Class Actions Under California’s Right to Repair Act. Nope. Well . . . Nope.

Garret Murai | California Construction Law Blog | December 17, 2018

It’s the holidays. A time when family and friends, and even neighbors, gather together.

And nothing brings neighbors closer together than class action residential construction defect litigation.

In Kohler Co. v. Superior Court, Case No. B288935 (November 14, 2018), the Second District Court of Appeal addressed whether neighbors can bring class action lawsuits under the Right to Repair Act. For those who are regular readers of the California Construction Law Blog you’re familiar with the Right to Repair Act codified at Civil Code sections 895 et seq.

For those of you who aren’t here’s a short history. In 1998, in Aas v. Superior Court (1998) 64 Cal.4th 916, the California Supreme Court held that economic damages arising from construction defects, say a defective roof (as opposed to damage to your holiday gifts as a result of water damage resulting from the defective roof), are not recoverable if the basis for liability is negligence (e.g., faulty workmanship) or strict liability (e.g., defective materials).

To limit the application of the Aas case to newly constructed residential housing, including single family homes and condominiums (but not condominium conversions), the California legislature enacted SB 800 also known as the Right to Repair Act. The Right to Repair Act permits homeowners of newly constructed residential housing to sue for economic damages alone if new residential construction does not meet certain enumerated construction standards set forth under the Right to Repair Act and the homeowner satisfies the pre-litigation procedures of the Act.

One aspect the Right to Repair Act does not clearly address, however, is if homeowners can join together and bring a class action lawsuit under the statute.

Kohler Co. v. Superior Court

In Kohler, two homeowners, Joanna Park-Kim and Maria Cecilia Ramos, filed a lawsuit against Kohler Co. on behalf of themselves and others similarly situated  throughout California. The plaintiffs alleged that “Rite-Temp Pressure Balancing Valves” and “Mixer Caps” manufactured by Kohler, which are used to regulate water flow and temperature in household plumbing, were “corroding, failing, and/or will inevitably fail” and violated the construction standards of the Right to Repair Act.  Kohler sold approximately 630,000 of these valves and mixer caps in California during the relevant period.

While the case was pending, Kohler filed a motion claiming that the Plaintiffs could not bring a class action lawsuit under the Right to Repair Act. The trial court denied Kohler’s motion but certified its ruling for appellate review finding that the issue presented a controlling question of law upon which there were substantial grounds for differences of opinion.

The Appellate Court Decision

On appeal, the Second District Court of Appeal focused on Section 931 of the Right to Repair Act, which provides that, when construction defect claims combine causes of action or damages that are not covered under the Right to Repair Act (i.e., construction defects that are not among enumerated construction standards of the Act) with other claims involving construction defects that are covered by the Act, that those defects that are covered by the Act are to be administered according to the Act (i.e., the pre-litigation procedures of the Act). Specifically, Section 931 provides:

If a claim combines causes of action or damages not covered by this part, including, without limitation, personal injuries, class actions, other statutory remedies, or fraud-based claims, the claimed unmet standards shall be administered according to this part, although evidence of the property in its unrepaired condition may be introduced to support the respective elements of any such cause of action. As to any fraud-based claim, if the fact that the property has been repaired under this chapter is deemed admissible, the trier of fact shall be informed that the repair was not voluntarily accepted by the homeowner. As to any class action claims that address solely the incorporation of a defective component into a residence, the named and unnamed class members need not comply with this chapter.

Describing Section 931 as “somewhat obtuse,” the court noted that while the inclusion of the term “class actions” in the first sentence implies that class actions cannot be brought under the Right to Repair Act, the last sentence of the section that “any class action claims that address solely the incorporation of a defective competent into a residence” suggests that certain class actions might be able to be brought under the Act.

Looking to the legislative history of the Right to Repair Act, the Court of Appeals held that class actions may not be brought under the Right to the Repair Act, “with one very narrow exception.”

The Court of Appeal referred to a Senate bill analysis of SB 800 discussing the pre-litigation procedures of the Right to Repair Act, which stated: “The bill establishes a mandatory process prior to the filing of a construction defect action. The major component of this process is the builder’s absolute right to attempt a repair prior to a homeowner filing an action in court. Builders, insurers and other business groups are hopeful that this right to repair will reduce litigation.” The Court concluded that “it makes sense” that “the Legislature intended to exclude class actions for virtually any claim under the Act, because class actions make prelitigation resolution impossible.” Moreover, held the Court:

Even if the named plaintiffs bringing a class action comply with the prelitigation process, thus giving the builder of their homes an opportunity to attempt to repair whatever defect is claimed as to their homes, the builders of other homes are given no such opportunity with respect to the unnamed class members, thus thwarting one of the most significant aspects of the Act.

However, held the Court of Appeal, Section 931 does carve out one narrow, or, as the Court stated, one “very narrow” exception to the Right Repair Act.  And that is claims that solely involve the incorporation of a defective component into a home.

And, here, because the plaintiffs’ claims against Kohler alleged that the defective valves and mixers violated several of the enumerated construction standards set forth under the Right to Repair Act causing damage to other components in their homes, the Court of Appeal held that their claims did not solely involve incorporation of a defective component in their homes, and further, involved an allegedly defective manufactured product that is excluded under Section 896 of the Right to Repair Act, which excludes “any action seeking recovery solely for a defect in a manufactured product located within or adjacent to a structure.”

“In short,” held the Court of Appeal, the Right to Repair Act “does not permit class action claims except when those claims address solely the incorporation into the home of a defective component other than a product that is completely manufactured offsite.”

So there you go. Something for everyone this holiday season. Kind of.

Conclusion

Kohler Co. clarifies that, with one very narrow exception, class action lawsuits cannot be brought under the Right to Repair Act. Furthermore, while the Court did not directly address what constitutes a “defective component other than a product that is completely manufactured offsite,” it would seem that this is indeed, as the Court of Appeal stated, a very narrow exception that would exclude class action claims involving most  manufactured products except products built in whole or in part at a project. Maybe I’ve had too much eggnog, but I can’t even imagine what those types of products might be.

The Supreme Court Narrows Its Holding in American Pipe & Construction Co. v. Utah

Ryan Vanderford and Mark D. Litvack | Pillsbury Winthrop Shaw Pittman LLP | June 18, 2018

TAKEAWAYS

  • The Supreme Court’s decision in China Agritech, Inc. v. Resh cements a new limit on the filing of successive class actions.
  • Tolling provisions established in landmark American Pipe decision do not extend to individual class members wanting to file a new action on behalf of others after the statute of limitations deadline has passed.

In American Pipe & Construction Co. v. Utah, 414 U.S. 538, 554 (1974), the Supreme Court held that “the commencement of a class action suspends the applicable statute of limitations as to all asserted members of the class who would have been parties had the suit been permitted to continue as a class action.” In Crown, Cork & Seal Co. v. Parker, 462 U.S. 345, 103 (1983), the Supreme Court clarified American Pipe’s tolling rule by holding the rule is not dependent on putative class members intervening in or joining an existing suit; it includes putative class members who, after denial of class certification, “prefer to bring an individual suit rather than intervene … once the economies of a class action [are] no longer available.”

At issue in China Agritech, Inc. v. Resh, No. 17-432, 2018 WL 2767565, at *3 (2018) was whether the American Pipe tolling rule applies only to subsequent actions brought by a previously absent class member on an individual basis, or whether it also extends to subsequent class actions filed by previously absent class members.

On Monday, June 11, 2018, the Supreme Court unanimously refused to extend its American Pipe tolling rule to subsequent class actions, holding, “American Pipe does not permit a plaintiff who waits out the statute of limitations to piggyback on an earlier, timely filed class action.” Id. at *6. “[T]here is little reason to allow plaintiffs who passed up those opportunities to enter the fray several years after class proceedings first commenced.” Id. at *7.

The Court reasoned that “[t]he ‘efficiency and economy of litigation’ that support tolling of individual claims do not support maintenance of untimely successive class actions.” Id. at *6 (internal citations omitted). The Court fleshed out the competing efficiency arguments between successive individual claims versus successive class claims, noting:

American Pipe tolls the limitation period for individual claims because economy of litigation favors delaying those claims until after a class-certification denial. If certification is granted, the claims will proceed as a class and there would be no need for the assertion of any claim individually. If certification is denied, only then would it be necessary to pursue claims individually.

With class claims, on the other hand, efficiency favors early assertion of competing class representative claims. If class treatment is appropriate, and all would-be representatives have come forward, the district court can select the best plaintiff with knowledge of the full array of potential class representatives and class counsel. And if the class mechanism is not a viable option for the claims, the decision denying certification will be made at the outset of the case, litigated once for all would-be class representatives.

Id. The Court also noted that Federal Rule of Civil Procedure 23 “evinces a preference for preclusion of untimely successive class actions by instructing that class certification should be resolved early on.” Id.at *7 (citing Fed. R. Civ. P. 23(c)(1)(A)).

The Court found a contrary holding would allow the statute of limitations to be extended “time and again; as each class is denied certification, a new named plaintiff could file a class complaint that resuscitates the litigation.” Id. at *8. While “[t]he time to file individual actions once a class action ends is finite, extended only by the time the class suit was pending; the time for filing successive class suits, if tolling were allowed, could be limitless.” Id.

While the Court’s decision more clearly defines the limitations period for potential liability on a classwide basis, it may also lead to more protective class action filings by plaintiffs apprehensive about impending limitations deadlines.

Supreme Court Prevents Plaintiffs From Bringing Piggyback Class Actions After the Statute of Limitations Has Run under American Pipe

David M. Gettings, Amy Pritchard Williams and Alan D. Wingfield | Troutman Sanders LLP | June 12, 2018

News & Knowledge

The Supreme Court’s decision yesterday in China Agritech Inc. v. Resh is a significant victory for defendants in federal class action lawsuits, as it prevents plaintiffs from bringing successive class actions after the statute of limitations has run. Prior to the Court’s decision, there was a split among the Circuit Courts as to whether a plaintiff who files a subsequent class action against a defendant can receive the benefit of statute of limitations tolling from a previous class action against that same defendant. On June 11, 2018, however, the United States Supreme Court decisively held in an 8-1 opinion that American Pipe does not provide tolling for subsequent (“piggyback”) class actions in federal question cases. In the Supreme Court’s view, neither American Pipe nor the Federal Rules of Civil Procedure should be read to “permit plaintiffs to exhume failed class actions by filing new, untimely class claims.”

A. The Details of the Decision

Under the Supreme Court’s previous decision in American Pipe & Construction Co. v. Utah, the Court held that the filing of a class action tolls the limitations period for the individual claims of a purported class member if those claims fall within the scope of the pending class action. In China Agritech, the Supreme Court addressed whether the tolling effect of American Pipe is limited to claims asserted in a subsequent individual (non-class) case or whether a plaintiff that asserts a subsequent class action can receive the benefit of American Pipe tolling on behalf of the entire purported class.

Specifically, in China Agritech, shareholders of the defendant filed a putative class action alleging that the company committed securities fraud. China Agritech moved to dismiss, arguing that the putative class action was untimely because the shareholders filed it after the applicable two-year limitations period had lapsed. In response, the plaintiffs argued that, under American Pipe, the lawsuit was timely because the limitations period was tolled during the pendency of two earlier-filed class actions against the same defendants based on the same underlying events.

The district court granted China Agritech’s motion to dismiss, finding that the putative class action was untimely. The Ninth Circuit, however, reversed the district court’s decision, reasoning that the Supreme Court adopted its tolling rule in American Pipe to “promote economy in litigation.” In the Ninth Circuit’s view, if successive class actions do not receive the benefit of tolling, plaintiffs will begin filing multiple simultaneous class actions to avoid a potential statute of limitations defense in the future.

The federal appellate courts had previously split on the issue. The First, Second, Third, Fifth, Eighth, and Eleventh Circuits had held that American Pipe tolling only tolls the limitations period for subsequent individual (non-class) claims. In contrast, the Sixth, Seventh, and Ninth Circuits had held that American Pipe allows for tolling of individual and class claims in subsequent class actions.

In the China Agritech Inc. v. Resh decision, the Supreme Court resolved this split. According to the Supreme Court, “American Pipe does not permit a plaintiff who waits out the statute of limitations to piggyback on an earlier, timely filed class action.” In the Supreme Court’s view, it makes practical sense to allow a previous class action to toll the statute of limitations from running on subsequent individualclaims. If this type of tolling did not exist, courts might receive multiple individual lawsuits from purported class members during the pendency of a class action just to ensure the limitations period does not run against them. This would be inefficient. After all, if class certification is granted, then those individual claims would proceed on a class basis anyway. As a result, the Court believed that tolling individual claims until resolution of class certification is in the interest of efficiency and economy.

The Supreme Court reasoned, however, that there is no analogous “efficiency” rationale to allowing American Pipe to toll the limitations period on claims asserted in a subsequent class action. According to the Court, “efficiency favors early assertion of competing class representative claims,” with a determination at the outset of the case as to the viability of the class mechanism to resolve the claims. This is consistent, in the Court’s view, with Rule 23’s “preference for preclusion of untimely successive class actions by instructing that class certification should be resolved early on.” Allowing tolling in subsequent class claims would encourage potential named plaintiffs to “piggyback” by waiting to see the outcome of a previous class case. It would also effectively “allow the statute of limitations to be extended time and again; as each class is denied certification, a new named plaintiff could file a class complaint that resuscitates the litigation.” As the Court noted in its discussion of equitable tolling, “[a] would-be class representative who commences suit after expiration of the limitation period [] can hardly qualify as diligent in asserting claims and pursuing relief.”

In its opinion, the Court also rejected the shareholders’ contention that a parade of horribles would come if tolling did not apply to successive class actions, noting that while the Federal Rules provide a range of mechanisms to aid courts in overseeing complex litigation, ‘[w]hat the Rules do not offer is a reason to permit plaintiffs to exhume failed class actions by filing new, untimely class claims.” The shareholders had argued that there would be a “needless multiplicity” of protective class-action filings. The Court observed that the Second and Fifth Circuits have both declined to allow out-of-time class actions since the 1980’s, and yet there was no evidence that these Circuits “have experienced a disproportionate number of duplicative, protective class-action filings.” The Court cited to an amicus brief for evidence that protective class filings are uncommon and, even if protective class filings occurred, these actions could be consolidated for pre-trial and class certification purposes.

B. The likely counter-punch

The Supreme Court’s decision in China Agritech is a significant win for defendants. If a defendant successfully defeats class certification in a lengthy litigation, that may foreclose subsequent class actions on the same issue because, without tolling, those class members’ claims may become time-barred. As with all significant Supreme Court decisions, though, we expect the plaintiffs’ bar to adapt. For example, we see several potential developments moving forward:

  • Plaintiffs may attempt to file more simultaneous class actions with multiple named plaintiffs in hopes that one of those cases will make it past class certification. Waiting for the first case to resolve is no longer a safe strategy, as the subsequent claim may become time-barred while the first action runs its course. While this may be possible, the Supreme Court in China Agritech looked to two Circuit courts with over three decades of history under a similar rule and concluded that this was unlikely. Nevertheless, we will continue watching this trend.
  • Next, Plaintiffs may be more inclined to attempt to intervene in ongoing class actions – especially if they see defects in the current named representative’s claims. They may argue that, if they intervene in a case, they receive the benefit of tolling for the entire duration of the ongoing class action, despite the fact that the initially named representative had defective claims.
  • Finally, courts may push for early resolution of class certification prior to the running of the statute of limitations in order to allow putative plaintiffs time to file class claims should class certification be denied.

Giant Concrete Coverage Suit Tests Conn. Bad Faith Laws

Ryan Boysen | Law 360 | July 3, 2017

National insurance giants including State Farm, AIG, Allstate and a slew of others are staring down the barrel of an unconventional proposed class action in Connecticut that could cost them billions of dollars and will test the limits of the state’s insurance industry bad faith laws — all because of a mineral hardly anyone has ever heard of.

Pyrrhotite-contaminated concrete is the culprit behind a vast outbreak of crumbling basements and foundations currently sweeping eastern Connecticut. Fixing a crumbling basement or foundation can cost up to $250,000 per home and the problem is estimated to affect roughly 35,000 homes across eastern Connecticut.

The crisis threatens to crush the region’s real estate market and now it’s sucking in the state’s home insurers, as the massive liability goes unaddressed by both the state and federal government.

The proposed class action — which names all of Connecticut’s major property insurance carriers, roughly 30 in total — alleges the insurers were well aware of the problem before it exploded into the spotlight two years ago, and have been denying claims in bad faith in an attempt to wall themselves off from the crisis, one policyholder at a time.

It seeks to certify a class of all homeowners with crumbling foundations in three Connecticut counties and is asking for, among other things, a declaratory judgment that all of the insurers must cover repairs to all crumbling foundations in those counties, a provision one legal insurance blog termed a “Mega DJ” shortly after the suit was first filed last year.

“If the insurance companies continue to go down this path, it’s going to crush the middle class in eastern Connecticut,” Ryan Barry of Manchester-based Barry Barall & Spinella, who filed the suit, told Law360. “The whole thing is just crying out for a solution, and that’s what we’re trying to craft with this case.”

A “Massive, Unwieldy Class Action”

Since the crisis came to light in 2015 it’s become a contentious issue at every level of the state’s politics, with candidates for the 2018 governor’s race campaigning on it and state lawmakers deadlocked over a handful of hotly contested relief bills. Requests to the Federal Emergency Management Agency for aid have been denied, twice.

Given lawmakers’ inability to tackle the problem, it’s no surprise the courts have become the main source of relief for affected homeowners. Dozens of lawsuits against insurers who have denied crumbling concrete claims are pending in Connecticut state court right now, while a dozen or so have gone to district court.

Homeowners have prevailed in many of those district court suits, but thus far they’ve done little to address the problem as a whole, leaving plenty of room for a broader suit like Barry’s class action.

In addition to the declaratory judgment, the suit also seeks bad faith damages, and alleges the state’s insurers have a “general business practice” of denying claims in bad faith, in violation of the Connecticut Unfair Insurance Practices Act and the Connecticut Unfair Trade Practices Act. Those claims can result in substantial punitive damages, on top of the basic coverage sought by the declaration.

Every insurer Law360 contacted for this article declined to comment, except for Nationwide.

A spokesman told Law360 the company “is aware of the lawsuit” but “cannot discuss it.” However, he added that Nationwide “investigates each claim individually, applying the specific facts, laws, regulations and the purchased coverage to every claim decision.”

The insurers have come out against the suit with guns blazing, filing a flurry of individual and joint motions to dismiss in June, as well a joint motion to strike the class claims.

They argue the crumbling concrete issue is complicated and that coverage depends on the specifics of each policy and the damage to each foundation. Given the “fact-intensive investigation” needed to sort out each claim, a “massive, unwieldy class action” won’t fly, they say, in their joint motion to dismiss.

“Plaintiffs cannot improperly seek to have the court ignore the facts and the policy language in favor of an overarching, and inevitably inaccurate, declaration,” the motion says. “That such a broad declaratory judgment lumping all defendants together could possibly enter is wishful thinking.”

Barry counters that all class actions inevitably involve a group of plaintiffs with facts specific to each of them. The important thing, he says, is that his proposed class are all suffering from the same basic problem: Having paid their premiums for years, they’re now left without coverage just when they need it most.

“Everyone has homes with crumbling concrete and their insurance companies refuse to cover their claims,” he says. “So long as that suffering is at the center of our case, I look forward to our day in court.”

“Nothing Has Been Done”

The situation in Connecticut has been simmering since the 90’s, as isolated reports began to trickle in of homes whose basements and foundations were falling apart for no discernable reason.

When pyrrhotite oxidizes on contact with air and water, it expands. When the mineral is present in concrete, that expansion leads to cracking that can ultimately cause the concrete to collapse into rubble, a process that can take years or even decades to run its course.

And as Connecticut’s residents are now beginning to realize, a sizeable portion of all the foundations poured in the state since the 80’s contain pyrrhotite-contaminated concrete.

The crisis didn’t come into full view until 2015 however, when a series of local news reports catapulted the issue into the spotlight. Now, as property values and tax revenues continue to fall in the affected areas, resentment among homeowners has reached a fever pitch.

“Nothing has been done — the politicians have failed us,” Tim Heim, an affected homeowner who’s currently suing his insurer and has founded a grassroots organization around the issue, told Law360. “There have been a million proposals, and in the meantime we’re stuck over here grabbing our ankles.”

Heim owns a stately three-bedroom in Willington that’s typical of the houses in Connecticut’s northeastern Quiet Corner, a region that lies somewhere between rural and suburban. On paper, it may well be worthless however. Fixing a crumbling foundation — a complicated process that involves lifting the entire house up on stilts while the concrete below is demolished and repoured — can take months to complete and costs anywhere from $100,000 to $250,000, depending on the home.

For a blue-collar region where the median home price hovers around $245,000, according to Zillow, it’s a price that’s simply not payable by most homeowners, including Heim.

“This is my home, it’s my biggest investment,” Heim says. “When you learn that it’s worthless, it’s absolutely devastating. It’s an emotional roller coaster I wouldn’t wish on my worst enemy.”

“Broader Pattern Of Bad Faith”

The crux of Barry’s suit alleges Connecticut’s insurance carriers began to see the writing on the wall before most of the state’s residents did, sometime around the early 2000’s.

Since then they’ve used multiple tactics to build a legal firewall between them and the crumbling concrete crisis, the complaint says, like denying all claims outright regardless of their merit, and changing the language in their policies, all allegations the insurers vigorously dispute.

While the suit’s construction might be relatively untested, a dozen or so one-off crumbling concrete suits between homeowners and their insurers have gone to Connecticut district court thus far. Ten of those suits have survived motions to dismiss and a handful have survived summary judgment — many of them settling shortly thereafter — with one case being won by the plaintiff at trial.

The insurers have won outright in only three of those cases. In each one, the insurer’s victory rested on language in the policy at hand that qualified coverage for a “collapse” as applying only to a “sudden” or “abrupt” collapse.

Barry’s suit alleges the insurers inserted that language into policies specifically to delete coverage for crumbling concrete, without properly notifying policyholders or reducing premiums, meaning the language is null and void, but the issue is sure to be a major battleground as the suit goes forward.

Donna Tommelleo, a spokeswoman for the Connecticut Insurance Department, which must sign off on all policy language changes, says the department has “determined that the vast majority of carriers provided proper notification” and is “currently not aware of facts or circumstances to indicate that unfair practices have occurred.”

The suit’s most imposing claims ultimately rest on the insurers’ alleged practice of denying claims for crumbling foundations across the board.

“We’re trying to lay out the broader pattern of bad faith denial of claims that has only been hinted at in the other cases,” Barry says.

That allegation forms the basis of the CUTPA and CUIPA claims, and the Connecticut district court’s treatment of such claims in the one-off suits has evolved in a fairly one-sided direction over the past few years: in favor of homeowners, and against insurers.

In a 2009 ruling that dismissed CUTPA and CUIPA claims from the earliest crumbling concrete case, Bacewicz v. NGM Ins. Co., U.S. District Judge Janet C. Hall wrote that the plaintiffs “failed to allege the multiple violations necessary to support [those claims] … They have only alleged improper handling of their own, single claim.”

Compare that to Judge Hall’s ruling last year on the insurer’s motion to dismiss in another of those cases, Liston-Smith v. CSAA Fire & Casualty Insurance Co. The plaintiffs cited only state court suits in which CUTPA/CUIPA claims had survived motions to strike to support their own claims, but Judge Hall said those suits weren’t relevant, since the standards for motions to strike aren’t as strict as the federal standards that govern a motion to dismiss.

Even so, Judge Hall took the unusual step of taking judicial notice of the other crumbling concrete suits involving CSAA in district court — including the class action — to allow the plaintiff’s CUTPA/CUIPA claims to survive, essentially doing their work for them.

Many of the other suits filed within the last few years have routinely sailed through motions to dismiss and motions for summary judgment on bad faith and CUTPA/CUIPA claims, unless they involve policies with the sudden and abrupt language.

Ultimately, all of the crumbling concrete cases rest on the Connecticut Supreme Court’s 1987 ruling in Beach v. Middlesex Mutual Assurance Co. That case, which didn’t involve pyrrhotite-contaminated concrete, held that “collapse” is an ambiguous term in an insurance contract, and applies to any “substantial impairment of the structural integrity of a building,” even if the building is still uninhabitable.

The crumbling concrete cases have thrown into sharp relief the ambiguity of the phrase “substantial impairment” itself however, and U.S. District Judge Stefan R. Underhill now says in a crumbling concrete case he’s overseeing that he’s “strongly considering” certifying that term and others to the Connecticut Supreme Court for clarification.

“Billion Dollar Problem”

The pyrrhotite problem ultimately stems from a single quarry operated by J.J. Mottes, just down the road from Tim Heim’s house, according to a joint investigation between Connecticut’s Attorney General and its Department of Consumer Protection that concluded late last year. That quarry has provided the majority of the region’s concrete aggregate for the past 30 years, the report says, and it sits atop a large vein of pyrrhotite.

J.J. Mottes continues to dispute its role in the crisis, though it’s since shut down the quarry and sold it off. A company spokesman declined to comment for this story. A few years ago its office burned down, Connecticut’s Journal Inquirer reports, with the fire destroying all of its records.

One Connecticut resident, Linda Tofolowsky, sued J.J. Mottes in 1997 after her home’s foundation inexplicably began bulging and cracking a few years after it was poured. That suit was tossed in 2003 however, because she couldn’t prove that the problem stemmed from the concrete itself, which meant her claim was barred by the 10-year product liability statute of limitations.

Pyrrhotite was never mentioned in the suit, and Tofolowsky opened a complaint with the Department of Consumer Protection in 2003, only to see the agency close it two days later.

“They kept pouring more and more foundations with the same stuff,” Tofolowsky told Law360. “Nothing ever happened to them. If the state had moved on this sooner they could have prevented a billion-dollar problem.”

Depreciation of Labor Class Action — Minnesota Supreme Court Oral Argument

Wystan Ackerman | Robinson & Cole | November 8, 2015

I’ve been following closely a series of class actions around the country alleging that, in calculating the “actual cash value” of property damage under a homeowners or commercial property insurance policy, insurance companies should not be applying depreciation to the labor component of the replacement cost of a damaged structure. When insurers estimate “actual cash value,” they typically estimate the replacement cost of the damage based on the materials, labor and other costs necessary to make the repairs, and then apply depreciation to that amount, to arrive at the actual cash value.

Plaintiffs’ lawyers have filed numerous class actions arguing that labor costs are not depreciable, and that the actual cash value thus should be calculated based on the full cost of labor and depreciated value of materials. If you haven’t been following this issue and would like more background, I suggest you read my August 10, 2015 and March 29, 2015 blog posts. This is, in my view, the hottest area in insurance class actions right now.

One of the benefits of modern technology for those who like to follow important cases closely nationwide is that many state supreme courts are now recording oral arguments and posting them online, or in some instances streaming the argument live (as the Massachusetts Supreme Judicial Court did in a case I recently argued).

The Minnesota Supreme Court recently heard oral argument on the issue of depreciation of labor costs (on a certified question from the Minnesota federal district court) in Wilcox v. State Farm Fire & Casualty Company. (In the interests of full disclosure, I wrote an amicus brief for the American Insurance Association in this case.) The oral argument video was recently posted online. The court dug deeply into both sides of the issue. Here are a few observations I had:

Minnesota Supreme Court photo

  • The court focused some of its initial questioning on how an appraiser of real estate, using the “cost approach” to valuation, will depreciate the full value of the building, including the labor component, as economically appropriate. Plaintiffs’ counsel appeared to concede that this approach is correct for a total loss, but argued that it is not appropriate for a partial loss. Those justices who commented on that issue did not seem persuaded by his argument that partial losses should be treated differently in this respect.
  • There was some discussion about a hypothetical where a roof was nearing the end of its useful life, with some justices appearing to take the view that it would not be an accurate method of calculating the actual cash value of the roof to apply depreciation only to the materials and not to the labor component.
  • Some of the court’s questions focused on how the State Farm policy at issue (like most homeowners’ policies) provides replacement cost coverage if the insured makes the repairs. One justice appeared to suggest that this demonstrates that State Farm is correct about what is intended by actual cash value.
  • There was a fair amount of discussion about how Minnesota’s adoption of the “broad evidence rule” for determining actual cash value impacts the question presented. One justice pointed out that the “broad evidence rule” allows for methods of calculation other than replacement cost less depreciation, which is the method that State Farm used here. He suggested that there may be circumstances where there are issues of fact.
  • One justice asked about a hypothetical scenario in which the repairs involved $200 of materials, but $10,000 of labor, and how that loss would be treated…

To finish reading this article