Construction Law Blog - Construction Defect

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Posted By: John P. Ahlers | Jan 11, 2010 | Topics: Construction Defect | View Article

Chinese Drywall Crisis

During the housing boom from 2004 to 2009, approximately 309 million sq. ft of Chinese drywall was imported into the United States. Since then, more than 600 lawsuits have been filed alleging that the imported drywall contains sulfur compounds which when exposed to heat and moisture release sulfurous acids causing a noxious smell and the corrosion of metals. Most significantly the corrosion has been noted on copper components, such as wiring, refrigerator coils and the coils of air handling units. The lawsuits also allege a variety of health issues. Although the majority of the litigation is in the Southeast United States, reports indicate that Chinese drywall may have been used in construction across the United States.

Claims involving Chinese drywall typically are product defect claims. The claims allege that drywall was defectively manufactured as opposed to improperly installed. Initially, claims focused on the drywall manufacturers with homebuilders getting a pass. This trend has changed and suits against homebuilders have become common. Builders therefore must be prepared for the possibility of litigation and should take measures to reduce their exposure.

How successfully builders will be in quickly recovering repair costs, among other costs, from insurance carriers will depend in part on the law of the state in which the insurance policy is construed. Insurers in some jurisdictions are relying on their policies' pollution exclusion in refusing to extend coverage for losses incurred as a result of Chinese drywall. The pollution exclusion, contained in most commercial general liability policies, typically provides that bodily injury or property damage caused by the discharge, dispersal, seepage, migration, release or escape" of a "pollutant" is not covered. The term "pollutant" is generally defined as "any solid, liquid, gaseous or thermal irritant or contaminate, including smoke, vapor, suit, fumes, acids, alkaloids, chemicals and wastes."

The primary issue in obtaining coverage in face of such an exclusion is whether the alleged contaminate constitutes a "pollutant" as contemplated by the policy.

On June 15, 2009 a special panel on multi-district litigation issued an order consolidating all Chinese drywall lawsuits currently pending in the federal courts (more than 600) in the Eastern District of Louisiana, to be heard by Judge Eldon F. Fallon. Multi-district litigation is a federal court system procedure that allows the consolidation of cases that share common questions of fact. Such a consolidation authorizes one judge to oversee all pretrial discovery matters, hearings and motions and to get the cases ready for trial and ripe for settlement. If after all pretrial matters have been resolved, there remain issues to be tried, each case is then remanded to its home district where the trials are conducted independently.

Judge Fallon, with the help of plaintiff and defense steering committees, is selecting five (5) test cases to be tried by year end. This accelerated time table undoubtedly will encourage settlement, as the outcome of these five cases will in large measure define the results of all others.

Posted By: John P. Ahlers | Oct 29, 2009 | Topics: Construction Defect, Construction News and Notes, Contracting, Damages, Indemnity | View Article

OREGON COURT OF APPEALS RULES THAT BUILDERS IN OREGON CAN BE SUED FOR "NEGLIGENT CONSTRUCTION" IF A BUILDING CODE VIOLATION IS INVOLVED

A recent decision by the Oregon Appeals Court allows property owners to file negligence lawsuits against contractors for building-code violations. In a construction defect case brought eight (8) years after the construction was substantially complete, the Court ruled that the breach of contract action against the contractor was barred by the six (6) year statute of limitation, however, allowed the homeowners to sue the contractor on a negligence cause of action which has a two (2) year statute of limitation with a "discovery" proviso (the cause of action must be commenced within two (2) years of discovery). Though the discovery of the alleged construction defect occurred well after the contract statute of limitations had run, the lawsuit was brought within two (2) years of the date of the discovery of the alleged defect. The Court reasoned that because the water leakage, which was at the heart of the allegation, involved possible violations of the Oregon building-code, the homeowners were allowed to bring a negligence cause of action against the contractor.

This case has far reaching implications for commercial contractors (and their insurers), involved in construction defect disputes. Since most "construction defects" involve some violation of some provision of the building code, an owner now has two (2) years from the date of discovery of the defect (irrespective whether the contract statute of limitations has expired) to bring a cause of action against builders and their insurance companies.

Abraham v. T. Henry Construction, Inc., Or. App. __, WL 2766868 (2009)

Posted By: Brett Hill | Jan 06, 2009 | Topics: Construction Defect | View Article

Oregon Court binds Stucco manufacturer to warranty representations of its agent

Oregon Supreme Court held that evidence was sufficient to support jury finding that territory manager, as agent, had apparent authority to provide a warranty on manufacturers behalf.

Posted By: Brett Hill | Nov 25, 2008 | Topics: Construction Defect, Damages | View Article

Second purchasers of new homes held to have limited rights against original developer

In this case, decided last month, the Court of Appeals held that second purchasers of new homes have few rights against the original developer who built the homes.

Posted By: Brett Hill | Oct 15, 2008 | Topics: Construction Defect | View Article

Court of Appeals extends potential liability for residential developers

The Washington Court of Appeals recently extended the potential liability that residential developers face for construction defects. The case, Westlake View Condominium Assoc. v. Sixth Avenue View Partners, LLC, involved the construction of a condiminium located in Seattle.

Posted By: Brett Hill | Mar 19, 2008 | Topics: Construction Defect, Damages | View Article

Three year statute of limitations for claims against dissolved LLCs begins to run on date of administrative dissolution

The Court of Appeals ruled this week that the three statute of limitations for claims against LLCs that have been administratively dissolved begins to run on the date the LLC is administratively dissolved. 

Posted By: Brett Hill | Mar 19, 2008 | Topics: Construction Defect | View Article

Division One Court of Appeals clarifies application of discovery rule in breach of contract cases

In Harmony at Madrona Park Owners Assoc. v. Madison Harmony Dev., Inc., the Court of Appeals clarified when the discovery rule applies in breach of contract actions where construction defects are alleged. 

Posted By: Brett Hill | Sep 27, 2007 | Topics: Construction Defect | View Article

Builder had no duty to disclose concealed defects to second purchaser of home

The Division One Court of Appeals ruled that a buider/vendor of residential real estate does not owe a duty to disclose concealed defective conditions to the second purchaser.

Posted By: Brett Hill | Jan 03, 2008 | Topics: Construction Defect | View Article

Lakemont Ridge - RCW 64.50 Pre Litigation Notice of Defects

In Lakemont Ridge, the Supreme Court ruled in favor of homeowner's associations who allege claims for construction defects against developers/contractors.