CONSTRUCTION DEFECT and GENERAL LIABILITY SEMINAR MATERIALS BY Mitchell J. Resnick
ARIZONA / CALIFORNIA / COLORADO / FLORIDA / NEVADA / NEW MEXICO / SOUTH CAROLINA / UTAH and LONDON
Direct Number: (602) 456-7573 Mobile: (602) 292-6381
[email protected] www.rlattorneys.com
Mitchell J. Resnick, Esq. Mitchell Resnick is co-founder and managing shareholder of Resnick & Louis, P.C. A renowned name in insurance defense litigation, transportation, professional liability, general liability, construction defect litigation, coverage, and first party property damage claims. Mitch is an aggressive and solution oriented lawyer with over 20 years litigation experience, of a mid-size national defense law firm in Arizona, California, Colorado, Florida, Nevada, New Mexico, South Carolina, Utah, and London. Mitch has been named as one of the top Arizona construction attorneys Southwest Super Lawyers and Arizona’s Finest Lawyers. He has been a featured speaker at different seminars around the country regarding construction and insurance defense related litigation. Albuquerque 3840 Masthead Street NE Albuquerque, NM 87109 505.652.1339 Bakersfield 4900 California Ave, Tower B, 2nd Floor Bakersfield, CA 93309 661.412.0530 Charleston 4000 South Faber Place Drive, Suite 300 Charleston, SC 29405 843.212.0435 Denver Peakview Center 6500 S. Quebec St., Ste. 300-32 Denver, CO 80111 303.872.6226 Las Vegas 5940 South Rainbow Blvd. Las Vegas, NV 89118-2540 702.997.3800 Miami 80 S. W. 8th Street, Suite 2000 Miami, FL 33130 786.975.1999 Orange County 9891 Irvine Center Dr., Suite 200 Irvine, CA 92618 714.709.4400 Orlando 618 E. South Street, Suite 500 Orlando, FL 32801 407.901.1880 Phoenix 8111 E. Indian Bend Road Scottsdale, AZ 85250 602.456.6776 Riverside 11801 Pierce Street, Suite 200 Riverside, CA 92505 909.458.0110 Sacramento 1215 K Street, 17th Floor Sacramento, CA 95814 916.277.9030 Salt Lake City 222 Main Street, 5th Floor Salt Lake City, UT 84101 801.679.4822 San Diego 717 Union Street, Suite J San Diego, CA 92101 619.908.1096 Tampa 550 N. Reo Street, Suite 300 Tampa, FL 33609 813.381.5494
He focuses his practice on commercial and personal lines (casualty, property, and specialty), representing the defense for professional liability, general liability, construction defect, transportation (auto/trucking/rental car), first party property (including appraisals), homeowners/renters/condos, environmental, product liability, hospitality (hotel/resort/timeshare/casino), surety, premises, security, workers compensation, public entity, personal and advertising injury, labor/employment, school, governmental, life/disability, and healthcare. He also provides risk management consultation. Mitch represents clients in Arizona, California, Nevada and Colorado. Mitch has been the primary responsible attorney on multi-million dollar cases which have been brought before state and federal trial courts, and through the alternative dispute resolution process in mediation and arbitration. He has been designated as panel counsel for several different insurance companies, self-insured entities, TPAs, and captive companies for a variety of areas and private enterprise for a variety of lines of business. He speaks at national and regional seminars, as well as provide training to claims professionals, risk management, and counsel for different matters. Education J.D., Pace University Law School, cum laude, 1994 B.A., University of Arizona, with honors, 1990 Honors & Awards - Selected, Southwest Super Lawyers for Construction - Westfield Group’s Golden Gavel Award for Attorney Excellence - Arizona’s Finest Lawyers Professional Affiliations State Bar of Arizona State Bar of Nevada State Bar of California State Bar of Colorado State Bar of New Jersey State Bar of New York Maricopa County Bar Association Orange County Bar Association Arizona Association of Defense Counsel RLATTORNEYS.COM
TABLE OF CONTENTS
A.
Introduction………………………………………………………………………..….
1
B.
Mediation Issues ……………………….……………………………….……………
1
C.
Strict Liability For Dog Bite, Product Liability, and Construction Defect
2
D.
Attorneys’ Fees / Costs and Settlement Related Offers ….………………………......
8
E.
Right to Repair Statutes .………………………………………………......................
24
F.
Joint & Several Liability / Several Liability & Comparative Fault ……………….…
82
G.
Statutes of Limitations ……………..………………………………………………...
89
H.
Statutes of Repose ……………………………………………………………….…..
97
I.
Indemnification and Duty to Defend ….……………………………….………….…
102
J.
Arizona Covenants Not to Execute and Assignment of Rights …………..……….…
127
K.
Implied and Express Warranty Claims ………………..…………………………..…
128
L.
Economic Loss Rule ...…………………………………………………………….…
131
M.
Standing By HOAs to Bring Claims on Their Own Behalf/Behalf of Unit Owners
137
N.
Self Insured Retentions…………………………………………………………….....
138
O.
Additional Insured Obligations (On-Going Operations Hot Item Issue) ……………
139
P.
Arizona and Colorado Definition of Occurrence and Coverage for Property Damage With Duty to Defend ..........…………….……………………………….……………
143
Q.
Compulsory/Statutory Arbitration ……………………………………...……….…...
148
R.
Limitations on Damages ……………………………….….………………………....
152
S.
Consumer Protection Statutes .………………………………………….....................
154
T.
Punitive Damages………………………………………………………………….…
156
U.
Rules of Evidence for Reliability for Science Related Evidence..…………………...
162
V.
Dram Shop Liability / Alcohol Issues …………….…………………………….…..
W.
Class Actions ……………………….….……………………………….………….… 168
X.
Premises Liability .…………………………………………………………………… 170
Y.
Nevada Intermediate Appellate Court.………………………………………………
191
Z
Independent Counsel …………………………………………………………………
193
165
Conclusion……….…………………………………………………………………… 195
Construction Defect and General Liability Seminar Arizona/Colorado/California/Nevada/New Mexico/Utah Presented by Mitchell J. Resnick, Esq. Admitted in AZ, CO, CA, NV, NY, NJ A.
B.
Introduction 1.
Mitchell J. Resnick Background as Construction Attorney and Working with Insurance Companies and Third Party Claims Administrators.
2.
What is presently “hot” in Western States including allegations of on-going operations additional insured endorsements supposedly covering completed operations; and increased use of Consumer Protection Statutes.
3.
Current settlement atmosphere and risks in different jurisdictions. (a.)
Map
(b.)
Conservative/Moderate/Liberal areas within each state
Mediation Issues 1.
Arizona – ARS 12-2238 Courts can order mediation. Parties can stipulate away confidentiality. Ariz.R.Civ.P. 80(d) requires that for a settlement to be binding that it must be in writing or made in open court and entered in the minutes.
2.
Colorado – CRCP 13-22-301et seq. Dispute Resolution Act and Program with fees. Courts can refer cases to the Program.
3.
California – California Evidence Code sections 703.5 and 1115 – 1128
4.
If party sends a document to the mediator, and that document would be discoverable in the absence of the mediation, the document remains discoverable.
PROPERTY OF RESNICK & LOUIS, P.C. 1
C.
5.
Nevada – NRS 48.105; Court Annexed Mediation program – fees applicable, and 15 day rule subject to sanctions. Also, NRS 38.300 – 38.360 Common Interest Communities. Nevada foreclosure mediation program.
6.
New Mexico – 44-7B-1 – 44-7B-6 (does not apply to judge who may make a ruling on a case) Consumer-Business Dispute Meditation Program.
7.
Utah – Utah has adopted the Uniform Mediation Act. Generally, unless otherwise admissible and/or discoverable, a mediation communication is not admissible at arbitration or trial and is not discoverable. See Utah Code Ann. § 78B-10-104.
Strict Liability For Dog Bite, Product Liability, and Construction Defect 1.
Arizona (a.)
Dog Bite – Strict liability with no one free bite rule. Public place/lawfully on private property (ARS 11-1025). Provocation defense (11-1027).
(b.)
Product Liability
(c.)
2.
(1.)
State of the Art Defense (ARS 12-683(1)).
(2.)
Alteration/Modification Unforeseeable Defense (ARS 12-683(2)).
(3.)
Misuse Defense (ARS 12-683(3)).
(4.)
Reasonable Quantities Defense (ARS 12-683(3).
(5.)
Tender of Defense/Indemnification by seller to manufacturer (ARS 12-684).
(6.)
Government approval defense to punitive damages. (ARS 12-689).
Construction Defect Nastri v. Wood Brothers Homes, Inc. Strict liability not typically applicable.
Colorado (a.)
Dog Bite – 13-21-124 This law makes a dog owner strictly liable for dog bites only if the victim of the bite suffers “serious bodily injury” or death from being bitten by a dog while lawfully on public or private property regardless of the viciousness or dangerous propensities of the dog PROPERTY OF RESNICK & LOUIS, P.C. 2
or the dog owner’s knowledge or lack of knowledge of the dog’s viciousness or dangerous propensities. Further, the victim is entitled to recover only economic damages (as opposed to noneconomic damages like pain and suffering, inconvenience, etc.) in a civil suit against the dog owner. Also, the statute provides that an owner is not liable where the victim is unlawfully on public or private property; where the victim is on the owner’s property and the property is clearly and conspicuously marked with one or more posted signs stating “no trespassing” or “beware of dog”; where the victim has clearly provoked the dog; where the victim is a veterinary health care worker, dog groomer, humane agency staff person, professional dog handler, trainer, or dog show judge acting in the performance of his or her respective duties; or where the dog is working as a hunting dog, herding dog, farm or ranch dog, or predator control dog on the property of or under the control of the dog’s owner. (b.)
Product Liability Defenses (1.)
Innocent Seller Defense (must be manufacturer of at least a part; manufacturer’s principal distributor or seller over whom jurisdiction can be obtained shall be deemed).
(2.)
Misuse Defense (product was used in a manner or for a purpose other than that which was intended and which could not reasonably have been expected, and such misuse of the product was a cause of the injury, death, or property damage).
(c.)
13-21-403. Product Liability Presumptions
(d.)
In any product liability action, it shall be rebuttably presumed that the product which caused the injury, death, or property damage was not defective and that the manufacturer or seller thereof was not negligent if the product: (1.)
Prior to sale by the manufacturer, conformed to the state of the art, as distinguished from industry standards, applicable to such product in existence at the time of sale; or
(2.)
Complied with, at the time of sale by the manufacturer, any applicable code, standard, or regulation adopted or promulgated by the United States or by this state, or by any agency of the United States or of this state.
PROPERTY OF RESNICK & LOUIS, P.C. 3
3.
(e.)
In like manner, noncompliance with a government code, standard, or regulation existing and in effect at the time of sale of the product by the manufacturer which contributed to the claim or injury shall create a rebuttable presumption that the product was defective or negligently manufactured.
(f.)
Ten years after a product is first sold for use or consumption, it shall be rebuttably presumed that the product was not defective and that the manufacturer or seller thereof was not negligent and that all warnings and instructions were proper and adequate.
(g.)
In a product liability action in which the court determines by a preponderance of the evidence that the necessary facts giving rise to a presumption have been established, the court shall instruct the jury concerning the presumption.
California (a.)
Dog Bite (Calif. Civil Code § 3342) Strict liability if claimant in a public place/lawfully on private property. No one free bite rule. Provocation can be a defense, but maybe not for kids under 5 years old.
(b.)
Product Liability Greenman v. Yuba Power Products, Inc case establishes strict product liability in California. A manufacturer, distributor, or retailer is liable in tort if a defect in the manufacture or design of its product causes injury while the product is being used in a reasonably foreseeable way.” Soule v. General Motors Corp. “Strict liability has been invoked for three types of defects—manufacturing defects, design defects, and ‘warning defects,’ i.e., inadequate warnings or failures to warn.” Anderson v. Owens-Corning Fiberglas Corp. (1.)
Defense: Ordinary knowledge of inherently unsafe defense for consumer goods. California Civil Code 1714.45(a)(1.)
(2.)
Defense: Common consumer product intended for personal consumption defense. California Civil Code 1714.45(a)(2).
(3.)
Defense: Product misuse is a defense to strict products liability only when the defendant proves that an unforeseeable abuse or alteration of the product after it left the manufacturer’s hands were the sole reason that the product caused injury.” Campbell v. Southern Pacific Co.
PROPERTY OF RESNICK & LOUIS, P.C. 4
(4.)
Defense: Comparative fault applies to strict products liability actions. “[A] petitioner’s recovery may accordingly be reduced, but not barred, where his lack of reasonable care is shown to have contributed to his injury.” Bradfield v. Trans World Airlines.
(5.)
No warranty, express or implied, can be modified or disclaimed unless a seller clearly limits his liability.
(6.)
Commercial Code section 2316(3) provides: a)
Unless the circumstances indicate otherwise, all implied warranties are excluded by expressions like “as is,” “with all faults” or other language which in common understanding calls the buyer’s attention to the exclusion of warranties and makes plain that there is no implied warranty; and
b)
When the buyer before entering into the contract has examined the goods or the sample or model as fully as he desired or has refused to examine the goods there is no implied warranty with regard to defects which an examination ought in the circumstances to have revealed to him; and
c)
An implied warranty can also be excluded or modified by course of dealing or course of performance or usage of trade
(c.)
Construction Defect The home builder for mass production is strictly liable for the construction defects existing at a residential property. Claimant need only show that a “mass-produced consumer item” is defective and that the “defect” proximately caused injuries.
(d.)
SB 800 also creates almost absolute liability because no resulting damages required with statutory workmanship violations (see below).
PROPERTY OF RESNICK & LOUIS, P.C. 5
4.
5.
Nevada (a.)
Dog Bite – Does not have a dog bite statute. No strict liability, bur rather negligence analysis. NRS 202.500 Criminal liability for vicious dogs subject to defenses for lack of notice of viciousness and self-defense.
(b.)
Product Liability NRS 695E.090 “Product liability” defined. “Product liability” means liability for damages because of any personal injury, death, emotional harm, consequential economic damage or damage to property, including damages resulting from the loss of use of property, arising out of the manufacture, design, importation, distribution, packaging, labeling, lease or sale of a product, but does not include the liability of any person for those damages if the product involved was in the possession of that person when the incident giving rise to the claim occurred.
(c.)
Construction Defect – A building itself is not a “product” for the purposes of strict liability in Nevada. See Calloway v. City of Reno.
New Mexico (a.)
Dog Bite – An owner of a dog is liable for damages proximately caused by the dog if the owner knew, or should have known, that the dog was vicious or had a tendency or natural inclination to be vicious. Perkins v. Drury. This imposes strict liability on the dog owner. Smith v. Village of Ruidoso. Provocation (with scienter on the victim) is a defense. The owner of a dog is not liable to the person injured, if the injured person had knowledge of the propensities of the dog and wantonly excited it or voluntarily and unnecessarily put himself in the way of the dog.
(b.)
Product Liability – The New Mexico courts have adopted the law of strict products liability in tort, as set forth in the Restatement (Second) of Torts section 402A. Under this doctrine, the Plaintiff has the burden of proving the following elements: (1) the product was defective; (2) the product was defective when it left the hands of the Defendant and was substantially unchanged when it reached the user or consumer; (3) that because of the defect the product was unreasonably dangerous to the user or consumer; (4) the consumer was injured or was damaged; (5) the defective condition of the product was the proximate cause of the injury or damage.
(c.)
Construction Defect – Not applicable to traditional CD cases.
PROPERTY OF RESNICK & LOUIS, P.C. 6
6.
Utah (a.)
Dog Bite – Owners and keepers of dogs are liable for all injuries caused by their dogs, excepting only dogs trained to assist in law enforcement. See Utah Code Ann. § 18-1-1. However, “comparative fault provisions apply to Utah’s strict liability dog bite statute.” S.H. ex rel. Robinson v. Bistryski, 923 P.2d 1376, 1381 (Utah 1996).
(b.)
Product Liability – In order to prevailon a claim for strict products liability, the plaintiff must show: (1.)
That the product was unreasonably dangerous due to a defect or defective condition,
(2.)
That the defect existed at the time the product was sold, and
(3.)
That the defective condition was a cause of the plaintiff’s injuries.
Lamb v. B & B Amusements Corp., 869 P.2d 926, 929 (Utah 1993). See also Utah Code Ann. § 78B-6-703(1) and Ernest W. Hahn, Inc. v. Armco Steel Co., 601 P.2d 152, 156 (Utah 1979). Under the plain language of the controlling statute, a cause of action for strict liability cannot be maintained against a defendant, if it cannot be shown that such defendant was in fact the initial seller or manufacturer of the product. Utah Code Ann. § 78B-6-703(1) states: In any action for damages for personal injury, death, or property damage allegedly caused by a defect in a product, a product may not be considered to have a defect or to be in a defective condition, unless at the time the product was sold by the manufacturer or other intial seller, there was a defect or defective condition in the product which made the product unreasonably dangerous to the user or consumer. The Utah Supreme Court has twice interpreted this statute under its plain language reading. See Alder v. Bayer Corp., 61 P.3d 1068 (Utah 2002) and Slisze v. Stanley-Bostitch, 979 P.2d 317 (Utah 1999). (1.)
Defenses The Supreme Court has held: PROPERTY OF RESNICK & LOUIS, P.C. 7
[T]here are two defenses to strict products liability, namely, (1) misuse of the product by the user or consumer (see comment “g” to [Restatement (Second) of Torts] Sec. 402A; and (2) knowledge of the defect by the user or consumer, who is aware of the danger and yet unreasonably proceeds to make use of the product, i.e., assumption of risk. (See comment “n” to Sec. 402A). And . . . the defenses of misuse and assumption of risk must relate to the defective product and cannot be extended to cover conduct by the user or consumer unrelated to that product. Ernest W. Hahn, Inc. at 158 (footnotes omitted). (c.)
D.
Construction Defect – In Schafir v. Harrigan, the Utah Court of Appeals rejected a claim for strict liability against the builder-developer as a seller of defective products. 879 P.2d 1384, 1388 (Utah App. 1994), abrogated on other grounds by Davencourt at Pilgrims Landing Homeowners Ass’n v. Davencourt at Pilgrims Landing, LC, 221 P.3d 234 (Utah 2009). In Schafir, the Utah Court of Appeals held that the builder is not a “seller” of defective materials where the builder “merely utilized the defective components, if any, in building the house.” Id. at 1388. The Court further noted that a claim for strict liability requires a showing that the defective products were “unreasonably dangerous to people occupying the” building. Id.
Attorneys’ Fees/Costs and Settlement Related Offers 1.
Arizona (a.)
12-341.01 Contract based claims allow reasonable attorneys’ fees to the “Successful Party.” If a party makes an offer and eventually beats said offer in the judgment (includes the jury verdict, pre-judgment interest, taxable costs, and possibly attorneys’ fees), then it will be the “Successful Party” from the date of the offer forward. Hall v. Read Dev., Inc. “Judgment finally obtained” is inclusive of attorneys’ fees. Court Once the court determines the Successful Party, the court weighs various factors to decide the amount of the attorneys’ fees, if any, to be awarded to the Successful Party. The court has a lot of discretion in this process.
PROPERTY OF RESNICK & LOUIS, P.C. 8
(b.)
Arizona – Rule 68 (Offer of Judgment) Post judgment sanctions (reasonable expert witness fees and double taxable costs, and prejudgment interest on liquidated claims) if you do not beat the written offer Joint, unapportioned offers can be made to single offeree. No unapportioned offer to multiple offerees. Legal objections must be made within ten (10) days. Offer is effective for thirty (30) days. If contract, then reasonable attorneys’ fees may be awarded to the prevailing party if you beat the offer from the date of the offer forward.
(c.)
Arizona Revised Statute 12-341. The successful party to a civil action shall recover from his adversary all costs expended or incurred therein unless otherwise provided by law. (1.)
2.
“Costs” in the superior court include: Fees of officers and witnesses; Cost of taking depositions; Compensation of referees; Cost of certified copies of papers or records; Sums paid a surety company for executing any bond or other obligation therein, not exceeding, however, one per cent on the amount of the liability on the bond or other obligation during each year it was in force; Other disbursements that are made or incurred pursuant to an order or agreement of the parties; Jury Fees.
Colorado (a.)
Attorneys’ fees must be authorized by statute or contract or frivolous lawsuit.
(b.)
13-16-104 Plaintiff recovers costs against defendant if obtains debt or damages.
(c.)
CRS 13-16-105. Defendant obtains costs if plaintiff is non-suited after defendant appears or defense verdict.
(d.)
CRS 13-16-122 Costs include: (1.)
Docket Fees; jury fees/expenses; sheriff fees; court reporter fees for trial transcript; witness fees; deposition related fees; attorneys’ fees when authorized by statute or contract; anything authorized by statute.
(e.)
CRS 13-17-101 et seq. Consumer Protection Act relied upon by plaintiffs.
(f.)
CRS 13-17-202 (Offer of Settlement). PROPERTY OF RESNICK & LOUIS, P.C. 9
(1.)
If the plaintiff serves an offer of settlement in writing at any time more than fourteen days before the commencement of the trial that is rejected by the defendant, and the plaintiff recovers a final judgment in excess of the amount offered, then the plaintiff shall be awarded actual costs accruing after the offer of settlement to be paid by the defendant.
(2.)
If the defendant serves an offer of settlement in writing at any time more than fourteen days before the commencement of the trial that is rejected by the plaintiff, and the plaintiff does not recover a final judgment in excess of the amount offered, then the defendant shall be awarded actual costs accruing after the offer of settlement to be paid by the plaintiff. However, as provided in section 13-16104, if the plaintiff is the prevailing party in the action, the plaintiff’s final judgment shall include the amount of the plaintiff’s actual costs that accrued prior to the offer of settlement.
(3.)
If an offer of settlement is accepted in writing within fourteen days after service of the offer, the offer of settlement shall constitute a binding settlement agreement, fully enforceable by the court in which the civil action is pending.
(4.)
An offer of settlement under this section shall remain open for at least fourteen days from the date of service unless withdrawn by service of withdrawal of the offer of settlement.
(5.)
For purposes of this section, “actual costs” shall not include attorney fees but shall mean costs actually paid or owed by the party, or his or her attorneys or agents, in connection with the case, including but not limited to filing fees, subpoena fees, reasonable expert witness fees, copying costs, court reporter fees, reasonable investigative expenses and fees, reasonable travel expenses, exhibit or visual aid preparation or presentation expenses, legal research expenses, and all other similar fees and expenses.
(6.)
When comparing the amount of any offer of settlement to the amount of a final judgment actually awarded, any amount of the final judgment representing interest subsequent to the date of the offer in settlement shall not be considered.
(7.)
Although the statute does not explicitly address a summary judgment order’s effect on a settlement offer, “[t]he general rule is PROPERTY OF RESNICK & LOUIS, P.C. 10
that a settlement agreement supersedes a judgment and, so long as the agreement exists, the judgment merges into it” and “is thereby extinguished.” Carpenter v. Young, 773 P.2d 561, 568 (Colo. 1989). Consistent with this rule, the CO Supreme Court rejected the argument that summary judgment terminates a settlement offer in Centric-Jones Co. v. Hufnagel, 848 P.2d 942, 945 (Colo. 1993). 3.
California (a.)
California Civil Code 1021 – Except as attorneys’ fees are specifically provided for by statute, the measure and mode of compensation of attorneys is left to the agreement, express or implied, of the parties; but parties to actions or proceedings are entitled to their costs.
(b.)
California Civil Code 1717 – Prevailing party entitled to reasonable attorneys’ fees if specified in contract. Waiver of attorneys’ fees provision in contract prohibited. Voluntary dismissal or dismissal pursuant to settlement, there is no prevailing party.
(c.)
California Rules of Civil Procedure 1032 – Except as otherwise expressly provided by statute, a “prevailing party” is entitled as a matter of right to recover costs in any action or proceeding. (1.)
(d.)
“Prevailing party“ includes the party with a net monetary recovery, a defendant in whose favor a dismissal is entered, a defendant where neither plaintiff nor defendant obtains any relief, and a defendant as against those plaintiffs who do not recover relief against that defendant.
California Rules of Civil Procedure 998 – Section 998 of the Code of Civil Procedure provides that, not less than 10 days before commencement of trial, any party to an action may serve an offer in writing upon any other party to the action to allow judgment to be taken in accordance with the terms and conditions stated at the time. The offer is deemed withdrawn if not accepted before trial commences or within 30 days, whichever occurs first.
PROPERTY OF RESNICK & LOUIS, P.C. 11
If the offer is accepted, the accepted offer is filed with the court and judgment entered accordingly. If the offer is not accepted, and the person rejecting the offer does not obtain a trial result better than the offer, a number of cost-shifting mechanisms kick in. The prospect of such costshifting is designed to encourage settlement of lawsuits before trial. T.M. Cobb Co. v. Superior Court. The Offer Must Specifically Refer to Section 998. A letter merely stating, “This letter is intended as an invitation to your clients to settle their disputes with my clients,” while making no reference to Section 998, was rejected as insufficient to trigger the statutory cost-shifting in Stell v. Jay Hales Development Co. (e.)
Stearman v. Centex Homes – Expert witness fees and litigation related costs are recoverable in a construction defect residential case.
(f)
If a defendant makes an 998 offer which it subsequently beats, then defendant still can get their costs “actually incurred” even if the defendant enters into a joint defense agreement subsequent to the offer, and the codefendant actually agrees to pay for the costs. Prevailing party may recover 998 expert fees from non-prevailing party even if the prevailing party was not the actual payor of the fees pursuant to an indemnity agreement. Litt v. Eisenhower Medical Center (2015).
(g)
4.
Pursuant to a 2015 change in the 998 Statute, the parties are only allowed to recover expert witness costs after the offer is made, and not pre offer costs.
Nevada (a.)
NRS 18.010 – Award of attorneys’ fees (generally) (1.)
The compensation of an attorney for his or her services is governed by agreement, express or implied, which is not restrained by law.
(2.)
In addition to the cases where an allowance is authorized by specific statute, the court may make an allowance of attorneys’ fees to a prevailing party: a)
When the prevailing party has not recovered more than $20,000 OR without regard to the recovery sought, when the court finds that the claim, counterclaim, cross-claim or
PROPERTY OF RESNICK & LOUIS, P.C. 12
third-party complaint or defense of the opposing party was brought or maintained without reasonable ground or to harass the prevailing party. b)
(b.)
This does not apply to any action arising out of a written instrument or agreement which entitles the prevailing party to an award of reasonable attorneys’ fees.
NRS 18.020 – Cases in which costs allowed prevailing party. Costs must be allowed to the prevailing party against any adverse party against whom judgment is rendered, in the following cases: (1.)
In an action for the recovery of real property or a possessory right thereto.
(2.)
In an action to recover the possession of personal property, where the value of the property amounts to more than $2,500.
(3.)
In an action for the recovery of money or damages, where the plaintiff seeks to recover more than $2,500.
(c.)
NRS 18.050 – Discretion of court in allowing costs. Part or all of the prevailing party’s costs may be allowed and may be apportioned between the parties, or on the same or adverse sides. If, in the judgment of the court, the plaintiff believes he or she was justified in bringing the action in the district court, and the plaintiff recovers at least $700 in money or damages, or personal property of that value, the court may allow the plaintiff part or all of his or her costs.
(d.)
NRS 18.080 – Effect of tender in action for recovery of money. When, in an action for the recovery of money only, the defendant alleges in his or her answer that before the commencement of the action the defendant tendered to the plaintiff the full amount to which the plaintiff was entitled, and thereupon deposits in court, for the plaintiff, the amount so tendered, and the allegations be found to be true, the plaintiff shall not recover costs, but shall pay costs to the defendant.
(e.)
NRS 18.005 – “Costs” defined. For the purposes of NRS 18.010 to 18.150, inclusive, the term “costs” means: (1.)
Clerks’ fees.
PROPERTY OF RESNICK & LOUIS, P.C. 13
(2.)
Reporters’ fees for depositions, including a reporter’s fee for one copy of each deposition.
(3.)
Jurors’ fees and expenses.
(4.)
Fees for witnesses at trial, pretrial hearings and deposing witnesses, unless the court finds that the witness was called at the instance of the prevailing party without reason or necessity.
(5.)
Reasonable fees of not more than five expert witnesses in an amount of not more than $1,500 for each witness, unless the court allows a larger fee after determining that the circumstances surrounding the expert’s testimony were of such necessity as to require the larger fee.
(6.)
Reasonable fees of necessary interpreters.
(7.)
The fee of any sheriff or licensed process server for the delivery or service of any summons or subpoena used in the action, unless the court determines that the service was not necessary.
(8.)
Compensation for the official reporter or reporter pro tempore.
(9.)
Reasonable costs for any bond or undertaking required as part of the action.
(10.)
Fees of a court bailiff or deputy marshal who was required to work overtime.
(11.)
Reasonable costs for telecopies.
(12.)
Reasonable costs for photocopies.
(13.)
Reasonable costs for long distance telephone calls.
(14.)
Reasonable costs for postage.
(15.)
Reasonable costs for travel and lodging incurred taking depositions and conducting discovery.
(16.)
Any other reasonable and necessary expense incurred in connection with the action, including reasonable and necessary expenses for computerized services for legal research. PROPERTY OF RESNICK & LOUIS, P.C. 14
(f.)
NRS 40.655 – Construction Defect. The claimant or claimants may recover: (1.)
Reasonable cost of necessary repairs.
(2.)
Reduction in market value.
(3.)
Loss of use.
(4.)
Reasonable value of any personal property damaged by the constructional defect.
(5.)
Expert witness fees and costs that are reasonably incurred for constructional defects actually proven by the claimant, not merely alleged. See A.B. 125, § 15, 78th Regular Session (Nev. 2015), enacted Feb. 24, 2015.
(6.)
Interest provided by statute.
(7.)
Claimant may not recover attorneys’ fees. See A.B. 125, § 15, 78th Regular Session (Nev. 2015), enacted Feb. 24, 2015.
(g.)
NRS 17.115 – Offer of Judgment (REPEALED in 2015)
(h.)
NRCP 68 – Offer of Judgment (1.)
The Offer. At any time more than 10 days before trial, any party may serve a written offer.
(2.)
Apportioned Conditional Offers. An apportioned offer of judgment to more than one party may be conditioned upon the acceptance by all parties to whom the offer is directed.
(3.)
Joint Unapportioned Offers.
(4.)
Multiple Offerors. A joint offer may be made by multiple offerors.
(5.)
Offers to Multiple Defendants. An offer made to multiple defendants will invoke the penalties of this rule only if: a)
There is a single common theory of liability against all the offeree defendants, such as where the liability of some is
PROPERTY OF RESNICK & LOUIS, P.C. 15
entirely derivative of the others or where the liability of all is derivative of common acts by another; and b)
(6.)
(7.)
(8.)
The same entity, person or group is authorized to decide whether to settle the claims against the offerees.
Offers to Multiple Plaintiffs. An offer made to multiple plaintiffs will invoke the penalties of this rule only if: a)
The damages claimed by all the offeree plaintiffs are solely derivative, such as that the damages claimed by some offerees are entirely derivative of an injury to the others or that the damages claimed by all offerees are derivative of an injury to another; and
b)
The same entity, person, or group is authorized to decide whether to settle the claims of the offerees.
Judgment Entered Upon Acceptance. If within 10 days after the service of the offer, the offeree serves written notice that the offer is accepted, either party may then file the offer and notice of acceptance together with proof of service. The clerk shall enter judgment accordingly. The court shall a)
Allow costs in accordance with NRS 18.110 unless the terms of the offer preclude a separate award of costs.
b)
Any judgment entered pursuant to this section shall be expressly designated a compromise settlement. At this option, a defendant may within a reasonable time pay the amount of the offer and obtain a dismissal of the claim, rather than a judgment.
Failure to Accept Offer. If the offer is not accepted within 10 days after service, a)
It shall be considered rejected by the offeree and deemed withdrawn by the offeror.
b)
Evidence of the offer is not admissible except in a proceeding to determine costs and fees. The fact that an offer is made but not accepted does not preclude a subsequent offer.
c)
PROPERTY OF RESNICK & LOUIS, P.C. 16
(9.)
(10.)
d)
With offers to multiple offerees, each offeree may serve a separate acceptance of the apportioned offer, but if the offer is not accepted by all offerees, the action shall proceed as to all.
e)
Any offeree who fails to accept the offer may be subject to the penalties of this rule.
Penalties for Rejection of Offer. If the offeree rejects an offer and fails to obtain a more favorable judgment: a)
The offeree cannot recover any costs or attorneys’ fees and shall not recover interest for the period after the service of the offer and before the judgment.
b)
The offeree shall pay the offeror’s post-offer costs, applicable interest on the judgment from the time of the offer to the time of entry of the judgment and reasonable attorneys’ fees, if any is allowed, actually incurred by the offeror from the time of the offer.
c)
If the offeror’s attorney is collecting a contingent fee, the amount of any attorneys’ fees awarded to the party for whom the offer is made must be deducted from that contingent fee.
How Costs Are Considered. To invoke the penalties of this rule, the court must determine if the offeree failed to obtain a more favorable judgment. a)
Where the offer provided that costs would be added by the court, the court must compare the amount of the offer with the principal amount of the judgment, without inclusion of costs.
b)
(11.)
Where a defendant made an offer in a set amount which precluded a separate award of costs, the court must compare the amount of the offer together with the offeree’s pre-offer taxable costs with the principal amount of the judgment. Offers After Determination of Liability. When the liability of one party to another has been determined by verdict, order or PROPERTY OF RESNICK & LOUIS, P.C. 17
judgment, but the amount or extent of the liability remains to be determined by further proceedings, the party adjudged liable may make an offer of judgment, which shall have the same effect as an offer made before trial if it is served within a reasonable time not less than 10 days prior to the commencement of hearings to determine the amount or extent of liability. (i.)
With respect to private arbitrations, NRCP 68 contains no references to arbitration, awards, or arbitrators. Therefore, NRCP 68 by its plain language does not expressly require the award of attorneys’ fees and costs in a private arbitration proceeding. The award of attorneys’ fees and costs are within the discretion of an arbitrator. WHP Architecture v. Vegas VP (2015)
(j.)
Pre-Judgment Interest with Offer of Judgment (State Drywall Inc. v. Rhodes Development).
(k.)
(1.)
Under NRCP 68(f), when a party makes an offer of judgment, and the offeree rejects the offer and later fails to obtain a judgment more favorable than the offer, then the offeree may pay certain costs and attorney fees to the offeror. In order to determine whether the offeree failed to obtain a more favorable judgment, the court must compare the judgment to the offer of judgment.
(2.)
Pre-offer prejudgment interest must be added to the judgment when comparing it to the offer of judgment, unless the offeror clearly intended to exclude prejudgment interest from its offer. Further, the amount of the pre-offer prejudgment interest that must be added to the judgment includes any interest calculated on preoffer contractual payments made by the offeror during the pendency of the litigation.
(3.)
If the offer of judgment is silent about whether it includes prejudgment interest, or if the intent of the offeror cannot otherwise be clearly determined, it should be presumed that the offer includes prejudgment interest. Under this rule, an offeree given a vague offer of judgment will be able to determine precisely what he or she is forgoing by rejecting the offer. And, an offeror that does not want prejudgment interest to be included in the comparison should explicitly state in the offer of judgment that it does not include prejudgment interest.
Construction Defect – Pre-Litigation Offer of Judgment. See A.B. 125, § PROPERTY OF RESNICK & LOUIS, P.C. 18
3, 78th Regular Session (Nev. 2015), enacted Feb. 24, 2015. (1.)
After a claimant provides a Chapter 40 notice and before the claimant files a complaint for construction defect, any party may serve an offer of judgment on any other party or parties.
(2.)
Multiple parties may make a joint offer of judgment. A party may also make an apportioned offer of judgment to two or more other parties that is conditioned upon acceptance by all parties to the offer.
(3.)
Failure to Accept Offer. If the offer is not accepted within ten (10) days after service:
(4.)
a)
It shall be considered rejected by the offeree and deemed withdrawn by the offeror.
b)
Evidence of the offer is not admissible except in a proceeding to determine costs and fees.
c)
The fact that an offer is made but not accepted does not preclude a subsequent offer.
d)
With offers to multiple offerees, each offeree may serve a separate acceptance of the apportioned offer, but if the offer is not accepted by all offerees, the action shall proceed as to all.
Penalties for Rejection of Offer. If the offeree rejects an offer and fails to obtain a more favorable judgment: a)
The offeree cannot recover any costs or attorneys’ fees and shall not recover interest for the period after the service of the offer and before the judgment.
b)
The offeree shall pay the offeror’s taxable costs.
c)
The court may order the offeree to pay additional expert witness costs, or for the period after the service of the offer and before the judgment, any applicable interest on the judgment or any reasonable attorneys’ fees incurred by the offeror.
PROPERTY OF RESNICK & LOUIS, P.C. 19
(5.)
(6.)
(7.)
5.
Offers to Multiple Defendants. An offer made to multiple defendants will invoke the penalties of this rule only if: a)
There is a single common theory of liability against all the offeree defendants, such as where the liability of some is entirely derivative of the others or where the liability of all is derivative of common acts by another; and
b)
The same entity, person or group is authorized to decide whether to settle the claims against the offerees.
Offers to Multiple Plaintiffs. An offer made to multiple plaintiffs will invoke the penalties of this rule only if: a)
The damages claimed by all the offeree plaintiffs are solely derivative, such as that the damages claimed by some offerees are entirely derivative of an injury to the others or that the damages claimed by all offerees are derivative of an injury to another; and
b)
The same entity, person, or group is authorized to decide whether to settle the claims of the offerees.
If a pre-litigation offer of judgment is accepted within the 10-day period, either party may file the offer, the notice of acceptance, and the proof of service with the clerk of the district court. The clerk shall then enter judgment according to the terms of the offer.
New Mexico (a.)
NMSA 47-8-48. Prevailing party rights in law suit; civil penalties (Landlord Tenant). If suit is brought by any party to the rental agreement to enforce the terms and conditions of the rental agreement or to enforce any provisions of the Uniform Owner-Resident Relations Act, the prevailing party shall be entitled to reasonable attorneys’ fees and court costs to be assessed by the court.
(b.)
In general, the costs of litigation may be recovered by the prevailing party. See Rule 1-054(E) NMRA (costs allowed as a matter of course to the prevailing party unless court otherwise directs); Costs are considered to be a statutory allowance for expenses incurred in litigation. See Dunleavy v. Miller. The court has the discretion to award the prevailing party its
PROPERTY OF RESNICK & LOUIS, P.C. 20
necessary and reasonable costs incident to its prosecution or defense of the action. (c.)
A party can only recover attorney fees when authorized by statute, court rule, or agreement that expressly provides for such a recovery.
(d.)
Rule 1-068 NMRA. Offer of settlement.
(e.)
(1.)
At any time more than ten (10) days before the trial begins.
(2.)
A claimant may not make an offer of settlement until one hundred twenty (120) days after the filing of a responsive pleading by the party defending against that claim.
(3.)
An offer not accepted within ten (10) days shall be deemed withdrawn and evidence thereof is not admissible except in a proceeding to determine costs.
(4.)
If an offer of settlement made by a claimant is not accepted and the judgment finally obtained by the claimant is more favorable than the offer, the defending party must pay the claimant’s costs, excluding attorneys’ fees, including double the amount of costs incurred after the making of the offer.
(5.)
If an offer of settlement made by a defending party is not accepted and the judgment finally obtained by the claimant is not more favorable than the offer, the claimant must pay the costs, excluding attorneys’ fees, incurred by the defending party after the making of the offer and shall not recover costs incurred thereafter.
(6.)
Awards not cumulative. In those cases where a claimant would be entitled to double costs under Rule 1-068 and also entitled to interest pursuant to the statute, the court should award double costs or interest plus the costs awarded to the prevailing party pursuant to Rule 1-054(D)(2) MRSA, but not both statutory interest and double costs.
Rule 1-054(D) NMRA– Costs. (1.)
The prevailing party gets costs, other than attorneys’ fees, unless the court dictates otherwise.
(2.)
“Costs” recoverable generally are: PROPERTY OF RESNICK & LOUIS, P.C. 21
(f.)
Filing fees.
b)
Fees for service of summons, subpoenas, writs, and service of process.
c)
Jury fees.
d)
Transcript fees for prior, during, and subsequent to trial.
e)
Deposition costs if: 1)
Any part is being used at trial; or
2)
In successful support or defense of a motion for Summary Judgment; or
3)
When the Court determines it was reasonably necessary to the litigation. (i.) Witness mileage or travel fare and per diem expenses, when the witness testifies at trial or at a deposition which is deemed reasonable and necessary.
Rule 1-070 NMRA– Attorneys’ Fees and Costs; Insured Prevailing. (1.)
6.
a)
The insured is to be paid their reasonable attorneys’ fees and costs if he/she prevails in a first party coverage claim where the insurance company was unreasonable in not paying the claim.
Utah (a.)
“The general rule in Utah…subject to certain exceptions, is that attorney fees cannot be recovered by a prevailing party unless a statute or contract authorizes such an award.” Stewart v. Utah Pub. Serv. Comm’n, 885 P.2d 759, 782 (Utah 1994)
(b.)
In general, costs of litigation such as filing fees and deposition costs may be recovered so long as the “‘trial court is persuaded that [the depositions] were taken in good faith and, in the light of the circumstances, appeared to be essential for the development and presentation of the case.’” Highland Constr. Co. v. Union Pac. R.R., 683 P.2d 1042, 1051 (Utah 1984).
PROPERTY OF RESNICK & LOUIS, P.C. 22
(c.)
Rule 68. Settlement offers. (1.)
Unless otherwise specified, an offer made under this rule is an offer to resolve all claims in the action between the parties to the date of the offer, including costs, interest and, if attorney fees are permitted by law or contract, attorney fees.
(2.)
If the adjusted award is not more favorable than the offer, the offeror is not liable for costs, prejudgment interest or attorney fees incurred by the offeree after the offer, and the offeree shall pay the offeror’s costs incurred after the offer. The court may suspend the application of this rule to prevent manifest injustice.
(3.)
An offer made under this rule shall: a) be in writing; b)
expressly refer to this rule;
c)
be made more than 10 days before trial;
d)
emain open for at least 10 days; and
e)
be served on the offeree under Rule 5.
(4.)
Acceptance of the offer shall be in writing and served on the offeror under Rule 5. Upon acceptance, either party may file the offer and acceptance with a proposed judgment under Rule 58A.
(5.)
“Adjusted award” means the amount awarded by the finder of fact and, unless excluded by the offer, the offeree’s costs and interest incurred before the offer, and, if attorney fees are permitted by law or contract and not excluded by the offer, the offeree’s reasonable attorney fees incurred before the offer. If the offeree’s attorney fees are subject to a contingency fee agreement, the court shall determine a reasonable attorney fee for the period preceding the offer.
PROPERTY OF RESNICK & LOUIS, P.C. 23
E.
Right to Repair Statutes 1.
Arizona. (a.)
Introduction. (1).
ARS § 12-1361 et seq. (“Purchaser Dwelling Act”). Residential construction defect claims in Arizona are governed by ARS § 12-1361 et seq., known as the Purchaser Dwelling Act. Originally enacted in 2002, the Purchaser Dwelling Act provided homeowners with significant rights to bring claims against developers and general contractors. Perhaps most importantly, ARS § 12-1364 required a court to award the successful party reasonable attorneys’ fees and costs, including expert costs. On March 23, 2015, Arizona amended the PDA with Governor Doug Ducey’s signature on House Bill 2578 (“H.B. 2578”). Like A.B. 125 in Nevada, Arizona’s H.B. 2578 levels the construction defect playing field. The legislation includes the following changes to Arizona’s construction defect scheme: a)
Repeals ARS § 12-1364 authorizing the award of attorneys’ fees (though original homeowners can still get attorneys’ fees from ARS § 12-341.01 for an action based on contract);
b)
Establishes a builder’s right to repair and procedure for conducting same (under the previous version of the PDA, there is no right to repair; the homeowner is not required to accept a repair offered Includes definitions for terms that were previously undefined, most importantly “construction defect”;
c)
Expands the definition of “seller” to include “construction professionals”;
d)
Increases the complexity of the notice that the homeowner is required to provide to the allegedly liable contractor;
e)
The parties’ conduct during the repair or replacement process may now be introduced as evidence in any
PROPERTY OF RESNICK & LOUIS, P.C. 24
subsequent PDA; f)
The statutes of limitations and repose are tolled during the notice and repair or replacement process and for thirty days after substantial completion of any repair or replacement;
g)
Imposes additional obligations on homeowners’ associations before filing a construction defect action.
The amended PDA becomes effective on July 2, 2015. It does not apply to claims that were instituted prior to that date. (b.)
Definitions. ARS § 12-1361. (1.)
Construction Defect. “Construction defect” means a material deficiency in the design, construction, manufacture, repair, alteration, remodeling, or landscaping of a dwelling that is the result of one of the following: a)
A violation of construction codes applicable to the construction of the dwelling. “Construction codes” means the building, plumbing, electrical, fire, mechanical, or other codes or ordinances, including the international residential code however denominated, as adopted, amended, and enforced by the city, town, or county in which the dwelling is located.
b)
The use of defective materials, products, components, or equipment in the design, construction, manufacture, repair, alteration, remodeling or landscaping of the dwelling.
c)
The failure to adhere to generally accepted workmanship standards in the community.
“Material deficiency” means a deficiency that actually impairs the structural integrity, the functionality, or the appearance of the dwelling at the time of the claim, or is reasonably likely to do so in the foreseeable future if not repaired or replaced.
(2.)
Construction Professional. “Construction professional” means an architect, contractor, subcontractor, developer, builder, builder vendor, supplier, engineer, or inspector performing or furnishing PROPERTY OF RESNICK & LOUIS, P.C. 25
the design, supervision, inspection, construction, or observation of the construction of any improvement to real property.
(c.)
(3.)
Dwelling Action. “Dwelling action” means any action involving a construction defect brought by a purchaser against the seller of a dwelling arising out of or related to the design, construction, condition, or sale of the dwelling.
(4.)
Purchaser. “Purchaser” means any person or entity who files a dwelling action.
(5.)
Seller. “Seller” means any person, firm, partnership, corporation, association, or other organization that is engaged in the business of designing, constructing, or selling dwellings, including construction professionals. Seller does not include a real estate broker or real estate salesperson who provides services in connection with the resale of a dwelling following its initial sale.
Attorneys’ Fees, Expert Fees, and Costs. ARS § 12-1364. ARS § 12-1364, which required the court to award reasonable attorneys’ fees, reasonable expert witness fees, and taxable costs to the prevailing party, is repealed. Attorneys’ fees may still be authorized for the prevailing party on a contractual claim under ARS § 12-341.01, and expert fees may be recoverable if a party makes an Offer of Judgment under Rule 68 of the Arizona Rules of Civil Procedure and beats that judgment at trial.
(d.)
Notice of Purchaser’s Claim. ARS § 12-1363. (1.)
Before filing a dwelling action, the purchaser shall give written notice by certified mail, return receipt requested, to the seller specifying in reasonable detail the basis of the dwelling action. “Reasonable detail” includes (1) a detailed and itemized list that describes each alleged construction defect, (2) the location that each alleged construction defect has been observed by the purchaser in each dwelling that is the subject of the notice, and (3) the impairment to the dwelling that has occurred as a result of each of the alleged construction defects or is reasonably likely to occur if the alleged construction defects are not repaired or replaced.
PROPERTY OF RESNICK & LOUIS, P.C. 26
(e.)
(2.)
A purchaser may amend the notice to add alleged construction defects identified in good faith after submission of the original notice. Amended notices restart the time periods for seller’s inspection and repair.
(3.)
If the purchaser fails to comply with the requirements of this section before bringing a dwelling action, the dwelling action shall be dismissed.
(4.)
If the dwelling action is dismissed after the statute of limitations or statute of repose, any subsequent dwelling action brought by the purchaser is time barred as to the seller and the seller’s construction professionals involved in the construction or design of the dwelling.
Purchaser’s Notice as “Notice of Claim” for Insurance. ARS § 121362. If a seller presents the purchaser’s ARS § 12-1363 notice to an insurer that has issued an insurance policy to the seller that covers the seller’s liability arising out of a construction defect or the design, construction, or sale of the property that is the subject of the notice, the insurer must treat the notice as a notice of a claim subject to the terms and conditions of the policy of insurance.
(f.)
Seller’s Right to Repair. ARS §§ 12-1362 and 12-1363. (1.)
A seller who receives a written notice of claim has a right to repair or replace any alleged construction defects after sending or delivering to the purchaser written notice of intent to repair or replace.
(2.)
The seller does not need to repair or replace all of the alleged construction defects.
(3.)
A purchaser may not file a dwelling action until the seller has completed all intended repairs and replacements of the alleged construction defects.
(4.)
Seller’s Inspection. After receipt of the purchaser’s notice, the seller may inspect the dwelling to determine the nature and cause of the alleged construction defects and the nature and extent of any PROPERTY OF RESNICK & LOUIS, P.C. 27
repairs or replacements necessary to remedy the alleged construction defects. The purchaser shall ensure that the dwelling is made available for inspection no later than ten (10) days after the purchaser receives the seller’s request for an inspection. The seller shall provide reasonable notice to the purchaser before conducting the inspection. The seller may use reasonable measures, including testing, to determine the nature and extent of any repairs or replacements necessary to remedy the alleged construction defects. If the seller conducts testing pursuant to this subsection, the seller shall restore the dwelling to its condition before the testing. (g.).
Seller’s Response to Purchaser’s Notice. (1.)
Within sixty (60) days after receipt of the purchaser’s notice, the seller shall send to the purchaser a good faith written response to the purchaser’s notice by certified mail, return receipt requested. This response may include:
(2.)
The seller’s notice of intent to repair or replace any alleged construction defects;
(3.)
The seller’s notice of intent to have the alleged construction defects repaired or replaced at the seller’s expense; or
(4.)
The seller’s notice of intent to provide monetary compensation to the purchaser.
The written notice of intent to repair or replace shall describe in reasonable detail all repairs or replacements that the seller intends to make or provide to the dwelling and a reasonable estimate of the date by which the repairs or replacements will be made. (h.)
Coordination of Seller’s Repair. If the seller notifies the purchaser that it elects to repair or replace pursuant to ARS § 12- 1363, the purchaser shall allow the seller a reasonable opportunity to repair or replace the construction defects or cause the construction defects to be repaired or replaced pursuant to the following: (1.)
The purchaser and the seller or the seller’s construction professionals shall coordinate repairs or replacements within thirty (30) days after the seller’s notice of intent to repair or replace was sent. If requested by the purchaser, repair or replacement of alleged construction defects undertaken by the seller shall be performed by PROPERTY OF RESNICK & LOUIS, P.C. 28
a construction professional selected by the seller and consented to by the purchaser, whose consent shall not be unreasonably withheld, that was not involved in the construction or design of the dwelling.
(i.)
(2.)
Repairs or replacements shall begin as agreed with reasonable efforts to begin repairs or replacements within thirty-five (35) days after the seller’s notice of intent to repair or replace was sent. If a permit is required, reasonable efforts shall be made to begin repairs or replacements within ten (10) days after receipt of the permit or thirty-five (35) days after the seller’s notice of intent.
(3.)
All repairs or replacements shall be completed using reasonable care under the circumstances and within a commercially reasonable time frame considering the nature of the repair or replacement.
(d.)
The purchaser shall provide reasonable access for the repairs or replacements.
(e.)
The seller is not entitled to a release or waiver solely in exchange for any repair or replacement. The purchaser and seller may negotiate a release or waiver in exchange for monetary compensation or other consideration.
Tolling During Notice and Repair Process. ARS § 12-1363. The statute of limitations and the statute of repose applicable to a purchaser’s causes of action are tolled during the notice and repair or replacement process, and for thirty (30) days after substantial completion of the repair or replacement.
(j.)
Seller’s Offer of Monetary Compensation. ARS § 12-1363. The seller shall not be prohibited from offering monetary compensation or other consideration instead of or in addition to a repair or replacement. The purchaser may accept or reject an offer of monetary compensation or other consideration, other than repair or replacement and, if rejected, may proceed with a dwelling action on completion of any repairs or replacements the seller intends to make or provide. The parties may negotiate for a release if an offer involving monetary compensation or other consideration is accepted.
PROPERTY OF RESNICK & LOUIS, P.C. 29
(k.)
Commencement of Dwelling Action. ARS § 12-1363. The purchaser may commence a dwelling action, or alternative dispute resolution procedure if authorized by contract, at the conclusion of any repairs or replacements. The purchaser may also commence a dwelling action, or any applicable alternative dispute resolution procedure, if the seller does not comply with the requirements of the PDA, provided the seller’s failure to comply is not due to any fault of the purchaser or as the result of an unforeseen condition, including an unforeseen weather condition or government delay.
(l.)
Parties’ Conduct Admissible. ARS § 12-1363. Both parties conduct during the repair or replacement process may be introduced in any subsequent dwelling action. Any repair or replacement efforts undertaken by the seller are not considered settlement communications or offers of settlement and are admissible in evidence.
(m.)
Homeowners’ Association Dwelling Action. ARS § 33-2002. A homeowners’ association may file a dwelling action only after all of the following conditions have occurred: (1.)
The board of directors has provided full disclosure in writing to all members of the association of all material information relating to the filing of the action. The material information shall include a statement that describes the nature of the action and the relief sought including any demands, notices, offers to settle, or responses to offers to settle made either by the association or the seller and the expenses and fees that the association anticipates will be incurred, directly or indirectly, in prosecuting the action including attorneys’ fees, consultant fees, expert witness fees, court costs, and impacts on the values of all dwellings in the association.
(2.)
The homeowners’ association has held a meeting of its members and board of directors with notice.
(3.)
The board of directors authorizes the filing of the action pursuant to the procedures outlined in the community documents.
PROPERTY OF RESNICK & LOUIS, P.C. 30
(4.)
The homeowners’ association has provided the seller with notice of the alleged construction defects and the right to repair or replace the alleged construction defects pursuant to ARS § 12- 1363.
In any contested dwelling action, a seller has standing to assert a failure of the homeowners’ association to comply with the procedures prescribed by the community documents and the requirements of ARS § 33-2002. 2.
Colorado (a.)
Colorado Construction Defect Action Reform Act at § 13-20-801 et seq. (1.)
Applies to real property, personal property, and personal injury.
(2.)
Applies also to architects.
(3.)
Actual damages is fair market value of the real property without the alleged defect, the replacement cost of the real property, or the reasonable cost to repair the alleged defect, whichever is less, together with relocation costs, and, with respect to residential property, other economic costs related to loss of use, if any, interest provided by law, and such costs of suit and reasonable attorney fees and may be awarded pursuant to contract or applicable law.
(4.)
Initial list of defects filed with the court/arbitrator and served within sixty (60) days.
(5.)
Pre-filing notices to construction professionals: seventy-five (75) days residential; ninety (90) days commercial.
(6.)
The statute of limitations AND statute of repose ARE tolled until sixty (60) days after completion of the notice of claim process.
(7.)
Thirty (30) days inspection period after pre-filing service.
(8.)
Thirty (30) days residential/forty-five (45) days commercial for response by professional after inspections with offer to settle for money and/or repairs. Claim can move forward if no response.
(9.)
Offers to remedy must include expert reports with timetable for repairs.
PROPERTY OF RESNICK & LOUIS, P.C. 31
(10.)
CRS 13-20-806(2) – If a construction professional fails to respond to the notice of claim OR does NOT comply with the terms of an accepted offer to remedy or settle, TREBLE DAMAGES shall apply IF claimant proves violation of the Consumer Protection Act. a)
Treble Damages limited to $250,000
(11)
Fifteen (15) days for claimant to accept or deemed rejected.
(12)
CRS 13-20-804 (Restriction on Construction Defect Negligence Claims).
(13)
No negligence claim based upon building code or industry standard unless actual damage to real or personal property, actual loss of use of real or personal property/bodily injury, risk of bodily injury or death to or threat to life, health, or safety of the occupants.
(14.)
Can bring other tort, contract, and warranty Claims.
(15.)
Can bring other negligence claims that arise from any statute or ordinance other than for violation of building code.
(16.)
CRS 13-20-806 – Limitation of Damages: a)
Construction professional NOT liable for more than actual damages UNLESS and until claimant prevails on violation of Consumer Protection Act, AND IF 1)
Monetary offer to settle is less than 85% of the amount awarded to the claimant as actual damages EXCLUSIVE of costs, interest, and attorneys’ fees; OR
2)
Trier of fact determines that the reasonable cost to complete the construction professional’s offer to remedy the defect is less than 85% of the amount awarded to the claimant as actual damages.
3)
EXCLUSIVE of costs, interest, and attorneys’ fees.
4)
Non-Economic loss personal injuries are limited to $250,000, and are not subject to treble damages.
PROPERTY OF RESNICK & LOUIS, P.C. 32
(b.)
Colorado Common Interest Ownership Act, C.R.S 38-33.3-302 (Powers of Unit Owners’ Association) (1.)
(c.)
3.
The association may institute, defend, or intervene in litigation or administrative proceedings in its own name on behalf of itself or two or more unit owners on matters affecting the common interest community.
Colorado Common Interest Ownership Act, C.R.S 38-33.3-303.5 (Construction Defect Actions—Disclosure) (1.)
Actions for five (5) or more units.
(2.)
Prior to Service of Summons and Complaint on any Defendant, Executive Board shall mail or deliver written notice of commencement or anticipated commencement of such action to each unit owner.
(3.)
Must include expenses and nature of the action and relief sought.
California (a.)
California SB 800 (California Civil Code 895-944) (1.)
Introduction. It applies to residential construction post January 1, 2003. SB 800 is a pre-litigation right-to-repair scheme that California requires for residential homeowners to comply with before litigation is commenced. The defendants must comply with the time constraint or the claimant is allowed to bypass SB 800 and file a law suit.
(2.)
Who is covered by the bill? The bill provides that any construction defect action against a builder, subcontractor, product manufacturer, or design professional groups will be governed by the standards set forth in SB800 in new home construction.
(3.)
Recoverable Damages. Section 944 identifies the various species of damages which the Owner may recover for any construction defect embraced by the statute. No other damages are recoverable for a negligence or breach of contract claim brought by Owner for the specified defects. Those various types of damages are as follow:
PROPERTY OF RESNICK & LOUIS, P.C. 33
(4.)
a)
Cost of repair of the defect which has violated a standard;
b)
Cost of repair of damage caused by Builder’s repair of the defect;
c)
Cost of repair of damages resulting from the violated standard;
d)
Cost of removing & replacing improper Builder repairs;
e)
Relocation and storage expenses made necessary by the repair;
f)
Lost revenue if subject property is the location of licensed business;
g)
Investigative costs for each established violation; and
h)
Costs and fees recoverable by contract or other statute.
Code Violations/Performance Standards – SB 800 almost creates strict liability in that Section 896 with specific construction deficiencies for the following: a)
Water Intrusion Standards. Windows, doors, roofs, chimney caps, vents, decks, balconies, exterior stairs, foundations, hardscape, irrigation, landscaping, drainage, stucco, siding, exterior walls, retaining walls, site walls, plumbing , sewers, utilities, shower and tub enclosures, tile walls, floors, decks, and countertops: 1)
2)
3)
May not allow unintended water to pass into the structure or to pass beyond the actual or intended moisture barrier of the system. 896(a)(1-2, 4-5, 10, 12-13, 17); May not allow excessive condensation to enter the structure and damage another building component. 896(a)(3, 11); Decks, balconies & exterior stairs may not allow water to pass within the system itself and damage the components of the system. 896(a)(6);
PROPERTY OF RESNICK & LOUIS, P.C. 34
4) 5)
6) 7)
Hardscape may not cause water or soil erosion or damage to another building component. 896(a)(9); Foundations may not allow water or vapor to enter the structure and either damage another component, or limit the installation of types of flooring 896(a)(7-8) Plumbing, sewer and utility lines shall not leak and shall not corrode so as to impede the useful life of the system 896(a)(14-15); Sewer systems must allow the designated amount of sewage to flow through the system; Tile walls, decks, floors and countertops shall not allow water intrusion to damage another component 896(a)(18).
b)
Structural Standards. Foundations, slabs, and shear walls shall not contain significant cracks or significant vertical displacement, shall not cause the structure to be structurally unsafe, and must materially comply with design criteria of applicable building codes, regulations and ordinances for chemical deterioration/corrosion resistance, earthquake, and wind load resistance in effect at time of construction. 896(b).
c)
Soils Standards. Soils shall not cause damage to the structure, the structure to be structurally unsafe, or the land to become unusable for intended purpose. 896(c).
d)
Fire Protection Standards. Fire-rated assemblies, fireplaces, chimneys, chimney caps, electrical & mechanical systems must materially comply with design criteria of applicable building codes, regulations and ordinances for fire protection in effect at time of construction; may not cause an unreasonable risk of fire. 896(d).
e)
Plumbing, Sewer & Electrical Standards. Plumbing, sewer and electrical systems must operate properly and may not materially impair the structure’s intended use. 896(e)-(f)].
f)
Miscellaneous Standards.
PROPERTY OF RESNICK & LOUIS, P.C. 35
1) 2) 3) 4)
5) 6)
7)
8)
9) 10)
11) 12) 13) 14) 15)
g)
Hardscape – no cracks with significant vertical displacement or that are excessive. 896(g)(1); Stucco & exterior wall finishes and fixtures – no significant cracks or separations. 896(g)(2); Manufactured products – installation may not interfere with useful life. 896(g)(3); Heating – maintain room temperature of 70° F at a point three (3) feet above the floor in any living space. 896(g)(4); Air Conditioning – must comply with Title 24. 896(g)(5); Sound transmission-attached units – must comply with applicable code, ordinance or regulation in place at time of construction. 896(g)(6); Irrigation systems and drainage – may not cause damage to landscaping or other external building components. 896(g)(7); Untreated wood posts – not installed in direct contact with soil based upon finish grade causing deterioration. 896(g)(8); Steel fences – installed to prevent unreasonable corrosion. 896(g)(9); Paint & stains – deterioration of building surfaces may not occur during manufacturer’s warranty term. 896(g)(10); Roofing materials – avoid materials falling from roof. 896(g)(11); Landscaping – must survive for at least one year. 896(g)(12); Ceramic tile – may not detach. 896(g)(13); Dryer ducts – install in compliance with manufacturer’s requirements. 896(g)(14); Catch-all Provision – may not impair occupant’s safety due to public health hazard (e.g., excessive mold, 896(g)(15)) and may not cause damage. 897.
Fit & Finish Warranty. Builder is deemed to provide each Owner with a one-year warranty on “fit & finish” on cabinets, mirrors, flooring, interior & exterior walls, countertops, paint and trim. All manufactured parts are deemed to have a useful life either of 1-year or whatever term identified by the manufacturer, whichever term is longer. 896(g)(3), 900.
PROPERTY OF RESNICK & LOUIS, P.C. 36
(5.)
Builder’s Enhanced Protection Agreement. Builder may provide a written guarantee, the Enhanced Protection Agreement (EPA), in lieu of what is provided in Section 896, but the EPA must meet or exceed those statutory standards. Builder may also have its own ADR procedure, which, if found to be enforceable, would replace the statutory procedure. a).
(6.)
Within sixty (60) days of filing a response, Builder may seek bifurcated hearing on the enforceability of the EPA procedure. Failure to seek a hearing within that time period operates as a waiver. 901-906.
Construction Defect Claims Procedures a)
Owner’s Notice of Claim. Written notice by Owner must be provided to Builder’s designated agent, stating claimant’s name, preferred method of contact, and description of defect. 901(a).
b)
Builder’s Acknowledgment of Receipt of Claim. Builder must acknowledge receipt of the claim within 14 days from date of receipt. 913.
c)
Discovery Rules. Builder must allow Owner to observe and record all inspections, testing, and repairs performed 916(a), 922. Builder has thirty (30) days from date of Owner’s request to provide Owner, at Owner’s expense, copies of the following: 1)
Maintenance and preventative maintenance instructions that were provided to the Owner at the sale of the home 912(b);
2)
Manufacturer’s maintenance and preventative maintenance instructions and limited warranty 912(c);
3)
Builder’s written warranty 912(d);
PROPERTY OF RESNICK & LOUIS, P.C. 37
4)
If claim relates to structural, fire safety or soils issues, copies of all relevant plans and specifications 912(a); and
5)
All photos and documents relating to a repair 923.
d)
Initial Inspection by Builder. The initial inspection and testing by Builder must occur within fourteen (14) days from the date of Builder’s Acknowledgment. Builder must restore the property to pre-inspection condition within forty-eight (48) hours of testing completion. 916(a).
e)
Second Inspection by Builder. Builder must request second inspection within three (3) days following completion of initial inspection, and must complete the second inspection within forty (40) days of the initial inspection. 916(c).
f)
Builder’s Notice to Responsible Third Parties. Builder is to put all potentially responsible third parties on notice of the ongoing inspection. Builder’s own liability carrier is not part of this group. 916(e).
g)
Builder’s Offer to Owner. Within 30 days of completing the inspection, Builder must provide Owner with an Offer which must include the following 917- 919, 924, 929(a): 1) 2)
An offer to address all recoverable Section 944 damages; An all-cash offer to compensate Owner for the identified defect(s) or a repair proposal which includes the specific violation being addressed, detailed description of the proposed repairs, completion date, name(s) of the contractor(s);
3)
Notification of Owner’s right to request the names of up to three (3) additional contractors to perform the repairs;
4)
An offer to submit the matter to mediation;
5)
Identification of any part of the Owner’s claim not being addressed;
PROPERTY OF RESNICK & LOUIS, P.C. 38
6)
Builder’s Offer and the reason(s) for that position being taken; and
7)
Builder’s Offer may not be contingent on Owner providing a release unless it is an all-cash offer.
h)
Owner’s Response to Offer. Owner has thirty (30) days from its receipt of Builder’s Offer to either: (1) authorize the proposed repair; (2) request up to three alternate contractors to perform the repairs; or (3) submit the matter to Repair Mediation. If Owner requests alternate contractors, an additional inspection is to be held within twenty (20) days of the election to allow access by Builder and alternate trades. Builder has thirty-five (35) days from receipt of the request to provide the additional name(s). Owner has twenty (20) days from receipt of the name(s) to either authorize the proposed repairs or submit the matter to Repair Mediation. 918.
i)
Repair Mediation. Within fifteen (15) days of Owner’s request, a 4-hour mediation is to be held regarding the Builder’s Offer. The non-affiliated mediator is to be selected and paid for by Builder, unless Owner agrees to pay half, in which case both select the mediator. 919. If the Repair Mediation does not resolve the dispute, Owner must allow the repair proposed by Builder to go forward. 921.
j)
Term of Repair Period. Repairs must begin within: fourteen (14) days of Owner’s acceptance of Builder’s Offer or Claimant’s acceptance of the alternate contractor; seven (7) days from completion of the Repair Mediation; or five (5) days from the issuance of any necessary building permit. 921(a). Repairs must be completed within 120 days. 921(b).
k)
Post- Repair Mediation. If there had been no prior Repair Mediation, then Owner must request mediation prior to filing suit in state court. The four-hour mediation is to be held within fifteen (15) days of Owner’s request. The nonaffiliated mediator is to be selected and paid for by Builder, unless Owner agrees to pay half, in which case both select. 928.
PROPERTY OF RESNICK & LOUIS, P.C. 39
(7.)
l)
Extensions of Time. All cutoff dates may be extended by mutual written agreement including a knowing waiver by Owner. 930(a).
m)
Concurrent Claims in the Calderon Process. To the extent the claim would be duplicative, this pre-litigation procedure supersedes any claims being made in the 1375 Calderon Process. 935.
n)
Owner’s Subsequent State Court Action. Once the ADR process either is (1) completed, or (2) Builder fails to timely complete the tasks required by the pre-litigation ADR procedure, Owner may file its claim in a state court action.
o)
Admissibility of Builder’s Repair. Evidence of the nature, extent, and reasons for Builder’s repair efforts is allowed 933, 935. Owner may offer the pre-repaired condition of the property to show the repair provided was inappropriate, inadequate, or incomplete, and does not have to show further or continued damage being caused 933. In a claim involving fraud, a limiting instruction is to be given to the effect that the Owner did not voluntarily agree to the repair provided by Builder. 931.
Affirmative Defenses by Builder. Section 945.5 limits Builder to the following affirmative defenses in any subsequent state court action based on the defect which was subject of the pre-litigation claim: a)
Unforseen Act of God;
b)
Owner’s Unreasonable Failure to Mitigate Damages;
c)
Owner’s Failure to Maintain;
d)
Ordinary Wear & Tear or Misuse/Abuse;
e)
Statute of Limitations;
f)
Release;
PROPERTY OF RESNICK & LOUIS, P.C. 40
g)
Builder’s Repairs Were Successful;
(8.)
Affirmative Defenses by Other Construction Professionals. All other involved trades, design professionals, vendors and manufacturers may also assert all common law and contractual defenses which otherwise would be available. 936.
(9.)
Related Claims Outside Scope of Procedure. An Owner’s fraudbased claims against the Builder and products liability claims against component part manufacturers can proceed concurrently in state court. 896(g)(3), 931, 936.
(10.)
What happens if the homeowner does not follow SB800? If a Homeowner does not file a written claim with Builder in advance of filing a petition, SB800 provides for a legal bar to the action and a court would have no authority to hear the case. The case would be dismissed though it could be re-opened at a later time.
(11.)
How are subsequently discovered defects handled? All defects discovered after the process is completed would require the initiation of a new SB800 procedure and the Builder is not responsible for repairs of defects, which it had no notice of or opportunity to repair. If the statute of limitations has already run when the defect is discovered, the process cannot commence and no claim may be brought. If the process is initiated prior to the running of the statute, the statute will be extended to allow Homeowner and Builder to complete the process.
(12.)
Are the SB800 proceedings admissible in proceedings? If a legal action to enforce the bill’s standards is initiated by a Homeowner, the fact that a repair effort was made may be introduced in that proceeding, and evidence of the parties’ conduct during the repair process may be introduced.
(13.)
Is a Builder released after completing repairs? A Builder is not released after completing repairs. The bill presumes that a Builder warrants completely, in addition to any express warranties on the original construction, that the repairs will be reasonably adequate to restore the structure to the condition intended by its designers, and that the home will be reasonably habitable by its occupants.
(14.)
Does SB800 apply to subsequent purchasers? SB800 claimants include the owners, whether original or subsequent, of a singlePROPERTY OF RESNICK & LOUIS, P.C. 41
family home or attached dwelling and homeowners association. All claims must be brought within the applicable statute of limitations.
PROPERTY OF RESNICK & LOUIS, P.C. 42
PROPERTY OF RESNICK & LOUIS, P.C. 43
PROPERTY OF RESNICK & LOUIS, P.C. 44
(b.)
Belasco v. Wells (2015) - Belasco bought a new Manhattan Beach residence in 2004 from the builder (Wells). In 2006, Belasco filed a complaint with the Contractors State License Board, alleging construction defects. Belasco and Wells settled the dispute in 2006, with Wells paying $25,000 and Belasco executing a release and a Civil Code 15241 waiver of all known or unknown claims. In 2012, Belasco sued, based on an alleged roof defect discovered in 2011. The trial court entered summary judgment, finding the action barred by the settlement. The court of appeal affirmed, rejecting arguments that: the 2006 general release and waiver for patent construction defects is not a “reasonable release” of a subsequent claim for latent defects under section 929 and the Right to Repair Act (section 895); a reasonable release can only apply to a “particular violation” and not to a latent defect under section 945.5(f), and the 2006 settlement was too vague to be a valid; section 932 authorizes an action on “[s]ubsequently discovered claims of unmet standards;” public policy prohibits use of a general release and section 1542 waiver to bar a subsequent claim for latent residential construction defects; and a genuine issue of fact existed concerning fraud and negligence claims that would void the settlement under section 1668.
(c.)
Anders v. Superior Court – If the alternative dispute resolution contractual (i.e., sales agreements/express warranties) procedures between the builder and homeowners (which are allowed under CCC 914(a)) are deemed unenforceable (such as because they are unconscionable) then the builder cannot then require the homeowners to comply with SB-800. In essence, the builder does not get two opportunities with the pre-litigation requirements.
PROPERTY OF RESNICK & LOUIS, P.C. 45
(d.)
(e).
McMillin v. Superior Ct. (5th 2015) – (1.)
This case contradicts the Liberty Mutual Ins. Co v. Brookfield Crystal Cove case (4th) which held that a homeowner suffering actual property damage is not bound by SB-800, and therefore could allege other causes of action. On December 1, 2015, the California Supreme Court, noting an irreconcilable conflict between Liberty Mutual and McMillin Albany, ordered the 5th District’s McMillin Albany decision de-published pending review by the Supreme Court.
(2.)
Plaintiffs filed a complaint for construction defects with common law causes of action (negligence and strict products liability) as well as a cause of action for violation of building standards under the Right to Repair Act. Plaintiffs did not give the homebuilder notice under SB-800. Plaintiffs later dismissed their cause of action under the Act. McMillin filed a motion to stay the litigation under Civil Code section 930 arguing that Plaintiffs failed to comply with the Act’s prelitigation procedures by not giving the builder notice of the alleged defects and an opportunity to inspect and repair those defects.
(3.)
SB-800 precludes any other cause of action for damages related to or arising out of a dediciency in residential construction other than one brought pursuant to Section 896 for violations of any of the standards set out in Chapter 2, or one brought pursuant to Section 897, where the alleged deficiency involves a function or component not covered in the standards set out in Section 896. No other cause of action is allowed to recover for repair od the SB-800 listed defect itself or for repair of any damage caused by the said defect that is listed in SB-800. The exceptions are for condominium conversions, fraud, personal injury, or enforcement of a contract.
Anders v. Superior Court (2011) – The trial court found the builder's contractual procedures unconscionable and unenforceable, butnevertheless ordered the homeowners who sued the builder due to construction defects to comply with the statutory procedures. The Appellate Court held that the trial court erred in ordering compliance with Chapter 4, as section 914, subdivision (a) provides that builder who elects or attempts to use its own prelitigation procedures in lieu of the statutory ones is bound by that decision and cannot enforce the statutory procedures. A builder who elects to use alternative prelitigation procedures in lieu of those set out in PROPERTY OF RESNICK & LOUIS, P.C. 46
the statute has the right to attempt repairs, so long as it does so pursuant to procedures that are fair and enforceable. If, however, the builder imposes procedures that are found to be unenforceable, it forfeits its absolute right to attempt repairs. It may still offer to repair any defects, but the homeowner is not bound to accept the offer or to permit the builder to attempt the repairs prior to litigation. The builder thus has an incentive to ensure its alternative procedures are proper and enforceable, and the homeowner's protection against unnecessary delay is preserved.” (f.)
Baeza v. Superior Court (4th. 2011). the trial court ordered homeowners who had sued the builder for construction defects to comply with the builder's contractual procedure and judicial reference provisions. In a writ petition, the homeowners argued they were not required to comply with the contractual provisions because the builder failed to comply with the statutory disclosure requirements contained in section 912. The Appellate Court rejected this argument, holding that “a builder who opts out of the Chapter 4 nonadversarial statutory prelitigation procedures in favor of its own contractual procedures opts out of the entirety of Chapter 4, and the disclosure provisions of section 912 do not apply to such a builder.” The Appellate Court did not address the proprietary of the Trial Court’s Order requiring compliance with the contractual provisions for mediation, arbitration, and judicial reference.
(g.)
McCaffrey Group, Inc. v. Superior Ct (2014) – (1.)
This case addressed issue of what constitutes enforceable contractual provisions for the homebulders own pre-litigation optout procedures. If a a builder opts out of the statutory procedures in favor of its own contractual procedures, the builder opts out of all of Chapter 4. There is nothing in the Act that requires the builder who elects to use contractual procedures to provide a particular procedure or to comply with the deadlines contained in Chapter 4. Instead, section 914, subdivision (a) simply provides that “[a] builder may attempt to commence nonadversarial contractual provisions other than the nonadversarial procedures and remedies set forth in this chapter․ ” The statute does not impose any requirement for the contents of those nonadversarial contractual provisions.
(2.)
Although there is no specific requirements that the contents have to follow, the Court will examine if the provisions are unconscionable. “Both procedural unconscionability and substantive unconscionability must be shown, but ‘they need not PROPERTY OF RESNICK & LOUIS, P.C. 47
be present in the same degree’ and are evaluated on ‘ “a sliding scale.” The more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa. The party who prepared and submitted the contract has the burden of showing the other party had notice of the contract terms at issue, while the party asserting unconscionability has the burden of establishing it. (3.)
Procedural unconscionability requires either oppression or surprise. Oppression occurs where a contract involves lack of negotiation and meaningful choice, surprise where the allegedly unconscionable provision is hidden within a prolix printed form. Procedural unconscionability, and in particular “ ‘oppression,’ ” generally entails a contract of adhesion; that is, a standardized contract, which, imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it. The Court found a low level of procedural unconscionability.
(4.)
The substantive element of unconscionability “pertains to the fairness of an agreement's actual terms and to assessments of whether they are overly harsh or one-sided.” This includes consideration of the extent to which the disputed term is outside the reasonable expectation of the nondrafting party or is unduly oppressive. “Substantively unconscionable terms may take various forms, but may generally be described as unfairly one-sided.” Unconscionability is measured as of the time the contract was entered. The Court said that the contract was not substantively unconscionable.
(h.).
Darling v. Superior Court (4th 2012) – The Appellate court conclude that a homeowner must serve notice of a construction defect claim under section 910, subdivision (a) to commence the statutory prelitigation procedure, and until such service the builder has no obligation to respond to a request for documents under section 912, subdivision (a).
(i.)
Boyko v. Terveno (Fed 2016) (1.)
A “builder” for purposes of SB-800 is defined as a builder, contractor or other entity that is also in the business of selling residential units to the public. The plumbing supplier, supplied
PROPERTY OF RESNICK & LOUIS, P.C. 48
plumbing lines to the properties, and did not act as a contractor nor is it in the business of selling residential real estate. (2.)
(j.)
SB-800 claims cannot be brought as class action claims, but non SB-800 claims can be brough as class actions.
California Calderon Process (CCC 1375 – 1378) (1.)
Introduction: Before an association files a complaint for damages against a builder, developer, or general contractor (respondent) of a common interest development community based upon a claim for defects in the design or construction of the common interest development, all of the requirements of Civil Code § 1375 must be satisfied with respect to the builder, developer, or general contractor. 1375(a).
(2.)
Notice to Respondent: The association shall serve upon the respondent a “Notice of Commencement of Legal Proceeding,” pursuant to Civil Code § 1375(b). The notice shall be served by certified mail to the registered agent of the respondent, or if there is no registered agent, then to any officer of the respondent. If there are no current officers of the respondent, service shall be upon the person or entity otherwise authorized by law to receive service of process. Service upon the general contractor shall be sufficient to initiate the process set forth in this section with regard to any builder or developer, if the builder or developer is not amenable to service of process by the foregoing methods. This notice shall toll all applicable statutes of limitation and repose, whether contractual or statutory, by and against all potentially responsible parties, regardless of whether they were named in the notice, including claims for indemnity applicable to the claim for the period set forth in subdivision (c). The notice shall include all of the following: a)
The name and location of the project.
b)
An initial list of defects sufficient to apprise the respondent of the general nature of the defects at issue.
c)
A description of the results of the defects, if known.
PROPERTY OF RESNICK & LOUIS, P.C. 49
(3.)
d)
A summary of the results of a survey or questionnaire distributed to homeowners to determine the nature and extent of defects, if a survey has been conducted or a questionnaire has been distributed.
e)
Either a summary of the results of testing conducted to determine the nature and extent of defects or the actual test results, if that testing has been conducted.
180-Day Dispute Resolution Period Service of the notice shall commence a period, not to exceed 180 days, during which the association, the respondent, and all other participating parties shall try to resolve the dispute through the processes set forth in 1375. This 180-day period may be extended for one additional period, not to exceed 180 days, only upon the mutual agreement of the association, the respondent, and any parties not deemed peripheral pursuant to paragraph (3) of subdivision (e). Any extensions beyond the first extension shall require the agreement of all participating parties. Unless extended, the dispute resolution process prescribed by this section shall be deemed completed. All extensions shall continue the tolling period described in subdivision (b). 1375(c).
(4.)
Respondents Meet and Confer with Association Within twenty-five (25) days of the date the association serves the Notice of Commencement of Legal Proceedings, the respondent may request in writing to meet and confer with the board of directors of the association. Unless the respondent and the association otherwise agree, there shall be not more than one meeting, which shall take place no later than ten (10) days from the date of the respondent’s written request, at a mutually agreeable time and place. The meeting shall be subject to subdivision (b) of Civil Code 1363.05. The discussions at the meeting are privileged communications and are not admissible in evidence in any civil action, unless the association and the respondent consent in writing to their admission. 1375(d).
(5.)
Parties’ Duties After Receipt of Notice Upon receipt of the notice, the respondent shall, within sixty (60) days, comply with the following: PROPERTY OF RESNICK & LOUIS, P.C. 50
a)
The respondent shall provide the association with access to, for inspection and copying, all plans and specifications, subcontracts, and other construction files for the project that are reasonably calculated to lead to the discovery of admissible evidence regarding the defects claimed. The association shall provide the respondent with access to, for inspection and copying, all files reasonably calculated to lead to the discovery of admissible evidence regarding the defects claimed, including all reserve studies, maintenance records and any survey questionnaires, or results of testing to determine the nature and extent of defects. To the extent any of the above documents are withheld based on privilege, a privilege log shall be prepared and submitted to all other parties. All other potentially responsible parties shall have the same rights as the respondent regarding the production of documents upon receipt of written notice of the claim, and shall produce all relevant documents within sixty (60) days of receipt of the notice of the claim.
b)
The respondent shall provide written notice by certified mail to all subcontractors, design professionals, their insurers, and the insurers of any additional insured whose identity is known to the respondent or readily ascertainable by review of the project files or other similar sources and whose potential responsibility appears on the face of the notice. This notice to subcontractors, design professionals and insurers shall include a copy of the Notice of Commencement of Legal Proceeding, and shall specify the date and manner by which the parties shall meet and confer to select a dispute resolution facilitator pursuant to paragraph (1) of subdivision (f), advise the recipient of its obligation to participate in the meet and confer or serve a written acknowledgment of receipt regarding this notice, advise the recipient that it will waive any challenge to selection of the dispute resolution facilitator if it elects not to participate in the meet and confer, advise the recipient that it may be bound by any settlement reached pursuant to subdivision (d) of § 1375.05, advise the recipient that it may be deemed to have waived rights to conduct inspections and testing pursuant to subdivision (c) of § 1375.05, advise the recipient that it may seek the assistance of an attorney, and advise the recipient that it should
PROPERTY OF RESNICK & LOUIS, P.C. 51
contact its insurer, if any. Any subcontractor or design professional, or insurer for that subcontractor, design professional, or additional insured, who receives written notice from the respondent regarding the meet and confer shall, prior to the meet and confer, serve on the respondent a written acknowledgment of receipt. (6.)
Duties
of
Subcontractors
and
Design
Professionals
Each subcontractor or design professional shall, within ten (10) days of service of the written acknowledgment of receipt, provide to the association and the respondent a Statement of Insurance that includes both of the following:
(7.)
a)
The names, addresses, and contact persons, if known, of all insurance carriers, whether primary or excess and regardless of whether a deductible or self-insured retention applies, whose policies were in effect from the commencement of construction of the subject project to the present and potentially cover the subject claims.
b)
The applicable policy numbers for each such policy of insurance.
Request for Designation as Peripheral Party Any subcontractor or design professional, or insurer for that subcontractor, design professional, or additional insured, who so chooses, may, at any time, make a written request to the dispute resolution facility for designation as a peripheral party. That request shall be served contemporaneously on the association and the respondent. If no objection to that designation is received within 15 days, or upon rejection of that objection, the dispute resolution facilitator shall designate that subcontractor or design professional as a peripheral party, and shall thereafter seek to limit the attendance of that subcontractor or design professional only to those dispute resolution sessions deemed peripheral party sessions or to those sessions during which the dispute resolution facilitator believes settlement as to peripheral parties may be finalized. Nothing in this subdivision shall preclude a party who has been designated a peripheral party from being reclassified as a nonperipheral party, nor shall this subdivision preclude a party designated as a nonperipheral party from being reclassified as a PROPERTY OF RESNICK & LOUIS, P.C. 52
peripheral party after notice to all parties and an opportunity to object. For purposes of this subdivision, a peripheral party is a party having total claimed exposure of less than $25,000. 1375(e)(3). (8.)
Selection of Dispute Resolution Facilitator Within twenty (20) days of sending the notice set forth in paragraph (2) of subdivision (e), the association, respondent, subcontractors, design professionals, and their insurers who have been sent a notice as described in paragraph (2) of subdivision (e) shall meet and confer in an effort to select a dispute resolution facilitator (DRF) to preside over the mandatory dispute resolution process prescribed by this section. Any subcontractor or design professional who has been given timely notice of this meeting but who does not participate waives any challenge he or she may have as to the selection of the DRF. The role of the dispute resolution facilitator is to attempt to resolve the conflict in a fair manner. The DRF shall be sufficiently knowledgeable in the subject matter and be able to devote sufficient time to the case. The DRF shall not be required to reside in or have an office in the county in which the project is located. 1375(f)(1).
(9.)
Case Management Meeting The dispute resolution facilitator and the participating parties shall agree to a date, time, and location to hold a case management meeting of all parties and the dispute resolution facilitator, to discuss the claims being asserted and the scheduling of events under this section. The case management meeting with the DRF shall be held within 100 days of service of the Notice of Commencement of Legal Proceedings at a location in the county where the project is located. Written notice of the case management meeting with the DRF shall be sent by the respondent to the association, subcontractors and design professionals, and their insurers who are known to the respondent to be on notice of the claim, no later than ten (10) days prior to the case management meeting, and shall specify its date, time, and location. The DRF in consultation with the respondent shall maintain a contact list of the participating parties. 1375(f)(1).
PROPERTY OF RESNICK & LOUIS, P.C. 53
(10.)
Disclosure of Possible Conflicts by DRF No later than ten (10) days prior to the case management meeting, the DRF shall disclose to the parties all matters that could cause a person aware of the facts to reasonably entertain a doubt that the proposed DRF would be able to resolve the conflict in a fair manner. The facilitator’s disclosure shall include the existence of any ground specified in § 170.1 of the Code of Civil Procedure for disqualification of a judge, any attorney-client relationship the facilitator has or had with any party or lawyer for a party to the dispute resolution process, and any professional or significant personal relationship the facilitator or his or her spouse or minor child living in the household has or had with any party to the dispute resolution process. The disclosure shall also be provided to any subsequently noticed subcontractor or design professional within ten (10) days of the notice. 1375(f)(2).
(11.)
Disqualification of DRF A dispute resolution facilitator shall be disqualified by the court if he or she fails to comply with this paragraph and any party to the dispute resolution process serves a notice of disqualification prior to the case management meeting. If the DRF complies with this paragraph, he or she shall be disqualified by the court on the basis of the disclosure if any party to the dispute resolution process serves a notice of disqualification prior to the case management meeting. 1375(f)(3).
(12.)
Selection of DRF If Parties Cannot Agree If the parties cannot mutually agree to a dispute resolution facilitator, then each party shall submit a list of three dispute resolution facilitators. Each party may then strike one nominee from the other parties’ list, and petition the court, pursuant to the procedure described in subdivisions (n) and (o), for final selection of the DRF. The court may issue an order for final selection of the DRF pursuant to this paragraph. Any subcontractor or design professional that receives notice of the association’s claim without having previously received timely notice of the meet and confer to select the DRF shall be notified by the respondent regarding the name, address, and telephone number of the dispute resolution facilitator. Any such subcontractor or PROPERTY OF RESNICK & LOUIS, P.C. 54
design professional may serve upon the parties and the dispute resolution facilitator a written objection to the DRF within fifteen (15) days of receiving notice of the claim. Within seven days after service of this objection, the subcontractor or design professional may petition the superior court to replace the DRF. The court may replace the dispute resolution facilitator only upon a showing of good cause, liberally construed. Failure to satisfy the deadlines set forth in this subdivision shall constitute a waiver of the right to challenge the dispute resolution facilitator. 1375(f)(4)-(5). (13.)
Apportionment of DRF Costs The costs of the dispute resolution facilitator shall be apportioned in the following manner: one-third to be paid by the association; one-third to be paid by the respondent; and one-third to be paid by the subcontractors and design professionals, as allocated among them by the dispute resolution facilitator. The costs of the DRF shall be recoverable by the prevailing party in any subsequent litigation pursuant to § 1032 of the Code of Civil Procedure, provided however that any nonsettling party may, prior to the filing of the complaint, petition the facilitator to reallocate the costs of the DRF as they apply to any nonsettling party. The determination of the DRF with respect to the allocation of these costs shall be binding in any subsequent litigation. The DRF shall take into account all relevant factors and equities between all parties in the dispute resolution process when reallocating costs. 1375(f)(6).
(14.)
Replacement of DRF In the event the dispute resolution facilitator is replaced at any time, the case management statement created pursuant to subdivision (h) shall remain in full force and effect. 1375(f)(7).
(15.)
DRF’s Powers The dispute resolution facilitator is empowered to enforce all provisions of 1375. 1375(f)(8).
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(16.)
Data Compilation by All Parties No later than the case management meeting, the parties shall begin to generate a data compilation showing the following information regarding the alleged defects at issue: a)
The scope of the work performed by each potentially responsible subcontractor.
b)
The tract or phase number in which each subcontractor provided goods or services, or both.
c)
The units, either by address, unit number, or lot number, at which each subcontractor provided goods or services, or both.
This data compilation shall be updated as needed to reflect additional information. Each party attending the case management meeting, and any subsequent meeting pursuant to this section, shall provide all information available to that party relevant to this data compilation. 1375(g). (17.)
Conduct of Case Management Meeting At the case management meeting, the parties shall, with the assistance of the DRF, reach agreement on a case management statement, which shall set forth all of the elements set forth in paragraphs (1) to (8), inclusive, except that the parties may dispense with one or more of these elements if they agree that it is appropriate to do so. The case management statement shall provide that the following elements shall take place in the following order: a)
Establishment of a document depository, located in the county where the project is located, for deposit of documents, defect lists, demands, and other information provided for under this section. All documents exchanged by the parties and all documents created pursuant to this subdivision shall be deposited in the document depository, which shall be available to all parties throughout the prefiling dispute resolution process and in any subsequent litigation. When any document is deposited in the document depository, the party depositing the document shall provide written notice identifying the document to all
PROPERTY OF RESNICK & LOUIS, P.C. 56
other parties. The costs of maintaining the document depository shall be apportioned among the parties in the same manner as the costs of the dispute resolution facilitator. b)
Provision of a more detailed list of defects by the association to the respondent after the association completes a visual inspection of the project. This list of defects shall provide sufficient detail for the respondent to ensure that all potentially responsible subcontractors and design professionals are provided with notice of the dispute resolution process. If not already completed prior to the case management meeting, the Notice of Commencement of Legal Proceeding shall be served by the respondent on all additional subcontractors and design professionals whose potential responsibility appears on the face of the more detailed list of defects within seven days of receipt of the more detailed list. The respondent shall serve a copy of the case management statement, including the name, address, and telephone number of the dispute resolution facilitator, to all the potentially responsible subcontractors and design professionals at the same time.
c)
Nonintrusive visual inspection of the project by the respondent, subcontractors, and design professionals.
d)
Invasive testing conducted by the association, as the association deems appropriate. All parties may observe and photograph any testing conducted by the association pursuant to this paragraph, but may not take samples or direct testing unless, by mutual agreement, costs of testing are shared by the parties.
e)
Preparation by the association of a comprehensive demand that provides sufficient detail for the parties to engage in meaningful dispute resolution as contemplated under this section.
f)
Invasive testing conducted by the respondent, subcontractors, and design professionals, as they deem appropriate.
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g)
Allowance for modification of the demand by the association if new issues arise during the testing conducted by the respondent, subcontractor, or design professionals.
h)
Facilitated dispute resolution of the claim, with all parties, including peripheral parties, as appropriate, and insurers, if any, present and having settlement authority. The dispute resolution facilitators shall endeavor to set specific times for the attendance of specific parties at dispute resolution sessions. If the DRF does not set specific times for the attendance of parties at dispute resolution sessions, the dispute resolution facilitator shall permit those parties to participate in dispute resolution sessions by telephone.
In addition to the foregoing elements of the case management statement described in subdivision (h), upon mutual agreement of the parties, the DRF may include any or all of the following elements in a case management statement: the exchange of consultant or expert photographs; expert presentations; expert meetings; or any other mechanism deemed appropriate by the parties in the interest of resolving the dispute. 1375(h)-(i). (18.)
Establishment of Deadlines for Case Management Events The dispute resolution facilitator, with the guidance of the parties, shall at the time the case management statement is established, set deadlines for the occurrence of each event set forth in the case management statement, taking into account such factors as the size and complexity of the case, and the requirement of this section that this dispute resolution process not exceed 180 days absent agreement of the parties to an extension of time. 1375(j).
(19.)
Respondent’s Submission to Association At a time to be determined by the dispute resolution facilitator, the respondent may submit to the association all of the following: a)
A request to meet with the board to discuss a written settlement offer.
b)
A written settlement offer, and a concise explanation of the reasons for the terms of the offer.
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c)
A statement that the respondent has access to sufficient funds to satisfy the conditions of the settlement offer.
d)
A summary of the results of testing conducted for the purposes of determining the nature and extent of defects, if this testing has been conducted, unless the association provided the respondent with actual test results.
If the respondent does not timely submit the items required by this subdivision, the association shall be relieved of any further obligation to satisfy the requirements of this subdivision only. 1375(k)(1)(A)-(B). (20.)
Meet and Confer on Settlement Offer No less than ten (10) days after the respondent submits the items required by this paragraph, the respondent and the board of directors of the association shall meet and confer about the respondent’s settlement offer. 1375(k)(1)(C).
(21.)
Membership Meeting If Respondent’s Offer Is Rejected If the association’s board of directors rejects a settlement offer presented at the meeting held pursuant to this subdivision, the board shall hold a meeting open to each member of the association. The meeting shall be held no less than fifteen (15) days before the association commences an action for damages against the respondent. No less than fifteen (15) days before this meeting is held, a written notice shall be sent to each member of the association specifying all of the following: a)
That a meeting will take place to discuss problems that may lead to the filing of a civil action, and the time and place of this meeting.
b)
The options that are available to address the problems, including the filing of a civil action and a statement of the various alternatives that are reasonably foreseeable by the association to pay for those options and whether these payments are expected to be made from the use of reserve
PROPERTY OF RESNICK & LOUIS, P.C. 59
account funds or the imposition of regular or special assessments, or emergency assessment increases. c)
The complete text of any written settlement offer, and a concise explanation of the specific reasons for the terms of the offer submitted to the board at the meeting held pursuant to subdivision (d) that was received from the respondent.
The respondent shall pay all expenses attributable to sending the settlement offer to all members of the association. The respondent shall also pay the expense of holding the meeting, not to exceed three dollars per association member. The discussions at the meeting and the contents of the notice and the items required to be specified in the notice pursuant to paragraph (E) are privileged communications and are not admissible in evidence in any civil action, unless the association consents to their admission. No more than one request to meet and discuss a written settlement offer may be made by the respondent pursuant to this subdivision. 1375(k)(1)(D)-(H). (22.)
Inadmissibility of Documents and Communications Except for the purpose of in camera review as provided in subdivision (c) of Civil Code § 1375.05, all defect lists and demands, communications, negotiations, and settlement offers made in the course of the prelitigation dispute resolution process provided by § 1375 shall be inadmissible pursuant to §§ 11191124, inclusive, of the Evidence Code and all applicable decisional law. This inadmissibility shall not be extended to any other documents or communications, which would not otherwise be deemed inadmissible. 1375(l).
(23.)
Petition for Release from Dispute Resolution Process Any subcontractor or design professional may, at any time, petition the dispute resolution facilitator to release that party from the dispute resolution process upon a showing that the subcontractor or design professional is not potentially responsible for the defect claims at issue. The petition shall be served contemporaneously on PROPERTY OF RESNICK & LOUIS, P.C. 60
all other parties, who shall have fifteen (15) days from the date of service to object. If a subcontractor or design professional is released, and it later appears to the dispute resolution facilitator that it may be a responsible party in light of the current defect list or demand, the respondent shall renotice the party as provided by paragraph (2) of subdivision (e), provide a copy of the current defect list or demand, and direct the party to attend a dispute resolution session at a stated time and location. A party who subsequently appears after having been released by the dispute resolution facilitator shall not be prejudiced by its absence from the dispute resolution process as the result of having been previously released by the dispute resolution facilitator. 1375(m). (24.)
Petition for Appointment of Referee Any party may, at any time, petition the superior court in the county where the project is located, upon a showing of good cause, and the court may issue an order, for any of the following, or for appointment of a referee to resolve a dispute regarding any of the following: a)
To take a deposition of any party to the process, or subpoena a third party for deposition or production of documents, that is necessary to further prelitigation resolution of the dispute.
b)
To resolve any disputes concerning inspection, testing, production of documents, or exchange of information provided for under this section.
c)
To resolve any disagreements relative to the timing or contents of the case management statement.
d)
To authorize internal extensions of timeframes set forth in the case management statement.
e)
To seek a determination that a settlement is a good faith settlement pursuant to § 877.6 of the Code of Civil Procedure and all related authorities. The page limitations and meet and confer requirements specified in this section shall not apply to these motions, which may be made on shortened notice. Instead, these motions shall be subject to other applicable state law, rules of court, and local rules. A
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determination made by the court pursuant to this motion shall have the same force and effect as the determination of a post-filing application or motion for good faith settlement.
(25.)
f)
To ensure compliance, on shortened notice, with the obligation to provide a Statement of Insurance pursuant to paragraph (2) of subdivision (e).
g)
For any other relief appropriate to the enforcement of the provisions of this section, including the ordering of parties, and insurers, if any, to the dispute resolution process with settlement authority.
h)
A petition filed pursuant to 1375(n) shall be filed in the superior court in the county in which the project is located. The court shall hear and decide the petition within ten (10) days after filing. The petitioning party shall serve the petition on all parties, including the date, time, and location of the hearing no later than five business days prior to the hearing. Any responsive papers shall be filed and served no later than three business days prior to the hearing. Any petition or response filed under this section shall be no more than three pages in length.
i)
All parties shall meet with the dispute resolution facilitator, if one has been appointed and confer in person or by the telephone prior to the filing of that petition to attempt to resolve the matter without requiring court intervention. 1375(n).
Procedures for Filing Complaint Following Calderon Process Section 1375.05 also has been added to the Civil Code, which provides: a)
Upon the completion of the mandatory prefiling dispute resolution process described in 1375, if the parties have not settled the matter, the association or its assignee may file a complaint in the superior court in the county in which the project is located. Those matters shall be given trial priority.
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b)
In assigning trial priority, the court shall assign the earliest possible trial date, taking into consideration the pretrial preparation completed pursuant to 1375, and shall deem the complaint to have been filed on the date of service of the Notice of Commencement of Legal Proceeding described under 1375.
c)
Any respondent, subcontractor, or design professional who received timely prior notice of the inspections and testing conducted under 1375 shall be prohibited from engaging in additional inspection or testing, except if all of the following specific conditions are met, upon motion to the court: 1)
There is an insurer for a subcontractor or design professional that did not have timely notice that legal proceedings were commenced under 1375 at least thirty (30) days prior to the commencement of inspections or testing pursuant to paragraph (6) of subdivision (h) of 1375.
2)
The insurer’s insured did not participate in any inspections or testing conducted under the provisions of paragraph (6) of subdivision (h) of 1375.
3)
The insurer has, after receiving notice of a complaint filed in superior court under subdivision (a), retained separate counsel, who did not participate in the 1375 dispute resolution process, to defend its insured as to the allegations in the complaint.
4)
It is reasonably likely that the insured would suffer prejudice if additional inspections or testing are not permitted.
5)
The information obtainable through the proposed additional inspections or testing is not available through any reasonable alternative sources.
If the court permits additional inspections or testing upon finding that these requirements are met, any additional PROPERTY OF RESNICK & LOUIS, P.C. 63
inspections or testing shall be limited to the extent reasonably necessary to avoid the likelihood of prejudice and shall be coordinated among all similarly situated parties to ensure that they occur without unnecessary duplication. For purposes of providing notice to an insurer prior to inspections or testing under paragraph (6) of subdivision (h) of 1375, if notice of the proceedings was not provided by the insurer’s insured, notice may be made via certified mail either by the subcontractor, design professional, association, or respondent to the address specified in the Statement of Insurance provided under paragraph (2) of subdivision (e) of 1375. Nothing herein shall affect the rights of an intervenor who files a complaint in intervention. If the association alleges defects that were not specified in the prefiling dispute resolution process under 1375, the respondent, subcontractor, and design professionals shall be permitted to engage in testing or inspection necessary to respond to the additional claims. A party who seeks additional inspections or testing based upon the amendment of claims shall apply to the court for leave to conduct those inspections or that testing. If the court determines that it must review the defect claims alleged by the association in the prefiling dispute resolution process in order to determine whether the association alleges new or additional defects, this review shall be conducted in camera. Upon objection of any party, the court shall refer the matter to a judge other than the assigned trial judge to determine if the claim has been amended in such a way as to require additional testing or inspection. d)
Any subcontractor or design professional who had notice of the facilitated dispute resolution conducted under 1375 but failed to attend, or attended without settlement authority, shall be bound by the amount of any settlement reached in the facilitated dispute resolution in any subsequent trial, although the affected party may introduce evidence as to the allocation of the settlement. Any party who failed to participate in the facilitated dispute resolution because the party did not receive timely notice of the mediation shall be relieved of any obligation to participate in the settlement. Notwithstanding any privilege applicable to the prefiling dispute resolution process provided by 1375, evidence may
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be introduced by any party to show whether a subcontractor or design professional failed to attend or attended without settlement authority. The binding effect of this subdivision shall in no way diminish or reduce a nonsettling subcontractor or design professional’s right to defend itself or assert all available defenses relevant to its liability in any subsequent trial. For purposes of this subdivision, a subcontractor or design professional shall not be deemed to have attended without settlement authority because it asserted defenses to its potential liability. e)
Notice of the facilitated dispute resolution conducted under 1375 must be mailed by the respondent no later than 20 days prior to the date of the first facilitated dispute resolution session to all parties. Notice shall also be mailed to each of these parties’ known insurance carriers. Mailing of this notice shall be by certified mail. Any subsequent facilitated dispute resolution notices shall be served by any mean reasonably calculated to provide those parties actual notice.
f)
As to the complaint, the order of discovery shall, at the request of any defendant, except upon a showing of good cause, permit the association’s expert witnesses to be deposed prior to any percipient party depositions. The depositions shall, at the request of the association, be followed immediately by the defendant’s experts and then by the subcontractors’ and design professionals’ experts, except on a showing of good cause. For purposes of this section, in determining what constitutes “good cause,“ the court shall consider, among other things, the goal of early disclosure of defects and whether the expert is prepared to render a final opinion, except that the court may modify the scope of any expert’s deposition to address those concerns.
g)
(1) The only method of seeking judicial relief for the failure of the association or the respondent to complete the dispute resolution process under 1375 shall be the assertion, as provided for in this subdivision, of a procedural deficiency to an action for damages by the association against the respondent after that action has been filed. A verified application asserting a procedural deficiency shall be filed with the court no later than 90 days after the answer to the
PROPERTY OF RESNICK & LOUIS, P.C. 65
plaintiff’s complaint has been served, unless the court finds that extraordinary conditions exist. (2) Upon the verified application of the association or the respondent alleging substantial noncompliance with 1375, the court shall schedule a hearing within twenty-one (21) days of the application to determine whether the association or respondent has substantially complied with this section. The issue may be determined upon affidavits or upon oral testimony, in the discretion of the court. (3)(A) If the court finds that the association or the respondent did not substantially comply with this paragraph, the court shall stay the action for up to ninety (90) days to allow the noncomplying party to establish substantial compliance. The court shall set a hearing within ninety (90) days to determine substantial compliance. At any time, the court may, for good cause shown, extend the period of the stay upon application of the noncomplying party. 3(B) If, within the time set by the court pursuant to this paragraph, the association or the respondent has not established that it has substantially complied with this section, the court shall determine if, in the interest of justice, the action should be dismissed without prejudice, or if another remedy should be fashioned. Under no circumstances shall the court dismiss the action with prejudice as a result of the association’s failure to substantially comply with this section. In determining the appropriate remedy, the court shall consider the extent to which the respondent has complied with this section.
(26.)
h)
This section shall become operative on July 1, 2002; however, it shall not apply to any pending action or proceeding.
i)
This section shall become inoperative on July 1, 2010, and, as of January 1, 2011, is repealed, unless a later enacted statute that is enacted before January 1, 2011, deletes or extends the dates on which it becomes inoperative and is repealed.
The Calderon Process is a “Suit” For a CGL Policy. The Calderon process triggers the duty to defend. Clarendon America Insurance Company v. StarNet Insurance Company.
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4.
Nevada (Chapter 40) (a.)
Introduction. Residential construction defect claims in Nevada are governed by Nevada Revised Statutes 40.600-40.695, often referred to as “Chapter 40.” This statutory scheme has enabled plaintiffs to enjoy a very friendly construction defect jurisdiction. Many insurance companies have paid premiums in Nevada out of fear that the Chapter 40 “entitlements” (damages) could explode the exposure well in excess of what it would cost to repair the home. Nevada passed the Homeowner Protections Act of 2015, A.B. 125, 78th Regular Session (Nev. 2015), enacted Feb. 24, 2015, which marks a dramatic shift toward a more level construction defect playing field. Incorporated into the existing Chapter 40 laws and related statutes, this legislation includes the following changes to Nevada’s construction defect scheme: (1.)
Voids indemnity provisions in which a subcontractor would be required to indemnify a general contractor for the general contractor’s fault;
(2.)
Prohibits the award of attorneys’ fees as damages;
(3.)
Costs are only recoverable if incurred for construction defects actually proven by the homeowner, not merely alleged;
(4.)
Prohibits homeowners’ associations from bringing construction defect claims that are not related to the common elements of the community;
(5.)
Creates a single 6-year statute of repose for all construction defects, eliminating the tiered and lengthy statutes of repose for known defects, latent defects, and patent defects;
(6.)
Mandates a warranty claim and denial before presenting a Chapter 40 notice or filing a construction defect claim;
(7.)
Eliminates the ability of a homeowner or homeowners to present a single Chapter 40 notice on behalf of all similarly situated (and unnamed) homeowners in a single development for common construction defects;
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(8.)
Requires each homeowner presenting a claim in a Chapter 40 notice to sign a verified statement confirming the truth of the allegations contained therein;
(9.)
Mandates that homeowners (and their experts) specifically identify each defect and damage and its location, rather than simply describing the defect in reasonable detail;
(10.)
Mandates that homeowners (and their experts) be present at any inspection, and specifically identify each defect and damage and its location;
(11.)
Requires general contractors covered as an additional insured under a subcontradctor’s CGL insurance policy to seek coverage under that AI policy prior to pursuing a claim against the subcontractor;
(12.)
Establishes disclosure requirements for WRAP/OCIP policies;
(13.)
Clarifies that pre-litigation offers of judgment are allowed, and their procedure.
It is important to note that the provisions of A.B. 125 generally only apply to residential construction contracts, claims, notices, and inspections that arise or take place on or after the effective date, Feb. 24, 2015. The only exception is that the time period within the new statute of repose applies retroactively to actions in which the substantial completion of the improvement to the real property occurred before the effective date. (b.)
(c.)
Who is a “claimant”? NRS 40.610 “Claimant” defined. “Claimant” means: (1.)
An owner of a residence or appurtenance;
(2.)
A representative of a homeowner’s acting within the scope of the representative’s duties pursuant to chapter 116 or 117 of NRS.
What is a “constructional defect”? NRS 40.615 “Constructional defect” defined. “Constructional defect” means a defect in the design, construction, manufacture, repair or landscaping of a new residence, of an alteration of or addition to an existing residence, or of an appurtenance and includes, without limitation, the design, construction, manufacture,
PROPERTY OF RESNICK & LOUIS, P.C. 68
repair or landscaping of a new residence, of an alteration of or addition to an existing residence, or of an appurtenance:
(d.)
(e.)
(1.)
Which presents an unreasonable risk of injury to a person or property; or
(2.)
Which is not completed in a good and workmanlike manner and proximately causes physical damage to the residence, an appurtenance or the real property to which the residence or appurtenance is affixed.
What Defenses Can The Contractor Raise to a Constructional Defect Claim? NRS 40.640 Liability of contractor. A contractor/subcontractor is not liable for any damages caused by: (1.)
The acts or omissions of a person other than the contractor or the contractor’s agent, employee or subcontractor;
(2.)
The failure of a person other than the contractor or the contractor’s agent, employee or subcontractor to take reasonable action to reduce the damages or maintain the residence;
(3.)
Normal wear, tear or deterioration;
(4.)
Normal shrinkage, swelling, expansion or settlement; or
(5.)
Any constructional defect disclosed to an owner before the owner’s purchase of the residence, if the disclosure was provided in language that is understandable and was written in underlined and boldfaced type with capital letters.
What Potential Defendant Does Chapter 40 Apply To? Chapter 40 applies to contractors, subcontractors, suppliers and design professionals as potential defendants. These potential defendants may be named as a defendant in a direct claim brought by the claimant or in a third-party claim or complaint brought by a “controlling party.” (1.)
What is a “controlling party”? A “controlling party” means a person who owns real property involved in residential construction, a contractor, or any other person who is to be indemnified by a provision in a contract entered into for residential construction. “Controlling party” includes developers and general contractors, among others. PROPERTY OF RESNICK & LOUIS, P.C. 69
(f.)
(g.)
Pre-Notice Warranty Requirement. NRS 40.650. (1.)
A claimant may not send a notice to a contractor/subcontractor/supplier/design professional unless the claimant has first submitted a claim under the homeowner’s warranty and the insurer has denied the claim. See A.B. 125, § 14, 78th Regular Session (Nev. 2015), enacted Feb. 24, 2015.
(2.)
Following the warranty procedure, the claimant’s notice may only include claims for the constructional defects that were denied by the homeowner’s warranty insurer. See A.B. 125, § 14, 78th Regular Session (Nev. 2015), enacted Feb. 24, 2015.
(3.)
If coverage under a homeowner’s warranty is denied by an insurer in bad faith, the homeowner and the contractor, subcontractor, supplier or design professional have a right of action for the sums that would have been paid if coverage had been provided, plus reasonable attorney’s fees and costs.
What Does The Notice from Claimants to the Potential Defendant Need to Contain? NRS 40.645. (1.)
Include a statement that the notice is being given to satisfy the requirements of this section;
(2.)
Identify in specific detail each defect, damage and injury to each residence or appurtenance that is the subject of the claim, including, without limitation, the exact location of each such defect, damage and injury;
(3.)
Describe in reasonable detail the cause of the defects if the cause is known and the nature and extent that is known of the damage or injury resulting from the defects; and
(4.)
Include a signed statement, by each named owner of a residence or appurtenance in the notice, that each such owner verifies that each such defect, damage and injury specified in the notice exists in the residence or appurtenance owned by him or her. If a notice is sent on behalf of a homeowners’ association, the statement required by this paragraph must be signed under penalty of perjury by a member of the executive board or an officer of the homeowners’ association. PROPERTY OF RESNICK & LOUIS, P.C. 70
(h.)
(i.)
When is Notice NOT Required? A claimant is not required to give notice: (1.)
When the claimant is first sued by the contractor, subcontractor, supplier, or design professional. NRS 40.645.
(2.)
When the claimant has filed a formal complaint with a law enforcement agency against the contractor, subcontractor, supplier or design professional for threatening to commit or committing an act of violence or criminal offense against the claimant or the claimant’s property. NRS 40.645.
(3.)
For any party who intervenes after action is commenced. NRS 40.692.
What are the Contractor’s Responsibilities After Receipt of a Chapter 40 Notice? NRS 40.646, 40.6472. (1.)
Within thirty (30) days from when a contractor receives notice of a constructional defect pursuant to NRS 40.645, the contractor shall forward a copy of the notice by certified mail, return receipt requested, to the last known address of each subcontractor, supplier or design professional whom the contractor reasonably believes is responsible for a defect specified in the notice.
(2.)
If a contractor does not provide notice as required pursuant to subsection 1, the contractor may not commence an action against the subcontractor, supplier or design professional related to the constructional defect unless the contractor demonstrates that, after making a good faith effort, the contractor was unable to identify the subcontractor, supplier or design professional whom the contractor believes is responsible for the defect within the time provided pursuant to subsection 1.
(3.)
The contractor must respond to the claimant’s notice by certified mail, return receipt requested, within ninety (90) days of receipt.
(4.)
The contractor’s written response sent to the claimant must respond to each constructional defect in the notice and: a)
Must state whether the contractor has elected to repair the defect or cause the defect to be repaired. If an election to
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repair is included in the response and the repair will cause the claimant to move from the claimant’s home during the repair, the election must also include monetary compensation in an amount reasonably necessary for temporary housing or for storage of household items, or for both, if necessary.
(j.)
b)
May include a proposal for monetary compensation, which may include contribution from a subcontractor, supplier or design professional.
c)
May disclaim liability for the constructional defect and state the reasons for such a disclaimer.
(5.)
If the contractor has elected not to repair the constructional defect, the claimant may bring a cause of action for the constructional defect or amend a complaint to add a cause of action for the constructional defect.
(6.)
If the contractor has elected to repair the constructional defect, the claimant must provide the contractor with a reasonable opportunity to repair the constructional defect.
What Are the Responsibilities of a Subcontractor/Supplier/Design Professional When They Receive the Chapter 40 Notice From the Contractor? (1.)
Within thirty (30) days after receiving notice from the contractor pursuant to this section, the subcontractor, supplier or design professional shall inspect the alleged constructional defect in accordance with NRS 40.6462 and provide the contractor with a written statement indicating: a)
Whether the subcontractor, supplier or design professional has elected to repair the defect for which the contractor believes the subcontractor, supplier or design professional is responsible; and
b)
If the subcontractor, supplier or design professional elects to repair the defect, an estimate of the length of time required for the repair, and at least two proposed dates on and times at which the subcontractor, supplier or design professional is able to begin making the repair.
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(2.)
(k.)
(l.)
Does the Claimant Have to Allow An Inspection? NRS 40.6462. (1.)
Yes, reasonable access, upon reasonable notice, if they are the subject of the Chapter 40 notices. The inspections must be conducted in a manner which minimizes the inconvenience to the claimant. NRS 40.647.
(2.)
The claimant—and if the claimant’s Chapter 40 notice includes an expert opinion, the claimant’s expert as well—must: a)
Be present at the inspection; and
b)
Identify the exact location of each constructional defect alleged in the notice.
Does the Claimant Have to Allow a Contractor, Subcontractor, Supplier or Design Professional to Make Repairs? NRS 40.647. (1.)
(m.)
If a subcontractor, supplier or design professional elects to repair the constructional defect, the contractor or claimant may hold the subcontractor liable for any repair which does not eliminate the defect.
Yes, if an election to repair is made pursuant to NRS 40.6472.
What Happens If the Claimant Does Not Allow Inspections and/or Repairs? NRS 40.647. (1.)
If a claimant does not allow inspections and/or repairs, the court shall: a)
Dismiss the action without prejudice and compel the claimant to comply with those provisions before filing another action; or
b)
If dismissal of the action would prevent the claimant from filing another action because the action would be procedurally barred by the statute of limitations or statute of repose, the court shall stay the proceeding pending compliance with those provisions by the claimant.
PROPERTY OF RESNICK & LOUIS, P.C. 73
(n.)
(o.)
What Does the Claimant Do Once the Contractor/Subcontractor/ Supplier and/or Design Professional Responds to the Chapter 40 Notice? (1.)
If the claimant is a homeowners’ association, the association shall send a copy of the response to each member of the association not later than thirty (30) days after receiving the response.
(2.)
If the contractor, subcontractor, supplier or design professional has elected not to repair the constructional defect, the claimant or contractor may bring a cause of action for the constructional defect or amend a complaint to add a cause of action for the constructional defect.
What Happens If the Defect Presents An Imminent Threat to Health or Safety? NRS 40.670. (1.)
A contractor, subcontractor, supplier or design professional who receives written notice of a constructional defect resulting from work performed by the contractor, subcontractor, supplier or design professional which creates an imminent threat to the health or safety of the inhabitants of the residence shall take reasonable steps to cure the defect as soon as practicable. The contractor, subcontractor, supplier or design professional shall not cure the defect by making any repairs for which such person is not licensed or by causing any repairs to be made by a person who is not licensed to make those repairs. If the contractor, subcontractor, supplier or design professional fails to cure the defect in a reasonable time, the owner of the residence may have the defect cured and may recover from the contractor, subcontractor, supplier or design professional the reasonable cost of the repairs plus reasonable attorneys’ fees and costs in addition to any other damages recoverable under any other law.
(2.)
A contractor, subcontractor, supplier or design professional who does not cure a defect pursuant to this section because such person has determined, in good faith and after a reasonable inspection, that there is not an imminent threat to the health or safety of the inhabitants is not liable for attorneys’ fees and costs pursuant to this section, except that if a building inspector, building official or other similar authority employed by a governmental body with jurisdiction certifies that there is an imminent threat to the health and safety of the inhabitants of the residence, the contractor, PROPERTY OF RESNICK & LOUIS, P.C. 74
subcontractor, supplier or design professional is subject to the provisions of subsection 1. (p.)
(q.)
What Happens If There Is a Defect In a New Residence? NRS 40.672. (1.)
Except as otherwise provided in NRS 40.670, if a contractor, subcontractor, supplier or design professional receives written notice of a constructional defect not more than 1 year after the close of escrow of the initial purchase of the residence, the contractor, subcontractor, supplier or design professional shall make the repairs within 45 days after receiving the written notice unless completion is delayed by the claimant or by other events beyond the control of the contractor, subcontractor, supplier or design professional, or timely completion of repairs is not reasonably possible.
(2.)
The contractor, subcontractor, supplier or design professional and claimant may agree in writing to extend the period prescribed by this section.
(3.)
If a contractor or subcontractor fails to comply with this section, the contractor or subcontractor is immediately subject to disciplinary action pursuant to NRS 624.300, including license suspension or revocation.
What Happens If the Contractor/Subcontractor/Supplier/Design Professional Elects to Repair? NRS 40.648. They must be bonded and insured to perform the repairs and, if such person is not, the repairs may be performed by another person who meets those qualifications. (1.)
The repairs must be performed: a)
On reasonable dates and at reasonable times agreed to in advance with the claimant;
(2.)
In compliance with any applicable building code and in a good and workmanlike manner in accordance with the generally accepted standard of care in the industry for that type of repair; and
(3.)
In a manner which will not increase the cost of maintaining the residence or appurtenance than otherwise would have been PROPERTY OF RESNICK & LOUIS, P.C. 75
required if the residence or appurtenance had been constructed without the constructional defect, unless the contractor and the claimant agree in writing that the contractor will compensate the claimant for the increased cost incurred as a result of the repair. (4.)
Any part of the residence or appurtenance that is not defective but which must be removed to correct the constructional defect must be replaced.
(5.)
The contractor, subcontractor, supplier or design professional shall prevent, remove and indemnify the claimant against any mechanics’ liens and materialmen’s liens.
Not later than 30 days after the repairs are completed, the contractor, subcontractor, supplier or design professional who repaired or caused the repair of a constructional defect shall provide the claimant with a written statement describing the nature and extent of the repair, the method used to repair the constructional defect and the extent of any materials or parts that were replaced during the repair. (r.)
Can the Contractor/Subcontractor/Supplier/Design Obtain a Release for Repairs? NRS 40.648.
Professional
Any election to repair made pursuant to NRS 40.6472 may not be made conditional upon a release of liability. (s.)
Subsequent Law Suit Based Upon Repairs (Not Applicable to 40.648 and 60.6472 Elections of Repairs). NRS 40.667. A written waiver or settlement agreement executed by a claimant after a contractor has corrected or otherwise repaired a constructional defect does not bar a claim for the constructional defect if it is determined that the contractor failed to correct or repair the defect properly. However, the claimant must also: obtain the opinion of an expert concerning the constructional defect; have provided the contractor with a written notice of the defect pursuant to NRS 40.645 and a copy of the expert’s opinion; and claimant and the contractor have complied with the requirements for inspection and repair as provided in NRS 40.600 to 40.695, inclusive. The provisions of this section do not apply to repairs which are made pursuant to an election to repair pursuant to NRS 40.6472.
PROPERTY OF RESNICK & LOUIS, P.C. 76
If a claimant does not prevail in any action which is not barred pursuant to this section, the court may: (a) Deny the claimant’s attorneys’ fees, fees for an expert witness or costs; and (b) Award attorneys’ fees and costs to the contractor. (t.)
What Happens If the Claimant Rejects a Financial Offer to Settle? NRS 40.650. (1.)
If a claimant unreasonably rejects a reasonable written offer of settlement, the court may: a)
Deny the claimant’s attorneys’ fees and costs; and
b)
Award attorneys’ fees and costs to the contractor. 1) Any sums paid under a homeowner’s warranty, other than sums paid in satisfaction of claims that are collateral to any coverage issued to or by the contractor, must be deducted from any recovery.
Written Offers of Settlement. NRS 40.660. A written financial offer of settlement made that is not accepted within 35 days after the offer is received by the claimant is considered rejected if the offer contains a clear and understandable statement notifying the claimant of the consequences of the claimant’s failure to respond or otherwise accept or reject the offer of settlement. An affidavit certifying rejection of an offer of settlement under this section may be filed with the court. (u.)
What Happens if the Contractor, Subcontractor, Supplier or Design Professional Does Not Comply with Chapter 40, Including Timely Responses ? NRS 40.650. If a contractor, subcontractor, supplier or design professional fails to: (1.)
Comply with the provisions of NRS 40.6472;
(2.)
Make an offer of settlement;
(3.)
Make a good faith response to the claim asserting no liability;
(4.)
Agree to a mediator or accept the appointment of a mediator pursuant to NRS 40.680; or
PROPERTY OF RESNICK & LOUIS, P.C. 77
(5.)
Participate in mediation,
THEN the limitations on damages and defenses to liability provided in NRS 40.600 to 40.695, inclusive, and sections 2 and 3 of A.B. 125, 78th Regular Session (Nev. 2015), enacted Feb. 24, 2015, do not apply and the claimant may commence an action or amend a complaint to add a cause of action for a constructional defect without satisfying any other requirement of NRS 40.600 to 40.695, inclusive). (v.)
Can The Contractor/Subcontractor/Supplier/Design Professional Make an Offer of Judgment After Chapter 40 Timeframe Within Litigation? NRS 40.650. (1.)
(w.)
Yes.
What Are the Insurance Company’s Responsibilities During the Chapter 40 Notice Phase? NRS 40.649. If the contractor, subcontractor, supplier or design professional presents the claim to the insurer pursuant to this section, the insurer:
(x.)
(1.)
Must treat the claim as if a civil action has been brought against the contractor, subcontractor, supplier or design professional; and
(2.)
Must provide coverage to the extent available under the policy of insurance as if a civil action has been brought against the contractor, subcontractor, supplier or design professional.
(3.)
A contractor, subcontractor, supplier or design professional is not required to present a claim to the insurer pursuant to this section, and the failure to present such a claim to the insurer does not relieve the insurer of any duty under the policy of insurance to the contractor, subcontractor, supplier or design professional.
What Damages Are the Claimants Entitled To? NRS 40.655. (1.)
Reasonable cost of necessary repairs.
(2.)
Reduction in market value, to the extent caused by structural failure. “Structural failure” means physical damage to the loadbearing portion of a residence or appurtenance caused by a failure of the load-bearing portion of the residence or appurtenance.
PROPERTY OF RESNICK & LOUIS, P.C. 78
(3.)
Loss of use.
(4.)
Reasonable value of any personal property damaged by the constructional defect.
(5.)
Any additional costs, including expert witness fees and costs that are reasonably incurred for constructional defects actually proven by the claimant, not merely alleged. See A.B. 125, § 15, 78th Regular Session (Nev. 2015), enacted Feb. 24, 2015.
(6.)
Interest provided by statute.
(7.)
Claimant may not recover attorneys’ fees. See A.B. 125, § 15, 78th Regular Session (Nev. 2015), enacted Feb. 24, 2015.
If a contractor complies with the provisions of NRS 40.600 to 40.695, inclusive, and sections 2 and 3 of A.B. 125, 78th Regular Session (Nev. 2015), enacted Feb. 24, 2015, the claimant may not recover from the contractor, as a result of the constructional defect, anything other than the damages authorized above. (y.)
Is Mediation Required Before Claimant Files a Construction Defect Law Suit? NRS 40.680. (1.)
Yes, the matter must be submitted to mediation, unless mediation is waived in writing by the contractor, subcontractor, supplier or design professional and the claimant. Claimant and Respondent must agree on the mediator within twenty (20) days of plaintiff’s designation of a mediator.
(2.)
A report issued by a mediator or special master that indicates that a party has failed to appear before the mediator or special master or to mediate in good faith is admissible in the action, but a statement or admission made by a party in the course of mediation is not admissible.
(3.)
Not later than fifteen (15) days before the commencement of mediation required pursuant to NRS 40.680 and upon providing fifteen (15) days’ notice, each party shall provide to the other party, or shall make a reasonable effort to assist the other party to obtain, all relevant reports, photos, correspondence, plans, specifications, warranties, contracts, subcontracts, work orders for repair, videotapes, technical reports, soil and other engineering PROPERTY OF RESNICK & LOUIS, P.C. 79
reports and other documents or materials relating to the claim that are not privileged. (z.)
(aa.)
Does Chapter 40 Require Insurance Company Claims Professionals To Attend Settlement Conferences? Yes, but only on order from special master or judge presiding over claim. NRS 40.684. (1.)
If a settlement conference is held concerning a claim for a constructional defect, the special master, if any, or the judge presiding over the claim may order a representative of an insurer of a party to attend the settlement conference.
(2.)
Any insurance company that conducts business in Nevada and that insures a party against liability for the claim shall be deemed to have consented to the jurisdiction of the special master or the judge.
(3.)
If a representative of an insurer is ordered to attend the settlement conference, the insurer shall ensure that the representative is authorized, on behalf of the insurer, to: a)
Bind the insurer to any settlement agreement relating to the claim;
b)
Enter into any agreement relating to coverage that may be available under the party’s policy of insurance which is required to carry out any settlement relating to the claim; and
c)
Commit for expenditure money or other assets available under the party’s policy or insurance.
What Happens If the Insurance Company Fails to Attend the Settlement Conference and/or Attends Not In Good Faith? NRS 40.684. (1.)
If a representative of an insurer who is ordered to attend a settlement conference pursuant to subsection 1 fails to attend the settlement conference or attends but is substantially unprepared to participate, or fails to participate in good faith, the special master or the judge may, on the special master’s or the judge’s own motion or that of a party, issue any order with regard thereto that is just under the circumstances. PROPERTY OF RESNICK & LOUIS, P.C. 80
(2.)
(bb.)
In lieu of or in addition to any other sanction, the special master or the judge may require the insurer to pay any reasonable expenses or attorneys’ fees incurred by a party because of the failure of the insurer or its representative to comply with the provisions of this section or any order issued pursuant to this section, unless the special master or the judge finds that the failure to comply was substantially justified or that any other circumstances make the award of such expenses or fees unjust.
Are Respondents Required to Disclose The Insurance Policies? Yes. NRS 40.687. (1.)
The contractor shall, no later than ten (10) days after a response to a notice is made pursuant to Chapter 40, disclose to the claimant any information about insurance agreements that may be obtained by discovery pursuant to Rule 26(b)(2) of the Nevada Rules of Civil Procedure. Such disclosure does not affect the admissibility at trial of the information disclosed. Failure to produce can lead to sanctions, including attorneys’ fees and costs. The parties may agree to an extension of time to produce the information required pursuant to this section.
(2.)
“Information about insurance agreements” is limited to any declaration sheets, endorsements and contracts of insurance issued to the contractor from the commencement of construction of the residence of the claimant to the date on which the request for the information is made and does not include information concerning any disputes between the contractor and an insurer or information concerning any reservation of rights by an insurer.
(cc.). Does a Chapter 40 Notice Toll The Statutes of Limitations and Repose? Yes. NRS 40.695. (1.)
Statutes of limitation or repose are tolled from the time notice of the claim is given until the earlier of: a)
One year after notice of the claim is given, see A.B. 125, § 16, 78th Regular Session (Nev. 2015), enacted Feb. 24, 2015; or
b)
Thirty (30) days after mediation is concluded or waived in writing pursuant to NRS 40.680.
PROPERTY OF RESNICK & LOUIS, P.C. 81
(dd.)
(2.)
Statutes of limitation and repose may be tolled under this section for a period longer than one year after notice of the claim is given only if, when the applicable statute of limitation or repose has expired, the claimant demonstrates to the court’s satisfaction that good cause exists to toll the statutes of limitation and repose for a longer period.
(3.)
Tolling under this section applies to a third party regardless of whether the party is required to appear in the proceeding.
Can a Claimant Send a Single Notice On Behalf Of/Relating To All Similarly Situated Homeowners in a Single Development for Common Constructional Defects? No. See A.B. 125, 78th Regular Session (Nev. 2015), enacted Feb. 24, 2015, repealing NRS 40.6452. A claimant may not send a single notice on behalf of or relating to all similarly situated homeowners in a single development for common constructional defects. Previously, Nevada used to allow this practice under NRS 40.6452, but that statute was repealed in February 2015 under Assembly Bill 125. To satisfy the requirements of Chapter 40, each homeowner wishing to bring a claim for constructional defects must send a notice with a signed verification statement, identifying in specific detail each defect, damage, and injury and the exact location of same, pursuant to NRS 40.645.
F.
5.
New Mexico – Inapplicable.
6.
Utah – Inapplicable.
Joint & Several Liability/Several Liability & Comparative Fault 1.
What are the differences between Joint, Joint and Several, and Several? (a.)
Joint liability. If parties have joint liability, then they are each liable up to the full amount of the relevant obligation. So if a married couple take a loan from a bank, the loan agreement will normally provide that they are to be “jointly liable“ for the full amount. If one party dies, disappears or is declared bankrupt, the other remains fully liable. Accordingly, the bank must sue all living co-promisors, for the full amount. However, in suing, the creditor has only one course of action, i.e., the creditor can sue for each debt only once. If, for example, there are three partners, and the PROPERTY OF RESNICK & LOUIS, P.C. 82
creditor sues all of them for the outstanding loan amount and one of them pays the liability, the creditor cannot recover further amounts from the partners who did not contribute to the liability.
2.
(b.)
Several liability. The converse is several or proportionate liability, where the parties are liable for only their respective obligations. A common example of several liability is in syndicated loan agreements, which will normally provide that each bank is severally liable for its own part of the loan. If one bank fails to advance its agreed part of the loan to the borrower, then the borrower can sue only that bank, and the other banks in the syndicate have no liability.
(c.)
Joint and several liability. Under joint and several liability or all sums, a claimant may pursue an obligation against any one party as if they were jointly liable and it becomes the responsibility of the defendants to sort out their respective proportions of liability and payment. This means that if the claimant pursues one defendant and receives payment, that defendant must then pursue the other obligors for a contribution to their share of the liability.
Arizona (a.)
ARS 12-2506 – Joint and Several Liability is mostly abolished in Arizona. Arizona is a several liability state except with respect to limited circumstances such as acting in concert. Contribution is rare because only applicable to joint obligations, not several. Contribution does not exist for intentional acts.
(b.)
Pure Comparative – Arizona is a pure comparative fault jurisdiction. This means that the plaintiff can be 99% at fault, and still collect damages for 1% of the defendant’s fault.
(c.)
Non Parties At Fault Liability Considered By Trier of Fact – In assessing percentages of fault the trier of fact shall consider the fault of all persons who contributed to the alleged injury, death or damage to property, regardless of whether the person was, or could have been, named as a party to the suit. Negligence or fault of a nonparty may be considered if the plaintiff entered into a settlement agreement with the nonparty or if the defending party gives notice before trial, in accordance with requirements established by court rule, that a nonparty was wholly or partially at fault.
PROPERTY OF RESNICK & LOUIS, P.C. 83
(1.)
Assessment of fault against nonparties does not subject any nonparty to liability in this or any other action and it may not be introduced as evidence of liability in any action.
(2.)
Non-Party Designations must be set forth within 150 Days of the Answer unless good cause shown. (1.)
(d.)
3.
ARS 12-2602 certification necessary if a non-party licensed professional is designated.
Several Liability Applies in Strict Liability Claims. In State Farm Insurance Cos. v. Premier Manufactured Systems Inc., the Arizona Supreme Court recently held that the legislature’s abolishment of joint and several liability extends to strict product liability actions and to each separate defendant in the chain of manufacture and distribution of a product. Consequently plaintiffs, not defendants, also bear the risk of insolvent joint tortfeasors in strict liability actions.
Colorado (a.)
Several Liability – CRS 12-21-111.5. Colorado is mostly a several liability jurisdiction. Joint and several liability is limited by statute. Section 13-21111.5(4), C.R.S. imposes joint liability on “two or more persons who consciously conspire and deliberately pursue a common plan or design to commit a tortious act.” Those held jointly liable have a right of contribution from other defendants “acting in concert.” Section 13-21111.5(4). Those held jointly liable are liable only for the percentage of fault assigned to those persons who are held to be jointly liable. Section 13-21-111.5(4).
(b.)
Modified Comparative Fault – Colorado has adopted a system of modified comparative fault. Generally, in an action brought as a result of a death or injury to person or property, no defendant is liable for an amount greater than that represented by the percentage of fault attributable to that defendant. CRS 13-21-111.5(1). (1.)
When there is evidence credited by the fact finder that the plaintiff is also at fault, the plaintiff will be barred from recovery if the plaintiff’s fault is equal to or greater than that of the defendant or the combined fault of the defendants and designated non-parties at fault. CRS13-21-111(1) & 13-21-111.5(3)(a), Therefore, if the trier of fact assigns 50% or greater fault to the plaintiff, the plaintiff may not recover. When the fact finder assigns less than 50% fault PROPERTY OF RESNICK & LOUIS, P.C. 84
to the plaintiff, the plaintiff may recover. CRS 13-21-111(1). This means that a 50/50 verdict is a defense verdict, and the plaintiff cannot recover. When a plaintiff assigned less than 50% of fault, the amount of the plaintiff’s recovery is reduced by the percentage of his or her fault. CRS 13-21-111(1). (c.)
4.
Non Parties at Fault – Parties that are immune from liability may nevertheless be designated as non-parties at fault and assigned a percentage of fault. (1.)
Must designate non parties at fault “within ninety days following commencement of the action unless the court determines that a longer period necessary.”
(2.)
Must provide a “brief statement of the basis for believing such non-party to beat at fault.”
(3.)
Must ensure that your brief statement “would satisfy all the elements of a negligence claim.” Redden v. SCI Colo. Funeral Servs., Inc.
(4.)
If the non-party designated is a licensed professional or a company that employs licensed professionals where proof of fault will require establishing professional negligence through expert testimony, then you must also file a certificate of review. CRS 1320-602.
California (a.)
Joint and Several for Economic Loss; Several Liability for Non-Economic Loss. (1.)
1430. An obligation imposed upon several persons, or a right created in favor of several persons, may be: (1) joint; (2) several; or 3. joint and several.
(2.)
1431. Joint Liability: An obligation imposed upon several persons, or a right created in favor of several persons, is presumed to be joint, and not several, except as provided in Section 1431.2, and except in the special cases mentioned in the title on the interpretation of contracts. This presumption, in the case of a right, can be overcome only by express words to the contrary.
PROPERTY OF RESNICK & LOUIS, P.C. 85
(3.)
1431.2. Several Liability for Non-economic Damages In any action for personal injury, property damage, or wrongful death, based upon principles of comparative fault, the liability of each defendant for non-economic damages shall be several only and shall not be joint. Each defendant shall be liable only for the amount of non-economic damages allocated to that defendant in direct proportion to that defendant’s percentage of fault, and a separate judgment shall be rendered against that defendant for that amount. For purposes of this section, the term “economic damages” means objectively verifiable monetary losses including medical expenses, loss of earnings, burial costs, loss of use of property, costs of repair or replacement, costs of obtaining substitute domestic services, loss of employment and loss of business or employment opportunities. For the purposes of this section, the term “non-economic damages” means subjective, non-monetary losses including, but not limited to, pain, suffering, inconvenience, mental suffering, emotional distress, loss of society and companionship, loss of consortium, injury to reputation and humiliation.
(f.)
(4.)
1432. Except as provided in Section 877 of the Code of Civil Procedure, a party to a joint, or joint and several obligations, who satisfies more than his share of the claim against all, may require proportionate contribution from all the parties joined with him.
(5.)
Leung v. Verdugo Hills Hospital. The California Supreme Court in August, 2012, abandoned the common law “release rule,“ which holds that a plaintiff who settles with one joint tortfeasor releases all the others from liability. For good measure, the court went on to hold that even when a plaintiff settles with one defendant for a disproportionately small amount, he can recover the full amount of any subsequent judgment against other defendants, minus only a setoff for the settlement. Holding otherwise would be inconsistent with California’s joint and several liability laws and could lead to harsh results for plaintiffs, Justice Joyce Kennard wrote for a unanimous Court.
Pure Comparative Fault – California has adopted a pure comparative negligence system. PROPERTY OF RESNICK & LOUIS, P.C. 86
5.
Nevada. (a.)
Nevada has adopted modified comparative fault. There is no recovery if the Plaintiff’s liability is greater than the liability of the defendant. NRS 41.141. On a 50/50 split of liability between Plaintiff and Defendant, Plaintiff will recover but the damages will be reduced by 50%.
(b.)
When comparative fault is asserted as a defense, defendants are severally liable….only liable for their own percentages of fault/negligence. Exceptions to this general rule include actions based upon: (1) strict liability, (2) intentional torts, (3) discharge of toxic or hazardous substances, (4) the concerted acts of the defendants, or (5) an injury resulting from a product which is manufactured, distributed, sold or used in the state for which joint and several liability applies. NRS 41.141(5)
(c.)
Cafe Moda v. Palma: The Nevada Supreme Court held that a negligent defendant in a tort action is only severally liable for a plaintiff’s damages, even when other defendants committed intentional torts.
(d.)
Humphreys v. Eighth Judicial Dist. Court (1.)
6.
Humphreys v. Eighth Judicial Dist. Court a)
Negligent defendant tortfeasor cannot compel plaintiff under Nev. R. Civ. P. 19 (Necessary and Indispensible Parties) to join an intentional tortfeasor in the litigation who is absent from the litigation.
b)
Negligent defendant tortfeasor can implead intentional tortfeasor.
New Mexico (a.)
Several Liability – 41-3A-1. Several Liability. (1.)
In any cause of action to which the doctrine of comparative fault applies, the liability of any such defendants shall be several. a)
In causes of action to which several liability applies, any defendant who establishes that the fault of another is a proximate cause of a plaintiff’s injury shall be liable only for that portion of the total dollar amount awarded as
PROPERTY OF RESNICK & LOUIS, P.C. 87
damages to the plaintiff that is equal to the ratio of such defendant’s fault to the total fault attributed to all persons, including plaintiffs, defendants and persons not party to the action.
(2.)
(3.)
7.
b)
No defendant who is severally liable shall be entitled to contribution from any other person.
c)
Nothing in this section shall be construed to affect or impair any right of indemnity or contribution arising out of any contract of agreement or any right of indemnity otherwise provided by law.
Joint and Several Exceptions: a)
To any person or persons who acted with the intention of inflicting injury or damage;
b)
to any persons whose relationship to each other would make one person vicariously liable for the acts of the other, but only to that portion of the total liability attributed to those persons;
c)
to any persons strictly liable for the manufacture and sale of a defective product, but only to that portion of the total liability attributed to those persons; or
d)
to situations not covered by any of the foregoing and having a sound basis in public policy.
Pure Comparative Fault – In Scott v. Rizzo, the Supreme Court of New Mexico adopted the pure form of comparative negligence. Thus, a claimant’s negligence will never bar recovery but, instead, will only reduce the claimant’s recovery in proportion to his fault.
Utah (a.)
Utah has eliminated joint and several liability. Utah Code Ann. § 78B-5818. Utah Code Ann. §§ 78B-5-818 and 820 provides that a defendant can only be liable for its own fault and not for the fault of any other party. Fault is to be assigned to responsible persons, even if they are not defendants. Utah Code Ann. § 78B-5-819.
PROPERTY OF RESNICK & LOUIS, P.C. 88
(b.)
Modified Comparative Fault: A person seeking recovery may recover from any defendant or group of defendants whose fault, combined with the fault of persons immune from suit and nonparties to whom fault is allocated, exceeds the fault of the person seeking recovery. Utah Code Ann. § 78B-5-818(2)
G.
Statutes of Limitations 1.
Negligence/Property Damage (a.)
Arizona – Two years ARS 12-542
(b.)
Colorado – Two years CRS 13-80-102(1) and Three Years for Automobile Cases 13-80-101(n).
(c.)
(1.)
Two years construction professionals CRS 13-80-104
(2.)
Repair Doctrine inapplicable for tolling. Smith v. Executive Custom Home Inc.
California – Two years. CCCP 339. (1.)
See SB-800 for Residential CD claims pertaining to specific construction deficiencies.
(d.)
Nevada – Two years. NRS 11.190(4)(e).
(e.)
New Mexico – Four years for property damage (NMSA 37-1-4) and three years for personal injury (NMSA 37-1-8).
(f.)
Utah – Four years for personal injury. Utah Code Ann. 78B-2-307. Three years for property damage. Utah Code Ann. 78B-2-305. The statute of limitations for damages “caused by wildland fire” is six years. Utah Code Ann. 78B-2-309. Unless “based in contract or warranty,” an “action related to improvements in real property . . . shall be commenced within two years from the earlier date of discovery of a cause of action or the date upon which a cause of action should have been discovered through reasonable diligence.” See Utah Code Ann. 78B-2-225(3). However, the cause of action does not accrue until the improvement is completed or abandoned. See Utah Code Ann. 78B-2-225(3)(b). PROPERTY OF RESNICK & LOUIS, P.C. 89
2.
3.
Product Liability (a.)
Arizona – Two years personal injury/property damage 12-542
(b.)
Colorado – Two Years CRS 13-80-102 (1.)
Claimant discovers or manifestation of a defect.
should
have
(2.)
13-80-106. Limitation of actions against manufacturers or sellers of products is two years.
(3.)
13-80-107. Limitation of actions against manufacturers, sellers, or lessors of new manufacturing equipment is two years.
(c.)
California – Two years. CCCP 339.
(d.)
Nevada – Four years. NRS 11.190(2)(a).
(e.)
New Mexico – Three years. NMSA 37-1-8
(f.)
Utah –Two years. Utah Code Ann. § 78B-6-706.
Breach of Oral Contract (a.)
Arizona – Three years ARS 12-543
(b.)
Colorado – Three years CRS 13-80-101(1)(a)
(c.)
California – Two years. CCCP 339
(d.)
Nevada – Four years. NRS 11.190(2)(c)
(e.)
New Mexico – Four years NMSA 37-1-4
(f.)
Utah – Four years. Utah Code Ann. 78B-2-307.
PROPERTY OF RESNICK & LOUIS, P.C. 90
discovered
physical
4.
5.
Common Law Fraud (a.)
Arizona – Three years ARS 12-543
(b.)
Colorado – Three years. CRS13-80-101(1)(c)
(c.)
California – Three years. CCCP 338(b).
(d.)
Nevada – Three years. NRS 11.190(3)(d).
(e.)
New Mexico – Four years. NMSA 37-1-4
(f.)
Utah – Three years. Utah Code Ann. 78B-2-305. Unless “based in contract or warranty,” an “action related to improvements in real property . . . shall be commenced within two years from the earlier date of discovery of a cause of action or the date upon which a cause of action should have been discovered through reasonable diligence.” See Utah Code Ann. 78B-2225(3). However, the cause of action does not accrue until the improvement is completed or abandoned. See Utah Code Ann. 78B-2225(3)(b).
Breach of Written Contract (a.)
Arizona – Six years ARS 12-546
(b.)
Colorado – Three years CRS 13-80-101(1)(a)
(c.)
Six years for recovery of liquidated debt CRS 13-80-103.5
(d.)
California – Four years. CCCP 337.
(e.)
Nevada – Six years. NRS 11.190(1)(b)
(f.)
New Mexico – Six years. NMSA 37-1-3
(g.)
Utah – Six years. Utah Code Ann. 78B-2-309. Unless a contract or warranty states otherwise, an “action related to improvements in real property . . . based in contract . . . shall be commenced within six years of the date of completion of the improvement or abandonment of construction.” See Utah Code Ann. 78B-2-225(3)(a)
PROPERTY OF RESNICK & LOUIS, P.C. 91
(1.)
6.
7.
Willis v. DeWitt (2015) – By its plain language, this Statute “bars all actions after a specified period of time has run from the occurrence of some event other thn the occurrence of an injury.” Therefore, this is a Statute of Repose, and not subject to a discovery rule.
Uniform Commercial Code Breach of Contract for Sale of Goods (Some states the time limitations can be shortened in the contract). (a.)
Arizona – Four years ARS 12-544; ARS. 47-2725
(b.)
Colorado – Three years CRS 13-80-101(1)(a)
(c.)
California – Four years. California Commercial Code Section 2725
(d.)
Nevada – Four years. NRS 104.2725
(e.)
New Mexico – Four Years NMSA § 55-2-725
(f.)
Utah – Four years. Utah Code Ann. 70A-2-725(1).
Indemnification/Contribution (a.)
Arizona – Could be 6 years if contractual indemnity, but no case law directly on point. 4 years is catch-all Statute of Limitations. 3 years is oral contract. We recommend using 3 years for implied indemnity or oral agreement. If contractual indemnity, we recommend that 4 years be used. With respect to equitable indemnity, we recommend no more than 3 years, but 2 years if really equitable subrogation for property damage/bodily injury. (1.)
Contribution. The statute of limitations for contribution actions is governed by ARS § 12-2503 (2008). a)
After judgment. Where a judgment has been issued for the injury or wrongful death against a tortfeasor seeking contribution, any separate action by him to enforce contribution must commence within one (1) year after the judgment has become final by lapse of time for appeal or after appellate review. A.R.S. § 12-2503(C) (2008).
b)
Before judgment. Where a judgment has not been issued for the injury or wrongful death against the tortfeasor
PROPERTY OF RESNICK & LOUIS, P.C. 92
seeking contribution, his right to contribution is barred unless he has either: (1) discharged by payment the common liability within the applicable statute of limitations applicable to the claimant’s right of action against him and has commenced his contribution action within one (1) year after payment; or (2) agreed during a pending action to discharge the common liability and has within one (1) year after the agreement paid the liability and commenced his action for contribution. A.R.S. § 12-2503(D) (2008). (b.)
Colorado (1.)
Construction Defect Cases – (Not indemnification) Subsection CRS 13-80-104(1)(a) imposes a two-year statute of limitations, which runs from the date on which a “claimant” discovers or should have discovered a construction defect, on “all actions against any architect, contractor, builder or builder vendor, engineer, or inspector performing or furnishing the design, planning, supervision, inspection, construction, or observation of construction of any improvement to real property.”
(2.)
Construction Defect Cases – (Indemnification/Contribution) However, 13-80-104(1)(b) provides for a ninety day statute of limitations for all claims, including, but not limited to indemnity or contribution, by a claimant against a person who is or may be liable to the claimant for all or part of the claimant’s liability to a third person: a)
Arise at the time the third person’s claim against the claimant is settled or at the time final judgment is entered on the third person’s claim against the claimant, whichever comes first; and
b)
Shall be broug ht within ninety days after the claims arise, and not thereafter.
(3.)
13-80-102(1)(i) Catch-all Statute of Limitations is 2 years.
(4.)
Contribution (Non-Construction Defect) 13-50.5-104.
(5.)
Enforcement
PROPERTY OF RESNICK & LOUIS, P.C. 93
a)
Whether or not judgment has been entered in an action against two or more tortfeasors for the same injury or wrongful death, contribution may be enforced by separate action.
b)
Where a judgment has been entered in an action against two or more tortfeasors for the same injury or wrongful death, contribution may be enforced in that action by judgment in favor of one against other judgment defendants by motion upon notice to all parties to the action.
c)
If there is a judgment for the injury or wrongful death against the tortfeasor seeking contribution, any separate action by him to enforce contribution must be commenced within one year after the judgment has become final by lapse of time for appeal or after appellate review.
d)
If there is no judgment for the injury or wrongful death against the tortfeasor seeking contribution, his right of contribution is barred unless he has either: 1)
2)
(c.)
Discharged by payment the common liability within the statute of limitations period applicable to claimant’s right of action against him and has commenced his action for contribution within one year after payment; or Agreed while action is pending against him to discharge the common liability and has within one year after the agreement paid the liability and commenced his action for contribution.
California – 4 Years for Contractual Indemnification CCC 337(1). Equitable Indemnification is probably 2 years, but file within one year to be safe. Amen v. Merced County Title Company; Pacific Employers Insurance Company v. Hartford Accident & Indemnity Company. (1.)
Equitable Contribution between insurance companies is 2 years. In reviewing the equitable contribution claim, the court relied upon precedent set forth in Century Indemnity Co. v. Superior Court, which held that an action among coinsurers for equitable contribution is subject to a twoyear statute of limitations because it is an action not founded on a writing. The court concluded the action was
PROPERTY OF RESNICK & LOUIS, P.C. 94
not founded on a writing because there was no contractual relationship between the insurers. Instead, the action was brought on equitable principles. (2.)
Valley Crest Landscape v. Mission Pools (4th 2015) – The statute of limitations of Section 337.1 is inapplicable to claims for express contractual indemnity and for equitable subrogation. The statute of limitations for breach of contract is four years. A cause of action for breach of an express contractual indemnity agreement accrues when the indemnitee sustains the loss by paying the money sought to be indemnified from the indemnitor.
(d.)
Nevada – Equitable Indemnity is 4 years. NRS 11.190(2)(c); Equitable Indemnity is related to quasi contract. Saylor v. Arcotta. Contribution is one year statute of limitations. 4 years probably applies for contractual indemnification. The catch-all is 4 years. NRS 11.220.
(e.)
New Mexico – Probably apply 6 years to contractual indemnification. With respect to equitable indemnification, probably apply 4 years for property damage and 3 years for personal injury.
(f.)
Utah (1.)
Contractual Indemnification – Utah Code Ann. § 78B-2-309 states, “An action may be brought within six years . . . upon any contract, obligation, or liability founded upon an instrument in writing . . . .” Thus, presumably, the statute of limitations on a cause of action based upon contractual indemnification is six years. Unless a contract or warranty states otherwise, an “action related to improvements in real property . . . based in contract . . . shall be commenced within six years of the date of completion of the improvement or abandomnet of construction.” See Utah Code Ann. 78B-2-225(3)(a).
(2.)
Equitable Indemnification – The statute of limitations is four years for personal injury, three years for property damage, and six years for damages “caused by wildland fire.” See Utah Code Ann. 78B2-305, 307 and 309. Unless “based in contract or warranty,” an “action related to improvements in real property . . . shall be commenced within two years from the earlier date of discovery of a cause of action or the date upon which a cause of action should have been discovered through reasonable diligence.” See Utah PROPERTY OF RESNICK & LOUIS, P.C. 95
Code Ann. 78B-2-225(3). However, the cause of action does not accrue until the improvement is completed or abandoned. See Utah Code Ann. 78B-2-225(3)(b). (3.)
8.
Contribution – A defendant is not entitled to contribution from any other person. See Utah Code Ann. 78B-5-820(2).
California SB-800 Limitations for Residential Construction Defect Cases. (a.)
1 year (1.) (2.) (3.) (4.)
Noise (from original occupancy of adjacent unit) Fit and finish warranty Irrigation and drainage Manufacture products
(b.)
2 years (1.) Decay of untreated wood posts (2.) Landscaping systems (3.) Dryer ducts
(c.)
4 years (1.) Plumbing and sewer (2.) Electrical (3.) Cracks in exterior hardscape, pathways, driveways, landscape, sidewalls, sidewalks, patios (4.) Corrosion of steel fences
(d.)
5 years (1.) Deterioration of building surfaces due to paint or stain
(e.)
10 years (1.) All other defects or violation of building standards (2.) Air Conditioning in living spaces (3.) Balconies and balcony systems (4.) Ceramic tile and tile backing, Ceramic tile and tile countertops (5.) Decks and deck systems (6.) Doors (7.) Exterior stairs and stair systems (8.) Exterior stucco, siding, walls, framing, finishes and fixtures (9.) Fire Protection (10.) Foundation systems and slabs (11.) Foundations, load bearing components, slabs and underlying soils
PROPERTY OF RESNICK & LOUIS, P.C. 96
(12.) (13.) (14.) (15.) (16.) (17.) (18.) (19.) (20.) (21.) (f.)
H.
Hardscape, paths, patios, irrigation systems, landscape systems and drainage systems Heating Plumbing lines, sewer lines and utility lines Retaining and site walls, associated drainage systems Roofing materials Roofs, roofing systems, chimney caps and ventilation Shower and bath enclosures Soils and engineered retaining walls Structure Windows, patio doors, deck doors and related systems
Tolling of Statutes If applicable statutes of limitations have otherwise run, the time period for filing a complaint is extended by 100 days after repair is completed or forty-five (45) days after the time for responding to the notice of claim has expired.
Statutes of Repose 1.
2.
Arizona – ARS 12-552. (a.)
Only applies to contract based claims (including breach of express and implied warranty) NOT tort claims.
(b.)
Eight plus one rule from date of “substantial completion.”
(c.)
Possibility of need for suing subcontractors before general contractors is sued.
(d.)
Contractual indemnification claims do NOT have extension of time.
(e.)
Evans Withycombe, Inc. v. Western Innovations, Inc. – Statute of Repose not applicable to common law indemnification.
(f.)
Albano v. Shea Homes – Class action complaint tolls the statute of limitations as to putative class members, but NOT the Statute of Repose.
Colorado – CRS 13-80-104 (a.)
Applies to all actions against architect, contractor, builder, builder vendor, engineer, or inspector.
(b.)
Six years from substantial completion of the improvement to real property. PROPERTY OF RESNICK & LOUIS, P.C. 97
(1.)
3.
Two extra years if action accrues within the 5th or 6th year. a)
Improvement can be a discrete component of an entire project such as separate buildings in a multi-unit project. Shaw Construction, Ltd v. United Builder Services, Inc.
b)
Statute of Repose is applicable to contribution and indemnification, and is not tolled or extended by the 90 statute of limitations. Thermo Development, Inc. v. Central Masonry Corp.
c)
Smith v. Executive Custom Homes, Inc. 230 P.3d 1186 (2010) - The Colorado Supreme Court rejected the "repair doctrine" or "equitable tolling" for claims falling within the purview of the Colorado Construction Right to Repair Statute since the Statute already provides for statutory tolling under specific conditions, including the time when repairs are being conducted.
California (a.)
California Construction Defect for Patent Defects – 4 years. CCC 337.1 (1.)
As used in this section, “patent deficiency” means deficiency which is apparent by reasonable inspection.
(2.)
four years after the substantial completion of such improvement for any of the following: (1) Any patent deficiency in the design, specifications, surveying, planning, supervision or observation of construction or construction of an improvement to, or survey of, real property; (2) Injury to property, real or personal, arising out of any such patent deficiency; or (3) Injury to the person or for wrongful death arising out of any such patent deficiency.
(3.)
If, by reason of such patent deficiency, an injury to property or the person or an injury causing wrongful death occurs during the fourth year after such substantial completion, an action in tort to recover damages for such an injury or wrongful death may be brought within one year after the date on which such injury occurred, irrespective of the date of death, but in no event may such an action be brought more than five years after the substantial completion of construction of such improvement. PROPERTY OF RESNICK & LOUIS, P.C. 98
(b.)
California Construction Defect for Latent Defects – 10 Years. CCC 337.15 337.15. (a) No action may be brought to recover damages from any person, or the surety of a person, who develops real property or performs or furnishes the design, specifications, surveying, planning, supervision, testing, or observation of construction or construction of an improvement to real property more than 10 years after the substantial completion of the development or improvement for any of the following: (1.)
As used in this section, “latent deficiency” means a deficiency which is not apparent by reasonable inspection.
(2.)
As used in this section, “action” includes an action for indemnity brought against a person arising out of that person’s performance or furnishing of services or materials referred to in this section, except that a cross-complaint for indemnity may be filed in the underlying action which has been brought within the 10 year time frame set forth above.
(3.)
This section shall not apply to actions based on willful misconduct or fraudulent concealment.
(4.)
The 10-year period specified in subdivision (a) shall commence upon substantial completion of the improvement, but not later than the date of one of the following, whichever first occurs: a)
The date of final inspection by the applicable public agency.
b)
The date of recordation of a valid notice of completion.
c)
The date of use or occupation of the improvement.
d)
One year after termination or cessation of work on the improvement. 1) The date of substantial completion shall relate specifically to the performance or furnishing design, specifications, surveying, planning, supervision, testing, and observation of construction or construction services by each profession or trade rendering services to the improvement.
PROPERTY OF RESNICK & LOUIS, P.C. 99
4.
Nevada (a.)
Statute of Repose – NRS 11.202: Six (6) Years Assembly Bill 125, 78th Regular Session (Nev. 2015), enacted Feb. 24, 2015 established a 6-year statute of repose for all claims based on “constructional defects,” abolishing previous statute of repose distinctions between known defects, latent defects, and patent defects. (1.)
(2.)
(b.)
No action may be commenced against the owner, occupier or any person performing or furnishing the design, planning, supervision or observation of construction, or the construction of an improvement to real property more than 6 years after the substantial completion of such an improvement, for the recovery of damages for: a)
Any deficienty in the design, planning, supervision or observation of construction or the construction of such an improvement;
b)
Injury to real or personal property caused by any such deficiency; or
c)
Injury to or the wrongful death of a person caused by any such deficiency.
The provisions of this section do not apply: a)
To a claim for indemnity or contribution.
b)
In an action brought against (1) an innkeeper on account of his or her liability as an innkeeper or (2) any person on account of a defect in a product.
Substantial Completion Defined – NRS 11.2055 (1.)
The date of substantial completion of an improvement to real property shall be deemed to be the date on which: a)
The final building inspection of the improvement is conducted;
b)
A notice of completion is issued for the improvement; or
PROPERTY OF RESNICK & LOUIS, P.C. 100
c)
(2.)
5.
If none of the events described in subsection 1 occurs, the date of substantial completion of an improvement to real property must be determined by the rules of the common law.
New Mexico (a.)
6.
A certificate of occupancy is issued for the improvement, whichever occurs later.
10 Years – 37-1-27. Construction projects; limitation on actions for defective or unsafe conditions. No action to recover damages for any injury to property, real or personal, or for injury to the person, or for bodily injury or wrongful death, arising out of the defective or unsafe condition of a physical improvement to real property, nor any action for contribution or indemnity for damages so sustained, against any person performing or furnishing the construction or the design, planning, supervision, inspection or administration of construction of such improvement to real property, and on account of such activity, shall be brought after ten years from the date of substantial completion of such improvement; provided this limitation shall not apply to any action based on a contract, warranty or guarantee which contains express terms inconsistent herewith. (1.)
The date of “substantial completion” shall mean the date when construction is sufficiently completed so that the owner can occupy or use the improvement for the purpose for which it was intended, or the date on which the owner does so occupy or use the improvement, or the date established by the contractor as the date of substantial completion, whichever date occurs last.
(2.)
Section 37-1-27 does not protect continuing owners of property who build the property and own it after 10 years against claims arising from unsafe conditions of that property. Jacobo v. City of Albuquerque.
Utah - Nine years – (a.) Utah Code Ann. 78B-2-225(4). An “action related to improvments in real property…may not be commenced…more than nine years after completion of the improvement or abandonment of construction. In the event the cause of action is discovered or discoverable in the eigth or ninth year of the nine-year period, the injured person shall have two additional PROPERTY OF RESNICK & LOUIS, P.C. 101
years from that date to commence an action.” Id. However, there is no statute of repose, if the defendant committed fraudulent concealment or willfully or intentionally committed an “act, error, omission, or breach of duty.” Utah Code Ann. 78B-2-225(5). I.
Indemnification and Duty to Defend 1.
Arizona. (a.)
ARS 32-1159 – Against public policy to be indemnified for one’s sole negligence/fault.
(b.)
Contractual Indemnification – Indemnification provisions strictly construed. Indemnitee does NOT get indemnified for its own negligence unless intent is directly or implicitly evident from the terms of the contract. Washington School District No. 6 v. Baglino Corp. A “specific” indemnity agreement addresses what effect the indemnitee’s negligence has on the indemnitor for an obligation to indemnify for any type of damage, even though also caused by the negligence of the indemnitee. A contract clause that does NOT specifically address what effect the indemnitee’s negligence has on the indemnitor’s obligation to indemnify is a “general” provision. Grubb & Ellis Management Services v. 407417 B.C., LLC. If the indemnity provision intent remains uncertain, the provision is construed against the drafter. MT Builders, L.L.C v. Fisher Roofing, Inc. (1.)
“Specific” – The indemnitee will be indemnified when it is up to 99% at fault. Look for reference of the indemnitee or indemnitor being partially at fault.
(2.)
“General” – Indemnitee is entitled to indemnification for a loss resulting in part from an indemnitee’s passive negligence, BUT NOT active negligence. Indemnification claim barred if indemnitee is 1% actively at fault. a)
Active negligence is when the indemnitee has personally participated in an affirmative act of negligence; was connected with negligent acts or omissions by knowledge or acquiescence; or has failed to perform a precise duty which the indemnitee has agreed to perform. There must be some active participation in the wrong which is the immediate cause of the injury.
PROPERTY OF RESNICK & LOUIS, P.C. 102
b)
(c.)
Passive negligence is mere nonfeasance, such as the failure to discover a dangerous condition; perform a duty imposed by law; or take adequate precautions against certain hazards.
MT Builders Analysis: (1.)
Indemnification against liability applies once a cause of action is established; indemnitee is not required to make actual payment.
(2.)
Indemnification against loss or damages applies when the indemnitee has actually paid the obligation for which he was found liable.
(3.)
Potential Contention of Comparative Indemnification. Indemnity provisions arising out of or resulting from the performance or nonperformance of the subcontractor’s work to the extent caused in whole or in part by any negligent act or omission of the subcontractor REQUIRES that the indemnitee PROVE the subcontractor’s FAULT. This is “narrow form” of indemnification—the indemnitor’s obligation only covers indemnitee’s losses to the extent caused by the indemnitor or a person the indemnitor supervises or is responsible for. “Although the parties have not cited, nor have we found, any reported Arizona case construing the indemnity language at issue here, other courts have construed this or virtually identical language as creating a comparative fault or negligence arrangement whereby the indemnitor’s liability is limited “to the extent” it and its supervisees were at fault.”
(4.)
The Duty to defend cannot exist before a determination of fault of the indemnification provision does not address a duty to defend and there “to the extent of” language requiring negligence/fault to first be determined. Parties are free to contract, and they can agree that indemnitor will only be under a duty to reimburse the indemnitee’s defense costs, and only to the extent of the indemnitor’s fault.
(5.)
The Court will need to allocate or apportion the fees, expenses, and costs accordingly. PROPERTY OF RESNICK & LOUIS, P.C. 103
(6.)
(d.)
(e.)
A contractual promise to “hold harmless” by itself does NOT create an up-front duty to defend. rather, it allows the indemnitee to recover its defense costs IF a claim was made against it that entitled indemnitee to indemnification.
Common Law Indemnification – Indemnitee plaintiff must show it has discharged a legal obligation owed to a third person; the indemnitor is also liable to a third party; and as between the indemnitee and indemnitor, the obligation should have been discharged by the defendant. Absent consent or fault of the defendant, the plaintiff must demonstrate how it has extinguished its own AND the defendant’s liability to prove it has discharged the obligation to the third party. (1.).
The party seeking indemnification must be proven free from negligence. Herstam v. Deloitte & Touche, LLP.
(2.).
When there is an express indemnity contract, the extent of the duty to indemnify must be determined from the contract and not implied indemnity.
Vouching In – Applying the Restatement (Second) of Judgments Section 57, The Arizona Supreme Court held that when an indemnity obligation exists, an indemnitor will be barred from disputing the existence and extent of its indemnitee’s liability to a third person if the indemnitor had reasonable notice of the third person’s action, refused to assume or participate in the indemnitee’s defense, and the indemnitee defended the action with due diligence and reasonable prudence. The indemnitor will also be BARRED from re-litigating issues determined in the action against the indemnitee. Cunningham v. Goettl Air Conditioning, Inc. A Judgment/Settlement does NOT bar the indemnitor from contesting its own liability to its indemnitee. MT Builders. When an indemnitee settles a law suit covered by an indemnity agreement, it may obtain indemnity from its indemnitor if it gave the indemnitor notice of the action AND an opportunity to defend and demonstrates that the decision to settle was, under the circumstances, reasonable and prudent. IF the indemnitee does this, then it may obtain indemnity without having to show it was actually liable to the third person. Indemnity can then show its potential liability. The burden is on the indemnitee to show the settlement was reasonable and prudent.
PROPERTY OF RESNICK & LOUIS, P.C. 104
Factors demonstrating a reasonable and prudent settlement are reviewing: The releasing person’s damages; the merits of the releasing person’s liability theory; the merits of the released person’s defense theory; the released person’s relative faults; the risks and expenses of continued litigation; any evidence of bad faith, collusion, or fraud; the extent of the releasing person’s investigation and preparation of the case; and the interests of the parties in not being released. 2.
3.
Colorado (a.)
Anti-Contractual Indemnity CRS 12-21-111.5(6) – Indemnity provisions void that require person to indemnify/defend another person against liability for damage caused by the negligence/fault of the indemnitee or any third person under control or supervision of the indemnitee. Indemnity is limited to the extent caused by the negligence/fault of the indemnitor. The same applies to a contractual provision requiring additional insured coverage.
(b.)
A Contractual duty to defend is triggered when the injured party alleges facts which potentially trigger the obligation to indemnify. La Forge North America, Inc., v. KECI Colorado, Inc.
(c.)
Pre-Judgment Interest: When the damages are based upon repair or replacement costs, pre-judgment interest does NOT begin to accrue until the property is repaired or replaced and costs for such are incurred.
(d.)
Ambiguities in indemnity provisions are resolved against the party seeking indemnity. Williams v. White Mountain Constr. Co.
(e.)
Common Law Indemnification exists for principles who are at fault but may be vicariously liable for the agent’s torts. Unigard Mut. Ins. Co v. Mission Ins. Co. Indemnity based upon primary and secondary fault is not applicable to joint tortfeasors. The doctrine of indemnity insofar as it requires one of two joint tortfeasors to reimburse the other for the entire amount paid by the other fir the entire amount paid by the other as damages to a party injured as the result of the negligence of both joint tortfeasors, is no longer viable and is abolished. The sole remedy is contribution. Brochner v. Western Ins. Co.
California (a.)
Introduction
PROPERTY OF RESNICK & LOUIS, P.C. 105
Indemnity may be defined as the obligation resting on one party to make good a loss or damage another party has incurred. This obligation may be expressly provided for by contract, it may be implied from a contract not specifically mentioning indemnity, or it may arise from the equities of particular circumstances. (1)
Where the parties have expressly contracted with respect to the duty to indemnify, the extent of that duty must be determined from the contract and not by reliance on the independent doctrine of equitable indemnity.
(2.)
Some California courts have interpreted indemnification provisions to be Type I, II, or III. However, the question whether an indemnity agreement covers a given case turns primarily on contractual interpretation, and it is the intent of the parties as expressed in the agreement that should control. When the parties knowingly bargain for the protection at issue, the protection should be afforded not necessarily worrying about the classifications.
(b.)
Implied Contractual Indemnification – The right to implied contractual indemnity is predicated upon the indemnitor’s breach of contract, ‘the rationale . . . being that a contract under which the indemnitor undertook to do work or perform services necessarily implied an obligation to do the work involved in a proper manner and to discharge foreseeable damages resulting from improper performance absent any participation by the indemnitee in the wrongful act precluding recovery.’ . . . ‘An action for implied contractual indemnity is not a claim for contribution from a joint tortfeasor; it is not founded upon a tort or upon any duty which the indemnitor owes to the injured third party. It is grounded upon the indemnitor’s breach of duty owing to the indemnitee to properly perform its contractual duties.’ West v. Superior Court.
(c.)
Equitable Indemnification – Equitable indemnity requires no contractual relationship between an indemnitor and an indemnitee and is instead premised on a joint legal obligation to another for damages, which “does not invariably follow fault.” The doctrine is subject to allocation of fault principles and comparative equitable apportionment of loss. In other words, a party’s liability for equitable indemnity is based on its proportional share of responsibility for the damages to the injured party, regardless of the underlying legal theory. (1.)
A party sued only in contract cannot recover from a third party under equitable indemnification. PROPERTY OF RESNICK & LOUIS, P.C. 106
(d.)
(2.)
Moreover, if the defendant is also sued in tort, the defendant may not seek equitable indemnity from a third party unless the plaintiff sued (or could have sued) that third party in tort.
(3.)
California recognizes Comparative Equitable Indemnification where the faults of parties are evaluated so that the indemnification is not an all or nothing as in other jurisdictions where the indemnity claim is barred when the indemnitee is at fault. In essence, California recognizes a right of partial indemnity, under which liability among multiple tortfeasors may be apportioned on a comparative negligence basis. the failure of injured parties to sue all those responsible for their damages or losses does not bar a claim for equitable indemnity, as plaintiffs “no longer have the unilateral right to determine which defendant or defendants should be included in an action” under the comparative equitable indemnity doctrine. Comparative equitable indemnity includes the entire range of possible apportionments, from no right to any indemnity to a right of complete indemnity.
(4.)
Implied contractual indemnity arising out of a contract between the indemnitor and indemnitee can provide a basis for equitable indemnity. California’s comparative fault doctrine is a flexible, commonsense concept, under which a jury may properly consider and evaluate the relative responsibility of various parties for an injury whether their responsibility for the injury rests on negligence, strict liability, or other theories of responsibility, to arrive at an equitable apportionment or allocation of loss.
General Contractual (Express) Indemnification – If an indemnity clause does not address itself to the issue of an indemnitee’s negligence, it is referred to as a ‘general’ indemnity clause. While such clauses may be construed to provide indemnity for a loss resulting in part from an indemnitee’s passive negligence, they will not be interpreted to provide indemnity if an indemnitee has been actively negligent. Provisions purporting to hold an owner harmless “in any suit at law,” “from all claims for damages to persons,” and “from any cause whatsoever,” without expressly mentioning an indemnitee’s negligence, have been deemed to be ‘general’ clauses.” (1.)
Some courts in California have indicated that a general indemnity clause has the same limitations as Type II and III indemnification provisions. PROPERTY OF RESNICK & LOUIS, P.C. 107
(e.)
(f.)
Preliminary California Civil Code Indemnification Statutes (1.)
2772. Indemnity is a contract by which one engages to save another from a legal consequence of the conduct of one of the parties, or of some other person.
(2.)
2775. An agreement to indemnify against the acts of a certain person, applies not only to his acts and their consequences, but also to those of his agents.
(3.)
2776. An agreement to indemnify several persons applies to each, unless a contrary intention appears.
(4.)
2777. One who indemnifies another against an act to be done by the latter, is liable jointly with the person indemnified, and separately, to every person injured by such act.
Indemnification Language Interpretation. CCC 2788 In the interpretation of a contract of indemnity, the following rules are to be applied, unless contrary intention appears: (1.)
Upon an indemnity against liability, expressly, or in other equivalent terms, the person indemnified is entitled to recover upon becoming liable;
(2.)
Upon an indemnity against claims, or demands, or damages, or costs, expressly, or in other equivalent terms, the person indemnified is not entitled to recover without payment thereof;
(3.)
An indemnity against claims, or demands, or liability, expressly, or in other equivalent terms, embraces the costs of defense against such claims, demands, or liability incurred in good faith, and in the exercise of a reasonable discretion;
(4.)
The person indemnifying is bound, on request of the person indemnified, to defend actions or proceedings brought against the latter in respect to the matters embraced by the indemnity, but the person indemnified has the right to conduct such defenses, if he chooses to do so;
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(g.)
(5.)
If, after request, the person indemnifying neglects to defend the person indemnified, a recovery against the latter suffered by him in good faith, is conclusive in his favor against the former;
(6.)
If the person indemnifying, whether he is a principal or a surety in the agreement, has not reasonable notice of the action or proceeding against the person indemnified, or is not allowed to control its defense, judgment against the latter is only presumptive evidence against the former;
(7.)
A stipulation that a judgment against the person indemnified shall be conclusive upon the person indemnifying, is inapplicable if he had a good defense upon the merits, which by want of ordinary care he failed to establish in the action.
Type I Construction Contractual Indemnification Void – CCC 2782(a) Except as provided in Sections 2782.1, 2782.2, 2782.5, and 2782.6, provisions, clauses, covenants, or agreements contained in, collateral to, or affecting any construction contract and that purport to indemnify the promisee against liability for damages for death or bodily injury to persons, injury to property, or any other loss, damage or expense arising from the sole negligence or willful misconduct of the promisee or the promisee’s agents, servants, or independent contractors who are directly responsible to the promisee, or for defects in design furnished by those persons, are against public policy and are void and unenforceable; provided, however, that this section shall not affect the validity of any insurance contract, workers’ compensation, or agreement issued by an admitted insurer as defined by the Insurance Code.
(h.)
Type III Indemnification Only for Post January 1, 2009 Residential Contracts From Subcontractors to Developers/General Contractors (Subcontractors Only Indemnify For Their Acts/Omissions) – CCC 2782(d) For all construction contracts, and amendments thereto, entered into after January 1, 2009, for residential construction, as used in Title 7 (commencing with Section 895) of Part 2 of Division 2, all provisions, clauses, covenants, and agreements contained in, collateral to, or affecting any construction contract, and amendments thereto, that purport to insure or indemnify, including the cost to defend, the builder, as defined in Section 911, or the general contractor or contractor not affiliated with the builder, as described in subdivision (b) of Section 911, by a subcontractor PROPERTY OF RESNICK & LOUIS, P.C. 109
against liability for claims of construction defects are unenforceable to the extent the claims arise out of, pertain to, or relate to the negligence of the builder or contractor or the builder’ s or contractor’s other agents, other servants, or other independent contractors who are directly responsible to the builder, or for defects in design furnished by those persons, or to the extent the claims do not arise out of, pertain to, or relate to the scope of work in the written agreement between the parties.
(i.)
(1.)
This shall not be waived or modified by contractual agreement, act, or omission of the parties.
(2.)
This shall not affect the obligations of an insurance company for additional insured obligations.
(3.)
This does not prohibit a subcontractor and builder or general contractor from mutually agreeing to the timing or immediacy of the defense and provisions for reimbursement of defense fees and costs. CCC 2782(e).
Proper Tender of Defense Required By General Contractor/Developer to Subcontractor Before Any Defense or Indemnity Obligation Arises (Residential). CCC2782(e) A subcontractor shall owe no defense or indemnity obligation to a builder or general contractor for a construction defect claim unless and until the builder or general contractor provides a written tender of the claim, or portion thereof, to the subcontractor which includes all of the information provided to the builder or general contractor by the claimant or claimants, including, but not limited to, information in the SB-800 requirements, relating to claims caused by that subcontractor’s scope of work. (1.)
(j.)
Insurance companies must treat the tender as a notice of commencement of a legal proceeding.
Subcontractors Have 2 Options When Properly Tendered Defense and a Defense Obligation Exists: Pay A Share of GC Counsel (Subject to Reallocation) or Hire Their Own Counsel. CCC2782(e) the subcontractor shall elect to perform either of the following, the performance of which shall be deemed to satisfy the subcontractor’s defense obligation to the builder or general contractor: (1.)
Defend the claim with counsel of its choice, and the subcontractor shall maintain control of the defense for any claim or portion of claim to which the defense obligation applies. PROPERTY OF RESNICK & LOUIS, P.C. 110
(2.)
a)
The subcontractor shall provide written notice of the election to the builder or general contractor within a reasonable time period following receipt of the written tender, and in no event later than 90 days following that receipt.
b)
The defense by the subcontractor shall be a complete defense of the builder or general contractor of all claims or portions thereof to the extent alleged to be caused by the subcontractor, including any vicarious liability claims against the builder or general contractor resulting from the subcontractor’s scope of work, but not including claims resulting from the scope of work, actions, or omissions of the builder, general contractor, or any other party. Any vicarious liability imposed upon a builder or general contractor for claims caused by the subcontractor electing to defend under this paragraph shall be directly enforceable against the subcontractor by the builder, general contractor, or claimant.
c)
If a subcontractor fails to timely and adequately perform its obligations the builder or general contractor shall have the right to pursue a claim against the subcontractor for any resulting compensatory damages, consequential damages, and reasonable attorneys’ fees.
Pay, within 30 days of receipt of an invoice from the builder or general contractor, no more than a reasonable allocated share of the builder’s or general contractor’s defense fees and costs, on an ongoing basis during the pendency of the claim, subject to reallocation (including any amounts reallocated upon final resolution of the claim either by settlement or judgment). a)
The builder or general contractor shall allocate a share to itself to the extent a claim or claims are alleged to be caused by its work, actions, or omissions, and a share to each subcontractor to the extent a claim or claims are alleged to be caused by the subcontractor’s work, actions, or omissions, regardless of whether the builder or general contractor actually tenders the claim to any particular subcontractor, and regardless of whether that subcontractor is participating in the defense.
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1)
(k)
Any amounts not collected from any particular subcontractor may not be collected from any other subcontractor.
b)
If, upon request by subcontractor, a builder or general contractor does not reallocate defense fees to subcontractors within 30 days following final resolution of the claim, the subcontractor shall have the right to pursue a claim against the builder or general contractor for any resulting compensatory and consequential damages, as well as for interest on the fees, from the date of final resolution of the claim, and the subcontractor’s reasonable attorneys’ fees incurred in connection therewith.
c)
If a subcontractor fails to timely perform its obligations, the builder or general contractor shall have the right to pursue a claim against the subcontractor for any resulting compensatory and consequential damages, as well as for interest on defense and indemnity costs, and for the builder’s or general contractor’s reasonable attorneys’ fees incurred to recover these amounts.
Type II Indemnification Only for Post January 1, 2013 Commercial Contracts From Subcontractors to Developers/General Contractors (Subcontractors Indemnify For Their Acts/Omissions, And Passive Acts/Omissions of Others). CCC 2782.5(a) (1.)
Any construction contract and amendments thereto entered into on or after January 1, 2013, that purport to insure or indemnify, including the cost to defend, a general contractor, construction manager, or other subcontractor, by a subcontractor against liability for claims of death or bodily injury to persons, injury to property, or any other loss, damage, or expense are void and unenforceable to the extent the claims arise out of, pertain to, or relate to the active negligence or willful misconduct of that general contractor, construction manager, or other subcontractor, or their other agents, other servants, or other independent contractors who are responsible to the general contractor, construction manager, or other subcontractor, or for defects in design furnished by those persons, or to the extent the claims do not arise out of the scope of work of the subcontractor pursuant to the construction contract.
PROPERTY OF RESNICK & LOUIS, P.C. 112
(l.)
(m.)
a)
This section shall not be waived or modified by contractual agreement, act, or omission of the parties.
b)
This section does not affect Additional Insured Obligations.
c)
This does not apply to a WRAP-UP policy/program.
d)
This does not apply to a cause of action for breach of contract or warranty that exists independently of an indemnity obligation.
e)
This does not apply to design professionals.
f)
Notwithstanding any choice-of-law rules that would apply the laws of another jurisdiction, the law of California shall apply to every contract to which this section applies.
g)
Waiver language is void.
h)
Subdivision (a) does not prohibit a subcontractor and a general contractor or construction manager from mutually agreeing to the timing or immediacy of the defense and provisions for reimbursement of defense fees and costs.
Proper Tender of Defense and Indemnification Required for Commercial Construction Contracts January 1, 2013 and later before any Defense or Indemnification May Be Owed. CCC 2782.5(e) (1.)
The tender must include information provided by the claimant or claimants relating to claims caused by that subcontractor’s scope of work.
(2.)
The general contractor or construction manager shall provide a written statement regarding how the reasonable allocated share of fees and costs was determined.
(3.)
The written tender shall have the same force and effect as a notice of commencement of a legal proceeding.
Subcontractors Have 2 Options When Properly Tendered Defense and a Defense Obligation Exists For Commercial Post January 1, 2013 Claims: Pay A Share of GC Counsel (Subject to Reallocation) or Hire Their Own Counsel. CCC2782.05(e) PROPERTY OF RESNICK & LOUIS, P.C. 113
The subcontractor shall elect to perform either of the following, the performance of which shall be deemed to satisfy the subcontractor’s defense obligation to the builder or general contractor: (1.)
Defend the claim with counsel of its choice, and the subcontractor shall maintain control of the defense for any claim or portion of claim to which the defense obligation applies. a)
The subcontractor shall provide written notice of the election to the general contractor/construction manager within a reasonable time period following receipt of the written tender, and in no event later than 30 days following that receipt.
b)
The defense by the subcontractor shall be a complete defense of the general contractor/construction manager of all claims or portions thereof to the extent alleged to be caused by the subcontractor, including any vicarious liability claims against the general contractor/construction manager resulting from the subcontractor’s scope of work, but not including claims resulting from the scope of work, actions, or omissions of the general contractor/ construction manager, or any other party. Any vicarious liability imposed upon a builder or general contractor for claims caused by the subcontractor electing to defend under this paragraph shall be directly enforceable against the subcontractor by the general contractor/construction manager, or claimant.
c)
All information, documentation, or evidence, if any, relating to a subcontractor’s assertion that another party is responsible for the claim shall be provided by that subcontractor to the general contractor or construction manager that tendered the claim.
d)
If a subcontractor fails to timely and adequately perform its obligations the general contractor/construction manager shall have the right to pursue a claim against the subcontractor for any resulting compensatory damages, consequential damages, and reasonable attorneys’ fees.
PROPERTY OF RESNICK & LOUIS, P.C. 114
(2.)
(n.)
Pay, within 30 days of receipt of an invoice from the general contractor/construction manager, no more than a reasonable allocated share of the builder’s or general contractor’s defense fees and costs, on an ongoing basis during the pendency of the claim, subject to reallocation (including any amounts reallocated upon final resolution of the claim either by settlement or judgment). a)
The general contractor/construction manager shall allocate a share to itself to the extent a claim or claims are alleged to be caused by its work, actions, or omissions, and a share to each subcontractor to the extent a claim or claims are alleged to be caused by the subcontractor’s work, actions, or omissions, regardless of whether the general contractor/builder actually tenders the claim to any particular subcontractor, and regardless of whether that subcontractor is participating in the defense.
b)
Any amounts not collected from any particular subcontractor may not be collected from any other subcontractor.
c)
If, upon request by subcontractor, a builder or general contractor does not reallocate defense fees to subcontractors within 30 days following final resolution of the claim, the subcontractor shall have the right to pursue a claim against the builder or general contractor for any resulting compensatory and consequential damages, as well as for interest on the fees, from the date of final resolution of the claim, and the subcontractor’s reasonable attorneys’ fees incurred in connection therewith.
d)
If a subcontractor fails to timely perform its obligations, the builder or general contractor shall have the right to pursue a claim against the subcontractor for any resulting compensatory and consequential damages, as well as for interest on defense and indemnity costs, and for the builder’s or general contractor’s reasonable attorneys’ fees incurred to recover these amounts.
Wrap-Up/Consolidated Insurance Program Post January 1, 2009 Residential Have No Contractual Indemnification and Defense Obligations for Subcontractors to General Contractors/Developers. CCC 2782.9 All contracts, provisions, clauses, amendments, or PROPERTY OF RESNICK & LOUIS, P.C. 115
agreements contained therein entered into after January 1, 2009, for a residential construction project on which a wrap-up insurance policy or other consolidated insurance program, is applicable, that require an enrolled and participating subcontractor or other participant to indemnify, hold harmless, or defend another for any claim or action covered by that program, arising out of that project are unenforceable. (1.)
(o.)
(p).
Equitable Indemnification is PRESERVED to the extent that the indemnity/hold-harmless/defense obligation is unenforceable.
Subcontractors Entitled to Important Disclosure Information About Wrap-Up/Consolidated Insurance Program Post January 1, 2009 Residential Projects. CCC 2782.95 (1.)
The contract documents shall disclose, if and to the extent known: (1) The policy limits; (2) The scope of policy coverage; (3) The policy term; (4) The basis upon which the deductible or occurrence is triggered by the insurance company; (5) If the policy covers more than one work of improvement, the number of units, if any, indicated on the application for the insurance policy.
(2.)
A good faith estimate of the amount of available limits remaining under the policy as of a date indicated in the disclosure obtained from the insurer.
California Types I, II, and III Contractual Indemnification Classifications (McCrary Construction v. Metal Deck Specialties, Inc.). (1.)
Type I. (Now void in California). Type I provides ‘expressly and unequivocally’ that the indemnitor is to indemnify the indemnitee for, among other things, the negligence of the indemnitee,” and the indemnitee is indemnified whether its liability arises from its sole or concurrent negligence.
(2.)
Type II. The indemnitee would be indemnified for his or her own passive negligence, but not for active negligence. a)
Examples – A clause providing for indemnity for the indemnitee’s liability “howsoever same may be caused” or “regardless of responsibility for negligence” or “arising from the use of the premises, facilities or services of [the indemnitee]” or “which might arise in connection with the agreed work” or “caused by or happening in connection
PROPERTY OF RESNICK & LOUIS, P.C. 116
with the equipment or the condition, maintenance, possession, operation or use thereof” or “from any and all claims for damages to any person or property by reason of the use of said leased property.” (3.)
4.
Type III. Is that which provides that the indemnitor is to indemnify the indemnitee for the indemnitee’s liabilities caused by the indemnitor, but which does not provide that the indemnitor is to indemnify the indemnitee for the indemnitee’s liabilities that were caused by other than the indemnitor. Under this type of provision, any negligence on the part of the indemnitee, either active or passive, will bar indemnification against the indemnitor irrespective of whether the indemnitor may also have been a cause of the indemnitee’s liability.
Nevada (a.)
Equitable Indemnification (1.)
Equitable indemnity, which “allows a defendant to seek recovery from other potential tortfeasors,” is generally available to remedy the situation in which the defendant, “who has committed no independent wrong, is held liable for the loss of a plaintiff caused by another party.” Rodriguez v. Primadonna Company, Nevada’s equitable indemnity law has long drawn a distinction between secondary and primary liability. “‘[I]n order for one tortfeasor to be in a position of secondary responsibility vis-a-vis another tortfeasor, and thus be entitled to indemnification, there must be a preexisting legal relation between them, or some duty on the part of the primary tortfeasor to protect the secondary tortfeasor.’” Doctors Company v. Vincent. Additionally, where a party has committed an “independent wrong,” and is thus actively negligent, that party has no right to indemnity from other tortfeasors.
(2.)
The elements of proof for one seeking equitable indemnity are: a)
Indemnitee has discharged a legal obligation owed to a third party;
b)
The party from whom it seeks liability also was liable to the third party; and
PROPERTY OF RESNICK & LOUIS, P.C. 117
(3.)
(b.)
c)
As between the claimant and the party from whom it seeks indemnity, the obligation ought to be discharged by the latter.
d)
The indemnitee cannot be “actively” at fault.
e)
When a matter is settled in good faith, NRS 17.245 protects the settling party from both claims for contribution and equitable indemnity.
A right to contribution exists “where two or more persons become jointly or severally liable in tort for the same injury to [a] person even though judgment has not been recovered against all or any of them. There are two methods for enforcing a claim of contribution: either by a separate action following entry of judgment or in the same action in which [the] judgment is entered against two or more tortfeasors.
Contractual Indemnification – Contractual indemnity is where, pursuant to a contractual provision, two parties agree that one party will reimburse the other party for liability resulting from the former’s work. Medallion Dev. v. Converse Consultants. The scope of a contractual indemnity clause is determined by the contract. (1.)
Type I Indemnity Provision: Obligating an indemnitor to indemnify and defend an indemnitee for the indemnitee’s own negligence. In late 2010, the Nevada Supreme Court held that a Type I indemnity provision (obligating an indemnitor to indemnify and defend an indemnitee for the indemnitee’s own negligence) must expressly or explicitly state that it does so. A general reference to “any and all claims” will not be sufficient to encompass the sole negligence of an indemnitee under Nevada law. “Contracts purporting to indemnify a party against its own negligence will only be enforced if they clearly express such an intent and a general provision indemnifying the indemnitee ‘against any and all claims,’ standing alone, is not sufficient.” A contract of indemnity will not be construed to indemnify a party against loss or damage resulting from its own negligent acts unless such intention is expressed in clear and unequivocal terms.” George Brown Insurance Agency, Inc. v. Start Insurance Company.
PROPERTY OF RESNICK & LOUIS, P.C. 118
(2.)
Type II Indemnity Provision: Obligating an indemnitor to completely indemnify the indemnitee when the indemnitor and indemnitee are both partially at fault. In 2011, the Nevada Supreme Court extended same analysis that it used in 2010 for Type I indemnity provisions to Type II indemnity provisions, that the intent to indemnify the indemnitee must be expressly or explicitly contained in the contract. Reyburn Lawn v. Plaster Development.
(3.)
Construction Defect Claims – Anti-Indemnity Statute. A.B. 125, § 2(1), 78th Regular Session (Nev. 1995), enacted Feb. 24, 2015. NOTE: Nevada’s anti-indemnity statute—Section 2(1) of Nevada Assembly Bill 125, enacted on February 24—only applies to provisions in a contract for residential construction that is entered into on or after February 24, 2015. In a constructional defect action asserted by a claimant and governed by Chapter 40: a)
Indemnity Based on Controlling Party’s Negligence/Intentional Act or Omission. Except as otherwise provided in paragraph (b), any provision in a contract for residential construction that requires a subcontractor to indemnify, defend or otherwise hold harmless a controlling party from any liability, claim, action or cause of action resulting from a constructional defect caused by the negligence, whether active or passive, or intentional act or omission of the controlling party is against public policy and is void and unenforceable.
b)
Indemnity Based on Subcontractor’s Scope of Work/Negligence/Intentional Act or Omission. Except as otherwise provided in paragraph (c), a provision in a contract for residential construction is not against public policy and is not void and unenforceable under paragraph (a) to the extent that the provision requires a subcontractor to indemnify, defend or otherwise hold harmless a controlling party from any liability, claim, action or cause of action resulting from a constructional defect arising out
PROPERTY OF RESNICK & LOUIS, P.C. 119
of, related to or connected with the subcontractor’s scope of work, negligence, or intentional act or omission. c)
Indemnity for CD Claim Related to Portion of Subcontractor’s Work Altered or Modified by Controlling Party or Other Trade. A provision in a contract for residential construction is against public policy and is void and unenforceable under paragraph (a) to the extent that it requires a subcontractor to defend, indemnify or otherwise hold harmless a controlling party from any liability, claim, action or cause of action, resulting from a constructional defect arising out of, related to or connected with that portion of the subcontractor’s work which has been altered or modified by another trade or controlling party.
d)
When Does the Duty to Defend Arise—NO ADDITIONAL INSURED PROVISION? Except as otherwise provided in paragraph (e), if an indemnification provision is not against public policy and is not void and unenforceable, then the subcontractor’s duty to defend the controlling party arises upon presentment of the Chapter 40 notice containing a particular claim, action or cause of action from which it can be reasonably inferred that an alleged constructional defect was caused by or attributable to the subcontractor’s work, negligence, or wrongful act or omission.
e)
When Does the Duty to Defend Arise—WITH ADDITIONAL INSURED PROVISION? IF: (i) a controlling party presents the subcontractor with a Chapter 40 notice from which it can be reasonably inferred that an alleged constructional defect was caused by or attributable to the subcontractor’s work, negligence, or wrongful act or omission; (ii) the claim or action is covered by the subcontractor’s CGL insurance policy; AND (iii) the controlling party is named as an additional insured under that subcontractor’s CGL policy, THEN: 1)
The controlling party, as an additional insured, must pursue available means of recovery of its defense fees and costs under the policy before the
PROPERTY OF RESNICK & LOUIS, P.C. 120
controlling party is entitled to pursue a claim against the subcontractor. 2)
Upon the final settlement of or issuance of a final judgment in an action involving a claim for a constructional defect, if the insurer has not assumed the controlling party’s defense and reimbursed the controlling party for the defense obligation of the subcontractor, or if the defense obligation is not otherwise resolved by the settlement or final judgment, the controlling party has the right to pursue a claim against the subcontractor for reimbursement of that portion of attorneys’ fees and costs incurred by the controlling party which are attributable to the claims, actions or causes of action arising out of, related to or connected with the subcontractor’s scope of work, negligence, or intentional act or omission.
3)
The provisions of subparagraphs (1) and (2) do not prohibit a controlling party from: (i.)
(ii.)
(4.)
Following the requirements of Chapter 40 relating to providing notice, or any other Chapter 40 procedures; or Filing a third-party complaint against the subcontractor if a claimant commences an action or amends a complaint to add a cause of action for a constructional defect against a controlling party which arises out of, relates to or is otherwise connected with the subcontractor’s scope of work, negligence, or wrongful act or omission.
Construction Defect Claims – WRAP/OCIP. A.B. 125, § 2(2), 78th Regular Session (Nev. 1995), enacted Feb. 24, 2015. NOTE: Nevada’s construction defect WRAP/OCIP statute— Section 2(1) of Nevada Assembly Bill 125, enacted on February 24—only applies to provisions in a contract for residential construction that is entered into on or after February 24, 2015.
PROPERTY OF RESNICK & LOUIS, P.C. 121
For any wrap-up insurance policy or other consolidated insurance program that covers a subcontractor who performs work on residential construction for claims, actions or causes of action for a constructional defect: a)
Disclosure. The controlling WRAP/OCIP shall disclose:
party
obtaining
the
1)
The total amount or method of calculation of any credit or compensation for the premium required from a subcontractor or other participant in the contract documents;
2)
The policy limits (may be satisfied by providing the participant with a copy of the binder or declaration);
3)
The scope of policy coverage (may be satisfied by providing the participant with a copy of the binder or declaration);
4)
The policy term (may be satisfied by providing the participant with a copy of the binder or declaration);
5)
The basis upon which the deductible or occurrence is triggered by the insurer (may be satisfied by providing the participant with a copy of the binder or declaration);
6)
If the policy covers more than one improvement, the number of units, if any, indicated on the application for the insurance policy; and
7)
A good faith estimate of the amount of available limits remaining under the policyas of a date indicated in the disclosure obtained from the insurer.
For the disclosures in paragraphs 6) and 7) above relating to the number of units and the good faith estimate of the amount of available limits remaining, those disclosures:
May be based upon good faith information available at the time the disclosure is made;
PROPERTY OF RESNICK & LOUIS, P.C. 122
Are not inaccurate or made in bad faith solely because they do not accurately reflect the actual information when a later claim is made;
Are presumptively made in good faith if the number of units is the same as that contained in the application to the WRAP insurer the estimate of the amount of available limits remaining was obtained from the WRAP insurer or broker.
These presumptions may be overcome only by a showing that the insurer, broker, or controlling party intentionally misrepresented the facts in any disclosure. b)
Requesting a Copy of WRAP/OCIP and Disclosures. Upon the written request of any participant in the WRAP/OCIP, a copy of the insurance policy must be provided, if available, that shows the coverage terms and the following disclosures: policy limits, scope of policy coverage; policy term; basis upon which deductible or occurrence is triggered by insurer; and the number of units, if applicable. If the policy is not available at the time of the request, a copy of the insurance binder or declaration of coverage may be provided in lieu of the actual policy.
c)
Disclosure of WRAP/OCIP Policy/Binder/Declaration to Third Parties. Any party receiving a copy of the policy, binder, or declaration shall not disclose it to third parties other than the participant’s insurance broker or attorney unless required to do so by law. The participant’s insurance broker or attorney may not disclose the policy, binder, or declaration to any third party unless required to do so by law.
d)
Penalties Against Controlling Party for Specific NonDisclosure. IF the controlling party does not disclose the total amount or method of calculation of the premium credit or compensation to be charged to the participant before the time the participant submits its bid, THEN the participant is not legally bound by and may withdraw the bid...
PROPERTY OF RESNICK & LOUIS, P.C. 123
UNLESS: That participant has the right to increase the bid up to the amount equal to the difference between the amount the participant included, if any, for insurance in the original bid and the amount of the actual bid credit required by the controlling party. NOTE: this paragraph does not apply if the controlling party did not require the subcontractor to offset the original bid amount with a deduction for the WRAP/OCIP.
5.
e)
Subcontractor’s Monetary Obligation for Enrollment. The subcontractor’s monetary obligation for enrollment in the WRAP/OCIP ceases upon the subcontractor’s satisfaction of its agreed contribution percentage. The subcontractor’s agreed contribution percentage may be paid either as a lump sum or on a pro rata basis throughout the subcontractor’s performance of the work.
f)
Deductible/SIR Paid for Occurrence. In the event of an occurrence, the dollar amount required to be paid by a subcontractor as a self-insured retention or deductible must not be greater than the amount that the subcontractor would have otherwise been required to pay as a self-insured retention or deductible under a CGL policy of comparable insurance in force during the relevant period for that particular subcontractor and within the specific market at the time the subcontract is entered into.
New Mexico (a.)
New Mexico Anti-Indemnification/Defense Statute (NMRA 56-7-1) (1.)
A provision in a construction contract that requires one party to the contract to indemnify, hold harmless, insure or defend the other party to the contract, including the other party’s employees or agents, against liability, claims, damages, losses or expenses, including attorney fees, arising out of bodily injury to persons or damage to property caused by or resulting from, in whole or in part, the negligence, act or omission of the indemnitee, its officers,
PROPERTY OF RESNICK & LOUIS, P.C. 124
employees or agents, is void, unenforceable and against the public policy of the state. (2.)
(b.)
(c.)
“Indemnify” and “hold harmless” includes any requirement to name the indemnified party as an additional insured in the indemnitor’s insurance coverage for the purpose of providing indemnification for any liability not otherwise allowed in this section.
Equitable Indemnification (Traditional). (1.)
There has to be some independent, preexisting legal relationship between the indemnitee and indemnitor.
(2.)
The indemnitee and the indemnitor must be liable to the injured party.
(3.)
Economic Loss Rule does not bar traditional indemnification.
(4.)
The purpose of traditional indemnification is to allow a party who has been held liable without active fault to seek recovery from one who is actively at fault. Thus the right to indemnification involves whether the conduct of the party seeking indemnification was passive and not active or in pari delicto with the indemnitor. a)
“Active conduct” is found if an indemnitee has personally participated in an affirmative act of negligence, was connected with negligent acts or omissions by knowledge or acquiescence, or has failed to perform a precise duty which the indemnitee had agreed to perform. The conduct of the party who does nothing after discovering a dangerous condition is active.
b)
Passive conduct occurs when the party seeking indemnification fails to discover and remedy a dangerous situation created by the negligence or wrongdoing of another. The conduct of the party not discovering a dangerous condition is passive.
Equitable Indemnification (Proportional)
PROPERTY OF RESNICK & LOUIS, P.C. 125
(d.)
(1.).
This is comparative equitable indemnification where the negligence/fault of the parties are analyzed so that there is not an all or nothing result as with traditional indemnification.
(2.)
Proportional indemnification applies only when contribution or some other form of proration of fault among tortfeasors is not available. For example, if two defendants are sued for different legal theories such as negligence and the other under contract, then they would not be joint tortfeasors under the Uniform Contribution Among Joint Tortfeasors Act, and therefore, proration of fault is not available, but Proportional indemnification is.
Equitable Indemnification (Derivative Liability) (1.)
6.
New Mexico allows indemnification in actions for vicarious or derivative liability, “as when an employer must pay for the negligent conduct of its employee under the doctrine of respondeat superior or when a person is directed by another to do something that appears innocent but is in fact wrongful.” For example, “a blameless employer [as indemnitee] recovers from a negligent employee [as indemnitor], after the employer has been held liable to the injured third person upon the theory of respondeat superior.” Dessauer v. Mem’l Gen. Hosp.
Utah (a.)
Utah Anti-Indemnification/Defense Statute (Utah Code Ann. § 13-8-1) (1.)
For construction contracts entered into after May 5, 1997, all “indemnification provisions” are void, when such agreements were made by those involved in the construction of an improvement to real property. See Utah Code Ann. § 13-8-1. Pursuant to Utah Code Ann. § 13-8-1(1)(b), an “indemnification provision” is any “covenant, promise, agreement or understanding in, in connection with, or collateral to a construction contract requiring the promisor to insure, hold harmless, indemnify, or defend the promisee or others against liability if…the damages are caused by or resulting from the fault of the promisee, indemnitee, others, or their agents or employees.” Utah Code Ann. § 13-8-1 voids all indemnification provisions to the extent that such indemnification provisions are interpreted to provide indemnification for the indemnitees’ own fault. See Jacobsen Constr. Co. v. Blaine Constr. Co., 863 P.2d 1329, 1331 (Utah Ct. App. 1993) (where the scope of the PROPERTY OF RESNICK & LOUIS, P.C. 126
indemnfiication provision includes prohibited indemnity, the entire provision is unenforceable). (2.)
J.
The Utah Court of Appeals has found that Utah Code Ann. § 13-81 does not void agreements to name the indemnified party as an additional insured in the indemnitor’s insurance coverage. See Meadow Valley Contrs., Inc. v. Transcon. Ins. Co., 27 P.3d 594, 598 (Utah App. 2001).
Arizona Covenants Not To Execute and Assignment of Rights. 1.
Duty to defend is broad. (a.)
2.
3.
No breach of duty to cooperate.
Management involvement. (a.)
Potential for faith claim.
(b.)
Involvement of coverage counsel and coverage issues.
(c.)
Impact on insured.
United Services Auto. Ass’n v. Morris – Reservation of Rights (a.)
Must be properly and timely communicated to insured so that no prejudice exists on insured. The ROR should be sent before the insurance company assumes the defense to avoid the insured reasonably relying on the lack of a coverage defenses. Equity General Insurance Co. v. C&A Realty Co.
(b.)
Inform the reader of average intelligence of the fact that the insurance company is providing a defense without waiving its rights to later contest coverage. Equity General Insurance Co. v. C&A Realty Co.
(c.)
(1)
Inform the insured of the concerns the insurance company has with coverage. Globe Indemnity Co. v. Blomfield.
(2)
Covenant not to execute/ assignment/stipulated judgment or withdrawal of answer and judgment entered against insured.
Defenses: (1.)
Settlement not fair and reasonable under circumstances; PROPERTY OF RESNICK & LOUIS, P.C. 127
(2.) (d.)
Trump Card: Withdraw Reservation of Rights. (1.)
(e.) 4.
Insurance company preserves coverage defenses.
Insured can settle with third party without insurance company consent. (1.)
K.
Insured must give notice to allow the insurance company to defend without ROR.
Damron v. Sledge – Failure to Defend; No Reservation of Rights. (a.)
5.
Judgment COLLUSIVE OR FRAUDULENT.
Must be fair and reasonable.
(b.)
Covenant not to execute/ assignment/stipulated judgment or withdrawal of answer and judgment entered against insured.
(c.)
Insured not required to provide notice to the insurance company.
(d.)
Insurance company preserves coverage defenses.
Colorado Casualty Company v. Safety Control Company. The Arizona Court of Appeals held that a Damron agreement between an insured and its excess insurer assigning the insured’s rights against the primary insurer was enforceable.
Implied and Express Warranty Claims 1.
Arizona. (a.)
Warranty claims sound in contract. Colberg v. Rellinger.
(b.)
The law implies a warranty on a contractor to perform the agreed upon work in a good and workmanlike manner and in a manner befitting a skilled contractor. Columbia Western Corp. v. Vela.
(c.)
The standard is whether the work performed is comparable to work ordinarily done by a worker of average skill and intelligence.
PROPERTY OF RESNICK & LOUIS, P.C. 128
(d.)
In an Arizona construction defect case, there is no warranty for fitness for particular purpose. There is a determination of whether the home is reasonably suited for its intended use. Richards v. Powercraft Homes.
(e.)
Privity is not required between the purchaser and the builder for residential construction. Subsequent residential homeowners can bring a claim against the original developer/builder.
(f.)
However, the implied warranty of good workmanship does NOT apply to subsequent purchasers of commercial property. Hayden Business Center Condominium Assn. v. Pegasus Development Corp. A residential purchaser can now bring a claim for Breach of Warranty against a Contractor who is not the builder/vendor without the need of privity. Lofts at Fillmore Condominium Ass’n v. Reliance Commercial Const., Inc. The Statute of Repose applies to implied warranty claims. Sullivan v. Pulte Home Corp., 231 Ariz. 53, 290 P.3d 446 (App. 2012). Economic tolling does not apply to the Statute of Repose. ARS 12–341.01(A) is not applicable to a breach of implied warranty of workmanship or habitability claim. Although the implied warranty claim sounds in contract, it is an implied in contract law theory, not an implied in fact contract theory.
(g.)
(h.)
2.
Colorado (a.)
Implied Warranty of Habitability: House must not be built in a workmanlike manner and suited for habitation. Roger v. Spring Lake Dev Co. Proof of Defect Due to Improper Construction, Design, or Preparations us sufficient to establish liability in the builder/vendor. Wall v. Foster Petroleum Corp. No liability if the home becomes uninhabitable for reasons other than workmanship such as soils expansion, but can arise in selection of the location of the home.
(b.)
Implied Warranty of Workmanlike Construction: Not a guarantee of perfect construction. Rather, there is no requirement of perfection; the test is reasonableness in terms of what the workmen of average skill and intelligence would ordinarily do. Shiffers v. Cunningham Shepherd Builders Co. The warranty applies to subsequent homeowners. Duncan v. Schuster-Graham Homes.
(c.)
Implied Warranty for Fitness for Particular Purpose.
PROPERTY OF RESNICK & LOUIS, P.C. 129
3.
4.
California (a.)
Breach of Express Warranties – An express warranty is an affirmation of fact or promise made by the seller to a buyer that relates to the items sold and becomes part of the basis of the bargain. California Uniform Commercial Code 2313.
(b.)
Breach of Implied Warranty of Workmanlike Manner – Implied warranties are based on implied representations rather than express statements. Homebuilders and sellers of new construction are bound by an implied warranty that the completed structure was designed and constructed in a reasonably workmanlike manner. With respect to subsequent purchasers, California has stubbornly refused to disregard the privity requirement and has held the warranty of workmanlike construction arises under contract, not tort. However, as mentioned above, SB 800 has been enacted for residential construction, for homes built in 2003 and later, and does apply to subsequent purchasers. Section 945 says “The provisions, standards, rights, and obligations set forth in this title are binding upon all original purchasers and their successors-in-interest.”
Nevada (a.)
5.
A vendor/homebuilder may be liable for breach of implied warranty. See Radaker v. Scott. Implied warranty case law (not habitability case law) suggests that Nevada will protect subsequent purchasers with the implied warranty of habitability. See Hiles Co. v. Johnson Pump.
Utah (a.)
Davencourt at Pilgrims Landing Homeowners Ass’n v. Davencourt at Pilgrims Landing, L.C. (2009) An implied warranty of workmanlike manner or habitability for residential construction exists. In every contract for the sale of a new residence, a vendor in the business of building or selling such residences makes an implied warranty to the vendee that the residence is constructed in a workmanlike manner and fit for habitation. To establish a breach of the implied warranty of workmanlike manner or habitability, a plaintiff must show (1) the purchase of a new residence from a defendant builder-vendor/developer-vendor; (2) the residence contained a latent defect; (3) the defect manifested itself after purchase; (4) the defect was caused by improper design, material, or workmanship; and (5) the defect created a question of safety or made the house unfit for human habitation. There is also no independent duty to comply with the building code.
PROPERTY OF RESNICK & LOUIS, P.C. 130
L.
(1.)
The implied warranty arises under contract law. Privity of contract is required to bring a claim for breach of the implied warranty.
(2.)
The implied warranty does not require perfection by a buildervendor / developer-vendor; or make them an insurer against any and all defects in a home.
(3.)
The implied warranty does not protect against mere defects in workmanship, minor or procedural violations of the building codes, or defects that are trivial or asthetic.
(4.)
The implied warranty does not alleviate purchasers of their home due diligence and opportunity to inspect a residential construction or the incentive to negotiate for express warranties.
Economic Loss Rule 1.
Arizona – (a.)
Flagstaff Affordable Housing v. Design. A Property owner is limited to its contractual remedies when a design professional’s negligent design causes economic loss but no physical injury to persons or property economic loss rule applies to a construction defect case against a developer/contractor/ subcontractor. (1.)
Definition – Economic Loss refers to pecuniary or commercial damage, including any decreased/diminished value or repair costs for a product or property that is itself a subject of a contract between the plaintiff and defendant, and consequential damages such as lost profits.
(2.)
A contracting party is limited to contractual remedies for the recovery of economic losses if there is no physical injury to persons or OTHER property.
(3.)
When a construction defect causes only damage to the building itself or other economic loss, common law contract remedies are sufficient.
(4.)
Subsequent purchasers can bring contractual implied warranty claims without privity so as to avoid tort claims.
(5.)
Parties can agree in a contract to preserve tort remedies. PROPERTY OF RESNICK & LOUIS, P.C. 131
(b.)
2.
Sulllivan v. Pulte Home Corp II (2015) – Subsequent homeowner cannot bring purely economic loss negligence claims. Now, subsequent purchasers are limited to implied warranty claims which are subject to the Statute of Repose.
Colorado (a.)
CRS 13-20-804 (Restriction on Construction Defect Negligence Claims) (1.)
(b).
No negligence claim based upon building code or industry standard unless actual damage to real or personal property, actual loss of use of real or personal property/bodily injury, risk of bodily injury or death to or threat to life, health, or safety of the occupants. a)
Can bring other tort, contract, and warranty claims.
b)
Can bring other negligence claims that arise from any statute or ordinance other than for violation of building code.
Town of Alma v. Azco Construction, Inc.; (1.)
Economic loss is defined as damages other than physical harm to persons or property.
(2.)
A party suffering only economic loss from a breach of an express or implied contract may NOT assert a tort claim UNLESS an independent duty of care under tort law. If a breach of a duty arises independently of any contract duties, then tort claim may exist. a)
Builders owe an independent duty of care to act without negligence in construction of a home.
b)
Subcontractors owe an independent duty to homeowners to act without negligence in construction of a home. A.C. Excavating v. Yacht Club II Homeowners Association.
c)
Engineer and inspector do NOT owe an independent duty to subcontractor on a public works construction job. BRW, Inc. v. Duffy & Sons, Inc.
PROPERTY OF RESNICK & LOUIS, P.C. 132
3.
4.
California (a.)
Residential Construction – SB 800 has superseded the Aas v. Sup. Ct case which had required there to be resulting separate property. SB 800 allows for construction defect claims for technical code violations with no resulting property damage.
(b.)
Non-Construction – Economic Loss Rule applies in California. Seeley v. White Motor Co., The California Supreme Court distinguished between tort recovery for physical injury and warranty recovery for economic loss. The court held that a buyer should not bear the risk that a product will cause physical injury, but the buyer should bear the risk that the “product will not match his economic expectations.” The case involved a consumer transaction, the purchase of a defective truck. The court rejected the notion that the law of warranty should be “limited to parties in a somewhat equal bargaining position.”
(c.)
Special Relationship Exception to the Economic Loss Rule: Allows limited exception where there is a “special relationship” between the plaintiff and the defendant. Biakanja v. Irvine; J’Aire v. Gregory. A “special relationship” exists between the plaintiff and the defendant where: (1) the plaintiff was an intended beneficiary of the defendant’s obligations under a contract; (2) the plaintiff’s loss was foreseeable; (3) there is a high degree of certainty that the plaintiff would suffer the loss from the defendant’s conduct; (4) there is a close connection between the defendant’s conduct and the plaintiff’s loss; (5) the defendant’s conduct is morally blameworthy; and (6) the public policy favors holding the defendant responsible for plaintiff’s economic loss.
(d.)
Fraud Exception to the Economic Loss Rule: Robinson Helicopter Co., Inc. v. Dana Corp., A tortious breach of contract may be found when (1) the breach is accompanied by a traditional common law tort, such as fraud or conversion; (2) the means used to breach the contract are tortious, involving deceit or undue coercion; or (3) one party intentionally breaches the contract intending or knowing that such a breach will cause severe, unmitigable harm in the form of mental anguish, personal hardship, or substantial consequential damages.”
Nevada (a.)
Construction: As Chapter 40 claims, Nevada has been reluctant to bar claims by residential owners against design professionals or contractors for purely economic damages. Olson v. Richard. Chapter 40 allows for PROPERTY OF RESNICK & LOUIS, P.C. 133
negligence claims by homeowners. We do sometimes still pursue the economic loss rule defense in cases, depending upon the judge. Subcontractors will also sometimes raise it with respect to defending third party residential and commercial claims
5.
(b.)
Design Professionals: Nevada has prohibited professional negligence claims against design professionals on commercial projects who did not perform any physical construction activities. Terracon Consultants Western, Inc. v. Mandalay Resort Group. The economic loss doctrine prohibits unintentional tort actions in which the plaintiff seeks to recover purely economic losses. Terracon Consultants W., Inc. v. Mandalay Resort Group. The Nevada Supreme Court has applied the economic loss doctrine in product liability cases as well as negligence actions. See Giles v. Gen. Motors Acceptance Corp.
(c.)
Other Tort Claims: It is true that a plaintiff may not recover economic loss under theories of strict products liability or negligence. Local Joint Exec. Bd. v. Stern; Central Bit Supply v. Waldrop Drilling & Pump. However, purely economic loss may be recovered under a breach of warranty theory. Hiles Co. v. Johnston Pump Co.
New Mexico (a.)
New Mexico adopted the economic-loss rule in Utah International, Inc. v. Caterpillar Tractor, Co. When there is no great disparity in bargaining power of the parties, economic losses from injury of a product to itself are not recoverable in tort actions; damages for such economic losses in commercial settings in New Mexico may only be recovered in contract actions. (1.)
(b.)
In AIG Aviation Insurance v. Avco Corporation, the New Mexico Federal District Court relied upon the decision from the New Mexico Court of Appeals in Spectron Dev. Lab., a Div. of Titan Corp. v. Am. Hollow Boring Co., and listed three factors to determine if there is great disparity in the parties’ bargaining power: “1) [W]hether any real opportunities for bargaining existed, 2) whether both parties had an incentive to reach an agreement, and 3) whether the parties’ sophistication level, both generally and with regard to the specific product, was comparable.”
The purpose of the economic loss rule is to preserve the bedrock principle that contract damages be limited to those within the contemplation and control of the parties in framing their agreement.” In re Consol. Vista Hills PROPERTY OF RESNICK & LOUIS, P.C. 134
Retaining Wall Litigation. The Supreme Court in that case went on to hold that the economic-loss rule is inapplicable to indemnity claims. The Supreme Court held that the rule was not meant to prevent recovery, but to prevent recovery in tort, and “it would be unjust not to allow indemnification. (c.)
6.
In 2006, The Federal District Court in New Mexico (Farmers Alliance Mut. Ins. Co. v. Naylor) also addressed the applicability of the economic loss rule for service contracts. That court said that Legal precedent in New Mexico indicates that the economic loss rule extends beyond the limited context of products liability law and applies to service contracts. The legal and policy considerations that motivated New Mexico courts to adopt the economic loss rule in the products liability context apply equally to service contracts. However, that Federal District Court also held that negligence claims which arise out of professional service contracts will not be barred by the economic loss rule. In fact, the Court said “Similarly, the New Mexico Supreme Court has observed that “[w]hen professional services arising from contract are substandard, a plaintiff may bring a cause of action for malpractice based on negligence or for breach of contract arising from the breach of the implied warranty to use reasonable skill.” Adobe Masters, Inc. v. Downey. Because I am bound by state law, I conclude that although the economic loss rule applies to service contracts, the rule does not bar tort claims arising from an independent duty of care.”
Utah (a.)
The economic loss rule provides generally that one “may not recover economic losses under a theory of non-intentional tort” absent physical damage to other property or bodily injury. Am. Towers Owners Ass’n v. CCI Mech., Inc., 930 P.2d 1182, 1189 (Utah 1996). Economic losses, of course, represent costs of repair, lost profits, lost business opportunities, and lost wages. Under this rule, economic losses may not be recovered under a negligence claim unless there are bodily injuries or property damage. In a construction context, this rule was applied in Am. Towers Owners Ass’n, where a condominium association brought suit against the defendants who designed, developed and constructed the condominium complex. 930 P.2d 1182. In part, the association alleged that the defendants negligently failed to design, construct, supervise and inspect the construction of the property. As a result, the association alleged that it incurred substantial and ongoing reparation costs, the substantial diminution of the value of the property and other special and consequential damages. The trial court granted the defendant’s motion for summary judgment on the basis that the claim failed as a matter of law PROPERTY OF RESNICK & LOUIS, P.C. 135
because “the alleged damages are for economic loss, not for injury to persons or other property.” Id. On appeal the Utah Supreme Court affirmed. In doing so, the court explained the above principles of law and held: The Association contends that the complex’s plumbing and mechanical systems do not meet their expectations, resulting in a diminution in value of their purchase measured by the cost of repair. This deterioration of the complex does not qualify for the “damage to other property” exception to the economic loss doctrine. This interpretation is consistent with the court of appeals’ decisions applying the economic loss rule . . . where the plaintiff’s claimed that construction defects caused water leakage into other parts of their homes. Am. Towers Owners Ass’n, 930 P.2d at 1191 (citations omitted). (b.)
In 2008, the Utah legislature enacted Utah Code Ann. § 78B-4-513, which addresses issues presented by the economic loss doctrine. The statute provides: § 78B-4-513. Cause of action for defective construction (1) Except as provided in Subsection (2), an action for defective design or construction is limited to breach of the contract, whether written or otherwise, including both express and implied warranties. (2) An action for defective design or construction may include damage to other property or physical personal injury if the damage or injury is caused by the defective design or construction. (3) For purposes of Subsection (2), property damage does not include: (a) the failure of construction to function as designed; or (b) diminution of the value of the constructed property because of the defective design or construction. (4) Except as provided in Subsections (2) and (6), an action for defective design or construction may be brought only by a person in privity of contract with the original contractor, architect, engineer, or the real estate developer. (5) If a person in privity of contract sues for defective design or construction under this section, nothing in this section precludes the person from bringing, in the same suit, another cause of action to which the person is entitled based on an intentional or willful breach of a duty existing in law. (6) Nothing in this section precludes a person from assigning a right under a contract to another person, including to a subsequent owner or a homeowners association.
PROPERTY OF RESNICK & LOUIS, P.C. 136
(c.)
M.
Davencourt at Pilgrims Landing Homeowners Association v. Davencourt at Pilgrims Landing LC 30) (2009) (1.)
Until the developer relinquishes control of the association to the members, the developer owes the following durties to the association and its members: (1) reasonable care / prudence in managing and maintaining the common property; (2) establish a sound fiscal basis for the association by imposing and collecting assessments and establishing reserves for the maintenance and replacement of common property; (3) disclose the amount the developer is providing or subsidizing services; (4) maintain records and to account; (5) comply with and enforce the terms of the governing documents, including design controls, land-use restrictions, and the payment of assessments; (6) disclose all material facts and circumstances affecting the condition of the property that the association is responsible for maintaining; and (7) disclose all material facts and circumstances affecting the financial condition of the association, including the interest of the developer and the developer’s affiliates in any contract, lease, or other agreement entered into by the association.
(2.)
Tort claims brough under this limited fiduciary duty fall outside of the Economic Loss Rule. Only tort claims which extent from this independent, limited fiduciary duty, are permitted, not all torts.
Standing By HOAs to Bring Claims On Their Own Behalf/Behalf of Unit Owners 1.
Arizona – ARS 33-1242 and 33-1247; and Continental Townhomes East v. Bockbank.
2.
Colorado – CRS 38-33.3-302(d)
3.
California – Civil Code § 1368.3 (formerly CCP § 383) – express statutory standing; areas of damage that association is obligated to maintain or repair. Also, HOA has standing to bring implied warranty claim for defects to common areas. Windham at Carmel Mountain Ranch Association v. Superior Court. CCP § 382 – representative standing; areas of damage that association is not obligated to maintain or repair Raven’s Cove Townhomes v. Knuppe Development.
4.
Nevada (a.)
NRS 116.3102 (Powers of Unit Owners Associations)
PROPERTY OF RESNICK & LOUIS, P.C. 137
N.
(1.)
Generally, a homeowners’ association has standing under NRS 116.3102(1)(d) to assert causes of action for constructional defects on behalf of its members. See Horton Inc. RCR v. Eighth Judicial District Court.
(2.)
However, a homeowners’ association may not institute, defend, or intervene in litigation, arbitration, mediation, or administrative proceedings in its own name on behalf of itself or unit owners with respect to a constructional defect action unless the action pertains exclusively to common elements. See A.B. 125, § 20, 78th Regular Session (Nev. 2015), enacted Feb. 24, 2015.
5.
New Mexico – NMRA 47-7-26 (Actions); NMRA 47-7C-2
6.
Utah – A homeowners’ association has standing to maintain an action against a developer, regarding common areas. Brickyard Homeowners’ Ass’n Mgmt. Comm. V. Gibbons Realty Co., 668 P.2d 535 (Utah 1983).
Self Insured Retentions 1.
California (a.)
SIR Estoppel (Executive Risk Indemnity v. Jones) – Beginning with Clemmer v. Hartford Insurance Co., the California courts have held that where an insurer breaches its duty to defend its insured, the insurer is bound in a subsequent coverage action by all material findings of fact in the underlying action essential to the judgment of liability and damages. In Executive Risk Indemnity the California Court of Appeal, First Appellate District, Division Four, held that if, despite the entreaties of its insured, an insurer denies a defense, it is bound by the material findings in the action against the insured even if the policy does not include a defense obligation, but only requires the insurer to indemnify the insured once judgment is entered. The Court of Appeal stated: “[W]e conclude that when an insurer (1) is duly notified of the underlying claim against its insured; and (2) is given a full opportunity to protect its interests, the resulting judgment-if obtained without fraud or collusion-is binding against the insurer in any later coverage litigation on the claim involving its insured. This rule applies regardless of whether the insurer has a contractual duty to defend, or whether or not its refusal to participate in the underlying proceedings is legally justified.”
(b.)
SIR Payment (Forecast Homes, Inc. v. Steadfast); If the insurance policy requires the named insured to satisfy the SIR, only a named insured, not PROPERTY OF RESNICK & LOUIS, P.C. 138
an additional insured, can satisfy a general liability policy’s self-insured retention to trigger coverage (c.)
O.
SIR Payment (National Fire Ins. Co. of Hartford v. Federal Ins. Co) Citing to the 2010 California state court decision in Forecast Homes, Inc. v. Steadfast Ins. Co., Federal argued that this policy language required the hotel to pay the retention with its own funds, and that the retention could not be insured. The court rejected this argument, however, noting that in Forecast Homes, the provision concerning payment of the self-insured retention expressly stated that “Payment by others, including but not limited to additional insureds or insurers, do not serve to satisfy the selfinsured retention.” By contrast, the Federal policy contained a “Bankruptcy Within the Self-Insured Retention” provision stating that the bankruptcy of any insurer, or any other person, would not relieve the hotel of its obligation to satisfy the retention. This language, explained the court, implied that the retention could be paid by other insurers, or other persons, and at the very least, did not “clearly require the hotel to satisfy the SIR out of its own pocket.” In other words, the bankruptcy provision negated the otherwise clear policy provision stating that the retention must be paid by “you.
Additional Insured Obligations (On-Going Operations Hot Item Issue) 1.
Arizona
Colorado Cas. Ins. Co. v. Safety Co. Arizona Court of Appeals 228 Ariz. 517 (2012)
Factual Background: General contractor was sued by an injured motorist as a result of defects in concrete safety walls that were put in place by a subcontractor for purposes of providing a barrier during a road work construction project. Pursuant to contract, the subcontractor was required to install and maintain the concrete barriers until completion and final acceptance of the entire project. The general contractor tendered to the subcontractor’s insurance company under an additional insured endorsement providing coverage for liability arising out of the subcontractor’s operations.
PROPERTY OF RESNICK & LOUIS, P.C. 139
Holding: In finding coverage under the subject additional insurance endorsement, the Arizona Appellate Court indicated that the reference to “ongoing operations” in this context was not ambiguous. The Court indicated that ongoing operations means “liability arising while the work is still progress.” Applying this definition, the Court held that the subcontractor’s ongoing operations continued from the time the subcontractor installed the barriers until the barriers were removed.
Tri-Star Theme Builders, Inc./PCL Construction v. OneBeacon Ins. Co. United States Court of Appeal, 9th Cir., (2011) 426 Fed.Appx. 506 (not for publication)
2.
Factual Background: General contractor sought AI coverage under subcontractor’s insurance policy in relation to a construction defect lawsuit. The subcontractor performed work on the project during the pertinent policy periods. The AI endorsement at issue indicated that AI coverage applied for “liability arising out of your ongoing operations.”
Holding: The Ninth Circuit Court of Appeals found that the reference to “ongoing operations” with no temporal limitation or definition was ambiguous. The Court found that the additional insured coverage could be triggered as long as there was work during the policy period.
California
McMillin Construction Services, LP v. Arch Specialty Ins. Co. United States District Court for the Southern District of California 2012 WL 243321
Factual Background: General contractor claimed to be an additional insured under multiple subcontractors’ insurance policies that provided coverage with respect to liability arising out of the subcontractors’ “ongoing operations.” The insurers argued that they had no duty to defend the general contractor because the additional insured coverage ended when the subcontractors’ work for the general contractor was complete.
Holding: The Federal District Court followed the holding in Tri-Star and found that the reference to “ongoing operations” was ambiguous. The Court also found that Exclusions (j)5 and (j)6 did not preclude the potential for coverage.
Pardee Construction Co. v. Insurance Co. of the West California Court of Appeal 4th District (2000) 77 Cal.App.4th 1340
Factual Background: General contractor brought suit against insurers for multiple subcontractors, claiming that such insurers owed an obligation to defend the general contractor as an AI under the subcontractor policies. The main policies at issue had ISO CG 20 10 11/85 AI endorsements (or similar forms) which provide AI coverage for
Holding: The court found that the ISO CG 20 10 11/85 endorsement language provided for completed operations coverage. The court noted that the carriers could have eliminated completed operations coverage by adding policy language limiting the AI coverage to a specific time frame or project. In reaching
PROPERTY OF RESNICK & LOUIS, P.C. 140
“liability arising out of [the named insured’s] work.” The carriers argued that there could be no coverage under their policies because their policies were issued after completion of the construction project for which additional coverage was sought.
this conclusion, the court recognized that the carriers could have used an updated version of the ISO CG 20 10 AI form [such as the 1993 or 1997 version] which limited AI coverage to liability arising out of [the named insured’s] “ongoing operations.” The court stated that the post-1993 version of the 20 10 form “effectively precludes application of the endorsement’s coverage to completed operations losses.”
St. Paul Fire and Marine Insurance Company v. ACE American Insurance (2014 WL 4078660, August 14, 2014) The court found “ongoing operations” and “completed operations” are temporal concepts, with “ongoing operations” referring to work in progress and “completed operations” referring to work that has been completed. Because they are temporal concepts, property damage that arises from ongoing operations must occur while the operations are ongoing. Furthermore, the ongoing operations temporal element places emphasis on when the damage occurred, as opposed to when the damage was discovered. Because the homeowners discovered the damage after the sub-contractors completed their work, but the damage initially occurred during their operations, the insurance company for the subcontractor was required to defend homebuilder as an additional insured.
3.
Colorado
United Fire & Cas. Co. v. Boulder Plaza Residential LLC United States Court of Appeals, 10th Cir. (2011) 633 F.3d 951; (2011 WL 240520)
Factual Background: Insurance company sought declaratory judgment that it did not owe an AI obligation to a developer in relation to an underlying construction defect case. The AI endorsement at issue provided coverage for the subcontractor’s “ongoing operations.” The endorsement provided that “a PROPERTY OF RESNICK & LOUIS, P.C. 141
Holding: Following the Colorado Court of Appeals decision in Weitz the Tenth Circuit found that the complaint only alleged damage to completed operations rather than ongoing operations. Thus, the Court found that the insurer had no AI obligation.
person’s or organization’s status as an AI under this endorsement ends when your operations for that insured are completed.” This endorsement appears similar to the ISO CG 20 33 form. Royal Indemnity Co. v. American Family Mutual Ins. Co. United States District Court, D. Colo. 2008 WL 4378737 (not published in Federal Reporter)
Factual Background: Direct carrier for developer sued subcontractor carriers claiming AI coverage for the underlying construction defect case. The subject AI endorsement was an ISO CG 20 10 10/93 form which provided AI coverage “but only with respect to liability arising out of your ongoing operations performed for that insured.” The subcontractors at issue performed work during the policy periods under which AI coverage was being sought. The developer’s direct carrier sought to differentiate the instant matter from the Colorado Court of Appeals decision in Weitz by noting the fact that work performed during these policy periods created a potential for damage during the policy period.
Holding: The District Court followed Weitz and ruled that because the claimant in the construction defects lawsuit did not notice or sustain damages until after the work of the subcontractors was completed (based on certificate of occupancy dates), the AI coverage did not apply. The District Court noted that the operative complaint in the underlying construction defect case alleged that property damage was first observed after the buildings were substantially completed following transfer of title to the homeowner control.
Weitz Company, LLC v. MidCentury Ins. Co. Colorado Court of Appeals, 181 P.3d 309 (2007) (cert. denied 2008)
Factual Background: General contractor, who was sued by homeowner, brought action against insurer that issued CGL policy to subcontractor, claiming that general contractor was an AI. AI endorsement provided coverage “only with respect to liability arising out of your [the subcontractor’s] ongoing operations.” (ISO CG 20 10
Holding: The court held that under the plain and ordinary meaning of “arising out of your ongoing operations,” the AI endorsement does not cover “completed operations,” and the insurer has no duty to defend or indemnify the general contractor under the circumstances at issue in the
PROPERTY OF RESNICK & LOUIS, P.C. 142
P.
10/93). The project at issue was case. Note: The court does certified for occupancy before not address whether the result the subcontractor’s CGL policy would be different if there at issue incepted, but was evidence of work construction defect lawsuit was performed during the policy filed after inception of the period. policy. Arizona and Colorado Definition of Occurrence and Coverage for Property Damage With Duty to Defend 1.
Arizona (Lennar Corp v. Auto Owners Ins. Co) (a.)
Faulty workmanship by itself does not constitute an “occurrence” under a CGL policy. The cost of repairing such faulty workmanship is not “property damage.”
(b.)
If faulty workmanship allegedly causes damage to other portions of a building (such as the wall and floor cracks that resulted from soil expansion), then there is an occurrence. Property damage” resulting from faulty workmanship is covered even though it might be considered a natural consequence of faulty workmanship.
(c.)
Faulty construction may constitute a “general harmful condition,” and when accidental property damage results from continued exposure to faulty construction, that property damage is an “occurrence” as defined by the involved policies.
(d.)
Continuous Trigger applies in Arizona. Associated Aviation Underwriters v. Wood.
(e.)
Breach of Contract Claims Can Be Occurrences. The proper inquiry is whether an occurrence has caused property damage, not whether then ultimate remedy for that claim is tort or contract. However, the conclusion that the standard CGL policy contains no implied absolute bar of contractual liabilities does not preclude application of express exclusions of such liability. A contractual liability exclusion in the CGL policy does not apply to damages arising out of the named insured’s contractual liability so as to preclude coverage for a breach of contract claim. Desert Mountain Properties v. Liberty Mutual Ins. Co.
(f.)
The Broad Form Property Damage Exclusion does NOT bar coverage of damage to non-defective property resulting from faulty workmanship. Desert Mountain Properties v. Liberty Mutual Ins. Co. PROPERTY OF RESNICK & LOUIS, P.C. 143
(g.)
Voluntary payments by an insured to repair “property damage” are covered under a CGL policy. Desert Mountain Properties v. Liberty Mutual Ins. Co.
(h.)
Expenses incurred to prevent future property damage that would have occurred during a policy period can be covered under a CGL policy if there has been some property damage before preventative measures are taken and some of the property damage has been repaired. Desert Mountain Properties v. Liberty Mutual Ins. Co.
(i.)
An insurance company is required to defend an Insured at the Earliest Stages of Litigation, even if the claims are groundless, and regardless if the insured is found liable. INA Insurance Co. v. Valley Forge Ins. Co.
(j.)
If any claim alleged in the complaint is within the policy’s coverage, the insurance company has a duty to defend the entire suit, because it is impossible to determine the basis upon which the plaintiff will recover, if at all, until the action is completed. The insured can make a factual showing outside of the Complaint such as with Affidavits which then requires the insurance company to investigate and defend if there is a potential for coverage under the policy. The insurance company can rely upon facts outside of the Complaint to establish that there is no duty to defend. Kepner v. Western Fire Insurance Co.
(k.)
The duty to defend extends to covered and non-covered claims. Western Casualty & Surety Co v. International Spas of Arizona, Inc.
(l.)
Regal Homes, Inc. v. C.N.A. Insurance. In the context of an additional insured claim, the insurance company must defend the entire law suit, not just the issues applicable to the insured. The additional insured obligation which is “arising out of” the subcontractor’s work only requires some causal relationship between the injury and the risk for which coverage is provided which is determined at the time the relevant pleadings are filed. Id. There only needs to be some causal connection between the subcontractor’s scope of work and the claims against the additional insured. Id. It is irrelevant to the duty to defend whether the subcontractor is ultimately found not to be liable. The Additional Insured defense obligation could exist even with no duty to indemnify on behalf of the subcontractor.
PROPERTY OF RESNICK & LOUIS, P.C. 144
2.
Colorado – CRS 13-20-808 (a.)
(b.)
(c.)
The general assembly finds and determines that: (1.)
The interpretation of insurance policies issued to construction professionals is of vital importance to the economic and social welfare of the citizens of Colorado and in furthering the purposes of this part 8.
(2.)
Insurance policies issued to construction professionals have become increasingly complex, often containing multiple, lengthy endorsements and exclusions conflicting with the reasonable expectations of the insured.
(3.)
The correct interpretation of coverage for damages arising out of construction defects is in the best interest of insurers, construction professionals, and property owners.
The general assembly declares that: (1.)
The policy of Colorado favors the interpretation of insurance coverage broadly for the insured.
(2.)
The long-standing and continuing policy of Colorado favors a broad interpretation of an insurer’s duty to defend the insured under liability insurance policies and that these duties is a firstparty benefit to and claim on behalf of the insured.
(3.)
The decision of the Colorado court of appeals in General Security Indemnity Company of Arizona v. Mountain States Mutual Casualty Company, 205 P.3d 529 (Colo. App. 2009) does not properly consider a construction professional’s reasonable expectation that an insurer would defend the construction professional against an action or notice of claim contemplated by this part 8.
(4.)
For the purposes of guiding pending and future actions interpreting liability insurance policies issued to construction professionals, what has been and continues to be the policy of Colorado is hereby clarified and confirmed in the interpretation of insurance policies that have been and may be issued to construction professionals.
For the purposes of this section: PROPERTY OF RESNICK & LOUIS, P.C. 145
(d.)
(e.)
(1.)
“Insurance” has the same meaning as set forth in section 10-1-102, C.R.S.
(2.)
“Insurance policy” means a contract of insurance.
(3.)
“Insurer” has the same meaning as set forth in section 10-1-102, C.R.S.
(4.)
“Liability insurance policy” means a contract of insurance that covers occurrences of damage or injury during the policy period and insures a construction professional for liability arising from construction-related work.
In interpreting a liability insurance policy issued to a construction professional, a court shall presume that the work of a construction professional that results in property damage, including damage to the work itself or other work, is an accident unless the property damage is intended and expected by the insured. Nothing in this subsection (d.): (1.)
Requires coverage for damage to an insured’s own work unless otherwise provided in the insurance policy; or
(2.)
Creates insurance coverage that is not included in the insurance policy.
(1.) Upon a finding of ambiguity in an insurance policy, a court may consider a construction professional’s objective, reasonable expectations in the interpretation of an insurance policy issued to a construction professional. (2.)
In construing an insurance policy to meet a construction professional’s objective, reasonable expectations, the court may consider the following: a)
The object sought to be obtained by the construction professional in the purchase of the insurance policy; and
b)
Whether a construction defect has resulted, directly or indirectly, in bodily injury, property damage, or loss of the use of property.
PROPERTY OF RESNICK & LOUIS, P.C. 146
(3.)
In construing an insurance policy to meet a construction professional’s objective, reasonable expectations, a court may consider and give weight to any writing concerning the insurance policy provision in dispute that is not protected from disclosure by the attorney-client privilege, work-product privilege, or article 72 of title 24, C.R.S., and that is generated, approved, adopted, or relied on by the insurer or its parent or subsidiary company; or an insurance rating or policy drafting organization, such as the insurance services office, Inc., or its predecessor or successor organization; except that such writing shall not be used to restrict, limit, exclude, or condition coverage or the insurer’s obligation beyond that which is reasonably inferred from the words used in the insurance policy.
(4.)
If an insurance policy provision that appears to grant or restore coverage conflicts with an insurance policy provision that appears to exclude or limit coverage, the court shall construe the insurance policy to favor coverage if reasonably and objectively possible.
(5.)
If an insurer disclaims or limits coverage under a liability insurance policy issued to a construction professional, the insurer shall bear the burden of proving by a preponderance of the evidence that:
(6.)
a)
Any policy’s limitation, exclusion, or condition in the insurance policy bars or limits coverage for the insured’s legal liability in an action or notice of claim made pursuant to section 13-20-803.5 concerning a construction defect; and
b)
Any exception to the limitation, exclusion, or condition in the insurance policy does not restore coverage under the policy.
a)
An insurer’s duty to defend a construction professional or other insured under a liability insurance policy issued to a construction professional shall be triggered by a potentially covered liability described in: 1)
A notice of claim made pursuant to section 13-20803.5; or
PROPERTY OF RESNICK & LOUIS, P.C. 147
2)
(7.)
(f.)
Q.
A complaint, cross-claim, counterclaim, or thirdparty claim filed in an action against the construction professional concerning a construction defect.
b)
An insurer shall defend a construction professional who has received a notice of claim made pursuant to section 13-20803.5 regardless of whether another insurer may also owe the insured a duty to defend the notice of claim unless authorized by law. In defending the claim, the insurer shall:
a)
Reasonably investigate the claim; and
b)
Reasonably cooperate with the insured in the notice of claims process. 1)
This paragraph (b) does not require the insurer to retain legal counsel for the insured or to pay any sums toward settlement of the notice of claim that are not covered by the insurance policy.
2)
An insurer shall not withdraw its defense of an insured construction professional or commence an action seeking reimbursement from an insured for expended defense cost unless authorized by law and unless the insurer has reserved such right in writing when accepting or assuming the defense obligation.
10th Circuit Greystone Construction v. National Fire and Marine Insurance Co: The 10th Circuit unanticipated damage to the insured’s OWN work constitutes an occurrence. Therefore, if the work at issue were performed by a subcontractor and the policy contained a subcontractor exception to our work exclusion, allegations of property damage to the insured’s own work would constitute an occurrence and therefore trigger a duty to defend.
Compulsory/Statutory Arbitration 1.
Arizona (a.)
Amount Triggering Arbitration
PROPERTY OF RESNICK & LOUIS, P.C. 148
Under ARS 12-133, the Arizona statute governing arbitration, the Arizona Superior Court is required to 1) establish jurisdictional limits not exceeding $65,000, for submission of disputes to arbitration and 2) require arbitration in all cases which are filed in superior court in which the court finds or the parties agree that the amount in controversy does not exceed the jurisdictional limit. Pursuant to ARS 12-133, ARCP 72(b) requires arbitration for civil cases in which no party seeks affirmative relief other than a money judgment, and no party seeks an amount in excess of the jurisdictional limit for arbitration. This amount includes punitive damages, but it does not include interest, attorneys’ fees or costs. Although the jurisdictional limit for arbitration varies across the counties from $50,000 to as low as $10,000, the two largest counties, Maricopa and Pima, have set their jurisdictional limit at $50,000. Jarostchuk v. Aricol Communs., Local Rules of Practice of Maricopa County Superior Court, Rule 3.10; Local Rules of Practice Pima County Superior Court. (b.)
Appeal Risk to De Novo Trial Under ARS 12-133(H), “[a]ny party to the arbitration proceeding may appeal from the arbitration award to the court in which the award is entered by filing, within the time limited by rule of court, a demand for trial de novo on law and fact.” The time for filing an appeal is typically either 20 days after filing of the award, or 20 days after the notice of decision becomes an award, whichever occurs first. ARCP 77. The Arizona Court of Appeals, while recognizing the strong policy favoring expeditious handling of cases through arbitration, has also noted that “[d]e novo appeals are an integral part of [the] arbitration system.” Liberty Mut. Fire Ins. Co. v. Mandile, although the ability to file for a de novo appeal is part of the arbitration system in Arizona, § 12-133(I) sets forth procedural requirements for filing a de novo trial demand that are designed to deter frivolous demands. Pursuant to 12-133(I), if a party decides to file a demand for trial de novo, the appellant must deposit with the county an amount equal to the arbitrator’s compensation, but not exceeding ten per cent of the amount in controversy. Furthermore, while the appellant may motion the court to refund the deposit after judgment at the trial de novo, the court must only grant the motion if the judgment on the trial de novo is at least twentythree per cent more favorable than the relief granted by the arbitration award. Otherwise, the deposit will be used to pay to the arbitrator, the appellee’s reasonable attorney fees necessitated by the appeal, and PROPERTY OF RESNICK & LOUIS, P.C. 149
reasonable expert witness fees that are incurred by the appellee in connection with the appeal. 2.
California (a.)
Amount Triggering Arbitration CCCP 1141.11, the California rule governing arbitration, requires each superior court with 18 or more judges to submit all nonexempt cases in which the amount in controversy is less than $50,000 to arbitration. In each superior court that has fewer than 18 judges, the court may require, through its local rules, that all nonexempt cases in which the amount in controversy is less than $50,000 be submitted to arbitration if “it is in the best interests of justice.” CCCP 1141.16, “[t]he determination [of the amount in controversy] shall be based on the total amount of damages, and the judge may not consider questions of liability or comparative negligence or any other defense.”
(b.)
Appeal Risk to De Novo Trial CCCP 1141.20, any party to the arbitration may file a request for a de novo trial within 60 days after the arbitrator files the award with the court. However, if the judgment upon the trial de novo is not more favorable in either the amount of damages awarded or the type of relief granted for the appellant than the arbitration award, 1141.21 provides that the court shall order that the appellant pay the arbitrator’s fee including the compensation paid by the other party or parties to the arbitrator and pay to the other party or parties, all reasonable costs and attorneys’ fees incurred as a result of the trial de novo. The Supreme Court of California has recognized that, although the statutory language does not expressly discourage trials de novo, the implied intent is such. Phelps v. Stostad. The court in Phelps observed that the purpose of this rule is to encourage settlement by providing a strong financial disincentive to a party who fails to achieve a better result than the party would have been awarded in arbitration.
3.
Colorado (a.)
Amount Triggering Arbitration Despite surviving constitutional attacks, Colorado has repealed its Mandatory Arbitration Act. CRS 13-22-401 et seq. (covering certain civil PROPERTY OF RESNICK & LOUIS, P.C. 150
actions seeking damages of $50,000 or less). See Firelock v. District Court., 729 P.2d 1090 (Colo. 1989) (denying a challenge under the Colorado Constitution). Colorado has adopted the CRS 13-22-201 et seq., which applies to all agreements to arbitrate made on or after August 4, 2004 and to all agreements to arbitrate made before August 4, 2004 if all parties to the agreement or arbitration proceeding agree in a record. (b.)
Appeal Risk to De Novo Trial An appeal may be taken from an order denying a motion to compel arbitration; granting a motion to stay arbitration; order confirming or denying confirmation of an award; modifying or correcting an award; vacating an award without directing a rehearing; or a final judgment entered pursuant to Colorado’s Uniform Arbitration Act. CRS 13-22-228. All such appeals are handled in the same manner as an appeal of an order or judgment in a civil action. Id. Because there is no mandatory arbitration statute in Colorado, its arbitration system does not need to allow for trial de novo. The purpose of allowing a de novo appeal in jurisdictions that have mandatory arbitration statutes is to protect the constitutional right to a jury.
4.
Nevada (a)
Amount Triggering Arbitration Under NRS 38.250, all civil actions filed in district court for damages must be submitted to nonbinding arbitration, if 1) the cause of action arises in the State of Nevada, and 2) the amount in controversy does not exceed $50,000 per plaintiff, exclusive of attorneys’ fees, interest and court costs. However, under NRS 38.258, the parties are allowed to agree to choose an alternative method of resolving the dispute, such as, mediation or a settlement conference.
(b.)
Appeal Risk to De Novo Trial Nevada’s “[d]isincentives to appeal” non-binding arbitration include admission of arbitrators’ findings in any trial de novo. NRS 38.250-259. Nevada Arbitration Rules also impose a strict thirty-day limit on filing any request for trial de novo, deem failure to pay arbitrators as a waiver of such trial, and entitle the prevailing party at any trial de novo to recover arbitration fees, costs, and interest. Nev. Arb. R. 18, 19. In addition, a party challenging an award of $20,000 or less who fails to obtain a judgment that exceeds (if claimant) or lowers (if respondent) the award by PROPERTY OF RESNICK & LOUIS, P.C. 151
at least twenty percent must pay the other party attorneys’ fees and costs following the request for trial de novo. Nev. Arb. R. 24. For awards over $20,000, similar rules apply if the challenging party fails to obtain a ten percent better result in the trial de novo than the party obtained in arbitration. Id. 5.
New Mexico (a.)
Amount Triggering Arbitration Under N.M. L.D.R. Dist. 2 § LR2-603, almost all civil cases, jury and non-jury, shall be referred to arbitration where 1) no party seeks relief other than a money judgment, and 2) no party seeks an amount in excess of $25,000.00, exclusive of punitive damages, interest, costs and attorney fees. This requirement does not apply to cases involving appeals, the Uniform Arbitration Act (which applies to agreed-to arbitration provisions), extraordinary writs, adoption, commitment, conservatorship, guardianship, probate, children’s code, domestic relations, workers compensation, student loans, driver’s license, election, and tax.
(b.)
Appeal Risk to De Novo Trial To exercise the right to appeal, a party must file a “notice of appeal from arbitration” with the clerk within fifteen (15) days after the award or an amended award, is filed. Id. If, however, the court makes a decision on the merits which is the same as or less favorable to the appellant than the arbitrator’s award, the court shall order that the appellant pay all other parties’ expenses incurred during the appeal including but not limited to reasonable attorney fees, costs and pre-judgment interest dating from the arbitration award. Id.
R.
Limitations on Damages 1.
Arizona (a.)
2.
Limitations on tort damages are unconstitutional pursuant to Article 2, Section 31 (damages for death or personal injuries) and Article 18, Section 6 (recovery of damages for injuries) of the Arizona Constitution.
Colorado (a.)
In medical malpractice cases, there is a $300,000 cap for pain and suffering, within the Health Care Availability Act. PROPERTY OF RESNICK & LOUIS, P.C. 152
3.
(b.)
Non-economic damages are capped by Colorado law, but the amount can be doubled if the court finds justification to increase the award based clear and convincing evidence. CRS 13-21-102.5. The caps are follows: For accidents before January 1, 1998: $250,000 which may be increased to $500,000 by the court upon a showing of clear and convincing evidence for the increase. For accidents between January 1, 1998 and January 1, 2008: $366,250 which may be increased to $732,500 000 by the court upon a showing of clear and convincing evidence for the increase. Accident after January 1, 2008: $468,010 which may be increased to $936,030 by the court upon a showing of clear and convincing evidence for the increase.
(c.)
Pursuant to the Colorado Wrongful Death Act CRS 13-21-201 et seq., caps for non-economic damages on wrongful death claims are as follows: For claims that accrue before January 1, 1998: $250,000. For claims that accrue between January 1, 1998 and January 1, 2008: $341,250. Claims that accrue after January 1, 2008: $468,010 which may be increased to $436,070. CRS 13-21-102.5. CRS 13-21-203.7, which was amended in 2007, provides for an inflationary adjustment of wrongful death award amounts effective January 1, 2008.
(d.)
To collect exemplary damages in Colorado one must prove “fraud, malice, or willful and wanton conduct,” and then, “the award for exemplary damages cannot exceed the amount of the actual damages awarded to the injured party.” CRS 13-21-102.
(e.)
Colorado’s Dram Shop Act, CRS 12-47-801, sets out the following caps in dram shop cases: Prior to January 1, 1998: $150,000.00 Between January 1, 1998 and January 1, 2008: $219,750 After January 1, 2008: $280,810.00
California (a.)
4.
The only tort reform which California currently has is the Medical Injury Compensation Reform Act (Codified in various California statutes: Business & Professions Code Section 6146, Civil Code Sections 3333.1 and 3333.2, and Code of Civil Procedure Section 667.7) which caps medical malpractice noneconomic damages to $250,000. This was upheld in 2011 by California’s 5th Appellate District.
Nevada
PROPERTY OF RESNICK & LOUIS, P.C. 153
(a.)
5.
New Mexico (a.)
6.
In 2004, voters approved the Keep Our Doctors in Nevada Initiative, modifying Assembly Bill No. 1 which was enacted in 2002. This means that in Nevada medical malpractice cases, a $350,000 noneconomic damages cap is imposed on damages from each defendant to each plaintiff. The law also puts a $50,000 limit on damages for hospitals and physicians who treat trauma patients. This law is considered to be very similar to California’s Medical Injury Compensation Reform Act.
$600,000 cap on total medical malpractice noneconomic damages, excluding punitive damages and past and future medical care. Health care providers’ personal liability shall not exceed $200,000; any award in excess of this amount shall be paid by the patient compensation fund. Fed. Express Corp. v. United States.
Utah (a.)
Utah Code Ann. 78B-3-410(1) establishes a cap on non-economic losses in malpractice actions against health care providers. The amount of damages awarded for nonecominic loss may not exceed: (1.)
for a cause of action arising before July 1, 2001, $250,000.00;
(2.)
for a cause of action arising on or after July 1, 2001 and before July 1, 2002, the limitation is adjusted for inflation to $400,000.00;
(3.)
for a cause of action arising on or after July 1, 2002, and before May 15, 2010 the $400,000.00 limitation described in Subsection (1)(b) shall be adjusted for inflation as rovided in Subsection (2); and for a cause of action arising on or after May 15, 2010, $450,000.00.
(4.)
S.
Consumer Protection Statutes 1.
Arizona – ARS 44-1521 et seq. (a.)
Scope: Deceptive practices. Civil Remedies: Injunction against further deceptive practices and/or prohibition of person found to have engaged in deceptive practices from continued engagement in said trade; compensatory damages for any
PROPERTY OF RESNICK & LOUIS, P.C. 154
“person in interest”; if willful, a fine of up to $10,000/per violation; attorney general can collect reasonable fees/costs on behalf of State. 2.
California – CCC 1770, 1780 (a.)
3.
Colorado – CRS 6-1-101 et seq. (a.)
4.
Scope: NRS 119.330 – Real Estate related deceptive practices; NRS 482.351, 36655-36667 related to automobiles; and NRS 598.0195-0925 related to “deceptive trade practices.” Civil Remedy: NRS 41.600 authorizes private actions for consumer fraud for recovery of actual damages, costs and attorneys’ fees; NRS 598. Authorizes the attorney general to take action against deceptive trade practices and allows injured parties to share in recover up to actual damages. Private actions are available under Section 598 for elderly and disabled victims only.
New Mexico – NMRS 57-12-1 et seq. (a.)
6.
Scope: Unfair and deceptive practices. Civil Remedy: Greater of actual damages sustained, $500, or three times the amount actual damages sustained if bad faith conduct is established by clear and convincing evidence; attorneys’ fees and costs.
Nevada – NRS – assorted (a.)
5
Scope: Unfair and deceptive practices. Civil Remedy: Greater of actual damages or $1000; attorneys’ fees; injunction; restitution of property; punitive damages; any other relief Court deems proper.
Scope: Unfair and deceptive practices. Civil Remedy: Injunctions available for any person “likely to be damaged by an unfair or deceptive trade practice” such that proof of monetary damage is not required to bring a claim; generally, the greater of actual damages or $100 are available; treble damages of greater of 3x actual damages or $300 available where proof of willful engagement in deceptive practices is shown; prevailing party entitled to attorneys’ fees and costs.
Utah – Utah Code Ann. § 13-11a-1 et seq. (a.)
Scope: Deceptive practices.
PROPERTY OF RESNICK & LOUIS, P.C. 155
Civil Remedy: Utah Code Ann. § 13-11a-4 provides: (2) (a) Any person or the state may maintain an action to enjoin a continuance of any act in violation of this chapter and, if injured by the act, for the recovery of damages. If, in such action, the court finds that the defendant is violating or has violated any of the provisions of this chapter (Utah Code Ann. § 13-11a-1 et seq.), it shall enjoin the defendant from continuance of the violation. It is not necessary that actual damages be proven. (b) In addition to injunctive relief, the plaintiff is entitled to recover from the defendant the amount of actual damages sustained or $2,000, whichever is greater. (c) Costs shall be allowed to the prevailing party unless the court otherwise directs. The court shall award attorneys’ fees to the prevailing party. (3) The court may order the defendant to promulgate corrective advertising by the same media and with the same distribution and frequency as the advertising found to violate this chapter. [. . .] (5) No action for injunctive relief may be brought for a violation of this chapter unless the complaining person first gives notice of the alleged violation to the prospective defendant and provides the prospective defendant an opportunity to promulgate a correction notice by the same media as the allegedly violating advertisement. If the prospective defendant does not promulgate a correction notice within 10 days of receipt of the notice, the complaining person may file a lawsuit under this chapter. T.
Punitive Damages 1.
Arizona – ARS 44-1521 et seq. (a.)
Standard of Conduct. Punitive damages are appropriate only where the defendant’s wrongful conduct was guided by evil motives or willful or wanton disregard of the interests of others. An “evil mind” may be shown by evidence that defendant pursued a course of conduct knowing that it created a substantial risk of significant harm to others. Rawlings v. Apodaca
PROPERTY OF RESNICK & LOUIS, P.C. 156
2.
3.
(b.)
Standard of Proof. The standard of proof is one of clear and convincing evidence. Hyatt Regency Phoenix Hotel Co. v. Winston & Strawn.
(c.)
Caps: None.
Colorado (a.)
Standard of Conduct. Punitive damages are recoverable in civil cases when it is established that the injury was inflicted through force or with malice, insult or a wanton and reckless disregard for the victim’s rights and feelings. See White v. Brock; CRS13-21-102. An award of punitive damages is justified under section 13-21-102 “when the act causing the plaintiff’s injuries was performed ‘with an evil intent, and with the purpose of injuring the plaintiff, or with such a wanton and reckless disregard of his rights as evidence [sic] a wrongful motive.’” Tri-Aspen Constr. Co. v. Johnson, Wanton and reckless disregard in the context of punitive damages involves “conduct that creates a substantial risk of harm to another and is purposefully performed with an awareness of the risk in disregard of the consequences.” Id., quoting Palmer v. A. H. Robins Co.
(b.)
Standard of Proof. Colorado requires proof beyond a reasonable doubt to support a punitive damages award. CRS 13-25-127(2) (2010); see Frick v. Abell.
(c.)
Caps CRS 13-21-102 provides under subsection (1)(a) that reasonable exemplary damages are limited to an amount that is equal to the amount of the actual damages awarded to the injured party. Under subsection (3), notwithstanding the provisions of subsection (1), the court may increase any award of exemplary damages to a sum not to exceed three times the amount of actual damages if certain conduct can be shown on the part of the defendant. Subsection (6) provides that evidence of the income or net worth of a party shall not be considered in determining the appropriateness or amount of punitive damages.
California: (a.)
Standard of Conduct. In an action for breach of an obligation, not arising from a contract, where the defendant has been guilty of fraud, oppression or malice, punitive damages can be awarded. CCC 3294 and 3295. There must be substantial evidence of: (a) an intent to vex, annoy and injure; or (b) a conscious disregard of the plaintiff’s rights, before punitive damages may be awarded. Betts v. Allstate Ins. Malice includes manufacturer’s conscious disregard for public safety. Grimshaw v. Ford Motor Co. Mere PROPERTY OF RESNICK & LOUIS, P.C. 157
negligence, even gross negligence, is not sufficient to justify an award of punitive damages. Jackson v. Johnson. (b.)
California has defined malice, oppression and fraud as follows: (1.)
“Malice” means conduct that is intended by the defendant to cause injury to the plaintiff, or despicable conduct that is carried on by the defendant with a willful and conscious disregard of the rights or safety of others.
(2.)
“Oppression” means despicable conduct that subjects a person to cruel and unjust hardship in conscious disregard of that person’s rights.
(3.)
“Fraud” means an intentional misrepresentation, deceit, or concealment of a material fact known to the defendant with the intention on the part of the defendant of thereby depriving a person of property or legal rights, or otherwise causing injury. CCC 3294(c) (2010).
(c.)
Standard of Proof. At trial, the plaintiff must present proof of the defendant’s fraudulent, oppressive or malicious conduct by a standard of “clear and convincing evidence” in order to recover punitive damages. CCC 3294(a); Tomaselli v. Transamerica Ins. Co. On appeal, the reviewing court will not disturb the trial court’s imposition of punitive damages if there is “substantial evidence” of malice, fraud or oppression. Patrick v. Md. Cas. Co. Evidence of a defendant’s financial condition is a condition precedent to an award of punitive damages. An appellate court cannot make a fully informed determination of whether an award of punitive damages is excessive unless the record contains evidence of defendant’s financial condition as an element of punitive damages. Adams v. Murakami. The plaintiff must produce evidence of a prima facie case for punitive damages before the plaintiff may conduct discovery or introduce evidence of the defendant’s profits or financial condition. CCC 3295. Trial courts shall, on application of any defendant, preclude the admission of evidence of that defendant’s financial condition until after the trier of fact finds that punitive damages are warranted because the defendant is guilty of malice, oppression or fraud in accordance with CCC 3294. CCC 3295(d); City of El Monte v. Sup. Ct.
(d.)
Caps: A litigant may not seek punitive damages from either a health care provider or religious corporation without a prior court order, upon proof of
PROPERTY OF RESNICK & LOUIS, P.C. 158
a substantial probability that the applicant will prevail on his or her claim for punitive damages. CCC 425.13, 425.14. 4.
Nevada: (a.)
Standard of Conduct. Nevada permits punitive damages for breach of obligations not arising from contract if the wrongdoer is guilty of expressed or implied oppression, fraud or malice. NRS 42.005 (1). “Malice, express or implied” means conduct that is intended to injure a person or despicable conduct that one engages in with a conscious disregard of the rights or safety of others. NRS 42.001(3). These damages are designed not to reward the victim but to punish the wrongdoer and deter fraudulent, malicious or oppressive conduct. Turnbow v. State Dept. of Human Res.; Coughlin v. Tailhook Ass’n, 818 F. Supp. 1366 (D. Nev. 1993), aff’d, 112 F.3d 1052 (9th. Cir. 1997) (claim for punitive damages may proceed where plaintiff alleges that defendant acted with conscious disregard for known safety standards and measures); Miller v. Schnitzer (“Punitive damages are recoverable in a malicious prosecution case.”). Allen v. Anderson (punitive damage claims survive the aggrieved party’s death against a living tortfeasor; however punitive damage claims do not survive the death of the tortfeasor and cannot be sought from the deceased tortfeasor’s estate). Bergerud v. Progressive Cas. Ins (Punitive damages are available when an insurer breaches the implied covenant of good faith.).
(b.)
Standard of Proof. Punitive damages may be awarded when it is proven by clear and convincing evidence that the defendant has been guilty of oppression, fraud or malice. NRS 42.005(1) (2010).
(c.)
NRS 42.007 Exemplary and punitive damages: Limitations on liability by employer for wrongful act of employee; exception. (1.)
Except as otherwise provided in subsection 2, in an action for the breach of an obligation in which exemplary or punitive damages are sought pursuant to subsection 1 of NRS 42.005 from an employer for the wrongful act of his or her employee, the employer is not liable for the exemplary or punitive damages unless: a)
The employer had advance knowledge that the employee was unfit for the purposes of the employment and employed the employee with a conscious disregard of the rights or safety of others;
PROPERTY OF RESNICK & LOUIS, P.C. 159
(2.)
(d.)
b)
The employer expressly authorized or ratified the wrongful act of the employee for which the damages are awarded; or
c)
The employer is personally guilty of oppression, fraud or malice, express or implied.
d)
If the employer is a corporation, the employer is not liable for exemplary or punitive damages unless the elements of paragraph (a), (b) or (c) are met by an officer, director or managing agent of the corporation who was expressly authorized to direct or ratify the employee’s conduct on behalf of the corporation.
The limitations on liability set forth in subsection 1 do not apply to an action brought against an insurer who acts in bad faith regarding its obligations to provide insurance coverage.
Caps: NRS 42.005 provides that an award of exemplary or punitive damages may not exceed: (a) Three times the amount of compensatory damages awarded to the plaintiff if the amount of compensatory damages is $100,000 or more; or (b) Three hundred thousand dollars if the amount of compensatory damages awarded to the plaintiff is less than $100,000. These limitations, however, do not apply to an action brought against: (1.)
A manufacturer, distributor or seller of a defective product;
(2.)
An insurer who acts in bad faith regarding its obligations to provide insurance coverage;
(3.)
A person for violating a state or federal law prohibiting discriminatory housing practices, if the law provides for a remedy of exemplary or punitive damages in excess of the limitations prescribed in subsection 1 (of § 42.005);
(4.)
A person for damages or an injury caused by the emission, disposal or spilling of a toxic, radioactive or hazardous material or waste; or
(5.)
Excessive Awards. In determining whether a punitive damages award is excessive, Nevada courts consider the financial position of the defendant, PROPERTY OF RESNICK & LOUIS, P.C. 160
culpability and blameworthiness of the tortfeasor, vulnerability and injury suffered by the offended party, the extent to which the punished conduct offends the public’s sense of justice and propriety, and the means that are judged necessary to deter future misconduct of this kind. Albert H. Wohlers & Co. v. Bartgis. Punitive damages are legally excessive when the amount of damages awarded is clearly disproportionate to the degree of blameworthiness and harmfulness inherent in the oppressive, fraudulent or malicious misconduct of the tortfeasor under the circumstance of a given case. If the awarding jury or judge assesses more in punitive damages than is reasonably necessary and fairly deserved in order to punish the offenders and deter others from similar conduct, then the award must be set aside as unreasonable. Ace Truck & Equip. Rentals v. Kahn. 5.
6.
New Mexico: (a.)
Standard of Conduct. Punitive damages may be awarded only when the wrongdoer’s conduct may be said to be maliciously intentional, fraudulent, oppressive, or committed recklessly or with a wanton disregard of the plaintiff’s rights. Gonzalez v. Surgidev Corp. Mere negligence is inadequate to establish liability for punitive damages. Paiz v. State Farm Fire & Cas. Co. Gross negligence may, however, serve as a basis for punitive damages. Jessen v. Nat’l Excess Ins. Co. The imposition of punitive damages rests with the discretion of the trier of fact. New Mexico Hosp. Assoc. v. A.T. & S.F. Mem’l Hosp., Inc.
(b.)
Standard of Proof. Preponderance of the evidence. Gallegos v. Citizens Ins. Agency.
(c.)
Caps: None.
Utah: (a.)
Standard of Conduct. “Except as otherwise provided by statute, punitive damages may be awarded only if compensatory or general damages are awarded and it is established by clear and convincing evidence that the acts or omissions of the tortfeasor are the result of willful and malicious or intentionally fraudulent conduct, or conduct that manifests a knowing and reckless indifference toward, and a disregard of, the rights of others.” Utah Code Ann. § 78B-8-201(1)(a). Utah Code Ann. § 78-8-201(1)(a) does not apply to accidents caused by voluntary intoxication, deaths caused by the
PROPERTY OF RESNICK & LOUIS, P.C. 161
provision or administration of illegal controlled substances, and shoplifting. See Utah Code Ann. § 78-8-201(1).
U.
(b.)
Standard of Proof. “Clear and convincing evidence.” Id.
(c.)
Caps: None.
Rules of Evidence for Reliability for Science Related Evidence. 1.
Frye Test: It provides that expert opinion based on a scientific technique is admissible only where the technique is generally accepted as reliable in the relevant scientific community. Frye v. United States, 293 F. 1013 (D.C. Cir. 1923). Frye involved the admissibility of opinion evidence based upon the use of an early version of the Polygraph. The D.C. Circuit Court held that scientific evidence was admissible if it was based on a scientific technique generally accepted as reliable in the scientific community. Thus, Expert Testimony was admitted based on the expert’s credentials, experience, skill, and reputation. The theory was that deficiencies or flaws in the expert’s conclusions would be exposed through cross-examination. This decision became known as the Frye test or the general-acceptance test.
2.
Daubert Test: In Daubert v. Merrell Dow Pharmaceuticals, 509 U.S. 579 (1993), the Supreme Court held that the Federal Rules of Evidence superseded Frye as the standard for admissibility of expert evidence in federal courts. Under Daubert, a trial judge has a duty to scrutinize evidence more rigorously to determine whether it meets the requirements of Federal Rule of Evidence 702. This rule states, “If scientific, technical, or other specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact in issue, a witness qualified as an expert by knowledge, skill, experience, training, or education, may testify thereto in the form of an opinion or otherwise, if (1) the testimony is based upon sufficient facts or data, (2) the testimony is the product of reliable principles and methods, and (3) the witness has applied the principles and methods reliably to the facts of the case.” In Daubert, the Court stated that evidence based on innovative or unusual scientific knowledge may be admitted only after it has been established that the evidence is reliable and scientifically valid. The Court also imposed a gatekeeping function on trial judges by charging them with preventing “junk science” from entering the courtroom as evidence. To that end, Daubert outlined four considerations: testing, peer review, error rates, and acceptability in the relevant scientific community. These four tests for reliability are known as the Daubert factors or the Daubert test. In 1999, the U.S. Supreme Court significantly broadened the Daubert test and the trial court’s gatekeeping role to include expert testimony based on technical and other specialized knowledge. Kumho Tire Co., Ltd. v. Carmichael. PROPERTY OF RESNICK & LOUIS, P.C. 162
3.
Arizona (a.)
Logerquist v. McVey, 1 P.3d—utilized Frye Test, superseded by statute, changes to AZ Rules of Evidence 702 effective 1/1/2012. No published decisions as of yet. State v. Burke, 2012 Ariz. App. Unpub. LEXIS 527 State v. Burke, 2012 Ariz. App. Unpub. LEXIS 527 (Ariz. Ct. App. 2012) NOT CITABLE but references that Logerquist was superseded by statute and applies a standard more similar to Daubert. The new language of Rule 702 marks a notable departure from Arizona’s former test for the admissibility of expert testimony that was detailed in Logerquist v. McVey, 196 Ariz. 470, 1 P.3d 113 (2000). The comment to the new Arizona Rule 702 notes that the change from Logerquist and the former Rule 702 “recognizes that trial courts should serve as gatekeepers in assuring that proposed expert testimony is reliable and thus helpful to the jury’s determination of facts at issue.” (1.)
The current Arizona Rule of Evidence 702, effective January 1, 2012, adopts Federal Rule of Evidence 702 and states: a)
4.
A witness who is qualified as an expert by knowledge, skill, experience, training, or education may testify in the form of an opinion or otherwise if: 1)
the expert’s scientific, technical, or other specialized knowledge will help the trier of fact to understand the evidence or to determine a fact in issue;
2)
the testimony is based on sufficient facts or data;
3)
the testimony is the product of reliable principles and methods; and
4)
the expert has reliably applied the principles and methods to the facts of the case.
California (a.)
Rejects Daubert approach and retains Kelly-Frye test in California. California’s slightly modified version of the Frye test, known as the “Kelly/Frye test,” was adopted in People v. Kelly. Under the Kelly standard, evidence based upon application of a new scientific technique PROPERTY OF RESNICK & LOUIS, P.C. 163
may be admitted only after the reliability of the method has been foundationally established, usually by the testimony of an expert witness who first has been properly qualified. The proponent of the evidence must also demonstrate that correct scientific procedures were used and that the scientific technique concerning which the evidence is being offered has gained general acceptance in the particular field to which it belongs. General acceptance, not just reasonable reliance, is the test. 5.
Colorado (a.)
People v. Shreck. Shreck holds that trial court may, but need not, consider Daubert reliability factors. The Court held that “CRE 702, rather than Frye, governs a trial court’s determination as to whether scientific or other expert testimony should be admitted. Such an inquiry should focus on the reliability and relevance of the proffered evidence and requires a determination as to (1) the reliability of the scientific principles, (2) the qualifications of the witness, and (3) the usefulness of the testimony to the jury. We also hold that when a trial court applies CRE 702 to determine the reliability of scientific evidence, its inquiry should be broad in nature and consider the totality of the circumstances of each specific case. In doing so, a trial court may consider a wide range of factors pertinent to the case at bar. The factors mentioned in Daubert v. Merrell Dow Pharmaceuticals, Inc., and by other courts may or may not be pertinent, and thus are not necessary to every CRE 702 inquiry. In light of this liberal inquiry, a trial court should also apply its discretionary authority under CRE 403 to ensure that the probative value of the evidence is not substantially outweighed by unfair prejudice. Finally, we hold that under CRE 702, a trial court must issue specific findings as it applies the CRE 702 and 403 analyses.” (1.)
6.
CRE 702 Provides: If scientific, technical, or other specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact in issue, a witness qualified as an expert by knowledge, skill, experience, training, or education, may testify thereto in the form of an opinion or otherwise.
Nevada (a.)
Krause Inc. v. Little; Higgs v. State (expressly rejecting t but finding the factors to be useful in considerations). The Court identified “the three overarching requirements for admissibility of expert witness testimony pursuant to NRS 50.275 as (1) qualification, (2) assistance, and (3) limited scope requirements.” PROPERTY OF RESNICK & LOUIS, P.C. 164
7.
New Mexico (a.)
8.
Utah (a.)
Utah applies a more rigorous standard than Daubert to the admission of scientific evidence that is “based on newly discovered principles” or “based upon ‘novel scientific methods and techniques.’” Alder v. Bayer Corp., 61 P.3d 1068, 1083-1084 (Utah 1989). Utah R. Evid. 702 states:
(b.)
Subject to the limitations in paragraph (b), a witness who is qualified as an expert by knowledge, skill, experience, training, or education may testify in the form of an opinion or otherwise if the expert’s scientific, technical, or other specialized knowledge will help the trier of fact to understand the evidence or to determine a fact in issue.
(c.)
Scientific, technical, or other specialized knowledge may serve as the basis for expert testimony only if there is a threshold showing that the principles or methods that are underlying in the testimony
(d.)
V.
State v. Alberico identifies factors for determining admissibility of expert testimony generally following Daubert criteria.
(1.)
are reliable,
(2.)
are based upon sufficient facts or data, and
(3.)
have been reliably applied to the facts.
The threshold showing required by paragraph (b) is satisfied if the underlying principles or methods, including the sufficiency of facts or data and the manner of their application ot the facts of the case, are generally accepted by the relevant expert community.
Dram Shop Liability/Alcohol Issues 1.
Arizona ARS 4-311(A) provides that a licensee is liable for property damage and personal injuries if a court or jury finds that: (1) the licensee sold spirituous liquor to a purchaser who was obviously intoxicated, or to a purchaser under the legal drinking age without requesting identification containing proof of age or with knowledge that the person was under the legal drinking age; (2) the purchaser PROPERTY OF RESNICK & LOUIS, P.C. 165
consumed the spirituous liquor sold by the licensee; and (3) the consumption of the spirituous liquor was a proximate cause of the injury or property damage. “‘[O]bviously intoxicated’ means inebriated to such an extent that a person’s physical faculties are substantially impaired and the impairment is shown by significantly uncoordinated physical action or significant physical dysfunction that would have been obvious to a reasonable person.” ARS 4-311(D). ARS 4312(A) provides that a licensee is not liable to a purchaser over the legal drinking age, who is injured or whose property is damaged, or his or her survivors. Additionally, a licensee is not liable to an adult person who is injured or whose property is damaged, or to survivors of such a person, who was present with the person who consumed the spirituous liquor at the time the spirituous liquor was consumed and who knew of the impaired condition of the person. Id. ARS 4-301 provides that social hosts cannot liable for furnishing or serving spirituous liquor to a person of the legal drinking age. 2.
California Liability for serving alcoholic beverages to minors obviously intoxicated. Cal. Bus. & Prof. Code §§ 25602 and 25602.1 and Civil Code § 1714. In order to be “obviously intoxicated,” an individual must exhibit outward manifestations of intoxication that are “plain” and “easily seen or discovered.” Coulter v. Superior Court.
3.
Colorado A licensee is liable for the injuries caused by a patron, if the sale or service of alcoholic beverages was “willfully and knowingly” made to a patron who was a minor, was visibly intoxicated, or was a known habitual drunkard. CRS 12-47801 and 13-21-102.5. No civil action may be brought by the person to whom the alcohol beverage was sold or served or by his or her estate, legal guardian, or dependent. CRS 12-47-801(3)(b). The total liability in any such action shall not exceed $150,000.00, adjusted each decade for inflation. CRS 12-47-801. In order to recover from a social host, plaintiff must prove that the social host knowingly served alcohol beverage to a minor or knowingly provided such minor a place to consume an alcoholic beverage. 12-47-801(4)(a)(I).
4.
Nevada Persons who serve or sell alcoholic beverages are not liable for injuries (1) caused by the individuals who consumed such beverages, or (2) sustained by such individuals. NRS 41.1305. This includes survivors of a minor, who is served alcoholic beverages by a vendor. Snyder v. Viani. Additionally, this includes liability by a host to a minor, who consumes alcoholic beverages at a party given PROPERTY OF RESNICK & LOUIS, P.C. 166
by the host. Bell v. Alpha Tau Omega Fraternity. 5.
New Mexico A licensee is subject to civil liability if such licensee: (1) sold or served alcohol to a person who was intoxicated, (2) it was reasonably apparent to the licensee that the person buying or apparently receiving service of alcoholic beverages was intoxicated, and (3) the licensee knew from the circumstances that the person buying or receiving service of alcoholic beverages was intoxicated. NMRA 4111-1(A). In order for the person who was sold or served alcoholic beverages while intoxicated to recover any damages or obtain any other relief against the licensee who sold or served the alcoholic beverages, the licensee must be found to have acted with gross negligence and reckless disregard for the safety of the person who purchased or was served the alcoholic beverages. NMRA 41-11-1(B). No person who has gratuitously provided alcoholic beverages to a guest in a social setting may be held liable in damages to any person for bodily injury, death, or property damage arising from the intoxication of the social guest unless the alcoholic beverages were provided recklessly in disregard of the rights of others. NMA 41-11-1(E). A licensee shall not be held civilly liable for selling or giving alcohol to a minor, except when it is demonstrated that the licensee knew, or that a reasonable person in the same circumstances would have known, that the person who received the alcoholic beverages was a minor. NMRA41-11-1(G). Liability arising under § 41-11-1 shall not exceed $50,000.00 for bodily injury or death of one person in each transaction or occurrence or, subject to such limitation, $100,000.00 for bodily injury to or death of two or more persons in each transaction or occurrence, and $20,000.00 for property damage in each transaction or occurrence. NMRA41-11-1(I). The New Mexico Supreme Court has held that NMRA 41-11-1(I) violates the equal protection clause of the New Mexico Constitution. Richardson v. Carnegie Library Rest., Inc. However, the Supreme Court’s legal basis in the Richardson decision was subsequently overruled. Trujillo v. City of Albuquerque. In light of the Trujillo ruling, it is difficult to determine whether § 41-11-1(I) is constitutional.
6.
Utah Persons who serve or sell alcoholic beverages are not liable for injuries (1) caused by the individuals who consumed such beverages, or (2) sustained by such individuals. NRS 41.1305. This includes survivors of a minor, who is served alcoholic beverages by a vendor. Snyder v. Viani. Additionally, this includes liability by a host to a minor, who consumes alcoholic beverages at a party given by the host. Bell v. Alpha Tau Omega Fraternity.
PROPERTY OF RESNICK & LOUIS, P.C. 167
W.
Class Actions 1.
The Current Federal Rule 23 Prerequisites. (a)
2.
One or more members of a class may sue or be sued as representative parties on behalf of all members only if: (1.)
the class is so numerous that joinder of all members is impracticable;
(2.)
there are questions of law or fact common to the class;
(3.)
the claims or defenses of the representative parties are typical of the claims or defenses of the class;
(4.)
the representative parties will fairly and adequately protect the interests of the class.
Types of Class Actions. A class action may be maintained if Rule 23(a) is satisfied and if: (a.)
Prosecuting separate actions by or against individual class members would create a risk of: (1.)
inconsistent or varying adjudications with respect to individual class member that would establish incompatible standards of conduct for the party opposing the class; or
(2.)
adjudications with respect to individual class members that, as a practical matter, would be dispositive of the interests of the other members not parties to the individual adjudications or would substantially impair or impede their ability to protect their interests; a)
the party opposing the class has acted or refused to act on grounds that apply generally to the class, so that final injunctive relief or corresponding declaratory relief is appropriate respecting the class as a whole; or
b)
the court finds that the questions of law or fact common to class members predominate over any questions affecting only individual members, and that a class action is superior to other available methods for fairly and efficiently
PROPERTY OF RESNICK & LOUIS, P.C. 168
adjudicating the controversy. The matters pertinent to these findings include: 1)
2)
(b.)
3.
the class members’ interests in individually controlling the prosecution or defense of separate actions; the extent and nature of any litigation concerning the controversy already begun by or against class members;
3)
the desirability or undesirability of concentrating the litigation of the claims in the particular forum; and
4)
the likely difficulties in managing a class action.
Arizona Rule 23, Colorado Rule 23, New Mexico Rule 1-023, and Utah Rule 23 are all virtually identical to Federal Rule 23 and courts in these states will give considerable deference to federal cases interpreting the state class action rules. However, California does not statutorily follow the Federal Rule 23. See CCCP 382.
California (a.)
If the consent of any one who should have been joined as plaintiff cannot be obtained, he may be made a defendant, the reason thereof being stated in the complaint; and when the question is one of a common or general interest, of many persons, or when the parties are numerous, and it is impracticable to bring them all before the court, one or more may sue or defend for the benefit of all.
(b.)
In California, class certification requirements are found in the case law. Sav-On Drug Stores v. Superior Court. The plaintiff must establish the existence of “an ascertainable class” and a “well-defined community of interest among class members.” The “community of interest” criteria is comprised of three factors, mirroring some Rule 23 requirements: (1) predominant common questions of law or fact; (2) class representatives with claims or defenses typical of the class; and (3) class representatives who can adequately represent the class. Id.
(c.)
California law has not expressly adopted the federal law requirement that a class action satisfy one of three types of class actions defined in FRCP 23(b). However, plaintiffs are required to show that class treatment would PROPERTY OF RESNICK & LOUIS, P.C. 169
“provide substantial benefits” to both the courts and the litigants, a showing that California courts have recognized is akin to the ‘superiority’ prong of Rule 23(b)(3). Bell v. Farmers Ins. Exchange. In addition, trial courts are permitted to look to federal class action law in the absence of relevant state law precedent; Rule 23(b) h. X.
Premises Liability 1.
Arizona (a.)
Notice Liability. An owner of a business is required to use reasonable care to warn of or safeguard/remedy an unreasonably dangerous condition which the defendant had “notice” of. The law construes the defendant to have notice of the unreasonablhy dangerous condition when any of the following exists: (1.)
defendant created the condition;
(2.)
defendant actually knew of the condition in time to provide a remedy or warning;
(3.)
the condition existed for a sufficient length of time that the defendant knew or should have known about it.
(b.)
Open and Obvious Defense. Normally, a person need not safeguard or warn of a condition, which is sufficiently open and obvious, that it may reasonably be expected that persons will see and avoid it. Nevertheless, if under all of the circumstances it should reasonably have been anticipated that the condition could cause harm, then a person must use reasonable care to safeguard/warn of the condition, even if the condition was open and obvious.”
(c.)
Mode of Operation Liability. Even if the defemdant had no notice of the unreasonably dangerous condition, a plaintiff can still prove a defendant is is negligent if all of the following exist: (1.) defendant adopted a method of operation from which it could reasonably be anticipated that unreasonably dangerous conditions would regularly arise; and (2.)
defendant failed to exercise reasonable care to prevent harm under those circumstances.
PROPERTY OF RESNICK & LOUIS, P.C. 170
This instruction is for cases involving business invitees; it is not appropriate for cases involving licensees, trespassers, or persons acting in ways not permitted by the owner. See, e.g., Nicoletti v. Westcor, Inc. 2.
California (a.)
Reasonableness Standard. As a general rule, “everyone is responsible, not only for the result of his or her willful acts, but also for an injury occasioned to another by his or her want of ordinary care or skill in the management of his or her property or person, except so far as the latter has, willfully or by want of ordinary care, brought the injury upon himself or herself.” (Civ. Code 1714(a), italics added.) “Since Rowland v. Christian, the liability of landowners for injuries to people on their property has been governed by general negligence principles.” Pineda v. Ennabe. Premises liability is a “form of negligence” in which the owner has a duty to exercise ordinary care in the management of the premises to avoid exposing persons to an unreasonable risk of harm. Brooks v. Eugene Burger Management Corp. A landowner owes a duty to exercise reasonable care to maintain his or her property in such a manner as to avoid exposing others to an unreasonable risk of injury. Alcaraz v. Vece; Scott v. Chevron U.S.A. (1992. The failure to fulfill the duty is negligence. Sprecher v. Adamson Companies. The existence of a duty of care is an issue of law for the court. The proper test to be applied to the liability of the possessor of land . . . is whether in the management of his property he has acted as a reasonable man in view of the probability of injury to others . . . .” Rowland v.Christian. A visitor’s status on the property—as a trespasser, a licensee, or an invitee—no longer establishes the extent of the owner’s duties to the visitor, although status may be relevant to the specific nature or scope of those duties or to the foreseeability that the visitor might be harmed. “As stated in Beauchamp v. Los Gatos Golf, ‘[t]he term “invitee” has not been abandoned, nor have “trespasser” and “licensee.” In the minds of the jury, whether a possessor of the premises has acted as a reasonable man toward a plaintiff, in view of the probability of injury to him, will tend to involve the circumstances under which he came upon defendant’s land; and the probability of exposure of plaintiff and others of his class to the risk of injury; as well as whether the condition itself presented an unreasonable risk of harm, in view of the foreseeable use of the property.’ Rowland does not generally abrogate the decisions declaring the substantive duties of the possessor of land to invitees nor those establishing the correlative rights and duties of invitees.’ PROPERTY OF RESNICK & LOUIS, P.C. 171
(b.)
Open and Obvious Defense. Generally, if a danger is so obvious that a person could reasonably be expected to see it, the condition itself serves as a warning, and the landowner is under no further duty to remedy or warn of the condition. However, this is not true in all cases. It is foreseeable that even an obvious danger may cause injury, if the practical necessity of encountering the danger, when weighed against the apparent risk involved, is such that under the circumstances, a person might choose to encounter the danger. The foreseeability of injury, in turn, when considered along with various other policy considerations such as the extent of the burden to the defendant and consequences to the community of imposing a duty to remedy such danger may lead to the legal conclusion that the defendant owes a duty of due care to the person injured.
(c.)
Recreation Immunity Defense. Civil Code section 846 provides: An owner of any estate or any other interest in real property, whether possessory or nonpossessory, owes no duty of care to keep the premises safe for entry or use by others for any recreational purpose or to give any warning of hazardous conditions, uses of, structures, or activities on such premises to persons entering for such purpose, except as provided in this section. A “recreational purpose,” as used in this section, includes such activities as fishing, hunting, camping, water sports, hiking, spelunking, sport parachuting, riding, including animal riding, snowmobiling, and all other types of vehicular riding, rock collecting, sightseeing, picnicking, nature study, nature contacting, recreational gardening, gleaning, hang gliding, winter sports, and viewing or enjoying historical, archaeological, scenic, natural, or scientific sites. An owner of any estate or any other interest in real property, whether possessory or nonpossessory, who gives permission to another for entry or use for the above purpose upon the premises does not thereby (a) extend any assurance that the premises are safe for such purpose, or (b) constitute the person to whom permission has been granted the legal status of an invitee or licensee to whom a duty of care is owed, or (c) assume responsibility for or incur liability for any injury to person or property caused by any act of such person to whom permission has been granted except as provided in this section.
PROPERTY OF RESNICK & LOUIS, P.C. 172
This section does not limit the liability which otherwise exists (a) for willful or malicious failure to guard or warn against a dangerous condition, use, structure or activity; or (b) for injury suffered in any case where permission to enter for the above purpose was granted for a consideration other than the consideration, if any, paid to said landowner by the state, or where consideration has been received from others for the same purpose; or (c) to any persons who are expressly invited rather han merely permitted to come upon the premises by the landowner. 3.
Nevada: (a.)
Reassonable Standard of Care. (1.)
Duty a)
The Nevada Supreme Court has adopted a doctrine of landowner liability independent of the status (invitee, licensee, and trespasser) of the person injured upon the land and “free from the antiquated categorization which had been a remnant of the common law.” In enumerating the rule, the Nevada Supreme Court has stated: “Landlords as other persons must exercise reasonable care not to subject others to an unreasonable risk of harm. A landlord must act as a reasonable person under all of the circumstances including the likelihood of injury to others, the probable seriousness of such injuries, and the burden of reducing or avoiding the risk. We think this basic principle of responsibility for landlords as for others ‘best expresses the principles of justice and reasonableness upon which our law of torts is founded.’” Thus, succinctly stated, “an owner . . . of land must exercise ordinary care and prudence to render the premises reasonably safe for the visit of a person invited on the premises for business purposes.’”
(2.)
Duty to Inspect, Maintain, and Warn a)
In general, in order to show that a land or business owner failed to protect the public from a hazard, the Plaintiff must show: (1) That the Defendant failed to make a reasonable
PROPERTY OF RESNICK & LOUIS, P.C. 173
inspection of the premises; and (2) that a reasonable inspection would have revealed the hazard. The Nevada Supreme Court has stated that “‘an owner or occupant of lands or buildings who knows, or in the exercise of reasonable care should know, of their dangerous and unsafe condition and who invites others to enter upon the property owes to such invitees a duty to warn them of the danger, where the peril is hidden, latent, or concealed or the invitees are without knowledge thereof.’” Therefore, the owner or occupier of land has a duty to an invitee to inspect the premises to discover dangerous conditions not known to him and to “take reasonable precautions to protect the invitee from dangers which are foreseeable from the arrangement or use. (3.)
Hidden and Obvious Dangers a)
(b.)
The Nevada Supreme Court has stated, “If a peril is hidden, latent or concealed, ordinary care requires an owner, with actual or constructive knowledge of the peril, to warn the invited guest who is without such knowledge. . . . On the other hand, if the danger is ‘obvious,’ ordinary care does not require a warning from the owner because ‘obviousness’ serves the same purpose.” Thus, where the danger is obvious, a plaintiff is barred from recovery, but “an invitee’s knowledge of a dangerous condition may not bar recovery if his mission justifies encounter of it.”
Recreational Use. NRS 41.510 Limitation of liability; exceptions for malicious acts if consideration is given or other duty exists. (1.)
Except as otherwise provided in subsection 3, an owner of any estate or interest in any premises, or a lessee or an occupant of any premises, owes no duty to keep the premises safe for entry or use by others for participating in any recreational activity, or to give warning of any hazardous condition, activity or use of any structure on the premises to persons entering for those purposes.
PROPERTY OF RESNICK & LOUIS, P.C. 174
(2.)
(3.)
Except as otherwise provided in subsection 3, if an owner, lessee or occupant of premises gives permission to another person to participate in recreational activities, upon his premises: a)
He does not thereby extend any assurance that the premises are safe for that purpose or assume responsibility for or incur liability for any injury to person or property caused by any act of persons to whom the permission is granted.
b)
That person does not thereby acquire any property rights in or rights of easement to the premises.
This section does not thereby acquire any property rigfhts in or rights of easement to the premises: a)
b)
Limit the liability which would otherwise exist for: 1)
Willful or malicious failure to guard, or to warn against, a dangerous condition, use, structure or activity.
2)
Injury suffered in any case where permission to participate in recreational activities, was granted for a consideration other than the consideration, if any, paid to the landowner by the state or any subdivision thereof. For the purposes of this subparagraph, the price paid for a game tag sold pursuant to NRS 502.145 by an owner, lessee or manager of the premises shall not be deemed consideration given for permission to hunt on the premises.
3)
Injury caused by acts of persons to whom permission to participate in recreational activities was granted, to other persons as to whom the person granting permission, or the owner, lessee or occupant of the premises, owed a duty to keep the premises safe or to warn of danger.
Create a duty of care or ground of liability for injury to person or property.
PROPERTY OF RESNICK & LOUIS, P.C. 175
(4.)
(c.)
As used in this section, “recreational activity” includes, but is not limited to: a)
Hunting, fishing or trapping;
b)
Camping, hiking or picnicking;
c)
Sightseeing or viewing or enjoying archaeological, scenic, natural or scientific sites;
d)
Hang gliding or para-gliding;
e)
Spelunking;
f)
Collecting rocks;
g)
Participation in winter sports, snowmobile, or water sports;
h)
Riding animals or in vehicles;
i)
Studying nature;
j)
Gleaning;
k)
Recreational gardening; and
l)
Crossing over to public land or land dedicated for public use.
including
riding
a
Sidewalk in Public Right-A-Way. NRS 41.1315 Limitation on liability of property owner for injury or damage on sidewalk in public right-of-way. No person who owns property is liable in a civil action for any injury or damage that occurs as a result of the use of a sidewalk in a public right-of-way that abuts the person’s property, unless the person: (1.)
Failed to comply with an ordinance adopted pursuant to paragraph (d) of subsection 2 of NRS 278.02313; or
(2.)
Created a dangerous condition that caused the injury or damage.
PROPERTY OF RESNICK & LOUIS, P.C. 176
(d.)
Trespassers. NRS 41.1393 Discharge of duty to warn trespasser against dangerous condition. In any case where there is a duty to warn a trespasser against a dangerous condition of the premises, that duty is discharged by painting, at intervals of not more than 200 feet on each side of the premises, upon or near the boundary, a post, structure or natural object with not less than 50 square inches of fluorescent orange paint or, if the post is a metal fence post, painting the entire post with such paint.
(f.)
Hotels. NRS 651.005 “Premises” defined. As used in NRS 651.005 to 651.040, inclusive, “premises” includes, but is not limited to, all buildings, improvements, equipment and facilities, including any parking lot, recreational facility or other land, used or maintained in connection with a hotel, inn, motel, motor court, boardinghouse or lodging house. NRS 651.015 Civil liability of innkeepers for death or injury of person on premises caused by person who is not employee. (1.)
(2.)
An owner or keeper of any hotel, inn, motel, motor court, boardinghouse or lodging house is not civilly liable for the death or injury of a patron or other person on the premises caused by another person who is not an employee under the control or supervision of the owner or keeper unless: a)
The wrongful act which caused the death or injury was foreseeable; and
b)
There is a preponderance of evidence that the owner or keeper did not exercise due care for the safety of the patron or other person on the premises.
An owner or keeper of any hotel, inn, motel, motor court, boardinghouse or lodging house is civilly liable for the death or injury of a patron or other person on the premises caused by another person who is not an employee under the control or supervision of the owner or keeper if: a)
The wrongful act which caused the death or injury was foreseeable; and
PROPERTY OF RESNICK & LOUIS, P.C. 177
b)
The owner or keeper failed to take reasonable precautions against the foreseeable wrongful act.
The court shall determine as a matter of law whether the wrongful act was foreseeable and whether the owner or keeper had a duty to take reasonable precautions against the foreseeable wrongful act of the person who caused the death or injury. (3.)
(f.)
(g.)
For the purposes of this section, a wrongful act is not foreseeable unless: a)
The owner or keeper failed to exercise due care for the safety of the patron or other person on the premises; or
b)
Prior incidents of similar wrongful acts occurred on the premises and the owner or keeper had notice or knowledge of those incidents.
Mode of Operation (1.)
Applies to “self serve” context and not sit-down restaurants. FGA, Inc. v. Giglio (2012)
(2.)
Notice not an issue.
(3.)
Focus is on the nature of the business.
(4.)
Where an owner has chosen mode of operation makes it reasonably forseeable that a dangerous condition will occur, a store owner could be held liable for injuries to an invitee if the plaintiff proves that the store owner failed to take reasonable precautions necessary to protect the invitee from these forseeable dangerous conditions.
NRS 41.1393. Discharge of duty to warn trespasser against dangerous condition. In any case where there is a duty to warn a trespasser against a dangerous condition of the premises, that duty is discharged by painting, at intervals of not more than 200 feet on each side of the premises, upon or near the boundary, a post, structure or natural object with not less than 50 square inches of fluorescent orange paint or, if the post is a metal fence post, painting the entire post with such paint.
PROPERTY OF RESNICK & LOUIS, P.C. 178
(h.)
Duties and Liabilities of Innkeepers in Nevada (1.)
NRS 651.005. Premises” defined. As used in NRS 651.005 to 651.040, inclusive, “premises” includes, but is not limited to, all buildings, improvements, equipment and facilities, including any parking lot, recreational facility or other land, used or maintained in connection with a hotel, inn, motel, motor court, boardinghouse or lodging house.
(2.)
NRS 651.010. Civil liability of innkeepers limited. a) An owner or keeper of any hotel, inn, motel, motor court, boardinghouse or lodging house in this State is not civilly liable for the theft, loss, damage or destruction of any property brought by a patron upon the premises or left in a motor vehicle upon the premises because of theft, burglary, fire or otherwise, in the absence of gross neglect by the owner or keeper. b)
An owner or keeper of any hotel, inn, motel, motor court, boardinghouse or lodging house in this State is not civilly liable for the theft, loss, damage or destruction of any property of a guest left in a guest room if: 1)
The owner or keeper provides a fireproof safe or vault in which guests may deposit property for safekeeping;
2)
Notice of this service is personally given to a guest or posted in the office and the guest’s room; and
3)
The property is not offered for deposit in the safe or vault by a guest.
c) Unless the owner or keeper is grossly negligent. 1)
An owner or keeper is not obligated to receive property to deposit for safekeeping which exceeds $750 in value or is of a size which cannot easily fit within the safe or vault.
2)
The liability of the owner or keeper does not exceed the sum of $750 for any property, including, but not limited to, property which is not deposited in a safe
PROPERTY OF RESNICK & LOUIS, P.C. 179
or vault because it cannot easily fit within the safe or vault, of an individual patron or guest, unless the owner or keeper receives the property for deposit for safekeeping and consents to assume a liability greater than $750 for its theft, loss, damage or destruction in a written agreement in which the patron or guest specifies the value of the property. (3.)
NRS 651.015. Civil liability of innkeepers for death or injury of person on premises caused by person who is not employee. a)
b)
c)
An owner or keeper of any hotel, inn, motel, motor court, boardinghouse or lodging house is not civilly liable for the death or injury of a patron or other person on the premises caused by another person who is not an employee under the control or supervision of the owner or keeper unless: 1)
The wrongful act which caused the death or injury was foreseeable; [AND]
2)
Preponderance of evidence that the owner or keeper did not exercise due care for the safety of the patron or other person on the premises.
An owner or keeper of any hotel, inn, motel, motor court, boardinghouse or lodging house is civilly liable for the death or injury of a patron or other person on the premises caused by another person who is not an employee under the control or supervision of the owner or keeper if: 1)
The wrongful act which caused the death or injury was foreseeable; [AND]
2)
The owner or keeper failed to take reasonable precautions against the foreseeable wrongful act.
The court shall determine as a matter of law whether the wrongful act was foreseeable and whether the owner or keeper had a duty to take reasonable precautions against the foreseeable wrongful act of the person who caused the death or injury.
PROPERTY OF RESNICK & LOUIS, P.C. 180
d)
4.
For the purposes of this section, a wrongful act is not foreseeable unless: 1)
The owner or keeper failed to exercise due care for the safety of the patron or other person on the premises; [OR]
2)
Prior incidents of similar wrongful acts occurred on the premises and the owner or keeper had notice or knowledge of those incidents.
Colorado: (a.)
Premises Liability Statute (13-21-115. Actions against landowners) (1.)
For the purposes of this section, “landowner” includes, without limitation, an authorized agent or a person in possession of real property and a person legally responsible for the condition of real property or for the activities conducted or circumstances existing on real property.
(2.)
In any civil action brought against a landowner by a person who alleges injury occurring while on the real property of another and by reason of the condition of such property, or activities conducted or circumstances existing on such property, the landowner shall be liable only as provided in subsection (3) of this section. Sections 13-21-111, 13-21-111.5, and 13-21-111.7 shall apply to an action to which this section applies. This subsection (2) shall not be construed to abrogate the doctrine of attractive nuisance as applied to persons under fourteen years of age. A person who is at least fourteen years of age but is less than eighteen years of age shall be presumed competent for purposes of the application of this section.
(3.)
a)
A trespasser may recover only for damages willfully or deliberately caused by the landowner.
b)
A licensee may recover only for damages caused: 1)
By the landowner’s unreasonable failure to exercise reasonable care with respect to dangers created by the landowner of which the landowner actually knew; or
PROPERTY OF RESNICK & LOUIS, P.C. 181
2)
c)
By the landowner’s unreasonable failure to warn of dangers not created by the landowner which are not ordinarily present on property of the type involved and of which the landowner actually knew.
Except as otherwise provided in subparagraph (II) of this paragraph (c), an invitee may recover for damages caused by the landowner’s unreasonable failure to exercise reasonable care to protect against dangers of which he actually knew or should have known: If the landowner’s real property is classified for property tax purposes as agricultural land or vacant land, an invitee may recover for damages caused by the landowner’s unreasonable failure to exercise reasonable care to protect against dangers of which he actually knew. It is the intent of the general assembly in enacting the provisions of subsection (3) of this section that the circumstances under which a licensee may recover include all of the circumstances under which a trespasser could recover and that the circumstances under which an invitee may recover include all of the circumstances under which a trespasser or a licensee could recover. 1)
By the landowner’s unreasonable failure to exercise reasonable care with respect to dangers created by the landowner of which the landowner actually knew; or
2)
By the landowner’s unreasonable failure to warn of dangers not created by the landowner which are not ordinarily present on property of the type involved and of which the landowner actually knew. In any action to which this section applies, the judge shall determine whether the plaintiff is a trespasser, a licensee, or an invitee, in accordance with the definitions set forth in subsection (5) of this section. If two or more landowners are parties defendant to the action, the judge shall determine the application of this section to each such landowner. The issues of liability and damages in any such action shall be determined by the jury or, if there is no jury, by the judge.
PROPERTY OF RESNICK & LOUIS, P.C. 182
(5.)
(6.)
(b.)
As used in this section: a)
“Invitee” means a person who enters or remains on the land of another to transact business in which the parties are mutually interested or who enters or remains on such land in response to the landowner’s express or implied representation that the public is requested, expected, or intended to enter or remain
b)
“Licensee” means a person who enters or remains on the land of another for the licensee’s own convenience or to advance his own interests, pursuant to the landowner’s permission or consent. “Licensee” includes a social guest.
c)
“Trespasser” means a person who enters or remains on the land of another without the landowner’s consent.
If any provision of this section is found by a court of competent jurisdiction to be unconstitutional, the remaining provisions of the section shall be deemed valid.
Premises Liability for Tavern Owners Requires Foreseeability Analysis If a tavern proprietor does not have “actual or constructive notice that the tavern patron causing the injury to the plaintiff constituted an unreasonable risk of harm to others legitimately on the tavern premises” then the tavern proprietor has no legal duty to protect the injured plaintiff from bodily harm. Observatory Corp. v. Daly. “The Court must also consider, “the social utility of the proprietor’s conduct, the magnitude of the burden of guarding against the injury, the consequences of placing that burden upon the defendant, and any other relevant factors implicated by the facts of the case. However, the Colorado Supreme Court issued a decision in Build It and They Will Drink, Inc. v. Strauch in which the Court found that there is no foreseeability element in tavern owner liability. This case was a Dram Shop Act, not a premises liability case. The Strauch Court acknowledged explicitly that it was “not presented with an issue of general premises liability in the present case” such that the foreseeability element necessary for the imposition of premises liability was “irrelevant to our discussion of dram-shop liability.”
PROPERTY OF RESNICK & LOUIS, P.C. 183
(c.)
Affirmative Defenses In 2004 Colorado’s Court of Appeals issued the Vigil v. Franklin decision, holding that common law affirmative defenses such as “open and obvious danger” were not available to landowners under the Premises Liability Statute. However, that Court did not specifically analyze whether affirmative defenses otherwise available to landowners by statute (as opposed to by common law) were abrogated by the Statute. In June, 2009, the Colorado Supreme Court ruled in Union Pacific Railroad Company v. Martin that the Statute did not preclude the application of other statutory defenses. This did not change the holding in Vigil that non-statutory defenses which would have been available at common law (ie, “open and obvious danger”) are not available under the Statute. Therfore, it appears that the only defenses available to landowner defendants are statutory.
(d.)
Adjancent Land Such as Sidewalks The owner or occupant of premises abutting a public sidewalk does not have a common law duty to pedestrians to keep the public sidewalks abutting its property clear of naturally accumulated snow and ice. Woods v. Delgar, Ltd. Although municipalities have the primary duty to keep sidewalks in a reasonably safe condition for pedestrians, owners and occupants of property abutting sidewalks do not have the right to create obstructions or hazards on the sidewalks. Woods.
5.
New Mexico: (a.)
Case Law Regarding Duty of Reasonable Care and Knowledge. (1.)
The owner of a premises is not the insurer of the safety of its visitors. See Brooks v. K-Mart Corp. Neither the doctrine of res ipsa loquitur nor the concept of strict liability applies in slip-and-fall cases. See id. (stating that strict liability does not apply); Holguin v. Smith’s Food King Properties, Inc. (stating that res ipsa loquitur does not apply. Rather, a plaintiff seeking to hold a premises owner liable for a slip-and-fall accident must show that the owner “failed to exercise ordinary care by rendering safe an unreasonably dangerous condition on the premises.” Brooks, 964 P.2d at 101. There are two ways of establishing this element of plaintiff’s case. First, he may prove that the owner or his employees or agents caused the dangerous condition to exist, resulting in his injury. See Holguin, 737 P.2d at 98. Second, plaintiff may prove that the owner knew, or should reasonably PROPERTY OF RESNICK & LOUIS, P.C. 184
have known, of the condition yet failed to rectify it. See Brooks, 964 P.2d at 101.
(b).
(2.)
A landowner owes visitors (including former designations of licensees and invitees) a uniform duty of ordinary care to protect the visitor against conditions that foreseeably pose an unreasonable risk of injury. Ford v. Board of County. This duty applies even where a dangerous condition is known to the visitor or is open and obvious, because in the exercise of ordinary care a landowner must generally anticipate some degree of negligence on the part of others encountering even a known or obvious danger. Klopp v. Wackenhut Corp. There may be circumstances, however, in which a visitor’s own negligence, resulting in injury from an obviously dangerous condition, is unforeseeable. See id.
(3.)
New Mexico cases have explored the question of knowledge of a dangerous condition in some detail. The general rule is that the owner of a premises is charged with knowledge of conditions of which he would be aware upon reasonable inspection of the premises. See Brooks, 964 P.2d at 99 (quoting New Mexico Uniform Jury Instruction 13-1318 (1998)). An exception to this rule arises where there is a recurring, dangerous condition on the premises; in that case, the owner need not have actual or constructive knowledge of the particular hazard which caused the accident. See Mahoney v. J.C. Penney Co.. Otherwise, the owner is responsible if the condition has existed long enough to allow him sufficient opportunity to discover it. See id.; De Baca v. Kahn.
Some New Mexico Jury Instructions For Liability of Owners and Occupiers (1.)
13-1302. Visitor; definition. A visitor is a person who enters or remains upon the premises with the [express] [or] [implied] permission of the [owner] [occupant] of the premises. Committee Commentary. — In Ford v. Board of County Commissioners, 118 N.M. 134, 879 P.2d 766 (1994), the Supreme Court eliminated the distinction, for purposes of defining the landowner’s duty of care, between licensees and business visitors or invitees while retaining a different standard for the duty owed to trespassers. The Court referred to both licensees and business PROPERTY OF RESNICK & LOUIS, P.C. 185
visitors as “visitors” and held that a duty of ordinary care applied to them (2.)
13-1301. Trespasser; definition. A trespasser is a person who enters or remains upon the premises of another without the [express] [or] [implied] permission of the [owner] [occupant] of the premises. [A person who is on the premises of another with the permission of the [owner] [occupant] is a trespasser to the extent the person goes outside the area in which the [owner] [occupant] might reasonably expect the person to be.] [A person who is on the premises of another with the permission of the [owner] [occupant] is a trespasser to the extent the person uses the premises in a manner different from that which the [owner] [occupant] might reasonably expect.]
(3.)
13-1305. Duty to trespasser; artificial condition on premises. If the [owner] [occupant] creates or maintains an artificial condition on the land, then [he] [she] has a duty to a trespasser to use ordinary care to warn of the condition and of the risk involved if: (a.)
The condition involves an unreasonable risk of death or bodily harm to persons coming onto the land;
(b.)
[He] [She] knows or reasonably should know [that there are constant intrusions by persons in the dangerous area] [that there are persons on the land in dangerous proximity to the condition]; and
(c.)
[He] [She] has reason to believe that the trespasser will not discover the condition or realize the risk involved.
The [owner] [occupant] owes no duty to make [his] [her] land safe for a trespasser, unless and until [he] [she] knows or reasonably should know that the trespasser is on [his] [her] land.
PROPERTY OF RESNICK & LOUIS, P.C. 186
(4.)
13-1306. Duty to trespasser; activity of owner. If the owner is engaged in activities on [his] [her] land, [he] [she] has a duty to use ordinary care to avoid injury to a trespasser, if: (a.)
The activity involves an unreasonable risk of death or great bodily harm to persons coming onto the land;
(b.)
[He] [She] knows or should reasonably know that [there are constant intrusions by trespassers onto the area in which the activity is permitted] [there are trespassers on the land in dangerous proximity to the activity]; and
(c.)
[He] [She] has reason to believe that the trespasser will not realize the risk of harm involved.
[If the activity involves a controllable force, the owner has a duty either to use reasonable care to control the force to avoid injury or to give adequate warning.] The [owner] [occupant] of the land has no duty to regulate [his] [her] activities so as to avoid injury to a trespasser, unless and until [he] [she] knows or should know that the trespasser is on [his] [her] land. (5.)
13-1307. Duty to trespasser; natural conditions. An [owner] [occupant] of land has no liability to a trespasser injured on [his] [her] land from a natural condition of that land.
(6.)
13-1309. Duty to visitor. An [owner] [occupant] owes a visitor the duty to use ordinary care to keep the premises safe for use by the visitor [, whether or not a dangerous condition is obvious]. USE NOTE This instruction is to be used to define the duty of care owed to a visitor. It applies in all cases in which a visitor claims to have been injured as a result of an unreasonably dangerous condition of the premises, including those in which the condition was open and obvious. For an instruction specifically applicable to typical slip and fall cases, see UJI 13-1318.
PROPERTY OF RESNICK & LOUIS, P.C. 187
Committee Commentary. — A landowner owes visitors (formerly categorized as either licensees or business visitors) a uniform duty of ordinary care to protect the visitor against conditions that foreseeably pose an unreasonable risk of injury. Ford v. Board of County Comm’rs, 118 N.M. 134, 879 P.2d 766 (1994). This duty applies even where a dangerous condition is known to the visitor or is open and obvious, because in the exercise of ordinary care a landowner must generally anticipate some degree of negligence on the part of others encountering even a known or obvious danger. Klopp v. Wackenhut Corp., 113 N.M. 153, 157, 824 P.2d 293, 297 (1992). There may be circumstances, however, in which a visitor’s own negligence, resulting in injury from an obviously dangerous condition, is unforeseeable. See id. at 158, 824 P.2d at 298. Because no duty exists if the landowner lacks reason to know that an obviously dangerous condition poses an unreasonable risk of injury to a visitor, this instruction should not be given if the trial court determines that the negligence of the visitor was unforeseeable as a matter of law. Id. at 158-59, 824 P.2d at 298-99. Generally in a case involving injury from an obviously dangerous condition where the plaintiff may have been contributorily negligent, it is for counsel in argument to address how legal concepts of unreasonable risk, foreseeability, and ordinary care apply to the evidence at hand. See id. at 159, 824 P.2d at 299. (7.)
13-1312. Trespassing children (attractive nuisance). An [owner] [occupant] has a duty to prevent injury to a trespassing child resulting from __________________ (describe structure or artificial condition) artificial condition of the land if: (a.)
(b.)
(c.)
The place where the condition is maintained is one upon which the [owner] [occupant] knows or has reason to know that children are likely to trespass; The condition is one which involves an unreasonable risk of injury to trespassing children and the [owner] [occupant] knows or has reason to know of such risk; and The child because of [his] [her] youth does not discover the condition or realize the risk involved by intermeddling with it or coming into the area made dangerous by it.
PROPERTY OF RESNICK & LOUIS, P.C. 188
In such a case, the [owner] [occupant] has a duty to exercise ordinary care, considering the youth of the child, to prevent injury to the child. Committee Commentary. — A line of New Mexico cases recognizes and applies the attractive nuisance doctrine. (8.)
13-1316. Duty where property abuts sidewalk. The [owner] [occupant] of property abutting a public sidewalk is under a duty to exercise ordinary care not to create an unsafe condition which would interfere with the customary and regular use of the sidewalk.
(9.)
13-1317. Sidewalks and streets; duty of city. A city has a duty to use ordinary care to maintain [streets] [sidewalks] in a safe condition
(10.)
13-1318. Slip and fall. An [owner] [occupant] owes a visitor the duty to exercise ordinary care to keep the premises safe for the visitor’s use. [This duty applies whether or not a dangerous condition is obvious.] [In performing this duty, the [owner] [occupant] is charged with knowledge of any condition on the premises [of which the [owner] [occupant] would have had knowledge had [he] [she] [it] made a reasonable inspection of the premises] [or] [which was caused by the [owner] [occupant] or [his] [her] [its] employees].]
(b).
17-4-7. Liability of landowner permitting persons to hunt, fish or use lands for recreation; duty of care; exceptions. (Recreational Use) (1.).
Any owner, lessee or person in control of lands who, without charge or other consideration, other than a consideration paid to the landowner by the state, the federal government or any other governmental agency, grants permission to any person or group to use the owner’s, lessee’s or land controller’s lands for the purpose of hunting, fishing, trapping, camping, hiking, sightseeing, the operation of aircraft or any other recreational use does not thereby:
PROPERTY OF RESNICK & LOUIS, P.C. 189
a) b) c) d)
(2.)
extend any assurance that the premises are safe for such purpose; assume any duty of care to keep such lands safe for entry or use; assume responsibility or liability for any injury or damage to or caused by such person or group; or assume any greater responsibility, duty of care or liability to such person or group than if permission had not been granted and the person or group were trespassers.
This section shall not limit the liability of any landowner, lessee or person in control of lands that may otherwise exist by law for injuries to any person granted permission to hunt, fish, trap, camp, hike, sightsee, operate aircraft or use the land for recreation in exchange for a consideration, other than a consideration paid to the landowner by the state, the federal government or any other governmental agency. Under New Mexico law governing premises liability for slip and fall accidents, the plaintiff must prove not only that there was a dangerous condition in a defendant’s premises, but also that the defendant knew or had reason to know of the condition. Gutierrez v. Albertsons.
6.
Utah: (a.)
There are two classes of unsafe conditions that may result in liability. The first “involves some unsafe condition of a temporary nature,” where the origin of the condition is generally unknown. Allen v. Federated Dairy Farms, Inc., 538 P.2d 175, 176 (Utah 1975) (emphasis omitted). To hold a landowner liable for a temporary condition, a plaintiff must show “(A) that [the landowner] had knowledge of the condition, that is, either actual knowledge, or constructive knowledge because the condition had existed long enough that he should have discovered it; and (B) that after such knowledge, sufficient time elapsed that in the exercise of reasonable care he should have remedied it.” Goebel v. Salt Lake City S. R.R., 104 P.3d 1185 (Utah 2004). The second class of unsafe conditions involves a permanent condition, meaning that the unsafe condition is “in the structure of a building, . . . or in equipment or machinery, or its manner of use, which was created or PROPERTY OF RESNICK & LOUIS, P.C. 190
chosen by the defendant (or his agents), or for which he is responsible.” Allen at 176. When an unsafe condition is permanent, the landowner is deemed to have knowledge of the condition and a plaintiff need not independently establish notice before liability can be imposed. See Goebel at 1185. (b.)
Open and Obvious Defense. The “open and obvious danger rule . . . is a duty-defining rule that simply states that, under appropriate circumstances, a landowner’s duty of care might not include warning or otherwise protecting visitors from obvious dangers.” Id. at 268. The open and obvious danger rule . . . simply defines the reasonable care that possessors of land must show toward invitees. Under that definition, a possessor of land must protect invitees against dangers of which they are unaware, may forget, or may reasonably encounter despite the obviousness of the danger.” Id. at 269. The open and obvious defense may diminish plaintiff’s recovery, through comparative fault principles, but is not always a complete bar to recovery. See id.
(c.)
Recreational Use. “[A]n owner of land who either directly or indirectly invites or permits without charge or for a nominal fee of not more than $1 per year any person to use the land for any recreational purpose, or an owner of a public access area open to public recreational access does not thereby assume responsibility for or incur liability for any injury to persons or property caused by an act or omission of the person or any other person who enters upon the land.” Utah Code Ann. § 57-14-4(1). This includes owners “of land leased to the state or any subdivision of the state for recreational purposes.” Utah Code Ann. § 57-14-5. Liability is not limited where willful or malicious conduct is involved or an admission fee is charged. See Utah Code Ann. § 57-14-6(1). Fees paid by hunters at wildlife management units are not “fees,” under §57-14-6(1). See Utah Code Ann. § 57-14-6(2). Additionally, fees paid by recreational users of dams and reservoirs to the Division of Parks and Recreation are not “fees,” under § 57-14-6(1). See Utah Code Ann. § 57-14-6(3).
Y.
Nevada Intermediate Appellate Court 1.
Nevada Court of Appeals (a.)
11/4/14 Voters Approved Amending NV Constitution.
PROPERTY OF RESNICK & LOUIS, P.C. 191
(b.)
1/3 of All Cases Submitted to NV Supreme Court will be sent to NV Court of Appeals by the NV Supreme Court in a “Deflective Model” as used in a limited number of other states.
(c.)
Judges Michael Gibbons, Jerome Tao, and Abbi Silver.
(d.)
Initial Two Terms then re-election in 2016, and then 6 year terms.
(e.)
Appeals are filed with the Supreme Court (basically similar to pre Court of Appeals).
(f.)
Certain Cases will remain with Supreme Court.
(g.)
(1.)
Death Penalty.
(2.)
Judicial Discipline.
(3.)
Attorney Discipline.
(4.)
Orders denying Motions to Compel Arbitration.
(5.)
Matters raising as a principal issue a question of first impression involving US Constitution, NV Constitution, or Common Law.
(6.)
Matters raising as a principal issue a question of statewide public importance, or an issue upon which there is an inconsistency in the published decisions of the Court of Appeals or of the Supreme Court, or a conflict between published decisions of the two Courts.
Presumptive (Not Certain) Assignments to Court of Appeals (1.)
$250,000 or less Tort Claims.
(2.)
Family Law other than termination of parental rights.
(3.)
Venue.
(4.)
Injunctive Relief.
(5.)
Pre-Trial Writ Proceedings challenging discovery orders and motions in limine.
PROPERTY OF RESNICK & LOUIS, P.C. 192
Z.
(h.)
Review from Court of Appeals: Petition for review to the Supreme Court within 18 days after the Court of Appeals decision.
(i.)
Supreme Court has discretion whether to hear a case from the Court of Appeals – majority of Justices have to approve.
Independent Counsel 1.
California Civil Code 2860 (Codification of “Cumis” Case) (a.)
Section 2860 provides, in pertinent part: “(a) If the provisions of a policy of insurance impose a duty to defend upon an insurer and a conflict of interest arises which creates a duty on the part of the insurer to provide independent counsel to the insured, the insurer shall provide independent counsel to represent the insured . . . . [¶] (b) For purposes of this section, a conflict of interest does not exist as to allegations or facts in the litigation for which the insurer denies coverage; however, when an insurer reserves its rights on a given issue and the outcome of that coverage issue can be controlled by counsel first retained by the insurer for the defense of the claim, a conflict of interest may exist. No conflict of interest shall be deemed to exist as to allegations of punitive damages or be deemed to exist solely because an insured is sued for an amount in excess of the insurance policy limits.”
(b.)
Not every conflict of interest triggers an obligation on the part of the insurer to provide the insured with independent counsel at the insurer‟s expense. the mere fact the insurer disputes coverage does not entitle the insured to Cumis counsel; nor does the fact the complaint seeks punitive damages or damages in excess of policy limits. The insurer owes no duty to provide independent counsel in these situations because the Cumis rule is not based on insurance law but on the ethical duty of an attorney to avoid representing conflicting interests. Federal Ins. Co. v. MBL, Inc. (4th 2013)
(c.)
For independent counsel to be required, the conflict of interest must be “significant, not merely theoretical, actual, not merely potential.” (Dynamic Concepts, Inc. v. Truck Ins. Exchange (1998) 61 Cal.App.4th 999, 1007 (Dynamic Concepts).) The insured‟s right to independent counsel “depends upon the nature of the coverage issue, as it relates to the issues in the underlying case.” (Blanchard v. State Farm Fire & Casualty Co. (1991) 2 Cal.App.4th 345, 350 (Blanchard).) “[W]here the reservation of rights is based on coverage issues which have nothing to do with the issues being litigated in the underlying action, there is no conflict of PROPERTY OF RESNICK & LOUIS, P.C. 193
interest requiring independent counsel.” Federal Ins. Co. v. MBL, Inc. (4th 2013) (d.)
2.
Nor does “every reservation of rights entitles an insured to select Cumis counsel. There is no such entitlement, for example, where the coverage issue is independent of, or extrinsic to, the issues in the underlying action [citation] or where the damages are only partially covered by the policy.” (Dynamic Concepts, supra, 61 Cal.App.4th at p. 1006.) However, independent counsel is required where there is a reservation of rights “and the outcome of that coverage issue can be controlled by counsel first retained by the insurer for the defense of the claim.” Federal Ins. Co. v. MBL, Inc. (4th 2013).
Nevada (a.)
Nevada HAS Adopted Independent Counsel Requirement When “Actual Conflict” Exists Between Defense Counsel and Insurance Company (Cumis Scenerio) (1.)
Nevada Supreme Court 131 Nev. Advance Opinion 74 (September 24, 2015)
(2.)
“We conclude that Nevada law requires an insurer to provide independent counsel for its insured when a conflict of interest arises between the insurer and the insured. Nevada recognizes that the insurer and the insured are dual clients of insurer-appointed counsel. When the insured and the insurer have opposing legal interests, Nevada law requires insurers to fulfill their contractual duty to defend their insureds by allowing insureds to select their own independent counsel and paying for such representation. We further conclude that an insurer is only obligated to provide independent counsel when the insured's and the insurer's legal interests actually conflict. a)
(3.)
A reservation of rights letter does not create a per se conflict of interest.
Nevada Supreme Court (Yellow Cab Corp. v. Eighth Judicial Dist. Court ex. rel., 152 P.3d 737 (2007) has held that a lawyer previously retained to defend an insured cannot then represent the policyholder in a bad faith action against the insurance company. Hansen Federal Court says that the Yellow Cab case supports the concept that when there is a conflict between the insurance PROPERTY OF RESNICK & LOUIS, P.C. 194
company and the insured, the lawyer cannot represent both, and independent counsel is appropriate. a)
Dual representation is appropriate when the conflict remains speculative and not actual. This means that joint representation is impermissible when a conflict is real. This is when the insured must have independent counsel.
CONCLUSION Questions/Answers
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