Construction Defects in Nevada
A Construction Zone Special Report
From The Construction Zone: July 2000
Construction Defect Litigation Hits Commercial Project
by Joe Wheeler
Construction defects have gone commercial.
Olen Residential Realty Corporation sued Robert V. Jones Corporation over defects alleged in eight apartment complexes throughout Las Vegas. The suits were filed in 1998, and defects alleged at the Desert Club Apartments, the Breakers Apartments, Indian Hills Apartments, Hidden Cove Apartments, Player’s Club Apartments, Invitational Apartments, Diamondhead Apartments, and Eagle Trace Apartments.
The attorneys involved, Thomas D. Harper for the plaintiffs and Kenneth Pollack of Ryder and Casipino for Jones Corp, had set a schedule for non-intrusive and destructive testing. The tests were to begin in May and continue until January, 2001.
On May 29, a special master’s order suspended the case management and schedule of testing. The attorneys said they wish to pursue settlement negotiations and did not want to incur the expense of such tests. The suspension was for 70 days.
A settlement is expected.
Builder Loses Contractor’s Licenses
by Joe Wheeler
Las Vegas builder Robert V. Jones’ licenses were revoked by the State Contractor’s Board on June 21, 2000.
The revoked licenses were for Robert V. Jones Corp., "B" general building; Th Robert V. Jones Company, "B" general building; RVJC Electrical, "C-2" electrical contracting; and Sun Valley Plumbing & Mechanical, "C-1" plumbing and heating.
Robert V. Jones Corp’s general engineering license had previously been voluntarily surrended. The licenses revoked on June 21 had previously been put on suspension by the Board after Jones had asked for time to work with unhappy homeowners to resolve numerous complaints. The Board saw no indication that any work had been completed in the interim, and Jones had failed to provide monthly or quarterly reports as promised.
From The Construction Zone: June 2000
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Recent media reports labeled construction defects |
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Approximately 300 construction defect |
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There have been two significant rulings in Nevada that directly affect contractors and their insurance coverage; |
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Contractors are not notified of problems |
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Contractors face rising insurance costs or
"non-renewal" |
"Calloway" Decision Changes
Rules of Engagement
by Joe Wheeler
The Nevada Supreme Court decision, Calloway V. City of Reno, has far reaching effects on construction defect lawsuits, particularly for subcontractors.
R. Scott Rasmussen, a Las Vegas construction defect defense attorney, spoke at the Nevada Subcontractors Association meeting and said that the "Calloway" decision has changed the nature of defect suits, and has implications on how those suits will be defended.
"Strict liability is a ‘tort’ law which holds that a person puts something on the market –a car, a golf bag– and that the person --the manufacturer and retailer-- have a duty to make sure the product is safe, is free from defects, and is what it claims to be," Rasmussen said. "This is why you see the warning labels on lawnmowers and products for the general public at large."
The "Calloway" decision declared that houses are not "products," and barred claims under strict products liability. Homeowners must seek relief under different rules.
"Homeowners should seek claims under breach of contract instead of strict products liability," Rasmussen said. The contract between home buyer and homebuilder has express and implied warranties that state, in effect, that the home will be habitable and the work performed in a workmanlike manner. Homeowners should sue based on a ‘breach’ of that contract.
"When you have an insurance policy," Rasmussen said, "You have exclusions. The policy usually doesn’t cover your work. It covers damage to property and damage to the work of others, but not your own."
The "Calloway" decision allows for suits based on "resultant" damage. Resultant damage is damage to other property. "An example would be water intrusion that allows water to pool in the floor of a second story home," Rasmussen said. "The water leaks through the floor and onto a piano downstairs. Let’s say the homeowner is on vacation, so when he gets back, he has two feet of water in his piano. He can sue for damage to the piano."
Homeowners are also barred from suing subcontractors directly, but this in no way releases a sub from being sued. The process has simply changed.
"Based on ‘Calloway’, you can seek to dismiss all claims for negligence and liability." Rasmussen said.
The issue of homeowners joining together as plaintiffs is one which will may face a challenge in the near future. Rasmussen says he is filing motions to force trial lawyers to prove individual damages to each residence. These motions can only be ruled upon within 30 days of trial, and most suits settle before then.
Rasmussen said that there are a number of cases scheduled to be heard in January 2001. He predicts that the sheer volume of cases will send some of them to trial, or at least to the point where his motions can be acted upon by the judge.
Calloway V. City of Reno:
A Brief History
by Joe Wheeler
Calloway V. City of Reno, the Nevada Supreme Court decision that changed the litigation landscape, began in 1989 when Charles Calloway and Marlene Iacometti, representing homeowners at Huffaker Hills Townhouse Development in Reno, sued the developer, general contractor and subcontractor for defective roofing and siding that allowed extensive damage from water intrusion.
"Calloway" sought recovery based on breach of express and implied warranties, negligence, strict liability, fraud and misrepresentation. Las Vegas attorney Robert Maddox filed the suit, representing the 164 homeowners at Huffaker Hills.
Over the next two years, the suit was amended four times.
The amendments named the plumbing contractor, the air conditioning contractor and the City of Reno as defendants. "Calloway" claimed that City of Reno building inspectors performed negligent inspections.
The case settled for $826,500 against the developer, contractor and subcontractor. The plumbing and air conditioning subs paid $225,000. The Nevada Supreme Court got the case after the homeowners challenged the District Court’s denial of negligence claims and barred complaints from homeowners whose town homes were substantially completed prior to 1981.
In the "Calloway" decision, the Court barred homeowners and homeowners associations from making claims for strict products liability; barred claims of negligence against subcontractors and municipalities, defined structures as not being products for purposes of strict liability analysis, and said that homeowners and their associations do not have the right to bring direct tort actions against subcontractors.
Construction Defects:
New Case Lets Insurers Off the Hook
by Joe Wheeler
Just as Nevada’s construction industry begins to figure out Calloway V. Reno, a decision in Nevada Federal District Court has added another twist in the continuing drama of construction defect litigation.
The decision in "Weast V. Aetna Casualty Company" has implications on which of a contractor’s insurance companies may be brought into a lawsuit.
Until now, every insurance policy held by a construction company since the time of the project has been liable to defend and pay claims arising from that project. From the insurance company who insured the contractor 10 years ago to the company who may have just placed a policy within the last ten minutes – they were all liable and brought to the table to settle the suit.
The "Weast" case may change that equation, and allow certain insurers to deny coverage.
The case involved a development in Laughlin in which the general contractor and framer settled out of court for a million dollars, and their various insurance companies started writing checks to pay the judgement.
One company, Aetna, refused to pay. They removed the case to federal court on the grounds that they didn’t owe payment because there was no coverage in effect.
Judge Phillip Pro agreed with the insurance company.
Pro’s ruling stated that diminution in value is not property damage under insurance and that subsequent home purchasers can’t get an insured’s proceeds under a prior policy.
Aetna had insured the contractor while he built the homes. The policy was subsequently dropped as the contractor got other coverage from another carrier. Based on the ruling, Aetna is only liable for claims from the original home purchasers, and all settlements from homeowners who bought their homes after the Aetna policy was no longer in effect were not eligible for payment.
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