Construction Litigation Law Blog
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- Fire Code Violations As A Transition Item
Condominiums must be constructed in accordance with at least the minimum standards of the building code in effect when the construction was approved. Whether that code is the old BOCA Code or the new International Residential Code, there are fire sub-codes that must be complied with. One of the most important requirements of those Codes is the requirements for fire wall assemblies. These include fire walls and draft-stopping. Fire walls are typically constructed between two condominium units. They are designed to slow the fire for one or two hours --depending upon the required rating of the fire wall assembly--so that people have time to evacuate and the fire department can have a chance to put out the fire before it spreads.
When multi-story condominium buildings are constructed, it is usually necessary to vent plumbing and HVAC pipes from the first floor up through the interior of the building and out the roof. When the plumber or HVAC contractors install their pipes, they either make holes or use holes cut by other contractors so they can run their pipes up through the building and out the roof. In a similar way, electricians run conduits through the inside of the building and then up through the roof, especially where there are roof-mounted HVAC units that have high-voltage wiring that must be installed by the electrical contractor. Draft-stopping is installed in these holes to stop the flow of air throughout the inside of the building. Otherwise, if there is a fire, the holes act like the flue in a chimney and conduct air that fans the flames and exacerbates the spread of the fire.
Many times associations treat claims relating to fire assemblies and draft-stopping as throw-away claims and negotiate them away in exchange for other considerations. This is a mistake. We have handled several matters where fires broke out and were seriously exacerbated by the lack of proper fire wall assemblies and draft-stopping. The association should recognize that these claims are life-safety issues that should be treated as serious , valuable claims. As fiduciaries, the Board members should bear in mind that they have a duty to protect the lives and safety of the unitowners and that this a paramount responsibility. Developers may argue that there is no consequential damage (ie, damage to other property) and therefore there is no insurance coverage. This is a ridiculous argument. While the insurance analysis is complicated, the carrier for the developer should not be able to get away with denying coverage on the theory that it has to wait until there is a fire and people die or property is destroyed before they have to cover the claim. If you have any questions about this, please contact us.
Wed, 07 Mar 2007 08:11:28 -0500 - Kara Homes Bankruptcy Update
Fall-out from Kara Homes’ bankruptcy is having a heavy impact on homeowners in its partially finished developments as well as the municipalities in which they are located, according to a February 26, 2007 report published by the Press of Atlantic City. Homeowners and municipalities are reporting adverse and unexpected expenditures to address a variety of health and safety problems related to unfinished landscaping and construction. According to the Press report, Kara abandoned developments in eighteen New Jersey municipalities.
In Hamilton Township, Kara left destroyed woodlands, unfinished homes, and mountains of trash at Glen Eyre. Township officials estimate that the cost just to clear garbage and construction debris, dumped on the site when trash disposal companies reclaimed their dumpsters, will exceed $25,000, rendering the clean-up subject to municipal bidding requirements. Hamilton is also adversely affected by lost tax revenue on the abandoned property. Meanwhile, owners of completed and closed homes find the enjoyment and value of their properties minimized by the ugly wasteland surrounding them.
Owners of units in The Landings, a Manahawkin condominium project that Kara abandoned, are paying monthly common expense assessments but receiving no services. Common elements such as roads and grounds are incomplete. Several units flooded when pipes froze and burst in adjacent, abandoned units. Delinquent property tax payments from Kara to Stafford Township, of which Manahawkin is a part, approximate half a million dollars. Like Hamilton Township, Stafford has had to address health and safety problems left by Kara, particularly, filling in or fencing excavations for the foundations of buildings that were never built.
In Little Egg Harbor, homeowners are attempting to cope with incomplete homes next door, improperly paved roadways, burst sprinkler systems and sewer back-ups.
Owners and municipalities anticipate improvement in some developments once they are conveyed in Kara’s planned auction. On February 27, 2007, various sources, including the Asbury Park Press, reported that six developments are currently being advertised by auctioneer Sheldon Good & Co.
The sale of these developments will likely not mark the end of problems for existing homeowners and municipalities. In those communities with common interest ownership, such as condominiums or homeowners’ associations, successor sponsor/developers will purchase both the uncompleted homes and units and their appurtenant interests in common elements or common property. The successor will then need to address not only physical completion of the site but also the details of the community’s registration under the Planned Real Estate Development Full Disclosure Act (“PREDFDA,” N.J.S.A. 45:15-16.27 et seq.) and the governing scheme of the condominium or homeowners’ association as set forth in its Master Deed or Declaration and the association’s by-laws. In light of Kara’s failure to develop the communities profitably during the current real estate downtown, anticipating material changes in the development would not be unreasonable as the successors attempt to salvage value from Kara’s cast-offs.
Mon, 05 Mar 2007 08:03:53 -0500 - Bergen Record Quotes Don Brenner
The Bergen Record recently quoted Don Brenner in the story Leaks Blamed on Exterior of Fake Stucco.
Read the article here.
Tue, 13 Feb 2007 09:35:00 -0500 - Fire Safety Issues
We have been taking on an increasing number of cases involving claims related to missing or improper fire walls between condominium units and missing or improper fire damping or draft-stopping in ceilings. In our experience, clients frequently tend to discount the importance and value of these claims, reasoning that they are really just technical Code violations that are no big deal. However, we have recently seen several serious fires in condominiums caused or exacerbated by these deficiencies that have created massive damage and severe dislocation to the affected unitowners.
Fire-rated walls and ceilings are designed to slow the spread of fire so that fire-fighters have more time to battle the fire and thereby save lives and minimize property damage. Fire walls are designed by architects. Pursuant to the applicable BOCA provisions governing that particular type of construction, they are typically made of materials that have a fire rating of one or two hours. This means that they are designed to delay the spread of fire for one or two hours--depending upon the fire rating of the walls. A fire-rated wall or ceiling with a one hour fire rating would typically be constructed using 2 layers of 5/8" type X gypsum board. Thus, if the wall is actually constructed of standard gypsum board that is ½" thick, that will not provide the necessary fire protection. The same analysis applies if there is a fire rated access hatch required.
A fire that starts on a balcony or upper deck and spreads across the exterior siding to the roof area can quickly engulf the attics and roofs of surrounding units. Fire suppression systems are typically below these locations so they will be useless in stopping the fire. The fire-rated walls and ceilings are therefore particularly important in slowing the spread of the fire until the Fire Department can get fire-fighters to stop the fire. The absence of Code-compliant fire-rated walls and ceilings can turn what should have been a manageable fire into a disaster.
Draft-stopping is used to seal penetrations through floors and ceilings. Typically this becomes an important fire-safety issue in multi-story buildings where plumbing pipes, flue pipes, HVAC pipes or electrical conduits or anything else runs vertically up the inside of the building through the floors and ceilings of units and up through the roof. If there is no sealant around the pipes, a fire starting on a lower floor can be fanned by the drafts caused by the unsealed penetrations where the pipes go through various floors and ceilings and thereby spread very quickly to higher floors, fanning the flames to the point where they eventually engulf the entire building.
We have seen condominium buildings where the lack of adequate fire-rated ceilings and partition walls is exacerbated by the lack of draft-stopping, which, in turn, is aggravated by HVAC contractors who cut holes in fire rated ceilings in utility rooms inside individual units in order to install dampers inside the ducts. This destroyed the fire rated ceilings. In one such condominium there was a catastrophic fire that caused massive damage and forced numerous families to relocate until their units are reconstructed.
The bottom line is that fire safety is a serious issue and should be a major concern to all property owners and to community associations undergoing transition. As part of the transition process, a thorough review should be undertaken to discover any lack of compliance with all applicable fire and related building codes.
Wed, 07 Feb 2007 09:33:32 -0500 - Selecting the Consulting or Litigation Expert
There are two classes of experts: consulting experts who will not be testifying at trial and trial experts whose testimony you do intend to rely upon. All documents and oral communications exchanged between counsel and the consulting expert are generally privileged --except in rare instances where the opposing party can show a hardship that justifies allowing the consulting expert's files to be discovered or that allows the consulting expert to be deposed. That would only happen in a situation where the opposing party could show that there was no other way that he/she could get anyone else to offer an opinion on the same issue--for example, because the evidence was destroyed. In New Jersey, discovery is allowed into the documents and oral communications between the testifying expert and counsel to the extent, in formulating his or her opinion, that the expert relied upon any information exchanged or communicated between them. This distinction is important because counsel's communications with consulting experts--even those that lead to the development of opinions harmful to the case--are not discoverable. This gives counsel the freedom to be aggressive in speaking with prospective experts so that counsel can find the expert best suited to the case.
There are many factors to consider in hiring an expert. The nature and value of the claim, the factual background of the matter from which the claim arises, and the scope and timing of the work must be considered. The credentials and experience of the expert must also be considered since the fees charged by the expert usually are a direct reflection of those factors. You must also decide whether the expert is going to be a consulting expert or an expert who will be testifying at trial. This is a particularly important consideration given the privilege that attaches to communications between the attorney and the consulting expert.
Some or all construction and design claims may involve extremely complex factual or technical issues. The entire case may rise or fall on the quality of the experts selected to handle the claims in issue. Extraordinary care must therefore be given to the entire process of finding and hiring consulting and testifying experts. The initial expert retained by the client may be an architect or engineer with broad experience in areas of design or construction. As counsel's investigation continues with the assistance of the consulting expert, it may be necessary to bring in additional experts who have specific expertise in particular areas. The amount in controversy will often have a major impact on this process. If the case is a construction and design defect case involving water infiltration from roofs, windows and siding, and claims relating to improper design of a sea wall, and deficient construction of the fire suppression systems in a large condominium, and the amount in controversy is $5 million, it may make sense to engage an expert with particular expertise in handling just the roofs, windows and siding, a different expert with particular expertise in sea wall design /construction issues and yet another expert with particular expertise in design/construction of the type of fire suppression system involved in the case. Counsel may also wish to hire yet another expert with substantial expertise in cost-estimating to compile the damages report.
As a general matter, it is advisable to make sure that your experts have experience testifying in depositions and at trial. That is a very different experience for most experts. No matter how well educated and experienced an expert may be, it is not unusual for an expert who has never testified before to look tentative, become defensive or combative or otherwise have difficulty under cross -examination by skilled counsel. If the claim is worth bringing, and it is substantial enough for the client to incur the expense of hiring an expert, then it is worth the time and trouble to make sure that, in the interview process, due consideration is given to making sure that the prospective expert has testimonial experience. These considerations all need to be thoroughly reviewed with the client before these decisions are made.
Mon, 22 Jan 2007 09:01:53 -0500 - Use of Experts in Construction Litigation
Construction litigation requires the use of experts in many contexts. For example, a typical project starts with the "design phase" in which civil engineers, geotechnical engineers, hydrologists, environmental engineers, surveyors and architects are involved in shaping the contours and features of the project design. The design phase is followed by the "construction phase" in which numerous design professionals are involved. These include, among others, architects, structural, mechanical and electrical engineers, among others. All of these design professionals must coordinate their activities with those of the general contractor and subcontractors.
Design professionals also have to be careful to make sure that materials specified for the project are fit for their intended purposes and will not cause or exacerbate construction deficiencies. Many construction materials become code compliant as alternate materials under the building code and their manufacturer's installation specifications become the standard for Code compliance. Communication with the manufacturer or distributor becomes very important in determining whether materials can be used on a particular project.
Assuming litigation ensues after design or construction defects are found, experts will almost certainly be required to render reports and testify at depositions and at trial. Counsel will also need to consult with experts during various stages of the case. Typical issues that may require use of expert testimony or require counsel to consult with experts include, among many others:
1. whether work was performed deficiently;
2. Whether materials were defective;
3. whether certain work was within the scope of work of a particular contract;
4. whether the work of a contractor conformed to the scope of work in the contract;
5. whether the design or workmanship was deficient or the materials were defective, or some combination of the three;
6. the applicable standard of care governing that work;
7. Whether there were delays that are actionable;
8. the cause of the deficiency or defect;
9. the damages flowing from delays or deficient workmanship or materials;
10. what needs to be done to repair the defective materials or deficient workmanship.
Thu, 18 Jan 2007 08:58:41 -0500 - Depositions
Depositions are a critically important part of the plaintiff's strategy. They enable the plaintiff to bring out facts that trigger insurance coverage. They also enable the plaintiff to obtain testimony that, among other things: (a) authenticates important documents; (b) lays foundations for other testimony; (c) provides fodder for impeachment of witnesses at trial; (d) gives plaintiff the opportunity to create a record that can be used to defeat summary judgment motions at the close of discovery and to support the opinions of its expert; and, (e) most importantly, enables the plaintiff to sustain its burden of proof at trial. We often spend months preparing for depositions of important witnesses such as project managers, design professionals and product manufacturers, since those depositions can be of seminal importance. A great deal of thought, preparation, experience and skill is required in planning and executing your deposition strategy because those depositions—properly done—set up the entire case.
The Stark & Stark Construction Litigation Group spends substantial amounts of time and money doing intensive investigations of non-parties and their documents. Disgruntled former employees, competitors and municipal officials can be a fountain of useful information. In addition, representatives of manufacturers of materials that were used on the project often do site inspections that result in interesting meetings, letters, e-mail and other documents that can be extremely useful at trial. Counsel should do plenty of thinking about discovery strategy, because it can turn a valuable case into a gold mine if properly conceived and executed.
We are amazed at the lack of knowledge of many project managers and superintendents we depose. These project managers and their subordinates are entrusted with supervising the work of hundreds of people costing tens of millions of dollars. We typically prepare by learning every nuance of the details and specifications governing the issues in the case. We spend quite a bit of time mastering those details and specifications because we have learned over time that the project managers and their subordinate superintendents typically do not have much understanding of those details and specifications. Devastating testimony can be developed by going through those details and specifications with the project manager and his subordinates. The obvious goal is to elicit testimony from then that enables counsel to put on testimony at trial raising the question: how can you possibly evaluate the acceptability of the work of the subcontractors in a competent way if you do not understand what they were supposed to do?
One final example is worth describing. You never know where your next bombshell is going to come from. That is why we try to talk to as many people who worked the project as possible. We spend a great deal of time and money tracking down missing subcontractors –especially those who are out of business and may have a good story to tell. Disgruntled former employees and subcontractors are a veritable fountain of valuable information about what transpired on a job. We have taken depositions where disaffected subcontractors who were not paid a few thousand dollars and were thrown off the job come back years later at depositions and do enormous harm to the developer-general contractor. For example, in one particular instance, the now- defunct subcontractor responsible for applying the roofs to a series of condominium buildings was upset because he did not get paid his last $20,000 of a contract worth over $1 million. When asked why he did not follow the manufacturer’s installation specifications for installation of ice and water shield and why he failed to use ventilated, pressure treated stirrups to attach the concrete roof tiles, he threw the project manager under the proverbial bus with great enthusiasm. He testified that he pointed out the details and specifications of the roof tile manufacturer to the project manager but the project manager told him to ignore them because the builder did not want to spend the money for these details. He even went so far as to get his ex-wife, who held the defunct company’s records–to give us documents he had that we used to help support his story. The carriers for the roofer and the general contractor eventually threw in their full policies to settle the claims.
It takes years of experience to be able to effectively handle a complex construction litigation case involving claims arising from design defects and /or construction deficiencies. These cases are an interesting challenge and a great deal of fun to handle. There is nothing quite like being the plaintiff representing completely innocent, totally victimized clients in a complex case involving tens of millions of dollars in claims and appearing at depositions, court hearings and trial with 50 or more lawyers arrayed against you. The fact that your clients had nothing to do with creating any of the construction n deficiencies and design defects in question gives you a powerful moral and legal advantage over the defendants. Careful thought, planning, preparation, use of the right experts, and lots of hard work and hopefully some good luck can get you a result that is emotionally fulfilling and financially rewarding for both your client and your firm
Tue, 16 Jan 2007 08:49:18 -0500 - Plan Ahead: Have a Strategy
Joining parties in a complex construction litigation case involving millions of dollars of damages is not to be done lightly. If counsel is not careful, it is easy to wind up with 50 or more parties, each of whom has to be served with every pleading, motion, letter, discovery request, expert report and everything else that is sent out in the litigation. This can cost tens–sometimes hundreds-- of thousands of dollars each year that the case continues.
If a party is going to be joined, careful thought must be given to what it will cost to add that party, and what recovery is likely to be obtained. We have seen complex cases where a party is joined because of a relatively small claim. That party then files a third party complaint, and brings in two other parties seeking contribution or indemnification. The three of them get involved in a series of disputes about who did what on the project. Each party serves extensive discovery requests on the plaintiff and on each other. Experts have to be hired for each party and site inspections have to be arranged. By the time everyone gets done with all of that work, the amount to be recovered has been dwarfed by the amount of attorney's and expert fees and costs expended. This causes aggravation and delay for all involved and in the end, no one is happy with the outcome. Thus, even if the plaintiff has a perfectly valid claim, careful consideration has to be given to whether it is economically sensible to assert that claim.
Generally, experienced counsel knows that you follow the money in a construction litigation case. Common sense dictates that you assert and spend most of your time on the most valuable claims. You must make sure that you have a good understanding of insurance coverage issues, as well as the best experts you can find. Care has to be taken to plead your claims in such a way as to make it as likely as possible that the insurance carriers will refrain from disclaiming insurance coverage. For example, you will want to try to frame your pleadings to describe negligent rather than intentional conduct. Typically, CGL policies exclude claims for intentional conduct but cover negligent conduct. In a similar vein, counsel will want to carefully consider whether he/she wants to plead fraud claims because they involve proof of intentional conduct that is beyond the scope of CGL policies.
Once the initial investigation and preparation of pleadings is complete, counsel has to assimilate the documents and interrogatory answers, and then get ready for depositions. This is the most important part of discovery because you are getting answers directly from the witness without counsel coloring the answer as typically occurs when interrogatories are answered by counsel and then affirmed by the client.
Fri, 12 Jan 2007 08:44:35 -0500 - Who Do You Sue?
Generally, in determining who to sue and what claims to make, Stark & Stark's Construction Litigation Group is guided by our client’s knowledge of the history of the project, our experts and by our experience. We also review whatever documents are available and make reasoned judgments as to who to join in the original complaint. It is especially helpful to have the original as built plans, the records of the construction office of the local municipality, and any other local, state and federal agencies who may have played any role in approving the design of the development or project in question. We understand that we are going to have to amend the complaint—probably several times—until we have all parties joined who belong in the case.
We start with the developer and general contractor, and then add any subcontractors whose identities are known to us and who we have a good faith reason to believe have liability for the defects in question. If there are any defective products, we try to determine who the manufacturer and distributor are so we can join them to the suit. We frequently ask the developer-general contractor for a list of responsible subcontractors. They are usually willing to provide this information, since the developer-general contractor is typically looking to be indemnified by these subcontractors and design professionals anyway under the terms of the contracts between them or under state law.
Once the complaint is filed, we serve extensive requests for documents relating to, among other things, the approvals, design, construction and inspection of the project, insurance coverage and any deficiencies discovered or complaints by any unitowners, homeowners or other buyers or residents. We also serve written interrogatories on all parties to elicit important information such as: (a) who did what in connection with the project; (b) who supplied the materials in question; (c) who inspected the work; (d) what changes were made in the work; (e) what problems arose during the project; (f) what payments were made for the work or materials in question; and (g) what disputes arose during or after the project. After several months of discovery, we can usually identify most of the important players. We do additional amendments of the complaint as go forward and identify other responsible parties, such as subcontractors of subcontractors and repair contractors who may have come in after the job was well under way to fix someone else’s deficient work and thereby exacerbated already deficient work.
Wed, 10 Jan 2007 08:39:33 -0500 - Avoiding Trouble: Spoliation of Evidence
When engineering work is being done, careful consideration must be given to the doctrine of spoliation of evidence. This is a doctrine that says that before any repair work or invasive testing is done that substantially affects the original condition of the property in question, fair notice must be given to any person who may have an interest in that work. Failure to give fair notice in advance of the work can mean that the plaintiff doing the work can have its proofs barred at trial.
The point of the spoliation of evidence doctrine is to make sure that contractors, material suppliers, design professionals and anyone else who may eventually be sued for design or construction-related claims has adequate notice and a fair opportunity to view the existing "as- built" condition of the property before any repairs or major invasive testing are done. The theory is that if such a person is deprived of the opportunity to inspect the as- built condition of the property, the person is essentially deprived of the ability to mount an effective defense, or to make claims against third parties it believes is responsible for the loss. Notice should be given if the property is about to be repaired; it may also be necessary if extensive invasive testing is going to be done.
For example, if you have a client who is going to demolish extensive portions of one side of a building to see what the condition of the sheathing or framing is, or to observe and document mold conditions, then notice should be given. If your expert is just going to do some small test cuts of the exterior cladding, then notice probably does not have to be given, since you are not affecting the ability of the defense experts to either re-open the test cuts done by your expert or do test cuts of their own.
Giving notice is a judgment call for counsel. The Stark & Stark Construction Litigation Group recommends that counsel err on the side of caution and give as much notice to as many people as possible. For example, we do a lot of cases involving deficient installation of building envelopes. We often have no idea who the manufacturer of the defective exterior cladding is. Before we allow our clients to tear off the cladding and fix their buildings, we give notice to every product manufacturer and distributor we can think of. We also ask the developer or general contractor to give written notice to all contractors and design professionals who worked on the project. By being as expansive as possible, you limit your exposure to the spoliation of evidence defense.
Mon, 08 Jan 2007 08:29:47 -0500 - Superior Court Judge Finds New Jersey's Home Owner Warranty Program "A Useless Piece of Paper"
In a recent New Jersey case, a New Jersey Superior Court Judge offered the following opinion on the Home Owner warranty at issue in that case:
“And as I have indicated during the course of oral argument, the homeowner warranty is required by law, but as I used to do when I was practicing, I used to tell my clients in the strongest terms possible, that this is a useless piece of paper. And I truly believe that. Having gone through the process in private practice, with the few clients that wouldn’t listen to me, and did go through with this homeowner warranty and arbitration, it is an utter waste of time if you are a homeowner. The only remedy you actually get is if your house literally falls down on your head, then you will get compensation in satisfaction. Other than that it is just a feel good thing that when people walk away from a closing table, they think they have some kind of a security blanket. They don’t. In this particular situation ... some of these people encounter problems with these houses in the first six months, – you know it is not unlike many of the tract houses that are built in New Jersey. Some of these things are put together with a staple gun. You know, that is how they put these together. [....] I am well aware of the RWC program, the homeowner warranty program, and the election of remedies. It is set up with the specific goal in mind that there is declining coverage for the benefit of the homeowner, it declines. This is a program, even though it is distinguished by the Legislature, as a homeowner warranty, it is basically a safety net for the builder, as opposed to the homeowner.”
Cesard v. D.R. Horton, Docket No. MON-L-3147, Monmouth County, Law Division, Civil Part, Transcript of Decision December 1, 2006.
In New Jersey, under the “New Home Warranty and Builder’s Registration Act”, N.J.S. 46:3B-1, et. seq. home builders are required to provide a warranty for their customers.
The warranty must cover ordinary defects in a new home for two years from the original purchase date, and then offer coverage against “major structural defects” in years 3-10. You can see the particulars at N.J.S. 46:3B-3b.
Builders may choose to provide a private warranty, from companies like Residential Warranty Corporation (“RWC”), or 2/10 Warranty. The builder may, if he chooses, also rely upon a state-run Homeowner Warranty program administered by the New Jersey Department of Community Affairs. This program is funded by mandatory payments from home builders, and just like the private warranty programs, purports to offer protection from most construction defects for the first two years and against Major Structural Defects therafter. The law was passed to protect new homeowners and to afford them recourse against builders in the event that a problem arose with the home. Unfortunately, it does no such thing.
The first problem with these warranties is that, in years 3-10, they only cover “major structural defects.” The statute defines this as “actual damage to any load bearing portion of the home.” N.J.A.C. 5:25-1.3 This means, practically speaking, that the house has to collapse, or be in imminent danger of collapse, before the warranty is even applicable. Normal problems like leaks, cracking, excessive settling, malfunctioning plumbing, mechanical or electrical systems, are not covered beyond 2 years. It does not matter if your home has cracks in the foundation, slab, walls, or structural elements. Generally if nothing has failed, you will likely not be covered. The private companies interpret “Major Structural Damage” as strictly as possible, and generally do not find any warranty coverage for even severe problems. The other issue to be aware of, especially with the private warranty companies, is that they hire local inspectors to observe the home and report back to the company. The inspectors often do a very cursory job, and are only charged with visual inspections. They will not remove siding, open walls, or move dirt back from foundations. As you can imagine, it is difficult to find evidence of damage to the structural elements of a house if you are not willing to move dirt or open walls. So naturally, these inspections frequently result in a finding of “no coverage”.
Of course, most homeowners do not have severe problems with the foundation or framing of their houses. They have leaks which they don’t notice for several years, or they have increased maintenance costs because of shoddy workmanship. Since these types of defects are generally the sorts of things a builder will fix in the first two years anyways, the HOW program offers no real benefit to most homeowners.
Secondly, and most importantly, the New Home Warranty and Builder’s Registration Act contains, at 46:3B-9, the “poison pill” of the statute.
Availability of any legal remedy to owner; election of remedy Nothing contained herein shall affect other rights and remedies available to the owner. The owner shall have the opportunity to pursue any remedy legally available to the owner. However, initiation of procedures to enforce a remedy shall constitute an election which shall bar the owner from all other remedies. Nothing contained herein shall be deemed to limit the owner's right of appeal as applicable to the remedy elected.
Read the bolded language. Yes, if you file a claim under the HOW program, or any private warranty program, you may be forever barred from pursing your claims in another forum, which means you cannot sue the builder in court. There are several reported decisions in which homeowners tried to get their homes fixed under the HOW program, and the builder either failed to follow up, or did an equally shoddy job repairing the home, and those homeowners were prevented from chasing the builder and/or his subcontractors in court because they had chosen initially to pursue the HOW claim.
In the case cited at the top of this article, Cesard, homeowners submitted a claim to RWC, which then inspected their homes and determined that the warranty did not apply to their claims – they had no warranty coverage. These same homeowners were thrown out of court because they had “initiated a procedure to enforce a remedy.” It apparently didn’t matter to the Court that the homeowners really had no remedy (i.e., their warranty claims had been denied by RWC. The language in 46:3B-9, as argued by the builder’s attorney, and as interpreted by the Judge, meant that these homeowners, with substantial problems with the construction of their homes, were out of options. Their warranty coverage was inapplicable, and since they had gone through the trouble of finding that out by dealing with the warranty company, they had precluded themselves from pursuing their claims in court as well. This is surely not what the Legislature intended when it enacted a bill to protect homeowners.
Now you understand why the Judge feels the way he does about the HOW program. It is useless and deceiving. If you believe it will offer you some help, you are likely to be disappointed by the result. If you pursue a claim - perhaps even if you inquire about a claim - you may prevent yourself from ever suing your builder. Defense attorneys believe that this “election of remedies” means that our justice system is like a game show. You get one choice in the beginning, and if you choose what’s behind Door No. 2, you might not get the justice you are entitled to. You might get a box of rocks or a trash bag full of hair. Your builder gets off scott-free with your money, and you get stuck with a brand-new house that also happens to be a fixer-upper. Be warned.
Fri, 05 Jan 2007 08:26:39 -0500 - The Importance of Experts
Another important consideration is whether the association is going to be willing to hire and pay for the qualified experts necessary to win the case. You can have a great case, but if you have the wrong expert, it can quickly turn into a disaster. The best way to avoid this problem is for counsel to give the client a thorough and honest estimate of what the case will cost and what the timing of the case will likely be. What does counsel base this assessment on?
Many lawyers file suit based upon transition engineering reports. These reports are often perfunctory, and were done just to give the association a general idea of what issues might be of concern. Many explicitly state that no invasive testing was done and that additional investigations are needed.
We like to get as much engineering work done as possible before the complaint is filed, so that we have a good understanding of the strengths of the case. For that reason, we prefer to hire experts who we will rely upon at trial to do a thorough investigation of whatever defects have been identified or are suspected. These investigations involve extensive test cuts and as many photos as are needed to properly document conditions. They can take weeks to complete and can result in extensive reports that cost tens of thousands of dollars or more. Counsel has to use good judgment on a case-by-case basis to guide the client as to what level of engineering work is needed or appropriate before the complaint is filed.. Generally, the more complex the issues, the more detailed the investigation will have to be. For example, if the case involves roof claims on 45 buildings, a decision has to be made as to whether you are going to have your experts test all 45 buildings or try to test just a representative sample. If you have issues relating to deficient installation of fire suppression systems because the wrong anti-freeze was put into the CPVC pipes, causing damage from environmental stress cracks, a careful analysis will need to be mdeas to what type of experts you need. Depensding upon your proofs, if you do not havw busrt pipes yet, you may needd to hire an expert who is a chemist and hwo can tetsify about environmental stress cracks and how they can or will cause consequential damage in the near future. The list of possible examples is limitless. The pijnt is that close consultation between the clients, counsel and the experts is obviously needed in making this judgment.
Thu, 04 Jan 2007 09:05:12 -0500 - Case Intake: Applicable Statutes and Insurance
When evaluating a new case, it is important to look at many factors. One of the first considerations is applicable statutes of limitation or repose. The statute of limitations is a statutory limit on when a claim can be brought. It is an equitable statute. The case law allows the statute to be extended if a reasonable person could not, through the exercise of reasonable diligence, have known about the defect. This is known as the "discovery rule."
A statute of repose is different in that, rather than allowing a claim to be brought within a specified number of years that can be extended by the "discovery rule," this statute simply says that within "x" number of years after substantial completion of work, no claims exist—ever. For example, in New Jersey, the statute of limitations on negligence claims resulting in property loss is six years, which is then extended by the discovery rule. The statute of repose in New Jersey, and in many other states, is absolute, even if the builder, subcontractor or design professional intentionally and fraudulently concealed known defects. There is no extension of this statute under any circumstances, and the discovery rule is inapplicable. Thus, at the case intake stage, it is absolutely imperative that counsel be familiar with these statutes and understand how they are going to deal with arguments based upon those statutes.
Another important factor in evaluating a new case is available insurance policies for the general contractor, subcontractors and design professionals. We recommend that clients who have reason to believe that there is no insurance hold off on spending substantial money on expert and legal fees until the availability of insurance is determined in discovery. Many states have court rules allowing quick discovery of insurance information, a simple process that can provide critically needed information early in a case. If the case is being taken on a contingency, it is a good idea to have an agreement in advance of filing suit that counsel will hold off aggressively litigating until counsel gets the insurance policies in discovery, and can make certain that there are no obvious exclusions that destroy coverage. (For example, if you are litigating over damages caused by EIFS , you will want to know as quickly as possible if the developer and the EIFS applicator have insurance policies that contain EIFS exclusions. If it turns out that there is no insurance, the case can be dismissed before the association spends substantial money on litigation that is going to be fruitless in generating a recovery.
Tue, 02 Jan 2007 08:22:41 -0500 - The Value of Contingency
Handling a major construction litigation case takes three to five years in most state courts–sometimes longer. A complex case with 50 or more defendants can cost upwards of $1 million in legal fees, plus hundreds of thousands more in expert fees and costs. Most clients cannot afford to finance such litigation. As a result, in appropriate cases, Stark & Stark's Construction Litigation Group will handle large, complex, multi-million dollar cases on a full or partial contingency. This decision is made on a case-by-case basis depending upon many considerations such as: (a) the facts; (b) the projected legal issues; (c) the insurance coverage issues that we can anticipate based upon our experience; (d) what experts will we need and approximately how much they will cost; (e) how long it will take and how much we think the case will cost to get to trial; and (e) what we think the range of anticipated recovery may be. This enables the association to minimize the need to upset the members of the association with enormous special assessments during the pendency of the litigation. It also enables counsel to assign all of the attorneys that it needs to the case without worrying about whether the client can afford it.
We are often able to assign two or more partners and multiple associates to complex construction litigation cases; therefore, we can move the cases ahead much more quickly than would ordinarily be the case if the client had to pay hourly for counsel's time. The client does not care how many attorneys work the case because the client is not paying hourly fees. In fact, the client is most often quite impressed with the effort that counsel is making. This tends to make for a very close working relationship between counsel and client, because the client sees that counsel is investing an enormous amount of resources into the case. In effect, the lawyer has become a true partner of the clients in the case.
Counsel gets the added benefit of putting the most talented attorneys on those aspects of the case that they are best suited to handle, without regard to what that will cost the client. This enables counsel to work a very complex case with great efficiency, skill and speed. In the end, both the client and the plaintiff's lawyers benefit from a tightly handled case that realizes a great result—and in less time than would be the case if counsel was constrained by concerns about the ability of the client to pay the legal bills every month.
Thu, 28 Dec 2006 09:07:58 -0500 - Insurance Companies Must Give Specific Notice of a Change in Coverage
In the unpublished opinion of the Honorable Robert P. Contillo, J.S.C. in Supreme Tank, Inc., et al. v. Evanston Insurance Co., et al., BER-C-81-06, Chancery Division, Bergen County, September 18, 2006, the court determined that an insurance company cannot change the coverage provided to an insured without giving specific, direct, notice to the insured. In this case, the insurance company, Evanston, provided insurance coverage to a company engaged in the business of installing and removing underground oil storage tanks, ATS. ATS was insured with Evanston from 2002 through 2005. In 2004, Evanston changed the coverage from $2 million to $1 million but failed to directly notify ATS of the change. In December of 2005 a devastating explosion took place while ATS was removing an underground oil tank. The explosion killed three people and destroyed a 24 unit apartment building.
Evanston attempted to enforce the 2005 policy which contained only $1 million of coverage. ATS argued that it was unaware of the change in coverage until after the explosion occurred, when Evanston claimed to be responsible for only $1 million in coverage. The court found that Evanston had a non delegable duty to notify its insured of a material change in coverage. Therefore, notice to the wholesale broker of Evanston’s policies was insufficient to provide notice to the insured. The court stated that:
not every insured would fully appreciate what changes had been made. But any sentient adult would know that changes had been made. The insurers fiduciary duty includes this de minimus duty - which averts much mischief and grievous consequences - of simply altering your insured that the insurer has worked a change in coverage.
[Slip op. at 12.]
Evanston had failed to send even a simple letter alerting ATS to the change, and instead relied upon notice given to its wholesale broker. The court found this to be an imperfect chain of information. The court then found that the modifications in coverage by Evanston were improper, and should not be enforced. As such, the failure to alert the insured of the change in the 2004 policy, required that the pre-2004 policy limit of $2 million be restored.
This case has a direct correlation to many construction defect cases, in which an insurance company alters a contractors’ insurance policy to exclude a specific type of product or activity. Without direct notice to the insured, and arguably without a reduction in premiums, the insurance company will be bound by the policy in effect prior to the change. For example, several insurance companies have attempted to exclude coverage to contractors for the installation Exterior Insulation and Finish Systems (EIFS). Under the above case law, the insurance company would have to directly notify the insured contractor of such a significant change in its policy, or it would be bound by previous policies that did not contain such an exclusion.
Wed, 27 Dec 2006 08:49:20 -0500
