NJ Courts Continue Expansion of Insurance Coverage for Construction Defects: “Continuous Trigger” Doctrine Applied

Adam J. Sklar | Property Insurance Coverage Law Blog | October 25, 2017

New Jersey courts are continuing their trend of extending insurance coverage for third-party construction defect claims. Following last year’s NJ Supreme Court decision in Cypress Point Condo. Ass’n, Inc. v. Adria Towers, LLC, 226 N.J. 403 (2016), which broadly interpreted the standard CGL policy to extend an insured developer’s coverage to include claims of damage caused by the work of subcontractors, the New Jersey Appellate Division recently issued a published decision approving a trial court’s use (though not its application) of the “continuous trigger” theory of insurance coverage to third-party construction defect claims, thereby, potentially extending coverage in such cases over multiple policy years.

In Air Master & Cooling, Inc. v. Selective Insurance Co., A-5415-15T3 (N.J. App. Div. October 10, 2017), the Appellate Division reviewed a trial court’s decision in a declaratory judgment action filed by a subcontractor against two of its insurers. Those insurers had declined coverage and refused to defend the subcontractor in a construction defect litigation filed by the condominium association (the “Association”), on whose 101-unit building the subcontractor had performed certain HVAC work on the roof and in each individual unit. The Association and certain unit owners claimed damage due to progressive water infiltration, which they attributed to defective workmanship, and the subcontractor was joined in the litigation as a third-party defendant.

The subcontractor had performed work at the building from November 2005 through April 2008. In early 2008, unit owners began to notice water infiltration into their units and resulting damage. A newspaper article published 2010 detailed the 2008 discovery of leaks by the unit owners. In May 2010, the Association’s consultant issued a report identifying certain areas of the roof in need of replacement though noting it could not determine when the infiltration had occurred.

The subcontractor had three insurers from 2005 through 2015. The insurer for the period November 2005 through June 2009, agreed to defend the subcontractor under a reservation of rights, as it was the insurer during the period the work was performed and at the time the first water infiltration was alleged to have been discovered. The next insurer, Selective Insurance, provided coverage from June 2009 through June 2012, and disclaimed coverage, on the basis that the property damage was alleged to have manifested before the policy periods had begun. The third insurer, with coverage from June 2012 through June 2015, also disclaimed coverage, and was dismissed from the subcontractor’s declaratory judgment case, without appeal, on the basis that its 2012 coverage commenced long after any leaks had started and any resulting damage manifested.

After some discovery was conducted, Selective moved for summary judgment, which was granted by the trial court. The trial court applied the continuous trigger doctrine of insurance coverage in analyzing whether Selective owed the subcontractor a duty to defend the construction defect claim. It determined conclusively, however, that the damage to the building had manifested itself before Selective’s June 2009 coverage began.

On appeal, the Appellate Division, while agreeing that the continuous trigger doctrine was applicable in the construction defect context, disagreed with the ultimate determination – or at least found that the record was not sufficiently developed to make that determination. The appellate court, therefore, reversed the judgment in favor of Selective and remanded the case back to the trial court with guidance on the application of the continuous trigger doctrine in the construction defect coverage context.

The continuous trigger effectively grants continuous coverage to an insured in connection with a third-party damage claim from the date of the initial exposure to the harm through the date of the manifestation of the injury resulting from the harm. The appeals court rejected the subcontractor’s attempt to extend the doctrine even further to extend to the date of “attribution” – that is, when the particular damage could be attributed to a particular insured. Doing so would be akin to transforming policy to claims made policy from occurrence-based, and likely escalate premiums or deter policies from being written. Instead, the court determined that the endpoint of the coverage, or manifestation (or “last pull of the trigger”), should be the date when the harm has sufficiently become apparent or manifests itself to trigger a covered occurrence.

The Appellate Division, guided by the precedential first-party coverage case, Winding Hills Condo Ass’n v. North American Specialty Ins. Co., 332 N.J. Super. 85 (App. Div. 2000), held that the manifestation occurs at that time of the “essential” manifestation of the injury, and not necessarily at the initial discovery of the injury. The essential manifestation is “the revelation of the inherent nature and scope of that injury.” In examining whether the May 2010 report (during Selective’s policy period) or 2008 unit owner observations of water infiltration (before Selective’s policy period) should be used as the manifestation or end date of coverage, the court found the record too sparse to make that determination. There were no depositions, or other evidence, revealing who knew what and when about these construction defects, and the court refused to rely on hearsay statements of the unit owners in the newspaper article.

Accordingly, the court remanded the case back to the trial court for a determination of what information about the building defects at issue were or reasonably could have been revealed between the time of the unit owner complaints and the start of Selective policy in June 2009. The appeals court also noted that the matter was further complicated by the fact that the water infiltration associated with the roof was not discovered until the May 2010 expert report, while the newspaper article does not mention the roof. Thus, there were genuine issues of material fact as to, among other issues, when water infiltration problems on the roof first became known or reasonably could have been known.

The Air Master decision continues a trend in New Jersey jurisprudence of expanding, within reason, CGL coverage to insureds. In particular, in construction defect cases, the courts have recently liberally interpreted policies and legal theories to afford more coverage to insureds. Where construction defects cause progressive property damage, as in the common case of water infiltration, Air Master will help to guide insurers, insureds and their respective counsel in analyzing whether, based on the facts alleged by a third-party, coverage is available for particular policy years. It is also likely to spawn additional discovery and expense in the underlying construction defect cases specific to those issues.

Property Damage, Occurrences, Delays, Offsets and Fees. California Decision is a Smorgasbord of Construction Insurance Issues

Garret Murai | California Construction Law Blog | November 13, 2017

I read once that 97 percent of cases never go to trial. However, there are still the ones that do. And, then, there are the ones that do both. The following case, Global Modular, Inc. v. Kadena Pacific, Inc., California Court of Appeals for the Fourth District, Case No. E063551 (September 8, 2017), highlights some of the issues that can arise when portions of cases settle and other portions go to trial, the recovery of delay damages on a construction project through insurance, and the recovery of attorneys’ fees.

Global Modular, Inc. v. Kadena Pacific, Inc.

The U.S. Department of Veterans Affairs contracted with general contractor Kadena Pacific, Inc. (Kadena) to oversee construction of its Center for Blind Rehabilitation in Menlo Park, California. Kadena, in turn, contracted with subcontractor Global Modular, Inc. (Global) to construct, deliver and install 53 modular units totaling more than 37,000 square feet for a contract price of approximately $3.5 million.

Because Kadena had contracted with another subcontractor to install the roofing, Global agreed to deliver the units covered only by a roof deck substrate comprised of a three-quarter inch sheet of plywood. Delivery of the units was originally scheduled for the summer, however, due to project delays the units were not delivered until October and November.

Well, you can guess what happened.  The rains came and the units were damaged.

The Kadena-Global subcontract provided that Global would assume responsibility “for any loss or damage to the [units] . . . however caused, until final acceptance thereof by [Kadena].” The contract conditioned “final acceptance” upon the VA’s approval of the units. Kadena, however, as the general contractor, was responsible for the overall project schedule.

When Global refused to pay Kadena, Kadena sued, and Global countersued for the water damage. Before trial, the parties entered into a partial settlement. Global paid Kadena $321,975 except for claims covered by Global’s insurance policy with North American Capacity Insurance Company (NAC) and Global received $153,025 to dismiss  its failure-to-pay claims. At trial, Kadena presented evidence of its cost to repair the water damage and was awarded approximately $1 million.

In a separate action brought by NAC, Kadena and NAC filed competing motions for summary judgment on the issue of whether NAC’s policy required it to indemnify Global for the approximately $1 million award in the other action. The trial court ruled in favor of Kadena finding that the award was covered under the NAC policy. The trial court also ruled that the award should be offset by the $321,975 Global paid in settlement and that Global was liable to Kadena for $360,000 in attorneys’ fees.

NAC, Kadena, and Global each appealed, with: (1) NAC arguing that the water damage was not covered under its policy; (2) Kadena arguing that $321,975 settlement paid by Global should not be offset; and (3) Global and NAC arguing that the $360,000 in attorneys’ fees should not have been awarded to Kadena.

Messy enough for you?

The Appeal

NAC’s Argument That the Water Damage was Not Covered Under its Policy

On appeal, NAC, Global’s insurer, argued that the water damage was not covered under its policy. Typical of commercial general liability insurance policies, the policy covered “property damage” caused by an “occurrence,” which was defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” From this broad occurrence-based coverage, the policy carved out a variety of exclusions.

One of those exclusions (Exclusion j(5)) excluded coverage for “[t]hat particular part of real property in which you or any contractors or subcontractors working directly or indirectly on your behalf are performing operations, if the ‘property damage’ arises out of those operations.” NAC argued that the phrase “are performing operations,” refers to works in progress and that the exclusion applies when property damage occurs before construction is complete and, because Global had not yet completed installation of the units, the exclusion applied. Global, on the other hand, argued that the phrase “are performing operations” only applied to particular components Global was physically working on at the time of the property damage and, because the water intrusion occurred while Global  was not working on the units, the exclusion did not apply.

Another exclusion (Exclusion j(6)) excluded coverage for “[t]hat particular part of any property that must be restored, repaired or replaced because ‘your work’ was incorrectly performed on it.” NAC argued that, because Global inadequately waterproofed the units, Global’s “work” was “incorrectly performed” and the exclusion applied. Global, on the other hand, argued that the term “work” refers to a product, such as warped or uneven floors, not to a process like covering units with plastic tarps, and that even if its waterproofing efforts were ineffective, the “particular part” of the “work” that was “incorrectly performed” was the use of a plywood substrate not the interior parts of the units.

While acknowledging NAC’s argument that commercial general liability insurance policies “are not designed to provide contractors and developers with coverage against claims their work is inferior or defective,” the Court of Appeal stated, “[t]he problem with NACs’ argument is that it is based on its view of the underlying policy of commercial general liability insurance and not on an application of the policy language to the facts of the case.” And, here, tarping the units, even if performed incorrectly or inadequately was not a part of Global’s “work.”

With respect to Exclusion j(5), the Court of Appeals concluded that the active, present tense construction of the policy language, “are performing operations,” indicated that the exclusion only applies to damage caused during physical construction activities and, because Global was not physically working on the units at the time of the water damage, the exclusion did not apply. With respect to Exclusion j(6), the Court held that the “only arguably defective components or parts of Global’s work are the plastic tarps, as they failed to keep the water out,” but “more importantly, there was no allegation the items for which Kadena sought repair and replacement costs – the drywall, insulation, framing, and ducting – were defective” (emphasis in original).

Result: Win for Global.

NAC’s Argument That Delay Damages Were Not Covered Under its Policy

On appeal, NAC further argued that the delay damages awarded for the 131 days Kadena spent remediating the water damage were not covered under its policy because it did not constitute “property damage.”

The Court of Appeal disagreed stating, “contrary to NAC’s contention, delay damages arising from “property damage” fall under the insuring clause, which obligates NAC to ‘pay those sums that the insured becomes legally obligated to pay as damages because of . . . . ‘property damage’ to which this insurance applies’” (emphasis in original). While the policy does not define damages, held the Court, “courts generally interpret the term to mean payments made to compensate a party for direct and consequential injuries caused by the acts of another” and “[h]ere, the 131 days of remediation was time Kadena could have spent completing the project had the units’ interiors not been damaged. That delay constitutes a consequential loss (a loss occasioned by the water intrusion) and as such, is part of the damages NAC must pay ‘because of’ property damage.”

Result: Win for Global.

Global and NAC’s Argument that Attorneys’ Fees Were Not Recoverable by Kadena

On appeal, NAC and Global argued that attorneys’ fees were not recoverable by Kadena because Kadena had released its right to obtain attorneys’ fees under the terms of its settlement with Global.

Under Code of Civil Procedure sections 1033 and 1033.5, explained the Court of Appeals, attorneys’ fees can be claimed as costs if allowed under law or statute. Further explained the Court, the Kadena-Global subcontract included an attorneys’ fee provision stating that Global “expressly agrees” to pay the reasonable attorneys’ fees Kadena incurs in “enforcing any provision or obligation arising under the contract.” This provision, while a one-way attorneys’ fee provision permitting only Kadena to recover attorneys’ fees, became bilateral under Civil Code section 1717, which provides:

In any action on a contract, where the contract specifically provides that attorney’s fees and costs, which are incurred to enforce that contract, shall be awarded either to one of the parties or to the prevailing party, then the party who is determined to be the party prevailing on the contract, whether he or she is the party specified in the contract or not, shall be entitled to reasonable attorney’s fees in addition to other costs.

Because the settlement agreement was intended to resolve all of the parties disputes except for claims NAC would cover, the agreement obtained two provisions, one releasing “all claims” arising from the VA project and another carving out a limited subset of claims arising from the VA project that the parties were reserving for trial:

4.1.1 Notwithstanding the language of Civil Code section 1542 and waiver provided in Section 4.2 of this Agreement, it is the parties’ express intent and they so agree that this agreement does not release claims from the Project related to  property damage, personal injury, [loss] of use and other claims that are covered under the [NAC] insurance policies described in Section 4.9.1 of this Agreement, true and accurate copies of which are attached to this Agreement as Exhibits “A” and “B”

(emphasis in original).

Based on this language, held the Court of Appeals, the settlement agreement allows Kadena to pursue its water damage claim and, as the prevailing party, to seek attorneys’ fees as part of that claim.

Result: Win for Kadena.

Kadena’s Argument that the $321,975 Settlement Paid by Global Should Not be Offset

Finally, on appeal, Kadena argued that the $321,975 settlement paid by Global should not offset the $1 million damage award covered by NAC’s policy because the payment represented payment in exchange for Kadena’s release of claims other than its water damage claim. In support of its argument, Kadena pointed to the Kadena-Global settlement agreement, which provided that the parties were agreeing to release all claims against one another except for claims from the project “related to” claims covered by NAC’s policy.

“The equitable concept of offset,” explained the Court of Appeals, “recognizes it is unfair to require a defendant to compensate a plaintiff twice for the same injury.” “Thus, to warrant offset, Global’s settlement payment to Kadena must have compensated Kadena for the same harm as the jury’s damage award.” But here, held the Court, the jury was instructed by the trial court that any awarded damages should be limited to damages related to water remediation only and not to defective workmanship or pre-rain delays.

Result: Win for NAC.

Isn’t it nice when everyone’s a winner?

Conclusion

Global Modular underscores that, while commercial general liability policies are not intended to serve as a warranty covering poor workmanship, they do cover “property damage” that “occurs” from poor workmanship. Further, the case clarifies that delay damages may be recoverable depending on the language of the insurance policy. And, finally, the case serves as a reminder that when settling portions of a case, it is important to be clear what specific portions of a case are being settled, as parties may not seek damages for those settled portions, or an offset may apply.

In Dismissing Homebuyer’s Defective Construction Suit Against Contractor for Lack of Privity, Supreme Court of Utah Cautions Future Homebuyers to Obtain Express Assignment of all Available Warranties at Time of Acquiring Home

John J. Gazzola | Pepper Hamilton LLP | November 9, 2017

Tomlinson v. Douglas Knight Constr., Inc., 2017 Utah Lexis 132 (August 29, 2017)

This case arises out of the construction of a residential property.  Lot 84 Deer Crossing (“Lot 84”) purchased the property and contracted with Douglas Knight Construction, Inc. (“DKC”) to build a house on it.  The parties’ contract included a one-year construction warranty.  Lot 84 then assigned to Outpost Development, Inc. (“Outpost”) all of its rights in the property and the construction agreement.  As the home neared completion, Outpost noticed defects in its construction and, pursuant to the warranty, directed DKC to fix the deficiencies.  Despite DKC’s efforts, the defects remained.  Outpost then sold the home to Joseph Tomlinson, but did not assign to Tomlinson its interests in the DKC construction agreement.  Tomlinson subsequently noticed defects in the home and filed suit against Outpost and DKC.

Shortly thereafter, Outpost declared bankruptcy and was dismissed from the case.  During the bankruptcy proceedings, Tomlinson was assigned an interest in any claims that Outpost had asserted or may assert against DKC.  Tomlinson maintained that this assignment encompassed claims for breach of the DKC construction agreement and amended his complaint to include claims for breach of express and implied warranties.  Tomlinson sought to assert these claims as an assignee of rights of parties in privity with DKC: first, through the assignment made when Outpost purchased the property from Lot 84, and second, through the assignment in Outpost’s bankruptcy proceedings.  The district court rejected these theories and dismissed Tomlinson’s claims, holding that they were barred because Tomlinson had never acquired a direct interest in the DKC construction agreement.

On appeal, the Supreme Court of Utah identified Tomlinson’s claims as arising under Utah Code § 78B-4-513, which provides that (1) an action for defective construction is limited to an action for breach of contract, and (2) the action may be brought only by a person in privity of contract with the original contractor.  The Utah Code also permits these rights to be assigned to homebuyers.  The Supreme Court first held that Tomlinson lacked the required privity of contract with DKC to bring a suit under the Utah Code.  The Supreme Court also held there was no effective assignment.  While Lot 84 had assigned its rights to sue for defective construction to Outpost, Outpost had made no such assignment to Tomlinson.  Moreover, the Outpost bankruptcy assignment included only claims that Outpost “had asserted” as of the time of the bankruptcy or that it “may yet assert” against DKC in the future, neither of which encompassed the claims Tomlinson pursued against DKC.  Accordingly, the Supreme Court held that Tomlinson had no right to sue under § 78B-4-513, and affirmed dismissal of his case.

In its opinion, the Supreme Court offered future homebuyers a footnote of advice, noting:

The outcome would obviously have been different if Tomlinson had acquired Outpost’s claims or interest in the Construction Agreement at the time he purchased the home.  With that in mind, future homebuyers would do well to obtain an express assignment of all available warranties at the time they acquire a home.  And it might well serve the interests of such homebuyers if a standard assignment-of-warranties clause were included in the standard real estate purchase contract.

Future 2018 IBC Amendments Made Early Due to the Library Gardens Apartment Tragedy

Remi Kern | Quality Built | October 31, 2017

On June 16, 2015, a balcony collapsed at the Library Gardens apartment’s in Berkeley, CA, resulting in six dead and seven injured. Allegations included design defects, installation defects, failure to follow material specifications, inappropriate use of balcony, and lack of maintenance. The end-game of faulty construction can have far-reaching consequences beyond simple financial culpability for property damage and loss of brand reputation. Fortunately, in this instance, the victims did not die in vain; the lessons learned have resulted in a comprehensive review of code and inspection protocols which take effect immediately in the State of California, and will carry over into the upcoming changes to the 2018 International Building Code.

Exhibit 1: Overview of the Library Gardens Apartments in Berkeley, CA.

Within a month of the collapse, the Berkeley City Council passed an ordinance requiring all existing “Exterior Elevated Elements” (EEE), on all existing buildings within the city, to be inspected within six months, and then once every three years for the life of the building, while using the following standards:

  • Protecting the public from harm related to improper construction.
  • Identifying EEEs that may be subject to rot or corrosion leading to potential failure.
  • Requirements for plans to provide more details indicating proper waterproofing of the structure.
  • Stricter requirements on the use of materials.
  • Ventilation of framing.

Within the first six months following the decree, nearly 2,200 properties were inspected. The findings of these inspections indicated that almost 400 (or at least one in every six inspected) required some form of repair or work. In response to these findings, the State of California quickly followed suit and made the following changes to their building codes.

Both houses of the California State Legislature “chaptered” (made law) SB-465 Chapter 372 on September 15, 2016. This bill added:

  • Section 7021 – Created interagency communication for the reporting of information.
  • Section 7071.18 – Required self-reporting by licensees of convictions for felonies or other criminal activity committed by the licensee, as well as any judgments, settlements, and arbitration awards also related to the construction industry.
  • Section 18924.5 – Authorized a working group to study the EEE collapses and recommended changes/revisions to statutes or building standards by January 2018. The working group may submit recommended changes earlier than 2018 if deemed necessary to protect the public.

The Building Standards Pursuant to Section 18924.5 and other codified emergency regulations:

  • The California Building Standards Commission (CBSC) issued an emergency amendment for EEEs to the California Building Standards Code. Though originally temporarily enacted as of January 30, 2017, the EEE amendment became permanent in the appropriate sections of the 2016 CBC and the 2016 California Existing Building Code (Cal. Code of Regs, Tit. 24, Parts 2 and 10) after the last adoption ends on January 26, 2018.

The following sections outline the implications these code changes will have on the industry both today in California and starting in 2018 in many other states, as well as enacting other preventive measures to minimize the potential for such calamities in the future.

2016 CBC (2018 IBC) Elevated Exterior Elements (EEE) Code Changes

The following amendments are all currently in emergency effect in California under the 2016 CBC, with other state agencies such as the Department of the State Architect (DSA) adopting similar variations for their own related code sections. Other states are going to adopt similar code changes under the updated International Building Code in 2018. The following is a quick synopsis of what these amendments will entail:

“107.2.7 Exterior balcony and elevated walking surfaces. (2018 IBC 107.2.5) Where balcony or other elevated walking surfaces are exposed to water from direct or blowing rain, snow, or irrigation, and the structural framing is protected by an impervious moisture barrier, the construction documents shall include details for all elements of the impervious moisture barrier system. The construction documents shall include manufacturer’s installation instructions.”

“107.2.7: Both the requirement of comprehensive details, and implying specific product designation based on the requirement of manufacturer-specific details to be included in the construction documents, are major changes to the code. These are recommendations that Quality Built, LLC always includes in our Technical Plan Review™ (TPR) when details are not included or are incomplete, and when the waterproofing brand is not clearly indicated.  Removing vague and overly-generalized detail drawings and notes that are open to interpretation goes a long way in providing signposts on the road to building a safer product.

Exhibit 2: A plan detail of the collapsed deck. Ambiguous language on the detail may have played a part in the contractor’s determination to utilize multiple layers of OSB, a material specifically not approved for exterior decking, although notes elsewhere in the plans specified 3/4-inch tongue-and-groove plywood be utilized. Though the design was deemed adequate, the implementation was not.
“110.3.8.1 Weather exposed balcony and walking surface waterproofing
Where balcony or other elevated walking surfaces are exposed to water from direct or blowing rain, snow, or irrigation, and the structural framing is protected by an impervious moisture barrier, all elements of the impervious moisture barrier system shall not be concealed until inspected and approved. 
Exception: Where special inspections are provided in accordance with Section 1705.1.1, Item 3.”

“110.3.8.1: Providing both verification of the installation details implemented, and the materials specified to be utilized is tantamount to providing a safe product for consumer use in the long term. Due to the lack of requirement to observe these critical components, EEE components were often neglected not only by construction personnel, but by jurisdictions, as well.

Third-Party and Internal Quality Assurance Programs with effective documentation and document retention protocols would help minimize the potential for overlooked items and provide a database for gauging trade compliance with following project documents and manufacturer specifications.

Exhibit 3: Deviations from plan and manufacturer specifications, as well as negligent maintenance of the property were ruled to have been the cause of the material failure and eventual collapse at Liberty Gardens, Unit 405. An effective third-party quality assurance program would have documented and provided the concerned parties the information needed to catch and correct this situation in the very beginning stages.
“Table 1607.1 [BSC] (Both CBC and IBC) – Minimum live loads for balconies and decks are increased from being the same as the occupancy served, to 1.5 times the load for the occupancy served, but need not exceed 100 psf.”

“Table 1607.1 [BSC] (Both CBC and IBC): This amendment acknowledges the reality that the typical live load at balconies and other EEEs can exceed the interior service capacity due to the nature of usage as a point of congregation.

“2304.12.2.5 Supporting members for permeable floors and roofs (Both CBC and IBC, last sentence added). Wood structural members that support moisture-permeable floors or roofs that are exposed to the weather, such as concrete or masonry slabs, shall be of naturally-durable or preservative-treated wood unless separated from such floors or roofs by an impervious moisture barrier. [BSC] The impervious moisture barrier system protecting the structure supporting floors shall provide positive drainage of water that infiltrates the moisture-permeable floor topping.”

“2304.12.2.5: Of equal importance is the need for horizontal surfaces to provide ample slope to effectively drain away from the structure. The 2016 CBC in Chapter 2 defines “Positive (Roof) Drainage” as, “The drainage condition in which consideration has been made for all loading deflections of the roof deck, and additional slope has been provided to ensure drainage of the roof within 48 hours of precipitation.” This minimum slope is mentioned multiple times in Chapter 15 as “one-fourth unit vertical in 12 units horizontal (2% slope) for drainage.” This needs to be incorporated into the substrate (joists, beams, decking, etc.) to allow the moisture barrier above to have sufficient positive drainage, without ponding.

“2304.12.2.6 Ventilation required beneath balcony or elevated walking surfaces. Enclosed framing in exterior balconies and elevated walking surfaces that are exposed to rain, snow, or drainage from irrigation, shall be provided with openings that provide a net free cross ventilation area not less than 1/150 of the area of each separate space.”

“2304.12.2.6: Due to the possibility that some moisture may find its way into the enclosed system, cross-ventilation will allow for the moisture not to be trapped by the weatherization beneath the EEE systems. This “breathability” will create a condition which encourages evaporation to occur.

Proactive Considerations

Although California is already implementing these new standards, much of the nation will not be doing so until they adopt the 2018 International Building Code. For some regions, that may be well into the next decade, as a few jurisdictions are still under the 2006 IBC with plans only to adopt the 2012 IBC in the near future. A big mistake made by too many contractors, and even some project managers, is to believe, “I am building to the current code, it passed inspection, therefore I am covered.” Following the established code does not protect those involved in a project from liability due to errant practices such as not following manufacturer installation instructions or avoiding practices and materials known to have litigation decisions found against them.

Building code is the minimum standard, nothing more. Additionally, jurisdictions (other than CA) currently aren’t required to, and rarely do, inspect the weather-resistant/waterproof assemblies to any significant degree other than vertical, exterior gypsum and lath fastening application (a required inspection per sub-section 110.3.5 of the both the 2015 IBC/2016 CBC). Exterior, horizontal walking surfaces, one of the most litigation-prone and problematic aspects of construction, has not (until just recently in California) been inspected for efficacy! Even in California this is still an issue, as there is no standard of adequate training of jurisdictional personnel to be able to perform waterproofing inspections.

A good place to start mitigating risk is before construction begins. A technical review of your construction documents for recurring “hot spots,” constructability, and performance issues is a highly recommended first step. Quality Built’s Technical Plan Review can provide you with a comprehensive analysis; looking for errors, completeness of specifications, conflicting and or missing details and much more. Additionally, HOA Maintenance Manuals and Homeowner manuals that contain load-capacity weight with warnings to include weight of inanimate objects and not just people is highly effective. HOA Turnover and HOA Annual Inspections to ensure maintenance concerns and document homeowner misuse are also a readily available service. We can also provide a “big picture” overview of individual projects and regions with our Risk Assessment program, and our Forensics team can provide onsite analysis of conditions creating concern.

Another effective solution to these issues is to develop a checkpoint-based and documented quality assurance program, utilizing both internal and independent sources of verification. Quality Built has been an industry leader in providing quality assurance consultation and inspections to many of the leading companies in the construction industry for over two decades. Quality Built utilizes its proprietary, data-driven and customizable checkpoint systems based on code, manufacturer and industry standards guidelines, as well as “best practice” checkpoints based on analysis of litigation findings to assist clients in minimizing their exposure.

Can an Architect be Held Liable for Defects in Construction?

Sean M. Golden | Vandeventer Black LLP | November 7, 2017

It is common on commercial construction projects for the owner to hire the architect to perform services during construction, in addition to designing the project. Among other things, the architect’s construction phase services will typically consist of periodic observations and evaluations of the progress of the construction work. An architect may be charged with observing the work to determine whether or not the building is being constructed in accordance with the contract documents, including the drawings the architect has prepared.

When there are defects in the construction, an owner may attempt to hold the architect liable (usually in addition to the contractor) for said defects, even if there are no errors or omissions in the architect’s design or specifications. The theory behind such an assertion is typically that, even if the defect was caused by the contractor, the architect was charged with observing the work and should have called out the contractor’s defect and seen that it was corrected.

In such a situation, can the architect be held liable for defects in the contractor’s work? The answer – as is so often the case – depends on the architect’s contract with the owner. While many owner/architect agreements contain provisions requiring the architect to make periodic inspections of the work, it is typical for the agreements to contain language limiting the architect’s responsibility, such as the language used in the AIA Document B101-2017 Standard Form of Agreement Between Owner and Architect:

“The Architect shall not have control over, charge of, or responsibility for the construction means, methods, techniques, sequences or procedures …, nor shall the Architect be responsible for the Contractor’s failure to perform the Work in accordance with the requirements of the Contract Documents.”

AIA B101-2017, at § 3.6.1.2.

An architect in this situation would likely argue that this provision is exculpatory in nature, i.e., that it relieves the architect from any liability for the contractor’s acts or omissions. The argument, according to the architect, is that the language “nor shall the Architect be responsible for the Contractor’s failure to perform the Work in accordance with the requirements of the Contract Documents” truly means that the architect cannot be responsible for the contractor’s failure to perform the work in accordance with the contract documents. Some courts have adopted this position, and have dismissed claims by owners suing architects for construction defects.

But the majority of courts have taken a more nuanced view of this often-used contract language. These courts have found that exculpatory language such as the quoted-language from the B101 doesn’t necessarily mean the architect is off the hook. The Supreme Court of Alabama explained this distinction in one such case:

While the agreement may have absolved the Architect of liability for any negligent acts or omissions of the contractor and subcontractors, it did not absolve the Architect of liability arising out of its own failure to inspect reasonably. Nor could the Architect close its eyes on the construction site and not engage in any inspection procedure, and then disclaim liability for construction defects that even the most perfunctory monitoring would have prevented, or fail to advise the owner of a known failure of the contractor to follow the plans and specifications.

Watson, Watson, Rutland/Architects, Inc. v. Montgomery Cty. Bd. of Educ., 559 So. 2d 168, 173 (Ala. 1990) (emphasis added). In other words, while the architect is not responsible for the contractor’s negligence, the architect is required to perform its construction observation services reasonably, as required under its contract. Further, when the architect actually observes deviations from the contract documents, it is required to report these to the owner.

There are several takeaways respecting such designer liability:

First, courts distinguish between full-time construction observation, and periodic evaluations of the work. Courts will hold the architect to a higher standard vis-à-vis construction defects in the latter situation. Architects should make sure that, unless they are truly being engaged to perform full-time observation, their contracts require observations of the work to occur only at periodic, reasonable intervals.

Second, the contract language matters. For example, an obligation to notify the owner of any defects in the work, whether or not observed by the architect, can be interpreted as something more akin to a guarantee of the contractor’s work; which is at odds with the exculpatory language, discussed above.

Lastly, performance matters. Whatever the contract language, all parties to the contract must perform as contracted, and if they do they have meet their obligations. Even the strongest exculpatory language will absolve an architect for failing to perform the construction administration services it agreed to perform. But performance as agreed shields that architect when performed as agreed.