanian stated that in part, the initial reserves as set forth in the DRE budget were adequate, good faith estimates and, therefore, there was no liability for breach of fiduciary duty.
“Our case was exclusively concerned with the duties of the developer when forming the initial HOA, preliminary budgets, and reserves,” Gaeta said. “We litigated the duties and responsibilities of the initial board and whether a developer may rely on reports prepared by third-parties during the formation of a common interest development. The jury found our client’s actions and reliance on third-parties was reasonable and, thus, no breach of fiduciary duty occurred.”
Collinsworth, Specht, Calkins & Giampaoli is a general civil litigation firm representing clients throughout California and Arizona. You may learn more about the firm at www.cslawoffices.com
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2023 Construction Outlook: Construction Starts Expected to Flatten
February 06, 2023 —
Garret Murai - California Construction Law BlogThere’s a lot to worry about going into 2023 according to Dodge Data & Analytics in its 2023 Construction Industry Outlook:
- Inflation
- More oil production cuts from OPEC
- Relations between China and Taiwan
- Further escalation of the war in Ukraine
While the immediate forecast is choppy, if things stabilize in the back half of 2023, according to Dodge Data & Analytics, total construction starts in the U.S. should remain flat in 2023. While “flat” may not sound particularly optimistic, it is, when you consider that total construction starts in 2022 were up 17%.
“We’re sitting at 14- to 15-year highs in the Dodge Momentum Index,” stated Richard Branch, Chief Economist at Dodge Data, “so it should provide some semblance of confidence and reassurance that developers and owners are continuing to put projects into the queue despite the fact that we’re concerned about what might happen when interest rates keep rising and the economy slows down in 2023.” Labor shortages will continue to be a big hurdle for the construction industry, according to Branch, but a bright spot is in material prices that peaked in 2021 but generally fell throughout 2022.
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Garret Murai, Nomos LLPMr. Murai may be contacted at
gmurai@nomosllp.com
Delaware River Interstate Bridge Shut to Assess Truss Fracture
January 26, 2017 —
Justin Rice - Engineering News-RecordThe Delaware River Bridge, which runs between Pennsylvania and New Jersey, was shut down indefinitely over the Jan. 22-23 weekend, after a large fracture was discovered in the bridge that connects the turnpikes of the two states. The fracture on a steel truss below the bridge deck on the Pennsylvania side was discovered during a routine check as part of a painting operation. Steel plates were installed to temporarily reconnect the fracture and stabilize the 1.5-mile bridge, which is located in Bucks County on I-276 and accommodates 42,000 vehicles a day. As engineers assess how the damage will impact the entire bridge, a sample from the fractured truss was sent to a forensic lab to determine the cause of the crack. A high-definition video survey is being used to monitor the bridge.
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Justin Rice, ENRMr. Rice may be contacted at
ricej@enr.com
Unfair Risk Allocation on Design-Build Projects
June 13, 2022 —
Brian Perlberg, Executive Director of ConsensusDocs Coalition & AGC Senior CounselThe AGC annual convention included a session entitled “Who’s on the Hook for Design Defects in Design-Build Projects.”
Fox Rothschild’s Dirk Haire, Les Synder of Infrastructure Construction Brightline West, and David Hecker of Kiewit presented. Attendees crowded into a standing-only room because more and more builders are facing design liability, especially design-builders on large infrastructure projects. The presentation highlighted how some owners abuse the submittal process on design-build jobs to make changes without compensating the builder with more time, money, or both. One project took a sample of owner comments and extrapolated that just one project generated over 15,000 submittals and generated over 110,000 comments of “concern” or “preference.”
Certain owner-representatives and attorneys for owners have oversold the risk allocation transfer aspect of design-build. The Spearin Doctrine protects a builder from design documents containing errors by entitling them to receive equitable compensation. The design-build project delivery method erodes potential Spearin protections. Ways that an owner may retain some design responsibility and bring Spearin protections back into play for a builder include the following:
- Accuracy of reports prepared by owner’s outside consultants
- Owner’s design approval process
- Viability of owner’s stated design and project criteria
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Brian Perlberg, ConsensusDocs
Alexander Moore Promoted to Managing Partner of Kahana Feld’s Oakland Office
May 08, 2023 —
Alexander R. Moore - Kahana FeldKahana Feld is pleased to announce that Alexander R. Moore, Esq., has been promoted to Managing Partner of our Oakland office. Mr. Moore has been at Kahana Feld since 2021 and is a member of the construction defect and general liability practice groups.
Mr. Moore has over 23 years of experience representing individual and commercial clients in complex disputes arising out of construction contracts, construction defect allegations, premises liability matters, landlord-tenant disputes, and contractual disputes arising out of various business relationships involving financial services companies, technology companies, telecommunications companies, real estate brokerages, non-profits, and a range of small businesses. When not focused on litigation, Mr. Moore enjoys consulting on transactional matters including the development of construction and business contracts. He has extensive experience evaluating rights and obligations under construction contracts and related insurance programs. He also assists clients in the implementation of pre-litigation risk management strategies.
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Alexander R. Moore, Kahana FeldMr. Moore may be contacted at
amoore@kahanafeld.com
Ninth Circuit Holds Efficient Proximate Cause Doctrine Applies Beyond All-Risk Policies
April 20, 2016 —
Tred R. Eyerly – Insurance Law HawaiiThe Ninth Circuit held that the efficient proximate cause doctrine is not limited to all-risk policies. Olin Corp. v. Continental Cas. Co., 2016 U.S. App. LEXIS 4905 (9th Cir. March 17, 2016).
Olin operated a plant that produced industrial chemicals. Continental issued a policy covering the plant's boilers and machinery. In late 2008, the machinery was damaged. Continental denied coverage for damage to Olin's diaphragm cells, which were tanks containing metal cathodes covered by asbestos diaphragms. Continental argued that the damage to the cells was not covered because it was not caused by an "accident." The jury returned a verdict in favor of Olin.
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Tred R. Eyerly, Insurance Law HawaiiMr. Eyerly may be contacted at
te@hawaiilawyer.com
Revisiting the CMO; Are We Overusing the Mediation Privilege?
November 19, 2021 —
Michael T. Kennedy Jr. - BERDING|WEILOne of the most common features in construction defect cases is the Case Management Order (“CMO”) or Pre-Trial Order (“PTO”) to govern pre-trial and mediation procedures. CMOs and PTOs arose in the days when the HOA would sue the developer, the developer would cross-complaint against the subcontractors, and each defendant and cross-defendant might have 2 or 3 insurance carriers defending, each of whom may retain their own panel counsel. In a large case there may have been 20 parties and 30 defense attorneys. In order to avoid the cost and chaos of all of those parties propounding their own discovery, and in order to prepare these cases for mediation well before trial and the associated costs, it became standard practice in California to include provisions in the CMO to stay all discovery until just before trial.
Plaintiff would provide a Defect List or Statement of Claims and the parties experts would meet and exchange information as part of the mediation process. All of the information exchanged would be subject to mediation privileges and inadmissible at trial. The benefit of this practice was that the parties (and carriers) would avoid the cost of formal discovery and allow the experts to discuss compromised scopes of repair to help settle the case while being able to take a more aggressive position at trial. The disadvantages are that each party uses its privileged initial expert reports to stake out negotiating positions more extreme than what they would put on at trial, with each side losing credibility with the other in assessing the value of the case, and for those cases that did not settle, the parties would be faced with having to do all of the depositions and discovery in the last 60 days, or delaying trial, or both.
Over the last 10 or 15 years with the advent of wrap-up insurance policies, these cases now usually involve 2 sides instead of 20; only the HOA and the developer remain in the case. However, old habits die hard, and the standard CMO/PTO hasn’t evolved with other aspects of these cases. The practice of staying all discovery and exchanging information only under mediation privileges remains, and as a result insurance carriers don’t receive the admissible evidence that they need to determine coverage and evaluate the real settlement value of the case until just before trial. On the plaintiff’s side, if most of the experts’ work is done under the guise of mediation privilege, those costs may not be recoverable. Outside the context of mediation, costs incurred in investigation of the defects and preparation of a scope and cost of repair are recoverable.
This reflexive claim of mediation privilege over all information exchanged during the case has outlived its usefulness. The CMO can and should remain to regulate formal discovery and to help the parties prepare for mediation, but regulated discovery should be opened early in the case. In California, the SB800 process already provides for the exchange of admissible information during the prelitigation right to repair process. Continuing that exchange during the early litigation allows the parties to continue to prepare for mediation, but waiving privileges had advantages for both sides.
A senior claims manager once commented that Plaintiff’s mediation-protected Statement of Claims “might as well be a stack of blank paper” for all of its usefulness to the carrier in assessing the value of the case. If the Plaintiff and it expects are free to inflate their claims early in the case without having to worry about every supporting those claims in front of a jury, they have little or no credibility. And if those claims are inflated or not “real,” not only can the carrier not properly assess the verdict range and settlement value of the case, but it may also be hampered in making a coverage determination. Simply put, if the exchange of real information through formal discovery is put off until just before trial, the defense cannot be ready to settle until then. Worse, the cost of defense goes through the roof in the last 60 days before trial as the lawyers’ scramble to take all of the depositions and to all of the other work that had been stayed for the previous year or two.
The Plaintiff is faced with the same question of credibility of defense experts where they are free to take a “low ball” negotiating position without having to support that position through cross-examination in front of the jury. Just as the carrier behind the defense attorney needs the Plaintiff’s “real” evidence to assess the claim, so does the HIOA Board of Directors behind the Plaintiff’s counsel. Additionally, in California as in most states, the cost of experts’ preparation for mediation may not be recoverable as costs or damages, but investigation of the defects and preparation of the scope and cost of repair is recoverable.
The biggest challenge is resolving construction defect claims for both sides is how to resolve these cases quickly while keeping costs under control. Practices that worked 20 years ago are no longer applicable with changes in insurance, and in light of some of the bad habits that arise when all of the information exchanged was confidential.
The CMO/PTO process can still be useful to regulate the discovery and mediation schedule given the volume of documents and other information to be exchanged but exchanging “real” information in a form that may come into evidence at trial should foster earlier resolution, resulting in cost savings for the parties. The CMO can provide for the parties to respond to controlled discovery, and the exchange of expert reports and potentially depositions can and should be done earlier in the case, well before the eve of trial. The parties can then assess the true value of each case and prepare for more substantive mediation without waiting until they are on the figurative courthouse steps.
Construction defect cases have a pattern, and it is tempting for busy lawyers to just put each case through the same algorithms that they have used for years. However, these cases have evolved and those of us handling these cases need to reevaluate our approach to these cases. Taking aggressive negotiating positions that no longer have any credibility with the other side has become counterproductive, and the exchange of real evidence earlier in the case would better serve our clients and carriers.
BERDING|WEIL is the largest and most experienced construction defect and common interest development law firm in California. For more information, please visit https://www.berding-weil.com
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Michael T. Kennedy Jr., BERDING|WEILMr. Kennedy may be contacted at
mkennedy@berdingweil.com
