Conflicts With Interest - A Novel by Michael Ruddy

Recently, Robert August suggested that I pick up a copy of Conflicts With Interest, a novel by Michael Ruddy.  Having now read the book, I understand why he made the suggestion.  Michael Ruddy is not just an author, he is a Colorado homebuilder who wrote a book about residential construction defect litigation.  The biographical information from the book states: "Michael Ruddy is a graduate of the University of Denver with a degree in engineering administration. He has spent the last forty years associated with both the commercial and residential disciplines of the construction industry, which inspired many events of this story.  Currently, he resides in Boulder, CO with his wife, five children, dog and cutting horses."  Being an attorney that has devoted my career to litigating claims on behalf builders and developers throughout Colorado, the book naturally resonated with me.

The novel itself follows the travails of father and son homebuilders, T.R. and Ryan Morgan, as they journey through the world of construction defect litigation.  After spending my legal career defending cases not unlike that recounted in Conflicts With Interest, I can say that the book is a fairly accurate depiction of the construction defect world.

Although, I am sure that "any similarity to any person or persons living or dead is purely coincidental," I think I recognized some of the characters in the novel.  If not, I certainly know the archetypes.  At some point, I would like to sit down with Michael Ruddy to see if I accuretely pinned down any of the characters in the book.

The one thing that did strike me about the book, and something on which I will have to spend more time reflecting, is the relationship between the Morgans and the attorney retained to represent them by their insurance carrier.  As a defense attorney that is hired by insurance companies to represent homebuilders from time to time, I would like to think that none of my clients have ever had the same skepticism or distrust of me as the Morgans did of their attorney because of the fact that I happen to have been paid by their carriers.  I know that this is something that I will address at the outset of all of my future insurance defense assignments.  There can be no question that my loyalties run 100% toward my client, the builder.  While it may be that I am being paid by an insurance carrier, and I have certain obligations to the carrier, my client is the builder and I will do everything possible to provide a vigorous defense of any construction defect claim and to obtain the best possible outcome, whether that be through settlement, arbitration, or trial.    

If you are employed in any industry or profession that deals with residential construction defect litigation, I recommend that you read this book.  It provides great insights from the homebuilders' prospective.  

If you have any questions regarding construction defect litigation in Colorado, or if you find yourself in the position of the Morgans, please contact David M. McLain by phone at (303) 987-9813 or by e-mail at mclain@hhmrlaw.com.  For a more full explanation of construction law in Colorado please visit our website or request a copy of our Overview of Construction Defect Litigation in Colorado.

Hildebrand v. National Fire & Marine Insurance Company - A Good Break for the Plaintiffs

In an order by Judge Marcia Krieger, the homeowners in a recent construction defect case caught a lucky break.  By way of background, Mark A. and Mark L. Hildebrand were the plaintiffs in a construction defect lawsuit against their builder, New Vista, and one of its principals, Richard Reeves.  The claims against Mr. Reeves were dismissed by a motion for a directed verdict during trial.  Thereafter, the jury found in favor of the Hildebrands and against New Vista, and the trial court entered judgment against New Vista in the amount of $540,000.

The Hildebrands then instituted a declaratory relief action in Jefferson County District Court against National Fire, New Vista, and Mr. Reeves seeking 1) a declaration that National Fire was obligated to pay the jugement and 2) damages against National Fire for breach of contract for failing to pay the judgment in a timely fashion.  In April 2009, National Fire removed the action to the United States District Court of the District Court of Colorado. 

The purpose of this removal was probably because National Fire thought it would get a better outcome in U.S. District Court than in Jefferson County District Court.  As luck would have it, the Hildebrand case was assigned to Judge Krieger, the same judge who issued an order finding no coverage for construction defects in the Greystone v. National Fire case.  The only problem with National Fire's strategy was that in order to properly remove the case to federal court, National Fire had to request that the court realign the parties so as to achieve complete diversity between them.

Unfortunately for National Fire, Judge Krieger declined to realign the parties and, therefore, found that the court had no subject matter jurisdiction based on diversity.  Because the court had no jurisdiction to hear the case, Judge Krieger remanded the case back to the Jefferson County District Court.  Unfortunately for the Hildebrands, Judge Krieger declined to award costs and attorneys fees associated with the remand.  It will be interesting to see how this issue shakes out in the state court system. 

If you would like to obtain a copy of the Hildebrand order, please contact David M. McLain by phone at (303) 987-9813 or by e-mail at mclain@hhmrlaw.com.  For a more full explanation of construction law in Colorado please visit our website or request a copy of our Overview of Construction Defect Litigation in Colorado.

Occurrence vs. Claims Made Insurance Policy Considerations for Construction Professionals

Recently, several insurance and construction professionals have contacted us regarding the differences between claims made and occurrence based commercial general liability (CGL) insurance policies. A brief explanation of the key differences is provided below.

An occurrence based CGL policy is insurance coverage for a fixed window in time (determined by the policy effective dates) that covers claims made by third parties for bodily injury and/or property damage (subject to policy terms and conditions). This means that even if a claim is made 25 years after expiration of the policy (provided the statute of limitations and/or repose has not expired), an occurrence form CGL will respond if the claim occurred during the effective dates of the policy. This is true even if the occurrence based CGL policy is not renewed and an insured never purchases another policy. This is by far the most common and simple way to insure construction risks.

On the other hand, a claims made policy has several variables and restrictions to consider. First, a claims made policy does not create a fixed window in time for coverage purposes. A CGL claims made policy provides coverage for claims made by third parties for bodily injury and/or property damage (subject to the policy terms and conditions) only if, at the time the claim is made, the policy is currently in effect and the claim occurred after the retroactive date of the policy. The retroactive date of a claims made policy is negotiable and should go back in time to cover the earliest date of activity that could give rise to a claim. Even more problematic is that when an insured discontinues coverage or purchases a policy with another carrier, coverage may completely evaporate (save for any reporting tail included with the policy, typically 30-90 days) unless the retroactive date is maintained on subsequent policies. Furthermore, if an insured maintains coverage with the claims made policy carrier for a long period of time, the policy premium most likely will continue to rise as more time on the risk is accumulated from the retroactive date to the present day.

A claims made policy is often attractive to potential insureds because it appears less expensive initially. In the long term, a claims made policy may cost more than an occurrence policy and provide less reliable coverage. Additionally, there are a number of risks related to moving coverage from one carrier to another or otherwise having their coverage discontinued or non-renewed. Policyholders who have a claims made policy should be aware that they may be able to purchase an extended reporting period to limit the risks related to discontinuation of a claims made policy.

The attorney who drafted this entry is no longer with the firm. For additional information regarding Colorado construction litigation, please contact David M. McLain at (303) 987-9813 or by e-mail at mclain@hhmrlaw.com

David M. McLain, Colorado Construction Litigation Attorney, to Speak at an Upcoming Construction Defect Seminar.

I am happy to have been asked to speak at a Colorado Construction Defect Law Seminar on February 25th.  The seminar, sponsored by MC Consultants, Inc. and Esquire Solutions, will be held at the Brown Palace Hotel from 3:00 to 5:00 pm, followed by a networking cocktail reception. 

The first panel, from 3:00 to 4:00, will include me, Bradley Shefrin, Esq., Pryor, Johnson, Carney, Karr & Nixon, and Brad Ramming, Esq., Sweetbaum, Levin & Sands.  Our panel, entitled "Colorado Construction Defect Law Update," will cover: 1) What’s going on under the Dome?; 2) New statuary law affecting construction defect litigation; and 3) New case law affecting construction defect litigation.

The second panel, from 4:00 to 5:00, will include Lisa Bondy Dunn, Esq., Wood, Smith, Henning & Berman LLP, Janet S. Wells, Esq., Ray Lego & Associates, Christopher C. Pierson, P.E., CE Prime, Inc., and James Schmidt, NCARB, mc2 Consultants.  This panel, entitled "The Battlefield Known as Subcontractor Allocations in a Construction Defect Lawsuit," will cover: 1) Where are we now, and where are we going?; 2) New case law implicating allocations from the appellate and trial courts; and 3) Best practices for allocating damages (strength and weaknesses of various approaches).

Last but not least, MC Consultants and Esquire Solutions will be hosting a networking cocktail reception following the CLE.  Registration is free, and we are currently awaiting approval for 2 CLE credits for Colorado attorneys.  To reserve your seat, please call (800) 729-0355, ext. 303 or e-mail Conferences@mcconsultants.com.  I look forward to seeing you there. 

Coverage for construction defect claims in Colorado has taken yet another hit.

In a February 1, 2010 Order on Plaintiff United Fire's Second Motion for Reconsideration, Judge Brimmer, of the United States District Court for the District of Colorado, dealt yet another blow to coverage for construction defect claims in Colorado.  The court issued the order in the case of United Fire & Casualty Company v. Boulder Plaza Residential, LLC, 06-CV-00037-PAB-CBS. 

In this declaratory relief action, United Fire sought a declaration that it owed no duties to defend or indemnify insureds for claims related to allegedly improper installation of, and resulting damage to, wood floors in a condominium complex in Boulder, Colorado.  A judge previously assigned to the case, Judge Daniel, had denied a motion for summary judgment filed by United Fire, determining that, as a matter of law, United Fire had a duty to defend the insureds in the underlying state court action.  Judge Daniel also issued an order finding that Boulder Plaza was entitled to a declaration that United Fire was obligated to indemnify its insureds for liability under the policy at issue.  Then, along came the General Security case. 

Based on an intervening change in the law, i.e., the General Security case, Judge Brimmer determined it appropriate to entertain United Fire's motion for reconsideration.  By way of a refresher, the General Security court held that "a claim for damages arising from poor workmanship, standing alone, does not allege an accident that constitutes a covered occurrence, regardless of the underlying theory pled."

Based on this holding, and a finding that any allegations in the state court pleadings to "loss of use" referred solely to the loss of use of the floor itself, as opposed to loss of use of the entire condominium units or to some other component of construction unrelated to the insureds' own work, Judge Brimmer concluded, as a matter of law, that United Fire did not have a duty to defend or to indemnify its insureds in the state court actions at issue.  In coming to this conclusion, Judge Brimmer cited to an order in the Greystone case, another case recently decided in the U.S. District Court for the District of Colorado.  The Greystone order is currently being appealed. 

The one bright part of Judge Brimmer's order, from a coverage perspective, is that he did acknowledge and discuss the exception to the General Security case.  In doing so, Judge Brimmer stated:  "General Security’s exception for 'additional or consequential property damage,' focuses first on the object of the work involved and second on whether there also was damage to something other than the object of such work. In other words, to fall within the consequential-damage exception, the damage must be to something other than the work product itself."  Order, at pg. 11.

This discussion highlights the importance of pleading into coverage by being very specific, in complaints alleging construction defects, about alleging consequential damage to something other than the work product itself.  This applies equally to homeowners suing a general contractor or developer for construction defects and to general contractors or developers suing subcontractors, material suppliers, and design professionals for construction defects.

Stay tuned as this appears to be an ongoing saga.  We anticipate that the U.S. District Court for the District of Colorado will certify one or more questions from the Greystone case to the Colorado Supreme Court for determination.  If and when the Colorado Supreme Court speaks to the issue, we may finally have some direction in Colorado regarding whether there is coverage for construction defects in Colorado.  At the same time, it remains to be seen whether homeowners and/or construction professionals turn to the Colorado State Legislature for a legislative solution to the problem of disappearing coverage in Colorado. 

What puzzles me is how or why the January 29, 1979 ISO circular, meant to explain broad form property damage coverage, has been lost in the shuffle.  By the very document used by ISO to explain the coverage available under these policies: 1) an insured should have coverage for damage to his work arising out of a subcontractor's work; 2) an insured should have coverage for damage to a subcontractor's work arising out of the subcontractor's work; and 3) the insured should have coverage for damage to a subcontractor's work, or if the insured is a subcontractor to a general contractor's work or another subcontractor's work, arising out of the insured's work.  The only thing that should not be covered, according to this early ISO explanation, is damage to an insured's work arising out of his work.

While this application would not have aided in the Boulder Plaza case, as it was actually the subcontractor's policy at issue, the outcome of General Security would have been drastically different had the Colorado Court of Appeals followed the explanation provided by ISO.

If you would like to obtain a copy of the Boulder Plaza order or the 1979 ISO circular, please contact David M. McLain by phone at (303) 987-9813 or by e-mail at mclain@hhmrlaw.com.  For a more full explanation of construction law in Colorado please visit our website or request a copy of our Overview of Construction Defect Litigation in Colorado.