SC Court of Appeals Reduces Punitive Damages Award in Construction Case

Hollis v. Stonington Dev. LLC, No. 4869, 2011 S.C. Ct. App. LEXIS 215 (Aug. 17, 2011).

Two families sued a development company for damages to their jointly owned property.  The Plaintiffs’ land includes two man made ponds built by family members over 50 years ago.  Stonington purchased land upstream from the property to build a residential subdivision.  The Plaintiffs alleged that as a result of the project, they experienced severe flooding, were hindered from accessing their homes, and their ponds were raised four feet due to sediment deposits.  The cost to restore the Plaintiffs’ property was estimated at $250,000.

The Plaintiffs further claimed that the Defendant Stonington violated state and local laws concerning erosion control and runoff, disregarded engineer recommendations, and misled them about its remediation plans.

At trial, the jury returned a verdict for the Plaintiffs in the amount of $400,000 in actual damages and $3.5 million in punitive damages.  Punitive damages are awarded when the conduct of the defendant is particularly egregious.  Stonington appealed this verdict to the SC Court of Appeals, where the punitive damages amount was reduced to $2 million.

The appellate court noted that it has the authority to set an upper limit range for punitive damages while still giving deference to the jury’s determination.  In determining whether a punitive damage award is excessive, courts look to the degree of reprehensibility of the defendant’s conduct, the ratio of compensatory damages awarded, and a comparison of the punitive damages awarded for similar misconduct.

This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice.  Seek a competent attorney for advice on any legal matter.   

Disabled Resident’s Abusive Conduct Violates Covenants

Connor v. Lake Dexter Woods Homeowners Ass’n, Inc., No. 2D09-5382, Fla. App. Ct., Dec. 29, 2010.

The Lake Dexter Woods Homeowners Association sued for an injunction against a disabled resident with an “angry” personality disorder.  Watson, the developmentally disabled resident, lives in the subdivision under the care of his guardian advocate, Connor.  The trial court determined that Watson’s longstanding behavior constituted a nuisance and violated the declaration of covenants, conditions, and restrictions for Lake Dexter Woods.  Based on the facts, Watson frequently yelled abusive obscenities at other residents, made physical threats against them, and drove his car erratically, often aiming at pedestrians.

The appeals court reluctantly affirmed the injunction, in spite of the fact that it is unlikely to remedy the problem.  The guardian advocate is charged with taking all reasonable steps to keep Watson under control, and has spent more than $47,000 in legal fees for Watson’s defense.

Although this is an unfortunate situation, the board of directors in this case likely decided that the risk of personal injury was too much to ignore the problem any longer and seeking an injunction was the association’s only viable option.

This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.

Negligent Bid Recommendation

Sunland Constr. Co. v. Wilbur Smith, Inc.,  387 F. App’x 361 (4th Cir. 2010).

In this recent Fourth Circuit case, a construction company sued the city of Myrtle Beach for breach of contract after the City terminated its contract to install rainwater pipes. The construction company also sued the project’s design engineer. The City filed a counterclaim against the construction company and the engineer. The district court held that the design engineer was liable to the City, but dismissed the other claims. The design engineer appealed this judgment to the circuit court of appeals.

The facts of this case are simple: the engineer was to recommend a contractor for the job following a competitive bidding. The engineer recommended a contractor that bid drastically less than the other bidders. The court held that the City had a right to rely on the engineer’s recommendation, which the engineer should have foreseen. Likewise, the engineer should have foreseen that the contractor bidding substantially less than its competitors would not reasonably be able to perform under the contract.

The court determined that the engineer was liable to the City for its negligent recommendation because the engineer had a duty to make a reasonable recommendation, breached that duty by negligently recommending the dramatically low bidder, and this recommendation was a foreseeable contributing cause of the City’s injuries. Based on this finding, the court affirmed the district court’s holding.

This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.

Back Charges Must be Reasonable

Younger-Holmes Electrical Contractors, Inc. v. BE&K Building Group, LLC,
2010 U.S. Dist. Lexis 128559 (D. Okla. Dec. 3, 2010).

In this case, BE&K (GC) hired Younger-Holmes (Sub) to provide electrical work on a medical center construction project.  Sub fell behind schedule in performing its contracted duties, so GC provided it with notification of default and three days time to cure.  GC eventually hired another subcontractor to work with Sub to finish the project on time.

Sub later filed suit against GC after receiving $277,000 in back charges for the supplemental subcontractor. Sub claimed GC breached the parties’ contract by failing to act reasonably and in good faith in declaring default and back-charging Sub.

The court determined that GC’s actions in issuing the default letter were proper because Sub failed to provide adequate manpower to keep up with the construction schedule and finish the job on time.  GC was only required by the subcontract to grant two days to cure after issuing the default letter, but GC actually gave Sub additional time before calling in the supplemental subcontractor.

However, the court did find that GC acted in bad faith in regard to the back charges.  The court found that $82,000 of the $277,000 charges were unreasonable and often inexplicable.  Some of these charges included charges for miscellaneous fees, personal items, equipment not expendable on the job, first-class airfare, and per diem charges for in state workers.  In addition, many charges were unexplained or duplicated.  Because GC had a duty of good faith and fair dealing based on its contract with Sub, it impliedly owed Sub a duty to minimize costs.

This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice.  Seek a competent attorney for advice on any legal matter.

Legislature Responds to Crossman Case

In a previous blog I discussed the court’s holdings in L-J, Inc. v. Bituminous Fire & Marine Ins. Co. and Auto Owners Ins. Co., Inc. v. Newman.  In L-J, the court held that damage to a roadway caused by faulty workmanship did not constitute an occurrence and was not covered under the CGL policy.  In Newman, the court ruled that damage to walls and exterior sheathing did constitute an occurrence because the damage went beyond the defective work product itself (stucco).  Specifically, the continued repeated exposure to moisture caused by the defective stucco was both unexpected and unintended, therefore coverage could be found for those damages, but not for the defective stucco itself.

The court took another look at it’s insurance jurisprudence in Crossman Communities of North Carolina, Inc., v. Harleysville Mutual Ins. Co..  In this case, defective construction on a condominium project resulted in homeowners filing claims against the developer.  The developer settled with the homeowners for $16.8 million, and in turn sought coverage from Harleysville, the issuer of the developer’s CGL policy.  Harleysville refused to provide coverage and this declaratory judgment followed.  The issue before the court was: when faulty workmanship directly causes further damage to non-defective components of an insured’s project, does this necessarily constitute an occurrence?

Occurrence is defined in the policy as an “accident including continuous or repeated exposure to substantially the same general harmful conditions.”  “Accident” is defined by the court as “an unexpected happening or event, which occurs by chance and usually suddenly, with harmful results, not intended or designed by the person suffering the harm or hurt.”

The court then took the opportunity to review both the majority and minority rules in other jurisdictions as to what constitutes an occurrence in faulty workmanship cases.  Under the majority rule, faulty workmanship alone does not trigger coverage under a CGL policy. Under the minority rule, however, damages caused by faulty workmanship do constitute an occurrence as long as they are unintended or unexpected from the standpoint of the insured. Critics of the minority rule argue that it is more of a performance bond than an insurance policy.

In analyzing whether a claim for faulty workmanship is covered, the court first must determine whether there has been an occurrence. This means the damages must arise from a fortuitous event and must not be the natural and probable consequences of the faulty workmanship.  Second, the court must address whether there has been property damage according to the specific CGL policy.

The court overruled its decision in Newman “to the extent it permitted coverage for faulty workmanship that directly causes further damage to property in the absence of an ‘occurrence’ with its fortuity underpinnings.”  The error in Newman lies in the fact that the court found coverage for property damage without the necessary finding of an occurrence.

Under the above analysis, the court held that there was no occurrence in the present case  because the damage caused “was a direct result and the natural and expected consequence of faulty workmanship….”

In response to this case, the South Carolina Senate proposed S. 431, a bill to amend the South Carolina Code of Laws to define an occurrence as an “accident” or “continuous or repeated exposure to substantially the same general harmful condition or substance.”  The bill specifically adds that “No additional requirement of a fortuitous event is needed to constitute an occurrence.”  On March 31, S. 431 was referred to the House Committee on Labor, Commerce and Industry.

This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice.  Seek a competent attorney for advice on any legal matter.