Orleans Parish Judge Says Insurance On The Hook for Chinese Drywall

In the past, we’ve discussed whether homeowner insurance policies will be liable for Chinese Drywall damages.   This week, Judge Medley in Orleans Parish Civil District Court gave Louisiana it’s first answer holding that the exclusions relied upon by the Defendant insurance companies didn’t make the cut.

Of course, the Defendant insurance company (Audubon Insurance Co) will appeal this ruling, but this is a really great first step for plaintiffs who are looking everywhere for a solution to Chinese Drywall woes.

So, which exact exclusions were adjudicated?

The pollution exclusion, which Judge Medley rejected based upon the Louisiana Supreme Court’s treatment of such clauses in cases like Doerr v. Mobil Oil Corp, which qualifies the pollution exclusion in insurance policies to only cover “environmental damage.”

The “latent defect” exclusion was also rejected, with Medley ruling that the clause didn’t apply because the drywall itself wasn’t a latent defect.    The drywall worked just fine as actual drywall, and therfore, wasn’t a latent defect in itself.

Homeowners Ought to Act Fact to Make Claims

In December 2009, we wrote that “Fast Action” was required for homeowners to make Chinese Drywall claims against their homeowners insurance policies.    Why?    Because policy-holders in Louisiana only have one year to bring claims (and file a lawsuit to enforce the claim) from when they knew or should have known of the loss.

Many homeowners are not making claims because they’re concerned about having their insurance policies cancelled.   Certainly, this is an issue as Louisiana insurance companies have already begun canceling policies on homes with contaminated drywall.    The danger cannot be explained away, but there are two important things to remember about this:  (1) policies are being cancelled regardless of whether claims are being made; and (2) homeowners insurance may be your best bet for fast recovery of drywall damages.

The particular case decided by Judge Medley isn’t part of the federal MDL (or class action).   Like many other homeowners with these problems, the plaintiffs in that case are seeking remedies against their builder and insurer through individual actions in state court.  As evidenced by the Medley decision, these actions are being adjudicated and are posting successful results.

This article was originally posted on Wolfe Law Group’s topic-specific Chinese Drywall Blog.

Talking about DC’s Green Building Act with Chris Cheatham – From SuretyBonds.Com

Green building continues to gain momentum nationwide. But developments surrounding a landmark piece of green legislation continue to have major implications for communities across the country.

At issue is Washington D.C.’s Green Building Act, which passed in 2006. The law requires builders in the nation’s capital to meet new energy efficiency standards by 2012. But the act’s language has proved problematic with the surety industry, which is responsible for issuing the construction bonds that guarantee work and protect taxpayer investments.

To dig deeper into the issue, the Surety Bonds Education Center recently interviewed Chris Cheatham, a Washington, D.C., construction attorney and an expert in the green building issues facing the surety industry. His blog, Green Building Law Update, has become a hub for information and insight into the future of green building in the nation’s capital and beyond.

Chris has closely followed the Green Building Act and the subsequent uproar from the surety industry. You can listen to the full interview at the Surety Bonds Sit-down.

Owners Cannot Hold Money From Contractor When Work Not In Dispute

It’s commonplace in the construction industry for a property owner to withhold final payment from the general contractor disputing the quality of completeness of construction work.   This happens between general and subcontractors as well.

All to often, however, the withholding party does this as a tactic, and in fact withholds much more than is actually in dispute.

A small decision out of the Louisiana Fourth Circuit this month addresses this circumstance.    There, the court ruled that the property owner must pay the contractor for the portion of work that is completed and not in dispute – despite the existence of disputes on the other portions of the work.

In Hi Construction & Demolition v. Louise Thomas, the Fourth Circuit held that where the property owner acknowledged the completion of certain work, the property  owner must tender payment to the contractor for that work.

A rather simple proposition, of course, but in a world where possession is 9/10ths of the law, it’s a principal often abused in the construction industry.   This case may be useful for contractors in a dispute where a payment is withheld not proportional to the amount actually in dispute.

This article was originally posted on Wolfe Law Group’s topic-specific Louisiana Construction Law Blog.

Contractor Violation Rules May Finally Get A Break in Washington

Over the past few years, a joint legislative task force on the underground construction economy has been responsible for a number of changes to the Washington contractor licensing statutes, and all of these changes had made the laws more strict and aggressive against parties performing construction work without a license.

A new bill in the Washington legislature is recommended by the same task force, but this one may finally give the underground construction economy a break (although the bill will tighten areas of regulation as well).

Introduced by Representative Steve Conway, this bill would allow a fine imposed against an unregistered contractor to be reduced if the contractor registers for an approved training course within 10 days of being notified of the infraction.  Notice some key terms:  “reduced” and not eliminated, and “may” and not shall.

But, for those operating without a license, or those who are operating and just don’t know they need a license…this bill could provide them with a break to allow the violating party to get legal.

Other components of the bill are not as violator friendly.     Read the full text of the bill here.

This article was originally posted on Wolfe Law Group’s topic-specific Northwest Construction Law Blog.

Will Your Insurance Company Cover Illnesses Associated With Chinese Drywall?

This article was written by Chris Wilson.

Thousands of people across the country have purchased new homes that contain Chinese Drywall. Unfortunately, the result has been devastating financial and health problems. People living with Chinese drywall have had a number of health effects such as breathing difficulties, coughing, acne, asthma attacks, bloody nose, dizziness, irritated eyes, nausea, headaches, fatigue, gastrointestinal problems, rashes, sinus problems, and sore throats. As well, there are concerns that long-term exposure to Chinese drywall could cause cancer due to prolonged contact with radon. The question on many people’s minds is if their insurance company will cover their health care costs.

The claim most insurers are making regarding covering health care costs is that drywall is considered a builder defect which is not covered under a homeowners’ insurance policy. As well, they have deemed drywall a pre-existing condition that could lead to future damage, which is why insurance providers will not pay out for a claim or renew a homeowner’s policy until the drywall has been removed. They contend that it is a warranty issue and not an insurance issue. There are a number of insurers that have denied claims or canceled insurance policies based on this contention. Homeowners insurance is not designed to cover defective construction or materials; and as a result, they are not liable to pay out for the claim. It is their contention that homeowners must seek compensation from the manufacturer or a company associated with the installation of the drywall. As well, property insurance policies also have pollution exclusions; therefore, they will usually deny claims, which include any medical coverage. That is, Chinese Drywall claims involving sickness from inhaling unsafe gas odors will normally be denied because they do not fall under an insurance company’s definition of “bodily injury.”

When it comes to personal health insurance plans, you have to read the fine print of your policy to determine their definition of ‘bodily’ injury. Many insurance companies will consider a situation like this to be pollution caused by a third party so they do not cover the expenses associated with treatment. It is important to check to see if there is specific criteria outline in your health insurance policy that may result in coverage denial for treatment for drywall exposure.

Many homeowners have filed class action law suits against the manufactures, developers, general contractors, distributors, and builders, to seek compensation for their financial loss and health treatment costs. The lawsuits include claims for private nuisance, breach of warranty, breach of contract, negligence, and unjust enrichment. Most claims ask for financial compensation for medical expenses associated with illnesses resulting from inhaling toxic fumes originating from the drywall. If you have suffered the effects of drywall exposure, you need to consult with your homeowners’ insurance provider and health insurance provider to find out if the condition will be covered. If not, you should consult with a trial lawyer to learn about possible options on how to get compensation.

This article was originally posted on Wolfe Law Group’s topic-specific Chinese Drywall Blog.

General Contractor Has Some Lien Rights When Contract Not Recorded

La R.S. 9:4811 of the Louisiana Private Works Act requires general contractors to record its contract whenever a project amount is in excess of $25,000.   The contract must be recorded before any work begins on the project, and must reference a legal property description.

If the general contractor does not timely record the contract, the general contractor forfeits any rights to lien the project.

In 2003, however, the Louisiana 1st Circuit Court of Appeals made a tiny exception to this statutory requirement.   In Burdette v. Drushell, 837 So.2d 54 (La App 1st Cir 2003), the court allowed a general contractor who did not timely file the contract to file a mechanics lien under limited conditions.

The condition?  The GC could only lien for work it or its employees actually performed.

In the Burdette case, for example, the general contractor was allowed to lien for carpentry services he actually performed (and did not sub out), but not for services or materials that were furnished by subcontractors.

The work performed by the GC itself was fashioned by the court as creating an ordinary labor lien, which did not require the contract’s filing.

This case was cited and distinguished just last week by the Louisiana 3rd Circuit in Tee It Up Golf Inc v. Bayou State Construction LLC.   We wrote about this case in more detail at the Louisiana Construction Law blog here:  Details Matter When Filing Liens.

Insofar as the Burdette exception is concerned, however, the Tee It Up Golf case is important because it indicated a requirement for general contractors to displine themselves when filing liens on projects wehre it did not record a contract.

For example – If a GC is owed a total of $200,000 on a project, but only $25,000 of that amount relates to services or materials it actually provided, it must only file the lien for $25,000 to take advantage of the Burdette exception.    In the Tee It Up Golf case, the general contractor could not take advantage of the Burdette exception because it lien included labor performed by the GC itself, along with a host of other charges.

It takes a lot of discipline for a general contractor to roll back the amount due and lien for only the labor it actually furnished.   However, if the GC didn’t file the notice of contract and wants to lien the project, it is the only way to successfully do so.

This article was originally posted on Wolfe Law Group’s topic-specific Louisiana Construction Law Blog.

How to Collect on a NSF Check in Oregon

Two weeks ago, we posted an article on How To Collect on a NSF Check in Washington.  Today, we address the same issue under the laws of Oregon.

In the construction business, NSF checks are a fact of life.   And sometimes, the NSF checks may cause big problems because they’re written in amounts that exceed $10,000, $50,000 or $100,000.

In Oregon, like in Washington, those who draft NSF checks have a specific window of time to make payment on the check amount, or be subjected to statutory penalties and their adversaries litigation costs.

I just published a Legal Guide on Avvo that gives step by step instructions to folks on how to collect against a NSF check.   Unlike many states, like Washington and Louisiana, that requires the use of particular forms and language, the Oregon statutes are very bland in their requirements.   To charge interest, penalties and legal expenses on a party who writes a hot check in Oregon, the recieving party need only send a written notice of the NSF check.   There’s no requirements as to the form of the notice, or how the notice should be sent.

Although, of course, we have our recommendations.

In sending the notice, you should send it through some service that allows your company to track its mailing and delivery.   In writing the notice, be certain that you identify the check in question, and indicate that if the check isn’t paid within 30 days, you’ll seek interest, penalties, attorneys fees and other costs allowed by the Oregon statutes.

This article was originally posted on Wolfe Law Group’s topic-specific Northwest Construction Law Blog.

Details Matter When Filing Liens – As Recently Confirmed by Louisiana 3rd Circuit

Previously on the Louisiana Construction Law Blog , and over at the Construction Lien Blog operated by our friends at Express Lien, it’s been mentioned that the lien statutes require attention to details.   In Louisiana, like elsewhere in the country, lien filings must meet strict statutory requirements.

A case decided just last week in the Louisiana 3rd Circuit Court of Appeals repeats this principal, and illustrates the dangers of improper lien filings.

In Tee It Up Golf, Inc. v. Bayou State Construction, LLC, the court affirmed a trial court decision finding a Louisiana lien improperly recorded because:

  • It didn’t have a legal property description
  • It didn’t itemize the unpaid work or materials
  • The general contractor didn’t record the notice of contract

The penalty for recording the lien improperly?    The contractor was charged $3,000.00 for attorneys fees for losing at the trial level, and another $3,000.00 in attorneys fees for losing the appeal.

Property Descriptions

In this 3rd Circuit case, the contractor filed a lien listing the municipal address for the property, which was considered insufficient.    The court pointed to La R.S. 9:4813(C) of the Private Works Act requiring:

Each filing….shall contain a description of the property sufficient to clearly and permanently identify the property.   A description which includes the lot and/or square and/or subdivision or township and range shall meet the requirements of this Subsection.  Naming the street or mailing address without more shall not be sufficient…

While a full “legal property description” may not always be required, the court here made clear – again – that the municpal address, without more, is insufficient.

Itemizing Work Performed and Materials Delivered

Next, the court held that the lien did not “reasonably itemize the elements” of the work and materials that gave rise to the filing.

How much itemization is required exactly?   The 3rd Circuit didn’t answer that question (and to my knowledge, Louisiana courts have never made this abundantly clear).   However, the 3rd circuit told us what wasn’t enough:

On [the lien]…the $180,762.59 figure is listed under the category “Materials Supplied.”  There is no attempt whatsoever to itemize the elements comprising this amount as required by statute.  Thus, the Statements of Claim filed by Bayou State were improper and the trial court did not err in ordering their cancellation.

Failure To File the Notice of Contract

General Contractors (those who contract with the owner) on projects with a contract price in excess of $25,000.00 must always record a notice of contract before the work begins.  If this is not recorded, the general contractor forfeits its right to file a mechanics lien in Louisiana.

That’s a rule provided in the Private Works Act in §9:4811(D), which states:

[a] general contractor shall not enjoy the privilege granted by R.S. 9:4801 if the price of the work stipulated or reasonably estimated in his contract exceeds twenty-five thousand dollars unless a notice of contract is timely [before any work began] filed

Bayou Construction didn’t file the notice, and therefore, the lien was improper.

The court did make note of an exception to this rule argued by Bayou Construction, which allows a general contractor who did not file a notice of contract to file a laborer’s lien as a “non-general or ordinary contractor”.   This was allowed in Burdette v. Drushell, 837 So.2d 54 (La App 1 Cir 2002).

In Burdette, the court explained as follows:

Even though plaintiff acted as ‘general contractor,’ he also occupied the status of an ordinary ‘contractor’ under La R.S. 9:4807(A) for his carpentry services and related labor and material costs.   Thus, as such, he is entitled to the privilege….for ‘the price of his work.’ … The trial curt correctly concluded the plaintiff is entitled to claim a privilege for his own labor and that of his employees.

Bayou’s lien, however, wasn’t filed to simply recover the costs of its and its employee’s labor.  It sought payment for the labor and materials provided by subcontractors, which meant the lien sought to claim a privilege for the work of the “general contractor,” and without a notice of contract it was not allowed.   This, of course, in addition to the other lien defects.

This article was originally posted on Wolfe Law Group’s topic-specific Louisiana Construction Law Blog.