Principal Architect Liability

 The California Supreme Court, in Beacon Residential Community Association v. Skidmore, Owings & Merrill LLP (2014) DJDAR 8787, recently held that an architect which serves as principal architect on a project owes a duty of care to future homeowners in the design of a residential building. Such architects owe that duty of care even when they do not actually build the project or exercise ultimate control over its construction.

The trial court had sustained a demurrer in favor of two architectural firms on the grounds that architects who made recommendations, but no final decisions on construction, owed no duty of care to future homeowners with whom they were not in privity of contract. The Court of Appeals reversed, concluding that an architect under those circumstances owes a duty of care under both common law and the Right to Repair Act.

In support of its holding, the Supreme Court, like the Court of Appeals, relied heavily on the factors set forth in Biakanja v Irving (1958) 49 Cal. 2d 647 and the Bily v. Arthur Young & Co. (1992) 3 Cal. 4th 370 decision. The Court summarized its opinion by outlining the following Biakanja factors: 1. Defendants’ work was intended to benefit the homeowners living in the residential units that defendants designed and helped construct; 2. It was foreseeable that these homeowners would be among the limited class of persons harmed by the negligently designed units; 3. Plaintiff’s members have suffered injury as the design defects have made their homes unsafe and uninhabitable during certain periods; 4. There is a close connection between defendants’ conduct and the injuries suffered; 5. Significant moral blame attaches to defendants’ conduct due to their unique and well-compensated role in the project as well as their awareness that future homeowners would rely on their expertise in designing safe and habitable homes; and 6. The policy of preventing future harm to homeowners reliant on the architects’ specialized skills support recognition of a duty of care.

The key to the Beacon decision is that the architects were the principal architects on the project - i.e. their design work was not subordinate to any other design professionals. It is yet additional proof that the concept of privity, if not dead, has been eroded to the point of irrelevance.

Texas Uniform Condominium Act: What to Know, Where to Go, and How to Find it


As the State of Texas continues to enjoy strong population growth, condominiums will continue to proliferate particularly in Texas’ largest cities. For subrogation professionals who occasionally see claims associated with condominium associations, it is helpful to have an understanding of the Texas Uniform Condominium Act (“UCA”) and how it may affect potential subrogation rights.

The UCA is codified in Chapter 82 of the Texas Property Code and applies to all condominiums in Texas for which the condominium declaration is recorded on or after January 1, 1994. However, if the declaration was recorded before January 1, 1994, the UCA may control if the unit owners vote to amend the pre-exiting declaration to have the UCA apply and that amendment is filed for record in the county where the condominium is located. Alternatively, the unit owners could record a declaration or amendment before January 1, 1994 stating that the UCA will apply in its entirety as of January 1, 1994.

Certain key provisions in the UCA will retroactively apply to all condominiums even if the declaration was recorded before January 1, 1994. These provisions include requirements that the condominium association purchase and maintain property and commercial general liability insurance where each unit owner is an insured person under the policy and the insurer waives its right of subrogation against each unit owner.

A cursory review of the UCA would lead one to the conclusion that pursuit of a unit owner by a subrogated condominium association insurer is pointless. However, this is not always the case. While the UCA provides that provisions related to insurance, additional insured status and waiver of subrogation apply even if the declaration was recorded before January 1, 1994, it also provides that such provisions cannot “invalidate existing provisions of the declarations, bylaws, or plats of a condominium for which the declaration was recorded before January 1, 1994.” What does this mean then for subrogation professionals?

Essentially, this latter provision confirms that while requirements for insurance, additional insured status and waiver of subrogation will retroactively apply to condominiums formed before January 1, 1994, those provisions cannot contradict or invalidate what unit owners previously agreed to with respect to those issues. For example, if the unit owners agreed in a declaration filed before January 1, 1994 that a negligent unit owner and/or his or her tenant would be responsible for damage to all common elements of the condominium complex, this language would arguably control over the insurance provisions in the UCA since the UCA cannot “invalidate existing provisions of the declaration…recorded before January 1, 1994.”

In sum, if you are reviewing a potential subrogation claim against a unit owner where the condominium association is your insured, do not automatically assume that your subrogation rights are extinguished by the UCA. Instead, determine when the declaration was recorded and whether it was ever amended. If it was recorded before January 1, 1994 and never amended, pay particular attention to any provisions which address a unit owner’s potential liability/responsibility for property damage. If the declaration provides that unit owners are responsible for reimbursement of certain damages that were covered by the association’s property insurer, you may have a very good argument that the UCA does not necessarily invalidate your subrogation claim since the UCA cannot invalidate a property damage allocation scheme previously agreed upon by the unit owners.


Indiana: New Home Warranties Must Be Insured

When faced with a subrogation loss involving a new or fairly new house, and a potential construction defect that caused the loss, one of the first things to look for is how warranties can help or hurt your case. Did the builder give an express warranty? For how long? Were any warranties disclaimed? Do implied warranties exist? What if your homeowner isn’t the original buyer- do the warranties extend to subsequent purchasers?

Indiana has a unique approach to new home construction warranties. The Indiana New Home Construction Warranty Act (the “Act”) (see Indiana Code §32-27-2-1 et. seq.) allows a builder to provide specific warranties and disclaim all implied warranties if the text of the statute is followed. The express warranties are very specific in terms of what must be warranted, and for how long. For instance, if a builder utilizes the Act, it must provide a four year warranty covering defects in the home’s roof. In addition, in order to comply with the Act, the warranties must all be backed by an insurance policy at least equal to the purchase price of the new home, as well as completed operations products liability insurance covering the builder’s liability for reasonably foreseeable consequential damages arising from a defect covered by the warranties that the builder provides. The Act also provides that the express warranties, as long as they have not expired, will extend to subsequent purchasers.

The statute allows for recovery damages arising from the breach as well as reasonably foreseeable consequential damages arising from the defect and attorney’s fees, if provided for in the written contract.

Why would a builder choose to give a buyer express warranties via the Act? The likely answer is that it allows the builder to have control over its liability if a construction defect occurs. In Indiana, the implied warranty of fitness and habitability and the implied warranty of workmanship are warranties determined by case law and are not based in statute. If a builder provides express warranties in compliance with the Act, it is able to disclaim these implied warranties and the uncertainty of limitless liability. If a builder provides express warranties via the Act, it is assured that any warranty liability will be covered by insurance. This also works to the benefit of a plaintiff in a subrogation case, as there will be guaranteed insurance for the construction defect if the builder complies with the Act.

Based on the foregoing, when presented with a construction defect claim or case in Indiana, it is important to look at the contract to see if the builder has provided an express warranty pursuant to the Act.

Additional California Rulings on Right to Repair Act Defense

In August 2013, we reported that Christmas had come early for the California subrogation community due to a recent decision from the Court of Appeals which found that the “Right to Repair Act” (SB 800) did not apply to cases in which a property owner had suffered actual damages. Prior to the Liberty Mutual Insurance Company v. Brookfield Crystal Cove decision, subrogation professionals in California would encounter arguments that their subrogation claim was barred because proper notice and opportunity to repair was not given to the home builder as required under the Right to Repair Act. However, in the Liberty Mutual decision, the Court concluded that the “Right to Repair Act” was only intended to provide remedies where construction defects have negatively affected the value of a home, not where actual property damages occurred (i.e. the Act did not apply to subrogation cases).

Fast forward a few months and the California Court of Appeals have made two additional decisions on the topic. On February 19, 2014, the California Court of Appeals, 2nd Appellate District in Cynthia Burch v. Premier Homes, LLC, found that the Right to Repair Act did not provide an exclusive remedy for a homeowner seeking damages for construction defects. Rather, it found that common law causes of action for negligence and breach of warranty were permissible for construction defects that actually caused property damage. The Court cited to the prior Liberty Mutual decision, noting that the Court had examined the Act and its legislative history, and agreed with the Liberty Mutual decision - the Right to Repair Act did not provide an exclusive remedy and did not limit or preclude common law claims for damages for construction defects that have caused property damage.

On February 21, 2014, the 2nd Appellate District in Allstate Insurance Company v. KB Homes of Greater Los Angeles, Inc., ruled that the failure to give KB Homes timely notice and opportunity to inspect and offer to repair the construction defect excused KB Homes’ liability for damages under the Right to Repair Act. The case was unusual in that a series of demurrers left plaintiff Allstate Insurance Company only one cause of action – a violation of the Right to Repair Act – and no common law causes of action. The Court found that the sole issue before it was whether the Right to Repair Act required that notice be given to a builder before repairs are made. They distinguished the Liberty Mutual case (which notably involved common law causes of action), stating that the builder was allowed to repair the damage to the home. Here, in contrast, the builder was not given notice or any opportunity to inspect and to repair the defect before the damage was repaired.

The Allstate case can be distinguished on the ground that the Court’s decision was based on a single cause of action which alleged violation of the Right to Repair Act, and did not involve common law causes of action.  Arguably, if the common law claims allowed in Liberty Mutual and Cynthia Burch were present, the Court would have followed the Liberty Mutual decision. As a result, it is critical to plead common law tort causes of action when filing an action that arguably would come under the umbrella of the Right to Repair Act.

Illinois: Several Factors Determine Construction Manager Liability for the Acts of a Trade Contractor

A recent Illinois appellate court opinion illustrates how a construction manager may be found to have entrusted work to a trade contractor and, ultimately, how the construction manager can be held liable for the acts of the trade contractor.

Construction managers generally do not enter into contracts directly with the contractors who perform work on a project. Rather, construction managers typically solicit and receive bids, prepare bid analyses and make recommendations to project owners for the award of contracts, while the owners typically enter the agreement with project contractors. Ordinarily, construction managers also coordinate site activities and administer the construction project. Because construction managers typically do not hire or contract with trade contractors, construction managers have successfully argued that they are not liable for injuries resulting from a trade contractor’s work.

Generally under Illinois law, one who hires an independent contractor is not liable for the acts or omissions of the independent contractor. Under an exception to this rule, a construction project owner, construction manager or general contractor may be held liable for a trade contractor’s actions where the owner, manager or general contractor (1) entrusted the work to the trade contractor and (2) retained control over some aspect of the trade contractor’s work.

The Illinois appellate court recently adopted a totality of circumstances approach to determine whether a person has entrusted work to another. Under this new approach, it can be established that a construction manager entrusted work to an independent contractor even where the manager did not enter the contract with the contractor. Calloway v. Bovis Lend Lease, Inc., 2013 IL App (1st) 112746, at *61 (Aug. 16, 2013). Instead of only considering whether or not a construction manager actually contracted with a trade contractor to determine the element of entrustment, a court may now consider the overall contract structure of the project as well as the actions of the construction manager in making the determination. This includes contracts between the owner and the construction manager and contracts between the owner and trade contractors.

In Calloway, the appellate court upheld a finding that that the defendant construction manager entrusted work to a subcontractor. Under its contract with the project owner, the construction manager had the authority to identify the lowest responsive and responsible bidders and was required to recommend to the owner those bidders who should be given contracts. The contract between the manager and owner reduced the owner’s role in contractor selection. The court concluded that through the manager’s actions as the owner’s agent in selecting contractors, the manager entrusted the work to the subcontractor. Ultimately, the court went on to find that the construction manager retained a sufficient level of control over the subcontractor’s work that led to the plaintiff’s injuries and upheld a jury verdict in favor of the plaintiffs.

Of concern in Calloway was the ability of project owners, construction managers and general contractors to easily avoid liability under the exception to the general rule of no liability for the acts of independent contractors based purely on the various agreements between the parties. The Calloway opinion illustrates that a construction manager’s activities must be considered in addition to the relevant contracts in evaluating subrogation recovery against a construction manager for losses arising from construction defects.

California: Contractual Statute of Limitation Periods May Be Permissible Between Sophisticated Parties

The California Court of Appeals recently provided clarity as to whether parties are entitled to contractually agree to a shorter statute of repose period. In Brisbane v. Webcor, Plaintiff and Appellant Brisbane Lodging, L.P. recently appealed summary judgment granted in favor of Defendant Webcor Builders, Inc. and Webcor Builders (“Webcor”) in a construction defect case. In 1999, Brisbane contracted with Webcor to design and construct the Sierra Pointe Radisson Hotel. The parties were represented by counsel and engaged in extensive contract negotiations. Specifically, the parties negotiated the commencement of the statutory limitations period for work completed prior to substantial completion of the project. The parties ultimately agreed to abrogate the statutory 10-year limitations period in California (pursuant to Cal. Code Civ. Proc. §337.15) and agreed to a 4-year limitations period.

The Radisson construction was completed in July of 2000. In early 2005, a kitchen sewer line broke and caused waste to leak under the hotel. Webcor investigated the loss and determined that Therma, the plumbing contractor, caused the loss. Therma completed the necessary repairs by July 2005. However, in 2007, Brisbane notified Webcor and Therma of additional damages caused by incorrect installation of the plumbing during the original construction. Webcor notified Brisbane that Webcor and Therma considered the issues resolved. Brisbane disagreed and filed suit against Webcor in 2008. However, pursuant to paragraph in the original contract, the latest date upon which Brisbane could have commenced suit against Webcor was July 31, 2004, four years after the completion of the project.

The trial court granted summary judgment finding that the parties’ contract clearly and unambiguously abrogated the delayed discovery rule and the statutory 10-year limitation, making Plaintiff’s complaint, filed more than four years after the agreed-upon accrual date, untimely. The Appellate Court affirmed the judgment in favor of Webcor concluding that by tying the running of the statute of limitations to a specific date, the parties negotiated to “avoid the uncertainty of the discovery rule for the security of knowing the date beyond which they could no longer be exposed to potential liability.” Accordingly, the Court concluded that sophisticated parties should be allowed to “strike their own bargains and knowingly and voluntarily contract in a manner in which certain risks are eliminated and, concomitantly, rights are relinquished.”

Provisions such as paragraph are becoming more prevalent and enforceable through the AIA, particularly in commercial real-estate. The Appellate Court noted that court rulings from Maryland, Kentucky, New York and Wisconsin all recognized the enforceability of contract provisions modifying the delayed discovery rule. While the delayed discovery rules in California and other states were adopted to protect the “blamelessly ignorant,” it was not intended to protected sophisticated parties and no law prevents them from waiving it by contract. Similar to the Brisbane case, the courts in these cases enforced the provisions when both parties had legal counsel and were engaged in sophisticated commercial construction at the time. The lesson to learn from the Brisbaine decision is that courts are increasingly enforcing construction contract provisions abrogating statutory longer limitations periods when “the parties are on equal footing and where there was considerable sophisticated give and take over the terms of the contract,” reasoning that those parties should be given “the ability to enjoy the freedom of contract and to structure risk shifting as they see fit without judicial intervention.” Therefore, when sophisticated parties are represented by counsel, engaged in larger commercial constructions, and specifically negotiate their business risks, they should be prepared to get what they bargained for.

Right to Repair Act Defense Rejected in California Subrogation Cases

Christmas has come early for the California subrogation community! A recent decision from the Court of Appeals has held that the 2002 “Right to Repair Act” (a.k.a. SB 800) does not apply to cases in which a property owner has suffered actual damages. In a well-reasoned opinion, the court in Liberty Mutual Insurance Company v. Brookfield Crystal Cove, LLC concluded that the “Right to Repair Act” was only intended to provide remedies where construction defects have negatively affected the value of a home not where actual property damages have occurred.

The underlying case arose from a broken sprinkler system pipe causing damage to a new home. The developer accepted liability for the loss and paid for the repairs, but declined to pay for the hotel and relocation costs incurred during the repairs. After Liberty Mutual paid those expenses and subrogated, the trial court sustained the developer’s demurrer (California’s version of a motion to dismiss) on the grounds that the action was time-barred under the “Right to Repair Act.”

In reversing the lower court, the Court of Appeals carefully analyzed the legislative history of the “Right to Repair Act.” The Brookfield court correctly noted that the “Right to Repair Act” had been enacted to abrogate the Aas v. Superior Court (2000) 24 Cal. 4th 626 decision. Plaintiffs in Aas were seeking various forms of damages, including diminution in value of their property due to construction defects. That Supreme Court case held that construction defects, in the absence of actual property damage, were not actionable in tort. Essentially, the “Right to Repair Act” permitted the legislature to “overrule” what was deemed to be an imprudent Supreme Court decision-i.e. if it isn’t broke, the homeowner shouldn’t fix it!

However, since the enactment of the Right to Repair Act, it has often been raised as a defense to subrogation claims. Since the Act precludes common law causes of action, provides a shorter statute of repose, and imposes critical notice requirements before a claim can be made (including an opportunity to allow the builder to repair the defect), defendants have used the Right to Repair Act to argue an otherwise valid subrogation claim must be dismissed. Some trial courts, including the lower court in Brookfield, sided with developers in dismissing these subrogation actions. Fortunately, the Court of Appeals in Brookfield concluded that, contrary to the developer’s contention, the “Right to Repair Act” does not provide an exclusive remedy to homeowners. Common law actions for construction defects survive that Act. Further, the Act does not abrogate the four-year patent defect and ten-year latent defect statutes of limitation. Subrogation professionals should review their cases wherein the Right to Repair Act was raised as a defense and advise defense counsel that the Right to Repair Act defense as to subrogation claims is no longer valid.


Ewing: Will My Construction Defect Claim Be Covered In Texas

If you are a subrogation professional who handles construction defect claims in Texas, you may have heard references to the case of Ewing Construction Company v. Amerisure Insurance Company, 684 F.3d 512 (5th Cir. 2012)In Ewing, the Fifth Circuit Court of Appeals held thatan insurer had no duty to defend its insured subcontractor since the insuring policy excluded coverage for property damage the subcontractor was obligated to pay by reason of the assumption of liability in a contract or agreement.  However, shortly after issuing its opinion, the Fifth Circuit withdrew the opinion and certified two questions to the Texas Supreme Court:

1.       Does a general contractor that enters into a contract in which it agrees to perform its construction work in a good and workmanlike manner, without more specific provisions enlarging this obligation, “assume liability” for damages arising out of the contractor’s defective work so as to trigger the Contractual Liability Exclusion.


2.       If the answer to question one is “Yes” and the contractual liability exclusion is triggered, do the allegations in the underlying lawsuit alleging that the contractor violated its common law duty to perform the contract in a careful, workmanlike, and non-negligent manner fall within the exception to the contractual liability exclusion for “liability that would exist in the absence of contract.”


Ewing Construction Company (”Ewing”) contracted with a school district in Corpus Christi to build tennis courts.  Unfortunately, the workmanship was defective and the tennis courts were unfit for their intended use.  The school district filed a construction defect action against Ewing.  Ewing’s insurer Amerisure Insurance Company (“Amerisure”) denied coverage arguing under the policy’s contractual liability exclusion that there would be no coverage for “property damage” for which Ewing was obligated to pay damages by reason of its assumption of liability in a contract or agreement.  Ewing later filed a declaratory judgment action in United State District Court.  The District Court ultimately held that Amerisure owed no duty to defend Ewing because the contractual liability exclusion excluded coverage.  The Fifth Circuit affirmed the District Court’s ruling but then quickly withdrew its opinion and certified the above-referenced questions to the Texas Supreme Court.


The Texas Supreme Court heard oral argument in Ewing on February 27, 2013.  We are currently awaiting the Texas Supreme Court’s decision.  The outcome of Ewing is of particular importance to subrogation professionals since the Court’s ultimate decision could have far-reaching implications for available coverage in construction defect claims.  Theoretically, if the Texas Supreme Court were to answer the first question in the affirmative, commercial general liability insurers could seek to exclude coverage for construction defect claims asserted by subrogating carriers in any instance where its insured signed a construction contract and breach of contract claims were asserted.  On the other hand, if the Texas Supreme Court answers the question in the negative and finds that a contractor’s contractual agreement to essentially perform its work in a good and workmanlike manner, without more, does not trigger the contractual liability exclusion, coverage for most typical construction defect claims likely would not be affected.


In the interim, subrogation professionals who handle construction defect claims need to be mindful of this very important case, as some liability carriers may attempt to use the uncertainty of how the Texas Supreme Court might rule as leverage in pending cases.  A typical scenario would be one where a liability carrier asserts that because its insured contractor executed a contract for the underlying project, the contractor might not be covered for damages because of the contractual liability exclusion.  While no one really knows how the Texas Supreme Court will ultimately rule on this issue, many commentators tend to believe that the Texas Supreme Court will answer the first question in the negative which would negate this rather novel interpretation of the contractual liability exclusion.  The attorneys involved in the case expect a decision in late-August or early-September.

When are Illinois Local Governments Liable for Improper Repairs?

Local government units, like municipalities, are protected from liability for tortious conduct under Illinois’ Local Government and Governmental Employees Tort Immunity Act. In general, an Illinois city or county cannot be held liable for acts considered discretionary government functions like the formation of policy and plans. However, local governments may be held liable for negligently performed acts of repair. This is because once a local government has decided to plan for the repair and crafted the plan—both discretionary government functions—the only thing left for the city or county to do is to carry out the plan in a safe and skillful way. The recent Illinois appellate court opinion of Robinson v. Washington Twp., 2012 IL App (3d) 110177 (3d Dist. Aug. 29, 2012) illustrates this general rule but it also highlights the problems that may befall a plaintiff when pursuing a local government for poorly performed repairs of government property.

In Robinson, the plaintiff was injured in a vehicle accident that he contended was caused by the defendant’s improperly performed road repairs and leaving of debris and construction materials in the roadway. The plaintiff took care to allege that the defendant first started repairs prior to performing the specific acts of negligence. The trial court dismissed the case but the appellate court concluded that the defendant’s acts of repair were the implementation of its maintenance and repair plans to which liability could attach. 

The decision in Robinson distances itself from the proposition that minute tasks­­—like a worker’s deciding how deep to dig or how much soil to remove from a hole—involve discretion may immunize a local government from liability; however, it suggested that such tasks could be immune from liability depending on the facts presented to the court. The Robinson court cited a case where a municipality succeeded in characterizing a construction supervisor’s decision over how much water and debris to remove from a roadway pothole before patching it was a discretionary government function. As such, the municipality in that case was not liable for the plaintiff’s injuries. The Robinson court suggested that a line exists between discretionary and actionable decisions of government employees but declined to describe where that line falls.  

The Robinson opinion highlights the need for artful pleading and framing of issues in pursuing subrogation against an Illinois local governmental unit, namely, ensuring that the acts of negligence occur in the implementation or performance of a government repair plan.   The opinion also warns plaintiffs that Illinois courts are still free to examine the most minute of tasks to determine whether government employee conduct is actionable which may diminish the chances of recovery.

Michigan Expands Contractors' Tort Liability

 A beautiful Michigan home burned down in 2007 due to an improperly ­installed fireplace. The home was re-built in 2007, but a year later, the home burned again. The insurer paid both losses, and asked subrogation counsel to investigate the matter for subrogation potential. The experts concluded that the second house fire was due to the fireplace having been improperly installed during the reconstruction of the home. Suit was brought accordingly. However, the Michigan trial court, contrary to its own views, felt obligated to grant summary judgment to the defendant fireplace installer due to the law in Michigan at the time.  Subrogation counsel filed an appeal.

As we have previously reported, in its June 6, 2011 decision in Loweke v. Ann Arbor Ceiling & Partition Co., LLC,______Mich.           NW2d _____(Docket No. 141168), under Michigan's Fultz doctrine, a contractor had no tort liability for injuries or damages to property for work performed in furtherance of its contract unless, by applying a "separate and distinct mode of analysis," a new condition was created as a result of that work, leading to the injury complained of. In practice, proving the creation of such a "separate and distinct" new condition proved to be quite difficult in the context of several court decisions following Fultz. This problem was made worse for potential claimants if the faulty work was performed by someone with whom they were not in privity of contract, such as, in many cases, a subcontractor.the Michigan Supreme Court significantly modified its prior holding in Fultz v. Union-Commerce Assoc., 470 Mich. 460, 683 NW2d 587 (Mich. Sup. Ct., 2004). 

In Loweke, the Michigan Supreme Court stated its intention to "clarify" the holding in Fultz by, in essence, reverting to more traditional tort law. The Court stated that even when one is performing contractual work, that "does not alter the fact that there [exists] a preexisting obligation or duty to avoid harm when one acts….[W]hile the mere existence of a contractual promise does not ordinarily provide the basis of a duty of care to a third party in tort, the existence of a contract [also] does not extinguish duties of care otherwise existing ..." The Loweke Court stated: "Fultz did not extinguish the simple idea that is imbedded deep within the American common law of torts … if one having assumed to act, does so negligently," then liability exists as to a third party for "failure of the defendant to exercise care and skill in the performance itself."

In an unpublished opinion issued on December 22, 2011, relying upon Loweke, the Michigan Court of Appeals reversed the trial court's decision. The Court observed that it would ordinarily remand to the trial court to reconsider its summary judgment decision in light of the new Supreme Court authority, but since the trial court had made clear that it felt it was required to reach its conclusion in light of Fultz, the Court of Appeals instead reversed the trial court's grant of summary judgment outright and remanded the case to the trial court for further proceedings.  This reversal now provides an opportunity, as well as a legal basis, to seek recovery of damages from the fireplace installer.

California's Right to Repair Act: What teeth does it have when its requirements are not followed?

Imagine Mr. and Mrs. Johnson are recent first-time homeowners in California. Last year, they purchased a new home built by Lemon Construction. Shortly after moving into the home, the Johnsons went on a short vacation. To their dismay, they returned the following week to find the entire upstairs of their new house completely flooded.

Investigation revealed that Lemon Construction built the home with a poorly constructed roof, which did not hold up in the first major rainfall of the year. After discovering the flood, the Johnsons immediately hired a friend who was a roof installer to repair and finish their roof. The Johnsons also promptly notified their insurance carrier, which agreed to cover the cost of the roof repair. The Johnsons' insurer also immediately hired a company to restore the second floor of the home. Two months later, when repairs were almost complete, the Johnsons and their insurance carrier decided to file suit against Lemon Construction.

In the above hypothetical, did the Johnsons and/or their insurer create a legal obstacle in the planned action against Lemon Construction?

Unfortunately for the Johnsons, California's "Right to Repair Act" will likely be used as a defense by Lemon Construction because they were not given the opportunity to inspect and offer to repair the home prior to commencing repairs.

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Refocusing the Duty Inquiry in Michigan

In March, we discussed the importance of pleading common law duties separate and distinct from a builder’s contractual duties in order to preserve tort-based construction defect actions under Michigan law. In its opinion released June 6, 2011, the Michigan Supreme Court recently reinforced but fine-tuned this advice in Loweke v. Ann Arbor Ceiling & Partition Co., L.L.C., 2011 WL 2184294 (Mich. 2011).

The court recognized that under Fultz v. Union Commerce & Assocs., 470 Mich. 460 (2004), Michigan courts had mistakenly created a form of tort immunity against claims raised by noncontracting third parties. This immunity has grossly limited recoveries in both residential and commercial claims, because the policyholder typically contracts with only one entity, either the builder or general contractor, but the subcontracting tortfeasor has been previously ruled by trial courts to be immune due to lack of privity with the homeowner. The Supreme Court commented that Michigan courts had been allowing contract terms to obscure the inquiry as to whether a contracting defendant owed a noncontracting third party any legal duty. Rather, the court explained, any duty owed should be discerned “without regard to the obligations contained within the contract.” The focus of the inquiry is not whether a defendant’s conduct was separate and distinct from the defendant’s contractual obligations but whether a defendant owes any duty at all to a particular plaintiff.

While Loweke will be greeted with sighs of relief by those seeking to advance construction defect claims, the “separate and distinct” analysis is not dead letter. The failure to plead a duty independent of a contractor’s obligations will limit recovery to contractual avenues, to which third parties cannot generally avail themselves. Evaluation of what duties may exist relative the damage suffered, and careful crafting of the Complaint, is critical.

This facet of Michigan law has been dynamic and Cozen O’Connor will keep a watchful eye open for the latest changes.


CLAIMANT BEWARE: Construction Defects to Real Property: Georgia's Statute of Repose v. Statute of Limitations

Construction SiteIn Georgia, it is well known that actions for injury to real and personal property caused by any person furnishing the design or construction of an improvement to the property must be filed within eight (8) years after the substantial completion of the improvement. O.C.G.A. §9-3-51(a).  Further, an improvement to real property has been defined as a fixed alteration to the real property. Mullis v. Southern Co. Services, Inc., 250 Ga. App. 90, 296 S.E.2d 579 (1982). The Courts have held that if a component is an essential and integral part of the improvement to which it belongs, then it is itself an improvement to real property.  Therefore, in the event a claimant files an action against a contractor, architect, or subcontractor to recover damages to its real property, for example, one would surmise that he or she has eight (8) years from the date the work was substantially completed to file the claim. That is not the case insomuch as in 1994, the Georgia Court of Appeals, in effect, shortened the time period to file a claim against a contractor to recover damages to real property to four (4) years.

In Hanna, et al. v. McWilliams, et al., 213 Ga. App. 648, 446 S.E.2d 741 (1994), a homeowner brought an action against a general contractor and subcontractor to recover damages to real and personal property caused by the negligent installation of a fireplace. The Hanna Court held that the fireplace constituted an integral part of the home and an improvement. As a result, the statute of repose applied. The Hanna Court also examined whether the homeowner had eight (8) years after the substantial completion of the fireplace to bring an action against the contractors, as outlined in the statute of repose, or whether the four (4) year statute of limitations barred the claim.  The Court held, as it pertains to damages to real property, that the Plaintiff’s claims were subject to the four (4) year statute of limitations set forth in O.C.G.A. §9-3-30 and the action accrued at the time of the substantial completion of the project.  

The holdings in Hannah provide that in cases involving damages to real property, the statute of repose and statute of limitations will run concurrently after the date of substantial completion. When the four (4) year limitation for tort actions has been reached, the claimant is barred from pursuing a claim to recover damages to its real property as a result of the defect in an improvement to its land. Keep in mind that the application of Hannah is different for damages to personal property as the discovery exception to the statute of limitations applies. 

Claimant beware! Make sure you examine the dates when the repair and/or improvement was made to determine if you have a viable claim.

Chinese Drywall Litigation

Exposed drywall in new constructionFrom 2004 through 2006, the housing boom and rebuilding efforts necessitated by various hurricanes led to a shortage of construction materials.  As a result, U.S. builders and suppliers imported significant amounts of Chinese drywall, estimated to be enough to construct approximately 100,000 homes.  A number of putative class action complaints and approximately 100 other state and federal complaints including counts for negligence, strict liability, breach of warranty, and violations of consumer protection acts have been filed alleging that the Chinese drywall emits gaseous emissions or “off-gassing” that creates a noxious “rotten egg-like” odor and causes damage and corrosion to home structural and mechanical systems such as air conditioner and refrigerator coils, copper tubing, faucets, metal surfaces, and electrical wiring. Additionally, the “off-gassing” is alleged to cause health problems, including allergic reactions, coughing, respiratory problems, sinus problems, throat infection, eye irritation, and nosebleeds.

Various federal, state, and independent agencies have done testing to determine the cause of the “off-gassing” but none have reached a final conclusion.  On May 7, 2009, the U.S. Environmental Protection Agency’s Environmental Response Team published a drywall analysis comparing a limited number of Chinese drywall samples from Florida homes to U.S. made drywall samples purchased from a Home Depot in New Jersey.

The EPA found significant differences between the Chinese drywall and the U.S. made drywall:

  • Sulfur was detected in the Chinese drywall but not in the U.S. drywall.
  • Strontium in the Chinese drywall was anywhere from twice to ten times the amount found in the U.S. made drywall.
  • Iron concentrations in the Chinese drywall were also significantly higher.
  • Notably, there was no evidence of fly ash found in the Chinese drywall samples or the U.S. samples.

However, the EPA has not issued a final report on the cause of the “off-gassing” and whether it causes property damage and personal injury.

On June 15, 2009, a special panel on multi-district litigation ordered cases involving Chinese drywall consolidated in the U.S. District Court of the Eastern District of Louisiana with Judge Eldon E. Fallon.  The matters are also being closely followed by Florida Congressman Robert Wexler, an advocate for families adversely impacted by homes built with Chinese drywall.

Summer Storms And Lightning CSST Fires

Summer is upon us. Summertime means barbeques and thunderstorms, but it’s best to keep them separate. Most of us have gas-fed barbeque grills, but we know to keep them outside. With thunderstorms, come lightning. For an unfortunate few whose homes contain corrugated stainless steel gas tubing (CSST), lightning will strike at or near their homes and energize the gas piping. As this happens, the energy from the lightning strike will burn a hole through this thin steel material, allowing pressurized flammable gas to escape. At the same time, the heat from the lightning strike will ignite the escaping gas. No one wants a barbeque grill inside their home. 

Unlike last year, this summer has not yet to featured many powerful thunder storms. However, in the few storms that have occurred across the country, we are seeing CSST losses and these losses have recovery potential. Review of several contractor message boards across the country reveals that contractors using CSST are concerned. Many have reverted to using black iron pipe. For those who continue to use the product, they certainly risk liability for continuing to use a product that they now know has a track record for failing under expected conditions.  Simply relying on the manufacturers’ claim that the product is safe may not be enough to avoid this liability.

Through the years, the manufacturer’s installation instructions have changed and the concepts of grounding and bonding have become more significant. Similarly, the newest codes have entire sections devoted how to bond CSST.   The reason these newest sections are devoted to only CSST is that other types of gas piping simply do not have same problems handling lightning. Yet, in homes with bonding and grounding, these losses are occurring. These losses raise the issue of whether bonding and grounding is enough. Or, perhaps, the gas lines, while bonded, were not bonded effectively. What constitutes an effective bond continues to change as much as anything. It would not be much of a surprise if bonding requirements change again in the next round of code updates. In short, all this means is that there are a lot of new homes out there that have gas lines in them that may not be safe and neither the contractors or the CSST industry are alerting the owners of these homes to the problems they have created. 

Nobody wants an indoor barbeque. It’s just not safe.