Subrogation & Recovery Law Blog : Insurance Subrogation Lawyer & Attorney : Cozen O'Connor Law Firm : Property Damage & Insurance Commentary

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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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.

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In 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.

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From 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.

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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.

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