Category Archives: Construction Defect

If I Only Had a Hammer: NJ Supreme Court Rules on Key Construction Defect Coverage Issue

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Constructive defect litigation has bedeviled the insurance industry for years, particularly in New Jersey, California, and Florida. These claims are complex and generate years of expensive litigation. While many insurers have abandoned the construction/contractor’s market or excluded these risks with “Tract Homes” or Condominium exclusions,  others find themselves mired in disputes over the scope of coverage available to contractors involved in construction defect litigation.

In New Jersey, one unresolved question was whether the standard 1986 ISO form CGL policy covered a developer/general contractor against claims of consequential damage caused by the faulty workmanship of a sub-contractor. Do such claims satisfy the requirement that “property damage” must be caused by an “occurrence”?  If so, are those claims barred by Exclusion l. as “property damage” to “your work”?

In Cypress Point Condominium Association, Inc. v. Adria Towers, L.L.C., et al., the New Jersey Supreme Court used a three step process in resolving these coverage issues.  First, it held that the consequential damages caused by a subcontractor’s shoddy work qualified as “property damage.”  Further, the Supreme Court found the water damage to common elements and individual units caused by the subcontractor’s faulty workmanship was an occurrence, because “the consequential harm caused by negligent work is an ‘accident.’” Second, the Supreme Court observed the “Your Work” exclusion likely eliminated coverage for the ensuing water damage. However, on the final step of analysis, the “Your Work” exclusion was nullified by the exception for damage arising out of work performed “on your behalf by a subcontractor.”

There are two main takeaways from Cypress Point. First, a standard CGL policy provides coverage to a general contractor for claims of consequential damage caused by a subcontractor.  The insurer for a general contractor can no longer disclaim coverage on the basis that the entire project is the GC’s work and therefore excluded from coverage.  Second, the Supreme Court invited insurers to exclude this specific risk – participants in the Excess & Surplus Lines market take note – by eliminating the subcontractor exception from the “Your Work” exclusion or adding a breach of contract exclusion.

If you have an questions or comments, please email Paul at .

 

WCM Obtains Judgment of No Coverage in Bucks County, PA Construction Defect Case.

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Partner Bob Cosgrove and associate Hillary Ladov were awarded a declaration of no coverage in a Buck County, Pennsylvania coverage action arising out of the defective construction of a residential pool.

In the case of Nautilus Insurance Company v. Crystal Clear Pools, Inc., et al., the underlying plaintiff allegedly suffered approximately $200,000 damages due to the failure of Nautilus’s insured to timely and correctly construct a pool, decking, and surrounding landscaping.

Throughout pleadings and motion practice, we maintained that a commercial general liability policy does not afford coverage for faulty workmanship, such as that alleged in the underlying complaint. At the close of the pleadings, we moved for entry of an order declaring that no coverage was provided under the policy for the underlying plaintiff’s damages. The court agreed and held that there was no coverage under the policy.

For more information about this post please e-mail Bob Cosgrove .

Certificate of Occupancy Trumps Plaintiff’s Claims of Construction Defect (NJ)

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Construction defect litigation involves complex issues of law and fact to establish whether damages are attributable to faulty workmanship.  In, Wilson v. Woodfields at Princeton Highlands, a  pro se plaintiff learned that her claims of water infiltration and shoddy workmanship were not sufficient to prove her case against the contractors who built her home.

The plaintiff testified about flooded basement events, musty smells,  and muddy residues.  She brought in expert witnesses who testified that the construction of the home over shallow groundwater, grading around the home, a blocked drainage pipe and other construction defects were the cause of her problems.  However, the judge (in a bench trial) was not persuaded by any of her evidence.

The defense was able to chip away at the credibility of plaintiff and her witnesses. Significantly, they showed inconsistencies in her testimony about when she first noticed water problems and confronted her with documentation that contradicted her testimony.  The defense pointed out that an expert mistakenly referred to radon pipe as a drainage pipe – and this poisoned other experts who relied upon his opinions.

On the other hand, the judge was particularly swayed by the fact that the building department had inspected and approved the construction as compliant with codes and the plans and blueprints.  While the Court did not establish a presumption per se, it found that the defendant’s evidence that the municipality issued a Certificate of Occupancy for plaintiff’s home compelling enough to establish that there were no defects prior to the sale.

When faced with the defendant’s expert testimony supported by the fact that the town issued a certificate of occupancy, the Appellate Division held that the plaintiff did not present sufficient evidence to disturb the trial court’s dismissal of the claim. In the end, the plaintiff just did not present enough credible proofs and could not overcome the compelling proofs offered by the defense.

Thanks to Ann Marie Murzin for her contribution.

For more information, contact Denise Fontana Ricci at .

 

When Runoff Water Runs Afo(w)l (PA)

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In Scott v. Ferguson, plaintiff Scott filed a complaint against a neighboring homeowner, alleging that Ferguson allowed his guinea fowl to enter plaintiff’s property and cause damage. Ferguson countersued, alleging that plaintiffs improperly installed a water drainage pipe, causing water to run off onto Ferguson’s property.

In response to the countersuit, plaintiffs filed a third-party complaint against Susquehanna Township, alleging that the Township was negligent in failing to install catch basins on or near the properties of the plaintiff and defendant. In essence, the plaintiffs installed a drainage pipe that emptied onto a public roadway. The water then travelled downhill and entered defendants’ property. The claim was that the Township should have installed a basin to catch the additional water coming off the plaintiffs’ property. At issue here are the Township’s preliminary objections to the plaintiffs’ third-party complaint.

The Township argued that the complaint should be dismissed since it had no duty to the plaintiffs to install a basin. This was based on the Township’s assertion that the overflow of water was due to incremental changes in the landscape over time. The Court of Common Pleas of Lycoming County agreed. The court said that a city cannot be held liable for the effects of an incidental increase in surface waters flowing in a natural channel where the increase is owing to normal, gradual development in the city. In this case the increase in water flow was due to the gradual changeover from rural to urban land and there is no authority to hold a city liable for such changes.

This case provides a useful window into understanding how Pennsylvania courts in more rural counties are dealing with surface water issues. We expect similar issues to come up more frequently as residential and commercial development in these areas continues to grow. It is important to recognize that in cases such as these, the role of the town or city as a potential source of contribution is likely minimal.  Thanks to Remy Cahn for her contribution.  Please email Brian Gibbons with any questions.

Contractor Cannot Be Nailed With Consumer Fraud Where There is No Privity (NJ)

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In construction defect litigation, plaintiffs’ attorneys frequently include Consumer Fraud Act (“CFA”) violations (N.J.S.A. 56:8-1 et seq.) along with negligence and breach of contract claims. New Jersey’s CFA is one of the most expansive in the nation and can include strict liability when based upon a violation of its regulations.  With the potential for treble damages and attorneys’ fees, these claims apply pressure on defendants -particularly in the construction defect arena.

Recently, in Hackerman v. LaRusso, the Appellate Division considered whether a CFA claim could be supported where the plaintiffs had not directly contracted with the defendant homebuilder.  In Hackerman, nearly a year after the plaintiffs bought a home, they had  a basement flooding incident.  The home had been constructed new for the prior owner about eight years earlier.   The plaintiffs’ home inspector had issued a report indicating that the moisture in the basement was “satisfactory,” and noted the presence of two sump pumps.

Through discovery, the plaintiffs learned that the seller’s had had a flooded basement about five years before they sold the home.  The sellers contracted with a waterproofing company who installed the sump pumps as well as a sub-floor drainage system.  The waterproofer returned two times over the next several years to maintain the drainage system.  The sellers did not disclose flooding in the basement prior to the sale.

When the basement flooded, the plaintiffs sued the sellers as well as the homebuilder including a CFA count along with negligence and breach of contract claims.  The trial court granted summary judgment to the builders on the CFA, negligence and breach of contract claims.  Plaintiffs appealed.

To prevail on a CFA claim, plaintiffs must establish unlawful conduct, an ascertainable loss and a causal relationship between the conduct and the damage.  The Appellate Division upheld the dismissal of the CFA claims explaining that since there was no evidence of any contact between the builders and the plaintiffs, “it could not be said that the builders made an affirmative misrepresentation” to them.  On the other hand, plaintiffs’ negligence claim survived because “a legal duty may exist where a builder fails to exercise care even in the absence of privity.”

This decision emphasizes that in order to proceed on strict liability CFA claims, plaintiffs must demonstrate privity.

Thanks to Ann Marie Murzin for her contribution.

For more information, contact Denise Fontana Ricci at .

 

Owner or Contractor: Who Is to Blame for Falling Deck? (NY)

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In Jackson v Conrad, the plaintiff was injured when an elevated deck separated from a house and fell.  The plaintiff sued the property owners and the contractor that had installed the deck.  The Second Department affirmed summary judgment granted to the owners and the denial of the contractor’s motion for summary judgment.

In order for the owners to be liable, they would have had to have either created the condition or had actual or constructive notice of it.  However, the owners established, prima facie, that they neither created the condition nor had notice of any defect.  The Court explained that, when a defect is latent and not discoverable upon a reasonable inspection, constructive notice cannot be imputed.  Moreover, the Court found that the owners could not be held liable for an independent contractor’s negligent acts and that the falling deck did not fall under the res ipsa loquitor doctrine.  Thus, the owner could not be found liable as a matter of law.

On the other hand, if the contractor were found to have negligently constructed the deck, it could be liable for launching the instrument of harm.  As such, there was a genuine issue of fact as to the contractor’s potential negligence.

Thanks to Georgia Coats for her contribution.

For more information, contact Denise Fontana Ricci at .

 

Back to the Future: 3rd Circuit Relents on Interpretation of PA Product Liability Law

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In DeJesus v. Knight Industries, the Third Circuit revisited the continuing debate between the Third Restatement’s modern view of product liability law and the Commonwealth’s unique and, at times, questionable interpretation of Section 402(a) of the Second Restatement.  In Dejesus, plaintiff was injured when an allegedly defective lift table designed by Knight Industries caused another piece of machinery to fall on him.  Plaintiff argued that Knight Industries defectively designed the lift table by failing to include appropriate audio or visual warnings that would alert users of the risk of falling objects.  On summary judgment, however, the United States District Court found that the evidence failed to sufficiently establish plaintiff’s theories under the Restatement (Third) of Torts that requires product manufacturers to take reasonable steps in safeguarding against foreseeable risks of harm.

For all intents and purposes, the conventional appeal to the Third Circuit that followed should have been denied in light of the Court’s long-standing belief that the Third Restatement dictates Pennsylvania product liability law.  Nevertheless, while the appeal was pending, DeJesus benefited from the highly anticipated decision in Tincher v. Omega Flex where Pennsylvania’s Supreme Court unambiguously rejected the application of the Restatement’s reasonableness standard in favor of a bespoke interpretation of Section 402(a).  In deference to the Commonwealth, therefore, the Third Circuit finally reversed its position on the primacy of the Third Restatement and found that further proceedings would be needed to determine whether Knight Industries’s alleged lack of warnings could meet the Tincher standard.

All told, the Third Circuit’s ruling in DeJesus is not a watershed comment on the substance of Pennsylvania’s product law.  However, past Pennsylvania product cases were plagued by inconsistent results, depending on whether the case was venued in federal court.  In the wake of DeJesus, it appears that the Third Circuit has brought the two judicial systems into sync as litigants now begin to explore how exactly Tincher will impact product liability law in Pennsylvania.

Thanks to Adam Gomez for his contribution.  Please email Brian Gibbons with any questions.

 

Coverage ‘til the Cows Come Home…Or Not: PA Supreme Court Declines to Extend “Multiple Trigger” Theory of Liability to Cases Involving Property Damage (PA)

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Although there’s been more than a bit of turmoil over the last few months, Pennsylvania’s Supreme Court has been busy over the past month issuing significant precedential decisions (see, e.g. the Tincher decision). The run continues with Pennsylvania Nat. Mut. Cas. Ins. Co. v. St. John in which the Supreme Court ruled on whether the “continuous or multiple trigger” is exclusive to asbestos cases or also applies to other types of cases. Under the “multiple trigger” theory of liability, insurance coverage is triggered under any policy in effect from the moment of initial exposure to the dangerous condition until the date of manifestation of the actual injury.

In Pennsylvania Nat. Mut. Cas. Ins. Co. v. St. John, the appellants owned a dairy farm and hired a plumber to install a new plumbing system. The work was completed in July 2003. The plumbing system, however, was defectively installed. Consequently, the appellant’s cows were exposed to contaminated drinking water, and, as a result, suffered from, among other things, reduced milk production, salmonella poisoning, and birth defects. Although the appellants sought help from veterinarians and nutritionists, the appellants did not learn that the cow’s health problems were caused by a defect in the plumbing system until March 2006.

The appellants subsequently sued the plumber for negligent installation of the plumbing system in 2007 and were awarded $3.5 million in damages. The plumber had four relevant commercial general liability (“CGL”) policies with effective dates beginning on July 1, 2003 and continuing until July 1, 2006. The plumber’s insurer, however, only agreed to pay $1.2 million of the verdict, which was the liability limit under the plumber’s 2003/2004 CGL policy. More specifically, the insurer only agreed to pay under the policy during which the appellant’s injuries first manifested. The plumber, however, argued that because the diseases in the cows were “gradual and progressive” from 2004 to 2006, there were multiple occurrences, triggering all four of the plumber’s CGL policies.

The Pennsylvania Supreme Court, however, was unsympathetic to the appellants, and declined to extend the “multiple trigger” theory of liability beyond asbestos to cases involving property damage, and instead, adhered to the rule of “first manifestation.” Under the “first manifestation” rule, coverage is triggered when the property damage becomes “reasonably apparent.” The court explicitly held that the “first manifestation” rule was the “appropriate test for determining when an occurrence happens pursuant to a policy of commercial general liability insurance.”

Obviously, and especially since the plaintiffs’ bar has been attempting to expand the scope of the “continuous trigger” theory (particularly in the construction defect context), this is a particularly significant decision. Asbestos claims remain “special” but all other types of claims are subject to the first manifestation rule. The number of potentially triggered policies decreases accordingly.

Special thanks to Erin Connolly for her contributions to this post. For more information, please contact Bob Cosgrove at

Relief From the Dreaded 1B Defense

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A typical scenario in New York construction litigation is this: A sub’s employee sues the Owner and General Contractor under Labor Law §240. The response? A third party action against the plaintiff’s employer.  But here’s the usual rub, the GL carrier disclaims coverage, citing the “any employee” exclusion and whatever else may apply.

Plaintiff claims a “grave injury” and the defense then falls to the 1B carrier who assigns defense counsel. Not it gets worse, defense counsel advises the 1B carrier that ethical constraints prevent defense counsel from challenging the “grave injury” claim because to do so would put its client in jeopardy of losing the only coverage it has.

But a recent First Department decision affords worker’s compensation carriers some relief from the “grave injury” conundrum. In National Union Fire Ins. Co. of Pittsburgh Pa v. 221-223 West 82 Owners Corp., the First Department granted the worker’s compensation insurer’s motion for summary judgment in its collateral declaratory judgment action against its insured on the basis that plaintiff in the underlying action did not suffer a grave injury.

The First Department held that the insurer was entitled to rely on underlying plaintiff’s bill of particulars to prove that the ligament and meniscal tears claims would never qualify as a “grave injury.” As such, National Union was not obligated to defend or indemnify its insured for the common-law indemnification claims.  In addition, the First Department also held that the insured would not be prejudiced if National Union withdrew its defense because it had expressly reserved its rights to do so and the insured failed to demonstrate any prejudice.

This is excellent news for worker’s compensation carriers. While it will cost more money to prosecute collateral declaratory judgment action, this new case law gives WC carriers relief from defense and indemnity obligations where there is no grave injury.

Thanks to Alison Weintraub for her contribution to this post. For more information, please email Dennis Wade at .

 

Not All Construction Defects Trigger CGL Coverage – – Even In California

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Do construction defects incorporated into a structure constitute property damage within the ambit of a CGL policy?  Good question – – and one that has plagued the insurance industry and courts across the country.  In Regional Steel Corporation v. Liberty Surplus Insurance Corporation, a California Appellate Court ruled that the costs of removing and replacing defective work or material is an economic/commercial loss – – and not physical injury to property.

In Regional, a subcontractor supplied steel hooks later determined by the building inspector to be inappropriate for intended use.  That discovery led to repair costs of over $500,000.  Ultimately, in the context of the underlying action, Regional tendered its defense to Liberty which disclaimed on the basis that the defect in steel work did not constitute “physical injury to tangible property.”

To rule in Liberty’s favor, the Appellate Court had to grapple with precedent involving defective components that caused damage to a larger structure or to the product itself.  In one case, for example, wood chips in almonds ruined the end product – – breakfast cereal; in another, asbestos tiles incorporated into a larger structure compelled remediation because of the potential hazard.  But as the Court found in Regional: “The risk of replacing and repairing defective product or poor workmanship has generally been considered a commercial risk which is not passed on to the liability carrier.”

Regional is worth careful study.  It supports the view that expenses associated with repairs/remediation resulting from a defective product or poor workmanship – – without pleading and proof of collateral harm – – may not be covered under a CGL Policy.

For more information, please email Dennis Wade at .