Florida Rules Developer Not Entitled to Additional Insured Coverage for Negligent Misrepresentation

A Florida court has determined that a project owner’s (Cypress) general partner was not an additional insured under an insurance policy issued to the Genral Contractor (WPC) who constructed the project.  The ruling was made in conjunction with a lawsuit brought by a homeowners association for construction defects, maintenance issues and failure to disclose material facts.  WPC’s insurer (St. Paul) was not obligated to defend or indemnify General Partner (Vineland) for damages arising from alleged construction defects. St. Paul Fire & Marine Ins. Co. v,. Cypress Fairway Condo. Ass’n (M.D. Fla. July 20, 2015).

It should be noted for factual understanding that Cypress and Vineland were both named additional insureds on three policies issued to WPC.  These policies were issued in 1999-2001 by St. Paul to WPC.  Cypress and Vineland were named as separate defendants and alleged to have mismanaged the property and negligently omitted information allegedly relied upon by buyers making up the Plaintiff association.

Defective Construction

While it conceded a duty to defend Cypress, St. Paul argued on summary judgment the policies did not include Vineland as an additional insured because it was not an owner of the property. The policies covered, “[a]ll owners, contractors . . . who require that you add them as an Additional Protected Person in a specific written contract entered into by you.” The construction contract required WPC to indemnify the owner, officers, directors, shareholders, partners and many others. This broad and general indemnification provision did not convert all the indemnitees into additional insureds. Therefore, St. Paul had no duty to defend or indemnify Vineland.

Negligent Misrepresentation 

As insurer for the general contractor, St. Paul argued it had no duty to defend or indemnify Vineland or Cypress as developer/sellers because the negligent supply of information did not cause property damage. The court agreed. 

Misresentations about the condition of the buildings might have induced Plaintiffs to purchase units, but these misrepresentations did not cause water intrusion and the resultant property damage. Further, representations were not accidents and could not be “events” within the meaning of the policies. While the Association may have suffered economic damage based on Cypress and Vineland’s representations, it did not suffer property damage caused by an event as defined in the policy.

South Carolina Jury Awards Monster Construction Defect Verdict

A Charleston County jury awarded condominium owners a $7.7 million dollar verdict this month which many believe to be the largest construction defect verdict in state history.  The verdict was rendered against a subcontractor that was not able to settle its portion of the suit prior to trial through alternative dispute resolution.  Amazingly, the jury award came on top of $8.0 million already received via settlement proceeds from other Defendants.  The jury was informed prior to reaching its decision so, in actuality, the 12 citizens on the panel concluded that the Plaintiff class of unit owners was entitled to $15,700,000.

Because all construction defect suits have different facts and circumstances which make them unique, it is hard to draw any hard conclusions from this result other than the fact that a jury will award a verdict of severe magnitude under some circumstances. 

Article link:  http://www.postandcourier.com/news/2011/may/21/condo-owners-awarded-77m/

Homeowner’s Insurance Does Not Cover Defective Construction

The Sixth Circuit Court of Appeals ruled that an insurer was not obligated to pay for water damages to a condominium building because the insurance policy specifically excluded coverage for damages caused or resulting from building construction and design defects. TMW Enterprises, Inc. v. Federal Ins. Co., No. 09-1542, (6th Cir. Aug, 25, 2010). Substandard construction on an exterior wall allowed the water intrusion which resulted in damages of $4 million.

“In no case will we entertain any loss or claim that occurred or was in progress prior to the policy period inceptiondate or after the policy period expiry date shown on the Declarations.” This, and other similar language is common in policies as it implies that defective construction occurs prior to completion. While this language is in the insuring agreement, the clause discussed in the TMW case was a specific exclusion which related to substandard construction.

May a homeowner recover for “stigma damage”? The wrecked car syndrome applied to South Carolina Construction Law

Over the past ten years, my construction defect practice has led me to believe that most lawsuits arise over some sort of condition which is perpetuated by public sentiment. EIFS and Mold cases served to create an entire niche of experts, or professional witnesses equipped with equipment of all kinds, some being more sophisticated than others (The individuals and their equipment). The increase in publicly condemned products has led entire neighborhoods to hire inspection teams who find defects or, deviations, perhaps from “industry standards”, architectural plans, and other standards of care.

When these deviations cause physical damage to the tangible, or physical property, a construction case can be actionable for monetary damages. The issue I would like to ponder today, however, involves those situations when there is truly minimal, or no physical damage resulting from a ridiculed product or deviation from the industry norm. Some owners file suit claiming that there is a certain “stigma” attached to their home and this will not allow them to enjoy it, or resell it.

South Carolina case law does not provide specifically for the claim of stigma damages and the prevailing case law is only clear that some damage, albeit temporary, must be a pre-requisite to a monetary award.

Under South Carolina law, “[t]he general rule is that in case of an injury of a permanent nature to real property … the proper measure of damages is the diminution of the market value by reason of that injury, or in other words, the difference between the value of the land before the injury and its value after the injury. Where (defective construction practices or products) result in a temporary or non-permanent injury to real property, the injured landowner can recover the depreciation in the rental or usable value of the property caused by the pollution.” Yadkin Brick Co., Inc. v. Materials Recovery Co., 339 S.C. 640, 529 S.E.2d 764 (Ct. App. 2000).
Where the injury is temporary, the landowner can recover the depreciation in the rental or usable value of the property caused by the injury. Peoples Federal Savings and Loan Ass’n of South Carolina v. Resources Planning Corp., 358 S.C. 460, 596 S.E.2d 51 (2004).